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Schwab Beats Q3 Earnings & Revenues

Zacks Equity Research

Charles Schwab Corporation’s (SCHW) third-quarter 2013 earnings per share of 22 cents beat the Zacks Consensus Estimate of 20 cents. Moreover, this was above 19 cents earned in the year-ago quarter.

Better-than-expected results were driven by top-line growth and a benefit from provision, partially offset by higher expenses. Further, improvements in total client assets as well as new brokerage accounts were the tailwinds.

Net income available to common shareholders in the third quarter totaled $290 million, up 17% year over year.

Performance in Detail

Net revenue was $1,373 million, up 15% from $1,196 million in the prior-year quarter. The increase was largely driven by a rise in asset management and administration fees (up 11%), net interest revenue (up 15%), trading revenues (up 10%) and other revenues (up 36%). Moreover, this was higher than the Zacks Consensus Estimate of $1,340 million.

As of Sep 30, 2013, Schwab’s average interest-earning assets rose nearly 22% year over year to $132.7 billion.

Total non-interest expense increased 9% year over year to $909 million. This was primarily due to a rise in compensation and benefit expenses as well as advertising and market development costs.

Further, provision for loan losses was a credit of $4 million, compared with a $10 million provision in the previous-year quarter.

Pre-tax profit margin improved to 33.8% in the reported quarter from 30.2% in the prior-year quarter.

Annualized return on equity (:ROE) as of Sep 30, 2013, came in at 13%, up from 11% as of Sep 30, 2012.

Other Business Developments

As of Sep 30, 2013, Schwab had total client assets of $2.14 trillion (up 13% year over year). Net new assets – bought by new and existing clients – were $18.1 billion, compared with $20.4 billion reported in the year-ago quarter.

Further, Schwab added 223,000 new brokerage accounts in the third quarter. As of Sep 30, 2013, the company had a total of 9.01 million active brokerage accounts, 930,000 banking accounts and 1.3 million corporate retirement plan participants.

Our Viewpoint

While the focus on a low-cost capital structure will improve results in the coming quarters, Schwab’s financials will likely suffer due to decrease in both trading activities and interest rate yields. Nevertheless, we believe that synergies from the acquisitions and a stable capital position will boost the company’s financials to some extent.

Schwab currently carries a Zacks Rank #2 (Buy).

Among other investment brokers, JMP Group Inc. (JMP) and E*TRADE Financial Corporation (ETFC) are expected to announce third-quarter results on Oct 21 and Oct 23, respectively, while TD Ameritrade Holding Corp. (AMTD) will announce fiscal fourth-quarter results on Oct 29.

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