Charles Schwab Corporation‘s (SCHW) first quarter 2012 earnings came in at 15 cents per share, in line with the Zacks Consensus Estimate. However, this compares unfavorably with the year-ago quarter’s earnings of 20 cents.
Improved trading revenue and no provision for loan losses were among the positives for the quarter. However, higher operating expenses and lower net interest revenue as well as asset management and administration fees were the headwinds.
Net income for the reported quarter came in at $195 million, down 20% from $243 million in the prior-year quarter.
Net revenue for the reported quarter was $1,189 million, slightly down by 1% from $1,207 million in the prior-year quarter. This, however, compares favorably with the Zacks Consensus Estimate of $1,171 million. The year-over-year decrease was primarily attributable to the lower net interest revenue as well as asset management and administration fees.
Performance in Detail
Schwab’s average interest-earning assets for the reported quarter increased about 16% year over year to $104.7 billion.
Total non-interest expense grew 2% sequentially and 8% year over year to $876 million. The year-over-year surge was primarily due to higher compensation and benefit expenses.
Schwab’s pre-tax profit margin improved to 26.3% from 22.6% in the prior quarter, but deteriorated from 32.6% in the year-ago quarter.
As of March 31, 2012, Schwab had total client assets of $1.83 trillion (up 9% sequentially and 11% year over year). Total new assets surged to $38.9 billion from $21.5 billion in the prior quarter and $23.0 billion in the year-ago quarter. New brokerage accounts were 240,000, up from 203,000 in the prior quarter and 224,000 in the year-ago quarter.
As of March 31, 2012, Schwab had a total of 8.6 million active brokerage accounts, 801,000 banking accounts and 1.51 million corporate retirement plan participants.
Annualized return on equity (ROE) as of March 31, 2012, came in at 10%, up from 8% in the prior-quarter, but down from 15% in the prior-year quarter.
Our Viewpoint
While a focus on low-cost capital structure will help sustain better results in the upcoming quarters, the company’s financials will continue to be impacted by lower trading activity and volatile interest rates. We are also concerned about Schwab’s lower degree of capital intensity relative to its peers. However, the recent acquisitions are expected to boost the company’s top line to some extent, leading to an overall growth.
Schwab currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. Similarly, one of its peers Jefferies Group Inc. (JEF) also retains a Zacks #2 Rank.
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