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Charles Schwab’s (SCHW - Free Report) second-quarter 2019 earnings of 66 cents per share came in line with the Zacks Consensus Estimate. Also, the bottom line increased 10% from the prior-year quarter.

The stock rose 2.8% in pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.

Revenue growth (driven by a rise in interest income) and an increase in total client assets aided the results. However, higher expenses and lower trading revenues acted as headwinds.

Net income available to common shareholders was $887 million, increasing 9% year over year.

Revenue Growth Offset by Rise in Expenses

Net revenues were $2.68 billion, up 8% year over year. The rise was supported by net interest revenues (up 14%) and other revenues (up 32%), partially offset by 3% fall in both asset management and administration fees and trading revenues. The reported figure was relatively on par with the Zacks Consensus Estimate.

Total non-interest expenses increased 7% year over year to $1.45 billion. All expense components, except regulatory fees and assessments costs, and advertising and market development expenses, increased on a year-over-year basis.

Pre-tax profit margin improved to 46.1% from 45.5%.

At the end of the second quarter, Schwab’s average interest-earning assets grew 9% year over year to $265.7 billion.

Annualized return on equity as of Jun 30, 2019, came in at 19%, stable year over year.

Other Business Developments

As of Jun 30, 2019, Schwab had total client assets of $3.70 trillion (up 9% year over year). Also, net new assets — brought by new and existing clients — were $37.2 billion, down 15% from the prior-year quarter.

Schwab added 386,000 new brokerage accounts in the reported quarter. As of Jun 30, 2019, the company had 12 million active brokerage accounts, 1.3 million banking accounts, and 1.7 million corporate retirement plan participants.

Share Repurchase Update

Schwab repurchased 29.1 million shares for $1.2 billion during the reported quarter. As of Jun 30, 2019, buyback authorization worth $2.8 billion remained.

Our Take

Focus on low-cost capital structure will continue to support Schwab’s performance in the quarters ahead. Also, the company’s initiatives to strengthen market share will likely enhance its profitability over the long term, despite the expectation of a near-term reduction in trading revenues.

However, continuous rise in expenses (due to higher compensation costs) is expected to hurt the bottom line. Further, expectations of rate cut make us apprehensive about the company’s prospects.

The Charles Schwab Corporation Price, Consensus and EPS Surprise

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Charles Schwab Corporation price-consensus-eps-surprise-chart | The Charles Schwab Corporation Quote 

Currently, Schwab carries a Zacks Rank #4 (Sell).