Charles Schwab’s (SCHW - Free Report) second-quarter 2018 earnings of 60 cents per share surpassed the Zacks Consensus Estimate of 58 cents. Also, earnings surged 54% from the prior-year quarter.

Schwab’s shares were up nearly 2.5% in pre-market trading. Notably, price reaction during the full trading session will provide a better idea about how investors accepted the results.

Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers supported the results. Further, the quarter witnessed an impressive rise in total client assets and new brokerage accounts. However, higher expenses remained the undermining factor.

Net income available to common shareholders was $813 million, jumping 53% year over year.

Revenue Growth Offset by Expense Rise

Net revenues were $2.49 billion, climbing 17% year over year. The rise was supported by net interest revenues (up 34%), trading revenues (up 15%) and other revenues (up 13%), partially offset by 4% decline in asset management and administration fees. The reported figure marginally topped the Zacks Consensus Estimate of $2.48 billion.

Total non-interest expenses increased 11% year over year to $1.36 billion. All expense components increased on a year-over-year basis.

Fee waivers were nil in the reported quarter against $1 million recorded a year ago.

Pre-tax profit margin improved to 45.5% from 42.7% recorded last year.

At the end of the second quarter, Schwab’s average interest-earning assets grew 13% year over year to $243.8 billion.

Annualized return on equity as of Jun 30, 2018, came in at 19%, up from 15% in the year-ago quarter.

Other Business Developments

As of Jun 30, 2018, Schwab had total client assets of $3.34 trillion (up 12% year over year). Also, net new assets — brought by new and existing clients — were inflows of $43.9 billion, down 32% from the prior-year quarter.

In addition, Schwab added 384,000 new brokerage accounts in the reported quarter. As of Jun 30, 2018, the company had a total of 11.2 million active brokerage accounts, 1.3 million banking accounts, and 1.6 million corporate retirement plan participants.

Our Take

Focus on low-cost capital structure will continue supporting Schwab’s performance in the quarters ahead. Also, initiatives to strengthen market share will likely support its profitability over the long term, despite the expectation of near-term reduction in trading revenues. However, continuous rise in expenses (due to rise in compensation costs) are expected to hurt bottom-line growth.

The Charles Schwab Corporation Price, Consensus and EPS Surprise

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 Charles Schwab Corporation Price, Consensus and EPS Surprise | The Charles Schwab Corporation Quote

Currently, Schwab carries a Zacks Rank #3 (Hold).