Schwab's Q4 Earnings Feel Rising Costs, Revenues Grow (revised)
The Charles Schwab Corp.’s (SCHW) fourth-quarter 2015 adjusted earnings of 25 cents per share met the Zacks Consensus Estimate exactly.
For 2015, adjusted earnings came in at 97 cents per share, lagging the Zacks Consensus Estimate of $1.00. However, the figure was up 2% year over year.
Schwab’s shares gained nearly 1% in early market trading, indicating investors’ optimism regarding continued top-line improvement. However, price reaction during the full trading session will provide a better idea about investors’ reaction.
Revenue growth, primarily driven by increased equity market volatility, and no provision for loan losses acted as the tailwinds. Also, an increase in total client assets and new brokerage accounts was impressive. However, higher expenses remained the headwind.
Results excluded net tax benefits and net litigation proceeds. Including these, net income available to common shareholders for the reported quarter totaled $378 million, up 15% year over year. For 2015, the figure grew 8% to $1,364 million.
Performance in Detail
Net revenue was $1,691 million, up 9% year over year, supported by asset management and administration fees (up 5%), net interest revenue (up 18%) and other revenues (up 33%). However, lower trading revenues (down 13%) partially hurt revenue growth. The reported figure surpassed the Zacks Consensus Estimate of $1,620 million.
For 2015, net revenue was $6,380 million, up 5% year over year. The figure outpaced the Zacks Consensus Estimate of $6,287 million.
Total non-interest expense rose 5% year over year to $1,046 million. All expense components, except professional services expenses, increased on a year-over-year basis.
Provision for loan losses was nil, compared with provision benefit of $3 million recorded in the year-ago quarter.
Pre-tax profit margin improved to 38.1% from 35.7% recorded last year.
As of Dec 31, 2015, Schwab’s average interest-earning assets rose approximately 18% year over year to $168.2 billion.
Annualized return on equity (“ROE”) as of Dec 31, 2015, came in at 13%, up from 12% recorded a year ago.
Other Business Developments
As of Dec 31, 2015, Schwab had total client assets of $2.51 trillion (up 2% year over year). Net new assets – bought by new and existing clients – were $42.9 billion during the quarter.
Also, Schwab added 262,000 new brokerage accounts in the fourth quarter. As of Dec 31, 2015, the company had a total of 9.8 million active brokerage accounts, 1.0 million banking accounts and 1.5 million corporate retirement plan participants.
Our Take
While focus on low-cost capital structure will improve Schwab’s performance in the quarters ahead, current equity market volatility is expected to drive the company’s daily trading volumes. Also, the company has undertaken several initiatives to lower its dependency on interest rates. Further, we believe that a stable capital position will boost its financials.
Currently, Schwab has a Zacks Rank #3 (Hold).
Among other investment brokers, Interactive Brokers Group, Inc. (INKR) will release results after the market closes today, Raymond James Financial, Inc. (RJF) is slated to report on Jan 20 and E*TRADE Financial Corp. (ETFC) on Jan 21.
(We are reissuing this article to correct a mistake. The original article, issued earlier today, January 19, 2015, should no longer be relied upon.)
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