Schwab (SCHW) Beats Q4 Earnings On Higher Interest Income

The Charles Schwab Corp.’s (NYSE:SCHW) fourth-quarter 2017 adjusted earnings of 44 cents per share surpassed the Zacks Consensus Estimate of 41 cents. Results exclude one-time tax expense of 3 cents per share related to the tax act. Also, earnings increased 22% from the prior-year quarter.

However, Schwab’s shares were down nearly 1.3% in early market trading. Persistent fall in trading revenues remains a major concern for Schwab. Notably, the 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), absence of fee waivers and provisions were among the positives. Further, there was an impressive rise in total client assets and new brokerage accounts. However, higher expenses and a decrease in trading revenues remained the headwinds.

After considering tax act related charge, quarterly net income available to common shareholders was $550 million, up 14% year over year. For 2017, it was $2.18 billion, up from $1.75 billion in the prior year.

Revenue Improvement Offset by Expense Rise

Net revenues were $2.24 billion for the reported quarter, climbing 14% year over year, supported by asset management and administration fees (up 8%) and net interest revenues (up 26%) and other revenues (up 26%). These were partly offset by a 24% fall in trading revenues. The reported figure was in line with the Zacks Consensus Estimate.

For 2017, net revenues grew 15% from the prior year to $8.62 billion. The figure was on par with the Zacks Consensus Estimate.

Total non-interest expenses rose 12% year over year to $1.30 billion. All expense components increased on a year-over-year basis.

Provision for loan losses and fee waivers were nil.

Pre-tax profit margin improved to 42.5% from 41.8% recorded last year.

At the end of the fourth quarter, Schwab’s average interest-earning assets grew 8% year over year to $228.5 billion.

Annualized return on equity as of Dec 31, 2017, came in at 14%, on par with the year-ago level.

Other Business Developments

As of Dec 31, 2017, Schwab had total client assets of $3.36 trillion (up 21% year over year). Also, net new assets — brought by new and existing clients —surged 112% from the prior-year quarter to $78.1 billion.

In addition, Schwab added 386,000 new brokerage accounts in the reported quarter. As of Dec 31, 2017, the company had a total of 10.8 million active brokerage accounts, 1.2 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.

Schwab carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Investment Brokers

Among other investment brokers, we now look forward to TD Ameritrade Holding Corp. (NASDAQ:AMTD) , Raymond James Financial, Inc. (NYSE:RJF) and E*TRADE Financial Corp. (NASDAQ:ETFC) , which are expected to report results on Jan 22, Jan 24 and Jan 25, respectively.

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