Charles Schwab’s (NYSE:SCHW) shares were up 5.5% following the release of its fourth quarter and 2018 results. The company's fourth-quarter earnings of 65 cents per share beat the Zacks Consensus Estimate of 64 cents. Also, earnings surged 59% from the prior-year quarter.
Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers aided the results. However, higher expenses remained a concern. Further, the quarter recorded a fall in total client assets.
Net income available to common shareholders was $885 million, jumping 61% year over year.
For 2018, earnings per share of $2.45 surpassed the Zacks Consensus Estimate of $2.43. Also, earnings surged 49% from the prior year. Net income available to common shareholders was $3.3 billion, up 53% from 2017.
Revenue Growth Offset by Rise in Expenses
Net revenues were $2.67 billion, up 19% year over year. The rise was supported by net interest revenues (up 42%), trading revenues (up 34%) and other revenues (up 5%), partially offset by 13% fall in asset management and administration fees. The reported figure surpassed the Zacks Consensus Estimate of $2.63 billion.
In 2018, net revenues were $10.13 billion, up 18% year over year. The reported figure beat the Zacks Consensus Estimate of $10.10 billion.
Total non-interest expenses increased 13% year over year to $1.46 billion. All expense components, except regulatory fees and assessments costs, increased on a year-over-year basis.
Fee waivers were nil in the reported quarter.
Pre-tax profit margin improved to 45.3% from 42.5% recorded last year.
At the end of the fourth quarter, Schwab’s average interest-earning assets grew 20% year over year to $268.3 billion.
Annualized return on equity as of Dec 31, 2018, came in at 20%, up from 14% in the year-ago quarter.
Other Business Developments
As of Dec 31, 2018, Schwab had total client assets of $3.25 trillion (down 3% year over year). Also, net new assets — brought by new and existing clients — were $55.3 billion, down 29% from the prior-year quarter.
Schwab added 380,000 new brokerage accounts in the reported quarter. As of Dec 31, 2018, the company had 11.6 million active brokerage accounts, 1.3 million banking accounts and 1.7 million corporate retirement plan participants.
Our Take
Focus on low-cost capital structure will continue to support 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) is expected to hurt the bottom line.
Currently, Schwab carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of 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) scheduled to report results on Jan 22, Jan 23 and Jan 24, respectively.
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