The Charles Schwab Corp.’s (SCHW) fourth-quarter earnings of 25 cents per share beat the Zacks Consensus Estimate by a penny driven by revenue growth. Further, this was up 9% from 23 cents earned in the year-ago quarter.
Notably, Schwab’s earnings included net litigation proceeds and net losses from selling securities. These two items increased the pre-tax income by nearly $20 million or 1 cent per share.
For 2014, earnings per share were 95 cents, in line with the Zacks Consensus Estimate. Further, it was above the prior-year figure of 78 cents.
Better-than-expected results reflect revenue growth and a benefit from provision. However, higher operating expenses marginally offset these positives. Further, a rise in total client assets and new brokerage accounts acted as tailwinds.
Net income available to common shareholders for the reported quarter totaled $329 million, up 11% year over year. For 2014, net income available to common shareholders improved 25% from the prior year to $1,261 million.
Performance in Detail
Net revenue was $1,551 million, up 8% from the prior-year quarter. The increase was largely attributable to asset management and administration fees (up 5%), net interest revenues (up 10%) and trading income (up 3%). Also, other revenues increased 41%. Moreover, the reported figure beat the Zacks Consensus Estimate of $1,530 million.
For 2014, net revenue of $6,058 million was up 11% from the prior year. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $5,957 million.
Total non-interest expense increased 6% from the year-ago quarter to $997 million. All expense components, except advertising and market development, rose year over year.
Further, provision for loan losses was a benefit of $3 million, compared with a provision of $2 million in the year-ago quarter.
Adjusted pre-tax profit margin improved to 35.7% from 34.7% recorded in the prior-year quarter.
As of Dec 31, 2014, Schwab’s average interest-earning assets rose nearly 5% year over year to $142.5 billion.
Annualized return on equity (ROE) as of Dec 31, 2014, came in at 12%, down from 13% as of Dec 31, 2013.
Other Business Developments
As of Dec 31, 2014, Schwab had total client assets of $2.46 trillion (up 10% year over year). Net new assets – bought by new and existing clients – were $124.8 billion at the end of 2014.
Further, Schwab added 243,000 new brokerage accounts in the fourth quarter. As of Dec 31, 2014, the company had a total of 9.39 million active brokerage accounts, 985,000 banking accounts and 1.43 million corporate retirement plan participants.
Our Viewpoint
While the focus on low-cost capital structure will improve results in the quarters ahead, we believe that Schwab’s financials will likely remain under pressure owing to a low interest rate environment. However, the company has undertaken several initiatives to reduce its dependency on interest rates. Further, we believe that synergies from acquisitions and a stable capital position will boost the company’s financials to some extent.
Currently, Schwab has a Zacks Rank #3 (Hold).
Among other investment brokers, Interactive Brokers Group, Inc. (IBKR) will report on Jan 20, E*TRADE Financial Corp. (ETFC) is slated to report on Jan 22, while KCG Holdings, Inc. (KCG) is scheduled to report on Jan 30.
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