Schwab Beats Earnings on Higher Revenues - Analyst Blog


Strong revenue growth drove Charles Schwab Corp. 's ( SCHW ) fourth-quarter 2013 earnings of 23 cents per share, which beat the Zacks Consensus Estimate of 21 cents. Moreover, this was 53% above 15 cents earned in the year-ago quarter.

Despite negative market sentiment, shares of Schwab gained over 2% in the opening trade, indicating investors' positive response on the release. The stock's price movement through the remainder of the trading session will give a better idea about whether Schwab has been able to meet expectations.

Better-than-expected results were driven by top-line growth and a benefit from provision, partially offset by higher expenses. Further, improvements in total client assets as well as new brokerage accounts were the tailwinds.

Net income available to common shareholders in the reported quarter totaled $297 million, up 57% year over year.

For the full year 2013, earnings per share were 78 cents, up 13% year over year. This also outpaced the Zacks Consensus Estimate of 76 cents.

Quarterly Highlights

Net revenue was $1,435 million, up 18% from $1,215 million in the prior-year quarter. The increase was largely driven by a rise in asset management and administration fees (up 13%), net interest revenues (up 23%), trading revenues (up 14%) and other revenues (up 36%). Moreover, the reported figure came ahead of the Zacks Consensus Estimate of $1,402 million.

As of Dec 31, 2013, Schwab's average interest-earning assets rose nearly 17% year over year to $135.4 billion.

Total non-interest expense increased 8% year over year to $937 million. This was primarily due to a rise in compensation and benefit expenses.

Further, provision for loan losses was a benefit of $2 million, compared with an expense of $2 million in the previous-year quarter.

Pre-tax profit margin improved to 34.7% in the reported quarter from 28.3% in the prior-year quarter.

Annualized return on equity (ROE) as of Dec 31, 2013, came in at 13%, up from 9% as of Dec 31, 2012.

Other Business Developments

As of Dec 31, 2013, Schwab had total client assets of $2.24 trillion (up 15% year over year). Net new assets - bought by new and existing clients - were $1.8 billion, down significantly from $64.4 billion reported in the year-ago quarter.

Further, Schwab added 250,000 new brokerage accounts in the fourth quarter. As of Dec 31, 2013, the company had a total of 9.09 million active brokerage accounts, 916,000 banking accounts and 1.31 million corporate retirement plan participants.

Our Viewpoint

While the focus on low-cost capital structure will improve results in the coming quarters, Schwab's financials will likely suffer due to decrease in both trading activities and interest rate yields. Nevertheless, we believe that synergies from the acquisitions and a stable capital position will boost the company's financials to some extent.

Schwab currently carries a Zacks Rank #3 (Hold).

Among other investment brokers, E*TRADE Financial Corp. ( ETFC ) and Evercore Partners Inc. ( EVR ) are scheduled to announce fourth-quarter results on Jan 23 and Jan 29, respectively, while Raymond James Financial, Inc. ( RJF ) will release fiscal first-quarter earnings on Jan 22.

E TRADE FINL CP (ETFC): Free Stock Analysis Report

EVERCORE PARTNR (EVR): Free Stock Analysis Report

RAYMOND JAS FIN (RJF): Free Stock Analysis Report

SCHWAB(CHAS) (SCHW): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ETFC , EVR , RJF , SCHW

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