Charles Schwab Corporation
) fourth quarter 2012 earnings of 15 cents per share were in line
with the Zacks Consensus Estimate. Also, this compares favorably
with the year-ago quarter's earnings of 13 cents.
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For 2012, Schwab's earnings of 69 cents per share were also in
line with the Zacks Consensus Estimate. However, this was a penny
below the year-ago earnings of 70 cents. The results for the year
included a gain of about $44 million relating to the resolution
of a vendor dispute and a non-recurring state tax benefit of
about $20 million.
Overall, growth in the top-line, lower provision for loan losses
and balance sheet restructuring actions were the positives for
the quarter. Yet, higher operating expenses as well as a fall in
trading revenue dented the results.
Net income available to common shareholders in the fourth quarter
totaled $189 million, up 16% from $163 million in the prior-year
quarter. For 2012, net income available to common shareholders
stood at $883 million increasing 2.2% from the last year.
During the fourth quarter, Schwab completed the acquisition of
ThomasPartners, Inc., a growth and dividend income-focused asset
management firm with $2.4 billion in assets under management as
of Dec 31, 2012.
Behind the Headlines
Net revenues were $1,215 million, up 9% from $1,131 million in
the prior-year quarter. Also, this was marginally higher than the
Zacks Consensus Estimate of $1,211 million. The rise was largely
driven by the higher asset management and administration fees (up
18%) and net interest revenue (up 10%). However, these were
partially offset by lower trading revenue (down 13%).
In 2012, net revenues were $4,883 million, rising 4.1% from
$4,691 million in the prior-year. Moreover, this was marginally
ahead of the Zacks Consensus Estimate of $4,872 million.
As of Dec 31, 2012, Schwab's average interest-earning assets
augmented 14.1% year over year to $108.9 billion.
Total non-interest expense grew 1% year over year to $871
million. The increase was primarily due to higher compensation
and benefit expenses.
Further, provision for loan losses was $2 million, down 60% from
$5 million in the previous-year quarter.
Pre-tax profit margin improved from 22.6% in the prior year
quarter to 28.3% in the reported quarter.
Annualized return on equity (ROE) as of Dec 31, 2012, came in at
11%, down from 12% as of Dec 31, 2011.
Other Business Developments
As of Dec 31, 2012, Schwab had total client assets of $1.95
trillion (up 16% year over year). Core net new assets were $112.4
billion in 2012, up 37% from the prior year.
Further, Schwab added 900,000 new brokerage accounts in 2012. As
of Dec 31, 2012, the company had a total of 8.8 million active
brokerage accounts, 865,000 banking accounts and 1.6 million
corporate retirement plan participants.
In addition, Schwab undertook a few balance sheet restructuring
initiatives during the fourth quarter. The company redeemed the
remaining $494 million of 4.95% Senior Notes due in 2014.
Moreover, it issued $350 million of new 0.85% Senior Notes with
maturity date of 2015.
While focusing on low-cost capital structure will help improve
results in the upcoming quarters, Schwab's financials will
continue to be hampered by lower trading activities, weaker
equity markets and reduced interest rate yields.
Moreover, we remain concerned about Schwab's low capital
intensity relative to its peers. Nevertheless, we believe that
the synergies from the acquisitions and stable capital position
will boost the company's financials to some extent.
Schwab currently retains a Zacks Rank #3 (Hold). Also,
considering the fundamentals, we maintain a long-term Neutral
recommendation on the shares.
Among Schwab's peers,
TD Ameritrade Holding Corporation
) is scheduled to release its fourth-quarter results on Jan 22,
E*TRADE Financial Corporation
) will release its fourth-quarter results on Jan 24, 2013.