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Schwab's (SCHW) Q4 Earnings Top Estimates, Revenues Down Y/Y
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Charles Schwab’s (SCHW - Free Report) fourth-quarter 2023 adjusted earnings of 68 cents per share beat the Zacks Consensus Estimate of 65 cents. The bottom line, however, declined 36% from the prior-year quarter.
Shares of the company lost 1% in pre-market trading on top-line weakness.
Results benefited from the solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, lower revenues due to higher funding costs and lower volatility posed a major headwind. The company also recorded a rise in expenses.
Results excluded acquisition and integration-related costs, amortization of acquired intangibles and restructuring costs. After considering these, net income (GAAP basis) was $1.05 billion or 51 cents per share, down from $2 billion or 97 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.11 billion.
For 2023, adjusted earnings of $3.13 per share surpassed the consensus estimate of $3.10 but declined 20% year over year. Net income (GAAP basis) was $5.07 billion or $2.54 per share, down from $7.18 billion or $3.50 per share in the year-ago quarter. We had projected net income (GAAP) of $5.13 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $4.46 billion, which fell 19% year over year. The decrease was mainly due to a 50% plunge in bank deposit fees, a 30% fall in NII and a 14% slide in trading revenues. These were partly offset by an 18% increase in asset management and administration fees. The top line matched the Zacks Consensus Estimate.
For 2023, net revenues declined 9% to $18.84. The top line, however, outpaced the consensus estimate of $18.81 billion.
Total non-interest expenses (GAAP basis) increased 14% to $3.27 billion and included restructuring charges related to additional cost-saving efforts and FDIC special assessment. We had projected this metric to be $3.05 billion (this didn’t include these two non-recurring charges). Excluding non-recurring items, expenses were $2.85 billion, up 7%.
The company has identified “a number of opportunities for increased efficiency.” Once fully realized, these strategic actions are expected to deliver at least $500 million of incremental annual expense savings. As a part of this effort, Schwab trimmed its workforce by almost 6%. This “helped streamline the organization and enables us to prioritize investments in key client initiatives.”
Pre-tax profit margin decreased to 26.8% from 47.3% in the prior-year quarter.
At the end of the fourth quarter, Schwab’s average interest-earning assets decreased 17% year over year to $441.3 billion.
Annualized return on equity, as of Dec 31, 2023, was 12%, down from 27% in the prior-year quarter.
Other Business Metrics
As of Dec 31, 2023, Schwab had total client assets of $8.52 trillion (up 21% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $66.3 billion.
Schwab added 0.91 million new brokerage accounts during the quarter. As of Dec 31, 2023, the company had 34.8 million active brokerage accounts, 1.83 million banking accounts and 5.2 million corporate retirement plan participants.
Our Take
Schwab’s inorganic expansion efforts continue to strengthen its position as a leading brokerage player. Higher interest rates are supporting top-line growth but increasing deposit costs will weigh on it. Mounting expenses and expectations of an economic slowdown are major headwinds.
The Charles Schwab Corporation Price, Consensus and EPS Surprise
Earnings Dates & Expectations of Other Investment Brokers
Raymond James (RJF - Free Report) is scheduled to announce quarterly numbers on Jan 24.
Over the past 30 days, the Zacks Consensus Estimate for Raymond James’ quarterly earnings has been marginally revised almost 1% lower to $2.25, suggesting a 1.8% fall from the prior-year reported number.
LPL Financial (LPLA - Free Report) is slated to announce fourth-quarter and full-year 2023 numbers on Feb 1.
Over the past 30 days, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved almost 1% lower to $3.33, implying a 20.9% decrease from the prior-year reported number.
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Schwab's (SCHW) Q4 Earnings Top Estimates, Revenues Down Y/Y
Charles Schwab’s (SCHW - Free Report) fourth-quarter 2023 adjusted earnings of 68 cents per share beat the Zacks Consensus Estimate of 65 cents. The bottom line, however, declined 36% from the prior-year quarter.
Shares of the company lost 1% in pre-market trading on top-line weakness.
Results benefited from the solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, lower revenues due to higher funding costs and lower volatility posed a major headwind. The company also recorded a rise in expenses.
Results excluded acquisition and integration-related costs, amortization of acquired intangibles and restructuring costs. After considering these, net income (GAAP basis) was $1.05 billion or 51 cents per share, down from $2 billion or 97 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.11 billion.
For 2023, adjusted earnings of $3.13 per share surpassed the consensus estimate of $3.10 but declined 20% year over year. Net income (GAAP basis) was $5.07 billion or $2.54 per share, down from $7.18 billion or $3.50 per share in the year-ago quarter. We had projected net income (GAAP) of $5.13 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $4.46 billion, which fell 19% year over year. The decrease was mainly due to a 50% plunge in bank deposit fees, a 30% fall in NII and a 14% slide in trading revenues. These were partly offset by an 18% increase in asset management and administration fees. The top line matched the Zacks Consensus Estimate.
For 2023, net revenues declined 9% to $18.84. The top line, however, outpaced the consensus estimate of $18.81 billion.
Total non-interest expenses (GAAP basis) increased 14% to $3.27 billion and included restructuring charges related to additional cost-saving efforts and FDIC special assessment. We had projected this metric to be $3.05 billion (this didn’t include these two non-recurring charges). Excluding non-recurring items, expenses were $2.85 billion, up 7%.
The company has identified “a number of opportunities for increased efficiency.” Once fully realized, these strategic actions are expected to deliver at least $500 million of incremental annual expense savings. As a part of this effort, Schwab trimmed its workforce by almost 6%. This “helped streamline the organization and enables us to prioritize investments in key client initiatives.”
Pre-tax profit margin decreased to 26.8% from 47.3% in the prior-year quarter.
At the end of the fourth quarter, Schwab’s average interest-earning assets decreased 17% year over year to $441.3 billion.
Annualized return on equity, as of Dec 31, 2023, was 12%, down from 27% in the prior-year quarter.
Other Business Metrics
As of Dec 31, 2023, Schwab had total client assets of $8.52 trillion (up 21% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $66.3 billion.
Schwab added 0.91 million new brokerage accounts during the quarter. As of Dec 31, 2023, the company had 34.8 million active brokerage accounts, 1.83 million banking accounts and 5.2 million corporate retirement plan participants.
Our Take
Schwab’s inorganic expansion efforts continue to strengthen its position as a leading brokerage player. Higher interest rates are supporting top-line growth but increasing deposit costs will weigh on it. Mounting expenses and expectations of an economic slowdown are major headwinds.
The Charles Schwab Corporation Price, Consensus and EPS Surprise
The Charles Schwab Corporation price-consensus-eps-surprise-chart | The Charles Schwab Corporation Quote
Currently, Schwab carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Dates & Expectations of Other Investment Brokers
Raymond James (RJF - Free Report) is scheduled to announce quarterly numbers on Jan 24.
Over the past 30 days, the Zacks Consensus Estimate for Raymond James’ quarterly earnings has been marginally revised almost 1% lower to $2.25, suggesting a 1.8% fall from the prior-year reported number.
LPL Financial (LPLA - Free Report) is slated to announce fourth-quarter and full-year 2023 numbers on Feb 1.
Over the past 30 days, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved almost 1% lower to $3.33, implying a 20.9% decrease from the prior-year reported number.