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Schwab (SCHW) Posts In-line Q4 Earnings, Revenues Lag

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The Charles Schwab Corp.’s (SCHW - Free Report) fourth-quarter 2016 adjusted earnings of 36 cents per share were in line the Zacks Consensus Estimate. Further, it was 29% above the prior-year quarter figure, which included certain non-recurring items.

Revenue growth, primarily driven by increase in equity market volatility, lower level of fee waivers and no provisions were among the positives. Further, there was an impressive rise in total client assets and new brokerage accounts. However, higher expenses remained a headwind.

Net income available to common shareholders was $478 million, up 26% year over year.

For 2016, earnings per share of $1.31 were on par with the Zacks Consensus Estimate. Also, it was 27% above the 2015 level. Further, net income was $1.75 billion, up 28% from the prior year.

Revenue Improvement Support Results

Net revenue was $1.97 billion, climbing 17% year over year, supported by asset management and administration fees (up 17%) and net interest revenue (up 31%). These were partly offset by a 3% fall in trading revenues and 48% plunge in other revenues. However, the reported figure marginally lagged the Zacks Consensus Estimate of $1.98 billion.

For 2016, revenues of $7.48 billion rose 17% year over year. Nevertheless, revenues missed the Zacks Consensus Estimate of $7.50 billion.

Total non-interest expense rose 10% year over year to $1.15 billion. All expense components, except communication costs, increased on a year-over-year basis.

Similar to the prior-year quarter, provision for loan losses was nil.

Fee waivers were $31 million, down 80% from the year-ago quarter.

Pre-tax profit margin improved to 41.8%, from 38.1% recorded last year.

At the end of the fourth quarter, Schwab’s average interest-earning assets grew 25% year over year to $206.9 billion.

Annualized return on equity as of Dec 31, 2016, came in at 14%, up from 13% recorded a year ago.

Other Business Developments

As of Dec 31, 2016, Schwab had total client assets of $2.78 trillion (up 11% year over year). However, net new assets – bought by new and existing clients – declined 14% from the prior-year quarter to $36.9 billion.

In addition, Schwab added 293,000 new brokerage accounts in the reported quarter. As of Dec 31, 2016, the company had a total of 10.1 million active brokerage accounts, 1.1 million banking accounts and 1.5 million corporate retirement plan participants.

Our Take

While focus on low-cost capital structure will improve Schwab’s performance in the quarters ahead, current equity market volatility is expected to continue driving the company’s daily trading volumes. Also, the company has undertaken several initiatives to reduce its dependency on interest rates. Further, we believe that a stable capital position will boost its financials.

The Charles Schwab Corporation Price, Consensus and EPS Surprise

 

The Charles Schwab Corporation Price, Consensus and EPS Surprise | The Charles Schwab Corporation Quote

Currently, Schwab has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other investment brokers, we now look forward to E*TRADE Financial Corp. ,  Raymond James Financial, Inc. (RJF - Free Report) and Evercore Partners Inc. (EVR - Free Report) , which are expected to report their results on Jan 25, Jan 26 and Feb 1, respectively.

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