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Schwab (SCHW) Q4 Earnings Beat Estimates, Revenues Surge Y/Y

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Charles Schwab’s (SCHW - Free Report) fourth-quarter 2020 adjusted earnings of 74 cents per share beat the Zacks Consensus Estimate of 70 cents. Also, the bottom line grew 17% from the prior-year quarter, as the company reported first full-quarter results after closing TD Ameritrade deal in October 2020

Results reflect solid client assets balance and a rise in new brokerage accounts. These were driven by solid client activity in the coronavirus outbreak-induced volatile markets, which supported revenues in the quarter. However, an increase in expenses and fee waivers acted as headwinds.

Results excluded acquisition and integration-related costs as well as the amortization of acquired intangibles. After considering these, net income available to common shareholders (GAAP basis) was $1.05 billion or 57 cents per share compared with $801 million or 62 cents per share in the year-ago quarter.

In 2020, adjusted earnings were $2.45 per share, outpacing the Zacks Consensus Estimate of $2.39. However, the figure was down 9% from the prior year. On GAAP basis, net income available to common shareholders was $3.04 billion or $2.12 per share, down from $3.53 million or $2.67 per share in 2019.

Revenues & Expenses Jump on TD Ameritrade Deal

Net revenues in the reported quarter were $4.18 billion, jumping 60% year over year. The rise was driven by improvement in all revenue components. The top line surpassed the Zacks Consensus Estimate of $4.13 billion.

In 2020, net revenues grew 9% year over year to $11.70 billion. The figure beat the consensus estimate of $11.32 billion.

Total non-interest expenses (GAAP basis) surged 81% year over year to $2.7 billion. Excluding non-recurring items, expenses were $2.27 billion, up 54%.

Additionally, the company recorded fee waivers of $68 million in the reported quarter.

Pre-tax profit margin declined to 35.3% from 42.7% in the prior-year quarter.

At the end of the fourth quarter, Schwab’s average interest-earning assets jumped 72% year over year to $462.8 billion.

Annualized return on equity as of Dec 31, 2020, was 11%, down from 17% at the end of the prior-year quarter.

Other Business Metrics

As of Dec 31, 2020, Schwab had total client assets of $6.7 trillion (up 66% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $1.7 billion.

Schwab added 15.8 million new brokerage accounts during the quarter. As of Dec 31, 2020, the company had 29.6 million active brokerage accounts, 1.5 million banking accounts and 2.1 million corporate retirement plan participants.

Our Viewpoint

Schwab’s inorganic growth efforts (including the acquisitions of TD Ameritrade, USAA's Investment Management Company, Wasmer Schroeder and certain assets of Motif) are expected to strengthen its position as a leading brokerage player. However, a dismal interest rate scenario will continue to hurt financials.

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


Earnings Release Dates of Other Investment Brokers

We now look forward to the upcoming quarterly results of Raymond James (RJF - Free Report) , Tradeweb Markets (TW - Free Report) and LPL Financial (LPLA - Free Report) . Raymond James is slated to release results for the December-ended quarter on Jan 27, while Tradeweb and LPL Financial will release quarterly numbers on Feb 4.

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