Back to top

Image: Bigstock

Schwab (SCHW) Down as Q4 Earnings & Revenues Lag Estimates

Read MoreHide Full Article

Charles Schwab’s (SCHW - Free Report) fourth-quarter 2022 adjusted earnings of $1.07 per share missed the Zacks Consensus Estimate of $1.10. The bottom line, however, soared 24% from the prior-year quarter. Our estimate for adjusted earnings was $1.05 per share.

The stock declined more than 4% in early trading, reflecting investors’ bearish sentiments over its lower-than-expected quarterly performance. The full-day trading session will display a clearer picture.
 
Results benefited from higher rates, which led to a rise in net interest income (NII). Thus, revenues witnessed an improvement despite higher volatility hurting trading income. Also, the absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, higher expenses were a headwind.

Results excluded acquisition and integration-related costs and amortization of acquired intangibles. After considering these, net income available to common shareholders (GAAP basis) was $1.97 billion or 97 cents per share, up from $1.58 billion or 76 cents per share in the year-ago quarter. We had projected earnings per share (GAAP basis) of 94 cents.

In 2022, adjusted earnings of $3.90 per share lagged the Zacks Consensus Estimate of $3.92 but grew 20% year over year. Our estimate for adjusted earnings was $3.88 per share.

Net income available to common shareholders (GAAP basis) was $7.18 billion or $3.50 per share, up from $5.86 billion or $2.83 per share in 2021 We had projected earnings per share (GAAP basis) of $3.47.

Revenues & Expenses Rise

Quarterly net revenues were $5.5 billion, which grew 17% year over year. The increase was mainly driven by a 41% surge in NII and a 15% rise in bank deposit fees. The top line, however, missed the Zacks Consensus Estimate of $5.56 billion. Our estimate for the metric was $5.49 billion.

In 2022, net revenues were $20.76 billion, increasing 12% year over year. The top line, nonetheless, missed the Zacks Consensus Estimate of $20.84 billion. Our estimate for the metric was the same as the reported number.

Total non-interest expenses (GAAP basis) increased 8% to $2.90 billion. We had projected this metric to be $3.03 billion. Excluding non-recurring items, expenses were $2.66 billion, up 10%.

The company recorded no fee waivers in the quarter compared with $57 million in the prior-year quarter.
 
Pre-tax profit margin declined to 47.3% from 48% in the prior-year quarter. Our estimate for the metric was 44.9%.

At the end of the fourth quarter, Schwab’s average interest-earning assets decreased 9% year over year to $533.3 billion.

Annualized return on equity, as of Dec 31, 2022, was 27%, up from 12% in the prior-year quarter number.

Other Business Metrics

As of Dec 31, 2022, Schwab had total client assets of $7.05 trillion (down 13% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $128.4 billion.

Schwab added 0.9 million new brokerage accounts during the quarter. As of Dec 31, 2022, the company had 33.8 million active brokerage accounts, 1.7 million banking accounts and 2.4 million corporate retirement plan participants.

Share Repurchase Update

During the reported quarter, Schwab repurchased 25.1 million shares for $1.9 billion. In July, the company announced a $15 billion stock repurchase authorization.

Our Take

Schwab’s inorganic expansion efforts are expected to strengthen its position as a leading brokerage player. Also, higher interest rates are supporting top-line growth. However, mounting expenses remain a concern.
 

Currently, Schwab carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Investment Brokers

Raymond James (RJF - Free Report) is scheduled to announce quarterly numbers on Jan 25.

Over the past seven days, the Zacks Consensus Estimate for Raymond James’ quarterly earnings has been revised 1.3% lower to $2.21, suggesting a 4.3% increase from the prior-year reported number.

LPL Financial (LPLA - Free Report) is slated to announce fourth-quarter and full-year 2022 numbers on Feb 2.

Over the past week, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved 3.2% lower to $3.95, implying a 142.3% jump from the prior-year reported number.

Published in