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Schwab Posts Record '14 Profits, Sales; New Client Assets Hit $124.8 Billion

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Charles Schwab Corp. announced Friday records in annual revenue and net income for 2014, and record net income for 2014’s Q4. For the year, Schwab (SCHW) had a 23% increase in net income on an 11% rise in net revenues.

In the fourth quarter, the company posted net income of $350 million, up 10% from 2013’s fourth quarter, on an 8% rise in net revenues to $1.55 billion — topping analysts’ estimates. For the year, the San Francisco-based company had net income of $1.32 billion on revenue of $6.05 billion.

As for its industry-leading RIA custody business, Schwab Advisor Services (SAS) ended 2014 with a 10% annual rise in client assets to $1.112 trillion; assets in Schwab’s retail business, Schwab Investor Services, also rose 10% year-over-year to $1.315 trillion.

In a statement, CEO Walt Bettinger said the company received $124.8 billion in net new client assets during the year, “marking the third consecutive year of core net new assets in excess of $100 billion.” The advisor-services unit was responsible for $65.7 billion of the ’14 net new flows. 

In addition, Bettinger noted that Schwab had $1.23 trillion in client assets that “were enrolled in some form of ongoing advisory service” at the end of 2014, a 12% increase from year-end 2013.

Bettinger said the company ended the year with “record client account levels – active brokerage accounts were up 3% to 9.4 million and banking accounts rose 8% to 985,000.”

Recounting the company’s performance in 2014, Bettinger said Schwab is “positioned for more innovation in 2015 as we continue our work to make quality help and advice available to a broad spectrum of investors.” In particular, Bettinger mentioned the planned first quarter launch of Schwab Intelligent Portfolios, the company’s foray into the automated advice, or robo-advisor, space. 

In the earnings release, CFO Joe Martinetto lauded Schwab’s expense controls, which allowed the company to turn “10% client asset growth into 11% revenue growth, and then produced 23% earnings growth and a comparable level of EPS growth.”

Asset management and administration fees grew 9% to a record $2.5 billion during the year, he reported, and while trading revenue was flat, “overall revenue growth and careful expense management enabled us to increase our investment in client-related projects by 9% to a record $188 million while still achieving a 350-plus basis point improvement in our pre-tax profit margin,” to 34.9% for the year.

The company’s financial results for the fourth quarter and full-year 2014 included two non-recurring items resulting in $20 million in net proceeds related to Schwab’s non-agency residential mortgage-backed securities (RMBS) portfolio, held since the financial crisis at Schwab Bank,.

In written commentary on those items, CFO Martinetto said they came from “net litigation proceeds of approximately $28 million and net losses of $8 million from selling securities totaling approximately $500 million.

Taken together, these items increased pre-tax income by approximately $20 million, or $.01 per share. He said Schwab will continue to “pursue vigorously” its legal claims on those securities, but said there is “limited remaining downside” on the remaining $15 million in RMBS, which he said the company has marked to market and recorded a $0.6 million charge in 2014’s fourth quarter.


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