All of the online brokers have reported their fourth quarter earnings for 2016. Every quarter, StockBrokers.com takes a look at the earnings reports from each of the publicly-traded brokers. The brokers have had a solid, if not spectacular, string of earnings reports in the past year. How did they finish off 2016? We’ll take a look at fast facts and an overall look at each company’s results. We will close by summarizing what the reports mean for the brokerage sector as a whole. Here is a look at the results from E*TRADE (ETFC), Interactive Brokers (IBKR), TD Ameritrade (AMTD), and Charles Schwab (SCHW).
Before we break down each individual report, let’s take a look at how each of the brokerages did on an earnings per share basis compared to the same period in 2015. E*TRADE earned 46 cents per share in the quarter, which is way up from its 30 cent per share figure from last year. Interactive Brokers earned 7 cents per share in the quarter, down from 25 cents per share last year. TD Ameritrade brought in 41 cents per share, which was up a bit from 39 cents per share in the previous year. Charles Schwab earned 36 cents per share in the quarter, up from 28 cents per share in the fourth quarter of 2015.
E*TRADE Fourth Quarter Earnings Fast Facts
Analysts expected E*TRADE to earn 42 cents per share, so they beat on the bottom line by 4 cents
There was a 3 cent net benefit tied to provision for loan losses in the bottom line number
Revenues rose by 16 percent on a year over year basis to $1.94 billion
Total DARTs jumped an impressive 28 percent from last year to 187,620 in the quarter
There’s no way you could call E*TRADE’s quarter anything other than a big success. The company beat analysts estimates across the board, and the DARTs number was very strong. Net new brokerage assets continued to climb at a solid rate. E*TRADE brought in $3.2 billion in net new assets compared to $2.8 billion in the fourth quarter of 2015. E*TRADE finished the quarter with $311.3 billion in in total customer assets, which is up 8 percent from last year. Brokerage-related cash grew 23 percent in the past year to $51.4 billion. Non-interest income went up 31 percent compared to a year ago. Allowance for loan losses dropped 37 percent from last year. E*TRADE continues to improve their credit quality on a quarterly basis, and the company’s balance sheet is in a much stronger place now than it was just a couple years ago.
Interactive Brokers Fourth Quarter Earnings Fast Facts
The broker saw earnings fell by 72 percent on the bottom line
Total revenue dropped 29 percent from a year ago
Electronic brokerage revenue went up to $294 million from $219 million a year ago
A currency hedging program at the broker was a major drag on earnings this quarter
Interactive Brokers earnings reports are always the most complex of the four publicly-traded brokers. They have multiple segments that can split in diverging directions, and they also have a lot more exposure to currency changes. Net income dipped to only $4 million, which was down 76 percent from a year ago. Analysts had expected the broker to report 32 cents per share, so the 7 cent number was a big miss. Where did the company take a big hit? The corporate segment reported a pre-tax loss of $152 million compared to $13 million in the fourth quarter of 2015. That stems from the losses in the currency hedging program that was put in place at Interactive Brokers after the Swiss franc collapsed in 2015. Total DARTs increased by 2 percent from last year. The market making segment made $27 million in quarter four 2015, but only $12 million this year. Growth in the brokerage business continues to be very strong though. The brokerage has 16 percent more accounts than it did last year at this time. The profit margin at the electronic brokerage rose to 57 percent in the fourth quarter.
TD Ameritrade Fourth Quarter Earnings Fast Facts
Client assets rose by 15 percent from last year to $797 billion
Earnings of 41 cents per share matched analysts estimates
DARTs increased by 11 percent to 487,000 in the quarter
Rate-sensitive assets reached a record high $125 billion, up from $110 billion last year
TD Ameritrade delivered a solid quarter. The broker did see revenues come in just barely below analysts estimates at $859 million, but that was 5.8 percent higher than last year’s revenue number. The most interesting number from the TD Ameritrade report is the DARTs and how that broke down by time frame inside the quarter. Before the election, TD Ameritrade was averaging 451,000 trades on a daily basis. After the election, the broker saw an average of 514,000 daily trades. They reported that December had the highest volume ever for the month, and it was the third highest volume month ever for the company. TD Ameritrade said the high volume continued through January as well. The buyout of Scottrade that StockBrokers.com wrote about in October only added $3 million in expenses in this quarter for TD Ameritrade, but the bigger numbers will come when the deal actually closes.
Charles Schwab Fourth Quarter Earnings Fast Facts
The bottom line number of 36 cents matched analysts estimates
Non-interest expenses rose by 10 percent from a year ago
Pre-tax profit margin of 41.8 percent was up considerably from last year’s 38.1 percent
Schwab finished the year with 10.2 million active brokerage accounts
Schwab came in right at expectations on the bottom line and extremely close to expectations on the top line. Revenues were $1.97 billion in the quarter, while analysts expected $1.99 billion from the company. That revenue figure was up 17 percent versus last year. Schwab reported asset and management fees were up 15 percent to $3.1 billion in the quarter related to higher money market management fees and the poor rate environment. New retail brokerage accounts were 182,000, which was up 21 percent from the same quarter last year. Schwab reported financial consultants having planning conversations with 32,000 clients in the fourth quarter. That’s up ten percent from a year ago.
I think the trend continued for the brokers in this quarter. It wasn’t an amazing quarter on the whole, but it was certainly a good one. The brokers who have dependence on interest rates suffered. The trend of strong client asset growth continued in the fourth quarter. The jump in trading activity following the election in November was a big boost to the bottom line for all of these companies. As long as the brokers continue to bring in assets at the rate they have over the past few quarters, you have to like the long-term outlook for this sector. There will definitely be large quarter to quarter fluctuations in this business though. StockBrokers.com will be back in three months to report on how 2017 started out for the sector.
Below is a yearly chart of all four of the brokers. The charts as of the close of trading on February 1.