10-KPeriod: FY2013

SCHWAB CHARLES CORP Annual Report, Year Ended Dec 31, 2013

Filed February 24, 2014For Securities:SCHWSCHW-PDSCHW-PJ

Summary

This 2013 10-K filing for The Charles Schwab Corporation (SCHW) highlights a period of significant growth and operational expansion, with notable increases in net revenues, net income, and client assets. The company experienced strong client activity, with core net new client assets increasing by 25% year-over-year and total client assets reaching a record $2.25 trillion. Revenue growth was driven by increases across all major lines: asset management and administration fees, net interest revenue, and trading revenue. Despite increased expenses, particularly in compensation and benefits and advertising, the company maintained a healthy pre-tax profit margin. The filing also details the ongoing integration of optionsXpress and the acquisition of ThomasPartners, contributing to the company's broader service offerings and market reach. Investors can find detailed discussions on risk factors, including regulatory changes like the Dodd-Frank Act and Basel III implementation, operational risks related to technology, and market risks associated with interest rate fluctuations. Overall, SCHW presented a solid financial performance in 2013, characterized by robust client acquisition and asset growth, alongside strategic investments in its business. The company is navigating a complex regulatory environment and managing various operational and market risks, while demonstrating a commitment to shareholder returns through dividends and a significant share repurchase authorization.

Financial Highlights

40 data points
Beta

Revenue

$5.43B

Net Income

$1.07B

19.7% Net Margin

EPS (Diluted)

$0.78

Total Assets

$143.64B

Cash & Equivalents

$7.73B

Free Cash Flow

$1.41B

Financial Statements
Beta
Revenue$5.43B
Interest Expense$105.00M
Net Income$1.07B
EPS (Basic)$0.78
EPS (Diluted)$0.78
Shares Outstanding (Basic)1.28B
Shares Outstanding (Diluted)1.29B

Key Highlights

  • 1Net revenues grew by 11% to $5.435 billion in 2013, driven by strong client activity and asset growth.
  • 2Net income increased by 15% to $1.071 billion, with diluted earnings per share rising to $0.78.
  • 3Core net new client assets surged by 25% to $140.8 billion, and total client assets reached a record $2.25 trillion.
  • 4Asset management and administration fees increased by 13% to $2.315 billion, reflecting growth in advisory solutions and mutual fund service fees.
  • 5The company maintained a strong pre-tax profit margin of 31.4% in 2013.
  • 6Significant capital expenditures were made, primarily for technology systems and property, indicating investment in infrastructure.
  • 7The company is subject to extensive regulation and highlights the ongoing impact of financial reforms such as the Dodd-Frank Act and Basel III.

Frequently Asked Questions

Revenue growth was primarily driven by an 11% increase in net revenues, totaling $5.435 billion. This was fueled by strong client activity and asset growth, leading to increases in asset management and administration fees (up 13%), net interest revenue (up 12%), and trading revenue (up 5%). The company saw a significant rise in core net new client assets by 25% to $140.8 billion, and total client assets reached a record $2.25 trillion.

The filing emphasizes several key risks including extensive regulation by federal and state agencies, with ongoing impacts from legislation like the Dodd-Frank Act and Basel III capital rules. Operational risks related to technology failures, data security breaches, and human error are also significant concerns. Market risks, particularly from interest rate fluctuations and credit quality of securities, are noted, as is legal risk stemming from litigation and regulatory investigations. The company also faces competitive pressures and the risk of adverse impacts from strategic transactions.

Expenses excluding interest increased by 9% to $3.730 billion. This rise was primarily attributed to higher compensation and benefits costs, increased spending on professional services, advertising and market development (linked to a new branding initiative), and other expenses. Despite these increases, the company maintained a strong pre-tax profit margin of 31.4%, indicating effective management of overall costs relative to revenue growth.

The company paid common stock cash dividends of $0.24 per share in 2013 and 2012, targeting 20% to 30% of net income for dividends. As of December 31, 2013, Schwab had remaining authority to repurchase up to $596 million of its common stock, though no repurchases were made in 2013 or 2012. The company also issued preferred stock in 2012.