10-QPeriod: Q1 FY2012

SCHWAB CHARLES CORP Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 7, 2012For Securities:SCHWSCHW-PDSCHW-PJ

Summary

The Charles Schwab Corporation's (SCHW) Q1 2012 report shows a slight decline in net revenues and net income compared to the previous year, primarily due to lower asset management and administration fees and higher net impairment losses on securities. Despite this, the company demonstrated strong client acquisition, with net new client assets reaching $38.9 billion, and total client assets at a record $1.83 trillion. Operating expenses excluding interest saw an increase, largely driven by compensation, benefits, and expenses related to the optionsXpress acquisition. The company's capital position remains strong, with Schwab Bank being considered 'well capitalized' by regulators and Schwab and optionsXpress, Inc. maintaining robust net capital ratios.

Financial Highlights

37 data points
Beta

Revenue

$1.19B

Net Income

$195.00M

16.4% Net Margin

EPS (Diluted)

$0.15

Total Assets

$111.48B

Cash & Equivalents

$6.79B

Free Cash Flow

$56.00M

Financial Statements
Beta
Revenue$1.19B
Interest Expense$38.00M
Net Income$195.00M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)1.27B
Shares Outstanding (Diluted)1.27B

Key Highlights

  • 1Net revenues decreased by 1% to $1,189 million compared to $1,207 million in Q1 2011.
  • 2Net income decreased by 20% to $195 million ($0.15 per diluted share) compared to $243 million ($0.20 per diluted share) in Q1 2011.
  • 3Net new client assets surged by 69% to $38.9 billion, and total client assets reached a record $1.83 trillion.
  • 4Expenses excluding interest increased by 8% to $876 million, mainly due to higher compensation, benefits, and acquisition-related costs.
  • 5The company issued 400,000 shares of Series A Preferred Stock, raising $394 million in net proceeds.
  • 6Net impairment losses on securities increased significantly to $18 million from $7 million, primarily related to non-agency residential mortgage-backed securities.
  • 7Schwab Bank maintained its 'well capitalized' status, exceeding all regulatory requirements.

Frequently Asked Questions

The acquisition of optionsXpress, completed in September 2011, contributed $52 million in net revenues and $2 million in net income during the first quarter of 2012. The acquisition also led to an increase in operating expenses, particularly in compensation and benefits, depreciation and amortization, and advertising, which contributed to higher overall expenses.

The company held $37.8 billion in 'securities available for sale' and $15.3 billion in 'securities held to maturity' as of March 31, 2012. A portion of these included non-agency residential mortgage-backed securities, which experienced credit deterioration leading to $18 million in net impairment losses in Q1 2012. The company states it does not intend to sell these securities and has adequate liquidity, but further deterioration could result in additional charges.

The company's liquidity is primarily managed through cash generated by its subsidiaries. Despite the low interest rate environment constraining net interest revenue, the company reported strong client asset growth. Schwab Bank is 'well capitalized', and Schwab and optionsXpress, Inc. maintain robust net capital ratios, exceeding regulatory requirements. The company also completed a preferred stock offering, raising $394 million to support balance sheet growth.

Net revenues were flat year-over-year. Asset management and administration fees declined due to lower money market fund yields and fee waivers, though advice solutions revenue saw growth. Net interest revenue was stable due to increased asset balances, but compressed by low interest rate spreads. Trading revenue remained steady. Other revenues increased, partly due to the optionsXpress acquisition.