10-QPeriod: Q3 FY2012

SCHWAB CHARLES CORP Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 6, 2012For Securities:SCHWSCHW-PDSCHW-PJ

Summary

The Charles Schwab Corporation (SCHW) reported steady financial performance for the quarter ended September 30, 2012. Total net revenues saw a modest increase of 1% year-over-year, reaching $1.2 billion, driven by growth in asset management and administration fees, which rose 12% to $524 million. This growth was partially offset by a 18% decline in trading revenue. Net income available to common stockholders was $238 million, a slight increase from $220 million in the same period last year, resulting in diluted earnings per share of $0.19. The company continued to expand its client base, with total client assets reaching a record $1.89 trillion, a 20% increase year-over-year. Despite a decrease in daily average client trades, the firm demonstrated effective expense management, with total expenses excluding interest rising only 2%. The balance sheet remains robust, with total assets increasing to $117.7 billion, supported by strong deposit growth from banking clients. SCHW's regulatory capital ratios at Schwab Bank remain well above required minimums, indicating a strong financial position.

Financial Highlights

37 data points
Beta

Revenue

$1.20B

Net Income

$247.00M

20.7% Net Margin

EPS (Diluted)

$0.19

Total Assets

$117.66B

Cash & Equivalents

$8.52B

Free Cash Flow

$574.00M

Financial Statements
Beta
Revenue$1.20B
Interest Expense$39.00M
Net Income$247.00M
EPS (Basic)$0.19
EPS (Diluted)$0.19
Shares Outstanding (Basic)1.27B
Shares Outstanding (Diluted)1.27B

Key Highlights

  • 1Total net revenues increased by 1% to $1.2 billion for the three months ended September 30, 2012, compared to the prior year quarter.
  • 2Asset management and administration fees grew by 12% to $524 million, driven by increases in mutual fund service fees and advice solutions fees.
  • 3Trading revenue decreased by 18% to $204 million, primarily due to lower daily average revenue trades.
  • 4Net income available to common stockholders increased to $238 million from $220 million in the prior year quarter.
  • 5Diluted earnings per common share were $0.19 for the quarter, up from $0.18 in the prior year quarter.
  • 6Total client assets reached a record $1.89 trillion, up 20% year-over-year.
  • 7Schwab Bank maintained 'well capitalized' status with Tier 1 Risk-Based Capital at 21.7%.

Frequently Asked Questions

The primary driver of revenue growth for Schwab in this quarter was the increase in asset management and administration fees, which grew by 12% year-over-year. This was largely due to higher mutual fund service fees and advice solutions fees.

The acquisition of optionsXpress, completed in September 2011, contributed to the inclusion of its revenues and expenses in the current period's results. While it added to overall expenses, it also contributed to trading revenue, particularly from option and future trades, and other revenue streams.

Schwab Bank is considered 'well capitalized' by banking regulators. At September 30, 2012, its Tier 1 Risk-Based Capital ratio was 21.7%, significantly above the minimum requirement of 4.0% and the 'well capitalized' threshold of 6.0%.

Key risks highlighted include the impact of low interest rate environments on net interest revenue, potential further credit deterioration in mortgage-backed securities portfolios, fluctuations in equity markets affecting asset values and trading activity, and ongoing legal and regulatory matters.