10-QPeriod: Q3 FY2014

SCHWAB CHARLES CORP Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 6, 2014For Securities:SCHWSCHW-PDSCHW-PJ

Summary

The Charles Schwab Corporation (SCHW) reported solid financial results for the third quarter and first nine months of 2014, demonstrating continued growth and operational efficiency. Net revenues increased by 13% year-over-year for both periods, driven by strong performance in asset management and administration fees, as well as net interest revenue. The company successfully managed expenses, leading to a significant increase in income before taxes and net income, up 29% for the nine-month period. Client assets also showed robust growth, reaching $2.40 trillion by the end of the third quarter, reflecting an increase of 12% from the prior year. This growth in client assets is a key indicator of the company's appeal and effective client acquisition and retention strategies. Schwab Bank maintained a strong capital position, exceeding regulatory requirements and being classified as 'well capitalized.' The company also managed its credit exposure effectively, with loan delinquencies and nonaccrual loans remaining low. While the company navigated a complex market environment with low interest rates, its diversified revenue streams and disciplined expense management positioned it well for continued success. Investors can take comfort from the company's consistent revenue growth, expanding client base, and solid financial health.

Financial Highlights

37 data points
Beta

Revenue

$1.55B

Net Income

$321.00M

20.7% Net Margin

EPS (Diluted)

$0.24

Total Assets

$147.44B

Cash & Equivalents

$8.59B

Free Cash Flow

$842.00M

Financial Statements
Beta
Revenue$1.55B
Interest Expense$27.00M
Net Income$321.00M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)1.30B
Shares Outstanding (Diluted)1.32B

Key Highlights

  • 1Net revenues increased by 13% for both the three and nine months ended September 30, 2014, compared to the prior year, reaching $1.55 billion and $4.51 billion, respectively.
  • 2Net income available to common stockholders grew by 11% in Q3 2014 to $312 million and by 31% for the nine months ended September 30, 2014, to $932 million.
  • 3Total client assets grew 12% year-over-year to $2.40 trillion by the end of Q3 2014, indicating strong client acquisition and retention.
  • 4Net interest revenue increased by 13% in Q3 2014 and 17% for the nine-month period, driven by higher balances of interest-earning assets.
  • 5Schwab Bank maintained a 'well capitalized' status with strong regulatory capital ratios, exceeding all minimum requirements.
  • 6Expenses excluding interest increased by 14% in Q3 2014, primarily due to a charge for estimated future severance benefits, but showed more moderate growth of 5% for the nine-month period.
  • 7Diluted earnings per common share increased to $0.24 in Q3 2014 and $0.70 for the nine months ended September 30, 2014, up from $0.22 and $0.55, respectively, in the prior year.

Frequently Asked Questions

Schwab demonstrated consistent revenue growth, with net revenues increasing by 13% year-over-year for both the third quarter and the first nine months of 2014. This growth was primarily fueled by higher net interest revenue and asset management and administration fees.

The company's financial health appears strong, with net income showing significant year-over-year increases. Schwab Bank, the depository institution subsidiary, maintained a 'well capitalized' status, exceeding all minimum regulatory capital requirements, which is a positive indicator of financial stability.

Expenses excluding interest saw a notable increase of 14% in the third quarter of 2014, largely due to a one-time charge for severance benefits. However, for the nine-month period, expense growth was more moderate at 5%, indicating an effort to control costs over the longer term, despite increased compensation and benefits and professional services expenses.

The company noted that the prevailing low interest rate environment continues to constrain net interest revenue. While growth in asset balances helps, Schwab faces challenges in further reducing interest expenses paid on funding sources. Increases in short-term rates are expected to benefit net interest revenue more significantly than decreases would harm it, according to their simulations.