10-QPeriod: Q3 FY2016

SCHWAB CHARLES CORP Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 7, 2016For Securities:SCHWSCHW-PDSCHW-PJ

Summary

Charles Schwab Corporation (SCHW) reported strong financial performance for the third quarter and the first nine months of 2016, demonstrating significant growth in net revenues and net income. This growth was primarily driven by an increase in client assets, which reached $2.73 trillion, and the positive impact of rising short-term interest rates on net interest revenue. The company successfully attracted new clients and deepened relationships with existing ones, evidenced by a 13% year-over-year increase in total client assets and a 14% rise in assets receiving ongoing advisory services. Operational efficiency remained a focus, with expenses excluding interest growing at a slower pace than net revenues, leading to improved pre-tax profit margins. The company also continued to manage its capital effectively, maintaining robust regulatory capital ratios well above requirements. A subsequent event includes the successful issuance of Series E Preferred Stock, raising $591 million to support balance sheet growth and the migration of client balances to Schwab Bank.

Financial Highlights

39 data points
Beta

Revenue

$1.91B

Net Income

$503.00M

26.3% Net Margin

EPS (Diluted)

$0.35

Total Assets

$209.34B

Cash & Equivalents

$10.43B

Free Cash Flow

-$626.00M

Financial Statements
Beta
Revenue$1.91B
Interest Expense$46.00M
Net Income$503.00M
EPS (Basic)$0.36
EPS (Diluted)$0.35
Shares Outstanding (Basic)1.32B
Shares Outstanding (Diluted)1.33B

Key Highlights

  • 1Total client assets grew 13% year-over-year to $2.73 trillion by September 30, 2016.
  • 2Net revenues increased by 20% and 17% for the three and nine months ended September 30, 2016, respectively, compared to the prior year.
  • 3Pre-tax profit margin improved to 41.5% in Q3 2016 from 36.5% in Q3 2015.
  • 4Net income available to common stockholders increased by 29% for both the three and nine months ended September 30, 2016, compared to the prior year.
  • 5The company ended the quarter with 10.0 million active brokerage accounts, a 4% increase year-over-year.
  • 6Schwab Bank saw a significant increase in deposits, growing to $149.6 billion from $129.5 billion at the end of 2015.
  • 7The company maintained strong regulatory capital ratios, with Schwab Bank considered well-capitalized and CSC exceeding capital buffer requirements.

Frequently Asked Questions

Charles Schwab Corporation experienced robust revenue growth, with net revenues increasing by 20% year-over-year in the third quarter of 2016 and 17% for the first nine months of 2016. This was primarily attributed to the growth in client assets and favorable movements in short-term interest rates contributing to higher net interest revenue.

The increase in profitability was largely driven by strong revenue growth coupled with disciplined expense management. Net income available to common stockholders saw a substantial rise of 29% for both the three and nine-month periods compared to the prior year. This was further supported by an expansion in pre-tax profit margins, indicating improved operational efficiency.

The company's balance sheet growth was supported by a significant increase in bank deposits, which rose to $149.6 billion. These deposits, along with operating cash flows, funded investments in securities. Schwab also maintains strong liquidity through various credit facilities and a buffer of highly liquid investments, ensuring compliance with regulatory requirements like the Liquidity Coverage Ratio (LCR).

The company noted that rising short-term interest rates positively impacted net interest revenue due to higher yields on interest-earning assets. Conversely, a decline in interest rates could compress net interest margins. Schwab actively manages its asset and liability mix to mitigate interest rate risk, but acknowledges that the current low rate environment limits the ability to reduce interest expense paid on funding sources.