10-QPeriod: Q1 FY2017

SCHWAB CHARLES CORP Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 8, 2017For Securities:SCHWSCHW-PDSCHW-PJ

Summary

The Charles Schwab Corporation reported a strong first quarter for 2017, with net income available to common stockholders increasing by 34% to $525 million, or $0.39 per diluted share, compared to the prior year period. This robust performance was driven by an 18% increase in net revenues, primarily fueled by growth in net interest revenue and asset management and administration fees. The company saw significant increases in client metrics, with net new client assets up 22% and total client assets reaching $2.92 trillion, a 14% year-over-year increase. The "Through Clients' Eyes" strategy appears to be effectively driving client acquisition and asset growth. The company also benefited from rising interest rates, which boosted net interest revenue. While trading revenue declined due to pricing reductions aimed at enhancing client value, overall profitability and key performance indicators show a positive trajectory. The company's solid capital position and regulatory compliance further underscore its financial strength.

Financial Highlights

39 data points
Beta

Revenue

$2.08B

Net Income

$564.00M

27.1% Net Margin

EPS (Diluted)

$0.39

Total Assets

$227.06B

Cash & Equivalents

$9.47B

Free Cash Flow

-$1.66B

Financial Statements
Beta
Revenue$2.08B
Interest Expense$55.00M
Net Income$564.00M
EPS (Basic)$0.39
EPS (Diluted)$0.39
Shares Outstanding (Basic)1.34B
Shares Outstanding (Diluted)1.35B

Key Highlights

  • 1Net income available to common stockholders surged 34% to $525 million ($0.39 per diluted share) in Q1 2017.
  • 2Total net revenues grew 18% year-over-year to $2.081 billion.
  • 3Net new client assets increased by 22% to $38.9 billion, reflecting strong client acquisition.
  • 4Total client assets reached $2.92 trillion, up 14% from the prior year.
  • 5Net interest revenue increased by 30% to $1.000 billion, benefiting from higher interest rates and increased bank deposits.
  • 6The company's pre-tax profit margin improved to 40.5% from 37.1% in the prior year period.
  • 7Trading revenue declined 17% due to strategic pricing reductions on equity, ETF, and options trades.

Frequently Asked Questions

The primary drivers of Schwab's revenue growth were a significant increase in net interest revenue, which rose 30% to $1 billion, largely due to higher interest-earning assets and rising short-term interest rates, and a 18% increase in asset management and administration fees. These were complemented by a substantial 22% increase in core net new client assets and a 14% rise in total client assets.

Expenses excluding interest increased by 12% to $1.238 billion, which was less than the 18% growth in net revenues. This indicates that revenue growth outpaced expense growth, leading to an improved pre-tax profit margin of 40.5%, up from 37.1% in the prior year period. Key expense drivers included higher compensation and benefits, as well as increased professional services and deposit insurance assessments.

The company demonstrated strong client engagement, with a 22% increase in core net new client assets and a 14% rise in total client assets to $2.92 trillion. The number of active brokerage accounts also grew by 5% to 10.3 million. This consistent growth in client assets and accounts, driven by the 'Through Clients' Eyes' strategy, positions Schwab favorably for sustained revenue generation and earnings growth.

Yes, in March 2017, the company transferred approximately $24.7 billion of debt securities from the 'available for sale' category to the 'held to maturity' category. This move was intended to mitigate potential volatility in regulatory capital that could arise from market value fluctuations in the 'available for sale' portfolio, especially as the company approaches the threshold where Accumulated Other Comprehensive Income (AOCI) can no longer be excluded from regulatory capital.