10-QPeriod: Q1 FY2018

SCHWAB CHARLES CORP Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 9, 2018For Securities:SCHWSCHW-PDSCHW-PJ

Summary

The Charles Schwab Corporation (SCHW) reported strong financial results for the first quarter of 2018, with net income available to common stockholders increasing by 42% year-over-year to $746 million, driven by robust revenue growth and a lower tax rate. Total net revenues grew 15% to $2,398 million, fueled by a significant 26% increase in net interest revenue due to higher interest rates and asset growth, as well as a 3% rise in asset management and administration fees. The company experienced substantial client asset growth, with client assets reaching $3,305.4 billion, a 13% increase year-over-year. New brokerage accounts also saw a healthy 22% rise. Despite increased operating expenses, which grew 13% driven by investments in technology and headcount to support growth, Schwab maintained a strong pre-tax profit margin of 41.8% and saw its return on average common stockholders' equity improve to 18% from 15% in the prior year. The company also benefited from the Tax Cuts and Jobs Act, which lowered its effective tax rate.

Financial Highlights

38 data points
Beta

Revenue

$2.40B

Net Income

$783.00M

32.7% Net Margin

EPS (Diluted)

$0.55

Total Assets

$248.32B

Cash & Equivalents

$14.14B

Free Cash Flow

$126.00M

Financial Statements
Beta
Revenue$2.40B
Interest Expense$158.00M
Net Income$783.00M
EPS (Basic)$0.55
EPS (Diluted)$0.55
Shares Outstanding (Basic)1.35B
Shares Outstanding (Diluted)1.36B

Key Highlights

  • 1Net income available to common stockholders surged 42% to $746 million, significantly outpacing revenue growth.
  • 2Total net revenues increased by 15% to $2,398 million, with net interest revenue up 26% due to higher rates and asset growth.
  • 3Client assets grew 13% year-over-year to $3,305.4 billion, indicating strong client acquisition and retention.
  • 4New brokerage accounts increased by 22% to 443,000, demonstrating continued business expansion.
  • 5The company benefited from a lower effective tax rate (21.9%) following the Tax Cuts and Jobs Act, contributing to net income growth.
  • 6Pre-tax profit margin remained strong at 41.8%, and return on average common stockholders' equity improved to 18%.
  • 7Core net new client assets, excluding significant fund clearing outflows, grew by 69% to $65.6 billion.

Frequently Asked Questions

The primary drivers for the 42% increase in net income available to common stockholders were sustained business momentum leading to strong revenue growth, higher interest rates benefiting net interest revenue, and a reduced corporate income tax rate following the Tax Cuts and Jobs Act.

Schwab demonstrated strong client engagement, with client assets growing by 13% year-over-year to $3,305.4 billion. The company also opened 443,000 new brokerage accounts, a 22% increase compared to the prior year, indicating successful client acquisition efforts.

The Tax Cuts and Jobs Act significantly reduced Schwab's effective income tax rate from 33.1% in Q1 2017 to 21.9% in Q1 2018. This lower tax burden contributed directly to the substantial increase in net income available to common stockholders.

Total expenses excluding interest increased by 13%, slightly less than the 15% revenue growth, resulting in a widening gap between revenue and expense growth. This allowed for a robust pre-tax profit margin of 41.8%. The company noted increased spending was primarily to support the expanding investor base and higher client assets, alongside investments in technology.