10-QPeriod: Q2 FY2018

SCHWAB CHARLES CORP Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 8, 2018For Securities:SCHWSCHW-PDSCHW-PJ

Summary

Charles Schwab Corporation (SCHW) reported strong financial performance for the quarter ended June 30, 2018. Total net revenues increased by 17% year-over-year to $2.49 billion, driven primarily by a significant increase in net interest revenue due to higher interest rates and larger client cash balances. Net income saw a substantial 51% jump to $866 million, benefiting from revenue growth and a lower effective tax rate resulting from the Tax Act of 2017. The company also demonstrated robust client activity, with new brokerage accounts up 8% and core net new client assets growing by 16%. Total client assets reached $3.40 trillion, reflecting a 12% increase. Despite higher expenses related to investments for growth and supporting the expanding client base, Schwab maintained strong pre-tax profit margins. The company also strengthened its balance sheet by issuing senior notes and successfully managing its liquidity.

Financial Highlights

39 data points
Beta

Revenue

$2.49B

Net Income

$866.00M

34.8% Net Margin

EPS (Diluted)

$0.60

Total Assets

$261.88B

Cash & Equivalents

$13.25B

Free Cash Flow

$3.00B

Financial Statements
Beta
Revenue$2.49B
Interest Expense$183.00M
Net Income$866.00M
EPS (Basic)$0.60
EPS (Diluted)$0.60
Shares Outstanding (Basic)1.35B
Shares Outstanding (Diluted)1.36B

Key Highlights

  • 1Total net revenues grew 17% to $2.49 billion for the quarter, driven by a 34% increase in net interest revenue.
  • 2Net income surged 51% to $866 million, reflecting strong revenue growth and lower taxes.
  • 3Client assets increased 12% to $3.40 trillion, with core net new client assets up 16% to $53.4 billion.
  • 4New brokerage accounts increased by 8% to 384,000 for the quarter.
  • 5The effective tax rate decreased significantly to 23.4% due to the Tax Act of 2017 reducing the federal corporate income tax rate.
  • 6Expenses excluding interest increased 11% to $1.36 billion, primarily due to investments supporting client growth.
  • 7The company's Tier 1 Leverage Ratio remained strong at 7.6% as of June 30, 2018.

Frequently Asked Questions

The primary driver of Schwab's revenue growth was a substantial increase in net interest revenue, which rose 34% year-over-year. This was largely attributed to higher interest rates and an increase in client cash balances in sweep accounts.

The Tax Act of 2017, which lowered the federal corporate income tax rate from 35% to 21%, significantly reduced Schwab's tax expenses. This contributed to a substantial increase in net income, with the effective tax rate dropping from 36.7% in Q2 2017 to 23.4% in Q2 2018.

Schwab reported continued strong client engagement with a 12% increase in total client assets to $3.40 trillion and a 16% rise in core net new client assets. Management sees substantial opportunity for further growth in the estimated $45 trillion U.S. investable wealth market.

While expenses excluding interest increased by 11% to support the expanding client base and ongoing investments, Schwab maintained a significant gap between revenue and expense growth. This resulted in strong pre-tax profit margins of 45.5% for the quarter, demonstrating effective expense discipline alongside growth initiatives.