10-QPeriod: Q3 FY2018

SCHWAB CHARLES CORP Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 7, 2018For Securities:SCHWSCHW-PDSCHW-PJ

Summary

Charles Schwab Corporation (SCHW) reported strong financial results for the quarter and nine months ended September 30, 2018. The company saw significant growth in net income, driven by increased net revenues and the benefits of lower corporate income taxes resulting from the Tax Act of 2017. Total net revenues grew 19% year-over-year for the quarter, primarily due to higher net interest revenue from rising interest rates and larger client cash balances. Expenses also increased, reflecting investments in growth and efficiency. Client engagement remained robust, with a notable increase in new brokerage accounts and core net new client assets. The company also managed its balance sheet effectively, leading to a higher return on equity. Significant subsequent events include a new authorization for common stock repurchases and the issuance of senior notes, indicating proactive capital management. Overall, SCHW demonstrated solid performance, benefiting from favorable economic conditions and strategic initiatives.

Financial Highlights

38 data points
Beta

Revenue

$2.58B

Net Income

$923.00M

35.8% Net Margin

EPS (Diluted)

$0.65

Total Assets

$272.10B

Cash & Equivalents

$21.83B

Free Cash Flow

$1.13B

Financial Statements
Beta
Revenue$2.58B
Interest Expense$228.00M
Net Income$923.00M
EPS (Basic)$0.66
EPS (Diluted)$0.65
Shares Outstanding (Basic)1.35B
Shares Outstanding (Diluted)1.36B

Key Highlights

  • 1Net income available to common stockholders increased by 54% year-over-year to $885 million for the third quarter of 2018.
  • 2Total net revenues grew by 19% to $2.579 billion for the third quarter, driven by a 41% increase in net interest revenue.
  • 3Core net new client assets increased by 4% to $53.5 billion in Q3 2018, and client assets grew 12% to $3.56 trillion.
  • 4New brokerage accounts increased by 10% to 369,000 in Q3 2018.
  • 5The effective income tax rate decreased significantly due to the Tax Act of 2017, contributing to higher net income.
  • 6Return on average common stockholders' equity improved to 20% in Q3 2018, up from 15% in the prior year.
  • 7The company announced a new authorization to repurchase up to $1.0 billion of common stock and issued $1.1 billion in Senior Notes.

Frequently Asked Questions

Revenue growth was primarily driven by a significant increase in net interest revenue, up 41% year-over-year, due to higher interest rates and an increase in client cash sweep balances. Asset management and administration fees saw a slight decrease of 6%, impacted by lower money market fund revenue, while trading revenue increased by 17% due to higher daily average revenue trades.

The Tax Act of 2017, which lowered the federal corporate income tax rate from 35% to 21%, significantly reduced the company's tax expense. This resulted in lower effective tax rates for the quarter (24.3% vs. 34.6% in Q3 2017) and the nine-month period (23.3% vs. 34.9% in 2017), directly contributing to the substantial increase in net income.

Schwab's strategy, 'Through Clients' Eyes,' focuses on prioritizing client needs and desires to foster trusted relationships. This approach aims to translate into increased client assets and revenue growth. They are also focused on expanding their advice solutions and offering a broad range of transparent and valuable products and services, coupled with expense discipline to ensure affordability.

Key risks include general market conditions (interest rates, equity valuations, trading activity), the ability to attract and retain clients, client use of advice solutions, competitive pricing pressures, regulatory guidance, capital and liquidity management, expense management, and the successful development and launch of new products and services. Litigation and regulatory matters are also noted as potential risks.