10-QPeriod: Q1 FY2019

SCHWAB CHARLES CORP Quarterly Report for Q1 Ended Mar 31, 2019

Filed May 8, 2019For Securities:SCHWSCHW-PDSCHW-PJ

Summary

Charles Schwab Corporation (SCHW) reported a strong first quarter ending March 31, 2019, with net income available to common stockholders increasing by 24% year-over-year to $925 million, translating to diluted earnings per share of $0.69, a 25% increase. This growth was primarily driven by a significant 33% surge in net interest revenue, benefiting from the Federal Reserve's rate hikes in 2018 and strategic asset reallocations. Total net revenues rose 14% to $2.72 billion. The company also demonstrated robust client asset growth, with total client assets reaching $3.59 trillion, an 8% increase year-over-year. While new brokerage accounts saw a slight decrease, active brokerage accounts grew by 7%. Schwab successfully managed expenses, with total expenses excluding interest increasing by a modest 5% despite investments in growth and efficiency, leading to a healthy pre-tax profit margin of 46.4%. The company also returned capital to shareholders through a 31% dividend increase and a $4 billion stock repurchase authorization. Overall, the quarter showcased Schwab's ability to capitalize on a favorable interest rate environment and expand its client base, while maintaining cost discipline. The company's strategic focus on client needs and its diversified business model across Investor Services and Advisor Services contributed to its solid financial performance.

Financial Statements
Beta
Revenue$2.72B
Interest Expense$317.00M
Net Income$964.00M
EPS (Basic)$0.69
EPS (Diluted)$0.69
Shares Outstanding (Basic)1.33B
Shares Outstanding (Diluted)1.34B

Key Highlights

  • 1Net income available to common stockholders increased 24% to $925 million, with diluted EPS rising 25% to $0.69.
  • 2Total net revenues grew 14% to $2.72 billion, primarily driven by a 33% increase in net interest revenue.
  • 3Total client assets grew 8% year-over-year to $3.59 trillion.
  • 4Expenses excluding interest increased by 5%, significantly less than revenue growth, leading to a pre-tax profit margin of 46.4%.
  • 5The company announced a 31% increase in its quarterly cash dividend to $0.17 per common share and a $4 billion stock repurchase authorization.
  • 6Active brokerage accounts increased by 7% to 11.8 million at quarter-end.
  • 7The Tier 1 Leverage Ratio remained strong at 7.2% at quarter end, and Return on Average Common Stockholders' Equity was 20% for the third consecutive quarter.

Frequently Asked Questions

The primary driver of revenue growth was a significant 33% increase in net interest revenue, attributed to higher interest rates resulting from Federal Reserve actions in 2018 and strategic client cash allocations. Asset management and administration fees saw a decrease, mainly due to lower money market fund revenue from sweep transfers, while trading revenue also declined slightly.

Charles Schwab managed its expenses effectively, with total expenses excluding interest rising only 5% year-over-year. This disciplined expense management, despite investments in headcount and technology projects, allowed the company to achieve a substantial gap between revenue and expense growth, contributing to a strong pre-tax profit margin of 46.4%.

Schwab is returning capital to shareholders through a combination of increased dividends and share repurchases. The company increased its quarterly cash dividend by 31% to $0.17 per common share and announced a $4 billion stock repurchase program, signaling confidence in its financial position and commitment to shareholder value.

Client assets under management grew by a healthy 8% year-over-year to $3.59 trillion. While the number of new brokerage accounts opened decreased by 13%, the number of active brokerage accounts increased by 7% to 11.8 million. This suggests continued client engagement and trust in Schwab's platform and services, even with a slight slowdown in new account acquisition.