10-QPeriod: Q2 FY2019

SCHWAB CHARLES CORP Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 7, 2019For Securities:SCHWSCHW-PDSCHW-PJ

Summary

Charles Schwab Corporation (SCHW) reported solid financial results for the quarter ending June 30, 2019, demonstrating continued growth and client asset accumulation. Total net revenues saw an 8% increase year-over-year, reaching $2.68 billion, driven primarily by a significant 14% rise in net interest revenue. This growth in net interest revenue was bolstered by an increase in interest-earning assets, partly due to the strategic transfer of sweep money market fund balances to bank and broker-dealer sweeps, and also benefiting from the Federal Reserve's rate hikes in the prior year. Client assets under management reached $3.70 trillion, a 9% increase compared to the same period in the previous year, highlighting the company's success in attracting and retaining client assets. Despite a challenging market environment, Schwab maintained strong profitability with net income available to common stockholders growing by 9% to $887 million, translating to diluted earnings per share of $0.66, a 10% increase. The company also demonstrated a commitment to shareholder returns by repurchasing $1.2 billion of common stock during the quarter.

Financial Highlights

37 data points
Beta

Revenue

$2.68B

Net Income

$937.00M

34.9% Net Margin

EPS (Diluted)

$0.66

Total Assets

$276.32B

Cash & Equivalents

$24.20B

Free Cash Flow

$2.04B

Financial Statements
Beta
Revenue$2.68B
Interest Expense$318.00M
Net Income$937.00M
EPS (Basic)$0.67
EPS (Diluted)$0.66
Shares Outstanding (Basic)1.33B
Shares Outstanding (Diluted)1.34B

Key Highlights

  • 1Total net revenues increased by 8% to $2.68 billion in Q2 2019 compared to Q2 2018.
  • 2Net interest revenue grew by 14% to $1.61 billion in Q2 2019, a key driver of overall revenue growth.
  • 3Client assets reached $3.70 trillion by quarter-end, up 9% year-over-year, indicating strong client asset growth.
  • 4Net income available to common stockholders increased by 9% to $887 million.
  • 5Diluted earnings per share (EPS) rose by 10% to $0.66.
  • 6The company repurchased $1.2 billion of its common stock during the quarter, demonstrating a commitment to returning capital to shareholders.
  • 7Schwab announced a definitive agreement to acquire USAA's Investment Management Company assets for $1.8 billion, expected to close in 2020, significantly expanding its client base and assets under management.

Frequently Asked Questions

The primary driver of revenue growth was net interest revenue, which increased by 14% year-over-year. This was attributed to higher interest rates from prior Federal Reserve hikes and an increase in interest-earning assets, partly due to the strategic shift of client cash balances from money market funds to bank and broker-dealer sweeps.

Client assets grew by 9% year-over-year, reaching $3.70 trillion by the end of the second quarter of 2019. This demonstrates the company's continued ability to attract and retain client assets.

The announced acquisition of USAA's Investment Management Company assets for $1.8 billion is a significant strategic move. It will add over one million brokerage and managed portfolio accounts and approximately $90 billion in client assets. It also includes a long-term referral agreement, making Schwab the exclusive wealth management and brokerage provider for USAA members, which is expected to drive substantial future growth.

The company demonstrated disciplined expense management, with total expenses excluding interest increasing by 7% in the second quarter, which was lower than the revenue growth. This focus on efficiency is reflected in a consistent expense ratio to client assets.