10-QPeriod: Q1 FY2022

SCHWAB CHARLES CORP Quarterly Report for Q1 Ended Mar 31, 2022

Filed May 9, 2022For Securities:SCHWSCHW-PDSCHW-PJ

Summary

The Charles Schwab Corporation (SCHW) reported its first quarter 2022 results, reflecting a strong client base amidst a challenging macroeconomic environment. While total net revenues saw a slight decrease of 1% year-over-year to $4.7 billion, net income available to common stockholders declined by 8% to $1.28 billion, or $0.67 per diluted share. The company continued to attract client assets, with total client assets growing 11% to $7.86 trillion. However, new brokerage accounts opened were down significantly by 62% compared to the exceptional levels seen in the prior year. Net interest revenue showed a robust increase of 14% to $2.18 billion, driven by asset growth and higher interest rates, while asset management and administration fees rose by 5% to $1.07 billion. Expenses, excluding interest, increased by 3% to $2.83 billion, primarily due to higher compensation and benefits costs reflecting investments in headcount and ongoing growth. The company made progress on the TD Ameritrade integration, expecting client conversions to conclude by the fourth quarter of 2023 and reiterating its expected range for acquisition and integration-related costs. Schwab's capital position remains strong, with a consolidated Tier 1 Leverage Ratio of 6.1% at quarter-end.

Financial Highlights

39 data points
Beta

Revenue

$4.67B

Net Income

$1.40B

30.0% Net Margin

EPS (Diluted)

$0.67

Total Assets

$680.95B

Cash & Equivalents

$91.13B

Free Cash Flow

$2.76B

Financial Statements
Beta
Revenue$4.67B
Interest Expense$136.00M
Net Income$1.40B
EPS (Basic)$0.67
EPS (Diluted)$0.67
Shares Outstanding (Basic)1.89B
Shares Outstanding (Diluted)1.91B

Key Highlights

  • 1Total client assets grew 11% year-over-year to $7.86 trillion, demonstrating continued client acquisition and asset growth.
  • 2Net interest revenue increased significantly by 14% to $2.18 billion, benefiting from higher interest rates and growing asset base.
  • 3Asset management and administration fees grew 5% to $1.07 billion, supported by advice solutions and proprietary funds.
  • 4Net income available to common stockholders decreased by 8% to $1.28 billion, and diluted EPS fell to $0.67, impacted by higher expenses and a comparison to an exceptionally strong prior year quarter.
  • 5New brokerage accounts opened decreased by 62% compared to Q1 2021, reflecting a return to more normalized levels after a period of extraordinary growth.
  • 6Total expenses excluding interest rose 3% to $2.83 billion, driven by investments in compensation and benefits to support business growth.
  • 7The TD Ameritrade integration is progressing, with client conversions expected to complete by Q4 2023 and integration costs remaining within the previously guided range.

Frequently Asked Questions

The decrease in net income and EPS was primarily due to higher expenses, particularly in compensation and benefits, and a challenging comparison to the first quarter of 2021, which saw exceptionally high client trading activity and new account openings. While client assets grew and net interest revenue increased, the overall results were impacted by a normalization of trading volumes and increased operating costs.

The integration of TD Ameritrade is ongoing, with client conversions expected to be completed within approximately 30 to 36 months from the acquisition date, ending in Q4 2023. The company continues to expect total acquisition and integration-related costs and capital expenditures to be between $2.0 billion and $2.2 billion. Significant progress has been made in realizing cost synergies.

Rising interest rates have a positive impact on Schwab's net interest revenue, which increased by 14% in Q1 2022. Higher rates generally lead to increased yields on interest-earning assets. However, a simulated 100 basis point increase in rates had a slightly lower impact on net interest revenue compared to year-end 2021 due to increased client deposit rates and decreased sensitivity to prepayments on mortgage-backed securities. The company is positioned to benefit from further rate increases.

Schwab maintains a strong capital position, with a consolidated Tier 1 Leverage Ratio of 6.1% at the end of Q1 2022, which is above regulatory minimums. The company issued $750 million in preferred stock and $3.0 billion in senior notes to support balance sheet growth and liquidity needs. Schwab also remains compliant with its Liquidity Coverage Ratio (LCR), reporting an average LCR of 111% for the quarter.