10-QPeriod: Q2 FY2022

SCHWAB CHARLES CORP Quarterly Report for Q2 Ended Jun 30, 2022

Filed August 8, 2022For Securities:SCHWSCHW-PDSCHW-PJ

Summary

The Charles Schwab Corporation (SCHW) reported its second quarter 2022 results, demonstrating resilience amidst market volatility and a challenging economic environment. Despite a 10% year-over-year decrease in client assets to $6.83 trillion due to market declines, the company saw robust net income growth of 42% to $1.8 billion. This performance was largely driven by a significant increase in net interest revenue, up 31% year-over-year, benefiting from rising market interest rates and growth in interest-earning assets. The company also continued to attract new clients, opening 1.0 million new brokerage accounts in the quarter and growing active accounts by 5% year-over-year. The integration of TD Ameritrade is progressing, with client conversions expected in 2023. While acquisition and integration costs remain, Schwab is realizing annualized cost synergies, with over half of the targeted $1.8-$2.0 billion achieved. The company also announced a significant increase in its share repurchase authorization to $15.0 billion and a 10% increase in its quarterly dividend, signaling confidence in its financial strength and commitment to returning capital to shareholders. The company maintained a strong capital position with a Tier 1 Leverage Ratio of 6.4% at quarter-end.

Financial Highlights

40 data points
Beta

Revenue

$5.09B

Net Income

$1.79B

35.2% Net Margin

EPS (Diluted)

$0.87

Total Assets

$637.56B

Cash & Equivalents

$64.55B

Free Cash Flow

-$8.18B

Financial Statements
Beta
Revenue$5.09B
Interest Expense$166.00M
Net Income$1.79B
EPS (Basic)$0.87
EPS (Diluted)$0.87
Shares Outstanding (Basic)1.90B
Shares Outstanding (Diluted)1.90B

Key Highlights

  • 1Net income increased by a strong 42% year-over-year to $1.8 billion in Q2 2022.
  • 2Net interest revenue grew significantly by 31% to $2.5 billion, driven by higher market interest rates and increased interest-earning assets.
  • 3Despite a 10% decline in total client assets ($6.83 trillion) due to market valuations, net new client assets remained substantial, with core net new assets of $64.2 billion in Q2.
  • 4The company continued to attract new clients, adding 1.0 million new brokerage accounts in Q2 and increasing active accounts by 5% year-over-year to 33.9 million.
  • 5Total expenses excluding interest remained relatively flat year-over-year, demonstrating effective cost management.
  • 6Schwab announced a new $15.0 billion share repurchase authorization and increased its quarterly dividend by 10% to $0.22 per share.
  • 7The integration of TD Ameritrade is on track, with expected client conversion completion in 2023 and significant progress on cost synergies.

Frequently Asked Questions

Client assets decreased by 10% year-over-year to $6.83 trillion due to significant declines in market valuations. However, total net revenues increased by 13% to $5.1 billion, primarily driven by a 31% surge in net interest revenue to $2.5 billion, which benefited from rising interest rates. Asset management and administration fees remained flat, while trading revenue saw a 7% decrease.

The integration of TD Ameritrade is progressing with client conversions expected throughout 2023. The company anticipates total acquisition and integration-related costs and capital expenditures between $2.0 billion and $2.2 billion. On the benefit side, Schwab expects to realize annualized cost synergies of $1.8 billion to $2.0 billion, with over half of this amount already achieved on an annualized run-rate basis as of June 30, 2022.

Total expenses excluding interest increased only slightly by 0.4% year-over-year to $2.8 billion in Q2. While compensation and benefits, and occupancy and equipment expenses increased due to headcount growth and technology investments supporting the client base and integration, these were partially offset by lower other expenses, notably due to a significant charge in the prior year's quarter related to a regulatory matter. Adjusted total expenses, which exclude acquisition and integration costs, rose by 2%.

Schwab maintained a strong capital position, with a consolidated Tier 1 Leverage Ratio of 6.4% at June 30, 2022. The company demonstrated its commitment to shareholders by announcing a new $15.0 billion share repurchase authorization and increasing its quarterly cash dividend by 10% to $0.22 per common share.