10-QPeriod: Q3 FY2022

SCHWAB CHARLES CORP Quarterly Report for Q3 Ended Sep 30, 2022

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

Summary

Charles Schwab Corporation reported solid financial results for the third quarter and first nine months of 2022, demonstrating resilience amidst a challenging macroeconomic environment characterized by rising inflation and aggressive monetary policy. Despite a 13% year-over-year decrease in client assets to $6.64 trillion due to market valuation declines, the company's strategic focus on client relationships and a broad range of services continued to drive revenue growth. Total net revenues increased by 20% year-over-year to $5.5 billion for the quarter, largely fueled by a significant 44% surge in net interest revenue, benefiting from higher market interest rates. This robust performance, coupled with expense discipline, resulted in a 32% increase in net income to $2.0 billion for the quarter and a 22% increase for the nine-month period to $5.2 billion. The company also highlighted continued progress in the integration of TD Ameritrade, projecting its completion in 2023 with updated cost estimates. Furthermore, Schwab demonstrated a strong commitment to returning capital to shareholders through a 10% dividend increase and a substantial $15 billion share repurchase authorization. The company's capital and liquidity positions remain strong, with a consolidated Tier 1 Leverage Ratio of 6.8% at quarter-end, slightly above its revised operating objective.

Financial Highlights

40 data points
Beta

Revenue

$5.50B

Net Income

$2.02B

36.7% Net Margin

EPS (Diluted)

$0.99

Total Assets

$577.56B

Cash & Equivalents

$46.49B

Free Cash Flow

$8.82B

Financial Statements
Beta
Revenue$5.50B
Interest Expense$431.00M
Net Income$2.02B
EPS (Basic)$1.00
EPS (Diluted)$0.99
Shares Outstanding (Basic)1.89B
Shares Outstanding (Diluted)1.90B

Key Highlights

  • 1Total net revenues grew 20% year-over-year to $5.5 billion in Q3 2022, driven by a 44% increase in net interest revenue due to higher market interest rates.
  • 2Net income increased 32% year-over-year to $2.0 billion in Q3 2022, reflecting strong revenue growth and expense management.
  • 3Client assets decreased 13% year-over-year to $6.64 trillion due to market declines, yet core net new client assets remained substantial at $114.6 billion for the quarter.
  • 4The integration of TD Ameritrade is progressing, with most client conversions now expected in 2023, and total acquisition and integration-related costs estimated between $2.4 billion and $2.5 billion.
  • 5The company increased its common dividend by 10% and announced a $15 billion share repurchase authorization, demonstrating a commitment to shareholder returns.
  • 6The consolidated Tier 1 Leverage Ratio stood at 6.8% as of September 30, 2022, indicating a strong capital position.
  • 7Despite market volatility, active brokerage accounts increased 4% year-over-year to 33.875 million.

Frequently Asked Questions

Rising interest rates significantly benefited Schwab, primarily through a substantial increase in net interest revenue. Net interest revenue grew 44% year-over-year in Q3 2022, reaching $2.9 billion, as higher market rates increased yields on interest-earning assets. This also contributed to higher bank deposit account fees.

The integration of TD Ameritrade is ongoing. Schwab now expects to complete most client conversions over the course of 2023, with some in early 2024. Total acquisition and integration-related costs are now projected to be between $2.4 billion and $2.5 billion, reflecting increased complexity and inflationary pressures.

Market declines led to a 13% year-over-year decrease in total client assets to $6.64 trillion. This also impacted asset management and administration fees, which were down 5% in Q3 2022. However, the company's trading revenue, while down slightly, and significant net interest revenue growth helped offset some of these impacts on total revenue.

Schwab demonstrated its commitment to shareholder returns by increasing its common dividend by 10% and announcing a new $15 billion share repurchase authorization. During the third quarter, the company repurchased $1.5 billion of common stock under this new authorization.