Market Overview

Schwab Reports Net Income of $937 Million, Up 8%, Posting the Strongest Second Quarter in Company History

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Revenues Grow 8% Year-Over-Year to $2.7 Billion, Marking Sustained Business Momentum

Core Net New Assets Total $37.2 Billion and Client Assets Reach a Record $3.70 Trillion

The Charles Schwab Corporation announced today that its net income for the second quarter of 2019 was $937 million, down 3% from $964 million for the prior quarter, and up 8% from $866 million for the second quarter of 2018. Net income for the six months ended June 30, 2019 was a record $1.9 billion, up 15% from the year-earlier period.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20190716005413/en/

 

 

Three Months Ended

June 30,

 

%

 

Six Months Ended

June 30,

 

%

Financial Highlights

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues (in millions)

 

$

2,681

 

 

$

2,486

 

 

8%

 

$

5,404

 

 

$

4,884

 

 

11%

Net income (in millions)

 

$

937

 

 

$

866

 

 

8%

 

$

1,901

 

 

$

1,649

 

 

15%

Diluted earnings per common share

 

$

.66

 

 

$

.60

 

 

10%

 

$

1.35

 

 

$

1.14

 

 

18%

Pre-tax profit margin

 

46.1

%

 

45.5

%

 

 

 

46.3

%

 

43.7

%

 

 

Return on average common

stockholders' equity (annualized)

 

19

%

 

19

%

 

 

 

20

%

 

19

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: All per-share results are rounded to the nearest cent, based on weighted-average diluted common shares outstanding.

CEO Walt Bettinger said, "Our ‘no trade-offs' approach to combining value, service, transparency, and trust continues to resonate with clients, as they are drawn to our contemporary full-service model through all environments. Thus far in 2019, a challenging mix of geopolitical, economic, and market dynamics has persisted, with investors facing unresolved trade negotiations, the Brexit debate and signals that the Fed may be moving towards a reversal in rate policy, all while U.S. equity markets have rallied to record territory. Amidst this backdrop, we drove sustained business momentum. Clients opened nearly 400,000 new brokerage accounts during the second quarter, bringing year-to-date new accounts to 772,000, helping push active accounts to the 12 million mark by quarter-end, up 7% year-over-year. This includes 3.5 million accounts under the guidance of the 7,500+ independent advisors who custody with us; those accounts are up 8% as advisors successfully build their businesses with our assistance."

Mr. Bettinger continued, "Both advisors and individual clients contributed to our total core net new assets of $37.2 billion during the second quarter. With first half core net new assets of $88.9 billion, we sustained an annualized organic growth rate in excess of 5% throughout the period despite seasonal tax outflows in April. These strong flows reflect our ability to win in a competitive marketplace – clients have transferred nearly two dollars of assets in for every dollar out over the past six months, helping total client assets climb to a record $3.70 trillion as of June 30th, an increase of $305 billion, or 9% from a year ago."

"Our "Through Clients' Eyes" strategy includes serving our clients' evolving needs where and how they prefer," Mr. Bettinger added. "We recently opened our 61st independent branch, up from 53 at year end. These offices help extend our traditional branch network, delivering Schwab's capabilities through local, community-based professionals. For clients exploring our lending capabilities, we have introduced new features to our Pledged Asset Line® offering, including loans with no preset term, streamlined origination and underwriting criteria, and a new application process available via any web-enabled device, with access to a new loan in as little as 24 hours. To aid advisors with growing and managing their practices, we are implementing digital alternatives to traditionally paper-based processes; by eliminating manual touch points and enabling automated status updates, these tools improve efficiency for both advisors and the company. We know that investing in these and other initiatives to build an ever more capable and efficient Schwab is important to our clients and our ability to continue winning in the marketplace. Through consistent strategic focus and disciplined execution, we expect to sustain our track record of delivering profitable growth and long-term value creation while putting clients first."

CFO Peter Crawford commented, "Our sustained business momentum helped us achieve our strongest second quarter ever, even as we weathered shifts in client asset allocations and activity levels, as well as the interest rate environment. Overall, revenues were up 8% from a year ago at $2.7 billion, which was just under last quarter's record mark. Net interest revenue rose 14% year-over-year to $1.6 billion, largely driven by higher interest-earning assets relating to the transfer of sweep money market fund balances to bank and broker-dealer sweep. In addition, our net interest margin rose 10 bps from a year ago to 2.40%, reflecting the Fed's 2018 rate hikes. Asset management and administration fees decreased 3% year-over-year to $786 million as a result of lower money market fund revenue due to the sweep transfers as well as ongoing declines in Mutual Fund OneSource® balances, partially offset by growing enrollment in our advisory solutions. Trading revenue declined 3% to $174 million due to a decrease in average revenue per trade, which more than offset higher activity. Finally, other revenue rose 32%, driven primarily by a gain on the sale of PortfolioCenter®, a portfolio management and reporting software solution for advisors, to Tamarac Inc. Looking at expenses, our 7% increase reflects planned growth in staffing and our investments to drive efficiency and scale as we support our expanding client base. Our ongoing focus on driving efficiency while managing our spending in a disciplined manner enabled us to maintain our ratio of expenses to client assets at 16 bps for the quarter and achieve a pre-tax profit margin of 46.1% – our 5th consecutive quarter of at least 45%."

Mr. Crawford concluded, "Effective balance sheet management remains a priority as we aim to maintain appropriate liquidity and support business growth. During the second quarter, we issued $600 m

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