Schwab Reports Record Earnings Per Share of $.70, Up 8%

(STL.News) – The Charles Schwab Corporation announced today that its net income for the third quarter of 2019 was $951 million, up 3% from $923 million for the third quarter of 2018.  Net income for the nine months ended September 30, 2019 was $2.9 billion, up 11% from the year-earlier period.  CEO Walt Bettinger said, “As we remain faithful to our “Through Clients’ Eyes” strategy, investors continue to reward us with strong business growth.  Our contemporary full-service model helps us remain a trusted partner as clients navigate an environment that has only grown more cloudy in recent months.  The equity markets have shown noteworthy durability – the S&P 500 remained up nearly 20% for the year as of quarter-end.  Concerns persist, however, regarding global trade and a generally softening economic outlook.  The Federal Reserve has moved forward with expected mid-cycle easing, cutting short-term interest rates 25 bps in both July and September, and long-term rates have also shown significant declines.  Against this backdrop, clients brought us $56.6 billion in core net new assets, a third quarter record, which brings our year-to-date total to $145.5 billion, representing a 6% annualized organic growth rate.  In addition, we attracted 363,000 new brokerage accounts in the quarter, helping raise active brokerage accounts to 12.1 million, up 6% year-over-year.  Client demand for help and guidance continued to grow, with assets receiving ongoing advisory services reaching nearly $2.0 trillion at quarter end, up 7%.  Assets in digital advisory solutions grew even faster, rising 20% to $43.0 billion at the end of September.  Overall, our client assets totaled a record $3.77 trillion at quarter end, up 6%.”

“Our commitment to challenge the status quo and disrupt the industry on behalf of clients endures through all environments,” Mr. Bettinger added.  “Most recently, we eliminated online trade commissions for stocks, ETFs, and options listed on U.S. or Canadian exchanges, a move that represents another significant investment in bringing ever greater value to our clients.  This action is consistent with the principles on which our company was founded, helping realize Chuck Schwab’s vision of making investing accessible to all.  We also continue to extend our products and platforms, including the recent launch of three new fixed-income ETFs. In support of our independent advisors, we’ve made enhancements to Institutional Intelligent Portfolios® including a paperless account conversion feature making it simpler than ever to incorporate automated investing into their practices, while freeing up time to spend with investors and scale their businesses.  Additionally, on July 25th, we announced an agreement to acquire certain assets of USAA’s Investment Management Company, with closing targeted for the middle of next year.  We are honored to have the opportunity to serve USAA members as their exclusive wealth management and brokerage provider, and are looking forward to exploring a new growth opportunity via the multi-year referral agreement included in this transaction.”

Mr. Bettinger concluded, “Schwab’s ‘Virtuous Cycle’ is renewed by bold steps like our recent price cuts, reflecting our belief that investors will entrust us with more business as we do right by them.  We are acting from a position of strength – both financial and competitive – which allows us to take these steps with confidence, knowing we are able to push forward as we choose, not as the current environment might dictate.”

CFO Peter Crawford commented, “Our continued success with clients and full-service model enabled us to deliver third quarter revenues of $2.7 billion, up 5% year-over-year.  Net interest revenue rose 7% from a year ago to $1.6 billion, largely a result of generally higher investment yields and higher client cash allocations.  Growing client balances in purchased money market funds, advisory solutions, and other third-party mutual funds and ETFs pushed asset management and administration fees to $825 million, increasing 2% year-over-year.  A pick-up in trading volumes was more than offset by a decline in average revenue per trade, bringing trading revenue to $172 million, down 2% from a year ago.  Turning to expenses, our reported total of $1.5 billion includes $62 million in severance charges associated with our decision to eliminate positions spanning approximately 3% of our workforce, as we work to ensure we remain properly positioned to serve clients through what has become a more challenging environment.  These charges contributed roughly half of our 8% year-over-year expense growth.  Ongoing expenses remained in line with management expectations and we were able to report a pre-tax profit margin of 45.6% – our sixth consecutive quarter of at least 45%.”

Mr. Crawford added, “Consistent with the evolution of the Schwab story to include both business growth and meaningful capital returns, we repurchased 19.9 million shares for approximately $770 million during the third quarter.  We have repurchased more than 49 million shares for $2 billion under our current $4 billion authorization.  Our expanding client base and related increases in their cash balances drove modest organic growth in our balance sheet during the third quarter, with consolidated assets increasing $2.7 billion sequentially to $279 billion at September 30th.  Our preliminary Tier 1 Leverage Ratio ended the quarter at 7.3%, slightly above our operating objective of 6.75%-7.00%; our capital management in coming quarters will incorporate preparations for the $1.8 billion USAA transaction next year.  With a 20% return on equity for the quarter and year-to-date, we remain well-positioned to drive strong profitable growth into the future through a combination of sustained business momentum, thoughtful expense management, and a healthy balance sheet.”

Commentary from the CFO

Periodically, our Chief Financial Officer provides insight and commentary regarding Schwab’s financial picture at: https://www.aboutschwab.com/cfo-commentary .  The most recent commentary, which provides perspective on our decision to reduce online trade commissions for U.S. and Canadian-listed equities, ETFs, and options to $0, was posted on October 1, 2019.

Forward-Looking Statements

This press release contains forward-looking statements relating to business growth; enhancements to products and platforms; the company’s acquisition of certain assets of USAA’s Investment Management Company (IMCO), including timing of closing and entering into a referral agreement; financial and competitive strength; capital returns to stockholders; growth in the client base, client accounts and assets; cash balances; Tier 1 Leverage Ratio operating objective; profitable growth; expense management; and the balance sheet.  Achievement of these expectations and objectives is subject to risks and uncertainties that could cause actual results to differ materially from the expressed expectations.

Important factors that may cause such differences include, but are not limited to, general market conditions, including the level of interest rates, equity valuations, and trading activity; the company’s ability to attract and retain clients and registered investment advisors and grow those relationships and client assets; competitive pressures on pricing, including deposit rates; the company’s ability to develop and launch new and enhanced products, services, and capabilities, as well as implement infrastructure, in a timely and successful manner; client use of the company’s advisory solutions and other products and services; client sensitivity to rates; failure of the parties to satisfy the closing conditions in the USAA IMCO purchase agreement in a timely manner or at all, including regulatory approvals and the implementation of conversion plans; capital and liquidity needs and management; level of client assets, including cash balances; the company’s ability to manage expenses; and other factors set forth in the company’s most recent report on Form 10-K.

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