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Schwab Third Quarter Revenues Rise 15%, Reach Highest Level In 13 Years

Stocks in this article: SCHW

“As we pursue our strategy of building a better investment firm ‘through clients’ eyes’, we are succeeding in driving growth in both our client base and stockholder value,” Mr. Bettinger continued. “Our core net new assets of nearly $43 billion were 97% higher than a year ago and the highest in Schwab history for a summer quarter; our year-to-date core net new assets of $108.8 billion represent an annualized growth rate of approximately 7.4%. In addition, we ended September with 9.0 million active brokerage accounts and 930,000 banking accounts, up 3% and 10%, respectively, over the third quarter of 2012. While total corporate retirement plan participants declined in keeping with our announced consolidation of plan recordkeeping technology platforms, we are seeing strong interest in our new index-based 401(k) offering. Meanwhile, introduction of our groundbreaking, innovative ETF 401(k) Plan solution is pending resolution of a final regulatory issue.”

Mr. Bettinger noted, “These client results supported double-digit percentage increases in all three of our main revenue sources and 15% overall revenue growth versus the year-ago quarter. Even with the continued headwind created by an interest rate environment that remains at historic lows, our third quarter revenues surpassed all our prior quarterly results save the extraordinary spike we experienced at the height of the internet bubble.”

CFO Joe Martinetto commented, “With our client investments running at appropriate levels, we were able to convert Schwab’s strong revenue performance into a 33.8% pre-tax profit margin and $290 million of net income for the third quarter, our highest quarterly earnings since the peak year of 2008. As we deliver improved earnings and our balance sheet growth tracks with our core asset gathering activity, our capital flexibility increases – we ended the quarter with a preliminary consolidated Tier I Leverage Ratio of 6.3% versus our target minimum ratio of 6.0%.”

Mr. Martinetto concluded, “Assuming an ongoing economic recovery, as well as interest rates and client trading activity that remain at or above recent levels, our outlook for the remainder of this year and into 2014 has not changed – we expect our 2013 revenue growth will outpace expenses by approximately 100 to 200 basis points, helping us to achieve a pre-tax profit margin of at least 30% and earnings per share in the mid-$.70s for the year. Additionally, we are aiming for a gap of approximately 300 to 500 basis points between revenue and expense growth in 2014. We continue to believe we possess all of the elements necessary for strong growth and increased operating leverage going forward: business momentum, operating and expense discipline, a healthy balance sheet, and a solid capital base.”

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