Schwab Clients Down 10% But Trading Remains Robust

The Charles Schwab Corporation announced today that its net income for the second quarter of 2022 was a record $1.8 billion compared with $1.4 billion for the first quarter of 2022, and $1.3 billion for the second quarter of 2021. Net income for the six months ended June 30, 2022 was $3.2 billion, compared with $2.7 billion for the year-earlier period. During the quarter, acquisition and integration-related costs and the amortization of acquired intangibles totaled $94 million and $154 million, respectively, on a pre-tax basis. In addition, the company’s second quarter of 2021 included a charge of approximately $200 million, or $.10 per share, regarding a now settled regulatory matter.

CEO Walt Bettinger said, "Throughout the first half of 2022, we’ve kept our focus on serving clients and they’ve rewarded us with sustained strength in business momentum and growth. Clients remained engaged during the second quarter even as pressures mounted on the U.S. economy, including rising inflation and the Fed’s corresponding shift to an aggressive tightening stance, ongoing geopolitical turmoil driven by the war in Ukraine, and more-volatile equity markets that are now in bear-market territory. These pressures have all contributed to an environment that highlights the importance of our contemporary approach to full-service investing, where clients can choose how to access the help they need in the manner that works best for them by visiting one of our branches, speaking with one of our phone-based investment professionals, or utilizing the content, resources and capabilities provided through our website and mobile app. The value of Schwab’s scalable, multi-channel service model was on full display during the past quarter as we facilitated over 575 million total interactions, including nearly 5 million inbound contacts with an average speed to answer of less than 20 seconds."

"Sustained client engagement was also reflected in daily trading volume during the second quarter, which averaged 6.2 million, approximately 3% above year-earlier levels," Mr. Bettinger continued. "Clients opened 1.0 million new brokerage accounts during the quarter, and we ended June with 33.9 million active accounts, up 5% year-over-year. Additionally, while the core net new assets (NNA) that clients brought to us during the quarter were impacted by the record tax-season outflows we experienced in April, the $73 billion in core NNA that came in between May 1 and June 30 represented a continuation of the 6% annualized organic growth rate we achieved during the first quarter of 2022. We ended June with $6.83 trillion in client assets versus $7.57 trillion a year earlier, which helps illustrate the extent of the market valuation pressures clients are facing even as they’ve added more than $480 billion in core NNA to their accounts over the past 12 months."

Mr. Bettinger concluded, "As we move deeper into 2022, our focus remains squarely on executing our 'Through Clients’ Eyes' strategy, along with driving progress across our strategic priorities and our TD Ameritrade integration. We know that clients trust us to provide the help and advice they need to navigate any environment, but that it’s particularly important to be there for them as they assess their investments in light of tougher headwinds. To me, there is no greater reward than seeing our client service professionals earn year-to-date satisfaction scores that are among the highest we’ve ever recorded. We remain convinced that our client-first mindset – in combination with our service culture and relentless attention to scale and efficiency – helps create a formidable competitive advantage for Schwab as we continue to realize our vision of modern wealth management."

"Our second quarter financial results demonstrated the power of our all-weather model as we supported our clients through an increasingly challenging environment," noted CFO Peter Crawford. "Record total revenue of $5.1 billion, up 13% versus the prior year, reflected a combination of ongoing business momentum, rapidly tightening monetary policy, and continued strength in client engagement. Net interest revenue was up 31% from the prior year as higher interest rates and client cash balances more than offset the impact of softer securities lending activity. At the same time, asset management and administration fees were essentially flat due to weaker equity market valuations and trading revenues were down 7% largely due to changes in the mix of client activity. Additionally, the other revenue line included $37 million in pre-tax gains related to the sales of Schwab Compliance Technologies and a small business investment."

Mr. Crawford continued, "On the expense front, quarterly GAAP spending increased slightly year-over-year to $2.8 billion, including $94 million in acquisition and integration-related costs and $154 million in amortization of acquired intangibles. Exclusive of these items, adjusted total expenses were up 2% versus the second quarter of 2021. Our pre-tax profit margin expanded to 44.6% and rose nearly 500 basis points to 49.5% on an adjusted basis. Also, the reversal of $62 million in tax reserves due to the resolution of certain state matters helped further bolster after-tax profitability. We believe the combination of our diversified revenue mix with disciplined expense prioritization helps keep us positioned to deliver healthy financial performance through the cycle."

"Attentive balance sheet management, including the maintenance of appropriate capital and liquidity to support client activity, remains core to our financial strategy," added Mr. Crawford. "During the quarter, total assets contracted by 6% to $638 billion. This decrease was primarily attributable to record tax disbursements in April as well as expected client cash sorting behavior during the latter part of the period. The company’s preliminary Tier 1 Leverage Ratio moved closer to our operating objective, expanding to 6.4% at the end of June, while second quarter return on equity and ROTCE were 19% and 45%, respectively. The overall strength of today’s results highlights our continued success with clients and further bolsters our confidence in our ability to build long-term stockholder value."


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