Company Quick10K Filing
Quick10K
Schwab Charles
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$45.82 1,335 $61,170
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-16 Earnings, Exhibits
8-K 2019-05-22 Other Events, Exhibits
8-K 2019-05-15 Shareholder Vote
8-K 2019-04-15 Earnings, Exhibits
8-K 2019-01-16 Earnings, Exhibits
8-K 2018-12-13 Officers
8-K 2018-10-31 Other Events, Exhibits
8-K 2018-10-15 Earnings, Exhibits
8-K 2018-09-25 Officers
8-K 2018-07-17 Earnings, Exhibits
8-K 2018-05-22 Other Events, Exhibits
8-K 2018-05-15 Officers, Shareholder Vote, Exhibits
8-K 2018-04-16 Earnings, Exhibits
8-K 2018-03-27 Officers
8-K 2018-02-22 Officers
8-K 2018-01-25 Officers
8-K 2018-01-17 Earnings, Exhibits
TWLO Twilio 16,800
TFX Teleflex 13,910
VIRT Virtu Financial 4,710
GOOD Gladstone Commercial 657
SSTI Shotspotter 621
FNHC Fednat Holding 193
HICT Hiclasst 0
SQNF SQN Asset Income Fund V 0
GETH Green Envirotech Holdings 0
EWD FSP 303 East Wacker Drive 0
SCHW 2019-03-31
Part I - Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 schw-03312019xex31110q.htm
EX-31.2 schw-03312019xex31210q.htm
EX-32.1 schw-03312019xex32110q.htm
EX-32.2 schw-03312019xex32210q.htm

Schwab Charles Earnings 2019-03-31

SCHW 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 schw-03312019x10q.htm 10-Q Document


UNITED STATES
SECURITIES  AND  EXCHANGE  COMMISSION
Washington, D.C.  20549

FORM 10-Q

QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)
OF  THE  SECURITIES  EXCHANGE  ACT  OF  1934

For the quarterly period ended March 31, 2019

Commission File Number: 1-9700

THE  CHARLES  SCHWAB  CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
94-3025021
(I.R.S. Employer Identification No.)

211 Main Street, San Francisco, CA  94105
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:  (415) 667-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock – $.01 par value per share
SCHW
New York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in
  a share of 6.00% Non-Cumulative Preferred Stock, Series C
SCHW PrC
New York Stock Exchange 
Depositary Shares, each representing a 1/40th ownership interest in
  a share of 5.95% Non-Cumulative Preferred Stock, Series D
SCHW PrD
New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,335,009,396 shares of $.01 par value Common Stock Outstanding on April 30, 2019



THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2019



 Index

 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19-20
 
 
 
21-49
 
 
 
 
 
 
Item 2.
 
1-13
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 






Part I – FINANCIAL INFORMATION

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The Charles Schwab Corporation (CSC) is a savings and loan holding company and engages, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.

Significant business subsidiaries of CSC include the following:

Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
Charles Schwab Bank (CSB), a federal savings bank; and
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries.

Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.
Schwab was founded on the belief that all Americans deserve access to a better investing experience. Although much has changed in the intervening years, our purpose remains clear – to champion every client’s goals with passion and integrity. Guided by this purpose and our vision of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.”

This strategy emphasizes placing clients’ perspectives, needs, and desires at the forefront. Because investing plays a fundamental role in building financial security, we strive to deliver a better investing experience for our clients – individual investors and the people and institutions who serve them – by disrupting longstanding industry practices on their behalf and providing superior service. We also aim to offer a broad range of products and solutions to meet client needs with a focus on transparency, value, and trust. In addition, management works to couple Schwab’s scale and resources with ongoing expense discipline to keep costs low and ensure that products and solutions are affordable as well as responsive to client needs. In combination, these are the key elements of our “no trade-offs” approach to serving investors. We believe that following this strategy is the best way to maximize our market valuation and stockholder returns over time.

Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $45 trillion, which means the Company’s $3.59 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.

This Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (2018 Form 10-K).

On our website, https://www.aboutschwab.com, we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In addition, the website also includes the Dodd-Frank stress test results, our regulatory capital disclosures based on Basel III, and our quarterly average liquidity coverage ratio. The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with the SEC.

- 1 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)



FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “appear,” “could,” “would,” and other similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are estimates based on the best judgment of Schwab’s senior management. These statements relate to, among other things:
Maximizing our market valuation and stockholder returns over time; our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I, Item 2);
Ongoing investments to drive efficiency and scale (see Overview);
Capital returns to stockholders (see Overview);
2019 capital expenditures (see Results of Operations);
The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Part I, Item 1, Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 2);
The likelihood of indemnification and guarantee payment obligations (see Commitments and Contingencies in Item 1 – Note 10); and
The impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 10 and Legal Proceedings in Part II, Item 1).

Achievement of the expressed beliefs, objectives, and expectations described in these statements is subject to certain risks and uncertainties that could cause actual results to differ materially from the expressed beliefs, objectives, and expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents incorporated by reference, as of the date of those documents.

Important factors that may cause actual results to differ include, but are not limited to:
General market conditions, including the level of interest rates, equity valuations, and trading activity;
Our ability to attract and retain clients, develop trusted relationships, and grow client assets;
Client use of our advice solutions and other products and services;
The level of client assets, including cash balances;
Competitive pressure on pricing, including deposit rates;
Client sensitivity to interest rates;
Regulatory guidance;
Capital and liquidity needs and management;
Our ability to manage expenses;
Our ability to develop and launch new products, services, and capabilities, as well as implement infrastructure, in a timely and successful manner;
The timing of campus expansion work and technology projects;
The effect of adverse developments in litigation or regulatory matters and the extent of any related charges; and
Potential breaches of contractual terms for which we have indemnification and guarantee obligations.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in Part I – Item 1A – Risk Factors in the 2018 Form 10-K.



- 2 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


OVERVIEW
Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the first quarters of 2019 and 2018 are:
 
Three Months Ended March 31,
 
Percent
Change
 
2019
 
2018
 
Client Metrics
 
 
 
 
 
Net new client assets (in billions) (1)
$
51.7

 
$
(18.8
)
 
N/M

Core net new client assets (in billions)
$
51.7

 
$
65.6

 
(21
)%
Client assets (in billions, at quarter end)
$
3,585.4

 
$
3,305.4

 
8
%
Average client assets (in billions)
$
3,465.7

 
$
3,382.1

 
2
%
New brokerage accounts (in thousands)
386

 
443

 
(13
)%
Active brokerage accounts (in thousands, at quarter end)
11,787

 
11,005

 
7
%
Assets receiving ongoing advisory services (in billions, at quarter end)
$
1,871.2

 
$
1,717.6

 
9
%
Client cash as a percentage of client assets (at quarter end)
11.3
%
 
11.0
%
 
 

Company Financial Metrics
 

 
 

 
 

Total net revenues
$
2,723

 
$
2,398

 
14
%
Total expenses excluding interest
1,459

 
1,396

 
5
%
Income before taxes on income
1,264

 
1,002

 
26
%
Taxes on income
300

 
219

 
37
%
Net income
$
964

 
$
783

 
23
%
Preferred stock dividends and other
39

 
37

 
5
%
Net income available to common stockholders
$
925

 
$
746

 
24
%
Earnings per common share — diluted
$
.69

 
$
.55

 
25
%
Net revenue growth from prior year
14
%
 
15
%
 
 

Pre-tax profit margin
46.4
%
 
41.8
%
 
 

Return on average common stockholders’ equity
20
%
 
18
%
 
 

Expenses excluding interest as a percentage of average client assets (annualized)
0.17
%
 
0.17
%
 
 
Consolidated Tier 1 Leverage Ratio (at quarter end)
7.2
%
 
7.5
%
 
 
(1) The three months ended March 31, 2018 includes outflows of $84.4 billion from certain mutual fund clearing services clients.
N/M Not meaningful.

Net income for the first quarter of 2019 grew $181 million, or 23%, from the same period in 2018, driven primarily by growth in net interest revenue and disciplined expense management during a mixed geopolitical and economic environment. Total net revenues rose by $325 million, or 14%, primarily due to an increase of $418 million, or 33%, in net interest revenue resulting from improvement in our net interest margin following the Federal Reserve’s four rate hikes in 2018, as well as higher interest-earning assets stemming from the transfer of sweep money market funds to bank and broker-dealer sweep, and client cash allocations. Asset management and administration fees decreased $96 million, or 11%, mainly as a result of lower money market fund revenue as we executed on sweep transfers. Trading revenue declined by 8% as client trading activity remained strong, but below the volume seen in the first quarter of 2018.

Total expenses excluding interest grew $63 million, or 5%, inclusive of hiring to support the Company’s expanding client base and ongoing investments in projects to further drive efficiency and scale. Our disciplined expense management helped produce a 900 basis point gap between year-over-year revenue and expense growth, and a 46.4% pre-tax profit margin for the first quarter of 2019.

Clients opened 386,000 new brokerage accounts during the first quarter of 2019, and the number of active brokerage accounts totaled 11.8 million at March 31, 2019. Core net new assets gathered during the first quarter of 2019 were $51.7 billion, representing a 6% annualized growth rate, and total client assets grew 8% year-over-year to reach $3.59 trillion at quarter end.


- 3 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


During the first quarter of 2019, we continued to emphasize effective balance sheet management, transferring $11.6 billion from sweep money market funds to bank and broker-dealer sweep. In April 2019, we completed all remaining planned transfers. In January 2019, we announced a 31% increase in our dividend to $0.17 per common share, and a $4 billion stock repurchase authorization, which we expect to access in coming quarters to return excess capital to stockholders. We finished the first quarter of 2019 with a Tier 1 Leverage Ratio of 7.2%, and we achieved a 20% return on equity for the third consecutive quarter.

RESULTS OF OPERATIONS

Total Net Revenues

The following table presents a comparison of revenue by category:
 
 
 
 
2019
 
2018
Three Months Ended March 31,
 
Percent
Change
 
Amount
 
% of
Total Net
Revenues
 
Amount
 
% of
Total Net
Revenues
Net interest revenue
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
41
%
 
$
1,998

 
73
%
 
$
1,421

 
59
%
Interest expense
 
101
%
 
(317
)
 
(11
)%
 
(158
)
 
(6
)%
Net interest revenue
 
33
%
 
1,681

 
62
%
 
1,263

 
53
%
Asset management and administration fees
 
 
 
 
 
 
 
 
 
 
Mutual funds, ETFs, and collective trust funds (CTFs) (1)
 
(18
)%
 
414

 
16
%
 
504

 
21
%
Advice solutions
 
(1
)%
 
278

 
10
%
 
282

 
12
%
Other (1)
 
(3
)%
 
63

 
2
%
 
65

 
3
%
Asset management and administration fees
 
(11
)%
 
755

 
28
%
 
851

 
36
%
Trading revenue
 
 
 
 
 
 
 
 
 
 
Commissions
 
(14
)%
 
163

 
6
%
 
189

 
7
%
Principal transactions
 
83
%
 
22

 
1
%
 
12

 
1
%
Trading revenue
 
(8
)%
 
185

 
7
%
 
201

 
8
%
Other
 
23
%
 
102

 
3
%
 
83

 
3
%
Total net revenues
 
14
%
 
$
2,723

 
100
%
 
$
2,398

 
100
%
(1) Beginning in the first quarter of 2019, a change was made to move CTFs from other asset management and administration fees. Prior periods have been recast to reflect this change.




- 4 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Net Interest Revenue

The following table presents net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:
 
 
2019
 
2018
Three Months Ended March 31,
 
Average Balance
 
Interest Revenue/ Expense
 
Average Yield/ Rate
 
Average Balance
 
Interest Revenue/ Expense
 
Average Yield/ Rate
Interest-earning assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
24,983

 
$
151

 
2.42
%
 
$
17,084

 
$
66

 
1.53
%
Cash and investments segregated
 
13,533

 
83

 
2.44
%
 
13,969

 
48

 
1.37
%
Broker-related receivables
 
257

 
2

 
2.75
%
 
287

 
1

 
1.32
%
Receivables from brokerage clients
 
18,972

 
214

 
4.52
%
 
18,872

 
179

 
3.79
%
Available for sale securities (1)
 
66,853

 
451

 
2.70
%
 
50,371

 
240

 
1.91
%
Held to maturity securities
 
132,427

 
916

 
2.77
%
 
121,412

 
721

 
2.38
%
Bank loans
 
16,578

 
149

 
3.61
%
 
16,456

 
130

 
3.19
%
Total interest-earning assets
 
273,603

 
1,966

 
2.88
%
 
238,451

 
1,385

 
2.33
%
Other interest revenue
 
 
 
32

 
 
 
 
 
36

 
 
Total interest-earning assets
 
$
273,603

 
$
1,998

 
2.92
%
 
$
238,451

 
$
1,421

 
2.39
%
Funding sources
 
 
 
 
 
 
 
 
 
 
 
 
Bank deposits
 
$
219,987

 
$
226

 
0.42
%
 
$
176,988

 
$
64

 
0.15
%
Payables to brokerage clients
 
22,184

 
23

 
0.43
%
 
22,469

 
7

 
0.14
%
Short-term borrowings (2)
 
30

 

 
2.48
%
 
12,170

 
47

 
1.55
%
Long-term debt
 
6,845

 
62

 
3.61
%
 
4,392

 
37

 
3.37
%
Total interest-bearing liabilities
 
249,046

 
311

 
0.51
%
 
216,019

 
155

 
0.29
%
Non-interest-bearing funding sources
 
24,557

 
 
 
 
 
22,432

 
 
 
 
Other interest expense
 
 
 
6

 
 
 
 
 
3

 
 
Total funding sources
 
$
273,603

 
$
317

 
0.46
%
 
$
238,451

 
$
158

 
0.27
%
Net interest revenue
 
 
 
$
1,681

 
2.46
%
 
 
 
$
1,263

 
2.12
%
(1) Amounts have been calculated based on amortized cost.
(2) Interest expense was less than $500,000 in the three months ended March 31, 2019.

Net interest revenue increased $418 million, or 33%, in the first quarter of 2019 compared to the same period in 2018, primarily due to higher interest rates and growth in interest-earning assets.
Our net interest margin improved to 2.46% during the first quarter of 2019, up from 2.12% a year earlier, as a result of the Federal Reserve’s 2018 interest rate increases, partially offset by higher interest rates paid on bank deposits and other interest-bearing liabilities.
Average interest earning assets were 15% higher during the first quarter of 2019 compared to the same period in 2018. This increase primarily reflects higher bank deposits due to transfers from sweep money market funds to bank sweep, and changes in client cash allocations, partially offset by client purchases of investment products. Federal Home Loan Bank (FHLB) advances were used to provide temporary funding for investments ahead of deposit growth during the first quarter of 2018; there were no FHLB borrowings in the first quarter of 2019.



- 5 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Asset Management and Administration Fees

The following table presents asset management and administration fees, average client assets, and average fee yields:
Three Months Ended March 31,
2019
 
2018
Average
Client
Assets
 
Revenue
 
Average
Fee
 
Average
Client
Assets
 
Revenue
 
Average
Fee
Schwab money market funds
$
158,268

 
$
122

 
0.31
%
 
$
156,362

 
$
182

 
0.47
%
Schwab equity and bond funds, ETFs, and CTFs (1)
244,314

 
70

 
0.12
%
 
212,519

 
74

 
0.14
%
Mutual Fund OneSource® and other non-transaction fee funds
187,223

 
147

 
0.32
%
 
222,669

 
178

 
0.32
%
Other third-party mutual funds and ETFs (2)
452,461

 
75

 
0.07
%
 
319,722

 
70

 
0.09
%
Total mutual funds, ETFs, and CTFs (1,3)
$
1,042,266

 
414

 
0.16
%
 
$
911,272

 
$
504

 
0.22
%
Advice solutions (3) 
 
 
 
 
 
 
 
 
 
 
 
Fee-based
$
230,394

 
278

 
0.49
%
 
$
224,760

 
282

 
0.51
%
Non-fee-based
66,756

 

 

 
59,762

 

 

Total advice solutions
$
297,150

 
278

 
0.38
%
 
$
284,522

 
282

 
0.40
%
Other balance-based fees (1,4)
392,191

 
52

 
0.05
%
 
410,443

 
55

 
0.05
%
Other (5)
 
 
11

 
 
 
 
 
10

 
 
Total asset management and administration fees
 
 
$
755

 
 
 
 
 
$
851

 
 
(1) Beginning in the first quarter of 2019, a change was made to move CTFs from other balance-based fees. Prior periods have been recast to reflect this change.
(2) Includes Schwab ETF OneSource™.
(3) Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above.
(4) Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.
(5) Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

Asset management and administration fees decreased by $96 million, or 11%, compared to the same period in 2018. This decrease was due to lower sweep money market fund revenue as a result of transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource®. Part of the decline was offset by revenue from growing asset balances in purchased money market funds and other third-party mutual funds and ETFs.

The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource® and other non-transaction fee (NTF) funds. These funds generated 45% of the asset management and administration fees earned during the first quarter of 2019, compared to 51% for the same period in 2018:

 
Schwab Money
Market Funds
 
Schwab Equity and
Bond Funds, ETFs, and CTFs
(1)
 
Mutual Fund OneSource® 
and Other NTF funds
Three Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Balance at beginning of period
 
$
153,472

 
$
163,650

 
$
209,471

 
$
196,784

 
$
180,532

 
$
225,202

Net inflows (outflows)
 
5,152

 
(19,122
)
 
7,248

 
8,785

 
(6,206
)
 
(4,929
)
Net market gains (losses) and other
 
1,045

 
467

 
24,168

 
(2,378
)
 
20,790

 
1,341

Balance at end of period
 
$
159,669

 
$
144,995

 
$
240,887

 
$
203,191

 
$
195,116

 
$
221,614

(1) Beginning in the first quarter of 2019, CTFs are included in these balances. Prior periods have been recast to reflect this change.



- 6 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Trading Revenue
The following table presents trading revenue and the related drivers:

Three Months Ended March 31,
 
Percent
Change

2019
 
2018
 
Daily average revenue trades (DARTs) (in thousands)
418

 
462

 
(10
)%
Clients’ daily average trades (in thousands)
777

 
812

 
(4
)%
Number of trading days
61.0

 
61.0

 

Daily average revenue per revenue trade
$
7.19

 
$
7.24

 
(1
)%
Trading revenue
$
185

 
$
201

 
(8
)%
DART volumes decreased 10% in the first quarter of 2019 compared to the same period in 2018, while daily average revenue per revenue trade remained relatively consistent. This led to a decrease in trading revenue of $16 million, or 8%.

Other Revenue

Other revenue includes order flow revenue, other service fees, software fees from our portfolio management solutions, exchange processing fees, and non-recurring gains. Other revenue increased $19 million, or 23%, in the first quarter of 2019 compared to the same period in 2018 primarily due to a gain from the assignment of leased office space. Order flow revenue was $32 million and $38 million during the first quarters of 2019 and 2018, respectively. This decrease was primarily due to lower volume of trades.



- 7 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Total Expenses Excluding Interest
The following table shows a comparison of expenses excluding interest:
 
 
Three Months Ended
March 31,
 
Percent
Change
 
 
2019
 
2018
 
Compensation and benefits
 
 
 
 
 
 
Salaries and wages
 
$
476

 
$
411

 
16
%
Incentive compensation
 
216

 
212

 
2
%
Employee benefits and other
 
158

 
147

 
7
%
Total compensation and benefits
 
$
850

 
$
770

 
10
%
Professional services
 
170

 
156

 
9
%
Occupancy and equipment
 
131

 
122

 
7
%
Advertising and market development
 
69

 
73

 
(5
)%
Communications
 
62

 
62

 

Depreciation and amortization
 
83

 
73

 
14
%
Regulatory fees and assessments
 
32

 
51

 
(37
)%
Other
 
62

 
89

 
(30
)%
Total expenses excluding interest
 
$
1,459

 
$
1,396

 
5
%
Expenses as a percentage of total net revenues
 
 
 
 
 
 
Compensation and benefits
 
31
%
 
32
%
 
 
Advertising and market development
 
3
%
 
3
%
 
 
Full-time equivalent employees (in thousands)
 
 
 
 
 
 
At quarter end
 
20.0

 
18.2

 
10
%
Average
 
19.9

 
18.0

 
11
%
Total compensation and benefits increased in the first quarter of 2019 compared to the same period in 2018, primarily due to an increase in employee headcount to support our expanding client base.

Professional services expense increased in the first quarter of 2019 compared to the same period in 2018, primarily due to overall growth in the business and investments in projects to further drive efficiency and scale.
Occupancy and equipment expense increased in the first quarter of 2019 compared to the same period in 2018, primarily due to an increase in software maintenance expenses and additional licenses to support growth in the business.
Depreciation and amortization expenses grew in the first quarter of 2019 compared to the same period in 2018, primarily due to higher amortization of internally developed software associated with continued investments in software and technology enhancements.
Regulatory fees and assessments decreased in the first quarter of 2019 compared to the same period in 2018, primarily due to a decrease in FDIC insurance assessments resulting from the elimination of the FDIC surcharge in the fourth quarter of 2018.

Other expenses decreased in the first quarter of 2019 compared to the same period in 2018, primarily due to lower bad debt expense.

Capital expenditures were $181 million and $135 million in the first quarters of 2019 and 2018, respectively. The increase in capital expenditures from the prior year was primarily due to the expansion of our campuses in the U.S. We anticipate capital expenditures for full-year 2019 will reach approximately 7-9% of total net revenues.


- 8 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Taxes on Income

Taxes on income were $300 million and $219 million for the first quarters of 2019 and 2018, respectively, resulting in effective income tax rates on income before taxes of 23.7% and 21.9%, respectively. The increase in the effective tax rate was primarily due to a decrease in equity compensation benefit in the first quarter of 2019 compared to the same period in 2018, as well as state-related tax benefits recognized during the first quarter of 2018.

Segment Information

Financial information for our segments is presented in the following table:
 
 
Investor Services
 
Advisor Services
 
Total
Three Months Ended March 31,
 
Percent Change
 
2019
 
2018
 
Percent Change
 
2019
 
2018
 
Percent Change
 
2019
 
2018
Net Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest revenue
 
25
%
 
$
1,195

 
$
957

 
59
%
 
$
486

 
$
306

 
33
%
 
$
1,681

 
$
1,263

Asset management and administration fees
 
(10
)%
 
533

 
593

 
(14
)%
 
222

 
258

 
(11
)%
 
755

 
851

Trading revenue
 
(13
)%
 
111

 
127

 

 
74

 
74

 
(8
)%
 
185

 
201

Other
 
13
%
 
72

 
64

 
58
%
 
30

 
19

 
23
%
 
102

 
83

Total net revenues
 
10
%
 
1,911

 
1,741

 
24
%
 
812

 
657

 
14
%
 
2,723

 
2,398

Expenses Excluding Interest
 
2
%
 
1,062

 
1,042

 
12
%
 
397

 
354

 
5
%
 
1,459

 
1,396

Income before taxes on income
 
21
%
 
$
849

 
$
699

 
37
%
 
$
415

 
$
303

 
26
%
 
$
1,264

 
$
1,002


Investor Services

Total net revenues grew by 10% in the first quarter of 2019 compared to the same period in 2018, primarily due to an increase in net interest revenue, partially offset by lower asset management and administration fees. Net interest revenue increased primarily due to higher net interest margin and higher interest-earning assets. Asset management and administration fees decreased primarily due to lower money market fund revenue as a result of transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource®.

Expenses excluding interest increased by 2% in the first quarter of 2019 compared to the same period in 2018, primarily due to higher compensation and benefits due to increased headcount to support our expanding client base. This increase in expense was partially offset by a decrease in FDIC insurance assessments due to the elimination of the FDIC surcharge in the fourth quarter of 2018 and lower bad debt expense.
Advisor Services
Total net revenues grew by 24% in the first quarter of 2019 compared to the same period in 2018, primarily due to an increase in net interest revenue, partially offset by lower asset management and administration fees. Net interest revenue increased primarily due to higher net interest margin and higher interest-earning assets. Asset management and administration fees decreased primarily due to lower money market fund revenue as a result of transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource®.

Expenses excluding interest increased by 12% in the first quarter of 2019 compared to the same period in 2018, primarily due to higher compensation and benefits due to increased headcount to support our expanding client base. This increase in expense was partially offset by lower bad debt expense and a decrease in FDIC insurance assessments due to the elimination of the FDIC surcharge in the fourth quarter of 2018.



- 9 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


RISK MANAGEMENT

Schwab’s business activities expose us to a variety of risks, including operational, credit, market, liquidity, and compliance risks. The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational impact. For a discussion of our risk management programs, see Item 7 – Risk Management in the 2018 Form 10-K.

Net Interest Revenue Simulation

Schwab’s investment strategy is structured to produce an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall. For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulation includes all interest-sensitive assets and liabilities. Key variables in the simulation include the repricing of financial instruments, prepayment, reinvestment, and product pricing assumptions. The simulations involve assumptions that are inherently uncertain and, as a result, cannot precisely estimate the impact of changes in interest rates on net interest revenue. Actual results may differ from simulated results due to balance growth or decline and the timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and management strategies, including changes in asset and liability mix.

The simulations in the following table assume that the asset and liability structure of the consolidated balance sheets would not be changed as a result of the simulated changes in interest rates. As we actively manage the consolidated balance sheets and interest rate exposure, in all likelihood we would take steps to manage additional interest rate exposure that could result from changes in the interest rate environment. The following table shows the simulated net interest revenue change over the next 12 months beginning March 31, 2019 and December 31, 2018 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

 
March 31, 2019
 
December 31, 2018
Increase of 100 basis points
 
5.1
%
 
4.4
%
Decrease of 100 basis points
 
(5.4
)%
 
(4.9
)%

Liquidity Risk

Schwab’s primary source of funds is cash generated by client activity which includes bank deposits and cash balances in client brokerage accounts. These funds are used to purchase investment securities and extend loans to clients.

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, repurchase agreements, and cash provided by external financing.
 
To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments. For unanticipated liquidity needs, a buffer of highly liquid investments, including U.S. Treasury notes, is also maintained.


- 10 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


In addition to internal sources of liquidity, Schwab has access to external funding. The following table describes external debt facilities available at March 31, 2019:
Description
Borrower
 
Outstanding
 
Available
Federal Home Loan Bank secured credit facility (1)
Banking subsidiaries
 
$

 
$
36,122

Uncommitted, unsecured lines of credit with various external banks
CSC, CS&Co
 

 
1,432

Unsecured commercial paper (2)
CSC
 

 
750

Committed, unsecured credit facility with various external banks
CSC
 

 
750

Federal Reserve Bank discount window (3)
Banking subsidiaries
 

 
8,446

(1) Amounts available are dependent on the amount of First Mortgages, HELOCs, and the fair value of certain investment securities that are pledged as collateral.
(2) CSC has authorization from its Board of Directors to issue Commercial Paper Notes to not exceed $1.5 billion. Management has set a current limit not to exceed the amount of the committed, unsecured credit facility.
(3) Amounts available are dependent on the fair value of certain investment securities that are pledged as collateral.

CSC’s ratings for Commercial Paper Notes are P1 by Moody’s Investor Service (Moody’s), A1 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch).
The Company was subject to, and was in compliance with, the modified liquidity coverage ratio (LCR) rule at March 31, 2019. The table below presents information about our average LCR:
 
Average for the
Three Months Ended
March 31, 2019
 
Total eligible high quality liquid assets
$
38,797

Net cash outflows (1)
$
34,992

LCR
111
%
(1) This amount represents modified net cash outflows as defined by the LCR rule, which requires that high quality liquid assets (HQLA) cover 70% of total stressed net cash outflows.

As Schwab’s consolidated balance sheet assets were above $250 billion at December 31, 2018, Schwab became subject to the full LCR rule on April 1, 2019.
Borrowings
The following are details of the Senior Notes:
March 31, 2019
Par
Outstanding
 
Maturity
Weighted Average
Interest Rate
Moody’s
Standard
& Poor’s
Fitch
Senior Notes
$
6,881

 
2020 - 2029
3.42%
A2
A
A


CAPITAL MANAGEMENT

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including anticipated balance sheet growth, providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries. Schwab’s primary sources of capital are funds generated by the operations of subsidiaries and securities issuances by CSC in the capital markets. To ensure that Schwab has sufficient capital to absorb unanticipated losses or declines in asset values, we have adopted a policy to remain well capitalized even in stressed scenarios.


- 11 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Regulatory Capital Requirements

CSC and CSB are subject to various capital requirements set by regulatory agencies as discussed in further detail in the 2018 Form 10-K and in Item 1 – Note 15. As of March 31, 2019, CSC and CSB are considered well capitalized.

The following table details CSC’s consolidated and CSB’s capital ratios as of March 31, 2019 and December 31, 2018:
 
March 31, 2019 (1)
December 31, 2018
 
CSC
 
CSB
 
CSC
 
CSB
Total stockholders’ equity
$
21,625

 
$
15,744

 
$
20,670

 
$
15,615

Less:
 
 
 
 
 
 
 
Preferred stock
2,793

 

 
2,793

 

Common Equity Tier 1 Capital before regulatory adjustments
$
18,832

 
$
15,744

 
$
17,877

 
$
15,615

Less:
 
 
 
 
 
 
 
Goodwill, net of associated deferred tax liabilities
$
1,188

 
$
13

 
$
1,188

 
$
13

Other intangible assets, net of associated deferred tax liabilities
118

 

 
125

 

Deferred tax assets, net of valuation allowances and deferred tax liabilities
3

 
1

 
3

 
1

AOCI adjustment (1)

 

 
(252
)
 
(231
)
Common Equity Tier 1 Capital
$
17,523

 
$
15,730

 
$
16,813

 
$
15,832

Tier 1 Capital
$
20,316

 
$
15,730

 
$
19,606

 
$
15,832

Total Capital
20,338

 
15,751

 
19,628

 
15,853

Risk-Weighted Assets
88,362

 
76,114

 
95,441

 
80,513

Total Leverage Exposure (1)
287,713

 
229,292

 
N/A

 
N/A

Common Equity Tier 1 Capital/Risk-Weighted Assets
19.8
%
 
20.7
%
 
17.6
%
 
19.7
%
Tier 1 Capital/Risk-Weighted Assets
23.0
%
 
20.7
%
 
20.5
%
 
19.7
%
Total Capital/Risk-Weighted Assets
23.0
%
 
20.7
%
 
20.6
%
 
19.7
%
Tier 1 Leverage Ratio
7.2
%
 
7.0
%
 
7.1
%
 
7.2
%
Supplementary Leverage Ratio (1)
7.1
%
 
6.9
%
 
N/A

 
N/A

(1) Beginning in 2019, CSC and CSB are subject to the “advanced approaches” framework under the Basel III capital rule. As a result, we are now required to include all components of accumulated other comprehensive income (AOCI) in regulatory capital and report our supplementary leverage ratio, which is calculated as Tier 1 capital divided by total leverage exposure. Total leverage exposure includes all on-balance sheet assets and certain off-balance sheet exposures, including unused commitments. Prior to 2019, CSC and CSB elected to opt-out of the requirement to include most components of AOCI in Common Equity Tier 1 Capital; the amounts and ratios for December 31, 2018 are presented on this basis.
N/A Not applicable.

CSB is also subject to regulatory requirements that restrict and govern the terms of affiliate transactions. In addition, CSB is required to provide notice to, and may be required to obtain approval from, the Office of the Comptroller of the Currency and the Federal Reserve to declare dividends to CSC.

Schwab’s primary broker-dealer subsidiary, CS&Co, is subject to regulatory requirements of the Uniform Net Capital Rule. At March 31, 2019, CS&Co was in compliance with its net capital requirements.

In addition to the capital requirements above, Schwab’s subsidiaries are subject to other regulatory requirements intended to ensure financial soundness and liquidity. See Item 1 – Note 15 for additional information on the components of stockholders’ equity and information on the capital requirements of significant subsidiaries.


- 12 -



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Dividends

On January 30, 2019, the Board of Directors of the Company declared a four cent, or 31%, increase in the quarterly cash dividend to $.17 per common share.

Cash dividends paid and per share amounts for the first three months of 2019 and 2018 are as follows:
 
 
2019
 
2018
Three Months Ended March 31,
 
Cash Paid
 
Per Share
Amount
 
Cash Paid
 
Per Share
Amount
Common Stock
 
$
228

 
$
.17

 
$
136

 
$
.10

Series A Preferred Stock (1)
 
14

 
35.00

 
14

 
35.00

Series C Preferred Stock (2)
 
9

 
15.00

 
9

 
15.00

Series D Preferred Stock (2)
 
11

 
14.88

 
11

 
14.88

Series E Preferred Stock (3)
 
14

 
2,312.50

 
14

 
2,312.50

Series F Preferred Stock (4)
 

 

 
N/A

 
N/A

(1) Dividends paid semi-annually until February 1, 2022 and quarterly thereafter.
(2) Dividends paid quarterly.
(3) Dividends paid semi-annually until March 1, 2022 and quarterly thereafter.
(4) Dividends paid semi-annually beginning on June 1, 2018 until December 1, 2027, and quarterly thereafter.
N/A Not applicable.


OTHER

Foreign Holdings
At March 31, 2019, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At March 31, 2019, the fair value of these holdings totaled $7.0 billion, with the top three exposures being to issuers and counterparties domiciled in France at $2.0 billion, Sweden at $1.0 billion, and Canada at $0.8 billion.
In addition to the direct holdings in foreign companies and securities issued by foreign government agencies, Schwab has indirect exposure to foreign countries through its investments in CSIM money market funds (collectively, the Funds) resulting from brokerage clearing activities. Certain of the Funds’ positions include certificates of deposit, time deposits, commercial paper, and corporate debt securities issued by counterparties in foreign countries. Schwab had outstanding margin loans to foreign residents of $631 million at March 31, 2019.

Off-Balance Sheet Arrangements
Schwab enters into various off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of our clients. These arrangements include firm commitments to extend credit. Additionally, Schwab enters into guarantees and other similar arrangements in the ordinary course of business. For information on each of these arrangements, see Item 1 – Note 5, Note 6, Note 8, Note 10, and Note 11, and Item 8 – Note 14 in the 2018 Form 10-K.


CRITICAL ACCOUNTING ESTIMATES

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2018 Form 10-K. There have been no changes to critical accounting estimates during the first three months of 2019.



- 13 -



THE CHARLES SCHWAB CORPORATION



Item 3. Quantitative and Qualitative Disclosures About Market Risk

For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2.


- 14 -


Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Income
(In Millions, Except Per Share Amounts)
(Unaudited)

 
 
Three Months Ended March 31,
 
 
2019
 
2018
Net Revenues
  
 
 
 
Interest revenue
  
$
1,998

 
$
1,421

Interest expense
  
(317
)
 
(158
)
Net interest revenue
  
1,681

 
1,263

Asset management and administration fees
  
755

 
851

Trading revenue
  
185

 
201

Other
  
102

 
83

Total net revenues
  
2,723

 
2,398

Expenses Excluding Interest
  
 
 
 
Compensation and benefits
  
850

 
770

Professional services
  
170

 
156

Occupancy and equipment
  
131

 
122

Advertising and market development
  
69

 
73

Communications
  
62

 
62

Depreciation and amortization
  
83

 
73

Regulatory fees and assessments
 
32

 
51

Other
  
62

 
89

Total expenses excluding interest
  
1,459

 
1,396

Income before taxes on income
  
1,264

 
1,002

Taxes on income
  
300

 
219

Net Income
  
964

 
783

Preferred stock dividends and other (1)
  
39

 
37

Net Income Available to Common Stockholders
  
$
925

 
$
746

Weighted-Average Common Shares Outstanding:
 
 
 
 
Basic
  
1,333

 
1,347

Diluted (2)
 
1,344

 
1,362

Earnings Per Common Shares Outstanding:
 
 
 
 
Basic
  
$
.69

 
$
.55

Diluted (2)
  
$
.69

 
$
.55

(1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
(2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 16 million and 11 million shares for the first quarters of 2019 and 2018, respectively.

See Notes to Condensed Consolidated Financial Statements.


- 15 -



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In Millions)
(Unaudited)


 
 
Three Months Ended March 31,
 
 
2019
 
2018
Net income
 
$
964

 
$
783

Other comprehensive income (loss), before tax:
 
 

 
 

Change in net unrealized gain (loss) on available for sale securities:
 
 

 
 

Net unrealized gain (loss)
 
227

 
(108
)
Other reclassifications included in other revenue
 
(1
)
 

Amortization of amounts previously recorded upon transfer to held to maturity from available for sale
 
12

 
9

Other comprehensive income (loss), before tax
 
238

 
(99
)
Income tax effect
 
(57
)
 
24

Other comprehensive income (loss), net of tax
 
181

 
(75
)
Comprehensive Income
 
$
1,145

 
$
708


See Notes to Condensed Consolidated Financial Statements.


- 16 -



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Balance Sheets
(In Millions, Except Per Share and Share Amounts)
(Unaudited)


 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Cash and cash equivalents
$
32,558

 
$
27,938

Cash and investments segregated and on deposit for regulatory purposes (including resale
agreements of $6,861 at March 31, 2019 and $7,195 at December 31, 2018)
13,924

 
13,563

Receivables from brokers, dealers, and clearing organizations
616

 
553

Receivables from brokerage clients — net
20,529

 
21,651

Other securities owned — at fair value
521

 
539

Available for sale securities
60,005

 
66,578

Held to maturity securities
132,420

 
144,009

Bank loans — net
16,510

 
16,609

Equipment, office facilities, and property — net
1,813

 
1,769

Goodwill
1,227

 
1,227

Other assets
2,692

 
2,046

Total assets
$
282,815

 
$
296,482

Liabilities and Stockholders’ Equity
 
 
 

Bank deposits
$
219,454

 
$
231,423

Payables to brokers, dealers, and clearing organizations
1,602

 
1,831

Payables to brokerage clients
29,701

 
32,726

Accrued expenses and other liabilities
3,604

 
2,954

Long-term debt
6,829

 
6,878

Total liabilities
261,190

 
275,812

Stockholders’ equity:
 
 
 

Preferred stock — $.01 par value per share; aggregate liquidation preference of $2,850
2,793

 
2,793

Common stock — 3 billion shares authorized; $.01 par value per share; 1,487,543,446
shares issued
15

 
15

Additional paid-in capital
4,548

 
4,499

Retained earnings
18,017

 
17,329

Treasury stock, at cost — 153,141,949 shares at March 31, 2019 and 155,116,695
shares at December 31, 2018
(3,677
)
 
(3,714
)
Accumulated other comprehensive income (loss)
(71
)
 
(252
)
Total stockholders’ equity
21,625

 
20,670

Total liabilities and stockholders’ equity
$
282,815

 
$
296,482


See Notes to Condensed Consolidated Financial Statements.


- 17 -



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Stockholders Equity
(In Millions)
(Unaudited)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
Preferred Stock
 
Common stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock,
at cost
 
 
Total
 
 
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2017
 
$
2,793

 
1,488

 
$
15

 
$
4,353

 
$
14,408

 
$
(2,892
)
 
$
(152
)
 
$
18,525

Adoption of accounting standards
 

 

 

 

 
200

 

 
(33
)
 
167

Net income
 

 

 

 

 
783

 

 

 
783

Other comprehensive income (loss), net of tax
 

 

 

 

 

 

 
(75
)
 
(75
)
Dividends declared on preferred stock
 

 

 

 

 
(34
)
 

 

 
(34
)
Dividends declared on common stock — $.10 per
  share
 

 

 

 

 
(135
)
 

 

 
(135
)
Stock option exercises and other
 

 

 

 
(12
)
 

 
61

 

 
49

Share-based compensation
 

 

 

 
47

 

 

 

 
47

Other
 

 

 

 
9

 

 
(6
)
 

 
3

Balance at March 31, 2018
 
$
2,793

 
1,488

 
$
15

 
$
4,397

 
$
15,222

 
$
(2,837
)
 
$
(260
)
 
$
19,330

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
$
2,793

 
1,488

 
$
15

 
$
4,499

 
$
17,329

 
$
(3,714
)
 
$
(252
)
 
$
20,670

Net income
 

 

 

 

 
964

 

 

 
964

Other comprehensive income (loss), net of tax
 

 

 

 

 

 

 
181

 
181

Dividends declared on preferred stock
 

 

 

 

 
(34
)
 

 

 
(34
)
Dividends declared on common stock — $.17 per
  share
 

 

 

 

 
(228
)
 

 

 
(228
)
Stock option exercises and other
 

 

 

 
(14
)
 

 
40

 

 
26

Share-based compensation
 

 

 

 
53

 

 

 

 
53

Other
 

 

 

 
10

 
(14
)
 
(3
)
 

 
(7
)
Balance at March 31, 2019
 
$
2,793

 
1,488

 
$
15

 
$
4,548

 
$
18,017

 
$
(3,677
)
 
$
(71
)
 
$
21,625


See Notes to Condensed Consolidated Financial Statements.


- 18 -



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows
(in Millions)
(Unaudited)


 
 
Three Months Ended
March 31,
 
 
2019
 
2018
Cash Flows from Operating Activities
 
 

 
 
Net income
 
$
964

 
$
783

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
 
 

 
 
Share-based compensation
 
56

 
50

Depreciation and amortization
 
83

 
73

Premium amortization, net, on available for sale and held to maturity securities
 
68

 
96

Other
 
33

 
36

Net change in:
 
 

 
 

Investments segregated and on deposit for regulatory purposes
 
(1,520
)
 
853

Receivables from brokers, dealers, and clearing organizations
 
(61
)
 
(245
)
Receivables from brokerage clients
 
1,121

 
(595
)
Other securities owned
 
18

 
39

Other assets
 
(15
)
 
(16
)
Payables to brokers, dealers, and clearing organizations
 
(229
)
 
(325
)
Payables to brokerage clients
 
(3,025
)
 
(155
)
Accrued expenses and other liabilities
 
(88
)
 
(346
)
Net cash provided by (used for) operating activities
 
(2,595
)
 
248

Cash Flows from Investing Activities
 
 
 
 
Purchases of available for sale securities
 
(1,132
)
 
(4,631
)
Proceeds from sales of available for sale securities
 
10,652

 

Principal payments on available for sale securities
 
6,039

 
2,695

Purchases of held to maturity securities
 
(1,235
)
 
(8,235
)
Principal payments on held to maturity securities
 
3,996

 
3,548

Net increase in bank loans
 
81

 
74

Purchases of equipment, office facilities, and property
 
(139
)
 
(122
)
Purchases of Federal Home Loan Bank stock
 
(2
)
 

Proceeds from sales of Federal Home Loan Bank stock
 

 
172

Other investing activities
 
25

 
(40
)
Net cash provided by (used for) investing activities
 
18,285

 
(6,539
)
Cash Flows from Financing Activities
 
 
 
 
Net change in bank deposits (1)
 
(11,969
)
 
20,528

Net change in short-term borrowings
 

 
(15,000
)
Repayment of long-term debt
 

 
(627
)
Dividends paid