Charles Schwab Corporation’s net income for the third quarter of 2014 was USD321 million, comparable to USD324 million in the second quarter of 2014, and an increase of 11 per cent from USD290 million for Q3 2013.
Net income for the nine months ended September 30, 2014 was USD971 million, up 29 per cent from the year-earlier period.
The company’s financial results for the third quarter and first nine months of 2014 include two nonrecurring items: a net insurance recovery of approximately USD45 million; and a charge relating to future changes in the company’s geographic footprint totalling USD68 million. Taken together, these two items reduced pre-tax income by approximately USD23 million, or USD0.01 per share.
Chief executive Walt Bettinger says: “Our full-service investing model continues to resonate with clients and drive business growth. During the third quarter of 2014, we gathered USD34.7 billion in net new assets – a six per cent annualised growth rate – and we ended the quarter with USD2.40 trillion in total client assets, up 12 per cent from last September. While there were signs of a summer effect in client interactions during the quarter, we still attracted 229,000 new brokerage accounts, and we finished the period serving 9.3 million brokerage accounts, 970,000 banking accounts, and 1.4 million retirement plan participants, up three, four and eight per cent, respectively, from month-end September 2013.
“Against a backdrop of heightened market volatility during the quarter, we saw increased utilisation of the help and advice available through Schwab, reflecting investors’ trust in our ability to help them navigate towards a better financial future. We held another 27,000 planning conversations during the quarter, and assets enrolled in one of our retail or other advisory solutions reached USD177 billion at quarter end. Including relationships under the guidance of independent advisors, USD1.19 trillion in client assets at Schwab are currently receiving some form of ongoing advisory service, an increase of 15 per cent versus year-ago levels.”
Chief financial officer Joe Martinetto says: “Continued success with clients, diversified revenue sources, and sustained expense discipline kept Schwab’s financial performance in line with our expectations for the third quarter given the environment. Asset management and administration fees and net interest revenue both showed double-digit percentage increases over the year-ago quarter and set new quarterly records, more than offsetting the effect of lower client revenue trades. With or without the USD45 million recovery, our third quarter revenues are the second highest quarter in our history – surpassed only by an extraordinary spike during the internet bubble – and they mark the 8th consecutive quarter of sequential growth for the firm.
“The charge described above is consistent with expectations we’ve shared for shrinking our footprint in San Francisco and setting the stage for future growth in other more cost-effective locations. Recognizing the charge in the third quarter reflects our progress to the point where we can estimate severance relating to this effort, which is expected to extend over the next three years. By carefully managing our reinvestment for growth and other operating costs to ensure they continued to track closely to plan, we were able to achieve a pre-tax profit margin of 33.4 per cent for the quarter including both non-recurring items. This is a particularly strong result given that the one-timers represent a 250 basis point net reduction in the ratio. Even with that drag, our year-to-date earnings of USD971 million keep us on the strongest pace of any year in our history. Given our strong business momentum, operating and expense discipline, a healthy balance sheet and growing capital flexibility, we are well positioned to continue driving profitable growth in the