Schwab strives to keep our stockholders and analysts informed of the firm’s bigger financial picture. Hear from our CFO.
Periodically, Peter Crawford, our Chief Financial Officer, will use this forum to provide insight and commentary regarding Schwab's financial picture. For any questions, please contact Investor Relations via email or call: Richard G. Fowler, senior vice president: 415-667-1841
The commentary in this section speaks only as of the date specified below. The company makes no commitment to update any of this information.
October 6, 2020
Today we announced that we’ve completed the acquisition of TD Ameritrade (“TDA”) in an all-stock transaction with an estimated value of approximately $22 billion. Per the merger agreement, TD Ameritrade stockholders are entitled to receive 1.0837 Schwab shares for each TD Ameritrade share owned, which represents a 17% premium over the 30-day volume weighted average price exchange ratio as of November 20, 2019.
Although the world around us has changed markedly since we announced this transaction back in late November, our enthusiasm remains undiminished and we are more confident than ever that both clients and stockholders will benefit from the combined firm. Over the past 10 months, the Schwab and TDA teams have worked tirelessly to get us to this point in the midst of a uniquely challenging macroeconomic environment. Now the “serious work” begins, as we leverage the firms’ shared focus on clients to deliver a highly-scaled organization that is positioned to meet the needs of investors across every phase of their financial journey as well as support the independent advisors who serve them. Our combined reach is a valuable strength:
Note: Total client assets based on combined data for Schwab and TD Ameritrade as of August 31, 2020, using company reports; all other combined data as of June 30, 2020, calculated using Schwab’s methodology.
We shared a lot of detail back in November 2019 during our announcement as well as during the 2020 Winter Business Update, and key items such as deal rationale and structure, potential sources of synergies, and our expected approach to the integration process and related costs and timing remain unchanged. However, we thought it was worth taking time today to cover a couple of transaction-related items, including post-closing reporting expectations and certain mechanics of the Insured Deposit Account agreement (“IDA”) with Toronto-Dominion Bank’s two U.S. bank subsidiaries, TD Bank, National Association and TD Bank USA, National Association (together “TD Bank”).
Upon closing, TDA’s go-forward operating results will be incorporated into our consolidated results. Therefore, our 4Q20 reporting will include 87 days, or nearly a full quarter, of combined financial and client activity. We are planning to include the appropriate retail and institutional elements of TDA’s business within our current Investor Services and Advisor Services reported segments.
From a broader financial statement perspective, the pro forma financials within Exhibit 99.3 to the Form 8-K filed back on March 20th serve as a good illustration of our planned approach to the combined presentation of the two firms. As you might have noticed from that filing, we will create a new revenue line item for “Bank deposit account fees”. Given the expected size of that fee stream, as well as the Bank Deposit Accounts’ (“BDA”) contribution to the revenue synergy opportunity, we thought it was important to report this separately. Keep in mind that the BDA includes both the IDA arrangement with TD Bank (“IDA balances”) – which accounts for the vast majority of balances – as well as other amounts routed to certain unaffiliated, third-party banks. Additionally, we also plan to continue sharing key dynamics underpinning this BDA structure, including balances, net yields, and the scheduled maturity ladder for fixed investments, similar to those previously provided by TDA.
As part of our 2Q20 earnings release, we introduced certain non-GAAP measures intended to supplement GAAP results and provide additional context to help investors evaluate Schwab’s operating performance as well as facilitate a meaningful comparison of our current results to both historic and future results. These same adjusted measures of expenses, pre-tax profit margin, net income, diluted earnings per common share, and return on tangible common equity will continue as part of our regularly scheduled reporting for the foreseeable future. The adjustments from GAAP to non-GAAP will remain consistent, concentrated on acquisition and integration-related costs as well as the amortization of acquired intangibles. For the latter, our purchase price accounting analysis is well underway and we plan to share provisional estimates for allocations to intangibles, along with the corresponding amortization schedule, as soon as the information is available.
Finally, we also expect to make some minor modifications to other recurring reporting mechanisms, including our monthly SMART release. Starting with data for October, the combined firm’s metrics will be delivered on a consolidated basis utilizing Schwab’s calculation methodologies and presentation template. As mentioned above, we are committed to providing appropriate transparency regarding the BDA, including tweaking the SMART slightly to include both average interest-earning assets and BDA balances. In addition, we plan to also layer in a new metric regarding the percentage of total trading activity within derivatives.
IDA Overview and Opportunity
Schwab has entered into an amended IDA with TD Bank, which became effective at closing. While the construct of the agreement is generally in-line with the historical arrangements between TDA and TD Bank, there are several key areas to call out:
- Service Fee Reduction
- Balance Migration Option
- Multi-stage Structure
Under the IDA, the service fee paid on client cash deposits held at TD Bank will be reduced by 40%, from 25 basis points to 15 basis points (“bps”), for the life of the agreement. One other change relative to the previous IDA arrangement is the removal of any rate-related floors. Under the prior agreement, TDA had floors in place which enabled them to carve-out up to $20 billion of floating-rate investments from the applicable service fee during specified low-rate environments (such as we are in now). Going forward, the renegotiated 15 bps rate will be applied across all fixed and floating IDA balances.
Starting on July 1, 2021, Schwab maintains an option to begin migrating up to $10 billion from the IDA balances to Schwab’s balance sheet as long as certain binding limitations are accounted for, including Schwab’s obligation to move all of the uninsured IDA balances on that date, and the net change in IDA balances between today and June 30 of next year. Following these adjustments to the migration amount, our option enables us to move up to $10 billion in a given 12-month period – subject to the stated restrictions such as the $50 billion IDA floor and maintaining at least 80% of the IDA balances in fixed-rate investments through June 2026.
The IDA between Schwab and TD Bank was developed using a multi-stage approach. Starting with closing, or Legal Day 1 (“LD1”), the different stages of the agreement can be characterized as follows:
As you may recall, the cash migrations over the next 10+ years are the largest source of estimated net revenue synergies related to this transaction. In simple terms, Schwab anticipates picking up incremental economics on the migrated balances equal to the eliminated service fee plus a credit spread on a typical Schwab Bank portfolio investment. For additional details on the IDA, we’d encourage you to review the amended agreement between Schwab and TD Bank which was filed as Exhibit 10.407 to our most recent Form 10-K. Finally, we’re also excited about digging in on the other revenue synergy opportunities we’ve identified, such as introducing TDA’s clients to Schwab’s breadth and depth of capabilities, including advisory and investment management solutions and mortgage lending.
We are so proud of all the work both companies have put in to get us to this day. We know there will be tough decisions and challenges to overcome as these two great firms come together, but we believe the potential of the combined firm is undeniably compelling. We remain confident that we have the right people, resources, and plan to take full advantage of the opportunity in front of us: to provide an enhanced experience for our combined client base as well as deliver long-term value for stockholders.
This commentary contains forward-looking statements relating to Schwab’s acquisition of TD Ameritrade and the combined company, including client and stockholder benefits; scale; revenue and expense synergies; the integration process, costs and timing; and post-closing reporting expectations that reflect management’s expectations as of the date hereof. Achievement of these expectations 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, the risk that expected revenue, expense, operational and other synergies from the transaction may not be fully realized or may take longer to realize than expected; the companies are unable to successfully implement their integration strategies and plans; general market conditions, including equity valuations, trading activity, the level of interest rates - which can impact money market fund fee waivers - and credit spreads; the companies’ 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 companies’ ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance their infrastructure, in a timely and successful manner; client use of the companies’ advisory solutions and other products and services; client cash allocations; client sensitivity to rates; the level of client assets, including cash balances; the companies’ ability to monetize client assets; capital and liquidity needs and management; the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities to contain the spread of the virus and the economic impact; regulatory guidance; litigation or regulatory matters; and any adverse impact of financial reform legislation and related regulations. Other important factors are set forth in Schwab’s and TD Ameritrade’s definitive joint proxy statement/prospectus dated May 4, 2020, as supplemented, and Schwab’s and TD Ameritrade’s most recent reports on Form 10-K and Form 10-Q.
June 12, 2020
On May 26, 2020, we completed the acquisition of the assets of USAA’s Investment Management Company, a very important milestone for Schwab, USAA members, and the ~400 employees from USAA who joined our company. Given how much the environment has changed since we last provided specific information on this acquisition, I wanted to give you an update on certain relevant data. The transaction brought to Schwab a total of $81 billion in client assets and 1.1 million accounts, for which we paid ~$1.6 billion in cash. We also entered into a long-term referral agreement that makes Schwab the exclusive provider of wealth management and investment brokerage services for USAA members. Read more >
March 13, 2020
With global health concerns relating to COVID-19 weighing on the macroeconomic environment and driving heightened volatility in the financial markets, we thought it might be helpful to spend some time discussing the effects on client activity. Not surprisingly, our clients have turned to us for help in this environment and we’ve been there to support them. Read more >
October 1, 2019
Today, we announced our decision to reduce online trade commissions for U.S. and Canadian-listed equities and ETFs to $0, and to reduce the base charge on options to $0, as well. As noted in the press release, this action is consistent with the principles on which Chuck Schwab founded this company nearly 45 years ago and with the “Through Clients’ Eyes” strategy we have followed ever since then – which have made the Charles Schwab Corporation so successful. Read more >
August 14, 2018
As we announced in our second quarter earnings release, we crossed the $250 billion asset threshold1 for heightened regulatory requirements, ending the period at $262 billion in consolidated assets. While we don't believe the consequences will be disruptive to our business model or our strategy, I wanted to share a brief overview of what crossing this threshold means to Schwab and how we have been preparing over the last few years. Read more >
February 14, 2018
In our January SMART report released today, we noted a $7.2 billion outflow from a mutual fund clearing services ("clearing") client. Since we expect several additional large clearing outflows in early 2018, I wanted to share some context on the business and discuss the potential effect on our reported client asset flows (noticeable) and revenues (immaterial). Read more >
December 22, 2017
Today, President Trump signed significant tax reform legislation into law and I wanted to spend a moment focusing on the potential impacts to Schwab's effective tax rate. As you may know, we have historically paid close to the full statutory federal corporate income tax rate, so the benefits are likely to be significant – though the new law does include the disallowance of some Schwab-relevant deductions. Read more >
February 28, 2017
Today we announced another reduction in our online equity, ETF, and option trade commission rates, following moves we announced just a few weeks ago on February 2nd. With this second action coming right on the heels of the first, I thought it might be useful to share some context regarding how they both fit within our financial planning for 2017. Read more >
January 19, 2016
Those of you who follow The Charles Schwab Corporation closely may receive our quarterly financial results through a wire service/email, a market data aggregator, or simply by checking our corporate website. This morning, we began making our results available via another widely-used platform: Twitter. You can find our page on with the handle @CharlesSchwab. Today's activity includes a Tweet noting the availability of fourth quarter 2015 results with a link to our press release, and follow-ups sharing the headlines from this morning's announcement. Read more >
December 14, 2015
Today we released our November Monthly Activity Report. While we produced another month of solid client metrics, we have no illusions about another press release stealing the show later this week. As you know, the Federal Reserve is widely anticipated to begin raising interest rates on December 16th. We have seen economic and employment reports meet expectations, FOMC minutes evolve, and member speeches show increasing conviction. Read more >
September 15, 2015
We issued our SMART report for the month of August today, and between the client metrics shown there and the trading data that we've already posted it's clear we've been busy. With the elevated market volatility late in the month, our clients made extensive use of our branches, phone-based service centers and online capabilities to help keep their investing on track. Many of them engaged with our financial consultants and subject matter experts to ask questions about how their assets enrolled in our advisory solutions are positioned, as well as assess their holdings and determine what, if any, action should be taken. Read more >
August 14, 2015
By now, you may have noticed that we recently made a few changes to our disclosures, and I'd like to make sure everyone is aware of these developments as well as provide context for how they help tell our story. As a large savings and loan holding company, our required reporting has expanded significantly in recent years. In addition, as Schwab evolves, we revisit our reporting and strive to keep it closely aligned with the everyday workings of the business. In the second quarter of 2015, we added a new Other Regulatory Disclosures tab to our corporate website, made changes to the Asset Management and Administration Fees (AMAF) table in our earnings release package, and included some new information in our 10-Q filing. Read more >
January 16, 2015
As we announced in our earnings release today, our Q4 '14 financial results included two nonrecurring items related to the company's non-agency residential mortgage-backed securities (RMBS) portfolio: net litigation proceeds of approximately $28 million and net losses of $8 million from selling securities totaling approximately $500 million. Taken together, these items increased pre-tax income by approximately $20 million, or $.01 per share. With the financial crisis well behind us, it's been a while since we've needed to discuss these securities, so I wanted to walk through some history and share a perspective on these recent developments. Read more >
October 15, 2014
Concurrent with our Earnings Release today, we are inaugurating a new approach to reporting on our clients' trading activity intra-quarter. We have retired the inclusion of trade reporting in our Monthly Market Activity Report ("SMART") and are now providing a weekly look at trading activity, including revenue, asset-based, and other trades, which is posted on the Investor Relations landing page on . Read more >
July 16, 2014
As you look through today's earnings release, you might notice that the size of our balance sheet (shown in the Financial and Operating Highlights table on page 5) hasn't changed much since year-end 2013, continuing to hover around $144 billion. That's unusual for us–for example, the company's balance sheet grew by approximately $8 billion during the second half of 2013. Given the factors influencing this situation, I wanted to share some perspective on current client behavior and ramifications for our capital management going forward. Read more >
March 31, 2014
As I mentioned in my last post, here are a few more thoughts on the evolution of client behavior during the market recovery, which is now a full five years along: With the S&P 500 up over 170% from its lowest point in the first quarter of 2009 and setting new records, it's not really surprising to see investors put cash back to work in the markets. There are, however, some interesting aspects to the way our clients have reallocated their holdings across products and asset classes during the recovery thus far. Read more >
March 14, 2014
The S&P 500 Index bottomed at 676.53 on March 9, 2009, so we are now a full five years into the market recovery. As the recovery has strengthened in recent months, we have been asked more often about individual investor engagement, with the questioner usually equating engagement with trading activity. Read more >
January 16, 2014
This is my inaugural CFO Commentary. I expect to use this site regularly to provide perspectives on Schwab's financial picture, including color on our performance and details on topical issues. Over time, I can see sharing more significant financial information that might be better discussed in a forum like this, versus press releases or other forms of communication. Read more >
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