-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, h0+U2TOuettH7kCw/w8vRBoEOdB/vLfC2lIYUXKGHpFcv2qUO1M9i7cXgBV3pU3s ryjDoaK3Q0kma3xYLQJAiA== 0000316709-95-000005.txt : 19950517 0000316709-95-000005.hdr.sgml : 19950516 ACCESSION NUMBER: 0000316709-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CHARLES CORP CENTRAL INDEX KEY: 0000316709 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 943025021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09700 FILM NUMBER: 95538220 BUSINESS ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 10-Q 1 10-Q FOR QTR 3/31/95 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, 1995 Commission file number 1-9700 THE CHARLES SCHWAB CORPORATION (Exact name of Registrant as specified in its charter) Delaware 94-3025021 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 101 Montgomery Street, San Francisco, CA 94104 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (415) 627-7000 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 x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 85,895,520* shares of $.01 par value Common Stock Outstanding on May 1, 1995 * Reflects the 1995 three-for-two common stock split. THE CHARLES SCHWAB CORPORATION Quarterly Report on Form 10-Q For the Quarter Ended March 31, 1995 Index Page ---- Part I - Financial Information Item 1. Condensed Consolidated Financial Statements: Statement of Income 1 Balance Sheet 2 Statement of Cash Flows 3 Notes 4-5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-12 Part II - Other Information Item 1. Legal Proceedings 12-13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature 14 Part 1 - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements THE CHARLES SCHWAB CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share amounts) (Unaudited)
Three Months Ended March 31, 1995 1994 ---- ---- Revenues Commissions $150,947 $160,985 Interest revenue, net of interest expense of $79,203 in 1995 and $35,230 in 1994 46,048 35,862 Principal transactions 43,296 50,289 Mutual fund service fees 46,239 33,768 Other 10,323 7,001 - ---------------------------------------------------------------------------------- Total 296,853 287,905 - ---------------------------------------------------------------------------------- Expenses Excluding Interest Compensation and benefits 123,161 121,020 Communications 26,363 28,139 Occupancy and equipment 23,520 20,961 Depreciation and amortization 14,134 12,512 Commissions, clearance and floor brokerage 15,599 12,526 Advertising and market development 10,898 11,796 Professional services 5,647 5,566 Other 14,150 11,841 - ---------------------------------------------------------------------------------- Total 233,472 224,361 - ---------------------------------------------------------------------------------- Income before taxes on income 63,381 63,544 Taxes on income 25,005 25,354 - ---------------------------------------------------------------------------------- Net Income $ 38,376 $ 38,190 ================================================================================== Weighted average number of common and common equivalent shares outstanding* 88,074 88,204 ================================================================================== Earnings per Common Equivalent Share* $ .44 $ .43 ================================================================================== Dividends Declared per Common Share* $ .060 $ .047 ================================================================================== * Reflects the 1995 three-for-two common stock split. See Notes to Condensed Consolidated Financial Statements.
- 1 - THE CHARLES SCHWAB CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data)
March 31, December 31, 1995 1994 ---- ---- (Unaudited) ----------- Assets Cash and equivalents (including resale agreements of $152,110 in 1995 and $242,500 in 1994) $ 417,328 $ 380,616 Cash and investments required to be segregated under Federal or other regulations (including resale agreements of $4,321,079 in 1995 and $3,787,984 in 1994) 4,617,642 4,206,466 Receivable from brokers, dealers and clearing organizations 87,655 86,028 Receivable from customers (less allowance for doubtful accounts of $3,125 in 1995 and $3,204 in 1994) 2,827,269 2,923,867 Equipment, office facilities and property (less accumulated depreciation and amortization of $172,792 in 1995 and $162,474 in 1994) 136,238 129,105 Customer lists (less accumulated amortization of $143,686 in 1995 and $140,860 in 1994) 23,988 26,813 Other assets 161,258 164,967 - ------------------------------------------------------------------------------------------------------ Total $8,271,378 $7,917,862 ====================================================================================================== Liabilities and Stockholders' Equity Drafts payable $ 159,000 $ 117,383 Payable to brokers, dealers and clearing organizations 428,406 296,420 Payable to customers 6,813,017 6,670,362 Accrued expenses 190,045 195,320 Long-term borrowings 171,130 171,363 - ------------------------------------------------------------------------------------------------------ Total liabilities 7,761,598 7,450,848 - ------------------------------------------------------------------------------------------------------ Stockholders' equity: Preferred stock - 10,000,000 shares authorized; $.01 par value per share; none issued Common stock - 200,000,000 shares authorized; $.01 par value per share; 89,229,708 shares issued in 1995 and 1994* 892 595 Additional paid-in capital 170,237 166,103 Retained earnings 406,141 373,161 Treasury stock - 3,435,029 shares in 1995 and 3,781,995 shares in 1994, at cost* (55,004) (57,968) Unearned ESOP shares (8,146) (10,174) Unamortized restricted stock compensation (4,340) (4,703) - ------------------------------------------------------------------------------------------------------ Stockholders' equity 509,780 467,014 - ------------------------------------------------------------------------------------------------------ Total $8,271,378 $7,917,862 ====================================================================================================== * Reflects the 1995 three-for-two common stock split. See Notes to Condensed Consolidated Financial Statements.
- 2 - THE CHARLES SCHWAB CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, 1995 1994 ---- ---- Cash flows from operating activities Net income $ 38,376 $ 38,190 Noncash items included in net income: Depreciation and amortization 14,134 12,512 Deferred income taxes 517 7,254 Other 4,067 (137) Change in accrued expenses (2,719) 25,782 Change in other assets 3,196 10,457 - -------------------------------------------------------------------------------------------------- Net cash provided before change in customer-related balances 57,571 94,058 - -------------------------------------------------------------------------------------------------- Change in customer-related balances: Payable to customers 142,655 591,736 Receivable from customers 96,677 (80,557) Drafts payable 41,617 (5,299) Payable to brokers, dealers and clearing organizations 131,986 24,441 Receivable from brokers, dealers and clearing organizations (1,627) (4,151) Cash and investments required to be segregated under Federal or other regulations (411,176) (531,355) - -------------------------------------------------------------------------------------------------- Net change in customer-related balances 132 (5,185) - -------------------------------------------------------------------------------------------------- Net cash provided by operating activities 57,703 88,873 - -------------------------------------------------------------------------------------------------- Cash flows from investing activities Purchase of equipment, office facilities and property - net (18,006) (14,803) - -------------------------------------------------------------------------------------------------- Net cash used by investing activities (18,006) (14,803) - -------------------------------------------------------------------------------------------------- Cash flows from financing activities Purchase of treasury stock (19,031) Dividends paid (5,142) (4,046) Other 2,157 931 - -------------------------------------------------------------------------------------------------- Net cash used by financing activities (2,985) (22,146) - -------------------------------------------------------------------------------------------------- Increase in cash and equivalents 36,712 51,924 Cash and equivalents at beginning of period 380,616 279,828 - -------------------------------------------------------------------------------------------------- Cash and equivalents at end of period $ 417,328 $ 331,752 ================================================================================================== See Notes to Condensed Consolidated Financial Statements.
- 3 - THE CHARLES SCHWAB CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Basis of Presentation The accompanying unaudited condensed consolidated financial statements include The Charles Schwab Corporation (CSC) and its subsidiaries (collectively the Company), including Charles Schwab & Co., Inc. (Schwab) and Mayer & Schweitzer, Inc. (M&S). These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles. All adjustments were of a normal recurring nature. All material intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1994 Annual Report to Stockholders, which are incorporated by reference in the Company's 1994 Annual Report on Form 10-K. Revenues are presented net of interest expense. Certain 1994 revenues and expenses have been reclassified to conform to the 1995 presentation. Contingent Liabilities In the normal course of its margin lending activities, Schwab is contingently liable to the Options Clearing Corporation for the margin requirement of customer margin securities transactions. Such margin requirement is secured by a pledge of customers' margin securities. This contingent liability was $114 million at March 31, 1995. In January 1992, the Company filed a petition in U.S. Tax Court refuting a claim for additional Federal income tax asserted by the Internal Revenue Service (IRS). A trial is scheduled for August 1995. The asserted additional tax of $19 million, excluding interest, arises from the IRS' audit of the tax periods ended March 31, 1988 and December 31, 1988. The majority of the asserted additional tax relates to deductions claimed by the Company for amortization of intangible assets (mainly customer lists) received in the Company's 1987 acquisition of Schwab. The resolution of the contested issues may also affect the Company's taxable years ended December 31, 1989 through 1994. While a 1993 U.S. Supreme Court decision confirms the Company's ability to amortize for tax purposes certain of its intangible assets, issues involving the valuation of these intangible assets remain unresolved in the Company's case with the IRS. Management believes that these matters will be resolved without a material adverse effect on the Company's financial position or results of operations. M&S has been named as one of thirty-three defendant market- making firms in a consolidated class action which is pending in Federal District Court in the Southern District of New York pursuant to an order of the Judicial Panel on Multidistrict Litigation. On December 16, 1994, the plaintiffs filed a consolidated amended complaint purportedly on behalf of certain persons who purchased or sold Nasdaq securities during the period May 1, 1989 through May 27, 1994. The complaint does not set forth any specific conduct by M&S and does not request any specific amount of damages, although it requests that the actual damages be trebled where permitted by statute. The consolidated amended complaint generally alleges an illegal combination and conspiracy among the defendant market-making firms to fix and maintain the spreads between the bid and ask prices of Nasdaq securities. On February 2, 1995, the defendants filed a motion to dismiss the consolidated amended complaint for failure to state a claim. That motion is pending. The ultimate outcome of this consolidated action cannot currently be determined. There are other various lawsuits pending against the Company which, in the opinion of management, will be resolved with no material impact on the Company's financial position or results of operations. In December 1994, a $100 million letter of credit facility was established by CSC with a commercial bank to issue letters of credit (LOCs) to three of the SchwabFunds (registered trademark) money market funds in connection with the bankruptcies of Orange County, California and the Orange County investment pool. CSC has agreed to reimburse the bank for any payments made under the LOCs, and to leave unutilized as much as $100 million of its $225 million credit facility. The LOC facility was voluntarily established by CSC as a precautionary measure to provide independent support for the valuation of certain securities held by the funds. These securities were issued by Orange County and by municipalities that participated in the investment pool maintained by Orange County. - 4 - Although the issuers, other than Orange County, have not filed for bankruptcy, their ability to repay obligations in a timely manner may be affected by shortfalls, if any, of amounts scheduled to be received from investments in the Orange County investment pool. At March 31, 1995, LOCs totaling $58.5 million were outstanding under this facility. The funds may make demands for payments under the LOCs if the issuers of certain municipal securities held by the funds fail to pay a specified percentage of the principal amount of the securities when due or if the proceeds received by the funds in the disposition of any such securities are less than a specified percentage of the principal amount of the securities. The funds will absorb losses of principal amounts of the securities, if any, at disposition or maturity for each security up to a specified percentage. The LOCs expire and the original maturities of the securities occur on or before August 1, 1995. Management is currently unable to determine whether, or to what extent, the funds would make any demands for payment under the LOCs. Regulatory Requirements Schwab and M&S are subject to the SEC's Uniform Net Capital Rule and each compute net capital under the alternative method permitted by this Rule, which requires the maintenance of minimum net capital, as defined, of the greater of 2% of aggregate debit balances arising from customer transactions or a minimum dollar amount, which is based on the type of business conducted by the broker-dealer. The minimum dollar amount for both Schwab and M&S is $1 million. Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar amount requirement. At March 31, 1995, Schwab's net capital was $338 million (11% of aggregate debit balances), which was $279 million in excess of its minimum required net capital and $191 million in excess of 5% of aggregate debit balances. At March 31, 1995, M&S' net capital was $6 million (395% of aggregate debit balances), which was $5 million in excess of its minimum required net capital. In accordance with the requirements of SEC Rule 15c3-3, Schwab and M&S had a portion of their cash and investments segregated for the exclusive benefit of customers at March 31, 1995. Cash Flow Information Certain investing and financing activities of the Company affect its financial position but do not affect cash flows. The following table summarizes those transactions (in thousands):
Three Months Ended March 31, 1995 1994 ---- ---- Transfer of par value on stock issued in three-for-two stock split $297 ==== Dividends declared, not yet paid $4,006 ====== Equipment, office facilities and property financed $1,843 ======
Certain additional information affecting the cash flows of the Company follows (in thousands):
Three Months Ended March 31, 1995 1994 ---- ---- Income taxes paid $ 3,993 $ 462 ======= ======= Interest paid: Customer cash balances $72,468 $30,857 Long-term borrowings 5,204 4,740 Other 3,610 1,232 ------- ------- Total interest paid $81,282 $36,829 ======= =======
Subsequent Event In April 1995, CSC announced the terms of an offer to acquire ShareLink Investment Services plc, a retail discount securities brokerage firm in the United Kingdom, for approximately $65 million in cash and/or loan notes. Completion of the transaction is expected by June 30, 1995 and is subject to regulatory approvals and other conditions. CSC entered into a contract in April 1995 to purchase British pound sterling to be used for the ShareLink Investment Services plc acquisition. - 5 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Charles Schwab Corporation (CSC) and its subsidiaries (collectively referred to as the Company) provide brokerage and related investment services to customers with 3.1 million active (a) accounts and assets that totaled $136.9 billion at March 31, 1995. With a network of 208 branch offices, the Company's principal subsidiary, Charles Schwab & Co., Inc. (Schwab), is physically represented in 46 states, the Commonwealth of Puerto Rico and the United Kingdom. Mayer & Schweitzer, Inc. (M&S), a market maker in Nasdaq securities, provides trade execution services to broker-dealers and institutional customers. The Company's business, like that of other securities brokerage firms, is directly affected by fluctuations in volumes and price levels in securities markets, which are in turn affected by many national and international economic and political factors that cannot be predicted. Transaction-based revenues, primarily commission and principal transaction revenues, represent the majority of the Company's revenues. In the short term, most of the Company's expenses do not vary directly with fluctuations in securities trading volume and do not increase or decrease quickly, which could result in the Company experiencing increased profitability with rapid increases in revenues, or reduced profitability (or losses) in the event of a material reduction in revenues. Due to the factors discussed above, the results of any interim period are not necessarily indicative of results for a full year, and it is not unusual for the Company to experience significant variations in quarterly revenue growth. In addition, these factors may subject the Company's future earnings and common stock price to significant volatility. The Company has historically used discount pricing as a tactic in its efforts to gain market share and enhance the value of its services. In recent years, Schwab has introduced additional price-competitive product offerings such as its No-Annual-Fee IRA, its Mutual Fund OneSource (trademark) service and its Schwab 500 Brokerage (trademark) service, which includes commission discounts from Schwab's standard rates. Schwab's on-line brokerage services such as TeleBroker (registered trademark) and StreetSmart (trademark) also provide customers with discounts on commissions. Management expects to continue to use aggressively this value-pricing philosophy in the marketing of new products and services. Three Months Ended March 31, 1995 Compared To Three Months Ended March 31, 1994 Summary Net income for the first quarter of 1995 totaled $38 million or $.44 per share, relatively unchanged from first quarter 1994 net income of $38 million or $.43 per share. First quarter 1995 revenues were $297 million, up 3% from $288 million for the first quarter of 1994, primarily due to increases in mutual fund service fees and net interest revenue, largely offset by decreases in commission and principal transaction revenues. Mutual fund service fees increased $12 million, or 37% due to growth in fund balances. Net interest revenue increased $10 million, or 28% mainly due to increases in customer cash balances and margin loans to customers. Commission revenues decreased $10 million, or 6% due to a decrease in average commission per trade. Principal transaction revenues decreased $7 million, or 14% due to a lower daily average revenue per principal transaction from market-making activities in Nasdaq securities. Assets in customer accounts totaled (a) Accounts with balances or activity within the preceding twelve months. - 6 - $136.9 billion at March 31, 1995, $36.5 billion, or 36%, more than a year ago primarily resulting from increases in customers' equity securities of $11.8 billion, or 28%, and increases in customer assets in Schwab's Mutual Fund Marketplace (registered trademark) of $8.7 billion, or 33%. Customer assets in cash and money market funds at March 31, 1995 increased 33% over the year-ago level to $30.3 billion. Schwab added 164,900 new customer accounts during the first quarter of 1995, compared to 234,000 new accounts during the first quarter of 1994. The quarter-over-quarter decrease was due in part to the $1,000 minimum opening balance requirement implemented in July 1994 for basic brokerage accounts. Total operating expenses excluding interest during the first quarter of 1995 were $233 million, up 4% from $224 million for the first quarter of 1994. The higher expenses primarily related to the Company's continued growth and expansion, higher principal transaction-related expenses such as commissions, clearance and floor brokerage expenses, and additional employees. The profit margin for the first quarter of 1995 was 13%, unchanged from the first quarter of 1994. The annualized return on stockholders' equity for the first quarter of 1995 was 28%, down from 36% for the first quarter of 1994, reflecting the Company's higher equity base in 1995's first quarter. During the first quarter of 1995, Schwab commenced operation of four specialists' posts on the Pacific Stock Exchange, bringing the total number of posts to nine at March 31, 1995. These posts make markets in over 400 securities, which include common stocks, preferred stocks and exchange-listed bonds. The Company expects to continue to expand its capacity to execute principal transactions. Commissions Schwab executes commission transactions for customers on an agency basis. Commission revenues totaled $151 million for the first quarter of 1995, down $10 million, or 6%, from the first quarter of 1994. Retail agency commissions constituted approximately 96% of total commissions, with remaining commissions from institutional customers. Commissions earned on retail agency trades totaled $145 million on a daily average retail agency trade level of 32,800 in the first quarter of 1995, compared with commission revenues of $155 million on a daily average retail agency trade level of 33,300 for the comparable period in 1994. The following table shows a comparison of certain factors that influence retail agency commission revenues:
- ---------------------------------------------------------------------------------- Three Months Ended March 31, Percent 1995 1994 Change - ---------------------------------------------------------------------------------- Number of customer accounts that traded during the quarter (in thousands) 666 643 4% Average number of retail agency transactions per account that traded 3.11 3.27 (5) Total number of retail agency transactions (in thousands) 2,069 2,098 (1) Average commission per retail agency transaction $70.10 $73.85 (5) Total retail agency commission revenues (in millions) $ 145 $ 155 (6) ================================================================================== Note: The above table excludes customer transactions in Schwab's Mutual Fund OneSource (trademark) service.
The 4% increase in the number of customer accounts that traded during the quarter was fully offset by a 5% decline in the number of retail agency trades per such accounts. Average commission per retail agency transaction declined 5% from the year-ago level as the proportion of trades handled by TeleBroker (registered trademark) and StreetSmart (trademark), which provide users a 10% commission discount, and Schwab 500 Brokerage (trademark) service, which also provides commission discounts, increased. The combination of 1% fewer retail agency trades handled during the quarter and the 5% decline in average commission per retail agency transaction resulted in a 6% decline in total retail agency - 7 - commission revenues. Schwab continues to experience significant commission price competition and expects to continue to develop price-competitive products and services that address the needs of customers for which pricing is a primary factor in their selection of financial services. Interest Revenue, Net of Interest Expense Interest revenue, net of interest expense increased $10 million, or 28%, to $46 million from the prior year's first quarter as shown in the following table (in millions):
- --------------------------------------------------------------------- Three Months Ended March 31, 1995 1994 - --------------------------------------------------------------------- Interest Revenue Investments, customer-related $ 63 $31 Margin loans to customers 58 38 Other 4 2 - --------------------------------------------------------------------- Total 125 71 - --------------------------------------------------------------------- Interest Expense Customer cash balances 72 31 Long-term borrowings 3 3 Other 4 1 - --------------------------------------------------------------------- Total 79 35 - --------------------------------------------------------------------- Interest Revenue, Net of Interest Expense $ 46 $36 =====================================================================
When investing segregated customer cash balances, the Company must adhere to SEC regulations that restrict investments to U.S. government securities, participation certificates and mortgage-backed securities guaranteed by the Government National Mortgage Association, certificates of deposit issued by U.S. banks and thrifts and resale agreements collateralized by qualified securities. The Company's policies for credit quality and maximum maturity requirements are more restrictive than these SEC regulations. Investment information for the first three months of 1995 and 1994 is as follows:
- --------------------------------------------------------- Three Months Ended March 31, 1995 1994 - --------------------------------------------------------- Investment composition (in billions at quarter end): Resale agreements $4.3 $3.8 Certificates of deposit .2 .2 Average maturity of investments (in days): During the quarter 40 67 At quarter end 46 64 =========================================================
Customer-related daily average balances, interest rates and average net interest margin for the first quarters of 1995 and 1994 are summarized in the following table (dollars in millions):
- ------------------------------------------------------------------------------ Three Months Ended March 31, 1995 1994 - ------------------------------------------------------------------------------ Earning Assets (customer-related): Investments: Average balance outstanding $4,276 $3,861 Average interest rate 5.94% 3.30% Margin loans to customers: Average balance outstanding $2,869 $2,601 Average interest rate 8.25% 5.96% Average yield on earning assets 6.87% 4.37% Funding Sources (customer-related and other): Interest-bearing customer cash balances: Average balance outstanding $5,880 $5,229 Average interest rate 4.96% 2.40% Other interest-bearing sources: Average balance outstanding $ 342 $ 353 Average interest rate 4.18% 3.03% Average noninterest-bearing portion $ 923 $ 880 Average interest rate on funding sources 4.28% 2.11% Summary: Average yield on earning assets 6.87% 4.37% Average interest rate on funding sources 4.28% 2.11% - ------------------------------------------------------------------------------ Average net interest margin 2.59% 2.26% ==============================================================================
Interest revenue from customer-related investments increased $32 million due to an 11% increase in average balances outstanding, and a 264 basis point increase in the average interest rate - 8 - earned on such investments. Interest earned on margin loans to customers increased $20 million as average margin balances increased 10%, and the average interest rate earned on such balances increased 229 basis points. Interest expense on customer cash balances increased $41 million due to a 12% increase in average balances outstanding, and a 256 basis point increase in average interest rates paid on such balances. The average net interest margin pertaining to customer-related earning assets and related funding sources increased 33 basis points over that of 1994's first quarter to 2.59%. This was primarily due to larger increases in average interest rates with respect to earning assets compared to average interest rates on funding sources. Principal Transactions During the first quarter of 1995, principal transaction revenues decreased $7 million, or 14%, from the comparable period in 1994 to $43 million. This decrease was due to a lower daily average revenue per principal transaction from market-making activities in Nasdaq securities in the first quarter of 1995, partially offset by an increase in trading volume handled by M&S. A portion of this decrease was attributable to the impact of the July 1994 National Association of Securities Dealers, Inc. (NASD) Interpretation to its Rules of Fair Practice governing the way in which market makers in Nasdaq securities handle the execution of limit orders accepted from certain types of customers. M&S has extended the benefits of the Interpretation to substantially all retail customer limit orders in Nasdaq securities received from broker-dealers for which it executes such orders. As a market maker in Nasdaq securities, M&S generally executes customer trades as principal. Substantially all Nasdaq security trades originated by the customers of Schwab are directed to M&S. During 1994, the Department of Justice, the SEC and the NASD commenced a series of investigations and regulatory actions involving the activities of many market makers in Nasdaq securities. These investigations and regulatory actions have continued into 1995. M&S is a significant participant in the Nasdaq market. As a result of such investigations and actions, and possible future regulatory actions, changes are occurring in the manner in which this market conducts its business. Current practices may change as a consequence of rulemaking and improvements in technology and may be subject to increased disclosure requirements. New market systems, if approved, could significantly impact the manner in which business is currently conducted. Schwab and M&S are cooperating with the various investigations and have and will continue to work with the regulators to respond to questions related to their businesses. These investigations and regulatory actions may have a material adverse impact on M&S' future business. The Company anticipates that it will adapt to any new market environment and intends to promote practices which are designed to benefit its customers. Mutual Fund Service Fees Mutual fund service fees increased $12 million, or 37%, to $46 million in the first quarter of 1995 from the comparable period in 1994. The increase was primarily attributable to significant increases in customer assets in Schwab's proprietary funds, collectively referred to as the SchwabFunds (registered trademark), and customer assets in funds purchased through Schwab's Mutual Fund OneSource (trademark) service. Most of these fees are earned for transfer agent and investment management services provided to proprietary money market funds and for record keeping and shareholder services provided to funds in the Mutual Fund OneSource service. The SchwabFunds include money market funds, bond funds and equity index funds. Schwab customers may elect to have cash balances in their brokerage accounts automatically invested in certain SchwabFunds money market funds. This feature provides a significant competitive advantage to SchwabFunds money market funds as uninvested customer cash is swept into these funds on a regular basis. Customer assets invested in the - 9 - SchwabFunds (registered trademark), substantially all of which are in money market funds, were $24.9 billion at March 31, 1995, compared to $17.8 billion at March 31, 1994, a 40% increase. Fees received by Schwab via the Mutual Fund OneSource (trademark) program are based on daily balances of customer assets invested in the participating funds through Schwab and are paid by the funds and/or fund sponsors. Customer assets held by Schwab that have been purchased through the Mutual Fund OneSource service, excluding SchwabFunds, totaled $15.1 billion at March 31, 1995, compared to $9.5 billion at March 31, 1994, a 59% increase. Expenses Excluding Interest Total operating expenses excluding interest for the first quarter of 1995 were $233 million, up 4% from $224 million for the first quarter of 1994. Compensation and benefits expense for the first quarter of 1995 increased $2 million, or 2%, to $123 million primarily due to an increase in salaries and wages, partially offset by a decrease in variable compensation. The Company had approximately 6,900 employees and contractors at March 31, 1995 compared to 6,700 at March 31, 1994. These amounts include full-time, part-time, and temporary employees, and persons employed on a contract basis. Occupancy and equipment expense increased $3 million, or 12%, to $24 million from the prior year's first quarter primarily due to increased data processing equipment expense and to branch and customer telephone service center expansions. Commissions, clearance and floor brokerage expense increased $3 million, or 25%, to $16 million from the prior year's first quarter primarily due to increases in the average price per share for orders received by M&S and increases in the number of trades processed by M&S. The Company's effective income tax rate for the first three months of 1995 was 39.5% compared to 39.9% for the comparable period in 1994. Liquidity and Capital Resources Liquidity Schwab Most of Schwab's assets are liquid, consisting primarily of short- term (i.e., less than 90 days) investment-grade, interest-earning investments (substantially all of which are segregated for the exclusive benefit of customers pursuant to regulatory requirements) and receivables from customers and brokers. Customer margin loans are demand loan obligations secured by readily marketable securities. Receivables from and payables to other brokers, dealers and clearing organizations primarily represent current open transactions, which usually settle or can be closed out within a few business days. Liquidity needs relating to customer trading and margin borrowing activities are met primarily through cash balances in customer accounts, which totaled $6.8 billion at March 31, 1995, up 2% from the December 31, 1994 level of $6.7 billion. Earnings from Schwab's operations are the primary source of liquidity for capital expenditures and investments in new services, marketing and technology. Management believes that customer cash balances and operating earnings will continue to be the primary sources of liquidity for Schwab in the future. To manage Schwab's regulatory capital position, CSC provides Schwab with a $180 million subordinated revolving credit facility maturing in September 1996, of which $99 million was outstanding at March 31, 1995. At quarter end, Schwab also had outstanding $25 million in fixed-rate subordinated term loans from CSC maturing in 1996 and 1997. In April 1995, the maturity date for $10 million of the $25 million debt scheduled to mature in 1996 was extended to 1997. Borrowings under these subordinated lending arrangements qualify as regulatory capital for Schwab. For use in its brokerage operations, Schwab maintains uncommitted bank credit lines totaling - 10 - $480 million, of which $400 million is available on an unsecured basis. Schwab used such borrowings for four days during the first three months of 1995, with the daily amounts borrowed averaging $35 million. These lines were unused at March 31, 1995. M&S M&S' liquidity needs are generally met through earnings generated by its operations. Most of M&S' assets are liquid, consisting primarily of receivables from brokers, dealers and clearing organizations, marketable securities, and cash and equivalents. M&S may borrow up to $10 million under a subordinated lending arrangement with CSC. Borrowings under this arrangement qualify as regulatory capital for M&S. This facility has never been used. The Charles Schwab Corporation CSC's liquidity needs are generally met through cash generated by its subsidiaries. Schwab and M&S are the principal sources of this liquidity and are subject to regulatory requirements that are intended to ensure the general financial soundness and liquidity of broker- dealers. These regulations would prohibit Schwab and M&S from repaying subordinated borrowings to CSC, paying cash dividends, or making any unsecured advances or loans to their parent or employees if such payment would result in net capital of less than 5% of their aggregate debit balances or less than 120% of their minimum dollar amount requirement of $1 million. At March 31, 1995, Schwab had $338 million of net capital (11% of aggregate debit balances), which was $279 million in excess of its minimum required net capital. At March 31, 1995, M&S had $6 million of net capital (395% of aggregate debit balances), which was $5 million in excess of its minimum required net capital. Management believes that funds generated by Schwab's and M&S' operations will continue to be the primary funding source in meeting CSC's liquidity needs and maintaining Schwab's and M&S' net capital. CSC has individual liquidity needs that arise from its $170 million Senior Medium-Term Notes, Series A (Medium-Term Notes), as well as from the funding of cash dividends, common stock repurchases and acquisitions. The Medium-Term Notes have maturities ranging from two to nine years and fixed interest rates ranging from 4.95% to 7.72% with interest payable semiannually. CSC's liquidity is adequate to effect the completion of the proposed acquisition of ShareLink Investment Services plc (see "Subsequent Event" note in the Notes to Condensed Consolidated Financial Statements). CSC has a prospectus supplement covering the issuance of up to $100 million in Senior or Senior Subordinated Medium-Term Notes, Series A, pursuant to a registration statement filed with the SEC. Currently, $80 million in securities remain unissued under the registration statement. CSC may borrow under its $225 million committed unsecured credit facility with a group of eleven banks through June 1995. The funds are available for general corporate purposes and CSC pays a commitment fee on the unused balance. The terms of this facility require CSC to maintain minimum levels of stockholders' equity and Schwab and M&S to maintain minimum levels of net capital, as defined. This facility has never been used. CSC has agreed to maintain availability under this facility to repay any obligations arising under the $100 million letter of credit facility (see below). In December 1994, a $100 million letter of credit facility was established by CSC with a commercial bank to issue letters of credit (LOCs) to three of the SchwabFunds (registered trademark) money market funds in connection with the bankruptcies of Orange County, California and the Orange County investment pool. CSC has agreed to reimburse the bank for any payments made under the LOCs, and to leave unutilized as much as $100 million of its $225 million credit facility. The LOC facility was voluntarily established by CSC as a precautionary measure to provide independent support for the valuation of certain securities held by the funds. These securities were issued by Orange County - 11 - and by municipalities that participated in the investment pool maintained by Orange County. Although the issuers, other than Orange County, have not filed for bankruptcy, their ability to repay obligations in a timely manner may be affected by shortfalls, if any, of amounts scheduled to be received from investments in the Orange County investment pool. At March 31, 1995, LOCs totaling $58.5 million were outstanding under this facility. The funds may make demands for payments under the LOCs if the issuers of certain municipal securities held by the funds fail to pay a specified percentage of the principal amount of the securities when due or if the proceeds received by the funds in the disposition of any such securities are less than a specified percentage of the principal amount of the securities. The funds will absorb losses of principal amounts of the securities, if any, at disposition or maturity for each security up to a specified percentage. The LOCs expire and the original maturities of the securities occur on or before August 1, 1995. Management is currently unable to determine whether, or to what extent, the funds would make any demands for payment under the LOCs. See "Contingent Liabilities" note in the Notes to Condensed Consolidated Financial Statements. Cash Flows Net cash provided by operating activities was $58 million for the first three months of 1995, down 35% from $89 million for the first three months of 1994. This decrease was primarily due to a decrease in accruals relating to employee compensation. During the first three months of 1995, the Company invested $18 million in equipment and office facilities as it continued to enhance its data processing and telecommunications systems and expand its customer telephone service center facilities. In January 1995, the Board of Directors approved a three-for-two stock split of the Company's common stock, which was effected in the form of a 50% stock dividend. The stock dividend was paid in March 1995. Share and per share data have been restated to reflect this transaction. The Board also increased the quarterly cash dividend 29% to $.06 per share. During the first three months of 1995, the Company paid common stock cash dividends totaling $5 million, up from $4 million paid during the first three months of 1994. Capital Adequacy The Company's stockholders' equity at March 31, 1995 totaled $510 million. In addition to its equity, the Company had long-term borrowings of $171 million that bear interest at a weighted average rate of 6.04%. These borrowings, together with the Company's equity, provided total financial capital of $681 million at March 31, 1995, up $102 million, or 18% from a year ago. The Company monitors its financial leverage and the adequacy of its capital base relative to the level and composition of its assets using various financial measures. One of these measures is the ratio of total assets to total stockholders' equity. At March 31, 1995, the ratio of total assets to total stockholders' equity was 16 to 1 compared to a ratio of 17 to 1 at December 31, 1994. Over 95% of the Company's total assets relate to customer activity (primarily margin loans and segregated investments). Given the Company's intention of continuing to maintain an appropriate capital base as customer balances grow, management believes that the Company's present level of equity could support up to $7.0 billion of additional assets relating to customer activity. PART II - OTHER INFORMATION Item 1. Legal Proceedings Discussed in Notes to Condensed Consolidated Financial Statements, under "Contingent Liabilities" in Part I, Item 1, and in Management's Discussion and Analysis of Financial - 12 - Condition and Results of Operations, under "Principal Transactions" in Part I, Item 2, and incorporated herein by reference. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as part of this quarterly report on Form 10-Q.
Exhibit Number Exhibit 10.83 First Amendment to Revolving Subordinated Loan Agreement, as of April 18, 1990, between the Registrant and Charles Schwab & Co., Inc. 10.151 Foreign Exchange Transaction dated as of April 13, 1995 between the Registrant and Morgan Stanley & Co. Incorporated. 11.1 Computation of Earnings per Common Equivalent Share. 12.1 Computation of Ratio of Earnings to Fixed Charges. 27.1 Financial Data Schedule (electronic only).
(b) Reports on Form 8-K None. - 13 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE CHARLES SCHWAB CORPORATION (Registrant) Date: May 12, 1995 A. John Gambs /s/ ------------ ----------------------------------- A. John Gambs Executive Vice President - Finance, and Chief Financial Officer - 14 - EX-10 2 EXHIBIT 10.83 EXHIBIT 10.83 FIRST AMENDMENT TO REVOLVING SUBORDINATED LOAN AGREEMENT This First Amendment to Revolving Subordinated Loan Agreement ("this First Amendment") is made and entered into by and between The Charles Schwab Corporation (the "Lender") and Charles Schwab & Co., Inc. (the "Organization") as of this 18th day of April, 1990. Unless otherwise specified herein, all capitalized terms used herein shall have the meanings ascribed to them in the Revolving Subordinated Loan Agreement dated as of September 29, 1988 between the Lender and the Organization (the "Agreement"). WHEREAS, the Organization and the Lender desire to amend the Agreement (i) to increase the permissible aggregate principal amount of loans outstanding at any one time from $100,000,000.00 to $205,000,000.00, (ii) to amend the interest rate provisions to allow the organization to elect a fixed interest rate for a specified period of time, on the terms and conditions stated below; and (iii) to append a Roll-over Attachment to the Agreement providing that the Commitment Termination Date and the Scheduled Maturity Date of the Agreement automatically shall be extended to September 29 of the following year unless on or before the day twelve months preceding the Scheduled maturity Date the Lender has notified the Organization in writing with a written copy to the New York Stock Exchange, Inc.) that the Commitment Termination Date and the Scheduled Maturity Date will not be extended. NOW, THEREFORE, the Organization and the Lender hereby amend the Agreement as follows: 1. The figure "$205 million" shall be and hereby is substituted in place of the figure "$100 million" in paragraph "1." of the Agreement. 2. The fourth paragraph of paragraph "1." of the Agreement (which begins with the words "The applicable interest rate . . .") shall be and hereby is deleted. 3. A new paragraph "2." entitled "INTEREST" is hereby added to the Agreement, as follows: "2. INTEREST (a) Except as otherwise provided in sub-paragraph (b) immediately below, the applicable interest rate under this agreement shall be prime rate (equal to U.S. Prime Rate on page 17 of the Telerate Systems) plus one percent per annum (collectively, the 'Applicable Rate'). With respect to all or any part of the principal amount of any loan hereunder outstanding as of April 18, 1990 or of any loan hereunder on or after April 18, 1990, the Organization shall have the right to fix the Applicable Rate for a period of up to twelve months by providing written notice to the Lender within three business days of the date the fixed interest rate is to become effective, specifying (i) the principal amount to which the fixed interest rate shall apply, (ii) the date the fixed interest rate is to become effective, and (iii) the period (not to exceed twelve months) the fixed interest rate shall apply. The applicable fixed interest rate shall be the Applicable Rate on the date the fixed interest rate is to become effective pursuant to the written notice. Although the period for which the Organization may fix the interest rate shall not exceed twelve months, at the end of any period for which the Organization has fixed the interest rate for any loan the Organization may fix the interest rate for such loan for an additional period not to exceed twelve months by giving similar written notice; provided, however, that in no event shall the Organization fix the interest rate for any loan for a period exceeding the time remaining between (i) the date the fixed interest rate is to become effective, and (ii) the maturity date of such loan. (For example, if the Organization wishes to elect a fixed interest rate for twelve months effective May 1, 1990 for $50,000,000 in principal amount outstanding as of April 18, 1990 (or, alternatively, for a new borrowing in the amount of $50,000,000 to be made on May 1, 1990), the Organization may do so by giving written notice to the Lender between April 25, 1990 and May 1, 1990, specifying that effective May 1, 1990, the Applicable Rate as of May 1, 1990 shall apply to $50,000,000 in principal amount of an outstanding loan (or $50,000,000 in principal amount of a newly-requested loan) for the twelve-month period commencing May 1, 1990. At the end of such twelve-month period and thereafter, the Organization, by providing another written notice, may again fix the interest rate for such loan for any additional period up to the shorter of (i) twelve months and (ii) the maturity date of such loan.) For any period for which the Organization has not fixed the interest rate of a loan hereunder, such loan during such period shall bear interest at the Applicable Rate, as the same may change from time to time, with interest being computed based on the number of days elapsed at each Applicable Rate. (b) In the event that the Organization desires to fix the interest rate on any loan under this agreement pursuant to the procedures described in sub-paragraph (a) immediately above but at an interest rate other than the Applicable Rate, the Organization may, in the three-day written notice referred to in sub-paragraph (a) immediately above ("the Organization's written notice"), propose a rate other than the Applicable Rate (an "Alternative Applicable Rate"). (For example, in the Organization's written notice, the Organization may propose that the interest rate be fixed on a specified principal amount for a specified period at an Alternative Applicable Rate of prime rate (equal to U.S. Prime Rate on page 17 of the Telerate Systems) plus one-half percent per annum.) If the Lender agrees to such Alternative Applicable Rate, the Lender shall so notify the Organization in writing prior to the date the fixed interest rate is to become effective pursuant to the Organization's written notice, and the applicable fixed interest rate shall be such agreed-upon Alternative Applicable Rate. If, on the other hand, the Lender does not so notify the Organization in writing that it has agreed to the Alternative Applicable Rate proposed in the Organization's written notice, the applicable fixed interest rate for the principal amount and for the loan covered by the Organization's written notice shall be the Applicable Rate. (c) All interest payments hereunder shall be made on the last day of each calendar quarter. (d) Notwithstanding anything to the contrary above or elsewhere in this agreement, in no event shall the rate of interest hereunder exceed the maximum rate permitted by law, and any amount received by Lender as interest hereunder which would exceed the maximum rate permitted by law shall be applied to reduce the unpaid principal balance hereunder or returned to the Organization." 4. Because of the addition of a new paragraph "2." to the Agreement as provided above, old paragraphs "2." through "18." of the Agreement are hereby renumbered Paragraphs "3." through "19.". 5. Contemporaneously with the execution hereof, the Organization shall execute and deliver to the Lender a new promissory note in the form attached hereto as Exhibit A (the "new Revolving Note"), which new Revolving Note shall replace and supersede the Revolving Note dated September 29, 1988 made and delivered by the Organization to the Lender. 6. Contemporaneously with the execution hereof, the Lender and the Organization shall execute a Roll-Over Attachment in the form attached hereto as Exhibit B (the "Roll-Over Attachment"), pursuant to which the Lender and the Organization agree that the Commitment Termination Date and the Scheduled Maturity Date shall in each year, without further action by either the Lender or the Organization, be extended to September 29 of the following year, unless on or before the day twelve months preceding the Scheduled Maturity Date then in effect, the Lender shall notify the Organization in writing, with a written copy to the New York Stock Exchange, Inc., that the Commitment Termination Date and the Scheduled Maturity Date then in effect shall not be extended. The Roll-Over Attachment shall become part of the Agreement as amended by this First Amendment. 7. Except for the amendments expressly specified above, all other provisions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, this First Amendment is executed as of April 18, 1990 at San Francisco, California. THE ORGANIZATION: CHARLES SCHWAB & CO., INC. By /s/ A. John Gambs A. John Gambs --------------------------------- Its Executive Vice President - Finance ---------------------------------- THE LENDER: THE CHARLES SCHWAB CORPORATION By /s/ Lawrence J. Stupski Lawrence J. Stupski ------------------------------------------- Its President and Chief Operating Officer ------------------------------------- ROLL-OVER ATTACHMENT Additional Provision for Revolving Subordinated Loan Agreement between The Charles Schwab Corporation ("Lender") and Charles Schwab & Co., Inc. ("Organization"), as amended by First Amendment to Revolving Subordinated Loan Agreement between the Organization and the Lender. PRINCIPAL AMOUNT: $205,000,000.00 DATE OF AGREEMENT: September 29, 1988 DATE OF FIRST AMENDMENT TO AGREEMENT: April 18, 1990 The Commitment Termination Date in Paragraph 1 of the Agreement as amended is September 29, 1991 (three years from the date the Agreement was executed), and the Scheduled Maturity Date in Paragraph 1 of the Agreement as amended is September 29, 1992 (four years from the date the Agreement was executed). The Commitment Termination Date and the Scheduled Maturity Date shall in each year, without further action by either the Lender or the Organization, be extended to September 29 of the following year, unless on or before the day twelve months preceding the Scheduled Maturity Date then in effect, the Lender shall notify the Organization in writing, with a written copy to the New York Stock Exchange, Inc., that the Commitment Termination Date and the Scheduled Maturity Date then in effect shall not be extended. THE ORGANIZATION: CHARLES SCHWAB & CO., INC. By /s/ A. John Gambs A. John Gambs -------------------------------- Its Executive Vice President - Finance ---------------------------------- and Chief Financial Officer --------------------------- THE LENDER: THE CHARLES SCHWAB CORPORATION By /s/ Lawrence J. Stupski Lawrence J. Stupski ------------------------------------------- Its President and Chief Operating Officer ------------------------------------- REVOLVING NOTE $205,000,000.00 Date: April 18, 1990 For value received, the undersigned Charles Schwab & Co., Inc. ("Organization") hereby promises to pay to the order of The Charles Schwab Corporation ("Lender") the principal amount of each advance made by the Lender to the Organization under the terms of a Revolving Subordinated Loan Agreement between the Organization and the Lender dated as of September 29, 1988, as amended by a First Amendment thereto between the Organization and the Lender dated as of April 18, 1990 (collectively, the "Agreement"), as shown in the schedule attached hereto and any continuation thereof, payable at such times as are specified in the Agreement. The undersigned also promises to pay interest on the unpaid principal amount of such advance from the date of such advance until such principal amount is paid, at the rates per annum, and payable at such times, as are specified in the Agreement. The Note shall be subject to the Agreement, and all principal and interest payable hereunder shall be due and payable in accordance with the terms of the Agreement. Terms defined in the Agreement are used herein with the same meanings. The maturity date of this Revolving Note shall be September 29, 1992. The maturity date shall in each year, without further action by either the Lender or the Organization, be extended to September 29 of the following year, unless on or before the day twelve months preceding the maturity date then in effect, the Lender shall notify the Organization in writing, with a written copy to the New York Stock Exchange, Inc., that such maturity date shall not be extended. This Revolving Note replaces and supersedes the Revolving Note dated September 29, 1988 in the maximum principal amount of $100,000,000.00, delivered by the Organization to the Lender. IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to be executed by its officer thereunto duly authorized and directed by appropriate corporate authority. Charles Schwab & Co., Inc. By: /s/ A. John Gambs ------------------------- A. John Gambs Executive Vice President - Finance and Chief Financial Officer EX-10 3 EXHIBIT 10.151 Exhibit 10.151 Morgan Stanley MORGAN STANLEY & CO. INCORPORATED ATTN: FOREIGN EXCHANGE OPERATIONS ONE PIERREPONT PLAZA BROOKLYN, NEW YORK 11201 CONFIRMATION TELEPHONE (718) 754-5010 - ---------------------------------------------------------------------- TELEX #6720769 THE CHARLES SCHWAB CORP. C/O RICH FOWLER 101 MONTGOMERY ST 13TH FL. SAN FRANCISCO CA 941044122 DATE 13-APR-95 DEAL NUMBER 0TTL17 DEAL DATE 13-APR-95 WE CONFIRM THE FOLLOWING FOREIGN EXCHANGE TRANSACTION WITH YOU FOR VALUE DATE 30-MAY-95 ARRANGED BY PHONE CURRENCY BOUGHT FROM YOU RATE CURRENCY SOLD TO YOU ======================== ==================== USD 57,922,920.00 1.6089700 GBP 36,000,000.00 WE RECEIVE AT WE PAY THROUGH ============= ============== BANK OF NEW YORK (FX A/C) NATIONAL WESTMINSTER BANK PLC NY, NY (ALL U.K. OFFICES) A/C MORGAN STANLEY AND CO., NY UID 236584 TO BE PAID TO ============= TO BE PAID BY TO BE ADVISED ============= TO BE ADVISED PLEASE CONFIRM THIS CONFIRMATION IS COMPUTER GENERATED AT YOUR EARLIEST CONVENIENCE NO SIGNATURE REQUIRED 12081 Rev. 7-89 COUNTER PART RETAIN FOR YOUR FILE EX-11 4 EXHIBIT 11.1 EXHIBIT 11.1 THE CHARLES SCHWAB CORPORATION Computation of Earnings per Common Equivalent Share (In thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 1995 1994 ---- ---- Net Income $38,376 $38,190 ============================================================================= Shares* Weighted average number of common shares outstanding 84,922 85,465 Common stock equivalent shares related to option plans 3,152 2,739 - ----------------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding 88,074 88,204 ============================================================================= Earnings per Common Equivalent Share* $ .44 $ .43 ============================================================================= * Reflects the 1995 three-for-two common stock split. EX-12 5 EXHIBIT 12.1 EXHIBIT 12.1 THE CHARLES SCHWAB CORPORATION Computation of Ratio of Earnings to Fixed Charges (Dollar amounts in thousands, unaudited)
Three Months Ended March 31, 1995 1994 ---- ---- Earnings before taxes on income $ 63,381 $ 63,544 - ---------------------------------------------------------------------------------------- Fixed charges Interest expense - customer 71,905 30,949 Interest expense - other 7,298 4,281 Interest portion of rental expense 4,673 4,031 - ---------------------------------------------------------------------------------------- Total fixed charges (a) 83,876 39,261 - ---------------------------------------------------------------------------------------- Earnings before taxes on income and fixed charges (b) $147,257 $102,805 ======================================================================================== Ratio of earnings to fixed charges (b) divided by (a)* 1.8 2.6 ======================================================================================== Ratio of earnings to fixed charges as adjusted** 6.3 8.6 ======================================================================================== * The ratio of earnings to fixed charges is calculated in a manner consistent with SEC requirements. For such purposes, "earnings" consist of earnings before taxes on income and fixed charges. "Fixed charges" consist of interest expense incurred on payables to customers, term debt and one-third of rental expense, which is estimated to be representative of the interest factor. ** Because interest expense incurred in connection with payables to customers is completely offset by interest revenue on related investments and margin loans, the Company considers such interest to be an operating expense. Accordingly, the ratio of earnings to fixed charges as adjusted reflects the elimination of such interest expense as a fixed charge.
EX-27 6 EXHIBIT 27.1 - FINANCIAL DATA SCHEDULE
BD This schedule contains summary financial information extracted from the Condensed Consolidated Statement of Income and Condensed Consolidated Balance Sheet of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995, and is qualified in its entirety by reference to such financial statements. 1000 3-MOS DEC-31-1995 MAR-31-1995 561781 2914924 4473189 0 0 136238 8271378 159000 7241423 0 0 0 171130 892 0 0 508888 8271378 43296 125251 150947 0 46239 79203 123161 63381 38376 0 0 38376 .44 .44
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