Client And Business Momentum Continued; Organic Asset Growth Exceeded 7%

10% Year-over-Year Revenue Growth; GAAP Pre-Tax Profit Margin of 41.2%; 45.8% Adjusted ⁽¹⁾

The Charles Schwab Corporation announced today that its net income for the first quarter of 2023 was $1.6 billion, up 14% from $1.4 billion for the first quarter of 2022.

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Co-Chairman and CEO Walt Bettinger commented, “When I drafted my first letter to stockholders 15 years ago in the middle of the financial crisis, I outlined four factors that helped distinguish Schwab from other financial institutions during a very challenging time for global markets: a strong financial foundation, a client-centric strategy, a disciplined operating approach, and a diversified business model. These characteristics remain every bit as relevant to our story today. We continue to consistently manage the business in a conservative manner, with an unwavering long-term orientation. Our ongoing commitment to this consistency of mission, including our “Through Clients’ Eyes” strategy, highlights why we maintain the ability to meet the needs of individual investors and the advisors who serve them through various environments.”

“The first quarter presented clients with a mixed macroeconomic backdrop,” Mr. Bettinger noted. “While equity markets rebounded from year-end 2022 levels, investor sentiment remained bearish – especially following the onset of the banking industry turmoil in early March. Fixed income markets also reflected growing fears of an economic downturn as the 10-year U.S. Treasury yield declined approximately 50 basis points from its intra-quarter peak to end March just under 3.50%. Through the various ups and downs to start the year, Schwab remained a trusted partner to investors. During the quarter, clients opened over 1 million new brokerage accounts and entrusted us with $132 billion of core net new assets – including over $53 billion in March alone. While Investor Services gathered approximately $60 billion during the period, the Advisor Services segment posted a record first quarter with over $71 billion in net flows and attracted 70 transitioning advisor teams. These near-record inflows across both our primary businesses represents an annualized organic growth rate north of 7% and helped push total client assets to $7.58 trillion at quarter-end.”

Mr. Bettinger continued, “Our top priority this quarter was to stay connected to our clients – to help them understand what is happening in the marketplace – and empower them with the tools and support to navigate the current environment. I believe our robust asset gathering speaks to our success on this front. Amidst all that was happening around us, we further advanced our key strategic initiatives of scale and efficiency, win-win monetization, and segmentation. Completing the Ameritrade integration will unlock sizeable opportunities across all three of those areas and we took a meaningful step towards achieving that goal with the completion of the first client transition group in February. The successful conversion of this initial group was made possible by the efforts of our dedicated employees and further validates our roadmap for the remaining client transition groups. During the quarter, we also announced several enhancements to Schwab Personalized Indexing™ (SPI), including new tools that expand the personalization options available to clients. We also evolved SPI’s digital experience to streamline the onboarding process and bolster real-time reporting analytics. We continue to see a tremendous opportunity in meeting the advice needs of both Schwab and legacy Ameritrade clients. As investors sought out advice amidst a more challenging environment, net flows into our Managed Investing solutions grew 26% from the prior year – totaling $8.9 billion for the quarter. Finally, we announced the acquisition of The Family Wealth Alliance which, in conjunction with our industry-leading Advisor Services capabilities, will bring industry-wide relationships, thought leadership resources, and technology to help enable success for advisors serving the needs of ultra-high net worth individuals.

“It was an honor to be ranked #1 in Investor Satisfaction with Full-Service Wealth Management Firms by J.D. Power,” Mr. Bettinger concluded. “The combination of our sustained business momentum and third-party recognition highlights the fact that our “no trade-offs” approach continues to resonate with investors. At the same time, it is a testament to the intentional evolution of the company since its inception almost 50 years ago. Over those many decades, we have continuously enhanced our business while seeking to better serve investors’ needs through the thoughtful transformation of our platform from a pioneer in the discount brokerage space to a leader in full-service wealth management. Looking ahead, we intend to continue pressing our competitive advantages as we seek to gain share by emphasizing our attractive value proposition, award-winning service experience, commitment to transparency, and role as a trusted leader in the marketplace.”

CFO Peter Crawford stated, “Our first quarter revenue picture reflected the company’s sustained business momentum and the benefits of rising interest rates, partially offset by clients’ asset allocation decisions. Total revenue was up 10% year-over-year and exceeded $5 billion for the fourth consecutive quarter. While bank deposits shrank by 11% versus the prior year-end as clients realigned their allocations across our expansive selection of transaction and investment cash solutions, we observed a decline in the average daily pace of bank sweep movements from January to March – even when allowing for a temporary spike in activity at the onset of the banking system turmoil. Concurrently, we benefited from higher asset yields resulting from the Federal Reserve’s pronounced tightening program. This helped expand net interest margin by 81 basis points from the first quarter of 2022 – growing net interest revenue by 27% to $2.8 billion. Additionally, asset management and administration fees increased slightly, while trading revenue declined, and bank deposit account revenue was down due in part to a $97 million one-time breakage fee relating to ending our arrangements with certain third-party banks ahead of the initial Ameritrade client transition group.”

Mr. Crawford proceeded, “GAAP expenses rose 6% from a year ago to $3.0 billion, including $98 million in acquisition and integration-related costs and $135 million in amortization of acquired intangibles. Exclusive of these items, adjusted total expenses ⁽¹⁾ increased 7% versus the first quarter of 2022. Our combination of top-line growth, coupled with disciplined expense management, yielded a pre-tax margin of 41.2% – 45.8% adjusted ⁽¹⁾ – levels achieved by few other financial services firms.”

“Maintaining the capital and liquidity required to support Schwab’s long-term growth remains our primary balance sheet objective,” Mr. Crawford concluded. “We increased our quarterly common dividend by 14% to $.25 per share and returned capital via common and preferred stock repurchases. Even with the accelerated capital return during the first two months of the quarter, our Tier 1 Leverage Ratio finished at 7.1%. In light of recent events within the U.S. banking sector, and the resulting regulatory uncertainty, we have decided to pause our active buyback program. That being said, opportunistic capital return is still an important component of our ‘through the cycle’ financial formula. Ultimately, we believe the current headwinds will prove transitory and we remain well positioned to deliver long-term value to our stockholders.”

⁽¹⁾ Further details on non-GAAP financial measures and a reconciliation of such measures to GAAP reported results are included on pages 10-11 of this release.

Commentary from the CFO

Periodically, our Chief Financial Officer provides insight and commentary regarding Schwab’s financial picture at: https://www.aboutschwab.com/cfo-commentary. The most recent commentary, which provides perspective on the dynamics of the BDA was posted on January 18, 2023.

Spring Business Update

The company will host its Spring Business Update for institutional investors this morning from 8:00 a.m. - 9:00 a.m. CT, 9:00 a.m. - 10:00 a.m. ET. Registration for the Update webcast is accessible at https://www.aboutschwab.com/schwabevents.

Forward-Looking Statements

This press release contains forward-looking statements relating to the company’s strategy and approach; Ameritrade integration; opportunities; business momentum; market share; capital and liquidity; growth; capital return; positioning; and stockholder value. These forward-looking statements reflect management’s expectations as of the date hereof. Achievement of these expectations and objectives 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 company’s ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance its infrastructure and capacity, in a timely and successful manner; successfully implement integration strategies and plans; attract and retain clients and independent investment advisors and grow those relationships and client assets; hire and retain talent; support client activity levels; monetize client assets; and manage expenses. Other important factors include client use of the company’s advisory solutions and other products and services; general market conditions, including equity valuations and the level of interest rates; client cash allocation decisions; client sensitivity to rates; level of client assets, including cash balances; competitive pressures on pricing; capital and liquidity needs and management; balance sheet positioning relative to changes in interest rates; interest earning asset mix and growth; the migration of bank deposit account balances; the level and mix of client trading activity; market volatility; margin loan balances; securities lending; legislative or regulatory changes; and other factors set forth in the company’s most recent reports on Form 10-K and Form 10-Q.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with 34.1 million active brokerage accounts, 2.4 million corporate retirement plan participants, 1.7 million banking accounts, and $7.58 trillion in client assets. Through its operating subsidiaries, the company provides a full range of wealth management, securities brokerage, banking, asset management, custody, and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiaries, Charles Schwab & Co., Inc., TD Ameritrade, Inc., and TD Ameritrade Clearing, Inc., (members SIPC, https://www.sipc.org), and their affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent, fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its primary banking subsidiary, Charles Schwab Bank, SSB (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at https://www.aboutschwab.com. TD Ameritrade, Inc. and TD Ameritrade Clearing, Inc. are separate but affiliated companies and subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.