Schwab Reports Record Quarterly Net Income of $618 Million, Up 23%

Schwab Reports Record Quarterly Net Income of $618 Million, Up 23%

Revenues Grow 13% Year-Over-Year to a Record $2.2 Billion

Core Net New Assets Rise 72% to a Record $51.6 Billion

The Charles Schwab Corporation announced today that its net income for the third quarter of 2017 was a record $618 million, up 7% from $575 million for the prior quarter, and up 23% from $503 million for the third quarter of 2016. Net income for the nine months ended September 30, 2017 was $1.8 billion, up 29% from the year-earlier period.

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CEO Walt Bettinger said, “The investments we’ve made in our clients in recent years are helping fuel stronger business momentum. Clients opened more than 100,000 new brokerage accounts each month during the third quarter, marking a record-breaking ten straight months in excess of 100,000. We ended September serving 10.6 million active brokerage accounts, 1.2 million banking accounts, and 1.6 million retirement plan participants. Core net new assets of $51.6 billion were 72% higher than a year ago and the highest quarter in Schwab’s history. Both our Retail and Advisor Services businesses had record third quarters – Retail attracted 51% more inflows than a year ago, and the assets brought in by the independent advisor clients who custody with us rose 68%. In just nine months we’ve generated $136.7 billion in core net new assets – enough to surpass all but one of our prior full-year results. Our growing client base continues to make greater use of our modern wealth management capabilities: assets receiving ongoing advisory services grew 18% from the third quarter of 2016, to a record $1.61 trillion at month-end September. Total client assets reached a record $3.18 trillion, up 17% year-over-year.”

Mr. Bettinger added, “We continue to leverage our scale to provide products and services that help investors achieve their goals, while delivering great value and making it easier for clients to do business with us. Most recently, we enhanced our money fund offerings by lowering expenses, reducing and standardizing investment minimums, and streamlining share classes across our entire lineup. These changes are part of our work to ensure clients continue to have access to a range of cash solutions offering attractive yields and smart features. On the technology front, clients are now able to aggregate their non-Schwab account information on the account summary page on Schwab.com, allowing a more holistic view of their finances. For RIAs, we expanded Schwab OpenView Gateway^®, the flexible, open-architecture platform that enables integration between our systems and select technology providers, by adding Redtail and SS&C Black Diamond^®. On the product side, we added 15 ETFs to Schwab ETF OneSource^™, the program that offers Schwab clients the most online commission-free ETFs anywhere in the industry; investors and advisors can now buy and sell 243 ETFs covering 69 Morningstar^® categories. We also launched ThomasPartners^® Balanced Income Conservative strategy, which focuses on providing a monthly income stream with the potential for growth as well as capital appreciation. As we drive Schwab’s ongoing evolution ‘through clients’ eyes,’ we are strengthening our ability to attract a growing share of investors to our contemporary full-service model.”

CFO Peter Crawford commented, “We’ve achieved yet another quarter of record financial performance, helped by strong client growth and an improved economic environment. Schwab posted its ninth consecutive quarter of record revenues for the period ending in September. Net interest revenue grew 28% to $1.1 billion as a result of higher short-term rates and growing client cash balances. Following the Federal Reserve’s June rate hike, our net interest margin reached 200 basis points for the third quarter – our highest level since the second quarter of 2010. Asset management and administration fees were up 8% year-over-year to a record $861 million, largely attributable to growing balances in advised solutions, mutual funds, and ETFs. These increases in our largest sources of revenue more than offset a 21% decline in Trading revenue due to lower trade pricing. Overall, we produced net revenues of $2.2 billion, a 13% increase.”

Mr. Crawford continued, “Our 9% year-over-year expense growth was in-line with expectations and primarily reflected two factors: higher Compensation driven by strong asset gathering and increased staffing to serve our expanding client base, and growth in Professional services tied to project spending and asset-related costs. Our record pre-tax profit margin of 43.6% marks the fifth consecutive quarter in excess of 40.0%. Schwab’s third quarter results demonstrate our financial model working as intended: driving robust business growth by winning with clients, generating strong revenue growth through multiple sources, and delivering outstanding financial results through sustained expense discipline.”

Mr. Crawford concluded, “Our priorities for balance sheet management include maintaining appropriate capital and liquidity along with supporting ongoing growth. At the same time, we are mindful of the $250 billion consolidated asset threshold for heightened regulatory requirements. As we continue to implement our strategy for optimizing the spread earned on cash sweep balances, we are aiming to pace our growth so that we cross the threshold in 2018. During the third quarter, we transferred $1.7 billion in sweep balances to Schwab Bank – $1.4 billion from Schwab One^® and approximately $300 million from sweep money market funds. In addition, we used $5 billion in Federal Home Loan Bank advances to provide temporary funding for additional investments ahead of future bulk transfer activity. The FHLB advances, the third quarter money fund transfers, and higher client cash levels all helped our consolidated balance sheet reach $230.7 billion as of September 30^th; our preliminary Tier 1 Leverage Ratio at quarter-end was 7.7%. We delivered a 15% return on equity for the third quarter, reflecting our ability to combine effective capital management with a relentless drive for profitable growth to help build stockholder value.”

Business highlights for the third quarter (data as of quarter-end unless otherwise noted):

Investor Services

• New retail brokerage accounts for the quarter totaled approximately 216,000, up 29% year-over-year; total accounts were 7.3 million, up 4% year-over-year.
• Opened one new company branch and three independent branches. Schwab has over 345 branches across the country that offer clients access to a range of investing and personal finance services.

Advisor Services

• Hosted our annual SOLUTIONS^® events in 11 cities across the country for approximately 2,000 attendees. These events introduce advisors to Schwab’s tools and insights for optimizing firm performance and client service.
• Released Advisor Check Deposit, a new feature on Schwab Advisor Center^®, which allows advisor firms to securely deposit checks online on behalf of their clients.

Products and Infrastructure

• For Charles Schwab Bank:
  • Balance sheet assets = $187.6 billion, up 14% year-over-year.
  • Outstanding mortgage and home equity loans = $11.8 billion, up 5% year-over-year.
  • Pledged Asset Line^® balances = $4.3 billion, up 19% year-over-year.
  • Schwab Bank High Yield Investor Checking^® accounts = 981,000, with $12.9 billion in balances.
• Client assets managed by Windhaven^® totaled $8.0 billion, down 22% from the third quarter of 2016.
• Client assets managed by ThomasPartners^® totaled $13.4 billion, up 46% from the third quarter of 2016.
• Client assets managed by Intelligent Portfolios (Schwab Intelligent Portfolios^® and Institutional Intelligent Portfolios^®) totaled $23.0 billion, up 125% from the third quarter of 2016.

Supporting schedules are either attached or located at: http://www.aboutschwab.com/investor-relations/financial-reports .

Commentary from the CFO

Periodically, our Chief Financial Officer provides insight and commentary regarding Schwab’s financial picture at: http://www.aboutschwab.com/investor-relations/cfo-commentary . The most recent commentary was posted on February 28, 2017.

Forward-Looking Statements

This press release contains forward-looking statements relating to the company’s business momentum; growth in the client base, revenues, earnings and profits; expense discipline; optimization of the spread earned on cash sweep balances; balance sheet growth; bulk transfers; and stockholder value. 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 attract and retain clients and registered investment advisors and grow those relationships and client assets; general market conditions, including the level of interest rates, equity valuations and trading activity; competitive pressures on pricing; the company’s ability to develop and launch new products, services and capabilities in a timely and successful manner; client use of the company’s investment advisory services and other products and services; the level of client assets, including cash balances; the company’s ability to monetize client assets; capital and liquidity needs and management; the company’s ability to manage expenses; the timing, amount and impact of bulk transfers; client sensitivity to interest rates; the quality of the company’s balance sheet assets; regulatory guidance; the effect of adverse developments in litigation or regulatory matters and the extent of any charges associated with legal matters; any adverse impact of financial reform legislation and related regulations; 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 more than 345 offices and 10.6 million active brokerage accounts, 1.6 million corporate retirement plan participants, 1.2 million banking accounts, and $3.18 trillion in client assets as of September 30, 2017. Through its operating subsidiaries, the company provides a full range of wealth management, securities brokerage, banking, money management, custody, and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org ), and 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 banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com .

Charles Schwab
MEDIA:
Mayura Hooper, 415-667-1525
or
INVESTORS/ANALYSTS:
Rich Fowler, 415-667-1841

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