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Schwab Reports Second Quarter Results

SCHW

Total Client Assets Exceed $8 Trillion
Maintained Strong Profitability With GAAP Pre-Tax Margin of 36.3%; 42.0% Adjusted (1)

The Charles Schwab Corporation announced today that its net income for the second quarter of 2023 was $1.3 billion compared with $1.8 billion for the second quarter of 2022. Net income for the six months ended June 30, 2023 was $2.9 billion, compared with $3.2 billion for the year-earlier period.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20230718285814/en/

Three Months Ended
June 30,

%

Six Months Ended
June 30,

%

Financial Highlights (1)

2023

2022

Change

2023

2022

Change

Net revenues (in millions)

$

4,656

$

5,093

(9

)%

$

9,772

$

9,765

Net income (in millions)

GAAP

$

1,294

$

1,793

(28

)%

$

2,897

$

3,195

(9

)%

Adjusted (1)

$

1,494

$

1,981

(25

)%

$

3,274

$

3,572

(8

)%

Diluted earnings per common share

GAAP

$

.64

$

.87

(26

)%

$

1.48

$

1.54

(4

)%

Adjusted (1)

$

.75

$

.97

(23

)%

$

1.68

$

1.74

(3

)%

Pre-tax profit margin

GAAP

36.3

%

44.6

%

38.9

%

42.1

%

Adjusted (1)

42.0

%

49.5

%

44.0

%

47.2

%

Return on average common stockholders’ equity (annualized)

17

%

19

%

20

%

15

%

Return on tangible common equity (annualized) (1)

62

%

45

%

71

%

32

%

Note: All per-share results are rounded to the nearest cent, based on weighted-average diluted common shares outstanding.

(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.

Co-Chairman and CEO Walt Bettinger noted, “Schwab’s modern approach to wealth management continues to resonate with investors, helping to sustain our strong client momentum. During the second quarter, we gathered $52 billion in core net new assets – bringing year-to-date asset gathering to over $180 billion and keeping us squarely within our long-term organic growth range of 5% – 7%. While we observed signs of typical tax seasonality, as well as softer investor sentiment at the beginning of the quarter, we still attracted nearly 1 million new brokerage accounts and finished the period serving $8.02 trillion in total client assets across 34 million accounts.”

“Against an improving, yet still somewhat unsettled backdrop, clients increased their utilization of help and advice at Schwab during the quarter, reflecting investors’ continued trust in us to support them on their journey towards a better financial future,” continued Mr. Bettinger. “Year-to-date net flows into our retail Managed Investing solutions were up 35%, and when including relationships with Registered Investment Advisors (RIAs), approximately half of the firm’s client assets are now receiving some form of ongoing advisory service. More importantly, even with the still shifting environment, satisfaction within these areas remains strong as Client Promoter Scores for both Schwab Wealth Advisory™ and our RIAs have been near recent highs.”

Mr. Bettinger added, “Further advancing our three strategic initiatives of scale and efficiency, win-win monetization, and segmentation helps reinforce our advantages within the marketplace. In late May, we completed the conversion of over 5 million Ameritrade accounts to the combined platform. Successfully transitioning what is believed to be the largest number of client accounts in the history of the industry over a single weekend is a testament to the team’s diligent preparation and the tireless work of our dedicated employees. With approximately 30% of client accounts converted thus far, we are on-track to move nearly all of the remaining Ameritrade clients over before year-end – with the final transition group scheduled for the first half of 2024. During the quarter, we also took steps to supplement our asset management and personalized investing products by announcing a new proprietary high-yield bond exchange-traded fund and rolling-out enhancements to Schwab Personalized Indexing™ (SPI). The new features included a digital onboarding experience, expanded customization capabilities, and dynamic reporting tools for RIAs utilizing SPI. Most recently, we announced the launch of branded and differentiated experiences for our High Net Worth and Ultra-High Net Worth clients. While the go-forward service model is built upon the foundation of our firm-wide 'no trade-offs' approach, it includes many new benefits aimed at meeting the specific needs of these investors – including an integrated experience that offers specialized support and dedicated relationships across wealth management and banking.”

Mr. Bettinger finished, “Schwab continues to operate from a position of strength, as our 'Through Clients’ Eyes' strategy and distinct competitive advantages enable us to meet the ever-evolving needs of individual investors and the advisors who serve them. In addition, our consistency of mission and long-term management orientation allows us to stay focused on pursuing the tremendous growth opportunities still in front of us.”

CFO Peter Crawford stated, “While navigating significant near-term headwinds, we generated second quarter revenues of $4.7 billion, down 9% on a year-over-year basis. This top-line result was driven primarily by a temporary increase in the utilization of supplemental funding to facilitate client cash allocation decisions during the current rising rate cycle. Net interest revenue declined 10% from the prior year to $2.3 billion as the incorporation of higher cost liabilities brought our net interest margin down by 32 basis points sequentially to 1.87%. While anticipated client cash realignment, along with net equity buying during June, pushed cash levels lower, we observed a continued and substantial deceleration in the daily pace of cash outflows versus prior months. The continuation of this trend through the end of the quarter further strengthens our conviction that this realignment activity will inflect before the end of 2023, unlocking growth in client cash held on the balance sheet.”

“Managing expenses in a manner that allows us to balance appropriate investment to support long-term growth while generating near-term returns has been a core tenet of Schwab’s business model since its inception over 50 years ago,” Mr. Crawford added. “GAAP expenses for the quarter grew 5% year-over-year to $3.0 billion – including $130 million in acquisition and integration-related costs and $134 million in amortization of acquired intangibles. Exclusive of these items, adjusted total expenses (1) equaled $2.7 billion, also up 5% versus the prior year. Our commitment to expense discipline yielded a pre-tax margin of 36.3%, or 42.0% adjusted (1), as we continued to produce profitability levels beyond those observed at nearly all publicly-traded wealth management firms.”

Mr. Crawford concluded, “Effective balance sheet management remains central to our strategy as we seek to optimize capital and liquidity levels to sustain ongoing business momentum. In May, we issued $2.5 billion in long-term debt which provided incremental liquidity to support growth and helped us further bolster our capital ratios at the banks. Concurrently, driven by a combination of healthy profitability and a smaller balance sheet, our consolidated Tier 1 Leverage Ratio moved higher to 7.5%. While recent results have been negatively influenced by a number of temporary factors, we remain extremely well-positioned heading into the years to come. As we look forward, our confidence in the future is based on the resiliency of Schwab’s core earnings power as demonstrated by our diversified model’s ability to deliver long-term value to all of our stakeholders – clients, employees, and owners – over the past five decades.”

(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 recent client cash realignment trends and second quarter revenue expectations, was posted on June 14, 2023.

Summer Business Update

The company will host its Summer Business Update for institutional investors this morning from 7:30 a.m. - 8:30 a.m. CT, 8:30 a.m. - 9:30 a.m. ET. Registration for this 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 momentum; client asset growth; strategy and approach; competitive advantages; Ameritrade client transition; positioning; opportunities; success with clients; client cash realignment activity and trends; growth of client cash on the balance sheet; expense discipline; balancing investment to support long-term growth with generating near-term returns; profitability; balance sheet management; capital and liquidity; earnings power; and stakeholder 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 attract and retain clients and independent investment advisors and grow those relationships and client assets; develop and launch new and enhanced products, services, and capabilities, as well as enhance its infrastructure and capacity, in a timely and successful manner; hire and retain talent; support client activity levels; successfully implement integration strategies and plans; 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 the level of interest rates and equity valuations; client cash allocation decisions; client sensitivity to rates; level of client assets, including cash balances; competitive pressures on pricing; the level and mix of client trading activity; market volatility; securities lending; margin loan balances; capital and liquidity needs and management; balance sheet positioning relative to changes in interest rates; interest earning asset mix and growth; new or changed legislation, regulation or regulatory expectations; 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 34.4 million active brokerage accounts, 2.4 million corporate retirement plan participants, 1.8 million banking accounts, and $8.02 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.

THE CHARLES SCHWAB CORPORATION

Consolidated Statements of Income

(In millions, except per share amounts)

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2023

2022

2023

2022

Net Revenues

Interest revenue

$

4,104

$

2,710

$

8,120

$

5,029

Interest expense

(1,814

)

(166

)

(3,060

)

(302

)

Net interest revenue

2,290

2,544

5,060

4,727

Asset management and administration fees (1)

1,173

1,052

2,291

2,120

Trading revenue

803

885

1,695

1,848

Bank deposit account fees

175

352

326

646

Other

215

260

400

424

Total net revenues

4,656

5,093

9,772

9,765

Expenses Excluding Interest

Compensation and benefits

1,498

1,426

3,136

2,972

Professional services

272

258

530

502

Occupancy and equipment

319

294

618

563

Advertising and market development

103

105

191

207

Communications

188

169

334

313

Depreciation and amortization

191

159

368

309

Amortization of acquired intangible assets

134

154

269

308

Regulatory fees and assessments

80

67

163

135

Other

180

187

362

343

Total expenses excluding interest

2,965

2,819

5,971

5,652

Income before taxes on income

1,691

2,274

3,801

4,113

Taxes on income

397

481

904

918

Net Income

1,294

1,793

2,897

3,195

Preferred stock dividends and other

121

141

191

265

Net Income Available to Common Stockholders

$

1,173

$

1,652

$

2,706

$

2,930

Weighted-Average Common Shares Outstanding:

Basic

1,820

1,896

1,827

1,895

Diluted

1,825

1,904

1,834

1,905

Earnings Per Common Shares Outstanding(2):

Basic

$

.64

$

.87

$

1.48

$

1.55

Diluted

$

.64

$

.87

$

1.48

$

1.54

(1)

No fee waivers were recognized for the three and six months ended June 30, 2023. Includes fee waivers of $3 million and $57 million for the three and six months ended June 30, 2022, respectively.

(2)

The Company has voting and nonvoting common stock outstanding. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class.

THE CHARLES SCHWAB CORPORATION

Financial and Operating Highlights

(Unaudited)

Q2-23 % change

2023

2022

vs.

vs.

Second

First

Fourth

Third

Second

(In millions, except per share amounts and as noted)

Q2-22

Q1-23

Quarter

Quarter

Quarter

Quarter

Quarter

Net Revenues

Net interest revenue

(10

)%

(17

)%

$

2,290

$

2,770

$

3,029

$

2,926

$

2,544

Asset management and administration fees

12

%

5

%

1,173

1,118

1,049

1,047

1,052

Trading revenue

(9

)%

(10

)%

803

892

895

930

885

Bank deposit account fees

(50

)%

16

%

175

151

350

413

352

Other

(17

)%

16

%

215

185

174

184

260

Total net revenues

(9

)%

(9

)%

4,656

5,116

5,497

5,500

5,093

Expenses Excluding Interest

Compensation and benefits

5

%

(9

)%

1,498

1,638

1,488

1,476

1,426

Professional services

5

%

5

%

272

258

266

264

258

Occupancy and equipment

9

%

7

%

319

299

320

292

294

Advertising and market development

(2

)%

17

%

103

88

123

89

105

Communications

11

%

29

%

188

146

144

131

169

Depreciation and amortization

20

%

8

%

191

177

176

167

159

Amortization of acquired intangible assets

(13

)%

(1

)%

134

135

136

152

154

Regulatory fees and assessments

19

%

(4

)%

80

83

62

65

67

Other

(4

)%

(1

)%

180

182

184

187

187

Total expenses excluding interest

5

%

(1

)%

2,965

3,006

2,899

2,823

2,819

Income before taxes on income

(26

)%

(20

)%

1,691

2,110

2,598

2,677

2,274

Taxes on income

(17

)%

(22

)%

397

507

630

657

481

Net Income

(28

)%

(19

)%

1,294

1,603

1,968

2,020

1,793

Preferred stock dividends and other

(14

)%

73

%

121

70

147

136

141

Net Income Available to Common Stockholders

(29

)%

(23

)%

$

1,173

$

1,533

$

1,821

$

1,884

$

1,652

Earnings per common share (1):

Basic

(26

)%

(24

)%

$

.64

$

.84

$

.98

$

1.00

$

.87

Diluted

(26

)%

(23

)%

$

.64

$

.83

$

.97

$

.99

$

.87

Dividends declared per common share

25

%

$

.25

$

.25

$

.22

$

.22

$

.20

Weighted-average common shares outstanding:

Basic

(4

)%

(1

)%

1,820

1,834

1,864

1,887

1,896

Diluted

(4

)%

(1

)%

1,825

1,842

1,873

1,895

1,904

Performance Measures

Pre-tax profit margin

36.3

%

41.2

%

47.3

%

48.7

%

44.6

%

Return on average common stockholders’ equity (annualized) (2)

17

%

23

%

27

%

25

%

19

%

Financial Condition (at quarter end, in billions)

Cash and cash equivalents

(26

)%

(3

)%

$

47.7

$

49.2

$

40.2

$

46.5

$

64.6

Cash and investments segregated

(53

)%

(19

)%

25.1

31.0

43.0

44.1

53.5

Receivables from brokerage clients — net

(14

)%

3

%

65.2

63.2

66.6

73.9

76.1

Available for sale securities

(53

)%

(11

)%

125.8

141.3

147.9

236.5

265.3

Held to maturity securities

66

%

(2

)%

166.3

169.9

173.1

96.3

100.1

Bank loans — net

1

%

40.1

40.0

40.5

40.4

39.6

Total assets

(20

)%

(4

)%

511.5

535.6

551.8

577.6

637.6

Bank deposits

(31

)%

(7

)%

304.4

325.7

366.7

395.7

442.0

Payables to brokerage clients

(26

)%

(3

)%

84.8

87.6

97.4

110.0

114.9

Other short-term borrowings (3)

N/M

10

%

7.8

7.1

4.7

0.5

1.4

Federal Home Loan Bank borrowings (3)

N/M

(10

)%

41.0

45.6

12.4

Long-term debt

7

%

13

%

22.5

20.0

20.8

20.8

21.1

Stockholders’ equity

(17

)%

2

%

37.1

36.3

36.6

37.0

44.5

Other

Full-time equivalent employees (at quarter end, in thousands)

4

%

2

%

36.6

36.0

35.3

35.2

35.2

Capital expenditures — purchases of equipment, office facilities, and property, net (in millions)

(50

)%

(10

)%

$

168

$

187

$

211

$

193

$

339

Expenses excluding interest as a percentage of average client assets (annualized)

0.15

%

0.17

%

0.16

%

0.16

%

0.16

%

Clients’ Daily Average Trades (DATs) (in thousands)

(15

)%

(11

)%

5,272

5,895

5,389

5,523

6,227

Number of Trading Days

62.0

62.0

62.5

64.0

62.0

Revenue Per Trade (4)

7

%

1

%

$

2.46

$

2.44

$

2.66

$

2.63

$

2.29

(1)

The Company has voting and nonvoting common stock outstanding. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class.

(2)

Return on average common stockholders’ equity is calculated using net income available to common stockholders divided by average common stockholders’ equity.

(3)

Beginning in the first quarter of 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.

(4)

Revenue per trade is calculated as trading revenue divided by DATs multiplied by the number of trading days.

N/M Not meaningful. Percentage changes greater than 200% are presented as not meaningful.

THE CHARLES SCHWAB CORPORATION

Net Interest Revenue Information

(In millions, except ratios or as noted)

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2023

2022

2023

2022

Average
Balance

Interest
Revenue/
Expense

Average
Yield/
Rate

Average
Balance

Interest
Revenue/
Expense

Average
Yield/
Rate

Average
Balance

Interest
Revenue/
Expense

Average
Yield/
Rate

Average
Balance

Interest
Revenue/
Expense

Average
Yield/
Rate

Interest-earning assets

Cash and cash equivalents

$

44,683

$

547

4.84

%

$

65,414

$

133

0.81

%

$

40,891

$

960

4.67

%

$

68,920

$

167

0.48

%

Cash and investments segregated

27,399

324

4.68

%

51,232

79

0.61

%

33,699

756

4.46

%

51,570

94

0.36

%

Receivables from brokerage clients

60,709

1,167

7.60

%

79,061

706

3.53

%

60,626

2,251

7.39

%

81,618

1,332

3.24

%

Available for sale securities (1,2)

145,032

791

2.18

%

287,313

1,088

1.51

%

150,382

1,616

2.15

%

285,927

2,035

1.42

%

Held to maturity securities

167,499

720

1.72

%

101,752

339

1.33

%

169,184

1,466

1.73

%

102,580

717

1.40

%

Bank loans

40,124

410

4.09

%

38,831

230

2.38

%

40,185

801

4.00

%

37,351

417

2.24

%

Total interest-earning assets

485,446

3,959

3.24

%

623,603

2,575

1.64

%

494,967

7,850

3.16

%

627,966

4,762

1.51

%

Securities lending revenue

124

130

236

259

Other interest revenue

21

5

34

8

Total interest-earning assets

$

485,446

$

4,104

3.36

%

$

623,603

$

2,710

1.73

%

$

494,967

$

8,120

3.27

%

$

627,966

$

5,029

1.60

%

Funding sources

Bank deposits

$

312,543

$

863

1.11

%

$

449,936

$

28

0.03

%

$

327,739

$

1,481

0.91

%

$

451,306

$

44

0.02

%

Payables to brokerage clients

64,892

64

0.40

%

101,784

4

0.02

%

70,997

139

0.40

%

103,846

6

0.01

%

Other short-term borrowings (3)

7,622

97

5.08

%

2,587

4

0.69

%

7,272

183

5.06

%

3,646

8

0.46

%

Federal Home Loan Bank borrowings (3,4)

46,813

606

5.13

%

35,697

910

5.07

%

Long-term debt

21,237

157

2.95

%

21,119

124

2.34

%

20,766

296

2.85

%

20,495

232

2.26

%

Total interest-bearing liabilities

453,107

1,787

1.57

%

575,426

160

0.11

%

462,471

3,009

1.31

%

579,293

290

0.10

%

Non-interest-bearing funding sources

32,339

48,177

32,496

48,673

Securities lending expense

28

8

50

15

Other interest expense

(1

)

(2

)

1

(3

)

Total funding sources

$

485,446

$

1,814

1.49

%

$

623,603

$

166

0.11

%

$

494,967

$

3,060

1.24

%

$

627,966

$

302

0.10

%

Net interest revenue

$

2,290

1.87

%

$

2,544

1.62

%

$

5,060

2.03

%

$

4,727

1.50

%

(1)

Amounts have been calculated based on amortized cost.

(2)

Beginning in the first quarter of 2023, amounts include the impact of derivative financial instruments and the related hedge accounting on our available for sale securities.

(3)

Beginning in the first quarter of 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.

(4)

Average balance and interest expense was less than $500 thousand in the prior period.

THE CHARLES SCHWAB CORPORATION

Asset Management and Administration Fees Information

(In millions, except ratios or as noted)

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2023

2022

2023

2022

Average
Client
Assets

Revenue

Average
Fee

Average
Client
Assets

Revenue

Average
Fee

Average
Client
Assets

Revenue

Average
Fee

Average
Client
Assets

Revenue

Average
Fee

Schwab money market funds before fee waivers

$

375,898

$

252

0.27

%

$

146,009

$

106

0.29

%

$

346,145

$

465

0.27

%

$

145,371

$

208

0.29

%

Fee waivers

(3

)

(57

)

Schwab money market funds

375,898

252

0.27

%

146,009

103

0.28

%

346,145

465

0.27

%

145,371

151

0.21

%

Schwab equity and bond funds, exchange-traded funds (ETFs), and collective trust funds (CTFs)

465,079

94

0.08

%

431,747

92

0.09

%

457,830

185

0.08

%

444,036

189

0.09

%

Mutual Fund OneSource® and other no-transaction-fee funds

229,207

151

0.26

%

192,435

149

0.31

%

225,822

299

0.27

%

202,538

314

0.31

%

Other third-party mutual funds and ETFs

681,486

133

0.08

%

795,727

171

0.09

%

678,915

266

0.08

%

833,969

350

0.08

%

Total mutual funds, ETFs, and CTFs (1)

$

1,751,670

630

0.14

%

$

1,565,918

515

0.13

%

$

1,708,712

1,215

0.14

%

$

1,625,914

1,004

0.12

%

Advice solutions (1)

Fee-based

$

455,859

464

0.41

%

$

440,336

461

0.42

%

$

449,443

917

0.41

%

$

454,830

957

0.42

%

Non-fee-based

95,427

86,684

94,948

88,509

Total advice solutions

$

551,286

464

0.34

%

$

527,020

461

0.35

%

$

544,391

917

0.34

%

$

543,339

957

0.36

%

Other balance-based fees (2)

594,528

63

0.04

%

566,712

61

0.04

%

578,158

125

0.04

%

591,695

128

0.04

%

Other (3)

16

15

34

31

Total asset management and administration fees

$

1,173

$

1,052

$

2,291

$

2,120

(1)

Advice solutions include managed portfolios, specialized strategies, and customized investment advice such as Schwab Wealth Advisory™, Schwab Managed Portfolios™, Managed Account Select®, Schwab Advisor Network®, Windhaven Strategies®, ThomasPartners® Strategies, Schwab Index Advantage® advised retirement plan balances, Schwab Intelligent Portfolios®, Institutional Intelligent Portfolios®, Schwab Intelligent Portfolios Premium®, TD Ameritrade AdvisorDirect®, Essential Portfolios, Selective Portfolios, and Personalized Portfolios; as well as legacy non-fee advice solutions including Schwab Advisor Source and certain retirement plan balances. Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above. For the total end of period view, please see the Monthly Activity Report.

(2)

Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.

(3)

Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

THE CHARLES SCHWAB CORPORATION

Growth in Client Assets and Accounts

(Unaudited)

Q2-23 % Change

2023

2022

vs.

vs.

Second

First

Fourth

Third

Second

(In billions, at quarter end, except as noted)

Q2-22

Q1-23

Quarter

Quarter

Quarter

Quarter

Quarter

Assets in client accounts

Schwab One®, certain cash equivalents and bank deposits

(30

)%

(6

)%

$

384.4

$

408.5

$

459.4

$

501.4

$

552.5

Bank deposit account balances

(34

)%

(4

)%

102.7

106.5

126.6

139.6

155.6

Proprietary mutual funds (Schwab Funds® and Laudus Funds®) and CTFs

Money market funds (1)

147

%

10

%

392.9

357.8

278.9

211.1

159.2

Equity and bond funds and CTFs (2)

15

%

6

%

172.6

163.1

153.6

141.5

149.5

Total proprietary mutual funds and CTFs

83

%

9

%

565.5

520.9

432.5

352.6

308.7

Mutual Fund Marketplace® (3)

Mutual Fund OneSource® and other no-transaction-fee funds

30

%

4

%

254.6

244.3

235.7

181.5

196.6

Mutual fund clearing services

20

%

9

%

220.7

201.7

191.1

175.3

184.4

Other third-party mutual funds (4)

(3

)%

2

%

1,150.8

1,123.6

1,077.1

1,105.7

1,189.4

Total Mutual Fund Marketplace

4

%

4

%

1,626.1

1,569.6

1,503.9

1,462.5

1,570.4

Total mutual fund assets

17

%

5

%

2,191.6

2,090.5

1,936.4

1,815.1

1,879.1

Exchange-traded funds

Proprietary ETFs (2)

23

%

4

%

293.2

280.6

259.3

232.2

237.7

Other third-party ETFs

22

%

6

%

1,381.4

1,297.5

1,208.4

1,094.6

1,129.0

Total ETF assets

23

%

6

%

1,674.6

1,578.1

1,467.7

1,326.8

1,366.7

Equity and other securities

18

%

8

%

3,002.7

2,772.2

2,529.4

2,451.3

2,548.5

Fixed income securities

79

%

6

%

722.6

684.7

593.4

481.5

403.5

Margin loans outstanding

(14

)%

4

%

(62.8

)

(60.5

)

(63.1

)

(71.5

)

(73.4

)

Total client assets

17

%

6

%

$

8,015.8

$

7,580.0

$

7,049.8

$

6,644.2

$

6,832.5

Client assets by business

Investor Services

19

%

7

%

$

4,267.9

$

4,001.9

$

3,682.1

$

3,508.1

$

3,598.7

Advisor Services

16

%

5

%

3,747.9

3,578.1

3,367.7

3,136.1

3,233.8

Total client assets

17

%

6

%

$

8,015.8

$

7,580.0

$

7,049.8

$

6,644.2

$

6,832.5

Net growth in assets in client accounts (for the quarter ended)

Net new assets by business

Investor Services (5)

N/M

(55

)%

$

36.0

$

79.4

$

64.3

$

55.1

$

8.8

Advisor Services

4

%

(50

)%

36.0

71.3

64.1

59.5

34.6

Total net new assets

66

%

(52

)%

$

72.0

$

150.7

$

128.4

$

114.6

$

43.4

Net market gains (losses)

363.8

379.5

277.2

(302.9

)

(1,073.0

)

Net growth (decline)

$

435.8

$

530.2

$

405.6

$

(188.3

)

$

(1,029.6

)

New brokerage accounts (in thousands, for the quarter ended)

(5

)%

(8

)%

960

1,042

931

897

1,014

Client accounts (in thousands)

Active brokerage accounts (6)

1

%

1

%

34,382

34,120

33,758

33,875

33,896

Banking accounts

7

%

2

%

1,781

1,746

1,716

1,696

1,669

Corporate retirement plan participants

7

%

3

%

2,443

2,379

2,351

2,305

2,275

(1)

Total client assets in purchased money market funds are located at: https://www.aboutschwab.com/investor-relations.

(2)

Includes balances held on and off the Schwab platform. As of June 30, 2023, off-platform equity and bond funds, CTFs, and ETFs were $26.7 billion, $4.2 billion, and $112.5 billion, respectively.

(3)

Excludes all proprietary mutual funds and ETFs.

(4)

As of June 30, 2023, third-party money funds were $2.7 billion.

(5)

Second quarter of 2023 includes an inflow of $12.0 billion from a mutual fund clearing services client and inflows of $7.8 billion from off-platform Schwab Bank Retail Certificates of Deposit (CDs). First quarter of 2023 includes inflows of $19.0 billion from off-platform Schwab Bank Retail CDs. Second quarter of 2022 includes an outflow of $20.8 billion from a mutual fund clearing services client.

(6)

Fourth quarter of 2022 includes the Company-initiated closure of approximately 350 thousand low-balance accounts. Third quarter of 2022 includes the Company-initiated closure of approximately 152 thousand low-balance accounts.

N/M Not meaningful. Percentage changes greater than 200% are presented as not meaningful.

The Charles Schwab Corporation Monthly Activity Report For June 2023

2022

2023

Change

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Mo.

Yr.

Market Indices (at month end)

Dow Jones Industrial Average®

30,775

32,845

31,510

28,726

32,733

34,590

33,147

34,086

32,657

33,274

34,098

32,908

34,408

5

%

12

%

Nasdaq Composite®

11,029

12,391

11,816

10,576

10,988

11,468

10,466

11,585

11,456

12,222

12,227

12,935

13,788

7

%

25

%

Standard & Poor’s® 500

3,785

4,130

3,955

3,586

3,872

4,080

3,840

4,077

3,970

4,109

4,169

4,180

4,450

6

%

18

%

Client Assets (in billions of dollars)

Beginning Client Assets

7,301.7

6,832.5

7,304.8

7,127.6

6,644.2

7,004.6

7,320.6

7,049.8

7,480.6

7,380.2

7,580.0

7,631.5

7,650.2

Net New Assets (1)

19.8

31.5

43.3

39.8

42.0

33.1

53.3

36.1

41.7

72.9

13.6

24.6

33.8

37

%

71

%

Net Market Gains (Losses)

(489.0

)

440.8

(220.5

)

(523.2

)

318.4

282.9

(324.1

)

394.7

(142.1

)

126.9

37.9

(5.9

)

331.8

Total Client Assets (at month end)

6,832.5

7,304.8

7,127.6

6,644.2

7,004.6

7,320.6

7,049.8

7,480.6

7,380.2

7,580.0

7,631.5

7,650.2

8,015.8

5

%

17

%

Core Net New Assets (2)

40.6

31.5

43.3

39.8

42.0

33.1

53.3

36.1

41.7

53.9

(2.3

)

20.7

33.8

63

%

(17

)%

Receiving Ongoing Advisory Services (at month end)

Investor Services

483.8

514.8

499.2

466.6

487.3

514.0

499.8

524.6

515.5

526.2

530.7

526.3

547.5

4

%

13

%

Advisor Services (3)

3,040.4

3,222.5

3,150.5

2,950.9

3,106.0

3,270.5

3,173.4

3,345.4

3,289.6

3,369.3

3,394.9

3,377.8

3,527.8

4

%

16

%

Client Accounts (at month end, in thousands)

Active Brokerage Accounts (4)

33,896

33,934

33,984

33,875

33,896

33,636

33,758

33,878

34,010

34,120

34,248

34,311

34,382

1

%

Banking Accounts

1,669

1,680

1,690

1,696

1,706

1,705

1,716

1,729

1,733

1,746

1,757

1,768

1,781

1

%

7

%

Corporate Retirement Plan Participants

2,275

2,267

2,285

2,305

2,322

2,336

2,351

2,369

2,384

2,379

2,391

2,401

2,443

2

%

7

%

Client Activity

New Brokerage Accounts (in thousands)

305

278

332

287

298

303

330

344

320

378

331

314

315

3

%

Client Cash as a Percentage of Client Assets (5)

12.8

%

12.0

%

12.1

%

12.9

%

12.2

%

11.5

%

12.3

%

11.6

%

11.7

%

11.6

%

11.3

%

11.5

%

11.0

%

(50) bp

(180) bp

Derivative Trades as a Percentage of Total Trades

22.3

%

24.2

%

23.3

%

23.6

%

24.1

%

24.6

%

23.2

%

23.0

%

23.5

%

22.8

%

23.4

%

23.5

%

23.9

%

40 bp

160 bp

Selected Average Balances (in millions of dollars)

Average Interest-Earning Assets (6)

614,100

605,751

586,154

568,351

552,631

527,019

520,100

512,893

503,122

497,627

493,215

483,438

479,752

(1

)%

(22

)%

Average Margin Balances

74,577

72,177

72,855

73,224

69,188

66,011

64,759

60,211

60,575

60,848

60,338

60,250

61,543

2

%

(17

)%

Average Bank Deposit Account Balances (7)

155,306

154,542

148,427

141,198

136,036

130,479

126,953

122,387

115,816

109,392

104,775

103,149

102,917

(34

)%

Mutual Fund and Exchange-Traded Fund

Net Buys (Sells) (8,9) (in millions of dollars)

Equities

(1,586

)

5,589

10,465

(2,662

)

3,984

3,777

(1,837

)

7,236

5,850

(3,234

)

1,126

(1,366

)

9,190

Hybrid

(1,054

)

(2,041

)

(783

)

(938

)

(1,380

)

(2,052

)

(1,595

)

(433

)

47

(1,641

)

(462

)

(889

)

(903

)

Bonds

(5,631

)

729

(141

)

(5,801

)

(7,218

)

(3,721

)

(3,260

)

5,646

4,281

6,158

2,575

2,029

3,302

Net Buy (Sell) Activity (in millions of dollars)

Mutual Funds (8)

(16,258

)

(8,674

)

(7,117

)

(15,200

)

(18,473

)

(17,143

)

(21,851

)

552

(2,338

)

(7,423

)

(4,904

)

(7,157

)

(4,485

)

Exchange-Traded Funds (9)

7,987

12,951

16,658

5,799

13,859

15,147

15,159

11,897

12,516

8,706

8,143

6,931

16,074

Money Market Funds

11,544

13,711

19,702

17,018

21,542

16,929

27,778

24,285

23,347

27,106

6,291

15,256

9,112

Note: Certain supplemental details related to the information above can be found at: https://www.aboutschwab.com/financial-reports.

(1)

Unless otherwise noted, differences between net new assets and core net new assets are net flows from off-platform Schwab Bank Retail CDs – including March 2023 which reflects inflows of $19.0 billion from off-platform Schwab Bank Retail CDs issued year-to-date through March 31, 2023. April 2023 also includes an inflow of $12.0 billion from a mutual fund clearing services client. June 2022 includes an outflow of $20.8 billion from a mutual fund clearing services client.

(2)

Net new assets before significant one-time inflows or outflows, such as acquisitions/divestitures or extraordinary flows (generally greater than $10 billion) relating to a specific client, and activity from off-platform Schwab Bank Retail CDs. These flows may span multiple reporting periods.

(3)

Excludes Retirement Business Services.

(4)

November 2022 includes the Company-initiated closure of approximately 350 thousand low-balance accounts. September 2022 includes the Company-initiated closure of 152 thousand low-balance accounts.

(5)

Schwab One®, certain cash equivalents, bank deposits, third-party bank deposit accounts, and money market fund balances as a percentage of total client assets.

(6)

Represents average total interest-earning assets on the Company’s balance sheet. November 2022 includes the impact of transferring certain investment securities from the available for sale category to the held-to-maturity category.

(7)

Represents average clients’ uninvested cash sweep account balances held in deposit accounts at third-party financial institutions.

(8)

Represents the principal value of client mutual fund transactions handled by Schwab, including transactions in proprietary funds. Includes institutional funds available only to Investment Managers. Excludes money market fund transactions.

(9)

Represents the principal value of client ETF transactions handled by Schwab, including transactions in proprietary ETFs.

THE CHARLES SCHWAB CORPORATION
Non-GAAP Financial Measures
(In millions, except ratios and per share amounts)
(Unaudited)

In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S. (GAAP), Schwab’s second quarter earnings release contains references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide useful supplemental information about the financial performance of the Company, and facilitate meaningful comparison of Schwab’s results in the current period to both historic and future results. These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may not be comparable to non-GAAP financial measures presented by other companies.

Schwab’s use of non-GAAP measures is reflective of certain adjustments made to GAAP financial measures as described below.

Non-GAAP Adjustment or Measure

Definition

Usefulness to Investors and Uses by Management

Acquisition and integration-related costs and amortization of acquired intangible assets

Schwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, and, where applicable, the income tax effect of these expenses.

Adjustments made to exclude amortization of acquired intangible assets are reflective of all acquired intangible assets, which were recorded as part of purchase accounting. These acquired intangible assets contribute to the Company’s revenue generation. Amortization of acquired intangible assets will continue in future periods over their remaining useful lives.

We exclude acquisition and integration-related costs and amortization of acquired intangible assets for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and is useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods.

Acquisition and integration-related costs fluctuate based on the timing of acquisitions and integration activities, thereby limiting comparability of results among periods, and are not representative of the costs of running the Company’s ongoing business. Amortization of acquired intangible assets is excluded because management does not believe it is indicative of the Company’s underlying operating performance.

Return on tangible common equity

Return on tangible common equity represents annualized adjusted net income available to common stockholders as a percentage of average tangible common equity. Tangible common equity represents common equity less goodwill, acquired intangible assets — net, and related deferred tax liabilities.

Acquisitions typically result in the recognition of significant amounts of goodwill and acquired intangible assets. We believe return on tangible common equity may be useful to investors as a supplemental measure to facilitate assessing capital efficiency and returns relative to the composition of Schwab’s balance sheet.

The Company also uses adjusted diluted EPS and return on tangible common equity as components of performance criteria for employee bonus and certain executive management incentive compensation arrangements. The Compensation Committee of CSC’s Board of Directors maintains discretion in evaluating performance against these criteria.

The tables below present reconciliations of GAAP measures to non-GAAP measures:

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Total
Expenses
Excluding
Interest

Net
Income

Total
Expenses
Excluding
Interest

Net
Income

Total
Expenses
Excluding
Interest

Net
Income

Total
Expenses
Excluding
Interest

Net
Income

Total expenses excluding interest (GAAP), Net income (GAAP)

$

2,965

$

1,294

$

2,819

$

1,793

$

5,971

$

2,897

$

5,652

$

3,195

Acquisition and integration-related costs (1)

(130

)

130

(94

)

94

(228

)

228

(190

)

190

Amortization of acquired intangible assets

(134

)

134

(154

)

154

(269

)

269

(308

)

308

Income tax effects (2)

N/A

(64

)

N/A

(60

)

N/A

(120

)

N/A

(121

)

Adjusted total expenses (non-GAAP), Adjusted net income (non-GAAP)

$

2,701

$

1,494

$

2,571

$

1,981

$

5,474

$

3,274

$

5,154

$

3,572

(1)

Acquisition and integration-related costs for the three and six months ended June 30, 2023 primarily consist of $48 million and $106 million of compensation and benefits, $41 million and $74 million of professional services, $10 million and $14 million of occupancy and equipment, and $20 million and $22 million of other. Acquisition and integration-related costs for the three and six months ended June 30, 2022 primarily consist of $53 million and $109 million of compensation and benefits, $35 million and $66 million of professional services, and $4 million and $8 million of occupancy and equipment.

(2)

The income tax effects of the non-GAAP adjustments are determined using an effective tax rate reflecting the exclusion of non-deductible acquisition costs and are used to present the acquisition and integration-related costs and amortization of acquired intangible assets on an after-tax basis.

N/A Not applicable.

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Amount

% of
Total Net
Revenues

Amount

% of
Total Net
Revenues

Amount

% of
Total Net
Revenues

Amount

% of
Total Net
Revenues

Income before taxes on income (GAAP), Pre-tax profit margin (GAAP)

$

1,691

36.3

%

$

2,274

44.6

%

$

3,801

38.9

%

$

4,113

42.1

%

Acquisition and integration-related costs

130

2.8

%

94

1.8

%

228

2.3

%

190

1.9

%

Amortization of acquired intangible assets

134

2.9

%

154

3.1

%

269

2.8

%

308

3.2

%

Adjusted income before taxes on income (non-GAAP), Adjusted pre-tax profit margin (non-GAAP)

$

1,955

42.0

%

$

2,522

49.5

%

$

4,298

44.0

%

$

4,611

47.2

%

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Amount

Diluted
EPS

Amount

Diluted
EPS

Amount

Diluted
EPS

Amount

Diluted
EPS

Net income available to common stockholders (GAAP), Earnings per common share — diluted (GAAP)

$

1,173

$

.64

$

1,652

$

.87

$

2,706

$

1.48

$

2,930

$

1.54

Acquisition and integration-related costs

130

.07

94

.05

228

.12

190

.10

Amortization of acquired intangible assets

134

.07

154

.08

269

.15

308

.16

Income tax effects

(64

)

(.03

)

(60

)

(.03

)

(120

)

(.07

)

(121

)

(.06

)

Adjusted net income available to common stockholders (non-GAAP), Adjusted diluted EPS (non-GAAP)

$

1,373

$

.75

$

1,840

$

.97

$

3,083

$

1.68

$

3,307

$

1.74

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Return on average common stockholders’ equity (GAAP)

17

%

19

%

20

%

15

%

Average common stockholders’ equity

$

27,556

$

35,611

$

27,429

$

40,063

Less: Average goodwill

(11,951

)

(11,952

)

(11,951

)

(11,952

)

Less: Average acquired intangible assets — net

(8,591

)

(9,151

)

(8,657

)

(9,227

)

Plus: Average deferred tax liabilities related to goodwill and acquired intangible assets — net

1,834

1,868

1,837

1,877

Average tangible common equity

$

8,848

$

16,376

$

8,658

$

20,761

Adjusted net income available to common stockholders (1)

$

1,373

$

1,840

$

3,083

$

3,307

Return on tangible common equity (non-GAAP)

62

%

45

%

71

%

32

%

(1)

See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).