Schwab Reports Net Income of $937 Million, Up 8%, Posting the Strongest Second Quarter in Company History

Revenues Grow 8% Year-Over-Year to $2.7 Billion, Marking Sustained Business Momentum

Core Net New Assets Total $37.2 Billion and Client Assets Reach a Record $3.70 Trillion

SAN FRANCISCO–(BUSINESS WIRE)–The Charles Schwab Corporation announced today that its net income for the second quarter of 2019 was $937 million, down 3% from $964 million for the prior quarter, and up 8% from $866 million for the second quarter of 2018. Net income for the six months ended June 30, 2019 was a record $1.9 billion, up 15% from the year-earlier period.

CEO Walt Bettinger said, “Our ‘no trade-offs’ approach to combining value, service, transparency, and trust continues to resonate with clients, as they are drawn to our contemporary full-service model through all environments. Thus far in 2019, a challenging mix of geopolitical, economic, and market dynamics has persisted, with investors facing unresolved trade negotiations, the Brexit debate and signals that the Fed may be moving towards a reversal in rate policy, all while U.S. equity markets have rallied to record territory. Amidst this backdrop, we drove sustained business momentum. Clients opened nearly 400,000 new brokerage accounts during the second quarter, bringing year-to-date new accounts to 772,000, helping push active accounts to the 12 million mark by quarter-end, up 7% year-over-year. This includes 3.5 million accounts under the guidance of the 7,500+ independent advisors who custody with us; those accounts are up 8% as advisors successfully build their businesses with our assistance.”

Mr. Bettinger continued, “Both advisors and individual clients contributed to our total core net new assets of $37.2 billion during the second quarter. With first half core net new assets of $88.9 billion, we sustained an annualized organic growth rate in excess of 5% throughout the period despite seasonal tax outflows in April. These strong flows reflect our ability to win in a competitive marketplace – clients have transferred nearly two dollars of assets in for every dollar out over the past six months, helping total client assets climb to a record $3.70 trillion as of June 30^th, an increase of $305 billion, or 9% from a year ago.”

“Our “Through Clients’ Eyes” strategy includes serving our clients’ evolving needs where and how they prefer,” Mr. Bettinger added. “We recently opened our 61^st independent branch, up from 53 at year end. These offices help extend our traditional branch network, delivering Schwab’s capabilities through local, community-based professionals. For clients exploring our lending capabilities, we have introduced new features to our Pledged Asset Line^® offering, including loans with no preset term, streamlined origination and underwriting criteria, and a new application process available via any web-enabled device, with access to a new loan in as little as 24 hours. To aid advisors with growing and managing their practices, we are implementing digital alternatives to traditionally paper-based processes; by eliminating manual touch points and enabling automated status updates, these tools improve efficiency for both advisors and the company. We know that investing in these and other initiatives to build an ever more capable and efficient Schwab is important to our clients and our ability to continue winning in the marketplace. Through consistent strategic focus and disciplined execution, we expect to sustain our track record of delivering profitable growth and long-term value creation while putting clients first.”

CFO Peter Crawford commented, “Our sustained business momentum helped us achieve our strongest second quarter ever, even as we weathered shifts in client asset allocations and activity levels, as well as the interest rate environment. Overall, revenues were up 8% from a year ago at $2.7 billion, which was just under last quarter’s record mark. Net interest revenue rose 14% year-over-year to $1.6 billion, largely driven by higher interest-earning assets relating to the transfer of sweep money market fund balances to bank and broker-dealer sweep. In addition, our net interest margin rose 10 bps from a year ago to 2.40%, reflecting the Fed’s 2018 rate hikes. Asset management and administration fees decreased 3% year-over-year to $786 million as a result of lower money market fund revenue due to the sweep transfers as well as ongoing declines in Mutual Fund OneSource^® balances, partially offset by growing enrollment in our advisory solutions. Trading revenue declined 3% to $174 million due to a decrease in average revenue per trade, which more than offset higher activity. Finally, other revenue rose 32%, driven primarily by a gain on the sale of PortfolioCenter^®, a portfolio management and reporting software solution for advisors, to Tamarac Inc. Looking at expenses, our 7% increase reflects planned growth in staffing and our investments to drive efficiency and scale as we support our expanding client base. Our ongoing focus on driving efficiency while managing our spending in a disciplined manner enabled us to maintain our ratio of expenses to client assets at 16 bps for the quarter and achieve a pre-tax profit margin of 46.1% – our 5^th consecutive quarter of at least 45%.”

Mr. Crawford concluded, “Effective balance sheet management remains a priority as we aim to maintain appropriate liquidity and support business growth. During the second quarter, we issued $600 million in senior notes with a 10-year maturity. Additionally, we transferred just under $200 million from sweep money market fund balances to bank and broker-dealer sweep, marking the completion of a 12-year process during which we moved approximately $130 billion. With sweep transfers done, tax season disbursements and some client sorting between invested and transactional cash allocations contributed to consolidated balance sheet assets declining by approximately $6 billion during the quarter to $276 billion. Consistent with our intent to return excess capital to stockholders, we repurchased 29.1 million shares for $1.2 billion during the quarter, leaving us with an outstanding authorization of $2.8 billion. The company’s preliminary Tier 1 Leverage ratio at quarter-end was 7.3%, somewhat above our operating objective of 6.75% – 7%. Our 19% return on equity for the second quarter marked our 5^th consecutive quarter of at least 19% – our best sustained performance since 2009.”

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 crossing the $250 billion consolidated asset threshold for heightened regulatory requirements, was posted on August 14, 2018.

Forward-Looking Statements

This press release contains forward-looking statements relating to client demand for the company’s full-service model, including advisory solutions; growth in the client base, accounts and assets; investments to drive efficiency and scale; profitable growth; long-term value creation; expenses; liquidity; capital returns to stockholders; and Tier 1 Leverage Ratio operating objective. 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, general market conditions, including the level of interest rates, equity valuations, and trading activity; client use of the company’s advisory solutions and other products and services; the company’s ability to attract and retain clients and registered investment advisors and grow those relationships and client assets; competitive pressures on pricing, including deposit rates; the company’s ability to develop and launch new products, services, and capabilities, as well as implement infrastructure, in a timely and successful manner; the level of client assets, including cash balances; capital and liquidity needs and management; the company’s ability to manage expenses; client sensitivity to interest rates; and other factors set forth in the company’s most recent report on Form 10-K.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 365 offices and 12.0 million active brokerage accounts, 1.7 million corporate retirement plan participants, 1.3 million banking accounts, and $3.70 trillion in client assets as of June 30, 2019. 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 subsidiary, Charles Schwab & Co., Inc. (member SIPC, https://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 https://www.schwab.com and https://www.aboutschwab.com.