Schwab Reports Strong First Quarter Results

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⁾

WESTLAKE, Texas–(BUSINESS WIRE)–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.

	Three Months Ended March 31,								%
Financial Highlights (1)	2023				2022				Change
Net revenues (in millions)	$	5,116			$	4,672			10	%
Net income (in millions)
GAAP	$	1,603			$	1,402			14	%
Adjusted (1)	$	1,780			$	1,591			12	%
Diluted earnings per common share
GAAP	$	.83			$	.67			24	%
Adjusted (1)	$	.93			$	.77			21	%
Pre-tax profit margin
GAAP		41.2	%			39.4	%
Adjusted (1)		45.8	%			44.7	%
Return on average common
stockholders’ equity (annualized)		23	%			12	%
Return on tangible
common equity (annualized) (1)		83	%			26	%

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 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.

THE CHARLES SCHWAB CORPORATION Consolidated Statements of Income (In millions, except per share amounts) (Unaudited)
	Three Months Ended March 31,
	2023				2022
Net Revenues
Interest revenue	$	4,016			$	2,319
Interest expense		(1,246	)			(136	)
Net interest revenue		2,770				2,183
Asset management and administration fees (1)		1,118				1,068
Trading revenue		892				963
Bank deposit account fees		151				294
Other		185				164
Total net revenues		5,116				4,672
Expenses Excluding Interest
Compensation and benefits		1,638				1,546
Professional services		258				244
Occupancy and equipment		299				269
Advertising and market development		88				102
Communications		146				144
Depreciation and amortization		177				150
Amortization of acquired intangible assets		135				154
Regulatory fees and assessments		83				68
Other		182				156
Total expenses excluding interest		3,006				2,833
Income before taxes on income		2,110				1,839
Taxes on income		507				437
Net Income		1,603				1,402
Preferred stock dividends and other		70				124
Net Income Available to Common Stockholders	$	1,533			$	1,278
Weighted-Average Common Shares Outstanding:
Basic		1,834				1,894
Diluted		1,842				1,905
Earnings Per Common Shares Outstanding (2):
Basic	$	.84			$	.67
Diluted	$	.83			$	.67

(1)		No fee waivers were recognized for the three months ended March 31, 2023. Includes fee waivers of $54 million for the three months ended March 31, 2022.
(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)
	Q1-23 % change							2023				2022
	vs.			vs.				First				Fourth				Third				Second				First
(In millions, except per share amounts and as noted)	Q1-22			Q4-22				Quarter				Quarter				Quarter				Quarter				Quarter
Net Revenues
Net interest revenue	27	%		(9	) %			$	2,770			$	3,029			$	2,926			$	2,544			$	2,183
Asset management and administration fees	5	%		7	%				1,118				1,049				1,047				1,052				1,068
Trading revenue	(7	) %		—					892				895				930				885				963
Bank deposit account fees	(49	) %		(57	) %				151				350				413				352				294
Other	13	%		6	%				185				174				184				260				164
Total net revenues	10	%		(7	) %				5,116				5,497				5,500				5,093				4,672
Expenses Excluding Interest
Compensation and benefits	6	%		10	%				1,638				1,488				1,476				1,426				1,546
Professional services	6	%		(3	) %				258				266				264				258				244
Occupancy and equipment	11	%		(7	) %				299				320				292				294				269
Advertising and market development	(14	) %		(28	) %				88				123				89				105				102
Communications	1	%		1	%				146				144				131				169				144
Depreciation and amortization	18	%		1	%				177				176				167				159				150
Amortization of acquired intangible assets	(12	) %		(1	) %				135				136				152				154				154
Regulatory fees and assessments	22	%		34	%				83				62				65				67				68
Other	17	%		(1	) %				182				184				187				187				156
Total expenses excluding interest	6	%		4	%				3,006				2,899				2,823				2,819				2,833
Income before taxes on income	15	%		(19	) %				2,110				2,598				2,677				2,274				1,839
Taxes on income	16	%		(20	) %				507				630				657				481				437
Net Income	14	%		(19	) %				1,603				1,968				2,020				1,793				1,402
Preferred stock dividends and other	(44	) %		(52	) %				70				147				136				141				124
Net Income Available to Common Stockholders	20	%		(16	) %			$	1,533			$	1,821			$	1,884			$	1,652			$	1,278
Earnings per common share (1):
Basic	25	%		(14	) %			$	.84			$	.98			$	1.00			$	.87			$	.67
Diluted	24	%		(14	) %			$	.83			$	.97			$	.99			$	.87			$	.67
Dividends declared per common share	25	%		14	%			$	.25			$	.22			$	.22			$	.20			$	.20
Weighted-average common shares outstanding:
Basic	(3	) %		(2	) %				1,834				1,864				1,887				1,896				1,894
Diluted	(3	) %		(2	) %				1,842				1,873				1,895				1,904				1,905
Performance Measures
Pre-tax profit margin									41.2	%			47.3	%			48.7	%			44.6	%			39.4	%
Return on average common stockholders’ equity (annualized) (2)									23	%			27	%			25	%			19	%			12	%
Financial Condition (at quarter end, in billions)
Cash and cash equivalents	(46	) %		22	%			$	49.2			$	40.2			$	46.5			$	64.6			$	91.1
Cash and investments segregated	(43	) %		(28	) %				31.0				43.0				44.1				53.5				54.4
Receivables from brokerage clients — net	(25	) %		(5	) %				63.2				66.6				73.9				76.1				84.1
Available for sale securities	(48	) %		(4	) %				141.3				147.9				236.5				265.3				272.0
Held to maturity securities	61	%		(2	) %				169.9				173.1				96.3				100.1				105.3
Bank loans — net	8	%		(1	) %				40.0				40.5				40.4				39.6				37.2
Total assets	(21	) %		(3	) %				535.6				551.8				577.6				637.6				681.0
Bank deposits	(30	) %		(11	) %				325.7				366.7				395.7				442.0				465.8
Payables to brokerage clients	(30	) %		(10	) %				87.6				97.4				110.0				114.9				125.3
Other short-term borrowings (3)	69	%		51	%				7.1				4.7				0.5				1.4				4.2
Federal Home Loan Bank borrowings (3)	N/M			N/M					45.6				12.4				—				—				—
Long-term debt	(9	) %		(4	) %				20.0				20.8				20.8				21.1				21.9
Stockholders’ equity	(25	) %		(1	) %				36.3				36.6				37.0				44.5				48.1
Other
Full-time equivalent employees (at quarter end, in thousands)	5	%		2	%				36.0				35.3				35.2				35.2				34.2
Capital expenditures — purchases of equipment, office facilities, and property, net (in millions)	(11	) %		(11	) %			$	187			$	211			$	193			$	339			$	209
Expenses excluding interest as a percentage of average client assets (annualized)									0.17	%			0.16	%			0.16	%			0.16	%			0.15	%
Clients’ Daily Average Trades (DATs) (in thousands)	(10	) %		9	%				5,895				5,389				5,523				6,227				6,578
Number of Trading Days	—			(1	) %				62.0				62.5				64.0				62.0				62.0
Revenue Per Trade (4)	3	%		(8	) %			$	2.44			$	2.66			$	2.63			$	2.29			$	2.36

(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 March 31,
	2023										2022
	Average Balance			Interest Revenue/ Expense			Average Yield/ Rate				Average Balance			Interest Revenue/ Expense				Average Yield/ Rate
Interest-earning assets
Cash and cash equivalents	$	37,056		$	413		4.46	%			$	72,465		$	34			0.19	%
Cash and investments segregated		40,068			432		4.31	%				51,913			15			0.11	%
Receivables from brokerage clients		60,543			1,084		7.16	%				84,204			626			2.97	%
Available for sale securities (1,2)		155,791			825		2.12	%				284,526			947			1.33	%
Held to maturity securities		170,889			746		1.75	%				103,416			378			1.46	%
Bank loans		40,248			391		3.92	%				35,852			187			2.10	%
Total interest-earning assets		504,595			3,891		3.09	%				632,376			2,187			1.38	%
Securities lending revenue					112										129
Other interest revenue					13										3
Total interest-earning assets	$	504,595		$	4,016		3.19	%			$	632,376		$	2,319			1.47	%
Funding sources
Bank deposits	$	343,105		$	618		0.73	%			$	452,692		$	16			0.01	%
Payables to brokerage clients		77,169			75		0.39	%				105,929			2			0.01	%
Other short-term borrowings (3)		6,917			86		5.05	%				4,717			4			0.33	%
Federal Home Loan Bank borrowings (3,4)		24,458			304		5.05	%				—			—			—
Long-term debt		20,290			139		2.74	%				19,864			108			2.18	%
Total interest-bearing liabilities		471,939			1,222		1.05	%				583,202			130			0.09	%
Non-interest-bearing funding sources		32,656										49,174
Securities lending expense					22										7
Other interest expense					2										(1	)
Total funding sources	$	504,595		$	1,246		1.00	%			$	632,376		$	136			0.09	%
Net interest revenue				$	2,770		2.19	%						$	2,183			1.38	%

(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 March 31,
	2023										2022
	Average Client Assets			Revenue			Average Fee				Average Client Assets			Revenue				Average Fee
Schwab money market funds before fee waivers	$	316,391		$	213		0.27	%			$	144,732		$	102			0.29	%
Fee waivers					—										(54	)
Schwab money market funds		316,391			213		0.27	%				144,732			48			0.13	%
Schwab equity and bond funds, exchange-traded funds (ETFs), and collective trust funds (CTFs)		450,581			91		0.08	%				456,326			97			0.09	%
Mutual Fund OneSource® and other no-transaction-fee funds		222,437			148		0.27	%				212,641			165			0.31	%
Other third-party mutual funds and ETFs		676,344			133		0.08	%				872,212			179			0.08	%
Total mutual funds, ETFs, and CTFs (1)	$	1,665,753			585		0.14	%			$	1,685,911			489			0.12	%
Advice solutions (1)
Fee-based	$	443,027			453		0.41	%			$	469,325			496			0.43	%
Non-fee-based		94,469			—		—					90,335			—			—
Total advice solutions	$	537,496			453		0.34	%			$	559,660			496			0.36	%
Other balance-based fees (2)		561,788			62		0.04	%				616,679			67			0.04	%
Other (3)					18										16
Total asset management and administration fees				$	1,118									$	1,068

(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.

Contacts

MEDIA:

Mayura Hooper

Charles Schwab

Phone: 415-667-1525

INVESTORS/ANALYSTS:

Jeff Edwards

Charles Schwab

Phone: 415-667-1524

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