Schwab Reports Growth in Third Quarter Revenue and Income

Schwab Reports Growth in Third Quarter Revenue and Income

Core Net New Assets Rise 23% Year-Over-Year

Diversified Revenues and Operating Discipline Continue to Drive Financial Performance

SAN FRANCISCO--(BUSINESS WIRE)-- The Charles Schwab Corporation announced today that its net income for the third quarter of 2012 was $247 million, down 10% from $275 million for the second quarter of 2012, and up 12% from $220 million for the third quarter of 2011. Net income for the nine months ended September 30, 2012 was $717 million, up 2% year-over-year. The company's third quarter and year-to-date financial results include a non-recurring state tax benefit of approximately $20 million. Schwab's year-to-date results also include an after-tax gain of approximately $44 million relating to the resolution of a vendor dispute, which was recorded in the second quarter.

CEO and President Walt Bettinger commented, "Our clients remain resilient yet cautious in this challenging economic environment. They continue to be net purchasers of securities; their cash holdings at Schwab remain at pre-crisis levels; and while their trading activity this summer was muted, it's been consistent with our experience in prior presidential election years. The company's third quarter metrics were solid, including 198,000 new brokerage accounts, $2.8 billion in net new enrollments in our retail advisory offerings, and $21.7 billion in core net new assets. We ended the quarter with 8.7 million active brokerage accounts, and 844,000 banking accounts, up 3% and 10%, respectively, year-over-year. Also, retail advised balances and total client assets grew to $123.8 billion and a record $1.89 trillion at month-end September, increasing by 20% each."

"We know that this environment continues to impact our clients' confidence in making investment decisions, reinforcing the importance of sustained investment in our full-service model," Mr. Bettinger continued. "We came into 2012 expecting to complete and deliver a number of significant improvements in our client service capabilities during the year. We remain on track with every one of those initiatives, including the launches of our index-based 401(k) offering and independent branch model, the bolstering of our mortgage lending program, expanding and improving our global investing capabilities, adding to our mobile and tablet solutions, offering an integrated technology platform for independent advisors, and leveraging the strengths of optionsXpress^® and Compliance11^® in our trading and designated brokerage services. We believe Schwab's demonstrated commitment to finding a better way to serve investors is an important element of building client trust - trust that is reflected in our improved loyalty scores from individual investors, as well as our industry-leading scores from independent advisors."

CFO Joe Martinetto said, "Our third quarter financial performance once again demonstrated the combined power of our growing client base, diversified revenue streams and ongoing expense discipline. Both trading and net interest revenues declined sequentially due to environmental factors, yet asset management and administration fees rose by 6% due to improved net money market fund yields, along with growth in other mutual fund balances and our advice programs. Additionally, by keeping our expenses within planned levels, we were able to maintain our pre-tax profit margin at approximately 30% while sustaining our investments in the client experience."

"We took two additional steps to strengthen our balance sheet during the third quarter," Mr. Martinetto added. "We redeemed all of our outstanding Trust Preferred Securities and the underlying 7.50% Junior Subordinated Notes, which totaled $202 million, following the Federal Reserve's issuance of proposed rules that will phase out those securities' eligibility for regulatory capital treatment. We also completed a debt exchange offer that effectively replaced $256 million of our outstanding 4.95% Senior Notes due in 2014 for new 10-year Senior Notes at a reduced cost. We remain committed to sustaining the financial strength and flexibility needed to pursue profitable growth in all environments."

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

Investor Services

• Net new accounts for the quarter totaled approximately 14,000, down 22% year-over-year. Total accounts reached 6.1 million as of September 30, 2012, up 7% year-over-year.

• Extended the company's integrated mobile brokerage and banking capabilities to iPad^® users, enabling Schwab clients to deposit checks remotely by taking a picture of a check with their iPad camera.

• Launched the Schwab Global Account^™, a platform providing investors direct, 24/7 online access to 12 foreign equity markets with the ability to trade in their local currencies whenever the markets are open.

• Launched two products for optionsXpress users: Idea Hub^™, which provides actionable trade ideas, grouped into trading themes; and Walk Limit^™, which can "walk" or adjust an option order's limit price automatically to help optimize execution.

Institutional Services

Advisor Services

• Expanded the company's 'Insight to Action' practice management consulting program, offering registered investment advisors (RIAs) hands-on support and guidance on practice management challenges. The curriculum covers strategic planning, managing profitability, driving productivity through technology, and succession planning.

Other Institutional Services

• 401(k) plans that converted to Schwab Index Advantage^™ thus far in 2012 have experienced, on average: lower fund operating expenses, from $68 to $16 per $10,000 invested; and higher advice usage, rising from 10% to 92% of participants.

• Introduced a suite of support tools and programs to help retirement plan advisors increase productivity and build their skills in this highly regulated industry. The suite combines sophisticated investment management tools, as well as advanced fiduciary and plan design training.

Products and Infrastructure

• For Charles Schwab Bank:

  • Balance sheet assets = $75.3 billion, up 28% year-over-year.

  • Outstanding mortgage and home equity loans = $9.3 billion, up 3% year-over-year.

  • First mortgage originations by Quicken Loans and Schwab during the quarter = $1.5 billion.

  • Delinquency, nonaccrual, and loss reserve ratios for Schwab Bank's loan portfolio = 0.90%, 0.45% and 0.56%, respectively, at month-end September.

  • Schwab Bank High Yield Investor Checking^® accounts = 652,000, with $11.0 billion in balances.

• Reduced the operating expense ratios (OERs) for each of the 15 Schwab ETFs^™, giving them the lowest OERs in their respective Lipper categories.

• Client assets managed by Windhaven^® = $12.5 billion, up 13% from the second quarter of 2012.

• Total assets under management in Schwab ETFs^™ = $7.6 billion. Total assets in Schwab Managed Portfolios-ETFs = $2.5 billion.

iPad is a trademark of Apple Inc., registered in the U.S. and other countries.

Supporting schedules are either attached or located at: www.aboutschwab.com/investor_relations/financial_reports.

Interim Business Update

The company also announced today that it has scheduled an Interim Business Update for institutional investors on Monday, November 5, 2012. This Update, which will be held via webcast, is part of an ongoing series designed to help the investment community keep abreast of recent developments and management's strategic focus. The program is scheduled to run from 8:00 a.m. - 9:00 a.m. PT, 11:00 a.m. - 12:00 p.m. ET. Mr. Bettinger and Mr. Martinetto will participate.

The Update will be accessible at: schwabevents.com/corporation.

About Charles Schwab

The Charles Schwab Corporation (NYS: SCHW) is a leading provider of financial services, with more than 300 offices and 8.7 million active brokerage accounts, 1.5 million corporate retirement plan participants, 844,000 banking accounts, and $1.89 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, 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 mortgage services and products. More information is available at www.schwab.com and www.aboutschwab.com.

See Note to Consolidated Statements of Income, Financial and Operating Highlights, and Net Interest Revenue Information.