Schwab Reports Fourth Quarter Net Income Up 29% Year-Over-Year

Schwab Reports Fourth Quarter Net Income Up 29% Year-Over-Year

Sustained Client Focus and Financial Discipline Yielded Profitable Growth in 2012

December Core Net New Assets Total a Record $22.6 Billion

SAN FRANCISCO--(BUSINESS WIRE)-- The Charles Schwab Corporation announced today that its net income for the fourth quarter of 2012 was $211 million, down 15% from $247 million for the third quarter of 2012, and up 29% from $163 million for the fourth quarter of 2011. Net income for the twelve months ended December 31, 2012 was $928 million, up 7% year-over-year. Schwab's 2012 results include an after-tax gain of approximately $44 million relating to the resolution of a vendor dispute and a non-recurring state tax benefit of approximately $20 million, which were recorded in the second and third quarters, respectively.

CEO and President Walt Bettinger commented, "Our 'through clients' eyes' strategy helped build investor trust in Schwab and supported another year of outstanding growth for our company in 2012. Our individual client loyalty scores reached new highs during the year, and our client metrics ended strongly, with December core net new assets totaling a record $22.6 billion, 28% higher than the previous record set in March 2008. Core net new assets totaled $112.4 billion for 2012, up 37% over the prior year. We ended the year with a record $1.95 trillion in total client assets, up 16% over December 2011. We added 900,000 new brokerage accounts to our client base during 2012, and active brokerage accounts reached a record 8.8 million at year-end, up 3% year-over-year. In addition, we served 865,000 banking accounts and 1.6 million corporate retirement plan participants as of month-end December 2012, up 11% and 5%, respectively."

"By continuing to challenge the status quo in investing services we believe that both our clients and the company win," Mr. Bettinger said. "Our progress in completing and delivering a number of significant innovations in our client service capabilities remained on track throughout 2012. For example, our new index-based 401(k) offering has 41 companies committed to participate and more than 200 actively considering enrollment; our new independent branches were open in 12 locations by year-end; and our expanded mobile and tablet solutions are already being utilized by over half a million clients."

Mr. Bettinger added, "Just as clients trust us to find a better way to serve them, our stockholders trust us to use resources effectively as we work to grow the company and its earnings. With environmental pressures continuing to slow our revenue progress in 2012, our enduring commitment to expense discipline enabled Schwab to allocate over $160 million to projects across our businesses and still deliver a 30% pre-tax profit margin for the year."

CFO Joe Martinetto noted, "In addition to successfully growing our client base in 2012, we made further progress in building non rate-sensitive sources of revenue, including an 11% increase in fees from rising balances in our proprietary advice solutions. As a result, despite further declines in interest rates and relatively muted investor trading activity, our full-year performance included increases in both net interest revenue and asset management and administration fees, and 4% overall revenue growth. Our fourth quarter results illustrate the company's improved momentum heading into 2013, with year-over-year revenue growth of 9% and a 29% increase in net income. Looking ahead, we believe that Schwab's financial story will remain driven by the three key themes of strong business growth, diversified revenue streams, and expense discipline."

Mr. Martinetto concluded, "Our work to further strengthen the company's balance sheet while maximizing its contribution to earnings power continued throughout 2012. During the fourth quarter, we acted to reduce the cost of outstanding long-term debt by redeeming the remaining $494 million of our 4.95% Senior Notes due in 2014, with the cost of the redemption offset by gains from the sale of selected investment portfolio securities. Our actions also included the issuance of $350 million of new Senior Notes with a coupon of 0.85% and a 2015 due date."

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

Investor Services

• Net new accounts for the quarter totaled approximately 4,000, down 69% year-over-year. Total accounts reached 6.1 million as of December 31, 2012, up 7% year-over-year.

• Launched an enhanced On Investing^® application for the iPad^®, providing access to articles from Schwab's On Investing^®magazine, Schwab's latest research, expert perspectives and investment guidance all in one place.

Institutional Services

Advisor Services

• Launched the Schwab Advisor Center^® application for the iPad^®, enabling advisors to view key client data such as balances, positions, and transactions while away from the office.

Other Institutional Services

• Launched Compliance Solutions, an offering for corporate clients which combines the capabilities of both Designated Brokerage Services and recently acquired Compliance11 to create a comprehensive compliance and employee trade monitoring solution.

Products and Infrastructure

• For Charles Schwab Bank:

  • Balance sheet assets = $85.8 billion, up 30% year-over-year.

  • Outstanding mortgage and home equity loans = $9.8 billion, up 8% year-over-year.

  • First mortgage originations through its loan program during the quarter = $2.2 billion, a new record.

  • Delinquency, nonaccrual, and loss reserve ratios for Schwab Bank's loan portfolio = 0.77%, 0.45% and 0.52%, respectively, at month-end December.

  • Schwab Bank High Yield Investor Checking^® accounts = 671,000, with $11.6 billion in balances.

• Client assets managed by Windhaven^® totaled $13.6 billion, up 9% from the third quarter of 2012.

• Total assets under management in Schwab ETFs^™ = $8.6 billion. Total assets in Schwab Managed Portfolios-ETFs = $2.4 billion.

• Completed the acquisition of ThomasPartners, Inc., a growth and dividend income-focused asset management firm with $2.4 billion in assets under management as of December 31, 2012.

• Launched the ETF Education Exchange^™ (www.schwabetfeducationexchange.com), a new website designed to close the knowledge gap in ETFs by aggregating educational content, research and market insights from ETF industry leaders.

• Expanded client access to fixed income securities by adding new municipal bond issues from Piper Jaffray to Schwab's BondSource^® platform.

• Launched a new Order and Execution Management System, which leverages optionsXpress' order routing capabilities to help create better execution opportunities for clients.

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

Forward Looking Statements

This press release contains forward looking statements relating to enrollment and participation in the company's new index-based 401(k) offering, growth of the company's business, revenues, earnings and expense discipline. Achievement of these expectations 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 enrollment rate in the company's index-based 401(k) offering, general market conditions, including the level of interest rates, equity valuations and trading activity; net interest margin; level of expenses; the company's ability to attract and retain clients and grow client assets/relationships; competitive pressures on rates and fees; the level of client assets, including cash balances; the company's ability to monetize client assets; the company's ability to develop and launch new products, services and capabilities in a timely and successful manner; capital needs and management; the impact of changes in market conditions on money market fund fee waivers, revenues, expenses and pre-tax margins; 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 Form 10-Q for the period ended September 30, 2012.

About Charles Schwab

The Charles Schwab Corporation (NYS: SCHW) is a leading provider of financial services, with more than 300 offices and 8.8 million active brokerage accounts, 1.6 million corporate retirement plan participants, 865,000 banking accounts, and $1.95 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; compliance and trade monitoring solutions; 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.