Schwab Reports First Quarter Results

Schwab Reports First Quarter Results

Net New Assets Total $43.4 billion, Highest First Quarter Core Flows Since 2000

Revenues Rise 8% From a Year Ago

SAN FRANCISCO--(BUSINESS WIRE)-- The Charles Schwab Corporation announced today that its net income was $206 million for the first quarter of 2013, down 2% from $211 million for the fourth quarter of 2012, and up 6% from $195 million for the year-earlier quarter. These results are consistent with the outlook expressed in the company's press release dated March 14, 2013.

CEO and President Walt Bettinger commented, "The investments we've made in our clients over the past several years are powering strong business momentum. During the first quarter we continued to win in the marketplace as we gathered $43.4 billion in net new assets, a 9% annualized organic growth rate, and 244,000 new brokerage accounts, up 2% year-over-year. We also had $4.7 billion in net new enrollments in our retail advisory offers, up more than 70% year-over-year, as clients look to Schwab for help navigating opportunities in the market. Client assets enrolled in advisory offers totaled $135.9 billion at month-end March, including $15.6 billion managed in our Windhaven^® portfolios, up 15% and 51%, respectively, from a year ago. We ended the quarter with a record $2.08 trillion in total client assets, up 14%, and our client base grew to 8.9 million active brokerage accounts, 888,000 banking accounts and 1.6 million corporate retirement plan participants, up 3%, 11% and 4%, respectively."

"Already in 2013 we've made significant progress on our key initiatives, which reflect our focus on delivering improved service, value and convenience for clients," Mr. Bettinger continued. "During the first quarter, we launched Schwab ETF OneSource™, providing clients with commission-free access to 105 ETFs from Schwab and 5 other leading providers. Our 15 proprietary ETFs, which are part of Schwab ETF OneSource, reached $10.9 billion at quarter-end, up 65% year-over-year. First mortgage loans originated through our improved lending program totaled $2.0 billion during the quarter, more than double the volume in last year's first quarter. We also added to our mobile and tablet capabilities by launching the Schwab Advisor Center™ app for Android devices. Schwab's mobile and tablet solutions are already in use by hundreds of advisors and over 560,000 individual clients."

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Core net new assets is defined as net new assets before significant one-time flows, such as acquisitions/divestitures or extraordinary mutual fund clearing transfers. There were no such adjustments in the first quarter of 2013.

Mr. Bettinger added, "We believe Schwab's commitment to innovating the investing experience on behalf of clients is important to building long-term stockholder value. Our business momentum enabled the company to produce sequential improvement in all three of its main revenue sources in the first quarter, and to achieve 8% overall revenue growth versus a year ago, even as current environmental factors such as low rates and relatively muted trading activity continued to weigh on our results. While our emphasis on client investments in recent years has limited our near-term earnings expansion, we are aiming for increased operating leverage during the balance of 2013 and into 2014, as those investments yield solid client metrics and we begin to moderate the pace of expense growth."

CFO Joe Martinetto noted, "Our earnings picture for 2013 hasn't changed - the temporary and seasonal factors elevating our first quarter compensation and benefits expense will fade and we are taking action to address the evolving revenue outlook for the year. Right now, that outlook includes balance and spread-related revenues that are mostly in line with our expectations and trading activity that remains more muted than planned."

Mr. Martinetto continued, "As previously disclosed, our first quarter expenses included a total of approximately $30 million pre-tax relating to overlapping field incentive payout schedules; increased and accelerated health savings account contributions; and revised equity incentive award vesting for retirement-eligible employees. With these impacts largely behind us, as well as certain payroll taxes reaching their caps and a heightened focus on staffing levels, we expect comp and benefits will decline by approximately $50 million sequentially in the second quarter, and show only limited growth in the second half of the year. In addition to careful headcount management, we are also adjusting our planned spending for projects and marketing so that targeted expense growth slows but continues to allow for both increased investment in our clients and improvement in profit-margin and earnings for 2013."

Mr. Martinetto concluded, "Overall, we believe our diversified revenue streams and ongoing expense discipline will help us achieve at least a 30% pre-tax profit margin and earnings per share in the mid-$0.70's for full-year 2013, consistent with the baseline scenario we described during our Winter Business Update on February 7. With solid profitability and a healthy balance sheet that includes nearly $10 billion of stockholders' equity, we remain well positioned to support our growing businesses."

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

Investor Services

• Net new retail accounts for the quarter totaled approximately 36,000, up from 14,000 a year ago. Total retail accounts reached 6.1 million as of March 31, 2013, up 2% year-over-year.

• Lowered and simplified the commission structure to $3.50 per contract for futures and futures options traded through optionsXpress.

Advisor Services

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

Products and Infrastructure

• For Charles Schwab Bank:

  • Balance sheet assets = $89.0 billion, up 31% year-over-year.

  • Outstanding mortgage and home equity loans = $10.3 billion, up 14% year-over-year.

  • First mortgage originations through its loan program during the quarter = $2.0 billion.

  • Delinquency, nonaccrual, and loss reserve ratios for Schwab Bank's loan portfolio = 0.55%, 0.37% and 0.52%, respectively, at month-end March.

• Schwab Bank High Yield Investor Checking^® accounts = 692,000, with $11.8 billion in balances.

• Client assets managed by Windhaven^® totaled $15.6 billion, up 15% from year-end 2012.

• Total assets under management in Schwab ETFs™ = $10.9 billion. Total assets in Schwab Managed Portfolios-ETFs = $2.6 billion.

• Launched Schwab ETF OneSource™, a platform that enables clients to trade 105 ETFs from 6 fund families, including Schwab, with $0 online trade commissions.

• Launched the Schwab Retirement Income Variable Annuity™, providing investors an easy-to-understand, low-cost retirement funding option that can generate guaranteed income for life.

• Expanded the lineup of target date funds for retail and retirement plan clients to include Schwab Target Funds for the years 2045, 2050, and 2055, as well as two additional collective trust funds.

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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 the company's operating leverage, client metrics, expense growth, earnings, compensation and benefits expense, revenue, trading activity, headcount management, spending for projects and marketing, investment in clients and profit margin. 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, general market conditions, including the level of interest rates, equity valuations and trading activity; 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 company's ability to manage expenses; the actual level of field sales activity and related incentive compensation; regulatory guidance; acquisition integration costs; net interest margin; 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-K for the period ended December 31, 2012.

About Charles Schwab

The Charles Schwab Corporation (NYS: SCHW) is a leading provider of financial services, with more than 300 offices and 8.9 million active brokerage accounts, 1.6 million corporate retirement plan participants, 888,000 banking accounts, and $2.08 trillion in client assets as of March 31, 2013. 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 lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.