Quarterly net income also reaches new highs of $1.8 billion GAAP, $2.0 billion adjusted (1)

Sustained client focus helps power continued strong business momentum

    WESTLAKE, Texas, July 18, 2022 – The Charles Schwab Corporation announced today that its net income for the second quarter of 2022 was a record $1.8 billion compared with $1.4 billion for the first quarter of 2022, and $1.3 billion for the second quarter of 2021. Net income for the six months ended June 30, 2022 was $3.2 billion, compared with $2.7 billion for the year-earlier period. During the quarter, acquisition and integration-related costs and the amortization of acquired intangibles totaled $94 million and $154 million, respectively, on a pre-tax basis. In addition, the company’s second quarter of 2021 included a charge of approximately $200 million, or $.10 per share, regarding a now settled regulatory matter.

CEO Walt Bettinger said, “Throughout the first half of 2022, we’ve kept our focus on serving clients and they’ve rewarded us with sustained strength in business momentum and growth. Clients remained engaged during the second quarter even as pressures mounted on the U.S. economy, including rising inflation and the Fed’s corresponding shift to an aggressive tightening stance, ongoing geopolitical turmoil driven by the war in Ukraine, and more-volatile equity markets that are now in bear-market territory. These pressures have all contributed to an environment that highlights the importance of our contemporary approach to full-service investing, where clients can choose how to access the help they need in the manner that works best for them by visiting one of our branches, speaking with one of our phone-based investment professionals, or utilizing the content, resources and capabilities provided through our website and mobile app.

The value of Schwab’s scalable, multi-channel service model was on full display during the past quarter as we facilitated over 575 million total interactions, including nearly 5 million inbound contacts with an average speed to answer of less than 20 seconds.”

“Sustained client engagement was also reflected in daily trading volume during the second quarter, which averaged 6.2 million, approximately 3% above year-earlier levels,” Mr. Bettinger continued. “Clients opened 1.0 million new brokerage accounts during the quarter, and we ended June with 33.9 million active accounts, up 5% year-over-year. Additionally, while the core net new assets (NNA) that clients brought to us during the quarter were impacted by the record tax-season outflows we experienced in April, the $73 billion in core NNA that came in between May 1 and June 30 represented a continuation of the 6% annualized organic growth rate we achieved during the first quarter of 2022. We ended June with $6.83 trillion in client assets versus $7.57 trillion a year earlier, which helps illustrate the extent of the market valuation pressures clients are facing even as they’ve added more than $480 billion in core NNA to their accounts over the past 12 months.”

Mr. Bettinger concluded, “As we move deeper into 2022, our focus remains squarely on executing our “Through Clients’ Eyes” strategy, along with driving progress across our strategic priorities and our TD Ameritrade integration. We know that clients trust us to provide the help and advice they need to navigate any environment, but that it’s particularly important to be there for them as they assess their investments in light of tougher headwinds. To me, there is no greater reward than seeing our client service professionals earn year-to-date satisfaction scores that are among the highest we’ve ever recorded. We remain convinced that our client-first mindset – in combination with our service culture and relentless attention to scale and efficiency – helps create a formidable competitive advantage for Schwab as we continue to realize our vision of modern wealth management.”

“Our second quarter financial results demonstrated the power of our all-weather model as we supported our clients through an increasingly challenging environment,” noted CFO Peter Crawford. “Record total revenue of $5.1 billion, up 13% versus the prior year, reflected a combination of ongoing business momentum, rapidly tightening monetary policy, and continued strength in client engagement. Net interest revenue was up 31% from the prior year as higher interest rates and client cash balances more than offset the impact of softer securities lending activity. At the same time, asset management and administration fees were essentially flat due to weaker equity market valuations and trading revenues were down 7% largely due to changes in the mix of client activity. Additionally, the other revenue line included $37 million in pre-tax gains related to the sales of Schwab Compliance Technologies and a small business investment.”

Mr. Crawford continued, “On the expense front, quarterly GAAP spending increased slightly year-over-year to $2.8 billion, including $94 million in acquisition and integration-related costs and $154 million in amortization of acquired intangibles. Exclusive of these items, adjusted total expenses (1) were up 2% versus the second quarter of 2021. Our pre-tax profit margin expanded to 44.6% and rose nearly 500 basis points to 49.5% on an adjusted basis (1). Also, the reversal of $62 million in tax reserves due to the resolution of certain state matters helped further bolster after-tax profitability. We believe the combination of our diversified revenue mix with disciplined expense prioritization helps keep us positioned to deliver healthy financial performance through the cycle.”

“Attentive balance sheet management, including the maintenance of appropriate capital and liquidity to support client activity, remains core to our financial strategy,” added Mr. Crawford. “During the quarter, total assets contracted by 6% to $638 billion. This decrease was primarily attributable to record tax disbursements in April as well as expected client cash sorting behavior during the latter part of the period. The company’s preliminary Tier 1 Leverage Ratio moved closer to our operating objective, expanding to 6.4% at the end of June, while second quarter return on equity and ROTCE (1) were 19% and 45%, respectively. The overall strength of today’s results highlights our continued success with clients and further bolsters our confidence in our ability to build long-term stockholder value.”

(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.

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 recent account activity was posted on May 14, 2021.

The company has scheduled a Summer Business Update for institutional investors on Thursday, July 28, 2022. The Update, which will be held via webcast, is scheduled to run from approximately 8:00 a.m. - 9:00 a.m. PT, 11:00 a.m. -

12:00 p.m. ET. Registration for this Update is accessible at https://www.aboutschwab.com/schwabevents.

This press release contains forward-looking statements relating to business momentum and growth; strategic priorities; TD Ameritrade integration; competitive advantage; all-weather model; expense prioritization; financial performance; Tier 1 leverage ratio operating objective; 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 attract and retain clients and independent investment advisors and grow those relationships and client assets; develop and launch new and enhanced products, services, and capabilities, as well as enhance its infrastructure and capacity, in a timely and successful manner; hire and retain talent; support client activity levels; successfully implement integration strategies and plans; manage expenses; and monetize client assets. 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; the level and mix of client trading activity; market volatility; margin loan balances; securities lending; competitive pressures on pricing; client cash sorting; client sensitivity to rates; level of client assets, including cash balances; 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; and other factors set forth in the company’s most recent reports on Form 10-K and Form 10-Q.

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with 33.9 million active brokerage accounts, 2.3 million corporate retirement plan participants, 1.7 million banking accounts, and $6.83 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

(In millions, except per share amounts)

(Unaudited)

(1) Includes fee waivers of $3 million and $57 million for the three and six months ended June 30, 2022, respectively, and $85 million and $163 million for the three and six months ended June 30, 2021, respectively.

(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.

        

(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) In January 2022, the Company transferred a portion of its investment securities designated as available for sale to the held to maturity category, as described in Part I – Item 1 – Note 4 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

(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.

(Unaudited)

(1) Amounts have been calculated based on amortized cost.

(2) In January 2022, the Company transferred a portion of its investment securities designated as available for sale to the held to maturity category, as described in Part I – Item 1 – Note 4 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

(Unaudited)

(1) Advice solutions include managed portfolios, specialized strategies, and customized investment advice such as Schwab Wealth AdvisoryTM, Schwab Managed PortfoliosTM, 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.

(Unaudited)

(1) Total client assets in purchased money market funds are located at: https://www.aboutschwab.com/investor-relations.

(2) Includes balances held on and off the Schwab platform. As of June 30, 2022, off-platform equity and bond funds, CTFs, and ETFs were $21.4 billion, $4.9 billion, and $86.4 billion, respectively.

(3) Excludes all proprietary mutual funds and ETFs.

(4) As of June 30, 2022, third-party money funds were $9.3 billion.

(5) Second quarter of 2022 includes an outflow of $20.8 billion from a mutual fund clearing services client. Fourth quarter of 2021 includes outflows of $27.6 billion from mutual fund clearing services clients.

Note: Certain supplemental details related to the information above can be found at: https://www.aboutschwab.com/financial-reports.

(1) June 2022 includes an outflow of $20.8 billion from a mutual fund clearing services client. November 2021 includes an outflow of $13.7 billion from a mutual fund clearing services client. October 2021 includes an outflow of $13.9 billion from a mutual fund clearing services client.

(2) Net new assets before significant one-time inflows or outflows, such as acquisitions/divestitures or extraordinary flows (generally greater than $10 billion) relating to a specific client. These flows may span multiple reporting periods.

(3) Excludes Retirement Business Services.

(4) Schwab One®, certain cash equivalents, bank deposits, third-party bank deposit accounts, and money market fund balances as a percentage of total client assets.

(5) Represents average total interest-earning assets on the company’s balance sheet.

(6) Represents average TD Ameritrade clients’ uninvested cash sweep account balances held in deposit accounts at third-party financial institutions.

(7) Represents the principal value of client mutual fund transactions handled by Schwab, including transactions in proprietary funds. Includes institutional funds available only to Investment Managers. Excludes money market fund transactions.

(8) Represents the principal value of client ETF transactions handled by Schwab, including transactions in proprietary ETFs.

In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S. (GAAP), Schwab’s second quarter earnings release contains references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide useful supplemental information about the financial performance of the Company, and facilitate meaningful comparison of Schwab’s results in the current period to both historic and future results. These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may not be comparable to non-GAAP financial measures presented by other companies.

Schwab’s use of non-GAAP measures is reflective of certain adjustments made to GAAP financial measures as described below.

The Company also uses adjusted diluted EPS and return on tangible common equity as components of performance criteria for employee bonus and certain executive management incentive compensation arrangements. The Compensation Committee of CSC’s Board of Directors maintains discretion in evaluating performance against these criteria.

The tables below present reconciliations of GAAP measures to non-GAAP measures:

(1) Acquisition and integration-related costs for the three and six months ended June 30, 2022 primarily consist of $53 million and $109 million of compensation and benefits, $35 million and $66 million of professional services, and $4 million and $8 million of occupancy and equipment. Acquisition and integration-related costs for the three and six months ended June 30, 2021 primarily consist of $97 million and $169 million of compensation and benefits, $37 million and $64 million of professional services, and $7 million and $23 million of occupancy and equipment.

(2) The income tax effects of the non-GAAP adjustments are determined using an effective tax rate reflecting the exclusion of non-deductible acquisition costs and are used to present the acquisition and integration-related costs and amortization of acquired intangible assets on an after-tax basis.

N/A Not applicable.

			Three Months Ended June 30,									Six Months Ended June 30,
			2022			2021						2022			2021
Return on average common stockholders’ equity (GAAP)			19		%	10		%				15		%	10		%
Average common stockholders’ equity			$	35,611		$	46,276					$	40,063		$	47,912
Less: Average goodwill			(11,952)			(11,952)						(11,952)			(11,952)
Less: Average acquired intangible assets — net			(9,151)			(9,762)						(9,227)			(9,838)
Plus: Average deferred tax liabilities related to goodwill and acquired intangible assets — net			1,868			1,907						1,877			1,925
Average tangible common equity			$	16,376		$	26,469					$	20,761		$	28,047
Adjusted net income available to common stockholders (1)			$	1,840		$	1,335					$	3,307		$	2,929
Return on tangible common equity (non-GAAP)			45		%	20		%				32		%	21		%

(1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).