Schwab Reports Record Quarterly Net Income of $452 Million, Up 28%

Revenues Grow 17% Year-Over-Year to a Record $1.8 Billion

Total Client Assets Reach a Record $2.62 Trillion

Monday, July 18, 2016 5:45 am PDT

Dateline:

SAN FRANCISCO

Public Company Information:

NYSE:
SCHW

SAN FRANCISCO--(BUSINESS WIRE)--The Charles Schwab Corporation announced today that its net income for the second quarter of 2016 was $452 million, up 10% from $412 million for the first quarter of 2016, and up 28% from $353 million for the second quarter of 2015. Net income for the six months ended June 30, 2016 was $864 million, up 32% from the year-earlier period. The company’s financial results for the second quarter and first six months of both 2016 and 2015 include certain non-recurring items; a description of these items is included below.

                       
Three Months Ended Six Months Ended
June 30, % June 30, %
Financial Highlights     2016     2015     Change     2016     2015     Change
 
Net revenues (in millions) $ 1,828 $ 1,566 17 % $ 3,592 $ 3,092 16 %
Net income (in millions) $ 452 $ 353 28 % $ 864 $ 655 32 %
Diluted earnings per common share $ .30 $ .25 20 % $ .60 $ .47 28 %
Pre-tax profit margin 39.4 % 36.2 % 38.3 % 34.0 %

Return on average common stockholders’ equity (annualized)

13 % 12 % 13 % 11 %
 
EPS Impact of Certain Non-Recurring Items
 
Net litigation proceeds (1) $ - $ .01 $ - $ .01
 

Note: All per-share results are rounded to the nearest cent, based on weighted-average diluted common shares outstanding.

(1)  

Net litigation proceeds include $2 million and $16 million in the second quarters of 2016 and 2015, respectively, relating to the company’s non-agency residential mortgage-backed securities (RMBS) portfolio.

 

CEO Walt Bettinger said, “Our second quarter results mark yet another period of standout financial performance for Schwab. Our 17% year-over-year revenue growth and 28% increase in earnings reflect the power of our successful ‘through clients’ eyes’ strategy and disciplined financial management, particularly in the face of an unsettled economic environment and interest rates that remain near historic lows. Our second quarter pre-tax profit margin of 39.4% was the highest since our record performance in 2008. During the intervening seven-plus years, we have focused on balancing near-term profitability with reinvestment to drive growth, while working through the economic and interest rate aftermath of the financial crisis. From 2009 through mid-2016, we coped with extraordinary pressure on our revenues while investing approximately $3 billion in our brand and service capabilities, expanding our client base by approximately $1.20 trillion to $2.62 trillion, and building our earnings to today’s record level. Our second quarter pre-tax profit margin represented the 13th consecutive quarter in excess of 30% and a significant improvement from the sub-30% margins that followed the crisis.”

Mr. Bettinger continued, “We are winning in the marketplace, steadily attracting clients and assets with a compelling combination of financial products, service and value. Clients brought us $26.6 billion in core net new assets in the second quarter and $58.6 billion year-to-date, continuing our pattern of solid organic growth on top of a sizeable base. Our first-half performance puts Schwab on pace to gather over $100 billion in core net new assets for the fifth year in a row. Clients opened 271,000 new brokerage accounts in the second quarter – and we ended June with 10.0 million brokerage accounts, 1.1 million bank accounts, and 1.6 million retirement plan participants, up 4%, 6%, and 5%, respectively. Additionally, the number of accounts enrolled in one of our retail advisory solutions continued to grow faster than brokerage accounts overall, reaching 581,000 as of June 30th, up 8% from a year ago. We’ve also seen more investors turn to us for help with setting and tracking long-term goals; our financial consultants held planning conversations with 33,000 clients during the second quarter, up 14% from last year.”

Mr. Bettinger noted, “Client engagement remained strong throughout the second quarter, with activity spiking in late June as the United Kingdom held its referendum on leaving the European Union. Amidst the subsequent volatility, the S&P Global Broad Market Index lost a record $3 trillion in value over just two trading sessions. As our clients have come to expect, we immediately stepped up to provide timely, actionable insights. We sent nearly three million emails to investors, connecting them with representatives and commentary from our senior investment strategists. While web logins, calls to our service centers, and interactions with our financial consultants all rose markedly from prior weeks, we had planned for incremental demand on our staff and systems and were able to accommodate elevated volumes without disruption. Our clients explored implications for their current holdings and future goals, ultimately remaining net buyers of securities through the period.”

Mr. Bettinger concluded, “We continue to develop Schwab’s products and services with investors’ needs in mind, and enhance the multichannel access that makes it easy for them to do business with us. This quarter, we graduated 32 financial consultants from the inaugural classes of our FC University and FC Academy, programs designed to develop a pipeline of talent for our client-facing ranks. We also opened a new branch in downtown Washington D.C. and upgraded several branches throughout the country. These are initial steps in a larger, long-term effort to expand Schwab’s branch network throughout multiple metropolitan areas. In June, we introduced updates to the Schwab Intelligent Portfolios retirement income feature, which uses the account’s portfolio allocation, time horizon and initial investment to calculate an estimated monthly income level. Clients now have more flexibility in setting their desired monthly income and receive suggestions on adjustments to meet their goal. Additionally, Schwab Stock Plan Services announced a series of initiatives enabling more convenient monitoring and management of equity compensation awards. Plan participants can now view detailed information about their awards on our mobile app and receive support via live web chat or over the phone. In our Advisor Services business, we launched a national advertising campaign advocating for independent registered investment advisors and raising awareness of this model’s benefits for high net worth investors. In conjunction with the campaign, we introduced our updated Independent Advisor Learning Center, an online content hub where investors can learn more about RIAs and connect with one in their region.”

CFO Joe Martinetto commented, “We delivered record financial results in the second quarter based on sustained success in growing our client base, as well as the effects of the Federal Reserve’s initial rate increase in December and the relative stability of other environmental drivers until late in the period. Asset management and administration fees were a record $757 million, up 13% year-over-year, as higher short-term interest rates lifted net money fund revenue. Net interest revenue was a record $798 million, up 30% from the second quarter of 2015, reflecting both stronger short-term rates and a $30-plus billion increase in average interest-earning assets through a combination of organic asset gathering and bulk transfers of client sweep cash balances from money market funds to Schwab Bank. Finally, apart from a late surge, trading volumes declined from the first quarter to levels more consistent with our expectations. Trading revenue was down 1% year-over-year to $201 million. Together, our diversified revenue streams delivered overall revenue growth of 17% year-over-year, a bit stronger than our baseline scenario expectations. Reinvestment into the business proceeded largely as planned, yielding a gap of 580 basis points between revenue and expense growth and our strongest profitability in years.”

Mr. Martinetto observed, “Our year-to-date results have outperformed the baseline scenario that we laid out in the beginning of 2016. But as the second quarter came to a close, market concerns regarding economic growth, interest rates and equity valuations in the second half of this year escalated significantly. While many of these concerns have abated somewhat, we recognize the importance of remaining flexible in order to make the most of the environment as it evolves. Our management team is experienced in monitoring conditions and adjusting spending plans as necessary to maintain that balance between near-term profitability and investing for long-term growth.”

Mr. Martinetto concluded, “As part of managing Schwab’s capital levels, our Board of Directors declared a one cent, or 17%, increase in the company’s quarterly cash dividend beginning with the second quarter. The current payout of $0.07 per common share is consistent with our target range of 20-30% of earnings. We also continued laying the groundwork for accelerated balance sheet growth via bulk transfers and cash sweep feature changes. We currently expect to transfer up to $8 billion in money fund balances to Schwab Bank during the second half of 2016. In June, the Bank became the default sweep option for all new accounts, and we anticipate approximately $3 billion of related incremental deposit growth by year-end. As of June 30th, the company had a preliminary consolidated Tier 1 Leverage ratio of 7.2%.”

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

Investor Services

  • New retail brokerage accounts for the quarter totaled approximately 170,000, down 3% year-over-year; total accounts were 7.0 million, up 4% year-over-year.
  • Held financial planning conversations with approximately 33,000 clients during the quarter, up 14% year-over-year.
  • Opened a new Washington D.C. City Center branch. Schwab has over 330 branches across the country that offer clients access to a range of investing and personal finance guidance, services, and products.
  • Schwab Trading Services hosted another Online Trading Event for over 4,800 attendees, featuring a conversation with General Colin Powell, former Secretary of State and National Security Advisor, and Schwab’s own Randy Frederick.
  • A class of 15 financial consultants graduated from our inaugural FC Academy, a 24-month developmental rotational program preparing recent college graduates for a career in one of our branch offices.
  • A class of 17 financial consultants graduated from our inaugural FC University, a 12-week onboarding program that prepares new-hires to be successful at Schwab and support the expansion of our branch network.

Advisor Services

  • Debuted a national advertising campaign advocating for independent advisors, raising awareness of the benefits of independence among high net worth investors, and underscoring Schwab’s longstanding commitment to RIAs.
  • Updated our Independent Advisor Learning Center, an online content hub central to the campaign, where investors can learn more about independent financial advisors and use a directory to find and connect with advisors in their region. The site is located at www.FindYourIndependentAdvisor.com.
  • Held the annual EXPLORE® conference for the company’s top independent advisor clients. Schwab leadership and keynote speakers discussed client initiatives and growth opportunities for RIAs, with a focus on the international landscape, as well as firm talent and leadership.
  • Launched our voice ID service for clients of advisors. Biometric technology allows clients to quickly and securely authenticate with their Schwab Alliance service team by simply saying a passphrase.

Products and Infrastructure

  • For Charles Schwab Bank:
    • Balance sheet assets = $153.9 billion, up 26% year-over-year.
    • Outstanding mortgage and home equity loans = $11.1 billion, comparable to a year ago.
    • Pledged Asset Line® balances = $3.5 billion, up 21% year-over-year.
    • Delinquency, nonaccrual, and loss reserve ratios for Schwab Bank’s loan portfolio = 0.23%, 0.18% and 0.21%, respectively, at month-end June.
    • Schwab Bank High Yield Investor Checking® accounts = 874,000, with $12.7 billion in balances.
    • Opened the Charles Schwab Trust Company, and began offering full corporate trustee and successor trustee solutions in Nevada and Utah.
  • Client assets managed by Windhaven® totaled $10.6 billion, down 29% from the second quarter of 2015.
  • Client assets managed by ThomasPartners® totaled $8.5 billion, up 20% from the second quarter of 2015.
  • Client assets managed by Intelligent Portfolios (Schwab Intelligent Portfolios and Institutional Intelligent Portfolios) totaled $8.2 billion, up $1.6 billion from the first quarter of 2016.
  • Enhanced the Schwab Intelligent Portfolios retirement income feature, which uses the account’s portfolio allocation, time horizon and initial investment to calculate an estimated monthly income level. Clients can now further customize their income goal and receive suggestions on how to meet it.
  • Announced a series of Schwab Stock Plan Services initiatives to help equity compensation recipients easily monitor and manage their awards via web browser and mobile app, as well as receive support by live chat or phone.

Supporting schedules are either attached or located at: http://www.aboutschwab.com/investor-relations/financial-reports.

Commentary from the CFO

Joe Martinetto, Senior Executive Vice President and Chief Financial Officer, provides insight and commentary regarding Schwab’s financial picture at: http://www.aboutschwab.com/investor-relations/cfo-commentary. The most recent commentary was posted on January 19, 2016.

Forward-Looking Statements

This press release contains forward-looking statements relating to attracting clients and assets; 2016 core net new assets; expansion of the branch network; balancing near-term profitability with reinvestment for growth; balance sheet growth; bulk transfers; changes to cash sweep features; and bank deposit growth.

Important factors that may cause such differences include, but are not limited to, the company’s ability to attract and retain clients and registered investment advisors and grow those relationships and client assets; competitive pressures on rates and fees; the company’s ability to develop and launch new products, services and capabilities in a timely and successful manner; client use of the company’s advisory solutions and other products and services; general market conditions, including the level of interest rates, equity valuations and trading activity; the level of client assets, including cash balances; the company’s ability to manage expenses; capital needs and management; the company’s ability to monetize client assets; the timing, amount and impact of bulk transfers and changes to cash sweep features; the quality of the company’s balance sheet assets; client sensitivity to interest rates; regulatory guidance; 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 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 more than 330 offices and 10.0 million active brokerage accounts, 1.6 million corporate retirement plan participants, 1.1 million banking accounts, and $2.62 trillion in client assets as of June 30, 2016. Through its operating subsidiaries, the company provides a full range of wealth management, securities brokerage, banking, money management, custody, and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://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.

 

THE CHARLES SCHWAB CORPORATION

Consolidated Statements of Income

(In millions, except per share amounts)

(Unaudited)

                                   
     

Three Months Ended

   

Six Months Ended

June 30,

June 30,

        2016     2015    

2016

    2015

Net Revenues

       
Asset management and administration fees (1) $ 757 $ 670 $ 1,456 $ 1,314
Interest revenue 840 645 1,650 1,262
Interest expense   (42 ) (33 )   (80 )   (62 )
Net interest revenue 798 612 1,570 1,200
Trading revenue 201 203 433 430
Other 70 79 133 142
Provision for loan losses         2         2         -         6  
Total net revenues         1,828         1,566         3,592         3,092  
Expenses Excluding Interest
Compensation and benefits 602 540 1,228 1,121
Professional services 125 112 241 226
Occupancy and equipment 101 85 199 168
Advertising and market development 70 62 140 131
Communications 62 59 122 117
Depreciation and amortization 57 55 113 109
Other         91         86         174         169  
Total expenses excluding interest         1,108         999         2,217         2,041  
Income before taxes on income 720 567 1,375 1,051
Taxes on income         268         214         511         396  
Net Income         452         353         864         655  
Preferred stock dividends and other (2)         46         23         66         34  
Net Income Available to Common Stockholders       $ 406       $ 330       $ 798       $ 621  
Weighted-Average Common Shares Outstanding:
Basic 1,322 1,314 1,322 1,313
Diluted         1,333         1,326         1,331         1,325  
Earnings Per Common Share:
Basic $ .31 $ .25 $ .60 $ .47
Diluted       $ .30       $ .25       $ .60       $ .47  
Dividends Declared Per Common Share       $ .07       $ .06       $ .13       $ .12  
(1)   Includes fee waivers of $55 and $168 during the second quarters of 2016 and 2015, respectively, and $152 and $353 during the first halves of 2016 and 2015, respectively, relating to Schwab-sponsored money market funds.
(2) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
 
 

THE CHARLES SCHWAB CORPORATION

Financial and Operating Highlights

(Unaudited)

                                     
           

Q2-16 % change

    2016     2015
vs.     vs. Second First Fourth Third Second
(In millions, except per share amounts and as noted)     Q2-15 Q1-16   Quarter     Quarter       Quarter     Quarter     Quarter
Net Revenues
Asset management and administration fees 13 % 8 % $ 757 $ 699 $ 673 $ 663 $ 670
Net interest revenue 30 % 3 % 798 772 690 635 612
Trading revenue (1 %) (13 %) 201 232 208 228 203
Other (11 %) 11 % 70 63 120 66 79
Provision for loan losses     -

N/M  

    2         (2 )         -         5         2  
Total net revenues     17 % 4 %     1,828         1,764           1,691         1,597         1,566  
Expenses Excluding Interest
Compensation and benefits 11 % (4 %) 602 626 572 548 540
Professional services 12 % 8 % 125 116 119 114 112
Occupancy and equipment 19 % 3 % 101 98 93 92 85
Advertising and market development 13 % - 70 70 60 58 62
Communications 5 % 3 % 62 60 58 58 59
Depreciation and amortization 4 % 2 % 57 56 58 57 55
Other     6 % 10 %     91         83           86         87         86  
Total expenses excluding interest     11 % -     1,108         1,109           1,046         1,014         999  
Income before taxes on income 27 % 10 % 720 655 645 583 567
Taxes on income     25 % 10 %     268         243           229         207         214  
Net Income     28 % 10 %   $ 452       $ 412         $ 416       $ 376       $ 353  
Preferred stock dividends and other     100 % 130 %     46         20           38         11         23  
Net Income Available to Common Stockholders     23 % 4 %   $ 406       $ 392         $ 378       $ 365       $ 330  
Earnings per common share:
Basic 24 % 3 % $ .31 $ .30 $ .29 $ .28 $ .25
Diluted 20 % 3 % $ .30 $ .29 $ .28 $ .28 $ .25
Dividends declared per common share 17 % 17 % $ .07 $ .06 $ .06 $ .06 $ .06
Weighted-average common shares outstanding:
Basic 1 % - 1,322 1,321 1,319 1,316 1,314
Diluted     1 % -     1,333         1,330           1,330         1,328         1,326  
Performance Measures
Pre-tax profit margin 39.4 % 37.1 % 38.1 % 36.5 % 36.2 %
Return on average common stockholders’ equity (annualized) (1)         13 %       13   %       13 %       13 %       12 %
Financial Condition (at quarter end, in billions)
Cash and investments segregated 4 % (8 %) $ 18.6 $ 20.3 $ 19.6 $ 17.2 $ 17.9
Receivables from brokerage clients - net 1 % 5 % 16.8 16.0 17.3 17.1 16.6
Bank loans - net 5 % 2 % 14.7 14.4 14.3 14.3 14.0
Total assets 21 % 4 % 198.1 191.0 183.7 170.4 163.6
Bank deposits 22 % 1 % 137.3 135.7 129.5 119.0 112.9
Payables to brokerage clients 4 % 1 % 32.7 32.3 33.2 31.0 31.5
Short-term borrowings

N/M  

N/M  

5.0 .8 - - -
Long-term debt - - 2.9 2.9 2.9 2.9 2.9
Stockholders’ equity     21 % 3 %     15.0         14.5           13.4         13.2         12.4  
Other
Full-time equivalent employees (at quarter end, in thousands) 8 % 3 % 16.1 15.6 15.3 15.4 14.9

Capital expenditures - purchases of equipment, office facilities, and property, net (in millions)

70 % 115 % $ 131 $ 61 $ 67 $ 80 $ 77

Expenses excluding interest as a percentage of average client assets (annualized)

        0.17 %       0.18   %       0.16 %       0.16 %       0.16 %
Clients’ Daily Average Trades (in thousands)
Revenue trades (2) 4 % (15 %) 279 328 285 304 267
Asset-based trades (3) 15 % (11 %) 90 101 84 84 78
Other trades (4)     - (20 %)     149         187           168         149         149  
Total     5 % (16 %)     518         616           537         537         494  

Average Revenue Per Revenue Trade (2)

    (6 %) (1 %)   $ 11.27       $ 11.44         $ 11.73       $ 11.67       $ 11.97  
               
(1)   Return on average common stockholders’ equity is calculated using net income available to common stockholders divided by average common stockholders’ equity.
(2) Includes all client trades that generate trading revenue (i.e., commission revenue or principal transaction revenue); also known as DART.
(3) Includes eligible trades executed by clients who participate in one or more of the Company’s asset-based pricing relationships.
(4) Includes all commission-free trades, including Schwab Mutual Fund OneSource® funds and ETFs, and other proprietary products.

N/M Not meaningful.

 
 

THE CHARLES SCHWAB CORPORATION

Net Interest Revenue Information

(In millions)

(Unaudited)

                                                                                               
        Three Months Ended Six Months Ended
June 30, June 30,
2016       2015 2016       2015
    Interest     Average         Interest     Average     Interest     Average         Interest     Average
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
          Balance     Expense     Rate     Balance     Expense     Rate Balance     Expense     Rate     Balance     Expense     Rate
Interest-earning assets:
Cash and cash equivalents $ 10,888 $ 14 0.52 % $ 8,540 $ 6 0.28 % $ 10,820 $ 27 0.50 % $ 8,959 $ 11 0.25 %
Cash and investments segregated 19,155 22 0.46 % 18,265 7 0.15 % 19,710 41 0.42 % 18,884 13 0.14 %
Broker-related receivables (1) 685 - 0.20 % 261 - 0.02 % 535 - 0.15 % 271 - 0.06 %
Receivables from brokerage clients 15,027 124 3.32 % 15,105 125 3.32 % 14,959 249 3.35 % 14,763 244 3.33 %
Securities available for sale (2) 71,431 211 1.19 % 61,194 153 1.00 % 69,797 409 1.18 % 59,315 295 1.00 %
Securities held to maturity 53,404 335 2.52 % 36,458 227 2.50 % 51,830 657 2.55 % 35,673 445 2.52 %
Bank loans       14,569       98     2.71 %       13,866       91     2.63 %   14,487       197     2.73 %       13,701       181     2.66 %
Total interest-earning assets       185,159       804     1.75 %       153,689       609     1.59 %   182,138       1,580     1.74 %       151,566       1,189     1.58 %
Other interest revenue               36                     36                 70                     73      
Total interest-earning assets     $ 185,159     $ 840     1.82 %     $ 153,689     $ 645     1.68 % $ 182,138     $ 1,650     1.82 %     $ 151,566     $ 1,262     1.68 %

Funding sources:

Bank deposits $ 136,009 $ 8 0.02 % $ 110,159 $ 6 0.02 % $ 133,814 $ 16 0.02 % $ 108,008 $ 14 0.03 %
Payables to brokerage clients (1) 25,302 1 0.01 % 25,138 - 0.01 % 26,015 1 0.01 % 25,602 1 0.01 %
Short-term borrowings (1,4) 2,038 2 0.39 % 24 - 0.15 % 1,029 2 0.39 % 16 - 0.15 %
Long-term debt (5)       2,876       26     3.64 %       2,889       24     3.33 %   2,877       52     3.63 %       2,517       43     3.45 %
Total interest-bearing liabilities (5)       166,225       37     0.09 %       138,210       30     0.09 %   163,735       71     0.09 %       136,143       58     0.09 %
Non-interest-bearing funding sources (4) 18,934 15,479 18,403 15,423
Other interest expense (3)               5                     3                 9                     4      
Total funding sources     $ 185,159     $ 42     0.09 %     $ 153,689     $ 33     0.08 % $ 182,138     $ 80     0.09 %     $ 151,566     $ 62     0.08 %
Net interest revenue             $ 798     1.73 %             $ 612     1.60 %         $ 1,570     1.73 %             $ 1,200     1.60 %
(1)   Interest revenue or expense was less than $500,000 in the period or periods presented.
(2) Amounts have been calculated based on amortized cost.
(3) Includes the impact of capitalizing interest on building construction and software development.
(4) Certain prior-period amounts have been reclassified to conform to the 2016 presentation.
(5)

Adjusted for the retrospective adoption of Accounting Standards Update 2015-03, which decreased long-term debt and total interest-bearing liabilities by an immaterial amount.

 
 

THE CHARLES SCHWAB CORPORATION

Asset Management and Administration Fees Information

(In millions)

(Unaudited)

                                                                                               
        Three Months Ended Six Months Ended
June 30, June 30,
2016       2015 2016       2015
Average             Average         Average             Average        
Client Average Client Average Client Average Client Average
          Assets     Revenue     Fee     Assets     Revenue     Fee Assets     Revenue     Fee     Assets     Revenue     Fee
Schwab money market funds before fee waivers $ 163,929 $ 239 0.59 % $ 157,418 $ 230 0.59 % $ 166,184 $ 485 0.59 % $ 161,411 $ 469 0.59 %
Fee waivers               (55 )                     (168 )                 (152 )                     (353 )      
Schwab money market funds 163,929 184 0.45 % 157,418 62 0.16 % 166,184 333 0.40 % 161,411 116 0.14 %
Schwab equity and bond funds and ETFs 112,814 52 0.19 % 103,986 56 0.22 % 108,103 103 0.19 % 100,556 108 0.22 %
Mutual Fund OneSource ® 201,034 169 0.34 % 235,433 199 0.34 % 197,839 333 0.34 % 234,342 395 0.34 %
Other third-party mutual funds and ETFs (1)       252,405       56       0.09 %       257,516       58       0.09 %   244,820       107       0.09 %       253,031       114       0.09 %
Total mutual funds and ETFs (2)     $ 730,182       461       0.25 %     $ 754,353       375       0.20 % $ 716,946       876       0.25 %     $ 749,340       733       0.20 %
Advice solutions (2) :
Fee-based $ 175,973 226 0.52 % $ 174,657 228 0.52 % $ 171,146 441 0.52 % $ 172,405 448 0.52 %
Intelligent Portfolios 6,620 - - 2,159 - - 5,868 - - 1,725 - -
Legacy Non-Fee       17,015       N/A       N/A         16,783       N/A       N/A     16,712       N/A       N/A         16,815       N/A       N/A  
Total advice solutions     $ 199,608       226       0.46 %     $ 193,599       228       0.47 % $ 193,726       441       0.46 %     $ 190,945       448       0.47 %
Other balance-based fees (3) 338,529 58 0.07 % 327,569 57 0.07 % 328,278 114 0.07 % 320,699 112 0.07 %
Other (4)               12                       10                   25                       21        
Total asset management and administration fees             $ 757                     $ 670                 $ 1,456                     $ 1,314        

Note: Beginning in the fourth quarter of 2015, certain changes have been made to the above categorizations of both balances and revenues in order to provide improved insight into asset management and administration fee drivers. Prior period information has been recast to reflect these changes.

(1)   Includes ETF OneSource.
(2) Advice solutions include managed portfolios, specialized strategies and customized investment advice. Fee-based advice solutions include Schwab Private Client, Schwab Managed Portfolios, Managed Account Select®, Schwab Advisor Network®, Windhaven® Strategies, ThomasPartners® Dividend Growth Strategy, and Schwab Index Advantage® advised retirement plan balances. Intelligent Portfolios include Schwab Intelligent Portfolios, launched in March 2015, and Institutional Intelligent Portfolios, launched in June 2015. Legacy Non-Fee advice solutions include superseded programs such as 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.
(3) Includes various asset-based fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.
(4) Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

N/A Not applicable.

 
                               

THE CHARLES SCHWAB CORPORATION

Growth in Client Assets and Accounts

(Unaudited)

         
       

Q2-16 % Change

    2016   2015
vs. vs. Second First Fourth Third Second

(In billions, at quarter end, except as noted)

  Q2-15 Q1-16     Quarter   Quarter   Quarter   Quarter   Quarter
Assets in client accounts
Schwab One®, certain cash equivalents and bank deposits 18 % 1 % $ 168.4 $ 166.4 $ 161.1 $ 148.7 $ 143.0

Proprietary mutual funds (Schwab Funds® and Laudus Funds®):

Money market funds 3 % (4 %) 161.0 167.4 166.1 161.8 155.6
Equity and bond funds   (2 %) 1 %       62.8         62.1         62.4         59.3         64.1  
Total proprietary mutual funds   2 % (2 %)       223.8         229.5         228.5         221.1         219.7  
Mutual Fund Marketplace® (1)
Mutual Fund OneSource® (2) (12 %) - 203.4 203.8 207.7 210.7 231.2
Mutual fund clearing services 2 % 3 % 192.0 186.3 186.5 177.8 188.9
Other third-party mutual funds (2)   2 % 4 %       529.7         510.7         496.4         490.4         519.4  
Total Mutual Fund Marketplace   (2 %) 3 %       925.1         900.8         890.6         878.9         939.5  

Total mutual fund assets

  (1 %) 2 %       1,148.9         1,130.3         1,119.1         1,100.0         1,159.2  
Exchange-traded funds (ETFs)
Proprietary ETFs (3) 40 % 12 % 47.9 42.9 39.7 34.2 34.3
ETF OneSource™ (1) 15 % 9 % 19.0 17.5 16.1 15.4 16.5
Other third-party ETFs   6 % 4 %       220.5         211.5         207.4         194.6         207.4  
Total ETF assets   11 % 6 %       287.4         271.9         263.2         244.2         258.2  
Equity and other securities (2) 2 % 3 % 830.7 808.5 799.0 755.3 817.1
Fixed income securities 12 % 4 % 202.0 194.1 187.2 183.6 181.1
Margin loans outstanding   1 % 6 %       (15.4 )       (14.5 )       (15.8 )       (15.9 )       (15.3 )
Total client assets   3 % 3 %     $ 2,622.0       $ 2,556.7       $ 2,513.8       $ 2,415.9       $ 2,543.3  
Client assets by business (4)
Investor Services 3 % 3 % $ 1,415.5 $ 1,377.3 $ 1,358.6 $ 1,306.2 $ 1,380.8
Advisor Services   4 % 2 %       1,206.5         1,179.4         1,155.2         1,109.7         1,162.5  
Total client assets   3 % 3 %     $ 2,622.0       $ 2,556.7       $ 2,513.8       $ 2,415.9       $ 2,543.3  
Net growth (decline) in assets in client accounts (for the quarter ended)
Net new assets by business (4)
Investor Services (5) (44 %) (6 %) $ 14.8 $ 15.7 $ 21.6 $ 13.3 $ 26.5
Advisor Services   12 % (28 %)       11.8         16.3         21.3         17.5         10.5  
Total net new assets   (28 %) (17 %)     $ 26.6       $ 32.0       $ 42.9       $ 30.8       $ 37.0  
Net market gains (losses)  

N/M  

N/M  

      38.7         10.9         55.0         (158.2 )       (18.1 )
Net growth (decline)  

N/M  

52 %     $ 65.3       $ 42.9       $ 97.9       $ (127.4 )     $ 18.9  
New brokerage accounts (in thousands, for the quarter ended) (3 %) 2 % 271 265 262 254 280
Clients (in thousands)
Active Brokerage Accounts 4 % 1 % 9,977 9,869 9,769 9,691 9,605
Banking Accounts 6 % 2 % 1,065 1,047 1,033 1,027 1,004
Corporate Retirement Plan Participants   5 % 1 %       1,553         1,532         1,519         1,492         1,474  
             
(1)   Excludes all proprietary mutual funds and ETFs.
(2) In 2015, certain Mutual Fund OneSource balances were reclassified to Other third-party mutual funds and Equity and other securities. Prior period information has been recast to reflect these changes.
(3) Includes proprietary ETFs held on and off the Schwab platform.
(4)

In the fourth quarter of 2015, the Company realigned its reportable segments as a result of organizational changes. The Corporate Brokerage Retirement Services business was transferred from the Investor Services segment to the Advisor Services segment. Prior period segment information has been recast to reflect this change.

(5) Second quarter of 2016 includes an inflow of $2.7 billion from a mutual fund clearing services client. Fourth quarter, third quarter and second quarter of 2015 include inflows of $10.2 billion, $4.9 billion and $17.4 billion, respectively, from certain mutual fund clearing services clients.

N/M Not meaningful.

 
                                                               

The Charles Schwab Corporation Monthly Activity Report For June 2016

 
2015 2016  

Change

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Mo.

Yr.

Market Indices

(at month end)
Dow Jones Industrial Average 17,620 17,690 16,528 16,285 17,664 17,720 17,425 16,466 16,517 17,685 17,774 17,787 17,930 1% 2%
Nasdaq Composite 4,987 5,128 4,777 4,620 5,054 5,109 5,007 4,614 4,558 4,870 4,775 4,948 4,843 (2%) (3%)
Standard & Poor’s 500 2,063 2,104 1,972 1,920 2,079 2,080 2,044 1,940 1,932 2,060 2,065 2,097 2,099 - 2%
Client Assets
(in billions of dollars)
Beginning Client Assets 2,568.8 2,543.3 2,562.5 2,462.4 2,415.9 2,539.9 2,553.3 2,513.8 2,428.3 2,433.6 2,556.7 2,576.2 2,607.2
Net New Assets (1) 17.8 9.8 9.2 11.8 10.5 17.2 15.2 8.1 10.9 13.0 1.3 16.0 9.3 (42%) (48%)
Net Market (Losses) Gains (43.3)     9.4     (109.3)     (58.3)     113.5     (3.8)     (54.7)     (93.6)     (5.6)     110.1     18.2     15.0   5.5
Total Client Assets (at month end) 2,543.3     2,562.5     2,462.4     2,415.9     2,539.9     2,553.3     2,513.8     2,428.3     2,433.6     2,556.7     2,576.2     2,607.2   2,622.0 1% 3%
 
Receiving Ongoing Advisory Services
(at month end)
Investor Services 191.4 193.3 187.2 184.9 193.3 194.5 192.6 187.3 187.9 197.9 200.3 202.7 205.0 1% 7%
Advisor Services (2) 1,066.7 1,079.0 1,039.5 1,019.9 1,072.4 1,075.6 1,061.1 1,029.9 1,032.3 1,084.0 1,093.2 1,103.7 1,110.5 1% 4%
Client Accounts
(at month end, in thousands)
Active Brokerage Accounts 9,605 9,631 9,671 9,691 9,712 9,731 9,769 9,792 9,826 9,869 9,916 9,948 9,977 - 4%
Banking Accounts 1,004 1,011 1,021 1,027 1,029 1,033 1,033 1,039 1,045 1,047 1,053 1,060 1,065 - 6%
Corporate Retirement Plan Participants 1,474 1,483 1,488 1,492 1,502 1,514 1,519 1,518 1,523 1,532 1,532 1,555 1,553 - 5%
Client Activity
New Brokerage Accounts (in thousands) 89 87 87 80 88 76 98 83 84 98 103 81 87 7% (2%)
Inbound Calls (in thousands) 1,763 1,788 1,807 1,631 1,716 1,554 1,844 1,736 1,737 1,902 1,867 1,554 1,665 7% (6%)
Web Logins (in thousands) 31,644 33,498 34,167 29,550 33,574 30,488 32,156 33,268 33,283 38,078 37,854 38,000 43,220 14% 37%
Client Cash as a Percentage of Client Assets (3) 11.7% 11.8% 12.6% 12.9% 12.3% 12.3% 13.0% 13.7% 13.7% 13.1% 12.8% 12.7% 12.6%

(10) bp

90 bp
Mutual Fund and Exchange-Traded Fund
Net Buys (Sells) (4, 5)
(in millions of dollars)
Large Capitalization Stock (804) (702) (664) (608) (214) 637 451 (162) (212) (462) (857) (799) 185
Small / Mid Capitalization Stock 78 149 (540) (108) 17 (2) (572) (952) 58 685 (86) (272) (113)
International 2,255 947 (266) (560) 72 427 (918) 469 (28) 833 324 (207) (1,208)
Specialized 8 410 (390) (643) 667 744 (495) (668) 260 191 815 265 470
Hybrid (133) (152) (1,144) (726) (110) (410) (1,361) (377) 38 281 14 1,133 (403)
Taxable Bond 421 (111) (634) (91) 628 (1,250) (4,020) 99 546 1,628 1,098 1,526 1,421
Tax-Free Bond (132) 156 111 35 494 260 731 379 641 949 479 940 700
Net Buy (Sell) Activity
(in millions of dollars)
Mutual Funds (4) (725) (1,101) (4,712) (4,336) (910) (3,602) (10,988) (1,215) 197 1,769 (207) 620 (2,049)
Exchange-Traded Funds (5) 2,418 1,798 1,185 1,635 2,464 4,008 4,804 3 1,106 2,336 1,994 1,966 3,101
Money Market Funds (358) 2,208 4,730 (717) (451) 251 4,538 1,994 1,359 (2,101) (3,959) (738) (1,799)
Average Interest-Earning Assets (6)
(in millions of dollars) 155,369 158,238 160,638 162,639 165,351 167,388 172,334 177,332 178,610 181,529 183,341 184,432 187,933 2% 21%
(1)   May 2016 includes an inflow of $2.7 billion from a mutual fund clearing services client. November, September and June 2015 include inflows of $10.2 billion, $4.9 billion and $8.1 billion, respectively, from certain mutual fund clearing services clients.
(2) Excludes Retirement Business Services Trust and Corporate Brokerage Retirement Services.
(3) Schwab One®, certain cash equivalents, bank deposits and money market fund balances as a percentage of total client assets.
(4) 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.
(5) Represents the principal value of client ETF transactions handled by Schwab, including transactions in proprietary ETFs.
(6) Represents total interest-earning assets on the Company’s balance sheet.

Contact:

MEDIA:
Charles Schwab
Greg Gable, 415-667-0473
or
INVESTORS/ANALYSTS:
Charles Schwab
Rich Fowler, 415-667-1841

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