Schwab Reports Monthly Activity Highlights

Rhea-AI Summary

Charles Schwab Corporation released its Monthly Activity Report for February 2023, highlighting core net new assets of $41.7 billion, the second largest February ever. Total client assets reached $7.38 trillion, down 4% year-over-year. Average margin balances declined 28% from February 2022, totaling $60.6 billion, but increased 1% from January 2023. CFO Peter Crawford projected 10% year-over-year revenue growth for Q1 2023 and noted significant liquidity opportunities, including potential retail CD issuances of $8 billion monthly. Schwab's strong position and client strategies appear effective amid current market conditions.

Positive

• Core net new assets of $41.7 billion, second largest February ever.
• Projected year-over-year revenue growth of about 10% for Q1 2023.
• Significant liquidity with $100 billion cash flow and $8 billion retail CD issuances per month.

Negative

• Total client assets down 4% year-over-year.
• Average margin balances down 28% compared to February 2022.

WESTLAKE, Texas--(BUSINESS WIRE)-- The Charles Schwab Corporation released its Monthly Activity Report today. Company highlights for the month of February 2023 include:

• Core net new assets brought to the company by new and existing clients totaled $41.7 billion. Net new assets excluding mutual fund clearing totaled $40.5 billion.
• Total client assets were $7.38 trillion as of month-end February, down 4% from February 2022 and down 1% compared to January 2023.
• Average margin balances were $60.6 billion in February, down 28% from February 2022 and up 1% compared to January 2023.

Chief Financial Officer Peter Crawford offered the following thoughts on the current environment, our company’s performance, and recent client activity:

“Given the events of the past few days, we thought it might be helpful to highlight several factors that enable us to keep delivering for clients and stockholders through a range of market conditions:

• Schwab’s business continues to perform exceptionally well, as our Through Clients’ Eyes strategy and ‘no trade-offs’ positioning resonates with both clients and prospects. February core net new assets totaled $41.7 billion, our 2^nd largest February ever (trailing only February 2021, the height of the meme stock craze). Our growth and momentum have continued into March, with daily net new assets averaging nearly $2B per trading day month-to-date. Our financial performance continues to be strong. As we look ahead to our first quarter results, we anticipate year-over-year revenue growth of about 10% relative to Q1 2022, with adjusted¹ pre-tax profit margin in the 45-47% range.
• Client bank sweep cash outflows in February were about $5 billion lower than January and March month-to-date daily average outflows are tracking consistent with February. Importantly, these outflows reflect a continuation of client decisions to reallocate a portion of their cash into higher yielding cash alternatives within Schwab. Based on our ongoing analysis of these trends, we still believe client cash realignment decisions will largely abate during 2023.
• This activity reflects the collective behavior of our heterogenous client mix of individual retail investors and the advisors who serve them. More than 80% of our total bank deposits fall within the FDIC insurance limits, among the five highest ratios of the top 100 banks in the United States. As a reminder, our deposit base is primarily comprised of transactional cash balances swept to our banks from one of our 34 million brokerage accounts.
• We have access to significant liquidity, including an estimated $100 billion of cash flow from cash on hand, portfolio-related cash flows, and net new assets we anticipate realizing over the next twelve months. We believe we have upwards of $8 billion in potential retail CD issuances per month, plus over $300 billion of incremental capacity with the Federal Home Loan Bank (FHLB) and other short-term facilities – including the recently announced Bank Term Funding Program (BTFP).
• Our approach to managing our assets is quite different than traditional banks. So before closing, I wanted to provide some thoughts on recent comments by some pundits regarding unrealized losses within bank held-to-maturity (HTM) portfolios. As a reminder, our banks’ loan-to-deposit ratio is approximately 10% and nearly all the loans are over-collateralized by first-lien mortgages or securities. The remainder of our assets are invested in high-quality, liquid securities in either our available-for-sale (AFS) portfolio, working capital at the parent or broker-dealer subsidiaries, or in our HTM portfolio. Focusing attention on unrealized losses within HTM has two logical flaws. First, those securities will mature at par, and given our significant access to other sources of liquidity there is very little chance that we’d need to sell them prior to maturity (as the name implies). Second, by looking at unrealized losses among HTM securities, but not doing the same for traditional banks’ loan portfolios, the analysis penalizes firms like Schwab that in fact have a higher quality, more liquid, and more transparent balance sheet.

All of these factors demonstrate that Schwab is well-positioned to navigate the current environment as we continue to serve clients and build the future of modern wealth management. And we applaud the efforts of our regulators to support depositors during this critical time, helping to bolster confidence across the American banking system.”

¹ For the 1Q 2023, we currently expect GAAP pre-tax profit margin of 41% – 43%. Further detail on Schwab’s non-GAAP financial measures is included within our 10-K filed in February 2023. Adjusted pre-tax profit margin is calculated as adjusted income before taxes on income divided by net revenues. Adjusted income before taxes on income equals net revenues less adjusted total expenses. Adjusted total expenses equals total GAAP expenses excluding interest less acquisition and integration-related costs and amortization of acquired intangible assets.

Forward-Looking Statements

This press release contains forward-looking statements relating to Schwab’s business momentum and growth; strategy and positioning; financial performance; revenue growth; adjusted pre-tax profit margin; client bank sweep cash outflows; client cash realignment decisions; access to liquidity, including from cash flows, CD issuances, and FHLB and other short-term facilities; HTM portfolio; and balance sheet. 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; monetize client assets; and manage expenses. 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 allocation decisions; 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.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with 34.0 million active brokerage accounts, 2.4 million corporate retirement plan participants, 1.7 million banking accounts, and $7.38 trillion in client assets as of February 28, 2023. 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 Monthly Activity Report For February 2023
				2022																																	2023						Change
				Feb			Mar			Apr			May			Jun			Jul			Aug			Sep			Oct			Nov			Dec			Jan			Feb			Mo.		Yr.
Market Indices (at month end)
Dow Jones Industrial Average®				33,893			34,678			32,977			32,990			30,775			32,845			31,510			28,726			32,733			34,590			33,147			34,086			32,657			(4	%)	(4	%)
Nasdaq Composite®				13,751			14,221			12,335			12,081			11,029			12,391			11,816			10,576			10,988			11,468			10,466			11,585			11,456			(1	%)	(17	%)
Standard & Poor’s® 500				4,374			4,530			4,132			4,132			3,785			4,130			3,955			3,586			3,872			4,080			3,840			4,077			3,970			(3	%)	(9	%)
Client Assets (in billions of dollars)
Beginning Client Assets				7,803.8			7,686.6			7,862.1			7,284.4			7,301.7			6,832.5			7,304.8			7,127.6			6,644.2			7,004.6			7,320.6			7,049.8			7,480.6
Net New Assets (1)				40.6			46.3			(9.2	)		32.8			19.8			31.5			43.3			39.8			42.0			33.1			53.3			36.1			41.7			16	%	3	%
Net Market (Losses) Gains				(157.8	)		129.2			(568.5	)		(15.5	)		(489.0	)		440.8			(220.5	)		(523.2	)		318.4			282.9			(324.1	)		394.7			(142.1	)
Total Client Assets (at month end)				7,686.6			7,862.1			7,284.4			7,301.7			6,832.5			7,304.8			7,127.6			6,644.2			7,004.6			7,320.6			7,049.8			7,480.6			7,380.2			(1	%)	(4	%)
Core Net New Assets (2)				40.6			46.3			(9.2	)		32.8			40.6			31.5			43.3			39.8			42.0			33.1			53.3			36.1			41.7			16	%	3	%
Receiving Ongoing Advisory Services (at month end)
Investor Services				533.7			538.9			509.3			513.0			483.8			514.8			499.2			466.6			487.3			514.0			499.8			524.6			515.5			(2	%)	(3	%)
Advisor Services (3)				3,342.5			3,404.6			3,190.5			3,213.8			3,040.4			3,222.5			3,150.5			2,950.9			3,106.0			3,270.5			3,173.4			3,345.4			3,289.6			(2	%)	(2	%)
Client Accounts (at month end, in thousands)
Active Brokerage Accounts (4)				33,421			33,577			33,759			33,822			33,896			33,934			33,984			33,875			33,896			33,636			33,758			33,878			34,010			-		2	%
Banking Accounts				1,641			1,641			1,652			1,658			1,669			1,680			1,690			1,696			1,706			1,705			1,716			1,729			1,733			-		6	%
Corporate Retirement Plan Participants				2,235			2,246			2,261			2,275			2,275			2,267			2,285			2,305			2,322			2,336			2,351			2,369			2,384			1	%	7	%
Client Activity
New Brokerage Accounts (in thousands)				356			420			386			323			305			278			332			287			298			303			330			344			320			(7	%)	(10	%)
Client Cash as a Percentage of Client Assets (5)				11.5	%		11.4	%		11.9	%		12.0	%		12.8	%		12.0	%		12.1	%		12.9	%		12.2	%		11.5	%		12.3	%		11.6	%		11.7	%		10 bp		20 bp
Derivative Trades as a Percentage of Total Trades				24.0	%		22.4	%		21.9	%		22.6	%		22.3	%		24.2	%		23.3	%		23.6	%		24.1	%		24.6	%		23.2	%		23.0	%		23.5	%		50 bp		(50) bp
Selected Average Balances (in millions of dollars)
Average Interest-Earning Assets (6)				629,042			644,768			636,668			620,157			614,100			605,751			586,154			568,351			552,631			527,019			520,100			512,893			503,122			(2	%)	(20	%)
Average Margin Balances				84,354			81,526			83,762			78,841			74,577			72,177			72,855			73,224			69,188			66,011			64,759			60,211			60,575			1	%	(28	%)
Average Bank Deposit Account Balances (7)				153,824			155,657			152,653			154,669			155,306			154,542			148,427			141,198			136,036			130,479			126,953			122,387			115,816			(5	%)	(25	%)
Mutual Fund and Exchange-Traded Fund
Net Buys (Sells) (8,9) (in millions of dollars)
Equities				9,371			14,177			(786	)		1,889			(1,586	)		5,589			10,465			(2,662	)		3,984			3,777			(1,837	)		7,236			5,850
Hybrid				(478	)		(497	)		(529	)		(1,718	)		(1,054	)		(2,041	)		(783	)		(938	)		(1,380	)		(2,052	)		(1,595	)		(433	)		47
Bonds				(1,973	)		(7,851	)		(6,933	)		(6,121	)		(5,631	)		729			(141	)		(5,801	)		(7,218	)		(3,721	)		(3,260	)		5,646			4,281
Net Buy (Sell) Activity (in millions of dollars)
Mutual Funds (8)				(6,318	)		(11,888	)		(16,657	)		(20,761	)		(16,258	)		(8,674	)		(7,117	)		(15,200	)		(18,473	)		(17,143	)		(21,851	)		552			(2,338	)
Exchange-Traded Funds (9)				13,238			17,717			8,409			14,811			7,987			12,951			16,658			5,799			13,859			15,147			15,159			11,897			12,516
Money Market Funds				(1,086	)		(1,344	)		(3,430	)		7,106			11,544			13,711			19,702			17,018			21,542			16,929			27,778			24,285			23,347

		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.
(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)		November 2022 includes the company-initiated closure of approximately 350 thousand low-balance accounts. September 2022 includes the company-initiated closure of approximately 152 thousand low-balance accounts.
(5)		Schwab One®, certain cash equivalents, bank deposits, third-party bank deposit accounts, and money market fund balances as a percentage of total client assets.
(6)		Represents average total interest-earning assets on the company's balance sheet. November 2022 includes the impact of transferring certain investment securities from the available for sale category to the held-to-maturity category.
(7)		Represents average clients’ uninvested cash sweep account balances held in deposit accounts at third-party financial institutions.
(8)		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.
(9)		Represents the principal value of client ETF transactions handled by Schwab, including transactions in proprietary ETFs.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230313005341/en/

MEDIA:

Mayura Hooper

Charles Schwab

Phone: 415-667-1525

INVESTORS/ANALYSTS:

Jeff Edwards

Charles Schwab

Phone: 415-667-1524

Source: The Charles Schwab Corporation

FAQ

What are the core net new assets for Schwab in February 2023?

Schwab reported core net new assets of $41.7 billion in February 2023.

How much are Schwab's total client assets as of February 2023?

Total client assets at Schwab were $7.38 trillion as of February 2023.

What was the average margin balance for Schwab in February 2023?

The average margin balance for Schwab in February 2023 was $60.6 billion.

What is Schwab's projected revenue growth for Q1 2023?

Schwab anticipates a year-over-year revenue growth of about 10% relative to Q1 2022.

How has Schwab's client asset performance changed year-over-year?

Schwab's total client assets decreased by 4% compared to February 2022.