Schwab Reports Third Quarter Results

Rhea-AI Summary

Charles Schwab Corporation reports net income of $1.1 billion for Q3 2023

Positive

• Net income for the third quarter of 2023 was $1.1 billion, compared to $2.0 billion in the same period in 2022.
• Core net new assets gathered $46 billion in the third quarter, including $27 billion in September.
• The company successfully completed the largest conversion event in the industry's history, transitioning $1.3 trillion in client assets in three days.
• Schwab attracted $248 billion of core net new assets year-to-date, with a growth rate of over 6%.
• The company expects at least $1 billion of annual expense savings from increased efficiency initiatives.
• Asset management and administration fees reached a quarterly record of $1.2 billion, up 17% from the previous year.

Negative

• Net income decreased by 44% compared to the same period last year.
• Deal-related attrition has impacted net new asset flows.
• Net interest revenue was down 24% year-over-year.
• GAAP expenses increased by 14% to $3.2 billion.

Successfully Completed Largest Brokerage Conversion Event in History

September Core Net New Assets Exceeded $27 Billion

Bank Sweep Deposits Grew During September

WESTLAKE, Texas--(BUSINESS WIRE)-- The Charles Schwab Corporation announced today that its net income for the third quarter of 2023 was $1.1 billion compared with $2.0 billion for the third quarter of 2022. Net income for the nine months ended September 30, 2023 was $4.0 billion, compared with $5.2 billion for the year-earlier period.

		Three Months Ended September 30,								%			Nine Months Ended September 30,								%
Financial Highlights (1)		2023				2022				Change			2023				2022				Change
Net revenues (in millions)		$	4,606			$	5,500			(16	)%		$	14,378			$	15,265			(6	)%
Net income (in millions)
GAAP		$	1,125			$	2,020			(44	)%		$	4,022			$	5,215			(23	)%
Adjusted (1)		$	1,518			$	2,211			(31	)%		$	4,792			$	5,783			(17	)%
Diluted earnings per common share
GAAP		$	.56			$	.99			(43	)%		$	2.03			$	2.53			(20	)%
Adjusted (1)		$	.77			$	1.10			(30	)%		$	2.45			$	2.83			(13	)%
Pre-tax profit margin
GAAP			30.0	%			48.7	%						36.1	%			44.5	%
Adjusted (1)			41.3	%			53.3	%						43.1	%			49.4	%
Return on average common stockholders’ equity (annualized)			14	%			25	%						18	%			18	%
Return on tangible common equity (annualized) (1)			58	%			74	%						66	%			42	%

Note: All per-share results are rounded to the nearest cent, based on weighted-average diluted common shares outstanding.
(1)		Further details on non-GAAP financial measures and a reconciliation of such measures to GAAP reported results are included on pages 10-12 of this release.

Co-Chairman and CEO Walt Bettinger stated, “Against a very challenging economic and geopolitical backdrop, investors continued turning to Schwab as a trusted partner and a wealth management leader. It is truly humbling to see our clients award us with near-record Client Promoter Scores and allow us the privilege to help them move toward their financial goals – particularly during a period where the U.S. government narrowly avoided a shutdown, major equity markets posted a quarterly loss, and long-term interest rates touched levels not seen in many years. Third parties also continue to recognize the firm, with Investor’s Business Daily naming us one of its most trusted financial services firms and Charles Schwab Bank as its most trusted bank for 2023.”

“By seeing ‘through clients’ eyes’ for the last 50 years, we have earned consistent confidence from investors that helps power our strong organic growth,” continued Mr. Bettinger. “During the third quarter, we gathered $46 billion in core net new assets, including $27 billion in September following the completion of our latest Ameritrade client conversion cohort. While expected deal-related attrition has temporarily weighed on net new asset flows, our underlying growth recipe remains very much intact. Year-to-date, we have attracted $248 billion of core net new assets from accounts originally opened at Schwab – an annualized Schwab originated organic growth rate of over 6%. As of September 30, investors have entrusted us with a total of $7.82 trillion in client assets across 34.5 million accounts.”

Mr. Bettinger added, “Over Labor Day Weekend, we successfully completed the single largest conversion event in our industry’s history. During those three days, we transitioned $1.3 trillion in client assets – including more than 7,000 Registered Investment Advisors (RIA) served by the Ameritrade Institutional business and 3.6 million retail accounts. The thoughtful planning and relentless dedication of our employees helped ensure there were no significant disruptions to the client experience and overall service levels remained strong – including answering client calls in under 1 minute. We have now converted approximately 80% of Ameritrade client assets and accounts, with deal-related attrition tracking markedly better than our initial expectations. In addition to these favorable retention trends, engagement levels across recently converted clients has also picked up – including positive new account formation and net asset flows across both Retail and RIA clients.”

Mr. Bettinger concluded, “Concurrent with progressing the Ameritrade integration, we remain focused on further enhancing Schwab’s modern wealth platform by advancing our key strategic initiatives of scale and efficiency, win-win monetization, and segmentation. We have identified a number of opportunities for increased efficiency, including capturing the remaining deal expense synergies, streamlining our operational design, aligning our geographic footprint to match our hybrid workforce, and harnessing the benefits of increased automation. Once fully implemented, we expect these actions to deliver at least $1 billion of incremental annual expense savings. Even as we seek to improve upon our industry leading cost structure, we are continuing to enhance our segmented offering for the broad range of clients we serve. For clients seeking assistance with their portfolios, our wealth management solutions attracted year-to-date net flows of $24 billion – including record flows into Schwab Wealth Advisory™, Wasmer Schroeder™ Strategies, and Schwab Personalized Indexing^®. At the same time, Schwab is expanding the suite of tools and resources available to self-directed investors to help them achieve better financial outcomes. Today we announced the launch of our new end-to-end trader experience that combines access to thinkorswim^® with curated education for all levels and specialized service and support. This offer is tailored to meet the specific needs of a highly engaged client group that on average maintains approximately 4x more assets at the firm relative to other retail households while also utilizing a broad array of other products offered across Schwab. Continuing to invest in our platform allows us to meet the evolving needs of investors, while keeping us positioned for sustained growth over time.”

CFO Peter Crawford noted, “Our continued success with clients and diversified model helped produce third quarter net revenues of $4.6 billion. This result represents a 16% decline from last year’s record period, primarily driven by the temporary utilization of higher cost funding, lower interest-earning assets, and softer trading volumes. Net interest revenue was down 24% year-over-year to $2.2 billion, reflecting the impact of client allocation decisions within a higher interest rate environment. However, cash realignment activity decelerated further during the quarter – even with the brief uptick in August and an increase in long-term interest rates. September was particularly strong as net outflows from transactional cash were lower than any prior monthly period this cycle and bank sweep deposits increased month-over-month for the first time since March 2022. Additionally, the combination of ongoing interest in Schwab’s proprietary fund products, growth in no-transaction fee platform balances, and strong flows into our advised solutions pushed asset management and administration fees to a quarterly record of $1.2 billion, up 17% versus the prior year.”

“We maintained Schwab’s balanced approach to expense management while successfully reaching another key checkpoint in the Ameritrade integration effort,” added Mr. Crawford. “GAAP expenses were up 14% to $3.2 billion, including $106 million in acquisition and integration-related costs, $135 million in amortization of acquired intangibles, and $279 million in costs related to our previously announced restructuring. Exclusive of those items, adjusted total expenses ⁽¹⁾ equaled $2.7 billion, or a year-over-year increase of 5%. Pre-tax profit margins finished the quarter at 30.0%, or 41.3% on an adjusted ⁽¹⁾ basis – the 12^th consecutive quarter above 40%.”

Mr. Crawford concluded, “During the quarter, our balance sheet management continued to prioritize flexibility in support of our growing client base. In late August, we issued approximately $2.4 billion of senior notes across two tranches due in 2026 and 2034, further bolstering our diversified liquidity profile. Schwab’s consolidated balance sheet totaled $475 billion at quarter-end, down 7% sequentially, as available net cash flows from our investment portfolio were used to pay down supplemental borrowings. Our capital levels also continued to build during the quarter as our consolidated Tier 1 Leverage ratio increased to 8.2% and our Adjusted Tier 1 Leverage Ratio ⁽¹⁾ expanded by more than 40 basis points to 4.1%. Ratios at Charles Schwab Bank, SSB (CSB) followed a similar trajectory with CSB Tier 1 Leverage increasing to 9.6%, or 4.4% on an adjusted ⁽¹⁾ basis. As we move towards a new year, our consistent strategy, key competitive advantages, and ‘through the cycle’ financial model keep us well-positioned to deliver long-term value to all of our stakeholders.”

(1)		Further details on non-GAAP financial measures and a reconciliation of such measures to GAAP reported results are included on pages 10-12 of this release.

Commentary from the CFO

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 client cash realignment trends and second quarter revenue expectations, was posted on June 14, 2023.

Fall Business Update

The company will host its Fall Business Update for institutional investors this morning from 8:00 a.m. - 9:00 a.m. CT, 9:00 a.m. - 10:00 a.m. ET. Registration for this Update webcast is accessible at https://www.aboutschwab.com/schwabevents.

Forward-Looking Statements

This press release contains forward-looking statements relating to the company’s strategy and approach; growth in the client base, client accounts, and assets; Ameritrade integration and deal-related attrition; opportunities for increased efficiency and resulting incremental annual expense savings; positioning; success with clients; model; competitive advantages; and stakeholder 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; capture Ameritrade deal expense synergies, streamline its operational design, align its real estate footprint, and harness the benefits of automation in order to deliver expected incremental annual expense savings, and the costs incurred in connection with such actions; 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 the level of interest rates and equity valuations; asset attrition from clients originating at Ameritrade is higher than expected; client cash allocation decisions; client sensitivity to rates; level of client assets, including cash balances; competitive pressures on pricing; the level and mix of client trading activity; market volatility; capital and liquidity needs and management; balance sheet positioning relative to changes in interest rates; interest earning asset mix and growth; new or changed legislation, regulation or regulatory expectations; 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 34.5 million active brokerage accounts, 2.5 million corporate retirement plan participants, 1.8 million banking accounts, and $7.82 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
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Net Revenues
Interest revenue		$	4,028			$	3,357			$	12,148			$	8,386
Interest expense			(1,791	)			(431	)			(4,851	)			(733	)
Net interest revenue			2,237				2,926				7,297				7,653
Asset management and administration fees (1)			1,224				1,047				3,515				3,167
Trading revenue			768				930				2,463				2,778
Bank deposit account fees			205				413				531				1,059
Other			172				184				572				608
Total net revenues			4,606				5,500				14,378				15,265
Expenses Excluding Interest
Compensation and benefits			1,770				1,476				4,906				4,448
Professional services			275				264				805				766
Occupancy and equipment			305				292				923				855
Advertising and market development			102				89				293				296
Communications			151				131				485				444
Depreciation and amortization			198				167				566				476
Amortization of acquired intangible assets			135				152				404				460
Regulatory fees and assessments			114				65				277				200
Other			173				187				535				530
Total expenses excluding interest			3,223				2,823				9,194				8,475
Income before taxes on income			1,383				2,677				5,184				6,790
Taxes on income			258				657				1,162				1,575
Net Income			1,125				2,020				4,022				5,215
Preferred stock dividends and other			108				136				299				401
Net Income Available to Common Stockholders		$	1,017			$	1,884			$	3,723			$	4,814
Weighted-Average Common Shares Outstanding:
Basic			1,821				1,887				1,825				1,892
Diluted			1,827				1,895				1,832				1,901
Earnings Per Common Shares Outstanding (2):
Basic		$	.56			$	1.00			$	2.04			$	2.54
Diluted		$	.56			$	.99			$	2.03			$	2.53

(1)		No fee waivers were recognized for the three and nine months ended September 30, 2023, or for the three months ended September 30, 2022. Includes fee waivers of $57 million for the nine months ended September 30, 2022.
(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.

THE CHARLES SCHWAB CORPORATION
Financial and Operating Highlights
(Unaudited)
	Q3-23 % change							2023												2022
		vs.			vs.			Third				Second				First				Fourth				Third
(In millions, except per share amounts and as noted)		Q3-22			Q2-23			Quarter				Quarter				Quarter				Quarter				Quarter
Net Revenues
Net interest revenue		(24	)%		(2	)%		$	2,237			$	2,290			$	2,770			$	3,029			$	2,926
Asset management and administration fees		17	%		4	%			1,224				1,173				1,118				1,049				1,047
Trading revenue		(17	)%		(4	)%			768				803				892				895				930
Bank deposit account fees		(50	)%		17	%			205				175				151				350				413
Other		(7	)%		(20	)%			172				215				185				174				184
Total net revenues		(16	)%		(1	)%			4,606				4,656				5,116				5,497				5,500
Expenses Excluding Interest
Compensation and benefits (1)		20	%		18	%			1,770				1,498				1,638				1,488				1,476
Professional services		4	%		1	%			275				272				258				266				264
Occupancy and equipment		4	%		(4	)%			305				319				299				320				292
Advertising and market development		15	%		(1	)%			102				103				88				123				89
Communications		15	%		(20	)%			151				188				146				144				131
Depreciation and amortization		19	%		4	%			198				191				177				176				167
Amortization of acquired intangible assets		(11	)%		1	%			135				134				135				136				152
Regulatory fees and assessments		75	%		43	%			114				80				83				62				65
Other		(7	)%		(4	)%			173				180				182				184				187
Total expenses excluding interest		14	%		9	%			3,223				2,965				3,006				2,899				2,823
Income before taxes on income		(48	)%		(18	)%			1,383				1,691				2,110				2,598				2,677
Taxes on income		(61	)%		(35	)%			258				397				507				630				657
Net Income		(44	)%		(13	)%			1,125				1,294				1,603				1,968				2,020
Preferred stock dividends and other		(21	)%		(11	)%			108				121				70				147				136
Net Income Available to Common Stockholders		(46	)%		(13	)%		$	1,017			$	1,173			$	1,533			$	1,821			$	1,884
Earnings per common share (2):
Basic		(44	)%		(13	)%		$	.56			$	.64			$	.84			$	.98			$	1.00
Diluted		(43	)%		(13	)%		$	.56			$	.64			$	.83			$	.97			$	.99
Dividends declared per common share		14	%		—			$	.25			$	.25			$	.25			$	.22			$	.22
Weighted-average common shares outstanding:
Basic		(3	)%		—				1,821				1,820				1,834				1,864				1,887
Diluted		(4	)%		—				1,827				1,825				1,842				1,873				1,895
Performance Measures
Pre-tax profit margin									30.0	%			36.3	%			41.2	%			47.3	%			48.7	%
Return on average common stockholders’ equity (annualized) (3)									14	%			17	%			23	%			27	%			25	%
Financial Condition (at quarter end, in billions)
Cash and cash equivalents		(28	)%		(30	)%		$	33.3			$	47.7			$	49.2			$	40.2			$	46.5
Cash and investments segregated		(58	)%		(26	)%			18.6				25.1				31.0				43.0				44.1
Receivables from brokerage clients — net		(6	)%		6	%			69.1				65.2				63.2				66.6				73.9
Available for sale securities		(53	)%		(12	)%			110.3				125.8				141.3				147.9				236.5
Held to maturity securities		69	%		(2	)%			162.5				166.3				169.9				173.1				96.3
Bank loans — net		—			—				40.3				40.1				40.0				40.5				40.4
Total assets		(18	)%		(7	)%			475.2				511.5				535.6				551.8				577.6
Bank deposits		(28	)%		(7	)%			284.4				304.4				325.7				366.7				395.7
Payables to brokerage clients		(34	)%		(14	)%			72.8				84.8				87.6				97.4				110.0
Other short-term borrowings (4)		N/M			(3	)%			7.6				7.8				7.1				4.7				0.5
Federal Home Loan Bank borrowings (4)		N/M			(22	)%			31.8				41.0				45.6				12.4				—
Long-term debt		19	%		10	%			24.8				22.5				20.0				20.8				20.8
Stockholders’ equity		2	%		2	%			37.8				37.1				36.3				36.6				37.0
Other
Full-time equivalent employees (at quarter end, in thousands)		2	%		(2	)%			35.9				36.6				36.0				35.3				35.2
Capital expenditures — purchases of equipment, office facilities, and property, net (in millions)		30	%		49	%		$	250			$	168			$	187			$	211			$	193
Expenses excluding interest as a percentage of average client assets (annualized)									0.16	%			0.15	%			0.17	%			0.16	%			0.16	%
Clients’ Daily Average Trades (DATs) (in thousands)		(6	)%		(1	)%			5,218				5,272				5,895				5,389				5,523
Number of Trading Days		(2	)%		1	%			62.5				62.0				62.0				62.5				64.0
Revenue Per Trade (5)		(11	)%		(4	)%		$	2.35			$	2.46			$	2.44			$	2.66			$	2.63

(1)		Third quarter of 2023 includes $276 million in restructuring costs.
(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.
(3)		Return on average common stockholders’ equity is calculated using net income available to common stockholders divided by average common stockholders’ equity.
(4)		Beginning in the first quarter of 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.
(5)		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.

THE CHARLES SCHWAB CORPORATION
Net Interest Revenue Information
(In millions, except ratios or as noted)
(Unaudited)
		Three Months Ended September 30,																				Nine Months Ended September 30,
		2023										2022										2023										2022
		Average Balance			Interest Revenue/ Expense			Average Yield/ Rate				Average Balance			Interest Revenue/ Expense			Average Yield/ Rate				Average Balance			Interest Revenue/ Expense			Average Yield/ Rate				Average Balance			Interest Revenue/ Expense				Average Yield/ Rate
Interest-earning assets
Cash and cash equivalents		$	34,391		$	459		5.22	%			$	53,127		$	294		2.16	%			$	38,700		$	1,419		4.83	%			$	63,598		$	461			0.95	%
Cash and investments segregated			21,987			285		5.08	%				49,554			214		1.69	%				29,752			1,041		4.61	%				50,891			308			0.80	%
Receivables from brokerage clients			63,760			1,282		7.87	%				72,751			912		4.91	%				61,682			3,533		7.55	%				78,630			2,244			3.76	%
Available for sale securities (1,2)			129,545			724		2.22	%				273,968			1,161		1.69	%				143,360			2,340		2.17	%				281,897			3,196			1.51	%
Held to maturity securities			163,904			706		1.72	%				97,568			345		1.41	%				167,405			2,172		1.73	%				100,890			1,062			1.40	%
Bank loans			40,177			426		4.23	%				39,984			300		2.99	%				40,183			1,227		4.08	%				38,238			717			2.50	%
Total interest-earning assets			453,764			3,882		3.37	%				586,952			3,226		2.17	%				481,082			11,732		3.23	%				614,144			7,988			1.73	%
Securities lending revenue						105										124										341										383
Other interest revenue						41										7										75										15
Total interest-earning assets		$	453,764		$	4,028		3.50	%			$	586,952		$	3,357		2.26	%			$	481,082		$	12,148		3.35	%			$	614,144		$	8,386			1.81	%
Funding sources
Bank deposits		$	290,853		$	911		1.24	%			$	420,132		$	241		0.23	%			$	315,309		$	2,392		1.01	%			$	440,801		$	285			0.09	%
Payables to brokerage clients			63,731			66		0.41	%				96,802			41		0.17	%				68,548			205		0.40	%				101,472			47			0.06	%
Other short-term borrowings (3)			7,315			97		5.26	%				708			4		1.95	%				7,286			280		5.13	%				2,656			12			0.60	%
Federal Home Loan Bank borrowings (3,4)			36,287			477		5.18	%				—			—		—					35,896			1,387		5.11	%				—			—			—
Long-term debt			23,492			193		3.30	%				21,024			131		2.49	%				21,685			489		3.01	%				20,673			363			2.34	%
Total interest-bearing liabilities			421,678			1,744		1.64	%				538,666			417		0.31	%				448,724			4,753		1.41	%				565,602			707			0.17	%
Non-interest-bearing funding sources			32,086										48,286										32,358										48,542
Securities lending expense						46										13										96										28
Other interest expense						1										1										2										(2	)
Total funding sources		$	453,764		$	1,791		1.56	%			$	586,952		$	431		0.29	%			$	481,082		$	4,851		1.35	%			$	614,144		$	733			0.16	%
Net interest revenue					$	2,237		1.94	%						$	2,926		1.97	%						$	7,297		2.00	%						$	7,653			1.65	%

(1)		Amounts have been calculated based on amortized cost.
(2)		Beginning in the first quarter of 2023, amounts include the impact of derivative financial instruments and the related hedge accounting on our available for sale securities.
(3)		Beginning in the first quarter of 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.
(4)		Average balance and interest expense was less than $500 thousand in the prior period.

THE CHARLES SCHWAB CORPORATION
Asset Management and Administration Fees Information
(In millions, except ratios or as noted)
(Unaudited)
		Three Months Ended September 30,																				Nine Months Ended September 30,
		2023										2022										2023										2022
		Average Client Assets			Revenue			Average Fee				Average Client Assets			Revenue			Average Fee				Average Client Assets			Revenue			Average Fee				Average Client Assets			Revenue				Average Fee
Schwab money market funds before fee waivers		$	414,074		$	270		0.26	%			$	184,834		$	132		0.28	%			$	368,788		$	735		0.27	%			$	158,525		$	340			0.29	%
Fee waivers						—										—										—										(57	)
Schwab money market funds			414,074			270		0.26	%				184,834			132		0.28	%				368,788			735		0.27	%				158,525			283			0.24	%
Schwab equity and bond funds, exchange-traded funds (ETFs), and collective trust funds (CTFs)			485,326			99		0.08	%				422,711			89		0.08	%				466,995			284		0.08	%				436,928			278			0.09	%
Mutual Fund OneSource® and other no-transaction-fee funds			255,039			170		0.26	%				183,019			139		0.30	%				235,561			469		0.27	%				196,032			453			0.31	%
Other third-party mutual funds and ETFs			632,902			127		0.08	%				747,676			160		0.08	%				663,577			393		0.08	%				805,204			510			0.08	%
Total mutual funds, ETFs, and CTFs (1)		$	1,787,341			666		0.15	%			$	1,538,240			520		0.13	%			$	1,734,921			1,881		0.14	%			$	1,596,689			1,524			0.13	%
Advice solutions (1)
Fee-based		$	468,305			476		0.40	%			$	431,276			452		0.42	%			$	455,730			1,393		0.41	%			$	446,979			1,409			0.42	%
Non-fee-based			97,957			—		—					85,567			—		—					95,951			—		—					87,528			—			—
Total advice solutions		$	566,262			476		0.33	%			$	516,843			452		0.35	%			$	551,681			1,393		0.34	%			$	534,507			1,409			0.35	%
Other balance-based fees (2)			610,450			64		0.04	%				537,809			58		0.04	%				588,922			189		0.04	%				573,733			186			0.04	%
Other (3)						18										17										52										48
Total asset management and administration fees					$	1,224									$	1,047									$	3,515									$	3,167

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

THE CHARLES SCHWAB CORPORATION
Growth in Client Assets and Accounts
(Unaudited)
	Q3-23 % Change							2023												2022
		vs.			vs.			Third				Second				First				Fourth				Third
(In billions, at quarter end, except as noted)		Q3-22			Q2-23			Quarter				Quarter				Quarter				Quarter				Quarter
Assets in client accounts
Schwab One®, certain cash equivalents and bank deposits		(30	)%		(8	)%		$	353.1			$	384.4			$	408.5			$	459.4			$	501.4
Bank deposit account balances		(29	)%		(3	)%			99.5				102.7				106.5				126.6				139.6
Proprietary mutual funds (Schwab Funds® and Laudus Funds®) and CTFs
Money market funds (1)		107	%		11	%			436.3				392.9				357.8				278.9				211.1
Equity and bond funds and CTFs (2)		19	%		(3	)%			167.9				172.6				163.1				153.6				141.5
Total proprietary mutual funds and CTFs		71	%		7	%			604.2				565.5				520.9				432.5				352.6
Mutual Fund Marketplace® (3)
Mutual Fund OneSource® and other no-transaction-fee funds		59	%		13	%			288.0				254.6				244.3				235.7				181.5
Mutual fund clearing services		24	%		(2	)%			216.9				220.7				201.7				191.1				175.3
Other third-party mutual funds (4)		(5	)%		(8	)%			1,055.3				1,150.8				1,123.6				1,077.1				1,105.7
Total Mutual Fund Marketplace		7	%		(4	)%			1,560.2				1,626.1				1,569.6				1,503.9				1,462.5
Total mutual fund assets		19	%		(1	)%			2,164.4				2,191.6				2,090.5				1,936.4				1,815.1
Exchange-traded funds
Proprietary ETFs (2)		23	%		(2	)%			286.2				293.2				280.6				259.3				232.2
Other third-party ETFs		24	%		(2	)%			1,352.6				1,381.4				1,297.5				1,208.4				1,094.6
Total ETF assets		24	%		(2	)%			1,638.8				1,674.6				1,578.1				1,467.7				1,326.8
Equity and other securities		18	%		(4	)%			2,886.4				3,002.7				2,772.2				2,529.4				2,451.3
Fixed income securities		55	%		3	%			747.4				722.6				684.7				593.4				481.5
Margin loans outstanding		(9	)%		4	%			(65.1	)			(62.8	)			(60.5	)			(63.1	)			(71.5	)
Total client assets		18	%		(2	)%		$	7,824.5			$	8,015.8			$	7,580.0			$	7,049.8			$	6,644.2
Client assets by business
Investor Services		19	%		(3	)%		$	4,157.7			$	4,267.9			$	4,001.9			$	3,682.1			$	3,508.1
Advisor Services		17	%		(2	)%			3,666.8				3,747.9				3,578.1				3,367.7				3,136.1
Total client assets		18	%		(2	)%		$	7,824.5			$	8,015.8			$	7,580.0			$	7,049.8			$	6,644.2
Net growth in assets in client accounts (for the quarter ended)
Net new assets by business
Investor Services (5)		(48	)%		(21	)%		$	28.6			$	36.0			$	79.4			$	64.3			$	55.1
Advisor Services (6)		(67	)%		(46	)%			19.6				36.0				71.3				64.1				59.5
Total net new assets		(58	)%		(33	)%		$	48.2			$	72.0			$	150.7			$	128.4			$	114.6
Net market gains (losses)									(239.5	)			363.8				379.5				277.2				(302.9	)
Net growth (decline)								$	(191.3	)		$	435.8			$	530.2			$	405.6			$	(188.3	)
New brokerage accounts (in thousands, for the quarter ended)		—			(7	)%			894				960				1,042				931				897
Client accounts (in thousands)
Active brokerage accounts (7)		2	%		—				34,540				34,382				34,120				33,758				33,875
Banking accounts		6	%		1	%			1,799				1,781				1,746				1,716				1,696
Corporate retirement plan participants		7	%		1	%			2,463				2,443				2,379				2,351				2,305

(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 September 30, 2023, off-platform equity and bond funds, CTFs, and ETFs were $24.3 billion, $3.4 billion, and $95.2 billion, respectively.
(3)		Excludes all proprietary mutual funds and ETFs.
(4)		As of September 30, 2023, third-party money funds were $1.0 billion.
(5)		Third quarter of 2023 includes net inflows of $3.3 billion from off-platform Schwab Bank Retail Certificates of Deposit (CDs). Second quarter of 2023 includes an inflow of $12.0 billion from a mutual fund clearing services client and inflows of $7.8 billion from off-platform Schwab Bank Retail CDs. First quarter of 2023 includes inflows of $19.0 billion from off-platform Schwab Bank Retail CDs.
(6)		Third quarter of 2023 includes an outflow of $0.8 billion from an international relationship.
(7)		Fourth quarter of 2022 includes the Company-initiated closure of approximately 350 thousand low-balance accounts. Third quarter of 2022 includes the Company-initiated closure of approximately 152 thousand low-balance accounts.

The Charles Schwab Corporation Monthly Activity Report For September 2023
		2022												2023																											Change
		Sep			Oct			Nov			Dec			Jan			Feb			Mar			Apr			May			Jun			Jul			Aug			Sep			Mo.			Yr.
Market Indices (at month end)
Dow Jones Industrial Average®		28,726			32,733			34,590			33,147			34,086			32,657			33,274			34,098			32,908			34,408			35,560			34,722			33,508			(3	)%		17	%
Nasdaq Composite®		10,576			10,988			11,468			10,466			11,585			11,456			12,222			12,227			12,935			13,788			14,346			14,035			13,219			(6	)%		25	%
Standard & Poor’s® 500		3,586			3,872			4,080			3,840			4,077			3,970			4,109			4,169			4,180			4,450			4,589			4,508			4,288			(5	)%		20	%
Client Assets (in billions of dollars)
Beginning Client Assets		7,127.6			6,644.2			7,004.6			7,320.6			7,049.8			7,480.6			7,380.2			7,580.0			7,631.5			7,650.2			8,015.8			8,241.0			8,094.7
Net New Assets (1)		39.8			42.0			33.1			53.3			36.1			41.7			72.9			13.6			24.6			33.8			12.9			8.1			27.2			N/M			(32	)%
Net Market Gains (Losses)		(523.2	)		318.4			282.9			(324.1	)		394.7			(142.1	)		126.9			37.9			(5.9	)		331.8			212.3			(154.4	)		(297.4	)
Total Client Assets (at month end)		6,644.2			7,004.6			7,320.6			7,049.8			7,480.6			7,380.2			7,580.0			7,631.5			7,650.2			8,015.8			8,241.0			8,094.7			7,824.5			(3	)%		18	%
Core Net New Assets (2)		39.8			42.0			33.1			53.3			36.1			41.7			53.9			(2.3	)		20.7			33.8			13.7			4.9			27.1			N/M			(32	)%
Receiving Ongoing Advisory Services (at month end)
Investor Services		466.6			487.3			514.0			499.8			524.6			515.5			526.2			530.7			526.3			547.5			560.6			552.2			533.0			(3	)%		14	%
Advisor Services (3)		2,950.9			3,106.0			3,270.5			3,173.4			3,345.4			3,289.6			3,369.3			3,394.9			3,377.8			3,527.8			3,619.8			3,554.2			3,448.0			(3	)%		17	%
Client Accounts (at month end, in thousands)
Active Brokerage Accounts (4)		33,875			33,896			33,636			33,758			33,878			34,010			34,120			34,248			34,311			34,382			34,434			34,440			34,540			—			2	%
Banking Accounts		1,696			1,706			1,705			1,716			1,729			1,733			1,746			1,757			1,768			1,781			1,792			1,798			1,799			—			6	%
Corporate Retirement Plan Participants		2,305			2,322			2,336			2,351			2,369			2,384			2,379			2,391			2,401			2,443			2,458			2,458			2,463			—			7	%
Client Activity
New Brokerage Accounts (in thousands)		287			298			303			330			344			320			378			331			314			315			303			311			280			(10	)%		(2	)%
Client Cash as a Percentage of Client Assets (5,6)		12.9	%		12.2	%		11.5	%		12.2	%		11.5	%		11.6	%		11.2	%		10.8	%		10.9	%		10.5	%		10.2	%		10.4	%		10.8	%		40 bp			(210) bp
Derivative Trades as a Percentage of Total Trades		23.6	%		24.1	%		24.6	%		23.2	%		23.0	%		23.5	%		22.8	%		23.4	%		23.5	%		23.9	%		23.0	%		24.4	%		24.2	%		(20) bp			60 bp
Selected Average Balances (in millions of dollars)
Average Interest-Earning Assets (7)		568,351			552,631			527,019			520,100			512,893			503,122			497,627			493,215			483,438			479,752			466,659			449,483			444,864			(1	)%		(22	)%
Average Margin Balances		73,224			69,188			66,011			64,759			60,211			60,575			60,848			60,338			60,250			61,543			63,040			64,226			64,014			—			(13	)%
Average Bank Deposit Account Balances (8)		141,198			136,036			130,479			126,953			122,387			115,816			109,392			104,775			103,149			102,917			102,566			101,928			100,404			(1	)%		(29	)%
Mutual Fund and Exchange-Traded Fund
Net Buys (Sells) (9,10) (in millions of dollars)
Equities		(2,662	)		3,984			3,777			(1,837	)		7,236			5,850			(3,234	)		1,126			(1,366	)		9,190			7,423			(278	)		675
Hybrid		(938	)		(1,380	)		(2,052	)		(1,595	)		(433	)		47			(1,641	)		(462	)		(889	)		(903	)		(407	)		(1,037	)		(828	)
Bonds		(5,801	)		(7,218	)		(3,721	)		(3,260	)		5,646			4,281			6,158			2,575			2,029			3,302			2,515			4,696			2,723
Net Buy (Sell) Activity (in millions of dollars)
Mutual Funds (9)		(15,200	)		(18,473	)		(17,143	)		(21,851	)		552			(2,338	)		(7,423	)		(4,904	)		(7,157	)		(4,485	)		(3,333	)		(6,476	)		(5,853	)
Exchange-Traded Funds (10)		5,799			13,859			15,147			15,159			11,897			12,516			8,706			8,143			6,931			16,074			12,864			9,857			8,423
Money Market Funds		17,018			21,542			16,929			27,778			24,285			23,347			27,106			6,291			15,256			9,112			7,911			16,869			13,388

Note: Certain supplemental details related to the information above can be found at: https://www.aboutschwab.com/financial-reports.
(1)		Unless otherwise noted, differences between net new assets and core net new assets are net flows from off-platform Schwab Bank Retail CDs – including March 2023 which reflects inflows of $19.0 billion from off-platform Schwab Bank Retail CDs issued year-to-date through March 31, 2023. September 2023 also includes an outflow of $0.8 billion from an international relationship. April 2023 also includes an inflow of $12.0 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, and activity from off-platform Schwab Bank Retail CDs. 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 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)		Beginning July 2023, client cash as a percentage of client assets excludes brokered CDs issued by Charles Schwab Bank. Prior periods have been recast to reflect this change.
(7)		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.
(8)		Represents average clients’ uninvested cash sweep account balances held in deposit accounts at third-party financial institutions.
(9)		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.
(10)		Represents the principal value of client ETF transactions handled by Schwab, including transactions in proprietary ETFs.
N/M - Not meaningful. Percentage changes greater than 200% are presented as not meaningful.

THE CHARLES SCHWAB CORPORATION
Non-GAAP Financial Measures
(In millions, except ratios and per share amounts)
(Unaudited)

In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S. (GAAP), Schwab’s third 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. Beginning in the third quarter of 2023, these adjustments also include restructuring costs, which the Company began incurring in connection with its previously announced plans to streamline its operations to prepare for post-integration of TD Ameritrade. See Part I – Item 1 – Note 10 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 for additional information.

Non-GAAP Adjustment or Measure	Definition	Usefulness to Investors and Uses by Management
Acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs	Schwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, restructuring costs, and, where applicable, the income tax effect of these expenses.   Adjustments made to exclude amortization of acquired intangible assets are reflective of all acquired intangible assets, which were recorded as part of purchase accounting. These acquired intangible assets contribute to the Company’s revenue generation. Amortization of acquired intangible assets will continue in future periods over their remaining useful lives.	We exclude acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and is useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods.   Costs related to acquisition and integration or restructuring fluctuate based on the timing of acquisitions, integration and restructuring activities, thereby limiting comparability of results among periods, and are not representative of the costs of running the Company’s ongoing business. Amortization of acquired intangible assets is excluded because management does not believe it is indicative of the Company’s underlying operating performance.
Return on tangible common equity	Return on tangible common equity represents annualized adjusted net income available to common stockholders as a percentage of average tangible common equity. Tangible common equity represents common equity less goodwill, acquired intangible assets — net, and related deferred tax liabilities.	Acquisitions typically result in the recognition of significant amounts of goodwill and acquired intangible assets. We believe return on tangible common equity may be useful to investors as a supplemental measure to facilitate assessing capital efficiency and returns relative to the composition of Schwab’s balance sheet.
Adjusted Tier 1 Leverage Ratio	Adjusted Tier 1 Leverage Ratio represents the Tier 1 Leverage Ratio as prescribed by bank regulatory guidance for the consolidated company and for CSB, adjusted to reflect the inclusion of accumulated other comprehensive income (AOCI) in the ratio.	Inclusion of the impacts of AOCI in the Company’s Tier 1 Leverage Ratio provides additional information regarding the Company’s current capital position. We believe Adjusted Tier 1 Leverage Ratio may be useful to investors as a supplemental measure of the Company’s capital levels.

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:

		Three Months Ended September 30,																Nine Months Ended September 30,
		2023								2022								2023								2022
		Total Expenses Excluding Interest				Net Income				Total Expenses Excluding Interest				Net Income				Total Expenses Excluding Interest				Net Income				Total Expenses Excluding Interest				Net Income
Total expenses excluding interest (GAAP), Net income (GAAP)		$	3,223			$	1,125			$	2,823			$	2,020			$	9,194			$	4,022			$	8,475			$	5,215
Acquisition and integration-related costs (1)			(106	)			106				(101	)			101				(334	)			334				(291	)			291
Amortization of acquired intangible assets			(135	)			135				(152	)			152				(404	)			404				(460	)			460
Restructuring costs (2)			(279	)			279				—				—				(279	)			279				—				—
Income tax effects (3)			N/A				(127	)			N/A				(62	)			N/A				(247	)			N/A				(183	)
Adjusted total expenses (non-GAAP), Adjusted net income (non-GAAP)		$	2,703			$	1,518			$	2,570			$	2,211			$	8,177			$	4,792			$	7,724			$	5,783

(1)		Acquisition and integration-related costs for the three and nine months ended September 30, 2023 primarily consist of $52 million and $158 million of compensation and benefits, $37 million and $111 million of professional services, $7 million and $21 million of occupancy and equipment, and $4 million and $26 million of other. Acquisition and integration-related costs for the three and nine months ended September 30, 2022 primarily consist of $57 million and $166 million of compensation and benefits, $36 million and $102 million of professional services, and $6 million and $14 million of occupancy and equipment.
(2)		Restructuring costs for the three and nine months ended September 30, 2023 primarily consist of $276 million of compensation and benefits. There were no restructuring costs for the three and nine months ended September 30, 2022.
(3)		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, amortization of acquired intangible assets and restructuring costs on an after-tax basis.
N/A Not applicable.

		Three Months Ended September 30,												Nine Months Ended September 30,
		2023						2022						2023						2022
		Amount			% of Total Net Revenues			Amount			% of Total Net Revenues			Amount			% of Total Net Revenues			Amount			% of Total Net Revenues
Income before taxes on income (GAAP), Pre-tax profit margin (GAAP)		$	1,383		30.0	%		$	2,677		48.7	%		$	5,184		36.1	%		$	6,790		44.5	%
Acquisition and integration-related costs			106		2.3	%			101		1.8	%			334		2.3	%			291		1.9	%
Amortization of acquired intangible assets			135		2.9	%			152		2.8	%			404		2.8	%			460		3.0	%
Restructuring costs			279		6.1	%			—		—				279		1.9	%			—		—
Adjusted income before taxes on income (non-GAAP), Adjusted pre-tax profit margin (non-GAAP)		$	1,903		41.3	%		$	2,930		53.3	%		$	6,201		43.1	%		$	7,541		49.4	%

		Three Months Ended September 30,																Nine Months Ended September 30,
		2023								2022								2023								2022
		Amount				Diluted EPS				Amount				Diluted EPS				Amount				Diluted EPS				Amount				Diluted EPS
Net income available to common stockholders (GAAP), Earnings per common share — diluted (GAAP)		$	1,017			$	.56			$	1,884			$	.99			$	3,723			$	2.03			$	4,814			$	2.53
Acquisition and integration-related costs			106				.06				101				.05				334				.18				291				.15
Amortization of acquired intangible assets			135				.07				152				.08				404				.22				460				.24
Restructuring costs			279				.15				—				—				279				.15				—				—
Income tax effects			(127	)			(.07	)			(62	)			(.02	)			(247	)			(.13	)			(183	)			(.09	)
Adjusted net income available to common stockholders (non-GAAP), Adjusted diluted EPS (non-GAAP)		$	1,410			$	.77			$	2,075			$	1.10			$	4,493			$	2.45			$	5,382			$	2.83

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Return on average common stockholders’ equity (GAAP)			14	%			25	%			18	%			18	%
Average common stockholders’ equity		$	28,274			$	30,282			$	27,747			$	36,526
Less: Average goodwill			(11,951	)			(11,951	)			(11,951	)			(11,952	)
Less: Average acquired intangible assets — net			(8,457	)			(8,999	)			(8,589	)			(9,151	)
Plus: Average deferred tax liabilities related to goodwill and acquired intangible assets — net			1,822				1,848				1,830				1,867
Average tangible common equity		$	9,688			$	11,180			$	9,037			$	17,290
Adjusted net income available to common stockholders (1)		$	1,410			$	2,075			$	4,493			$	5,382
Return on tangible common equity (non-GAAP)			58	%			74	%			66	%			42	%

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

		September 30, 2023
		CSC				CSB
Tier 1 Leverage Ratio (GAAP)			8.2	%			9.6	%
Tier 1 Capital		$	39,971			$	31,764
Plus: AOCI adjustment			(20,752	)			(18,143	)
Adjusted Tier 1 Capital			19,219				13,621
Average assets with regulatory adjustments			488,627				330,908
Plus: AOCI adjustment			(20,033	)			(17,950	)
Adjusted average assets with regulatory adjustments		$	468,594			$	312,958
Adjusted Tier 1 Leverage Ratio (non-GAAP)			4.1	%			4.4	%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231016043490/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 was Charles Schwab's net income for Q3 2023?

$1.1 billion

How much did core net new assets gather in the third quarter?

$46 billion

What was the largest conversion event completed by Charles Schwab?

Transitioning $1.3 trillion in client assets

What is the expected annual expense savings from efficiency initiatives?

At least $1 billion

What was the increase in asset management and administration fees?

17%