EX-99.1 2 dex991.htm PRESS RELEASE Press Release

EXHIBIT 99.1

LOGO

News Release

Contacts:

 

MEDIA:   INVESTORS/ANALYSTS:    
Alison Wertheim   Rich Fowler    
Charles Schwab   Charles Schwab    
Phone: 415-667-0475   Phone: 415-667-1841    

SCHWAB REPORTS SECOND QUARTER NET INCOME UP 16% YEAR-OVER-YEAR

Second quarter and first half revenues rise 10% and 16%, respectively

Client engagement remains solid in face of choppy environment; company’s investment for growth continues

SAN FRANCISCO, July 18, 2011 – The Charles Schwab Corporation announced today that its net income was $238 million for the second quarter of 2011, up from $205 million for the second quarter of 2010. For the six months ended June 30, 2011, the company’s net income was $481 million, which was 43% higher than the $337 million earned in the year-earlier period excluding certain charges relating to the Schwab YieldPlus Fund® and the company’s affinity credit card program.

 

     Three Months Ended
—June 30,—
     %
 Change 
     Six Months Ended
—June 30,—
     %
 Change 
  

Financial Highlights                    

    2011
     2010
       2011
     2010
    

Net revenues (in millions)

    $  1,190      $  1,080        10 %    $  2,397      $  2,058        16 % 

Net income (in millions)

    $ 238      $ 205        16 %    $ 481      $ 211        128 % 

Diluted earnings per share

    $ .20      $ .17        18 %    $ .40      $ .18        122 % 

Pre-tax profit margin

      32.4 %      31.3 %              32.5 %      17.1 %         

Return on stockholders’ equity (annualized)

      14 %      14 %              15 %      8 %         

CEO Walt Bettinger commented, “Our valued clients are showing a resiliency in this environment that bodes well for the future. Although the economic recovery is progressing slower than hoped, clients remain solidly engaged with their investments, as cash holdings at Schwab have declined to pre-crisis levels. While trading activity is relatively soft, our diverse suite of investment products and services is propelling our ongoing growth, as clients increasingly opt to enroll in our advisory solutions. Client assets enrolled in Schwab retail advisory offerings increased to $113 billion at month-end June, up 20% year-over-year. Adding in assets under the guidance of an independent fee-based advisor brings total advised assets at quarter-end to $811 billion, up 17%. Overall, we ended June serving 8.1 million active brokerage accounts, 745,000 banking accounts and 1.44 million retirement plan participants. Despite a challenging environment, net new assets totaled $15.4 billion for the second quarter, up 10% from the second quarter of 2010 after adjusting for a large clearing outflow last year, and total client assets reached $1.66 trillion at quarter-end, up 22% from a year ago.”

“We are on the right course,” Mr. Bettinger added. “We continue to view this as exactly the right time to make long-term investments in our clients with new products and services that will serve them better and sustain our growth. Consistent with our ongoing efforts to help clients manage their finances when and how they choose, we now offer a broad array of mobile investing, banking and deposit capabilities as part of the integrated brokerage and banking services available to iPhone® and Android™ smartphone users. In addition, over 300,000 clients are already using Schwab’s online portfolio performance reporting capabilities, which were announced earlier this year. For independent advisors, we have enhanced our Business Consulting Services, and we are developing an integrated technology platform to be unveiled at

our upcoming IMPACT® meeting this fall. Other initiatives underway include our recently announced global investing capabilities, a new online portal for prospective clients, new retirement income planning tools and content, an ETF education center, enhanced fixed income services, and, of course, our acquisition of optionsXpress®, which remains on track for a third quarter close. Importantly, our ability to make the trade-off decisions necessary to balance significant investment in our clients with current profitability helped us leverage 10% second quarter revenue growth into 16% earnings growth.”

CFO Joe Martinetto said, “We continue to operate with a high degree of financial stability and flexibility. With nearly $7 billion in stockholders’ equity and a healthy balance sheet that reflects our rigorous approach to credit risk and capital management, we can stay focused on serving the needs of our growing client base regardless of the operating environment. At the same time, our diversified revenue streams and expense discipline make it possible for the company to deliver solid revenue and earnings performance despite economic and market choppiness. The second quarter was marked by lower interest rates, volatile equity markets, and the beginning of a seasonal summer slowdown in client trading, yet our ongoing success with clients allowed us to stay on track with our financial expectations. Net interest revenue rose between the first and second quarters and asset management and administration fees were unchanged despite higher levels of money fund fee waivers, enabling the company to keep overall revenues nearly flat sequentially even as trading revenue declined by 15%. By sticking to our spending plan, we were able to deliver a pre-tax profit margin in excess of 32% for the second consecutive quarter. We’ve passed the mid-year mark about where we’d expect to be given the environment, and while we remain well positioned for significantly improved performance when rates increase, we are continuing our investment in clients to drive the future growth of the business.”

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

Investor Services

 

  •  

Net new accounts for the quarter totaled approximately 36,000, down 10% year-over-year. Total accounts reached 5.7 million as of June 30, 2011, up 4% year-over-year.

 

  •  

Extended the company’s integrated mobile brokerage and banking capabilities to Android™ powered smartphone users and enabled both iPhone® mobile digital device and Android users to deposit checks remotely by taking a picture of a check with their smartphone camera.

Institutional Services

Advisor Services

 

  •  

Released a new Schwab Market Knowledge Tools® white paper that provides a preview of cost basis reporting changes for 2012 and strategies for advisors to manage and communicate with clients effectively.

 

  •  

Launched a new consultative program, “Managing Client Profitability,” designed to help advisors manage profitable and scalable businesses through effective client segmentation. The new program is part of Schwab’s Business Consulting Services, a comprehensive practice management offering for advisors. Through an intensive eight-week program, advisors are guided through developing, evaluating and preparing to implement customized segmentation strategies for their firms.

Other Institutional Services

 

  •  

Launched the Schwab Workplace Retirement iPhone Application for 401(k) plan participants, which provides access to 401(k) account information, including balances, year-to-date personal performance, and contribution rate.

Products and Infrastructure

 

  •  

For Charles Schwab Bank:

 

  •  

Balance sheet assets = $56.9 billion, up 14% year-over-year.

 

  •  

Outstanding mortgage and home equity loans = $8.8 billion, up 19% year-over-year.

 

  •  

First mortgage originations during the quarter = $647 million.

 

  •  

Delinquency, nonaccrual, and loss reserve ratios for Schwab Bank’s loan portfolio = 0.76%, 0.48% and 0.53%, respectively, at month-end June.

 

  •  

Schwab Bank High Yield Investor Checking® accounts = 563,000, with $9.9 billion in balances.

 

  •  

Client assets managed by Windhaven® totaled $6.6 billion; up 22% from the first quarter of 2011.

 

  •  

Total assets under management in Schwab ETFs™ = $4.4 billion. Total assets in Schwab Managed Portfolios-ETFs = $2.7 billion.

  •  

Added a fixed income annuity product from MetLife Investors USA Insurance Company to Schwab’s Single Premium Immediate Annuity offer, a fixed income annuity platform that provides choice and flexibility for people seeking ongoing sources of guaranteed income in retirement.

iPhone is a registered trademark of Apple Inc.

Android is a trademark of Google Inc.

Supporting schedules are either attached or located at: http://www.aboutschwab.com/media/xls/q2_2011_schedule.xls

Forward Looking Statements

This press release contains forward looking statements relating to the company’s development and launch of new products, services and capabilities, the acquisition of optionsXpress and financial performance. Achievement of these expectations is subject to risks and uncertainties that could cause actual results to differ materially from the expressed expectations. Important factors that may cause such differences include, but are not limited to, the company’s ability to develop and launch new products, services and capabilities in a timely and successful manner; the timing and ability of the company and optionsXpress to satisfy the closing conditions in the merger agreement; general market conditions, including the level of interest rates, equity valuations and trading activity; the company’s ability to attract and retain clients and grow client assets/relationships; the impact of changes in market conditions on money market fund fee waivers, revenue, expenses and pre-tax margins; competitive pressures on rates and fees; the level of client assets, including cash balances; adverse developments in litigation or regulatory matters and the extent of any charges associated with legal matters; the unknown costs of complying with new regulations emerging from recent financial reform legislation; and other factors set forth in the company’s Form 10-Q for the period ending March 31, 2011.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 300 offices and 8.1 million client brokerage accounts, 1.44 million corporate retirement plan participants, 745,000 banking accounts, and $1.66 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, 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 mortgage 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
June 30,
     Six Months Ended
June 30,
  
     2011
     2010
     2011
     2010
  

Net Revenues

                                 

Asset management and administration fees

    $ 502      $ 437      $   1,004      $ 857   

Interest revenue

      496        428        977        819   

Interest expense

      (45 )      (45 )      (90 )      (96 ) 
    
 
 
 

Net interest revenue

      451        383        887        723   

Trading revenue

      205        233        446        442   

Other

      35        36        74        67   

Provision for loan losses

      (1 )      (1 )      (5 )      (15 ) 

Net impairment losses on securities (1)

     (2 )      (8 )      (9 )      (16 ) 
    
 
 
 

Total net revenues

      1,190        1,080        2,397          2,058   
    
 
 
 

Expenses Excluding Interest

                                 

Compensation and benefits

      430        393        867        795   

Professional services

      92        84        184        164   

Occupancy and equipment

      73        68        144        136   

Advertising and market development

      51        43        111        105   

Communications

      54        53        110        105   

Depreciation and amortization

      33        36        68        73   

Class action litigation and regulatory reserve

      7        —        7        196   

Other

      64        65        126        133   
    
 
 
 

Total expenses excluding interest

      804        742        1,617        1,707   
    
 
 
 

Income before taxes on income

      386        338        780        351   

Taxes on income

      (148 )      (133 )      (299 )      (140 ) 
    
 
 
 

Net Income

    $ 238      $ 205      $ 481      $ 211   
    
 
 
 

Weighted-Average Common Shares Outstanding — Diluted

      1,210        1,195        1,208        1,191   
    
 
 
 

Earnings Per Share — Basic

    $ .20      $ .17      $ .40      $ .18   

Earnings Per Share — Diluted

   $ .20      $ .17      $ .40      $ .18   
    
 
 
 
(1) 

Net impairment losses on securities include total other-than-temporary impairment losses of $11 and $13, net of $9 and $5 recognized in other comprehensive income, for the three months ended June 30, 2011 and 2010, respectively. Net impairment losses on securities include total other-than-temporary impairment losses of $11 and $41, net of $2 and $25 recognized in other comprehensive income, for the six months ended June 30, 2011 and 2010, respectively.

See Notes to Consolidated Statements of Income, Financial and Operating Highlights, and Net Interest Revenue Information.

THE CHARLES SCHWAB CORPORATION

Financial and Operating Highlights

(Unaudited)

 

     Q2-11 % change
     2011
     2010
  

(In millions, except per share amounts and as noted)

    vs.
Q2-10
     vs.
Q1-11
     Second
Quarter
     First
Quarter
     Fourth
Quarter
     Third
Quarter
     Second
Quarter
  

Net Revenues

                                                         

Asset management and administration fees

      15 %      —      $ 502      $ 502      $ 497      $ 468      $ 437   

Net interest revenue

     18 %      3 %        451        436        414        387        383   

Trading revenue

      (12 %)      (15 %)      205        241        206        182        233   

Other

      (3 %)      (10 %)      35        39        36        32        36   

Provision for loan losses

      —        (75 %)      (1 )      (4 )      (9 )      (3 )      (1 ) 

Net impairment losses on securities

      (75 %)      (71 %)      (2 )      (7 )      (17 )      (3 )      (8 ) 
                    
 
 
 
 

Total net revenues

      10 %      (1 %)        1,190          1,207          1,127          1,063          1,080   
                    
 
 
 
 

Expenses Excluding Interest

                                                         

Compensation and benefits

      9 %      (2 %)      430        437        397        381        393   

Professional services

      10 %      —        92        92        92        85        84   

Occupancy and equipment

      7 %      3 %      73        71        70        66        68   

Advertising and market development

      19 %      (15 %)      51        60        57        34        43   

Communications

      2 %      (4 %)      54        56        53        49        53   

Depreciation and amortization

      (8 %)      (6 %)      33        35        38        35        36   

Class action litigation and regulatory reserve (1)

      N/M        N/M        7        —        124        —        —   

Money market mutual fund charges (2)

      —        —        —        —        —        132        —   

Other (3)

      (2 %)      3 %      64        62        67        82        65   
                    
 
 
 
 

Total expenses excluding interest

      8 %      (1 %)      804        813        898        864        742   
                    
 
 
 
 

Income before taxes on income

      14 %      (2 %)      386        394        229        199        338   

Taxes on income

      11 %      (2 %)      (148 )      (151 )      (110 )      (75 )      (133 ) 
                    
 
 
 
 

Net Income

      16 %      (2 %)    $ 238      $ 243      $ 119      $ 124      $ 205   
                    
 
 
 
 
   

Basic earnings per share

      18 %      —      $ .20      $ .20      $ .10      $ .10      $ .17   

Diluted earnings per share

      18 %      —      $ .20      $ .20      $ .10      $ .10      $ .17   

Dividends declared per common share

      —        —      $ .06      $ .06      $ .06      $ .06      $ .06   

Weighted-average common shares outstanding – diluted

      1 %      —        1,210        1,207        1,200        1,194        1,195   
                    
 
 
 
 

Performance Measures

                                                         

Pre-tax profit margin

                      32.4 %      32.6 %      20.3 %      18.7 %      31.3 % 

Return on stockholders’ equity (annualized)

                      14 %      15 %      8 %      8 %      14 % 
                    
 
 
 
 

Financial Condition (at quarter end, in billions)

                                                         

Cash and investments segregated

      26 %      3 %    $ 23.8      $ 23.1      $ 22.7      $ 20.1      $ 18.9   

Receivables from brokerage clients

      17 %      3 %    $ 11.6      $ 11.3      $ 11.2      $ 9.8      $ 9.9   

Loans to banking clients

     22 %      4 %    $ 9.5      $ 9.1      $ 8.7      $ 8.2      $ 7.8   

Total assets

      19 %      3 %    $ 97.6      $ 94.9      $ 92.6      $ 87.3      $ 82.3   

Deposits from banking clients

     14 %      2 %    $ 52.3      $ 51.3      $ 50.6      $ 48.8      $ 45.9   

Payables to brokerage clients

      28 %      6 %    $ 33.9      $ 32.1      $ 30.9      $ 27.7      $ 26.4   

Long-term debt (4)

      54 %      —      $ 2.0      $ 2.0      $ 2.0      $ 2.0      $ 1.3   

Stockholders’ equity

      14 %      3 %    $ 6.7      $ 6.5      $ 6.2      $ 6.0      $ 5.9   
                    
 
 
 
 

Other

                                                         

Full-time equivalent employees (at quarter end, in thousands)

      6 %      1 %      13.2        13.1        12.8        12.5        12.5   

Annualized net revenues per average full-time equivalent employee (in thousands)

      5 %      (3 %)    $ 361      $ 371      $ 355      $ 340      $ 343   

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

      76 %      19 %    $ 44      $ 37      $ 51      $ 27      $ 25   
                    
 
 
 
 
   

Clients’ Daily Average Trades (in thousands)

                                                        

Revenue trades (5)

      (13 %)      (17 %)      264.9        319.9        271.6        233.2        302.9   

Asset-based trades (6)

      (5 %)      (11 %)      43.6        48.8        39.3        36.8        46.1   

Other trades (7)

      1 %      (15 %)      88.6        103.8        84.6        82.6        87.6   
                    
 
 
 
 

Total

      (9 %)      (16 %)      397.1        472.5        395.5        352.6        436.6   
                    
 
 
 
 

Average Revenue Per Revenue Trade (5)

      1 %      1 %    $ 12.23      $ 12.12      $ 12.07      $ 12.32      $ 12.15   
                    
 
 
 
 
                                                          
(1) 

Includes a regulatory reserve relating to the Schwab YieldPlus Fund®.

 

(2) 

Includes a charge of $132 million relating to losses recognized by Schwab money market mutual funds in the third quarter of 2010.

 

(3)

Includes charges of $21 million in the third quarter of 2010 relating to the termination of the Company’s Invest First® and WorldPoints(a) Visa(b) credit card program.

 

(4) 

Includes $700 million of Senior Notes that mature in 2020, which were issued in the third quarter of 2010.

 

(5) 

Includes all client trades that generate either commission revenue or revenue from principal markups (i.e., fixed income); also known as DART.

 

(6) 

Includes eligible trades executed by clients who participate in one or more of the Company’s asset-based pricing relationships.

 

(7)

Includes all commission free trades, including Schwab Mutual Fund OneSource® funds and ETFs, and other proprietary products.

N/M Not meaningful.

See Notes to Consolidated Statements of Income, Financial and Operating Highlights, and Net Interest Revenue Information.

(a) 

WorldPoints is a registered trademark of FIA Card Services, N.A.; (b) Visa is a registered trademark of Visa International Service Association.

THE CHARLES SCHWAB CORPORATION

Net Interest Revenue Information

(In millions)

(Unaudited)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
  
     2011
     2010
     2011
     2010
  
     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

    $ 5,318       $ 3         0.23 %      $ 7,226       $ 5         0.28 %      $ 5,137       $ 6         0.24 %      $ 7,636       $ 10         0.26 % 

Cash and investments segregated

      23,478         9         0.15 %      19,007         14         0.30 %      23,335         23         0.20 %      18,924         25         0.27 % 

Broker-related receivables (1)

      367         —         —        341         —         0.10 %      370         —         0.06 %      302         —         —   

Receivables from brokerage clients

      10,880         122         4.50 %      8,917         111         4.99 %      10,609         239         4.54 %      8,501         211         5.01 % 

Other securities owned (1)

      —         —         —        46         —         0.51 %      —         —         —        148         —         0.45 % 

Securities available for sale (2)

      26,105         110         1.69 %      23,615         124         2.11 %      25,563         216         1.70 %      23,177         252         2.19 % 

Securities held to maturity

      16,350         145         3.56 %      9,168         86         3.76 %      16,742         285         3.43 %      7,795         145         3.75 % 

Loans to banking clients

      9,366         77         3.30 %      7,785         68         3.50 %      9,188         152         3.34 %      7,675         135         3.55 % 

Loans held for sale (1)

      27         —         4.71 %      51         1         5.00 %      70         1         4.50 %      68         2         4.91 % 
    
  
  
 
  
  
 
  
  
 
  
  

Total interest-earning assets

      91,891         466         2.03 %      76,156         409         2.15 %      91,014         922         2.04 %      74,226         780         2.12 % 
    
  
  
 
  
  
 
  
  
 
  
  

Other interest revenue

               30                          19                          55                          39            
             
                   
                   
                   
        

Total interest-earning assets

    $ 91,891       $ 496         2.17 %    $ 76,156       $ 428         2.25 %    $ 91,014       $ 977         2.16 %    $ 74,226       $ 819         2.22 % 
    
  
  
 
  
  
 
  
  
 
  
  

Funding sources:

                                                                                                         

Deposits from banking clients

    $ 51,338       $ 16         0.13 %    $ 43,076       $ 25         0.23 %    $ 50,836       $ 33         0.13 %    $ 41,651       $ 56         0.27 % 

Payables to brokerage clients (1)

      28,086         —         0.01 %      22,168         1         0.02 %      27,573         1         0.01 %      21,708         1         0.01 % 

Long-term debt

      2,004         27         5.40 %      1,309         19         5.82 %      2,005         54         5.43 %      1,375         39         5.72 % 
    
  
  
 
  
  
 
  
  
 
  
  

Total interest-bearing liabilities

      81,428         43         0.21 %      66,553         45         0.27 %      80,414         88         0.22 %      64,734         96         0.30 % 
    
  
  
 
  
  
 
  
  
 
  
  

Non-interest-bearing funding sources

      10,463                          9,603                          10,600                          9,492                     

Other interest expense

               2                          —                          2                          —            
             
                   
                   
                   
        

Total funding sources

    $   91,891       $ 45         0.20 %    $   76,156       $ 45         0.23 %    $   91,014       $ 90         0.20 %    $   74,226       $ 96         0.26 % 
    
  
  
 
  
  
 
  
  
 
  
  

Net interest revenue

             $   451         1.97 %             $   383         2.02 %             $   887         1.96 %             $   723         1.96 % 
             
  
          
  
          
  
          
  
(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.

See Notes to Consolidated Statements of Income, Financial and Operating Highlights, and Net Interest Revenue Information.

Notes to Consolidated Statements of Income, Financial and Operating Highlights,

and Net Interest Revenue Information

(Unaudited)

The Company

The consolidated statements of income, financial and operating highlights, and net interest revenue information include The Charles Schwab Corporation (CSC) and its majority-owned subsidiaries (collectively referred to as the Company), including Charles Schwab & Co., Inc. and Charles Schwab Bank. Certain prior year amounts have been reclassified to conform to the 2011 presentation. The consolidated statements of income, financial and operating highlights, and net interest revenue information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

**********

THE CHARLES SCHWAB CORPORATION

Asset Management and Administration Fees Information

(In millions)

(Unaudited)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
  
     2011
     2010
     2011
     2010
  
     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

    $ 149,652       $ 208        0.56 %      $ 158,927         215        0.54 %      $ 151,027       $ 419        0.56 %      $ 163,143       $ 439        0.54 % 

Fee waivers

               (128 )                       (113 )                       (240 )                       (238 )         
    
  
 
 
  
 
 
  
 
 
  
 

Schwab money market funds

      149,652         80        0.21 %      158,927         102        0.26 %      151,027         179        0.24 %      163,143         201        0.25 % 

Equity and bond
funds (1)

      42,577         31        0.29 %      34,997         27        0.31 %      41,892         60        0.29 %      34,574         55        0.32 % 

Mutual Fund OneSource ® (2)

      224,022         182        0.33 %      181,397         150        0.33 %      219,994         356        0.33 %      180,088         297        0.33 % 
    
  
 
 
  
 
 
  
 
 
  
 

Total mutual
funds (3)

    $   416,251         293        0.28 %    $   375,321         279        0.30 %    $   412,913         595        0.29 %    $   377,805         553        0.30 % 
    
  
 
 
  
 
 
  
 
 
  
 

Advice solutions (3, 4)

    $ 111,911         134        0.48 %    $ 98,820         89        0.36 %    $ 110,002         263        0.48 %    $ 97,463         166        0.34 % 

Other (5)

               75                         69                         146                         138           
             
                  
                  
                  
       

Total asset management and administration fees

             $   502                       $   437                       $   1,004                       $   857           
             
                  
                  
                  
       
(1) 

Includes Schwab ETFs.

 

(2) 

Includes clearing services.

 

(3) 

Advice solutions include seperately managed accounts, customized personal advice for tailored portfolios, and specialized planning and full-time portfolio management offered through the Company’s Schwab Private Client, Schwab Managed Portfolio and Managed Account Select programs. Advice solutions also includes Schwab Advisor Network, Schwab Advisor Source, and Windhaven. Average client assets for advice solutions may also include the asset balances contained in the three categories of mutual funds listed above.

 

(4) 

Revenue includes temporary fee rebates of $23 million and $52 million in the second quarter and first half of 2010, respectively, relating to client assets that participated in advisory and managed account programs under a rebate program that ended in 2010.

 

(5) 

Includes various asset based fees, such as trust fees, 401k record keeping fees, and other mutual fund service fees.

THE CHARLES SCHWAB CORPORATION

Reconciliation of Net Income Excluding Certain Charges to Reported Net Income

(In millions)

(Unaudited)

 

     Three Months Ended
June 30,
            Six Months Ended
June 30,
        
     2011
     2010
      % Change
     2011
     2010
     % Change
  

Net Income Excluding Certain Charges

    $ 242      $ 205         18 %    $ 485      $ 337        44 % 

Class action litigation and regulatory reserve (1)

      7        —         N/M        7        196        N/M   

Other expense (2)

      —        —         —        —        9        N/M   
    
 
  
 
 
 

Total charges

      7        —         N/M        7        205        N/M   

Tax effect

      (3 )      —         N/M        (3 )      (79 )      N/M   

Total charges, net of tax

      4        —         N/M        4        126        N/M   
    
 
  
 
 
 

Reported Net Income

    $   238      $   205         16 %    $   481      $   211        128 % 
    
 
  
 
 
 
(1) 

Relates to the Schwab YieldPlus Fund®.

 

(2) 

Includes a charge of $9 million in the first quarter of 2010 relating to the termination of the Company’s Invest First® and WorldPoints Visa credit card program.

 

N/M Not meaningful.

THE CHARLES SCHWAB CORPORATION

Growth in Client Assets and Accounts

(Unaudited)

 

     Q2-11 % Change
     2011
     2010
  

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

    vs.
Q2-10
     vs.
Q1-11
     Second
Quarter
     First
Quarter
     Fourth
Quarter
     Third
Quarter
     Second
Quarter
  

Assets in client accounts

                                                         

Schwab One®, other cash equivalents and deposits from banking clients

      19 %      3 %      $ 86.5      $ 83.7      $ 81.1      $ 77.9      $ 72.4   

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

                                                         

Money market funds

      (3 %)      —        152.0        152.2        154.5        152.4        156.2   

Equity and bond funds

      27 %      1 %      49.6        48.9        46.0        42.7        39.2   
                    
 
 
 
 

Total proprietary funds

      3 %      —        201.6        201.1        200.5        195.1        195.4   
                    
 
 
 
 

Mutual Fund Marketplace® (1)

                                                         

Mutual Fund OneSource®

      25 %      1 %      220.8        219.7        208.6        193.9        177.2   

Mutual fund clearing services

      49 %      2 %      43.7        42.8        42.1        37.5        29.3   

Other third-party mutual funds

      26 %      2 %      314.2        307.7        291.8        275.0        249.9   
                    
 
 
 
 

Total Mutual Fund Marketplace

      27 %      1 %      578.7        570.2        542.5        506.4        456.4   
                    
 
 
 
 

Total mutual fund assets

      20 %      1 %      780.3        771.3        743.0        701.5        651.8   
                    
 
 
 
 

Equity and other securities (1)

     32 %      (1 %)      624.5        631.0        589.4        526.4        474.2   

Fixed income securities

      2 %      2 %      175.1        171.5        171.3        174.7        172.2   

Margin loans outstanding

      20 %      3 %      (10.9 )      (10.6 )      (10.3 )      (9.2 )      (9.1 ) 
                    
 
 
 
 

Total client assets

      22 %      1 %    $   1,655.5      $   1,646.9      $   1,574.5      $   1,471.3      $   1,361.5   
                    
 
 
 
 
   

Client assets by business

                                                         

Investor Services

      25 %      —      $ 711.6      $ 714.8      $ 686.5      $ 644.6      $ 568.7   

Advisor Services

      17 %      1 %      697.8        688.6        654.9        609.9        596.7   

Other Institutional Services

      25 %      1 %      246.1        243.5        233.1        216.8        196.1   
                    
 
 
 
 

Total client assets by business

      22 %      1 %    $ 1,655.5      $ 1,646.9      $ 1,574.5      $ 1,471.3      $ 1,361.5   
                    
 
 
 
 
   

Net growth in assets in client accounts (for the quarter ended)

                                                         

Net new assets

                                                         

Investor Services (2)

      54 %      (65 %)    $ 2.0      $ 5.7      $ 5.0      $ 2.3      $ 1.3   

Advisor Services (2)

      4 %      (25 %)      10.6        14.2        16.4        8.0        10.2   

Other Institutional Services (3)

      N/M        (10 %)      2.8        3.1        4.8        4.3        (49.0 ) 
                    
 
 
 
 

Total net new assets

      N/M        (33 %)      15.4        23.0        26.2        14.6        (37.5 ) 
                    
 
 
 
 

Net market (losses) gains

      N/M        (114 %)      (6.8 )      49.4        77.0        95.2        (92.1 ) 
                    
 
 
 
 

Net growth (decline)

      N/M        (88 %)    $ 8.6      $ 72.4      $ 103.2      $ 109.8      $ (129.6 ) 
                    
 
 
 
 
   

New brokerage accounts (in thousands, for the quarter ended)

      —        (8 %)      205        224        225        168        206   

Clients (in thousands)

                                                         

Active Brokerage Accounts

      3 %      1 %      8,140        8,072        7,998        7,919        7,883   

Banking Accounts (4)

      18 %      4 %      745        719        690        665        634   

Corporate Retirement Plan Participants

      (2 %)      —        1,439        1,444        1,477        1,473        1,467   
                    
 
 
 
 
                                                        
(1) 

Excludes all proprietary money market, equity, and bond funds.

 

(2) 

Includes inflows of $520 million in Investor Services and $1.5 billion in Advisor Services from the acquisition of Windhaven in the fourth quarter of 2010.

 

(3) 

Includes outflows of $2.1 billion from a mutual fund clearing services client in the first quarter of 2011. Includes inflows of $1.2 billion from a mutual fund clearing services client in the fourth quarter of 2010. Includes net outflows of $51.5 billion in the second quarter of 2010 related to the planned deconversion of a mutual fund clearing services client.

 

(4) 

Effective September 2010, the number of banking accounts excludes credit cards. Prior period amounts have been recast to reflect this change.

N/M Not meaningful.

The Charles Schwab Corporation Monthly Market Activity Report For June 2011

 

    2010
Jun
     Jul
     Aug
     Sep
     Oct
     Nov
     Dec
     2011
Jan
     Feb
     Mar
     Apr
     May
           % change
  
                          June
     Mo.
     Yr.
  

Change in Client Assets
(in billions of dollars)

                                                                                                                        

Net New Assets (1)

     (16.5 )      6.2        4.2        4.2        6.8        8.0        11.4        6.4        7.8        8.8        (0.5 )      9.4        6.5        (31 %)      N/M   

Net Market (Losses) Gains

     (34.5 )      53.7        (31.5 )      73.0        32.3        (5.5 )      50.2        13.5        33.2        2.7        35.0        (18.1 )      (23.7 )                   
   
 
 
 
 
 
 
 
 
 
 
 
 
               
 

Total Client Assets
(at month end, in billions of dollars)

     1,361.5        1,421.4        1,394.1        1,471.3        1,510.4        1,512.9        1,574.5        1,594.4        1,635.4        1,646.9        1,681.4        1,672.7        1,655.5        (1 %)      22 % 
   
 
 
 
 
 
 
 
 
 
 
 
 
               
 

New Brokerage Accounts
(in thousands)

     58        53        59        56        60        66        99        74        68        82        83        61        61        —        5 % 
 

Clients
(at month end, in thousands)

                                                                                                                        

Active Brokerage Accounts

     7,883        7,891        7,908        7,919        7,932        7,951        7,998        8,022        8,044        8,072        8,112        8,127        8,140        —        3 % 

Banking Accounts (2)

     634        643        655        665        673        681        690        701        710        719        728        736        745        1 %      18 % 

Corporate Retirement Plan Participants

     1,467        1,468        1,467        1,473        1,468        1,463        1,477        1,455        1,438        1,444        1,436        1,436        1,439        —        (2 %) 
 

Clients’ Daily Average Trades  (3)
(in thousands)

     364.4        365.3        346.7        346.0        371.7        413.9        401.1        511.8        478.0        433.7        435.0        395.9        363.8        (8 %)      —   
 

Market Indices
(at month end)

                                                                                                                        

Dow Jones Industrial Average

     9,774        10,466        10,015        10,788        11,119        11,006        11,578        11,892        12,226        12,320        12,811        12,570        12,414        (1 %)      27 % 

Nasdaq Composite

     2,109        2,255        2,114        2,369        2,507        2,498        2,653        2,700        2,782        2,781        2,874        2,835        2,774        (2 %)      32 % 

Standard & Poor’s 500

     1,031        1,102        1,049        1,141        1,183        1,181        1,258        1,286        1,327        1,326        1,364        1,345        1,321        (2 %)      28 % 
 

Daily Average Market Share Volume
(in millions)

                                                                                                                        

NYSE

     1,378        1,151        1,003        1,007        1,041        1,039        926        1,080        1,025        1,039        894        951        1,021        7 %      (26 %) 

Nasdaq

     2,251        2,126        1,943        2,033        2,035        2,004        1,686        2,035        2,085        2,007        1,907        2,022        2,001        (1 %)      (11 %) 
   
 
 
 
 
 
 
 
 
 
 
 
 
               

Total

     3,629        3,277        2,946        3,040        3,076        3,043        2,612        3,115        3,110        3,046        2,801        2,973        3,022        2 %      (17 %) 
   
 
 
 
 
 
 
 
 
 
 
 
 
               

Mutual Fund Net Buys (Sells) (4)
(in millions of dollars)

                                                                                                                        

Large Capitalization Stock

     (322.5 )      (254.5 )      (773.9 )      (467.6 )      (166.9 )      (244.7 )      81.8        538.4        279.9        (98.7 )      (521.7 )      (652.9 )      (656.5 )                 

Small / Mid Capitalization Stock

     (122.0 )      (461.7 )      (502.6 )      (239.5 )      (92.4 )      63.4        388.6        522.9        317.0        (65.1 )      56.8        (303.3 )      (787.5 )                 

International

     107.2        63.9        40.1        423.0        577.6        507.0        379.6        592.1        39.3        380.4        192.6        107.1        (179.8 )                 

Specialized

     42.4        8.3        (24.4 )      115.8        33.7        95.9        61.4        274.5        365.9        148.1        127.5        536.7        271.5                   

Hybrid

     495.2        363.1        556.0        405.1        662.3        754.8        652.4        953.7        1,040.0        1,188.4        807.0        478.7        263.8                   

Taxable Bond

       1,848.4          2,103.3          1,849.0          1,730.6          1,201.5        (112.4 )      (1,331.7 )        1,360.8          1,029.9          1,290.1          1,661.4          1,932.1          1,315.2                   

Tax-Free Bond

     8.6        195.4        340.0        (39.8 )      87.2        (573.0 )      (925.4 )      (551.8 )      (272.8 )      (167.9 )      (195.4 )      (16.5 )      62.3                   

Money Market Funds

     (4,139.0 )      (1,007.5 )      (1,028.2 )      (1,889.2 )      (206.8 )      (302.3 )      2,852.5        (666.7 )      (359.6 )      (1,292.1 )      (3,285.7 )      1,455.8        1,605.5                   
(1) 

January 2011 includes outflows of $2.1 billion from a mutual fund clearing services client. November 2010 includes inflows of $2.0 billion from the acquisition of Windhaven. October 2010 includes inflows of $1.2 billion from a mutual fund clearing services client. June 2010 includes net outflows of $22.0 billion from the planned deconversion of a mutual fund clearing services client.

 

 

(2) 

The number of banking accounts excludes credit cards, which totaled 169,000 when the Company ended the sponsorship of its affinity card program at month end September 2010. Prior period amounts have been recast to reflect this change.

 

(3) 

Includes revenue trades from commissions or principal mark-ups, trades by clients in asset-based pricing relationships and all commission-free trades, including Schwab Mutual Fund OneSource® funds and ETFs, and other proprietary products.

 

(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.