SCHWAB REPORTS RECORD QUARTERLY NET INCOME OF $350 MILLION

2014 Revenues Rise 11% to $6.1 Billion; Net Income Grows 23% to $1.3 Billion, both records

Total Client Assets Reach $2.46 Trillion at Year-end, Up 10%

SAN FRANCISCO, January 16, 2015 – The Charles Schwab Corporation announced today that its net income for the fourth quarter of 2014 was a record $350 million, up 9% from $321 million for the third quarter of 2014, and up 10% from $319 million for the fourth quarter of 2013.  Net income for the twelve months ended December 31, 2014 was $1.3 billion, up 23% year-over-year.  The company’s financial results for the fourth quarter and full-year 2014 include two nonrecurring items: net litigation proceeds of approximately $28 million and net losses of $8 million from selling securities totaling approximately $500 million, both relating to the company’s non-agency residential mortgage-backed securities portfolio.  Taken together, these items increased pre-tax income by approximately $20 million, or $0.01 per share.  The company’s financial results for full-year 2014 also include a net insurance settlement and a charge relating to future changes in the company’s geographic footprint, which were recognized in the third quarter.

CEO Walt Bettinger commented, “We’ve become one of the most successful investment services firms in the U.S. by staying true to our ‘through clients’ eyes’ strategy.  A steady focus on serving investor needs has helped our business grow to $2.46 trillion in client assets by year-end 2014.  That’s an increase of more than $214 billion, which is consistent with the 10% compound annual growth rate we’ve achieved over the past decade.  Clients brought us $124.8 billion in net new assets during 2014, marking the third consecutive year of core net new assets in excess of $100 billion.  The range of planning and advice solutions available through our contemporary full-service investing model continues to resonate with clients, and $1.23 trillion in client assets were enrolled in some form of ongoing advisory service at year-end, up 12% from last December.  We ended 2014 with record client account levels – active brokerage accounts were up 3% to 9.4 million and banking accounts rose 8% to 985,000.”

“Our success with clients and ongoing expense discipline in 2014 led to some of the strongest annual financial results in company history despite the extraordinarily low interest rate environment,” Mr. Bettinger continued.  “While net interest revenue remained severely constrained, our growth and diversified sources enabled us to achieve record net revenues of $6.1 billion and record net income of $1.3 billion, up 11% and 23%, respectively.  We also surpassed each

of our initial financial expectations for the year.  Our double-digit revenue growth exceeded our earlier mid-to-high single-digit target; the gap between revenue and expense growth reached approximately 580 basis points, compared with our goal of 300-500 basis points; and our pre-tax profit margin of 34.9% topped our objective of around 34%.”

Mr. Bettinger said, “We continued to challenge the status quo on behalf of individual investors throughout 2014.  We transitioned the first 401(k) plan to the ETF version of our Schwab Index Advantage® 401(k) offering, giving participants unprecedented access to low cost index funds and personalized advice.  Approximately 120 plans and 73,000 participants have enrolled in the ETF and Mutual Fund versions of SIA to date.  Schwab ETF OneSource™, the largest commission-free, open-architecture platform of its kind, grew to include 65 additional funds.  Clients can now choose from a total offering of 182 ETFs without incurring transaction costs.  We also added 3- and 4-leg online options trading capabilities to StreetSmart Edge®, increasing the number of strategies available to traders.  We launched Schwab OpenView Mobile™, a customizable app that registered investment advisors can use to create a turnkey, branded mobile presence for their firms, and advisors and their clients also benefited from new approval tools allowing secure electronic signatures and wire transfer authorizations.  Most recently, we announced the planned first quarter 2015 launch of Schwab Intelligent Portfolios™,  a new automated investment advisory service that will provide sophisticated, diversified portfolios with no advisory fees, commissions or account service fees charged.  Schwab is positioned for more innovation in 2015 as we continue our work to make quality help and advice available to a broad spectrum of investors.”

CFO Joe Martinetto said, “Schwab’s 2014 results reflect our financial ‘formula’ hitting its stride.  As we’ve mentioned before, as long as economic drivers are stable or improving we should be able to turn client growth into revenue growth, which combined with sustained expense discipline should enable Schwab to build earnings faster than revenues.  2013 was the first year since the financial crisis where the macro environment did not mask our progress and the formula visibly returned to life from the sideways performance of prior periods.  We delivered more of the same in 2014 – we turned 10% client asset growth into 11% revenue growth, and then produced 23% earnings growth and a comparable level of EPS growth.  As clients increasingly took advantage of our full-service capabilities and the equity markets generally strengthened, asset management and administration fees grew 9% to a record $2.5 billion.  In addition, our growing client base helped net interest revenue rise 15% to a record $2.3 billion despite the ultra-low interest rate environment.  While trading revenue was roughly flat from year to year, overall revenue growth and careful expense management enabled us to increase our investment in client-related projects by 9% to a record $188 million while still achieving a 350-plus basis point improvement in our pre-tax profit margin.  Delivering margin improvement of that magnitude every year may not be practical or wise as we pursue the tremendous growth opportunities ahead, but we do expect to continue producing meaningful operating leverage on a consistent basis.”

Mr. Martinetto continued, “At Schwab, we view expense discipline as something more than simply capping costs – to us, it’s the art of thoughtfully balancing near-term profitability with reinvestment to drive growth.  Finding that balance is clearly critical to sustaining and enhancing our business momentum while building stockholder value, but we believe it’s also critical to leveraging Schwab’s enormous and growing scale.  We have been able to invest $2 billion in client-related projects and marketing over the past five years, which has helped us expand our client base by $1 trillion, or over 70%.  At the same time, our discipline enabled us to reduce the relative cost of serving those assets – measured by the ratio of total expenses to average client assets – by a third, to just 16 basis points.  We believe this growing scale provides us with an important competitive advantage: superior flexibility in making investment and pricing decisions as we remain intent on providing our clients great products and services at an outstanding value.  As the interest rate environment improves, we expect to remain among an elite group of companies that reliably invest for and exhibit healthy growth while also maintaining superior levels of profitability.” 

“We ended the year with a healthy balance sheet and a capital base poised to support ongoing growth,” Mr. Martinetto concluded.  “Our strong financial performance helped build our consolidated Tier 1 Leverage Ratio throughout 2014 and we’ve begun to take advantage of that growing flexibility.  During the fourth quarter, we took steps to harmonize our thresholds for sweeping idle client cash to Schwab Bank, sending an increased flow of that cash to our balance sheet at an improved revenue yield.  At year-end, stockholder’s equity exceeded $11.8 billion, and our preliminary Tier 1 Leverage Ratio came in at 6.9%.”

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

Investor Services

Advisor Services

Products and Infrastructure

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

Commentary from the CFO

Joe Martinetto, Executive Vice President and Chief Financial Officer, provides insight and commentary regarding Schwab’s financial picture at: http://aboutschwab.com/investor-relations/cfo-commentary.  

Forward Looking Statements

This press release contains forward-looking statements relating to the launch of Schwab Intelligent Portfolios and other help and advice services and products; growth in clients, revenue and earnings;  expense discipline; growth opportunities; operating leverage; business momentum; stockholder value; growing scale; flexibility in making investment and pricing decisions; profitability; and capital base and flexibility.

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, including Schwab Intelligent Portfolios; use of the company’s advisory services and other products, solutions and services; the company’s ability to attract and retain clients and grow client assets/relationships; competitive pressures on rates and fees; general market conditions, including the level of interest rates, equity valuations and trading activity; the level of client assets, including cash balances; the company’s ability to monetize client assets; the company’s ability to manage expenses; timing and amount of severance and other costs related to reducing the company’s San Francisco footprint; capital needs and management; the impact of changes in market conditions on money market fund fee waivers, revenues, expenses and pre-tax margins; regulatory guidance; acquisition integration costs; trading activity; the effect of adverse developments in litigation or regulatory matters and the extent of any charges associated with legal matters; any adverse impact of financial reform legislation and related regulations; and other factors set forth in the company’s most recent reports on Form 10-K and Form 10-Q.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 325 offices and 9.4 million active brokerage accounts, 1.4 million corporate retirement plan participants, 985,000 banking accounts, and $2.46 trillion in client assets as of December 31, 2014.  Through its operating subsidiaries, the company provides a full range of wealth management, 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 lending services and products.  More information is available at www.schwab.com and www.aboutschwab.com.

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Consolidated Statements of Income

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Financial and Operating Highlights

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Net Interest Revenue Information

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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. 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, 2013.

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Asset Management and Administration Fees Information

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