Declare variables at top of function or in separate scopes?

Which is preferred, method 1 or method 2?

Method 1:

LRESULT CALLBACK wpMainWindow(HWND hwnd, UINT msg, WPARAM wparam, LPARAM lparam)
{
    switch (msg)
    {
        case WM_PAINT:
        {
            HDC hdc;
            PAINTSTRUCT ps;

            RECT rc;
            GetClientRect(hwnd, &rc);           

            hdc = BeginPaint(hwnd, &ps);
            // drawing here
            EndPaint(hwnd, &ps);
            break;
        }
        default: 
            return DefWindowProc(hwnd, msg, wparam, lparam);
    }
    return 0;
}

Method 2:

LRESULT CALLBACK wpMainWindow(HWND hwnd, UINT msg, WPARAM wparam, LPARAM lparam)
{
    HDC hdc;
    PAINTSTRUCT ps;
    RECT rc;

    switch (msg)
    {
        case WM_PAINT:
            GetClientRect(hwnd, &rc);

            hdc = BeginPaint(hwnd, &ps);
            // drawing here
            EndPaint(hwnd, &ps);
            break;

        default: 
            return DefWindowProc(hwnd, msg, wparam, lparam);
    }
    return 0;
}

In method 1, if msg = WM_PAINT when wpMainWindow function is called, does it allocate memory for all the variables on the stack at the beginning? or only when it enters the WM_PAINT scope?

Would method 1 only use the memory when the message is WM_PAINT, and method 2 would use the memory no matter what msg equaled?