Schwab Reports Fourth Quarter and Full Year Results SAN FRANCISCO, Jan. 18 /PRNewswire-FirstCall/ -- The Charles Schwab Corporation announced today that its net income for the quarter ended December 31, 2004 was $53 million. In comparison, the Company reported a net loss of $41 million for the third quarter of 2004 and net income of $148 million for the fourth quarter of 2003. Excluding $62 million in after-tax charges relating to its ongoing cost reduction effort and $49 million in after-tax charges related to the Company's exit from the capital markets business, Schwab's fourth quarter 2004 adjusted operating income was $164 million -- up 53% from the $107 million adjusted operating income generated in the prior quarter, and up 12% from the year-ago quarter's $147 million. For the year ended December 31, 2004, the Company's net income was $286 million, down 39% from 2003. Adjusted operating income for 2004 was $538 million, 10% higher than the 2003 level. Three Months Ended Twelve Months Ended --December 31,-- % --December 31,-- % Financial Highlights 2004 2003 Change 2004 2003 Change Reported Results: Revenues (in millions) $1,060 $1,062 -- % $4,202 $3,896 8% Net income (in millions) $53 $148 (64)% $286 $472 (39)% Diluted earnings per share $.04 $.11 (64)% $.21 $.35 (40)% After-tax profit margin 5.0% 13.9% 6.8% 12.1% Return on stockholders' equity 5% 13% 6% 11% Adjusted Operating Results(1): Revenues (in millions) $1,060 $1,045 1% $4,188 $3,879 8% Income (in millions) $164 $147 12% $538 $491 10% Diluted earnings per share $.12 $.11 9% $.39 $.36 8% After-tax profit margin 15.5% 14.1% 12.8% 12.7% (1) Non-GAAP income measures which exclude gains or losses from discontinued operations, non-recurring gains on sales of investments, restructuring charges, impairment charges, and a non-recurring tax benefit. In reviewing the Company's performance, Chairman and CEO Charles Schwab commented, "The last six months have been a period of extensive change at Schwab, as we have refocused on our core strategy of meeting the needs of individual investors and the independent advisors who serve them, exited the capital markets business, and launched a firm-wide cost reduction initiative. Throughout all of these corporate actions, however, we have remained focused on building stronger relationships with our clients by reducing our commission rates and enhancing our services -- and our progress here is reflected in our fourth quarter client fundamentals. Clients brought a total of $16.8 billion in net new assets to the firm in the fourth quarter, our highest level, excluding asset inflows relating to acquisitions, in 13 quarters. Total client assets were a record $1.081 trillion at year end, up 12% from December 2003. In December, clients opened 56,000 new accounts, 37% higher than November and our best month since April 2004. We believe that providing great service at a great value will enable us to continue to attract investors of all types -- independent investors, active traders, and those who want advice." CFO Christopher Dodds noted, "The securities markets improved and client activity picked up during the fourth quarter of 2004, helping the Company to achieve its seventh consecutive quarter of growth in non-trading revenues -- asset management and administration fees, net interest income and other revenues reached a new record of $842 million, up 15% from the fourth quarter of 2003. This increase more than offset the impact of our reduced trading commissions and yielded 8% overall revenue growth for 2004. While $261 million in after-tax charges associated with our cost reduction initiative and our exit from the capital markets business contributed to net income of $286 million for the year, those actions have enabled us to dramatically reduce our cost base and improve our margins. Our 15.5% after-tax operating profit margin for the fourth quarter is the highest level since the first quarter of 2000 and reflects our emphasis on improving returns to stockholders. We are entering the new year with a leaner, more focused organization that can continue to rely on a strong balance sheet with $4.4 billion of stockholders' equity. That financial strength enabled us to reduce our long-term debt by $187 million, increase our dividend by 43%, and repurchase $383 million of common stock during the course of 2004." Business highlights for the fourth quarter (data as of quarter-end unless otherwise noted): Advised Investing -- For accounts at the Company with an ongoing advisory component (includes accounts enrolled in Schwab Private Client and Schwab Advised Investing(TM), accounts managed by independent investment advisors (IAs), and U.S. Trust(R) accounts): -- Net new client assets during the quarter = $11 billion. -- Total assets = a record $515 billion, up 18% year-over-year. -- Total number of accounts = 1.5 million. Individual Investor Business -- Number of clients enrolled in Schwab Private Client and Schwab Advised Investing = 43,300, up 22% from the prior quarter. -- Announced a new branch strategy that revolves around one-on-one relationships with a Schwab consultant for clients with more complex needs. The new strategy also includes the use of satellite branch offices staffed with one or two consultants to provide a cost-efficient way of serving certain markets. -- Streamlined the range of offers and enhanced software functionality for active traders. -- Improved our options trading offering to include reduced pricing, enhanced tools and expanded education. -- Introduced the Individual 401(k) plan for owner-only businesses and the self-employed. Schwab Institutional Business -- Total client assets associated with Schwab Institutional = $348 billion, up 21% year-over-year. -- Client assets new to the Schwab Advisor Network(R) program during the quarter = $1.8 billion. -- Client referrals to IAs through Schwab Advisor Network(R) program during the quarter = 3,500, down 9% from the prior quarter. -- Client assets at Schwab associated with IA referral programs = $25 billion, up 29% year-over-year and up approximately $2.4 billion during the quarter. -- Hosted the 14th annual IMPACT(R) conference, where over 1,000 IAs attended the 4-day conference which included more than 30 educational sessions, forums and workshops. -- Debuted a new section in the Schwab Institutional website that provides IAs with tools and services to help them understand and comply with ongoing compliance issues and the latest regulatory changes affecting the industry. Corporate Services Business -- Net new assets at Corporate Services during the quarter = $1.8 billion. -- Total client assets in employer-sponsored retirement plans at Schwab = $131 billion, up 14% year-over-year. U.S. Trust Business -- Total referrals from Schwab to U.S. Trust were over 280, compared with over 330 in the prior quarter. -- Client assets at U.S. Trust associated with the referral program = $4.7 billion, up 48% year-over-year and up $470 million during the quarter. -- Total client assets at U.S. Trust = $141 billion, up 3% year-over-year. Products -- Total client assets held in third-party Mutual Fund OneSource(R) funds = $128 billion. -- Total client assets held in proprietary funds (SchwabFunds(R), Excelsior(R) and other) = $155 billion. -- Total client assets held in fixed income securities = $141 billion, up 8% year-over-year. -- Launched the Schwab Tax-Free YieldPlus Fund(TM) and the Schwab California Tax-Free YieldPlus Fund(TM) -- two new ultra short tax-free bond funds for investors seeking a higher yield than a money fund but with less risk than a short-term bond fund. -- For Charles Schwab Bank, N.A.: -- Balance sheet assets = $4.4 billion, up 8% from the prior quarter. -- Outstanding mortgage and home equity loans = $1.2 billion. -- First mortgage originations during the quarter = $247 million. -- Launched the Charles Schwab Bank Visa(R) credit card with WorldPoints(TM) Rewards. -- Introduced the Pledged Asset Mortgage, a home financing option that allows investors to use eligible securities in their investment portfolio as additional collateral for a home mortgage loan. The Charles Schwab Corporation (NYSE/Nasdaq: SCH), through its operating subsidiaries, provides securities brokerage and financial services to individual investors and the independent investment advisors who work with them. With over 7 million individual investor accounts and more than $1 trillion in client assets, The Charles Schwab Corporation is one of the nation's largest financial services firms. Its subsidiary Charles Schwab & Co., Inc. (member SIPC) provides a complete range of investment services and products, including an extensive selection of mutual funds; financial planning and investment advice; retirement plans; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent fee-based investment advisors. Its subsidiary Charles Schwab Bank, N.A. (member FDIC) provides banking and mortgage services and products. The corporation's other operating subsidiaries include U.S. Trust Corporation (member FDIC) and CyberTrader(R), Inc. (member SIPC). These companies' Web sites can be reached at http://www.schwab.com/, http://www.schwabbank.com/, http://www.ustrust.com/, and http://www.cybertrader.com/. DATASOURCE: Charles Schwab Corporation CONTACT: press, Glen Mathison, +1-415-636-5448, or investors/analysts, Rich Fowler, +1-415-636-9869, both of Charles Schwab Web site: http://www.schwab.com/

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