Schwab Announces Quarterly Results.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--April 22, 2003

The Charles Schwab Corporation announced today that its net income for the quarter ended March 31, 2003 was $71 million, or $.05 per share, on revenues of $900 million. In comparison, net income for the first quarter of 2002 was $94 million, or $.07 per share, on revenues of $1.0 billion.

The Company's reported revenues and expenses for the first quarter of 2003 and prior quarters have been adjusted to summarize the earnings impact of its U.K. brokerage operation, which was recently sold, in a single 'discontinued operations' line on the income statement. Excluding a $3 million loss from discontinued operations, as well as a tax benefit associated with the Company's recently announced sale of its U.K. market-making operation which had the effect of increasing net income by approximately $11 million, Schwab's first quarter 2003 adjusted operating income was $63 million, or $.05 per share. In comparison, adjusted operating income equaled $111 million, or $.08 per share, for the first quarter of 2002. A table that reconciles reported net income to adjusted operating income is attached.

                                          Three Months Ended
                                            --March 31,--            %
Financial Highlights                        2003      2002      Change

Reported Results:
  Revenues (in millions)                  $  900    $1,048       (14)%
  Net Income (in millions)                $   71    $   94       (24)%
  Diluted earnings per share              $  .05    $  .07       (29)%
  After-tax profit margin                    7.9%      9.0%
  Return on stockholders' equity               7%        9%

Adjusted Operating Results (1):
  Revenues (in millions)                  $  900    $1,048       (14)%
  Income (in millions)                    $   63    $  111       (43)%
  Diluted earnings per share              $  .05    $  .08       (38)%
  After-tax profit margin                    7.0%     10.6%

1.  A non-GAAP income measure which excludes loss from discontinued
    operations, an extraordinary gain relating to the 2001 sale of
    U.S. Trust's corporate trust business, restructuring charges,
    impairment charges, and acquisition-related costs (including
    intangible asset amortization and merger-related compensation).

In reviewing the first quarter, Chairman and Co-CEO Charles R. Schwab commented, "We entered 2003 with heightened geopolitical uncertainties, mixed economic news and weak securities market returns all placing continued pressure on client asset valuations and trading activity. Throughout this difficult period, however, clients continued to turn to Schwab for help and guidance in managing their investments. Clients opened 171,000 new accounts and brought a total of $14 billion in net new assets to the firm during the first quarter. We ended the period with 8.0 million active accounts and total client assets of $763 billion, up 1% and down 11%, respectively, from month-end March 2002."

"The extraordinary confluence of events that emerged during the first quarter affected all of our major revenue sources," the Chairman said. "Lower asset valuations and client account activity led to a 6% year-over-year decline in asset management and administration fees and other non-trading related income, while a cyclically low interest rate environment and reduced margin loan balances led to a 20% decline in net interest revenue. In addition, the substantial drop off in client trading activity we experienced during February and early March caused our trading-related revenues -- commissions and principal transaction revenues -- to decline by 22% from last year. In this tough environment, our focus on headcount and expense management continued -- we ended the quarter with 16,470 full-time equivalent employees, down 2% from December 2002, and expenses were 12% lower than last year, which enabled us to post a 7.9% after-tax profit margin for the first quarter of 2003."

Mr. Schwab noted, "Our first quarter 2003 results remained significantly below our long-term objectives, and we have deferred some of our planned marketing investments, placed further restrictions on hiring and discretionary spending and suspended our 401(k) match to improve our financial performance. During the first few weeks of military action in Iraq, client trading activity fluctuated in line with developments in the Middle East and daily revenue trades ranged between 181,000 and 90,000. Thus far in April, daily average revenue trades have equaled 110,000."

President and Co-CEO David S. Pottruck said, "While our recently announced expense reduction measures are targeted to reduce quarterly operating costs by about $40 million, increasing the Company's revenues in this environment remains our greatest challenge and, I believe, our greatest opportunity. Significant economic uncertainties continue, and there seems to be no consensus as to their severity or duration. The resulting broad-based investor uncertainty continues to keep clients from re-engaging with their financial affairs -- at this point, investing seems neither emotionally nor financially rewarding. Our executive team is heightening its focus on identifying opportunities to build the Company's revenues. Evaluating the relationship between our pricing and the service quality and value we deliver, maintaining our commitment to innovation, actively assessing acquisition opportunities and developing action-oriented marketing offers are all components of this effort."

Mr. Pottruck continued, "In the first quarter, we introduced Fresh Start, an offer that includes a customized investment plan and all recommended equity rebalancing trades for a $95 fee. Fresh Start has become one of our most successful campaigns ever -- we have received well over 30,000 qualified leads, new and existing clients have brought nearly $1.4 billion in net new assets to the firm through the offer, and we still have thousands of assessment and rebalancing appointments scheduled in the weeks ahead. For clients with less than $100,000, we recently completed a pilot of our new Foundational Consultation, a for-fee advice interaction that provides professional, affordable assistance to investors who traditionally haven't had access to tailored advice. Results from the pilot program were promising, and we plan to introduce the service on a nationwide basis later this Spring. For more affluent independent investors, we have enhanced our Schwab Signature Platinum(R) service by introducing a series of exclusive online panel discussions that offer expert perspectives on topics ranging from macroeconomic conditions to international investing. Affluent clients who want guidance while retaining control over their investment decisions continue to turn to our Schwab Private Client service to meet their personalized advice needs. There are now more than 8,000 clients with over $7 billion in assets participating in this service. Net new client assets in accounts at Schwab with an ongoing advisory component -- including Schwab Private Client, accounts managed by independent investment advisors (IAs), and U.S. Trust accounts -- totaled $7 billion during the first quarter of 2003, and total assets in these accounts equaled $336 billion, down 8% from month-end March 2002."

Mr. Pottruck commented, "The IAs who use Schwab for custody, trading and administrative support remain an integral part of our full-choice offering, and we continued to help them grow their businesses during the quarter. Clients of over 360 IAs have participated in Fresh Start and these clients have accounted for more than $450 million of the net new assets generated by the program. In addition, IAs continue to take advantage of our technological expertise and scale through Advisor WebCenter(TM), which enables IAs to rely on Schwab to build and maintain secure, customized Web sites -- over 160 IAs have utilized this offer since we introduced it in the second quarter of 2002. IAs can now access improved Web trading functionality -- including streamlined allocations -- as well as fixed income new issue alerts through schwabinstitutional.com. We have also introduced a custody and administrative support offering at U.S. Trust designed specifically for IAs desiring access to bank trust capabilities. Client referrals to IAs through our Schwab Advisor Network(TM) program totaled 4,400 during the first quarter of 2003, up 26% from the previous quarter. At month-end March, client assets at Schwab associated with IA referral programs equaled $13 billion, and total client assets under the guidance of IAs were $222 billion, down 7% and 9%, respectively, from a year ago."

"U.S. Trust continues to be a premier source of comprehensive investment management and private banking services for our most affluent clients," Mr. Pottruck noted. "Referrals from Schwab to U.S. Trust totaled 300 during the first quarter of 2003, compared to 260 referrals in the prior quarter. At month-end March, client assets at U.S. Trust associated with this referral program reached just under $2 billion, and total client assets were $107 billion, up 36% and down 13%, respectively, from March 2002. To support the ongoing demand for personalized wealth management, we opened a new U.S. Trust office in Seattle during the quarter and we ended the period with 33 U.S. Trust offices."

Mr. Pottruck said, "In early 2003, we streamlined our offering for actively trading clients at Schwab, leveraged technology to serve them more efficiently, and enhanced the service available to those trading at least 120 times a year -- these clients can now turn to specialized trading consultants for help in crafting effective trading strategies. We also made StreetSmart Pro(R), our direct access desktop application with real-time streaming Level II quotes, interactive charting and customizable watch lists, available to our actively trading clients based in Hong Kong. Additionally, we participated in the 2003 International Online Trading Expo, where CyberTrader and Schwab active trader experts delivered interactive seminars on risk management and options trading."

"During the first quarter, we continued to combine the best of people and technology to support our ladder of client offerings," Mr. Pottruck commented. "We conducted another 48 Web-based interactive workshops as part of our ongoing Live Online program. To help clients gain perspective on current geopolitical uncertainties, we introduced an online Webcast that features regularly updated commentary from experts at Schwab's Washington Research Group. In addition, we redesigned schwab.com to deliver more targeted messaging -- clients view home pages that contain information that is most useful to them. We also created a new page on our Web site where clients can access the most frequently used application forms online. Additionally, we are the first firm in our industry to implement a comprehensive automated system that is part of a more efficient and consistent process for reviewing and approving new accounts. We also leveraged technology to support advice interactions by making improvements to our internal Marketplace Web site, which provides Schwab investment consultants with a comprehensive suite of investment viewpoints and advice tools. MarketPlace now includes Schwab Equity Ratings(TM) Commentary, a plain-English description that provides context to our A-F ratings on over 3,000 stocks. Marketplace also features a new Weekly Strategy Call that delivers expert perspectives on current market and industry trends. We currently have 4.2 million accounts with $296 billion in assets using online services at Schwab, down from 4.3 million accounts holding $342 billion in assets as of month-end March 2002; online trades made up 85% of all trades during the first quarter of 2003, up from 83% during the first quarter of 2002."

"Our Corporate Services team worked to enhance our defined benefit plan services for both traditional and cash balance pension plans during the first quarter," Mr. Pottruck continued. "We introduced an online investment management platform that helps plan sponsors and investment consultants perform detailed fund screening, rebalance holdings, view plan positions and transactions, and monitor investment performance. In addition, to help employees gain a better understanding of their pension plan benefits, we initiated quarterly benefit statements and introduced a Web site that includes relevant benefit information and interactive retirement planning tools. Corporate Services also bolstered its Executive Services offering by introducing a Web-based reporting system that enables public companies to report insider transactions within new federal guidelines. For those 401(k) plan sponsors and their employees utilizing our Schwab Personal Choice Retirement Account(R) option, we introduced an online account opening capability which significantly reduces the time required to open and fund an account. Overall, our 401(k) offerings continue to attract clients -- net new client assets placed in such accounts totaled over $1 billion during the first quarter of 2003, up 3% from the year ago quarter. Total client assets in employer-sponsored retirement plans at Schwab now total $90 billion, down 8% from the first quarter of 2002. We believe that the great service Schwab delivers to plan participants is reflected in our industry-leading rollover rates -- nearly 50% of the assets withdrawn from retirement plans at Schwab and placed in an IRA are staying right here."

"Our Capital Markets group strengthened their ability to ensure efficient execution for our clients during the quarter," Mr. Pottruck said. "We formally introduced the Schwab Liquidity Network(TM), a system that pools the orders of our individual investor client base with those of hundreds of broker-dealers and institutional investment firms to offer greater opportunities for the best possible price on most stock trades. The new approach combines automated electronic execution of small orders with the professional handling of large blocks of 10,000 shares or more. In addition, client utilization of our financial product offerings remains strong -- total client assets in fixed income securities equaled $125 billion as of month-end March, up 15% from March 2002."

Mr. Pottruck added, "In response to client demand for investments that provide strong income and credit safety, we introduced the Schwab GNMA Fund, a core fixed income mutual fund that complements the wide range of investments we already offer. The new fund invests primarily in Government National Mortgage Association bonds. Overall, client asset balances in mutual funds at Schwab totaled $325 billion at the end of March, including $72 billion in third-party Mutual Fund OneSource(R) funds, $21 billion in our clearing business, $72 billion in other third-party Mutual Fund Marketplace(R) funds, and $160 billion in proprietary SchwabFunds(R) and Excelsior(R) Funds."

The Company's Annual Meeting of Stockholders will be held at 2:00 p.m. on Friday, May 9, 2003, in San Francisco at the Nob Hill Masonic Center, 1111 California Street. Stockholders who wish to attend may request a ticket by going to www.schwabevents.com or contacting the Assistant Corporate Secretary either in writing at The Charles Schwab Corporation, 101 Montgomery Street (120/4), San Francisco, CA 94104 or by calling [phone]. The Annual Meeting will also be broadcast over the Internet. Information on how to access this real-time Webcast is available at www.schwabevents.com.

The Charles Schwab Corporation (NYSE:SCH), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader, Inc. and its other operating subsidiaries, is one of the nation's largest financial services firms serving investors through offices, regional client telephone service centers and automated telephonic and online channels. The Charles Schwab, U.S. Trust and CyberTrader Web sites can be reached at www.schwab.com, www.ustrust.com and www.cybertrader.com, respectively.