Schwab Reports Quarterly Results

Business Wire, Oct 15, 2008

Strength of Business Model Reflected in EPS From Continuing Operations of $.26, Which Includes $.04 of Previously Disclosed Charges

SAN FRANCISCO -- The Charles Schwab Corporation announced today that its income from continuing operations was $304 million for the third quarter of 2008, down 6% from the record third quarter of 2007. For the nine months ended September 30, 2008, the company's income from continuing operations was $922 million, up 13% from the year-earlier period.

Chairman Charles Schwab said, "Investors are experiencing market conditions that are as difficult as I have seen in my career and that test anyone's resolve and confidence. Schwab's focus has remained right where it belongs - helping our clients navigate through this storm. Our operating discipline and the contributions of thousands of dedicated employees over these months have helped us maintain that focus and perform exceedingly well. We remain dedicated to the principles of safety and soundness, as they form the heart of our strong client relationships."

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CFO Joe Martinetto commented, "Our continued success in building client relationships helped third quarter net interest and trading revenues rise by 3% and 16%, respectively, while limiting the decline in asset management and administration fees to just 2%. The diverse revenue mix inherent in our business model and our ongoing expense discipline helped us keep overall revenues within 3% of last year's results while achieving a 39.9% pre-tax profit margin and a 31% return on equity."

Mr. Martinetto added, "We achieved these results in the face of a 20%-plus decline in equity market valuations over the past year. We also faced revenue headwinds this quarter due to the recognition of $73 million in pre-tax charges relating to losses on two corporate debt securities that were affected by market turmoil. In addition, last year's third quarter included the gain on the sale of U.S. Trust, as well as a one-time lift in interest revenue from investing the proceeds. Regardless of the year-over-year comparisons, our third quarter 2008 performance represented outstanding results in an extraordinary environment, and we retain a flexible, all-weather balance sheet with over $4 billion of stockholders' equity, multiple sources of liquidity and strong credit ratings."

CEO Walt Bettinger said, "For many clients, today's market environment presents unprecedented challenges, and Schwab's ability to help them manage their investments has never been more important. During the extremely volatile month of September, our clients made heavy use of all of our service channels - branch, phone and internet - and their trading activity resulted in 5 of the 10 highest volume days in our history. Solid retail and advisor client activity helped drive total net new assets to $24 billion during the third quarter, even after modest net outflows in our corporate Mutual Fund Clearing Business due to planned transfers and investor redemptions. Total client assets ended September 2008 at $1.3 trillion, down 9% from last September. Active brokerage accounts and retirement plan participants at quarter-end were up 5% and 14%, respectively, over year-earlier levels, and we now serve 399,000 banking accounts. All of our businesses remain well positioned to serve their clients - including individuals, independent advisors and company retirement plans - during these tough times."

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

Schwab Investor Services Business (SIS)

* Net new accounts for the quarter totaled 21,000, up 51% year-over-year. Total accounts reached 5.2 million as of September 30, 2008, up 4% year-over-year.

* Launched an online community for Active Trader clients where they can discuss investing topics, exchange information, ideas and trading experiences, and gain access to Schwab and third party trading experts.

Schwab Institutional([R]) Business (SI)

* Expanded outreach to help advisors considering independence via a webcast, new marketing materials, and "Discovery" events designed to help them explore their options.

* Launched the Transfer of Accounts Wizard on www.schwabinstitutional.com as part of a suite of online tools that helps advisors efficiently open, fund and monitor new accounts and transfers.

Schwab Corporate and Retirement Services Business (SCRS)

* Retirement plans converted to Schwab administration during the quarter = 62, with approximately 29,300 participants, compared with 38 plans and approximately 16,800 participants in the third quarter of 2007.

* Eight Schwab-administered retirement plans were recognized in the Profit Sharing/401(k) Council of America 2008 Signature Awards program. Schwab was recognized for communication to plan sponsors and participant education.

Products and Infrastructure

* For Charles Schwab Bank:

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* Schwab Bank's High Yield Investor Checking(TM) ended the third quarter with 276,000 accounts and $3.8 billion in balances.