1998 IN REVIEW
1998 WAS A GREAT YEAR FOR SCHWAB. EVEN AFTER DECIDING EARLY IN THE YEAR TO GIVE ALL SCHWAB CUSTOMERS LOW WEB PRICING AND FULL ACCESS TO ALL OF OUR BRANCHES AND CUSTOMER SERVICE REPRESENTATIVES, WE HAD OUR BEST YEAR EVER. THIS BOLD MOVE AFFECTED EARNINGS EARLY IN 1998 BUT REWARDED SHAREHOLDERS FOR THE FULL YEAR BY SOLIDIFYING OUR POSITION AS THE MARKET LEADER IN ONLINE BROKERAGE. 1998 RESULTS PROVED ONCE AGAIN THAT WHAT IS GOOD FOR THE CUSTOMER IS GOOD FOR SCHWAB.
SCHWAB’S OUTSTANDING FINANCIAL RESULTS WERE FUELED BY A WIDE RANGE OF ACHIEVEMENTS ACROSS OUR ENTERPRISES. THESE DIVERSE ACCOMPLISHMENTS SHOW THE MANY IMPORTANT WAYS WE SERVE CUSTOMERS. OPERATING AND FINANCIAL RESULTS - Net new assets in 1998: $80.8 billion — a 17% increase over 1997. Total customer assets at year end: $491.1 billion — a 39% increase over year-end 1997.
- New accounts in 1998: 1.4 million — 19% more than in 1997, bringing total active customer accounts to 5.6 million.
- 1998 revenues: a record $2.7 billion — 19% higher than 1997, just under our 20% long-term objective.
- 1998 net income: $348 million, or $.85 per diluted share — a 29% increase over 1997.
- After-tax profit margin: 12.7% — surpassing our 10% long-term objective.
- Return on equity: 27% — well above our long-term objective of 20%.
- Three-for-two stock split in December — the Company’s sixth stock split since 1987.
RETAIL - Branch openings in 1998: 19. Total number of branches at year end: 291.
- Rolled out Internet access in most branches and held over 2,300 online investing seminars and user groups.
- Increased online assets by over 100% and online accounts by 83% from year-end 1997.
- Web capacity at year end: 80,000 simultaneous log-ons, eight times the capacity at year-end 1997.
- New Web tools introduced: The Analyst Center™, including research from Credit Suisse First Boston Corporation and Hambrecht & Quist L.L.C.; the Stock Screener™, a tool to sort through over 9,000 stocks; and the Positions Monitor™, which helps customers monitor the performance of their portfolios.
- Technology awards in 1998: Global Information Infrastructure Commerce Award; 1998 CIO-100 winner; Financial Net News “Financial Web Site of the Year”; Wired magazine’s 1998 Index for “still-unequaled one-two punch of high technology and personalized attention.”
- Expanded Schwab MoneyLink® to enable customers to move assets electronically using the Web, the automated telephone system or Schwab representatives.
- Through Schwab AdvisorSource, referred 12,000 investors to independent investment managers in 1998. By year end, customers in AdvisorSource had a total of $3.3 billion under management with their new advisors, an 83% increase over 1997.
INTERNATIONAL - Reached agreements to acquire Canadian-based Priority Brokerage Inc. and Porthmeor Securities Inc. to create Charles Schwab Canada, Co.
- Charles Schwab Europe launched the first Web site in the United Kingdom to offer online trading in stocks listed on the London Stock Exchange.
- Charles Schwab Europe Awards: Investor’s Chronicle “Innovation of the Year”; British Telecom “Chairman’s Commendation for Sustained Innovation.”
- Opened a new Spanish-speaking branch office in Miami’s financial district.
- The first annual Schwab Hong Kong Private Investor’s Conference attracted over 700 delegates and 100 press representatives, while Charles Schwab, Hong Kong, Ltd. launched a Chinese Web trading site and surpassed $100 million in customer assets.
SERVICES FOR INVESTMENT MANAGERS - At year-end 1998, 5,400 independent investment managers had $146.4 billion in client assets at Schwab, a 38% increase over 1997.
- Introduced Managed Account Connection™, a service providing investment advisors with access to a marketplace of 34 institutional separate account managers.
- Introduced a new SchwabFunds® family of index funds: Institutional Select™ Funds, to give investment managers and their clients access to low-cost, tax-efficient investments.
- Performance Technologies, Inc. introduced new Windows-based versions of its popular CENTERPIECE® portfolio management software — users now total 2,500 investment management firms.
RETIREMENT PLAN SERVICES - Corporate retirement plan assets grew to $20.1 billion in 1998 — an increase of 45% over 1997, as over 90 new firms signed up for the SchwabPlan® 401(k).
- Schwab’s own retirement plans, with more than 12,000 participants and $1.1 billion in assets, were brought in-house to SchwabPlan.
- SchwabPlan earned “top rated” status in five out of eight major categories in a survey of employers by Plan Sponsor magazine.
CAPITAL MARKETS AND TRADING - Created a new Structured Products group to expand services to high net worth investors and investment managers in need of customized risk and diversification strategies.
- Participated with Credit Suisse First Boston Corporation, Hambrecht & Quist L.L.C., and J.P. Morgan and Co., Incorporated in 25 initial public offerings (IPOs) and 25 secondary offerings, up from 18 and 13, respectively, in 1997.
- For the first time, served as co-manager of an IPO – Select Comfort Corp.
MUTUAL FUNDS - Customer assets in the Schwab Mutual Fund Marketplace®, including SchwabFunds, Mutual Fund OneSource and other third-party funds, at year-end 1998: $210.6 billion – up 31% over year-end 1997.
- Schwab’s share of all direct marketed mutual fund flows in 1998: 18%.
- Schwab’s share of direct marketed mutual fund assets at year-end 1998: 10%.
- Net purchases of SchwabFunds in 1998: $21 billion – more than double net purchases in 1997. Assets in the four SchwabFunds equity index funds at year-end: $11.7 billion – up 95% over 1997, making it the nation’s third largest family of index funds.
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