Schwab Reports Record Quarterly and Full-Year Results
1999 Net Income Rises 69% on 44% Revenue Growth
Net New Customer Assets Total $107 Billion for the Year
SAN FRANCISCO, Jan. 18 /PRNewswire/ -- The Charles Schwab Corporation (NYSE: SCH) reported net income of $589 million, or $.70 per share, on revenues of $3.9 billion for the year ended December 31, 1999. In comparison, reported net income for 1998 was $348 million, or $.42 per share, on revenues of $2.7 billion. For the fourth quarter of 1999, the Company earned $170 million, or $.20 per share, on revenues of $1.1 billion, compared with net income of $106 million, or $.12 per share, on revenues of $789 million for the same period in 1998.
Three Months Ended Twelve Months Ended
--December 31,-- % --December 31,-- %
Financial Highlights 1999 1998 Change 1999 1998 Change
Revenues
(in millions) $1,127.4 $788.6 43% $3,944.8 $2,736.2 44%
Net income
(in millions) $170.5 $106.4 60% $588.9 $348.5 69%
Diluted earnings
per share(1) $.20 $.12 67% $.70 $.42 67%
After-tax profit
margin 15.1% 13.5% 14.9% 12.7%
Return on
stockholders'
equity 31% 31% 32% 27%
(1) Reflects the July 1999 two-for-one common stock split.
In reviewing 1999, Chairman and Co-CEO Charles R. Schwab commented, "Over the past twelve months the securities markets have experienced major swings in returns and trading volumes, and the competition in financial services continues to intensify. Throughout this challenging environment, everyone at Schwab has stayed focused on delivering the best possible service to our customers -- a commitment that has yielded continued strength in our fundamentals. Our customers brought a record $33 billion in net new assets to the firm during the fourth quarter, which pushed net new assets for the year to $107 billion, up 35% from last year. Net new assets per new account equaled $40,000 during the fourth quarter of 1999, up 18% from the same period last year. Customers opened a total of 1.5 million new accounts during the year, and we had 6.6 million active accounts by the end of 1999. We crossed the $700 billion milestone in customer assets during December, and ended the year with $725 billion in customer assets, an increase of $234 billion over year-end 1998."
"Our customers' daily average revenue trades (DART) hit 234,000 during December 1999, surpassing the previous record set last April by 13%, while DART for the year increased 68% over the 1998 level," the Chairman said. "This increase in activity helped trading-related revenues reach new highs for 1999 -- commission revenues grew by 42% to $1.9 billion, and principal transaction revenues rose by 75% to $500 million. Our continued success in attracting and retaining customer assets has kept balance revenues growing strongly as well -- net interest income and mutual fund service fees were up 48% and 34%, respectively, for 1999. In order to serve our existing customers and stay positioned for future growth, we invested heavily in people, technology and our brand during much of 1999, and expenses rose by 38% overall. Even with these increased investments, the revenue growth we experienced last year enabled the Company to achieve a 14.9% after-tax profit margin for 1999, well above the levels we've achieved in recent years."
President and Co-CEO David S. Pottruck said, "Competitive responses during 1999 highlighted both the power of our vision for redefining full-service investing and the importance of our relentless focus on finding better ways of serving our customers. Our leadership in providing Clicks and Mortar(TM) access -- combining people and technology -- was very much in evidence throughout the year, starting with the introduction of our Schwab Signature Services(TM) program. This program provides enhanced personal and online services for customers with higher asset balances or trading volumes with Schwab. We increased our full-time equivalent employees by 4,800 in 1999, including an increase of 2,200, or 47%, in customer contact staff. We also opened 49 branches, bringing our year-end total to 340.
"Our advances in leveraging technology to improve customer service during 1999 included the launch of SchwabAlerts(TM), which delivers investment and market activity news to customers via both wireless and e-mail," Mr. Pottruck continued. "We also started providing our customers with eConfirms(TM), a service that delivers trade confirms electronically. In addition, we have moved many administrative services, including new account openings, contact information updates and check requests, to fully automated Web-based processes. We worked with Excite, Inc. to introduce MySchwab(TM), which enables users to customize a personal home page with their choice of news and information. Other achievements during the year included the introduction of two research tools for mutual funds -- Advanced Mutual Fund Screener and Fund Details, which enable customers to access detailed information on all Morningstar, Inc. rated funds. Additionally, for our more active customers we launched and then enhanced Velocity(TM), our desktop trading system."
Mr. Pottruck said, "We made more than a thousand changes to our Web site during the course of 1999 to improve its content and functionality, including enhancements to the Analyst Center(TM) research function and the introduction of MyResearch(TM) report, which enables customers to design research reports with the information they find most useful. We believe that our leadership in online financial services is reflected in the continued growth in customer use of this channel at Schwab -- during the fourth quarter of 1999, online trades made up 73% of all trades at Schwab, up from 61% during the fourth quarter of 1998. At year-end 1999, we had 3.3 million online accounts with $349 billion in assets, up 50% and 100%, respectively, from year-end 1998. Our online industry leadership is also reflected in the awards we earned during the year. We swept many of the number one online broker rankings, being recognized as the world's leader by Gomez Advisors, Inc.; Forrester Research, Inc.; Money, SmartMoney and PC World magazines; and J.D. Power & Associates. Our investment in systems capacity, which totaled $126 million for the year, doubled our trade processing capabilities over the past 12 months, and enabled us to accommodate single-day records of 78 million Web site hits, 62,000 simultaneous customer Web sessions, and 228,000 online trades during December."
Mr. Pottruck noted, "Securities market access is another area where we have continued to harness technology to improve customer service. In September 1999, we announced our participation in the REDIBook ECN LLC electronic communications network, which has subsequently enabled Schwab to launch an extended-hours trading session for certain Nasdaq and selected exchange-listed stocks. In order to enhance customer access to initial public offerings we worked with TD Waterhouse Group, Inc., Ameritrade, Inc. and three leading venture capital firms to form a new online investment bank that will focus on information technology and Internet companies. In addition, a precedent-setting no-action letter from the Securities and Exchange Commission will enable us to be the first brokerage firm to provide customers with access to Internet-based presentations by companies in the process of going public. We've also teamed up with OffRoad Capital to provide improved access to private equity investment opportunities."
"For our investment manager (IM) customers, we launched the Schwab Signature Services Alliance(TM) last fall, bringing IM clients their own version of the enhanced personalized services and $29.95 Web pricing available to other affluent but self-directed customers at Schwab," the President said. "Our alliance with these 5,800 independent investment managers has never been more important or more successful. By year-end 1999, customer assets in the Schwab AdvisorSource(TM) referral program had reached $6.7 billion, up 103% from December 1998. At the same time, total customer assets at Schwab under the guidance of independent managers surpassed the $200 billion mark on the way to reaching $213 billion at year-end 1999, a rise of 46% over the past 12 months."
Mr. Pottruck said, "We moved to expand our international presence through several transactions during the year, including the acquisition of Priority Brokerage Inc. and Porthmeor Securities Inc. of Toronto to form Charles Schwab Canada, Co. We also initiated a joint venture with The Tokio Marine and Fire Insurance Co., Limited to develop a full-service brokerage operation for Japanese investors. We extended online and telephonic brokerage services to Swiss investors through our U.K. operation, and we also formed a joint venture with ecorp Limited to bring Schwab-style service to Australia. Revenues from our international operations rose 68% to over $250 million in 1999.
"We built our mutual fund offering during 1999 by adding 5 new proprietary SchwabFunds(R) and 412 new third-party funds to our Mutual Fund Marketplace(R)," the President noted. "Our customers now have access to almost 2,000 funds from 316 families, including 1,143 Mutual Fund OneSource(R) funds. Customer assets in OneSource funds topped $100 billion during December 1999, ending the year at $102 billion, while customer assets in SchwabFunds passed $100 billion earlier in the year and ended 1999 at $108 billion. Overall, customer asset balances in mutual funds totaled $285 billion at month-end December, up 35% from December 1998."
Mr. Pottruck said, "We made further advances in our retirement plan business during 1999 by launching alliances with Financial Engines, Inc. and mPower.com, Inc. to provide participants in our SchwabPlan(R) bundled 401(k) offering with access to online investment guidance services. By staying focused on delivering high quality service we took top honors for the second straight year in Plan Sponsor magazine's annual Defined Contribution Survey, with 'top rated' rankings in 7 out of 11 categories. Customer assets in corporate retirement plans at Schwab now total $28 billion, an increase of 40% over December 1998."
Mr. Schwab concluded, "Dave and I are extremely proud of our employees and management team for their accomplishments during 1999 -- we made great strides during the year in furthering our vision of what full-service investing can and should be for today's investor. It's clear that we couldn't have made this progress without employees who are dedicated to doing the best job possible for our customers under any conditions. The Company strives to reinforce and reward that dedication through our culture and our values -- by making Schwab a great place to do the right thing for the customer and a great place to work as well. Our commitment to our employees was reflected in being named number eight on Fortune magazine's list of the 100 best companies to work for in America; earning the number two ranking in Working Woman magazine's list of the top 25 companies for executive women, and being named a 1999 Catalyst Award winner as one of the three firms that has done the most to advance women in business."
The Charles Schwab Corporation, through its principal operating subsidiary, Charles Schwab & Co., Inc. (member SIPC/NYSE), is one of the nation's largest financial services firms serving 6.6 million active accounts with $725 billion in customer assets through 340 domestic branch offices, four regional customer telephone service centers and automated telephonic and online channels. The Charles Schwab Web Site(TM) can be reached at www.schwab.com.
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