the charles schwab corporation corporate overview data as of september 2004

The Charles Schwab Corporation

Corporate OverviewData as of September 2004

2

The Charles Schwab CorporationCorporate Overview

Table of Contents

Page

I. Description of Business 3

A. Mission, Vision and Values 6

B. Competitive Advantages 8

C. Strategic Priorities 16

D. Corporate Structure 19

II. Financial Management 26

III. Selected Financial and Operating Data 34

IV. Earnings Release and SMART Report 45

3

Description of Business

4

Schwab is a distributor and manufacturer of financial services focusing on a core client base of individual investors and the investment advisors who serve them. The Company has the:

vision and values,

competitive advantages,

strategic focus and

corporate structure

needed to remain an industry leader.


5

The financial services marketplace is experiencing profound change.

75 million “baby boomers” are entering their prime saving and investing years.

U.S. investable wealth is estimated at nearly $18 trillion.

Social security is expected to lack adequate funding.

Company-sponsored retirement plans have largely shifted from defined benefit to defined contribution.

Clients are willing to use the PC and telephone to take charge of their personal investing, but many need guidance.


6

Our Mission:

“To provide the most useful and ethical financial services

in the world.”


7

Our vision is supported by a strong set of values.

Vision:To be recognized by

our service quality, investment insight and client relationships as the most trusted

firm in the financial services business.

To be fair, empathetic,

and responsive inserving our

clients.

To respect and reinforce our colleagues

and the spirit of teamwork.

To always earnand be worthy

of our clients’ trust.

To striverelentlessly to innovate what

we do andhow we do it.


8

Schwab has a distinct set of competitive advantages that make it uniquely capable of winning in the marketplace.

Broad product line at a superior value

National brand names

Ability to combine people and technology in unique ways

Full-choice model for the individual investor

Continued significant insider ownership


9

We offer clients access to a broad array of products, including:

Stocks, Options and Futures Mutual Fund Marketplace

OneSource, SchwabFunds® - Money Market Funds, Stock & Bond Funds, Index Funds, Fund of Funds.

Excelsior & Laudus.

Certificates of Deposit (CDs) Bonds and Treasuries

Corporate, Municipal, Mortgage-backed, Agencies, Bond funds. Preferred stocks, Unit Investment Trusts (UITs).

Annuities and Term Life Insurance Managed Accounts


10

Schwab also provides products and services that complement its core offerings.

Asset Management Products and Services (AMPS) and Fixed Income continually look for ways to enhance the broad range of investment alternatives available to clients.

Schwab’s Corporate Services (SCS) enterprise provides individuals with investment services and advice through their workplace.

Schwab Bank provides access to mortgage, HELOC, deposit and credit card products.


11

Our brands resonate well with the full spectrum of investors. Since 1Q99, we have ranked first or second for new account

consideration among affluent investors. Investors with more than $100,000 in investable assets were

asked which major brokerage firm they would most likely consider when opening an account.*

U.S. Trust is the premier brand for the ultra high net worth, specializing in comprehensive wealth management, private banking and multi-generational relationships.

We are recognized for the comprehensive services offered to self-directed clients. Watchfire GomezPro and Forbes have named us the #1 or #2

Online Broker since 1Q00 in recognition of our range of services, planning tools and research.


*Source: Brand Tracking Survey

12

Combining people and technology means: Providing multiple distribution channels.

Clients can visit one of our 321 offices or access Schwab via telephonic, online and wireless channels.

Schwab remains an online leader – 88% of our total trades are placed through online channels.

Building scaleable product and service offerings while maintaining a competitive cost structure. Advice is offered through our branch network, call centers and online

tools. Web-enabled tools, interactive web-based advice seminars,

Marketplace internal Web site, Schwab Equity Ratings, solutions for investment advisors.

Actively-trading investors have access to state of the art order entry, routing and management technology through Schwab and CyberTrader.


13

LowerCommissions

$0

$250

$500

$750

$1,000

Our ability to build a full-choice firm focused on the individual investor has made us the industry leader in gathering assets.

OnlineInvesting

ActiveTrader

Services

IndependentInvestmentAdvisorsMutual

FundInvesting

BranchNetwork& 18 x 7Service

EquityTransactions

LowerCommissions

MarketAccess

MoreChoice

MoneyManagement

Direct Access

InvestmentInsight

Strategic Heritage


SchwabPersonalChoice

FullChoice

Affluent Advice &

Relationships

Client Assets ($ in billions)

14

Schwab is supported by continued significant insider ownership.

Chuck Schwab and other Executive Committee members control over 260 million shares, or just under 20% of shares outstanding.

Including other officers, employees and directors, insider ownership totals over 350 million shares, or 26% of shares outstanding.


Data as of June 2004:

15

Leveraging our competitive advantages to win in the marketplace means gathering and retaining client assets through long-term relationships.

Our fundamental strength indicators include:

Net new client assets

Total client assets

New accounts


16

Our strategic priorities currently include: Build and maintain our differentiation as the firm that

delivers the most ethical and useful services in the world, with a focus on independent investors and the advisors who serve them.

Improve the Company’s financial performance by enhancing the value delivered to clients, simplifying and streamlining the organization and expanding returns on capital.

Combine people and technology to deliver high value, unconflicted investing, trading, and banking services.

Add products where we can provide higher client value, increase our profitability, and mitigate our cyclicality.


17

The strategic “blueprint” below illustrates how we think about our strategy overall, and how we evaluate our growth opportunities.


More Services, Offers, Pricing Options, Advising Capabilities, Relationship Options

Adding New Investment

Instruments and Banking Products

Strengthening our Foundational

Capabilities

Active(48+)

Core($50-$500k)

Affluent($500k+)

The Expanded “Core”

Advisors Advisors

18

Recent strategic progress includes: Schwab Personal Choice™, launched in February 2004, provides

investors with a full range of trading, investing and advice services tailored and priced to their needs and preferences.

We reduced online equity trade commissions in June 2004. We also announced further price reductions in October 2004. Lower-cost trades are now available for individual investor and investment advisor clients based on either their household asset level or their trading activity.

We launched Schwab Bank in April 2003 with an initial focus on mortgages, pledged-asset mortgages, HELOCs and deposits.

Our banking offer is aimed at complementing our existing capabilities and facilitating household asset consolidation.

Clients now have access to a VISA credit card. Our acquisition of State Street’s Private Asset Management group

strengthens U.S. Trust’s presence in the New England wealth market.


19

IndividualInvestor

InstitutionalInvestor

U.S. Trust

Administrative/Support Enterprises• Schwab Technology • Schwab Operations

Client EnterprisesSegments

Schwab is structured as a set of enterprises...

Serve individual investors directly

Serve individual investors indirectly

Independent & Advised Investing

U.S. Trust

Schwab Institutional

Corporate Services

Fixed IncomeAsset Management

Products and Services


Active Trader

Global Dollar

Schwab Bank

• Finance, Risk & Strategy• Marketing

• Human Resources • Business Strategy

Develop product solutions for all investors

20

Schwab Advisor Network

…that combine to form a full-choice financial services firm designed to meet the needs of all types of individual investors.

DelegatorSelf-Directed

CyberTrader

Schwab PrivateClient

U.S. Trust


SchwabSignatureTrading

Signature

Validator

Active Trading Independent Investing Advised Investing

FoundationalTiered service levels

Schwab Personal Choice Offers

A La Carte Advice

SchwabComprehensive

Consultation

SchwabPersonal Financial

Plan

Schwab EquityCompensationConsultation

Schwab Retirement

Consultation

21

The Individual Investor Group utilizes multiple channels to serve actively trading and independent investors, as well as investors who seek some level of advice.

Provide help and advice through 283 branch offices. 45% of new accounts are opened through our branch offices. 19 offices and our automated telephone system provide Chinese,

Korean, Spanish and Vietnamese language services.

Handle trades and account administration through four telephone service centers.

Includes several electronic channels such as the website, TeleBroker

®, Schwab by Phone® and wireless channels. Active traders have access to schwab.com, StreetSmart Pro and

CyberTrader platforms.

32% of employees, 53% of revenues, 5.8 million active accounts


22

Schwab Institutional provides over 5,000 independent fee-based investment advisory firms (IAs) with back-office business solutions. Includes securities brokerage, record keeping and additional

services, such as transition support, along with market and regulatory updates.

Partners with IAs through the Advisor Network referral service. Client assets associated with referral programs total $23 billion to-date.

Promotes advisor growth by: Allowing them to outsource technology - Advisor branded web services,

portfolio accounting, reconciliation and reporting. Expanding the wealth management services and investment alternatives

available to IAs and their clients. – Working with U.S. Trust to develop the trust and private banking services,

research and specialized products IAs need.

5% of employees, 17% of revenues, 1.3 million active sub-accounts


23

Corporate Services serves individuals through their workplace. Leverages the brand, breadth, distribution and values of Schwab for

the benefit of corporations and their employees.

Combines retirement plan, equity compensation plan and retail group sales; provides a single point of contact and a seamless experience for plan participants.

Offers 401(k) recordkeeping, advice and other retirement plan services directly through SchwabPlan® and indirectly through alliances with third-party administrators. Assets in employer-sponsored retirement plans total $122 billion.

Provides stock option plan administration to corporate clients and trade execution and education services to their employees.

5% of employees, 4% of revenues


24

U.S. Trust provides investment management, fiduciary and private banking services to high net worth individuals and institutional clients. Provides premier client service to our most affluent clients

and their families. Receives referrals from Schwab investment consultants.

Combines Schwab’s high-tech capabilities with their traditional high-touch service to create a comprehensive set of wealth management services for emerging affluent and affluent investors.

Serves clients through 38 offices located in most major wealth centers in the U.S.


17% of employees, 20% of revenues

25

Asset Management Products and Services (AMPS) continually seeks to enhance our already broad range of investment alternatives. Manages Schwab’s relationship with third party mutual funds

as well as proprietary SchwabFunds. Clients now have access to just under 1,900 third party funds from

over 300 families, including nearly 1,100 OneSource funds.

SchwabFunds include money market, bond, index and quantitatively-oriented equity funds, as well as our “fund of funds” and sector fund series.

AXA Rosenberg adoption (Laudus) provides more choice.

Continually explores expanding proprietary funds and developing research capabilities.

Invests in the OneSource and Laudus brands.


26

Financial Management

27

For Schwab, financial success means achieving superior growth rates and consistent margins.

Operating Revenue Growth 20% 6% 10%

After-tax Operating Profit Margin 12%+ 12.5% 12.0%

Return on Equity 20% 14% 7%


Annual CorporateObjectives

1998 - 2003Average

YTDSeptember

2004

28

Schwab’s expense management is guided by an investment philosophy that continually balances long-term investment with short-term profitability. Development spending is adjusted but not stopped

throughout market cycles which, in our experience, follow three different patterns:

Seasonality

Temporary Slowdowns

Extended Slowdowns


29

Schwab’s track record in managing its variable revenue stream.

Extended slowdowns:

Temporary slowdowns (pre-election):

Seasonality slowdowns:

Note: Dollars in millions. Based on operating results. 1994 and 1996 data excludes U.S. Trust.

1Q94 2Q94 % ChangeRevenues $288 $258 (10)%Expenses 224 205 (8)%After-Tax Margin 13.3% 12.4%

2Q96 3Q96 % ChangeRevenues $492 $430 (13)%Expenses 373 333 (11)%After-Tax Margin 14.3% 13.3%

2002 2003 % ChangeRevenues $4,091 $4,070 (1)%Expenses 3,442 3,291 (4)%After-Tax Margin 10.0% 12.0%


30

The development spending evaluation process is a rigorous annual process, which is refined quarterly.


The process includes:

Alignment with our strategic focus.

Peer review by finance executives.

Evaluation using multiple benchmarks.

Quarterly review of various projects by the Executive Committee.

Review of projects after completion.

31

What’s included in development spending?

55% 22%

23%

Revenue Productivity Infrastructure

2004 Plan

Compliance, Regulatory, Technology Enhancement

Personal Choice,US Trust PersonalWealth Solutions,Fixed Income Initiatives,Corporate Services Initiatives, Banking Initiatives

Productivity & Process Improvement(e.g., workflow enhancements, Imaging, New cost accounting system)


Note: Development spending on this slide refers to “project” development only and excludes advertising and marketing.

32

Schwab’s liquidity and capital management reflect a straightforward balance sheet... Size is driven by liabilities.

Over 90% of the balance sheet is client-related.

Credit balances are used to fund client activity.

One complication: Cash and Equivalents does not equate to available Corporate resources.

A substantial portion relates to ongoing operations (supporting margin loans).

Trade Settlement.


33

…that does not require significant external funding. Substantial cash flow is used to support:

Low, growth-oriented common stock dividend,

Opportunistic, dilution-linked share repurchases,

Debit-driven incremental capital requirements,

Capital expenditures of about 5% of Net Revenues and

Corporate acquisitions.

Our A2/A- Medium Term Note program is used to provide flexibility and manage our cost of capital.


34

Selected Financial and Operating Data

35

12/31/93 * 9/30/04 $95.8 Billion $1,000.9 Billion

Schwab Money Market Funds& Schwab One$20.1

* Excludes U.S. Trust** Stocks Net of Margin Loans

OneSource $114.5

Equities$400.9 **

Schwab ProprietaryFunds $38.4

Fixed IncomeSecurities

$155.7

Schwab Money

Market Funds & Schwab One

$149.7

Other Mutual FundMarketplace$103.6

Components of Client Assets

OtherMutual Fund Marketplace$16.6

Fixed Income Securities$10.0

Equities$39.5 **

Schwab Proprietary Funds $1.3

11%

40%

4%

4%

10%

16%

15%

Mutual FundClearing Services $38.1

Selected Financial & Operating Data

OneSource $8.3 21%

9%

1%

17%

41%

10%

36

Client Assets


768

1,000.9

13

18

$0

$200

$400

$600

$800

$1,000

$1,200

3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

$0

$5

$10

$15

$20

$25

$30Total Client Assets Net New Assets

(1) Includes $12 billion related to the acquisition of State Street Corporation’s Private Asset Management group.(2) Includes a one-time $6 billion outflow related to our mutual fund clearing business. (3) Includes a one-time $2 billion inflow related to our mutual fund clearing business.

(billions) (billions)

(1)

(2)

(3)

37

Client Accounts


7.87.4

184

114

0

1

2

3

4

5

6

7

8

9

10

3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

0

50

100

150

200

250Total Client Accounts New Accounts(millions) (000s)

38

Trading Activity


128134

2.8

3.8

0

50

100

150

200

250

3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

0

1

2

3

4

5

6

7

8Daily Average Revenue Trades Frequency Proxy*

5-year average frequency proxy

* Annualized Revenue Trades per $100K in Average Client Assets.

Frequency P

roxyD

AR

T (

000s

)

39

Offices and Employees (end of period)

14.816.716.916.319.6

19.6

26.3

20.1

15.114.3

321

291315

368

415 429 422

376 377 374

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003 1Q04 2Q04 3Q04

150

225

300

375

450

Full-Time Equivalents Offices

Selected Financial & Operating DataF

ull-T

ime

Equ

ival

ents

(00

0s)

Offices

40

Commissions 17% 23% 30% 29% 29% 29% 25% 29% 29%

Principal Transactions 2 2 2 2 2 3 3 2 3

Trading Related 19% 25% 32% 31% 31% 32% 28% 31% 32%

Asset Management & Administration Fees 53% 50% 46% 47% 47% 46% 50% 46% 44%

Net Interest Income 25 22 19 18 18 18 20 20 21

Other 3 3 3 4 4 4 2 3 3

Non-trading Related 81% 75% 68% 69% 69% 68% 72% 69% 68%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100%

Components of Net Revenues


% of Total Revenues 3Q04 2Q04 1Q04 4Q03 3Q03 2Q03 1Q03 4Q02 3Q02

Note: Revenues have been restated to reflect Schwab Soundview Capital Markets and Charles Schwab Europe as discontinued operations in accordance with GAAP.

41

Operating Expenses as a % of Net RevenuesSelected Financial & Operating Data

Compensation & Benefits 46% 48% 44% 42% 42% 43% 45% 43% 45%

Occupancy & Equipment 10 10 9 10 11 11 12 12 11

Depreciation & Amortization 6 5 5 6 7 7 9 8 8

Communications 5 5 6 6 6 6 6 6 6

Professional Services 6 6 5 5 4 4 4 4 4

Advertising & Market Development 4 4 6 4 3 2 5 6 5

Commissions, Clearance & Floor Bkg. 1 1 1 1 1 1 1 1 1

Other 4 4 3 4 3 4 4 5 4Total 82% 83% 79% 78% 77% 78% 86% 85% 84%

% of Total Revenues 3Q04 2Q04 1Q04 4Q03 3Q03 2Q03 1Q03 4Q02 3Q02

Note: Revenues and expenses have been restated to reflect Schwab Soundview Capital Markets and Charles Schwab Europe as discontinued operations in accordance with GAAP.

42

30

60

90

120

150

3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04

0

4

8

12

16

20Expenses/Client Assets Revenues/Client Assets Profit Margin

40 bps

Note: Results exclude non-operating items, such as gains or losses from discontinued operations, a non-recurring gain on the sale of an investment, restructuring charges, impairment charges, acquisition-related costs, as well as a non-recurring tax benefit.

Basis Points %

52bps

43 bps

Operating Revenues, Expenses and Profitability


33 bps

10.9%10.4%

43

Selected Cash Flow Data

2003 2002 2001 2000 1999

Net Income $472 $109 $199 $718 $666 Depreciation/Amortization 284 312 404 307 182Non-cash restructuring

and Impairment Charges 18 79 80 0 0

Total 774 500 683 1,025 848

Capital Expenditures (86) (89) (222) (596) (302)Capitalized Software Development Costs (67) (71) (79) (109) (68)Debit Capital (207) 295 671 72 (742)Free Cash Flow 414 635 1,053 392 (264)

Share Repurchases (32) (299) (368) 0 (54)Dividends Paid (67) (60) (61) (62) (61)Net Long-Term Borrowings (100) (114) (40) 252 99


44

Mutual Fund Market ShareBased on Direct-Marketed Stock and Bond Funds

Note: Share Values Include Schwab Only

Source: Strategic Insight/Mutual Funds Finance


N/AN/A

Share of Assets

14.6%15.0% 15.2% 15.1%

15.5%

14.1% 14.3% 14.4%

15.5%

0%

4%

8%

12%

16%

3Q02 1Q03 3Q03 1Q04 3Q04

Share of Net Flows

23.8%

39.1%

25.7%24.3%

34.9% 34.4%

26.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

3Q02 1Q03 3Q03 1Q04 3Q04

the charles schwab corporation corporate overview data as of september 2004

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