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Charles Schwab Corp has a market cap of $17.17 billion; its shares were traded at around $13.93 with a P/E ratio of 20.7 and P/S ratio of 3.7. The dividend yield of Charles Schwab Corp stocks is 1.8%. Charles Schwab Corp had an annual average earning growth of 7.2% over the past 10 years.
Highlight of Business Operations:In comparison to the second quarter of 2012, the broad equity markets increased in the third quarter of 2012 as the Nasdaq Composite Index, Standard & Poor’s 500 Index, and Dow Jones Industrial Average increased 6%, 6%, and 4%, respectively, while the average three-month Treasury Bill yield remained relatively flat at 0.09%. The average 10-year Treasury yield decreased by 19 basis points to 1.62% from the second quarter of 2012. Despite the challenging economic environment, the Company’s growing client base and ongoing expense discipline helped maintain a pre-tax profit margin of 30.2% in the third quarter of 2012. Net income in the third quarter and second quarter of 2012 include the non-recurring state tax benefit of $20 million and pre-tax gain of $70 million (after-tax of $44 million), respectively, discussed above.
Trading revenue decreased by $44 million, or 18%, and $28 million, or 4%, in the third quarter and first nine months of 2012 compared to the same periods in 2011, respectively, primarily due to lower daily average revenue trades. Daily average revenue trades decreased in the third quarter and first nine months of 2012 primarily due to a lower volume of equity and mutual fund trades, partially offset by a higher volume of option and future trades as a result of the inclusion of optionsXpress. Average revenue earned per revenue trade remained relatively flat in the third quarter and first nine months of 2012 compared to the same periods in 2011.
Other revenue includes nonrecurring gains, software fees from the Company’s portfolio management services, education services, exchange processing fees, gains on sales of mortgage loans, and other service fees. Other revenue increased by $90 million, or 76%, in the first nine months of 2012 from the first nine months of 2011 primarily due to a pre-tax gain of $70 million relating to a confidential resolution of a vendor dispute in the second quarter of 2012. The increase was also due to the inclusion of revenues relating to education services and other fees from the optionsXpress acquisition.
Net revenues increased by $20 million, or 5%, and $35 million, or 3%, in the third quarter and first nine months of 2012 compared to the same periods in 2011, respectively, primarily due to increases in asset management and administration fees and net interest revenue, partially offset by a decrease in trading revenue. Asset management and administration fees increased primarily due to an increase in third-party mutual fund service fees. Net interest revenue increased primarily due to higher average balances of interest-earning assets, partially offset by the effect of lower interest rate spreads due to the continued low interest rate environment. Trading revenue decreased primarily due to lower daily average revenue trades. Expenses excluding interest increased by $21 million, or 3% in the first nine months of 2012 compared to the first nine months of 2011 primarily due to increases in compensation and benefits and occupancy and equipment expenses.
To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with a group of six banks totaling $820 million at September 30, 2012. The need for short-term borrowings arises primarily from timing differences between cash flow requirements, scheduled liquidation of interest-earning investments, and movements of cash to meet regulatory brokerage client cash segregation requirements. Schwab used such borrowings for three days during the first nine months of 2012, with average daily amounts borrowed of $62 million. There were no borrowings outstanding under these lines at September 30, 2012.
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