Charles Schwab Corp. Reports Operating Results (10-K)

Charles Schwab Corp. (NYSE:SCHW) filed Annual Report for the period ended 2011-12-31.

Schwab(chas) has a market cap of $16.34 billion; its shares were traded at around $13.52 with a P/E ratio of 18.1 and P/S ratio of 3.5. The dividend yield of Schwab(chas) stocks is 1.9%. Schwab(chas) had an annual average earning growth of 9.3% over the past 10 years.

Highlight of Business Operations:

The Companys major sources of net revenues are asset management and administration fees, net interest revenue, and trading revenue, which all increased in 2011 as compared to 2010. Asset management and administration fees and trading revenue decreased, while net interest revenue increased in 2010 as compared to 2009.

Net interest revenue increased in 2010 from 2009 due to higher average balances of interest-earning assets. This resulted from significant growth in the average balance of deposits from banking clients, which in turn funded increases in the average balances of securities held to maturity, securities available for sale, and loans to banking clients. These interest-earning assets are invested at rates above the cost of supporting funding sources. The increase in net interest revenue was partially offset by the decline in the yields of almost all interest-earning assets compared to 2009.

Other revenue includes software fee revenue relating to the Companys portfolio management services, exchange processing fee revenue, gains on sales of mortgage loans, and other service fee revenues. Other revenue increased by $25 million, or 19%, in 2011 compared to 2010 primarily due to increases in software and exchange processing fee revenues, as well as the addition of education services revenue from the acquisition of optionsXpress. Other revenue was lower by $40 million, or 23%, in 2010 compared to 2009 primarily due to a gain of $31 million on the repurchase of a portion of the Companys long-term debt in 2009.

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $33.5 billion and $29.9 billion at December 31, 2011 and 2010, respectively. Management believes that brokerage client cash balances and operating earnings will continue to be the primary sources of liquidity for Schwab.

The Companys capital expenditures were $190 million (4% of net revenues) and $127 million (3% of net revenues) in 2011 and 2010, respectively. Capital expenditures in 2011 and 2010 were primarily for software and equipment relating to the Companys information technology systems, capitalized costs for developing internal-use software, and leasehold improvements. Capitalized costs for developing internal-use software were $57 million and $21 million in 2011 and 2010, respectively.

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