Charles Schwab 2011 Annual Report Download - page 45

Download and view the complete annual report

Please find page 45 of the 2011 Charles Schwab annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)
- 17 -
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
Management of the Company focuses on several key financial and client activity metrics in evaluating the Company’s
financial position and operating performance. Results for the years ended December 31, 2011, 2010, and 2009 are shown in
the following table:
Growth Rate
1-Year
Year Ended December 31, 2010-2011 2011 2010 2009
Client Activity Metrics:
Net new client assets (1) (in billions) N/M $ 145.9 $ 26.6 $ 87.3
Client assets (in billions, at year end) 7% $ 1,677.7 $ 1,574.5 $ 1,422.6
Clients’ daily average trades (2) (in thousands) 13% 451.1 399.7 414.8
Company Financial Metrics:
Net revenues 10% $ 4,691 $ 4,248 $ 4,193
Expenses excluding interest (5%) 3,299 3,469 2,917
Income before taxes on income 79% 1,392 779 1,276
Taxes on income 62% (528) (325) (489)
Net income 90% $ 864 $ 454 $ 787
Earnings per share – diluted 84% $ .70 $ .38 $ .68
Net revenue growth (decline) from prior year 10% 1% (19%)
Pre-tax profit margin 29.7% 18.3% 30.4%
Return on stockholders’ equity 12% 8% 17%
Net revenue per average full-time equivalent employee
(in thousands) 4% $ 350 $ 337 $ 338
(1) Includes inflows of $56.1 billion and $7.5 billion in 2011 from a mutual fund clearing services client and the acquisition
of optionsXpress, respectively. Includes net outflows of $51.5 billion in 2010 related to the planned deconversion of a
mutual fund clearing services client.
(2) Beginning in 2010, amounts include all commission-free trades, including the Company’s Mutual Fund OneSource®
funds and ETFs, and other proprietary products. Prior period amounts have been recast to reflect this change.
N/M Not meaningful.
Net new client assets is defined as the total inflows of client cash and securities to the firm less client outflows.
Management believes that this metric depicts how well the Company’s products and services appeal to new and
existing clients in a given operating environment.
Client assets is the market value of all client assets custodied at the Company. Management considers client assets to
be indicative of the Company’s appeal in the marketplace. Additionally, fluctuations in certain components of client
assets (e.g., Mutual Fund OneSource funds) directly impact asset management and administration fees.
Clients’ daily average trades is an indicator of client engagement with securities markets and the most prominent
driver of trading revenue.
Management believes that earnings per share, net revenue growth, pre-tax profit margin, and return on stockholders’
equity provide broad indicators of the Company’s overall financial health, operating efficiency, and ability to
generate acceptable returns within the context of a given operating environment.
Net revenue per average full-time equivalent employee is considered by management to be the Company’s broadest
measure of productivity.
The Company’s major sources of net revenues are asset management and administration fees, net interest revenue, and
trading revenue. The Company generates asset management and administration fees through its proprietary and third-party