Charles Schwab 2010 Annual Report Download - page 4

money market funds’ investments in a single structured
investment vehicle; and we chose to exit the credit card
business at a cost of $30 million. Although as stockholders
we are pained by these charges and are disappointed in
ourselves, we move into 2011 and begin a new year with
a clean slate and condence that we have put the major
issues from the nancial crisis behind us.
Our net income in 2010 was $775 million before these
charges and $454 million after, with earnings per share
calculated at $0.65 before and $0.38 after these charges.
Our pre-tax prot margin was 29.7 percent before and
18.3 percent after these charges. (See Letter from the
Chief Financial Ofcer, page 6, and reconciliation of these
nancial measures on page 8.)
INVESTING FOR GROWTH
As we saw client momentum build over the past 12
months, we continued to make signicant investments
in enhancing the quality of the client experience. These
investments lay the foundation for long-term growth.
Last year, we nearly doubled our project spending to
$130 million as we invested to achieve two primary goals.
First, we worked to make it easier for clients to access
our solutions and to do business with us. Second, we
broadened the services available through Schwab in
order to stay ahead of the evolving needs of a diverse
client population.
While we are pleased with our ability to generate organic
growth within our existing business lines, occasionally we
look outside to complement our ability to serve our clients’
needs. That was the case last November when we acquired
assets of Windward Investment Management, Inc., for
$150 million in cash and stock. Windward has a track
record of managing client portfolios with above-benchmark
returns and lower relative volatility. With the renamed
Windhaven™ Portfolios, we have strengthened our set
of investing solutions for both individual investors and
independent investment advisors who want to outsource
a portion of their money management.
FOCUSING ON CLIENT NEEDS
Schwab is, rst and foremost, a client-driven company.
And seeing the world through the eyes of our clients
helps ensure we operate the company in a way that
leads to long-term growth. We think this approach
makes us different.
In 2010, our actions demonstrated how we’re different
and how that makes a difference in the nancial lives of
millions of Americans. Let me share a few examples.
1. We believe in nancial opportunity for all.
We began last year with two announcements that
support our corporate purpose of “helping everyone
be nancially t.”
We reduced and simplied online equity trade •
commissions to a at rate of $8.95, regardless
of the number of shares traded or the size of the
client’s account.
We launched Schwab Managed Portfolios-ETFs — a •
relatively sophisticated and diversied set of portfolios
that invest in low-cost Exchange Traded Funds.
By January 2011, we had expanded our ETF offerings to
a total of 13 proprietary equity and xed-income funds,
all of which feature low operating expense ratios and
commission-free online trading in Schwab accounts.
As we continue to expand our reach to more Americans,
we recently announced a relationship with AARP to provide
nancial guidance services to its large and growing
organization dedicated to helping people aged 50 and
up. This program will serve millions of eligible AARP
members with special discounts, complimentary nancial
consultations, and access to our On Investing magazine.
2. We believe people need the right tools to
achieve nancial tness.
During 2010, we introduced new products, entered
new business alliances, and upgraded client tools
and technology.
Through our agreement with J.P. Morgan, a leading U.S.
bond underwriter, we expanded our clients’ access to new
municipal and corporate bond issues. Since announcing
this agreement last April, Schwab clients have had the
opportunity to participate in more than 500 new bond
offerings. Fixed income investors at Schwab now have
access to more than 30,000 individual xed income
securities. Schwab clients also gained access to J.P.
Morgan’s award-winning xed income research. Later in
2 LETTER FROM THE CHIEF EXECUTIVE OFFICER