THE TIMES 100 : The Best Performing Companies in California : THE BOTTOM LINE : No-Frills Winner : Schwab Discount Brokerage Trades on Stock Market Upswing

Stock brokerages did pretty well in 1991: Investors decided to return to the market in droves. That, of course, meant a lot more commissions for brokers.

And few brokerages did better than Charles Schwab Corp.--a performance good enough, in fact, to land Schwab atop the California list in 1991 earnings growth.

Based in San Francisco, Schwab piled up $49.5 million in profit last year. From 1990’s $16.8 million, that’s a tidy little jump of 195%.

Sure, $10 million or so came from a company Schwab bought in July. But Schwab’s profits jumped 135% even without the acquisition, which was enough by itself to put the company ahead of everyone but Thousand Oaks drug maker and all-around phenomenon Amgen Inc.

You’ve probably seen Schwab’s commercials: A father tucks his kid into bed. Downstairs, he steps on the kid’s teddy bear. Then he digs out a toy company’s annual report and phones Schwab’s 24-hour trading service to buy some stock.

That just about sums up Schwab: It’s a discount brokerage for do-it-yourself investors, the kind of people interested in saving money by eschewing a regular broker and making their own decisions on where to park their money. For this no-frills approach, according to one recent survey, customers might pay Schwab only $99 in commissions on a $10,000 trade, compared to a full-service firm’s commission of $218.

Of course, say the full-service brokerages with the blue chip names, when you go with a discounter you pass up a seasoned broker’s expert advice. Yes, says Schwab, and you also pass up being pressured to do more trades and generate more commissions for the brokerage houses.

Schwab has enjoyed surging growth. In 1990, the firm handled about 13,000 trades a day on average; last year it was more than 18,000.

The typical customer is a 44-year-old man--younger by about five years, Schwab says, than the average customer at traditional brokerages. This guy has a portfolio of about $100,000 and often owns a small business or is self-employed.

These kind of people were holding their breath in 1990 as the recession and the buildup to the Persian Gulf War kept them out of the market. Early in 1991, when the war started and it became apparent that the allies would win quickly and decisively, they began to come back.

At Schwab during 1991, sales grew 27%, a healthy but not spectacular increase that ranked the company 50th among the top 100 performers in that field. Also, $60 million of the revenue growth came from the purchase in July of market maker Mayer & Schweitzer Inc., a firm that specializes in buying and selling certain stocks on the over-the-counter market.

What’s more impressive is Schwab’s two-year average return on equity, a measure of how effectively a company is using stockholders’ money.

Looked at through this measure, Schwab soared to a respectable 16th among Times 100 companies, with a return on equity over the last two years of 26.3%.

What’s ahead for Schwab?

The discount brokerage business dominated by the Big Three--Schwab, Fidelity Investments and Quick & Reilly--several years ago spawned a new generation of competitors. These are the “deep discounter” brokerage firms that offer even fewer services than the Big Three and charge even lower commissions. On that hypothetical $10,000 trade, for instance, a deep discounter’s commission would average as little as $56, according to market researcher Mercer Inc. That’s less than two-thirds the Big Three’s average $99.

Schwab professes to be unfazed by these upstarts, saying it is still pulling more than enough new customers from the full-service brokerages. A bigger problem for Schwab may be the market itself.

Here’s why: Some stock analysts believe that the brokerage business doesn’t get much better than this, and that it may be only downhill from here.

If, for instance, you expanded vastly during the good times, you could soon be sitting around with a lot of overhead and not nearly as much business, these analysts say. Schwab has added four dozen new branches in the last three years, with a couple dozen more on the way.

“Conditions in the industry are about as good as they ever get,” says Sheldon Grodsky, a stock analyst who follows the brokerage business for Grodsky Associates, a small New Jersey brokerage. “Some people think profits aren’t likely to go up much more.”

Some stockholders may believe the same thing because--after taking a run-up to nearly $38 a share recently--Schwab stock fell back to about $27. (Then again, it was just above $14 a year ago.)

“There is a sense brokerage stocks did so well last year,” says Hugo Quackenbush, a Schwab spokesman, “that some people are asking ‘How are you ever going to repeat that?’ ”