Charles Schwab 2010 Annual Report Download - page 38

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)
The following table presents net interest revenue information corresponding to interest-earning assets and funding sources on the
consolidated balance sheet:
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 low interest rate
environment that persisted in 2010, which resulted in the decline in the yields of almost all interest-earning assets compared to 2009.
Net interest revenue decreased in 2009 from 2008 due to the low interest rate environment in 2009. As a result, the Company
experienced declines in the yields and rates of all interest-earning assets and interest-bearing liabilities compared to 2008, with yields
on interest-earning assets declining more than the cost of funding sources as short-term interest rates approached zero. The mix of
interest-earning assets also negatively affected net interest revenue – most notably the decrease in the average balance of margin loans
resulted in a higher average balance of cash and investments segregated, a lower yielding asset category. The effect of the low interest
rate environment and asset mix was partially offset by the growth in average balances. The Company experienced significant growth
in deposits from banking clients, which in turn funded increases in the average balances of securities available for sale, loans to
banking clients, and cash and cash equivalents.
Trading Revenue
Year Ended December 31, 2010 2009 2008
Average
Balance
Interes
t
Revenue/
Expense
Average
Yield/
Rate
Average
Balance
Interes
t
Revenue/
Expense
Average
Yield/
Rate
Average
Balance
Interes
t
Revenue/
Expense
Average
Yield/
Rate
Interest-earning assets:
Cash and cash equivalents $ 7,269 $ 19 0.26% $ 7,848 $ 33 0.42% $ 5,217 $ 129 2.47%
Cash and investments segregated 19,543 57 0.29% 16,291 80 0.49% 11,223 280 2.49%
Broke
r
-related receivables 317
—
0.08% 363 1 0.28% 428 8 1.87%
Receivables from brokerage clients 8,981 437 4.87% 6,749 351 5.20% 10,278 612 5.95%
Other securities owned 74 — 0.45% 126 1 0.79% — — —
Securities available for sale 24,209 486 2.01% 18,558 521 2.81% 11,772 517 4.39%
Securities held to maturity 10,440 361 3.46% 1,915 74 3.86% 22 1 5.86%
Loans to banking clients 7,987 275 3.44% 6,671 241 3.61% 4,831 227 4.70%
Loans held for sale 80 4 5.00% 110 5 4.55% 66 4 6.06%
Total interest-earning assets 78,900 1,639 2.08% 58,631 1,307 2.23% 43,837 1,778 4.06%
Other interest revenue 84 121 130
Total interest-earning assets $78,900 $1,723 2.18% $ 58,631 $ 1,428 2.44% $ 43,837 $ 1,908 4.35%
Funding sources:
De
p
osits from bankin
g
clients $ 44,858 $ 105 0.23% $31,249 $ 107 0.34% $ 19,203 $104 0.54%
Payables to brokerage clients
22,715 2 0.01% 18,002 3 0.02% 15,220 55 0.36%
Short-term borrowings — — — — — — 40 1 2.54%
Long-term debt
1,648 92 5.58% 1,231 71 5.77% 890 59 6.63%
Total interest-bearin
g
liabilities 69,221 199 0.29% 50,482 181 0.36% 35,353 219 0.62%
Noninterest-bearing funding sources 9,679 8,149 8,484
Other interest expense — 2 7
Total funding sources $ 78,900 $ 199 0.25% $ 58,631 $ 183 0.32% $ 43,837 $ 226 0.51%
Net interest revenue $ 1,524 1.93% $1,245 2.12% $1,682 3.84%
Includes receivables from brokers, dealers, and clearing organizations. Interest revenue on broker-related receivables was less
than $500,000 in 2010.
Interest revenue on other securities owned was less than $500,000 in 2010.
Amounts have been calculated based on amortized cost.
Trading revenue includes commission and principal transaction revenues. Commission revenue is affected by the number of revenue
trades executed and the average revenue earned per revenue trade. Principal transaction revenue is primarily comprised of revenue
from client fixed income securities trading activity. Factors that influence principal transaction revenue include the volume of client
trades and market price volatility.
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