Charles Schwab 2015 Annual Report Download

Download and view the complete annual report

Please find the complete 2015 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 150

  • 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
  • 149
  • 150

2015 Annual
Report

Table of contents

  • Page 1
    2015 Annual Report

  • Page 2
    ...senior management. These statements relate to, among other things, the interest rate environment; the impact of the December 2015 interest rate increase and any future increases on money market fund fee waivers and revenues; growth in the company's client base, client assets, market share, revenues...

  • Page 3
    ... our approach can help investors, advisors, employers and employees take ownership of their futures. 2 10 14 15 Letter From the CEO Letter From the CFO Financial Highlights Growth in Client Assets and Accounts 16 17 i ii Executive Management Form 10-K Board of Directors Corporate Information

  • Page 4
    Our strategy is winning-and the best is yet to come WALT BETTINGER PRESIDENT AND CHIEF EXECUTIVE OFFICER 2 LETTER FROM THE CHIEF EXECUTIVE OFFICER

  • Page 5
    ...means to track their stock holdings, Chuck was one of the first to offer technology-driven access to information that saved investors' calls to their brokers or a trip to the local branch office. And when mutual funds became a key solution for Main Street investors, Chuck revolutionized the industry...

  • Page 6
    ... to make Charles Schwab Investment Management, Inc. the second-fastest-growing ETF manager among the top 10 issuers by assets (based on 2015 flows), and already number five among all firms in terms of new ETF flows industry-wide. In fact, in 2015 clients invested more money in Schwab ETFs than any...

  • Page 7
    ... by phone, chat or in person. In the first quarter of 2015, we introduced Schwab Intelligent Portfoliosâ„¢ , the first digital advisory program in the industry that charges ZERO advisory fees. Rather, we generate sufficient revenue from underlying ETFs and cash investments to offer the service...

  • Page 8
    ... assets before significant one-time flows. Management considers this to be a useful metric when comparing period-to-period client asset flows. NET INCOME (IN MILLIONS) $ 1,212 2008 $ 864 $ 928 $ 1,071 2013 $ 1,321 2014 $ 1,447 2015 2011 2012 6 LETTER FROM THE CHIEF EXECUTIVE OFFICER

  • Page 9
    ...1.64% 2014 1.60% 2015 BALANCE SHEET CLIENT CASH (IN BILLIONS AT YEAR-END)* $ 44.4 $ 96.4 $ 119.0 2012 $ 127.3 2013 $ 136.0 2014 $ 161.1 2015 2008 2011 ® *Includes Schwab One, certain cash equivalents and bank deposits Despite significant growth in client assets and client cash on...

  • Page 10
    ...Schwab Intelligent Portfoliosâ„¢ , see intelligent.schwab.com and the Disclosure Brochures. Schwab Intelligent Portfolios is offered through Schwab Wealth Investment Advisory, Inc. Schwab investment professionals are employees of Charles Schwab & Co., Inc. 8 LETTER FROM THE CHIEF EXECUTIVE OFFICER

  • Page 11
    ... to hiring veterans by G.I. Jobs, Military Spouse and Military Times EDGE magazines. 2015 Customer Satisfaction Recognition J.D. Power Schwab ranked "Highest in Investor Satisfaction With Self-Directed Services" in the 2015 Self-Directed Investor Satisfaction Study SM . Charles Schwab & Co...

  • Page 12
    The next chapter JOE MARTINETTO CHIEF FINANCIAL OFFICER 10 LETTER FROM THE CHIEF FINANCIAL OFFICER

  • Page 13
    ... did see improvement in our money fund fees and net interest revenue right away, but the move came too late in the year to have a meaningful effect for 2015. So notwithstanding another year of gathering assets faster than any other publicly traded U.S. investment services firm and the resiliency of...

  • Page 14
    ... what we hoped or expected starting out, but essentially consistent with our baseline scenario and great results given the environmental challenges we faced. PRE-TAX PROFIT MARGIN 29.7% 2011 29.7% 2012 31.4% 2013 34.9% 2014 35.7% 2015 12 LETTER FROM THE CHIEF FINANCIAL OFFICER

  • Page 15
    ... Schwab story. Joe Martinetto March 3, 2016 DIVERSIFIED REVENUE STREAMS (IN MILLIONS) $6,000 $5,000 +11% +5% -5% -2% 2014 2015 Net interest revenue $4,000 $3,000 Asset management and administration fees $2,000 $1,000 Trading revenue Other revenue LETTER FROM THE CHIEF FINANCIAL OFFICER...

  • Page 16
    ...-diluted Closing market price per share (at year-end) Book value per common share (at year-end) Net revenue growth Pre-tax profit margin Return on average common stockholders' equity Full-time equivalent employees (at year-end, in thousands) 2014-15 5% 4% 8% 8% 8% - 1% 9% 9% 5% 2015 6,380...

  • Page 17
    ... million from the sale of Open E Cry, LLC, and $900 million relating to a planned transfer from Corporate Brokerage Services. 2011 includes inflows of $56.1 billion from a mutual fund clearing services client and $7.5 billion from the acquisition of optionsXpress Holdings, Inc. (7) 2015 includes an...

  • Page 18
    ... President, Operational Services G. ANDREW GILL Executive Vice President, Client Solutions NIGEL J. MURTAGH Executive Vice President, Corporate Risk MARIE A. CHANDOHA President and Chief Executive Officer, Charles Schwab Investment Management, Inc. NEESHA HATHI Executive Vice President, Investor...

  • Page 19
    ... (I.R.S. Employer Identification No.) 211 Main Street, San Francisco, CA 94105 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (415) 667-7000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock...

  • Page 20
    ...103 103 Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services 103...

  • Page 21
    ... to as the Company), in wealth management, securities brokerage, banking, money management, custody, and financial advisory services. At December 31, 2015, the Company had $2.51 trillion in client assets, 9.8 million active brokerage accounts, 1.5 million corporate retirement plan participants, and...

  • Page 22
    ...assets and interest paid on funding sources, the majority of which is derived from client cash balances in deposit and brokerage accounts. The Company generates trading revenue through commissions earned for executing trades for clients and principal transaction revenue earned primarily from trading...

  • Page 23
    ... management; x Banking - checking and savings accounts, certificates of deposit, first lien residential real estate mortgage loans (First Mortgages), home equity loans and lines of credit (HELOCs), and Pledged Asset Lines® (PALs); and x Trust - trust custody services, personal trust reporting...

  • Page 24
    ... activities online with Schwab, including viewing and managing client account information and accessing news and market information. The website provides account servicing capabilities for IAs, including account opening, money movement, transfer of assets, trading, checking status and communicating...

  • Page 25
    ... clients have access to a broad range of the Company's products and services, including individual securities, mutual funds, ETFs, managed accounts, and cash products. The Advisor Services segment also includes the Retirement Business Services and Corporate Brokerage Retirement Services business...

  • Page 26
    ..." and "Capital Management," and "Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - 23. Regulatory Requirements" for the new capital ratio requirements. The Final Regulatory Capital Rules provided for a one-time election which CSC and Schwab Bank made...

  • Page 27
    ... financial statement data as of December 31, 2016, report the results of that stress test to the Federal Reserve by April 5, 2017, and publicly disclose a summary of its stress test results between June 15 and June 30, 2017. CSC is not subject to the annual Comprehensive Capital Analysis and Review...

  • Page 28
    ...net capital requirements, as self-clearing broker-dealers, Schwab and optionsXpress, Inc. are subject to cash deposit and collateral requirements with clearing houses, such as the Depository Trust & Clearing Corporation and Options Clearing Corporation, which may fluctuate significantly from time to...

  • Page 29
    ... free of charge either on the Company's website or by request via email ([email protected]), telephone (415-667-1959), or mail (Charles Schwab Investor Relations at 211 Main Street, San Francisco, CA 94105). Item 1A. Risk Factors The Company faces a variety of risks that may affect its...

  • Page 30
    ...adding assets, launching new products, and undertaking strategic investments, could limit Schwab Bank's ability to accept deposits swept from the client brokerage accounts and could prevent the Company from pursuing its business strategy. Despite the Company's efforts to comply with applicable legal...

  • Page 31
    ... used for asset management, capital planning and management, risk management, stress testing and compliance, employee misconduct, unauthorized trading, external fraud, computer viruses, distributed denial of service attacks, terrorist attacks, natural disaster, power outage, capacity constraints...

  • Page 32
    ...position include fluctuations in cash held in banking or brokerage client accounts, a dramatic increase in the Company's client lending activities (including margin, mortgage-related, and personal lending), unanticipated outflows of company cash, increased capital requirements, changes in regulatory...

  • Page 33
    THE CHARLES SCHWAB CORPORATION lending, its role as a counterparty in financial contracts and investing activities, and indirectly from the investing activities of certain of the proprietary funds the Company sponsors. When clients purchase securities on margin, borrow on lines of credit ...

  • Page 34
    ...-sponsored money market mutual funds remains at or below the management fees on those funds, the Company may waive a portion of its fee in order to continue providing some return to clients. Such fee waivers negatively impact the Company's asset management and administration fee revenues. Security...

  • Page 35
    ...stock price could decline. The Company's industry is characterized by aggressive price competition. The Company continually monitors its pricing in relation to competitors and periodically adjusts trade commission rates, interest rates on deposits and loans, fees for advisory services, and other fee...

  • Page 36
    ... structure, executive team, operations, financial condition, financial reporting and results, expense discipline, or strategic transactions; x the announcement of new products, services, acquisitions, or dispositions by the Company or its competitors; and x increases or decreases in revenue...

  • Page 37
    ... all of the Company's branch offices are located in leased premises. The corporate headquarters, data centers, offices, and service centers support both of the Company's segments. Item 3. Legal Proceedings For a discussion of legal proceedings, see "Item 8 - Financial Statements and Supplementary...

  • Page 38
    THE CHARLES SCHWAB CORPORATION PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities CSC's common stock is listed on The New York Stock Exchange under the ticker symbol SCHW. The number of common stockholders of record as of ...

  • Page 39
    ...common stock for each calendar month in the fourth quarter of 2015: Total Number of Shares Purchased (in thousands) Average Price Paid per Share Month October: Employee transactions (1) November: Employee transactions (1) December: Employee transactions (1) Total: Employee transactions (1) (1) 17...

  • Page 40
    THE CHARLES SCHWAB CORPORATION Item 6. Selected Financial Data Selected Financial and Operating Data (In Millions, Except Per Share Amounts, Ratios, or as Noted) Growth Rates Compounded Annual 4-Year (1) 1-Year 2011-2015 2014-2015 Results of Operations Net revenues Expenses excluding interest Net...

  • Page 41
    ... cause actual results to differ include, but are not limited to: x changes in general economic and financial market conditions; x changes in revenues and profit margin due to changes in interest rates; x adverse developments in litigation or regulatory matters; x the extent of any charges associated...

  • Page 42
    ... migration of certain balances from brokerage accounts and sweep money market funds into Schwab Bank; the Company's ability to manage expenses; regulatory guidance; the level of client assets, including cash balances; competitive pressures on rates and fees; acquisition integration costs; potential...

  • Page 43
    ... industry or geographical area. Core net new client assets: Net new client assets before significant one-time inflows or outflows, such as acquisitions/divestitures or extraordinary (generally, greater than $10 billion) mutual fund clearing transfers. Credit risk: The potential for loss due...

  • Page 44
    ...part-time and temporary employees, and persons employed on a contract basis, and excludes employees of outsourced service providers. Interest rate risk: The risk to earnings or capital arising from changes in interest rates. Interest-bearing liabilities: Includes bank deposits, payables to brokerage...

  • Page 45
    ...which Schwab and optionsXpress, Inc. send equity and options orders. Reflects rebates received for certain types of orders, minus fees paid for execution of orders for which exchange fees or other charges apply. Pledged Asset Line®: A non-purpose revolving line of credit from Schwab Bank secured by...

  • Page 46
    ...mutual fund clearing services client, and an outflow of $11.6 billion relating to the Company's planned resignation from an Advisor Services cash management relationship netting to an adjustment of ($4.7) billion. 2013 excludes an outflow of $74.5 billion relating to the planned transfer of a mutual...

  • Page 47
    ...interest rate margins. x Asset management and administration fees increased due to higher client asset balances and higher net yields earned on money market funds. x Trading revenue decreased for 2015 primarily due to lower commissions per revenue trade and lower daily average revenue trades. Growth...

  • Page 48
    ... in 2014 from 2013, primarily due to increases in net interest revenue, asset management and administration fees, and other revenue. x Net interest revenue increased primarily due to higher balances of interest-earning assets, including margin loans and the Company's investment portfolio (securities...

  • Page 49
    ... advice solutions, which include advisory and managed account services that are based on the daily balances of client assets subject to the specific fee for service. The fair values of client assets included in proprietary and third-party mutual funds and ETFs are based on quoted market prices and...

  • Page 50
    .... Fee-based advice solutions include Schwab Private Client, Schwab Managed Portfolios, Managed Account Select, Schwab Advisor Network, Windhaven Strategies, Thomas Partners Dividend Growth Strategy, and Schwab Index Advantage advised retirement plan balances. Intelligent Portfolios include Schwab...

  • Page 51
    ... mutual funds and ETFs, partially offset by lower net yields on money market fund assets. Advice solutions fees increased by $58 million, or 7%, in 2015 from 2014 primarily due to growth in client assets enrolled in advisory offers, including Schwab Private Client™, ThomasPartners®, and Managed...

  • Page 52
    ... in the uninvested cash balances in certain brokerage client accounts swept to Schwab Bank. Net interest revenue increased $292 million or 15% in 2014 from 2013 primarily due to higher average balances of interestearning assets, including margin loans and the Company's investment portfolio, and the...

  • Page 53
    ...mutual fund trades. Average revenue per revenue trade decreased 2% in 2015 compared to 2014 but remained relatively flat from 2014 to 2013. Other Revenue Other revenue includes order flow revenue, nonrecurring gains, software fees from the Company's portfolio management services, exchange processing...

  • Page 54
    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) Compensation and Benefits Compensation and benefits expense includes salaries and wages, incentive compensation, and related...

  • Page 55
    ... The Company provides financial services to individuals and institutional clients through two segments - Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services, retirement plan services, and other corporate brokerage services. The Advisor...

  • Page 56
    ... primarily due to fees from advice solutions which increased mainly due to growth in client assets enrolled in advisory offers. Other revenue increased primarily due to litigation proceeds relating to the Company's non-agency RMBS portfolio. Trading revenue decreased in 2015 from 2014 largely due to...

  • Page 57
    ... to Schwab Bank. Asset management and administration fees increased primarily due to higher net yields on money market fund assets and growth in client assets in equity and bond funds. Other revenue increased primarily due to litigation proceeds relating to the Company's non-agency RMBS portfolio...

  • Page 58
    ... credit and market risk policies, limits, and exposures in loan, investment, and positioning portfolios; x New Products and Services Risk Oversight Committee, which provides oversight of, and approves corporate policy and procedures relating to the risk governance of new products and services...

  • Page 59
    ... the Annual Risk Assessment of incentive compensation plans, and reports directly to the Board Compensation Committee. The Company's compliance, finance, internal audit, legal, and corporate risk management departments assist management and the various risk committees in evaluating, testing, and...

  • Page 60
    ... for financial or reputational loss through breach of fiduciary duties to a client. Fiduciary activities include, but are not limited to, individual and institutional trust, investment management, custody, and cash and securities processing. The Company attempts to manage this risk by establishing...

  • Page 61
    ... corporations, mutual funds, and other financial institutions even if Schwab's client or a counterparty fails to meet its obligations to Schwab. The Company's bank loan portfolio includes First Mortgages, HELOCs, PALs and other loans. The credit risk exposure related to loans is actively managed...

  • Page 62
    ...to the credit monitoring activities described above, the Company also monitors credit risk on second lien HELOC loans by reviewing the delinquency status of the first lien loan on the associated property. At December 31, 2015, approximately 28% of the HELOC borrowers that had a balance only paid the...

  • Page 63
    ...rating. The fair value of the Company's investments in corporate debt securities and commercial paper totaled $11.1 billion at December 31, 2015, with the majority issued by institutions in the financial services industry. These securities are included in securities available for sale, cash and cash...

  • Page 64
    ... clearing activities. At December 31, 2015, the Company had $261 million in investments in these Funds. Certain of the Funds' positions include certificates of deposits, time deposits, commercial paper and corporate debt securities issued by counterparties in foreign countries. Market Risk Market...

  • Page 65
    ... standby letter of credit agreements (LOCs) with several banks in favor of the Options Clearing Corporation aggregating $295 million at December 31, 2015. There were no funds drawn under any of these LOCs during 2015 or 2014. In connection with its securities lending activities, the Company is...

  • Page 66
    ... C preferred stock has a fixed dividend rate of 6.00%. The net proceeds from the sale were $581 million. For further discussion of CSC's long-term debt and information on the equity offering, see "Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - 14...

  • Page 67
    ... balance sheet growth, providing financial support to its subsidiaries, and sustained access to the capital markets, while at the same time meeting its regulatory capital requirements and serving as a source of financial strength to Schwab Bank. The Company's primary sources of capital are funds...

  • Page 68
    ... strength for Schwab Bank and to provide financial assistance if Schwab Bank experiences financial distress. To manage capital adequacy, the Company currently utilizes a target Tier 1 Leverage Ratio for CSC of at least 6%. Due to the relatively low risk of the Company's balance sheet assets and risk...

  • Page 69
    ... ($0.24 per share) in 2015 and 2014, respectively. Since the initial dividend in 1989, CSC has paid 107 consecutive quarterly dividends and has increased the quarterly dividend rate 19 times, resulting in a 20% compounded annual growth rate, excluding the special cash dividend of $1.00 per common...

  • Page 70
    .... The Company's annual goodwill impairment testing date is April 1st. In testing for a potential impairment of goodwill on April 1, 2015, management performed an assessment of each of the Company's reporting units (generally defined as the Company's businesses for which financial information is...

  • Page 71
    ... speeds, LTV ratios, past loss experience, estimates of future loss severities, borrower credit risk measured by FICO scores, and the adequacy of collateral. The methodology also evaluates concentrations in the loan segments including loan products, year of origination, and geographical distribution...

  • Page 72
    ... the Company's securities lending activities. Equity market valuations may also affect the level of brokerage client trading activity, margin borrowing, and overall client engagement with the Company. Additionally, the Company earns mutual fund service fees and asset management fees based upon daily...

  • Page 73
    ... interest revenue sensitivity are breached, management must report the breach to the Company's Corporate Asset-Liability Management and Pricing Committee and establish a plan to address the interest rate risk. This plan could include, but is not limited to, rebalancing certain investment portfolios...

  • Page 74
    ... Note 11. Bank Deposits Note 12. Payables to Brokers, Dealers, and Clearing Organizations Note 13. Payables to Brokerage Clients Note 14. Borrowings Note 15. Commitments and Contingencies Note 16. Financial Instruments Subject to Off-Balance Sheet Credit Risk or Concentration Risk Note 17. Fair...

  • Page 75
    ..., Net Revenues Asset management and administration fees Interest revenue Interest expense Net interest revenue Trading revenue Other Provision for loan losses Net impairment losses on securities Total net revenues Expenses Excluding Interest Compensation and benefits Professional services Occupancy...

  • Page 76
    ...losses on securities Other reclassifications included in other revenue Other Other comprehensive income (loss), before tax Income tax effect Other comprehensive income (loss), net of tax Comprehensive Income See Notes to Consolidated Financial Statements. $ 2015 1,447 $ 2014 1,321 $ 2013 1,071...

  • Page 77
    ... 2015 and 2014, respectively) Bank loans - net Equipment, office facilities, and property - net Goodwill Intangible assets - net Other assets Total assets Liabilities and Stockholders' Equity Bank deposits Payables to brokers, dealers, and clearing organizations Payables to brokerage clients Accrued...

  • Page 78
    ... from brokerage clients Other securities owned Other assets Payables to brokers, dealers, and clearing organizations Payables to brokerage clients Accrued expenses and other liabilities Net cash provided by operating activities Cash Flows from Investing Activities Purchases of securities available...

  • Page 79
    ... Dividends declared on common stock Stock option exercises and other Stock-based compensation and related tax effects Other 6 Balance at December 31, 2015 $ 1,459 See Notes to Consolidated Financial Statements. Preferred Stock $ 865 Additional Common Stock Paid-In Retained Shares Amount Capital...

  • Page 80
    ... third-party mutual fund service fees, trust fees, 401(k) recordkeeping fees, and mutual fund clearing and other service fees. In 2015, 2014 and 2013, the Company waived a portion of its asset management fees earned from certain Schwab-sponsored money market mutual funds. Under agreements with these...

  • Page 81
    ...available for sale, securities held to maturity, and bank loans. Interest revenue is recognized in the period earned based upon average or daily asset balances and respective interest rates. Trading revenue Trading revenue includes commission and principal transaction revenues. Commission revenue is...

  • Page 82
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Securities available for sale and securities held to maturity Securities available for sale are recorded at fair value and ...

  • Page 83
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) economic conditions, the composition of the existing loan portfolio, past loss experience, and risks inherent in the portfolio to...

  • Page 84
    ... As part of the Company's community reinvestment initiatives, the Company invests with other institutional investors in funds that make equity investments in multifamily affordable housing properties. The Company receives tax credits and other tax benefits for these investments. The Company accounts...

  • Page 85
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Guarantees and indemnifications The Company recognizes, at the inception of a guarantee, a liability equal to the estimated fair ...

  • Page 86
    ... SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) x Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity...

  • Page 87
    ... CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) x Financial instruments included in other assets primarily consist of LIHTC investments, cost method investments and Federal Home...

  • Page 88
    ... other securities owned   $ $ 2015 261 205 50 17 533  $ $ 2014 224 215 51 26 516 The Company's positions in Schwab Funds® money market funds arise from certain overnight funding of clients' redemption, check-writing, and debit card activities. Equity and bond mutual funds include...

  • Page 89
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 5. Securities Available for Sale and Securities Held to Maturity The amortized cost, gross unrealized gains and losses, and ...

  • Page 90
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Schwab Bank pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged ...

  • Page 91
    ... CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The following table is a roll forward of the amount of credit losses recognized in earnings for OTTI securities held by the Company...

  • Page 92
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 6. Bank Loans and Related Allowance for Loan Losses The composition of bank loans and delinquency analysis by loan segment is ...

  • Page 93
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) In addition to monitoring delinquency, the Company monitors the credit quality of First Mortgages and HELOCs by stratifying the ...

  • Page 94
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) December 31, 2015 Year of origination Pre-2011 2011 2012 2013 2014 2015 Total Origination FICO 740 ...

  • Page 95
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) December 31, 2014 Year of origination Pre-2011 2011 2012 2013 2014 Total Origination FICO 740 Total ...

  • Page 96
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 8. Intangible Assets and Goodwill Intangible assets and goodwill are detailed below: December 31, 2015 Gross Carrying Value $ ...

  • Page 97
    ..., consistent with safe and sound banking operations. As part of Schwab Bank's community reinvestment initiatives, Schwab Bank invests with other institutional investors in funds that make equity investments in multifamily affordable housing properties. In 2014, Schwab Bank's management approved...

  • Page 98
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Aggregate assets, liabilities and maximum exposure to loss The aggregate assets, liabilities, and maximum exposure to loss from ...

  • Page 99
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 14. Borrowings Long-term debt including unamortized debt discounts and premiums, where applicable, consists of the following: ...

  • Page 100
    ...2014. To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with several banks. There were no borrowings outstanding under these lines at December 31, 2015 or 2014. To partially satisfy the margin requirement of client option transactions with the Options Clearing...

  • Page 101
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which ...

  • Page 102
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) disgorgement and penalties in an amount which would not be material. The Company continues to dispute the allegations and is ...

  • Page 103
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The following table presents information about the Company's resale agreements and securities lending activity to enable the ...

  • Page 104
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) value of client securities pledged to fulfill the Company's proprietary short sales, which resulted from facilitating clients' ...

  • Page 105
    ...: Schwab Funds® money market funds Equity and bond mutual funds State and municipal debt obligations Equity, U.S. Government and corporate debt, and other securities Total other securities owned Securities available for sale: U.S. agency mortgage-backed securities Asset-backed securities Corporate...

  • Page 106
    ... CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) December 31, 2014 Cash equivalents: Money market funds Commercial paper Total cash equivalents Investments segregated and on deposit...

  • Page 107
    ... and lines of credit Pledged asset lines Other Total bank loans Other assets Total Liabilities: Bank deposits Payables to brokers, dealers, and clearing organizations Payables to brokerage clients Accrued expenses and other liabilities Long-term debt Total (1)   Carrying Amount $ 9,650 Balance...

  • Page 108
    ... securities held to maturity Bank loans: (1) Residential real estate mortgages Home equity loans and lines of credit Pledged asset lines Other Total bank loans Other assets Total Liabilities: Bank deposits Payables to brokers, dealers, and clearing organizations Payables to brokerage clients Accrued...

  • Page 109
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) payable semi-annually in arrears. During the floating rate period, dividends, if declared, will be payable quarterly in arrears. ...

  • Page 110
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Accumulated other comprehensive income balances are as follows: Net unrealized gain/(loss) on securities available for sale $ 299...

  • Page 111
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The Company's stock option activity is summarized below:  WeightedAverage Exercise Price per Share $ 17.74 31.04 15.78 21.06...

  • Page 112
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The Company's restricted stock units activity is summarized below: WeightedAverage Grant Date Fair Value per Unit $ 20.66 30.84 ...

  • Page 113
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The temporary differences that created deferred tax assets and liabilities are detailed below: December 31, Deferred tax assets: ...

  • Page 114
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 22. Earnings Per Common Share EPS is computed using the two-class method. Preferred stock dividends, and undistributed earnings...

  • Page 115
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The regulatory capital and ratios for CSC and Schwab Bank are as follows: Minimum to be Minimum Capital Actual Well Capitalized ...

  • Page 116
    ... income statement line item expenses (e.g., compensation and benefits, depreciation and amortization, and professional services) to the business activities driving segment expenses (e.g., client service, opening new accounts, or business development) and a funds transfer pricing methodology...

  • Page 117
    ... Revenues: Asset management and administration fees Net interest revenue Trading revenue Other (2) Provision for loan losses Net impairment losses on securities Total net revenues Investor Services (1) 2015 2014 2013 Advisor Services (1) 2015 2014 2013 2015 Unallocated 2014 2013 2015 Total 2014 2013...

  • Page 118
    ... CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Condensed Balance Sheets December 31, Assets Cash and cash equivalents Receivables from subsidiaries Securities available for sale...

  • Page 119
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Condensed Statements of Cash Flows Year Ended December 31, Cash Flows from Operating Activities Net income Adjustments to ...

  • Page 120
    ...CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 26. Quarterly Financial...2015: Net Revenues...24 Dividends Declared Per Common Share $ .06 $ .06 $ .06 $ .06 Range of Common Stock Price ...

  • Page 121
    ... San Francisco, California We have audited the accompanying consolidated balance sheets of The Charles Schwab Corporation and subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows...

  • Page 122
    ...Over Financial Reporting Management of The Charles Schwab Corporation, together with its subsidiaries (the Company), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed under...

  • Page 123
    ... Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are included in "Item 8 - Financial Statements and Supplementary Data." Item 9B. None. Other Information PART III Item 10. Directors, Executive Officers, and Corporate Governance The information relating...

  • Page 124
    ... Charles Schwab Investment Management, Inc. Executive Vice President - Advisor Services Executive Vice President, General Counsel and Corporate Secretary Executive Vice President - Investor Services Senior Executive Vice President and Chief Financial Officer Executive Vice President - Corporate Risk...

  • Page 125
    ...First Command Financial Services from 2009 until 2012 and as Senior Vice President of USAA from 2004 until 2009. Mr. Martinetto has been Senior Executive Vice President and Chief Financial Officer of CSC and Schwab since July 2015. He served as Executive Vice President and Chief Financial Officer of...

  • Page 126
    ... Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 2. Financial Statement Schedule The financial statement schedule required...

  • Page 127
    ... Exhibits The exhibits listed below are filed as part of this annual report on Form 10-K. Exhibit Number 2.1 Exhibit Agreement and Plan of Merger, dated March 18, 2011, by and among The Charles Schwab Corporation, Neon Acquisition Corp. and optionsXpress Holdings, Inc., filed as Exhibit 2.1 to the...

  • Page 128
    ... Non-Employee Director Compensation, filed as Exhibit 10.351 to the Registrant's Form 10-K for the year ended December 31, 2012, and incorporated herein by reference. Form of Performance-Based Cash Long-Term Incentive Award Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan and...

  • Page 129
    ... dated January 24, 2013, and incorporated herein by reference. Form of Notice and Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors' Deferred Compensation Plan II and The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as...

  • Page 130
    ... Act of 2002. XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation XBRL Extension Definition XBRL Taxonomy Extension Label XBRL Taxonomy Extension Presentation Furnished as an exhibit to this annual report on Form 10-K. Management contract or compensatory plan...

  • Page 131
    ... on February 24, 2016. THE CHARLES SCHWAB CORPORATION (Registrant) BY: /s/ Walter W. Bettinger II Walter W. Bettinger II President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of...

  • Page 132
    THE CHARLES SCHWAB CORPORATION Index to Financial Statement Schedule Page Schedule II - Valuation and Qualifying Accounts Supplemental Financial Data for Charles Schwab Bank (Unaudited) F-2 F-3 - F-9 Schedules not listed are omitted because of the absence of the conditions under which they are ...

  • Page 133
    ... off Balance at End of Year $ 2 $ 5 $ 3 $ (9) $ 1 $ - $ 6 $ 1 $ (5) $ 2 $ 1 $ 2 $ 1 $ (4) $ - Includes collections of previously written-off accounts. Excludes banking-related valuation and qualifying accounts. See "Item 8 - Financial Statements and Supplementary Data...

  • Page 134
    THE CHARLES SCHWAB CORPORATION Supplemental Financial Data for Charles Schwab Bank (Unaudited) (Dollars in Millions) The following supplemental financial data is consistent with the Securities Exchange Act of 1934, Industry Guide 3 - Statistical Disclosure by Bank Holding Companies. The ...

  • Page 135
    ... cash equivalents (1) Securities available for sale (2) Securities held to maturity Bank loans (3) Other interest-earning assets Total interest-earning assets Interest-bearing sources of funds: Interest-bearing banking deposits Total sources on which interest is paid Change in net interest revenue...

  • Page 136
    ... 31, 2014 Securities available for sale: U.S. agency mortgage-backed securities Asset-backed securities Corporate debt securities U.S. Treasury securities U.S. agency notes Certificates of deposit Non-agency commercial mortgage-backed securities Other securities Total securities available for sale...

  • Page 137
    ...CORPORATION Supplemental Financial Data for Charles Schwab Bank (Unaudited) (Dollars in Millions) December 31, 2013 Securities available for sale: U.S. agency mortgage-backed securities Asset-backed securities Corporate debt securities U.S. agency notes Certificates of deposit Non-agency commercial...

  • Page 138
    ...: December 31, Residential real estate mortgages Home equity loans and lines of credit Pledged asset lines Other Total bank loans An analysis of nonaccrual loans is as follows: December 31, Nonaccrual loans Average nonaccrual loans 2015 $ $ 28 30 $ $ 2014 35 39 $ $ 2013 48 43 $ $ 2012 48 48 $ $ 2011...

  • Page 139
    ...(1) 48 $ 2012 54 (16) 2 16 56 $ 2011 53 (19) 2 18 54 $ $ $ $ $ The maturities of the loan portfolio are as follows: After 1 year through 5 years $ 1,307 2,766 52 $ 4,125 December 31, 2015 Residential real estate mortgages (1) Home equity loans and lines of credit (2) Pledged asset lines Other...

  • Page 140
    ...the average rate paid on deposit categories that are in excess of ten percent of average total deposits from banking clients: 2015 Amount Analysis of average daily deposits: Money market and other savings deposits Interest-bearing demand deposits Total $ 99,881 13,583 $ 113,464 2014 Amount Rate $ 82...

  • Page 141
    ... bank deposits and payables to brokerage clients is completely offset by interest revenue on related investments and loans, the Company considers such interest to be an operating expense. Accordingly, the ratio of earnings to fixed charges, excluding bank deposits and payables to brokerage clients...

  • Page 142
    ... significant subsidiaries of the Registrant: Schwab Holdings, Inc. (holding company for Charles Schwab & Co., Inc.), a Delaware corporation Charles Schwab & Co., Inc., a California corporation Charles Schwab Bank, a Federal Savings Association Charles Schwab Investment Management, Inc., a Delaware...

  • Page 143
    ... Statements of our report dated February 24, 2016, relating to the consolidated financial statements and financial statement schedule of The Charles Schwab Corporation and the effectiveness of The Charles Schwab Corporation's internal control over financial reporting appearing in this Annual Report...

  • Page 144
    ...; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2016 /s/ Walter W. Bettinger II Walter W. Bettinger II President and Chief Executive Officer

  • Page 145
    ...Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2016 /s/ Joseph R. Martinetto Joseph R. Martinetto Senior Executive Vice President and Chief Financial Officer

  • Page 146
    ... President and Chief Executive Officer  Date: February 24, 2016  A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and will be retained by The Charles Schwab Corporation and furnished to the Securities and Exchange Commission...

  • Page 147
    ... Executive Vice President and Chief Financial Officer Date: February 24, 2016       A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and will be retained by The Charles Schwab Corporation and furnished to the Securities...

  • Page 148
    BOARD OF DIRECTORS CHARLES R. SCHWAB Chairman of the Board, The Charles Schwab Corporation Age: 78. Director since 1986. Term expires in 2016. JOHN K. ADAMS, JR. Former Managing Director, Financial Institutions Group, UBS Investment Bank, a financial services firm Age: 60. Director since 2015. Term...

  • Page 149
    ..., 2016, at 211 Main Street, San Francisco, CA, and via the Internet. To register, visit: www.schwabevents.com/corporation PUBLICATIONS To obtain the company's annual report, 10-K, 10-Q, quarterly earnings release, or monthly activity report without charge, contact: Charles Schwab Investor Relations...

  • Page 150
    THE CHARLES SCHWAB CORPORATION 211 Main Street San Francisco, CA 94105 (415) 667-7000 Schwab.com AboutSchwab.com twitter.com/CharlesSchwab linkedin.com/company/CharlesSchwab facebook.com/CharlesSchwab youtube.com/user/CharlesSchwab Printed on recycled paper. ©2016 The Charles Schwab Corporation. ...