Charles Schwab 2015 Annual Report Download - page 46

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)
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OVERVIEW
Management of the Company focuses on several key client activity and financial metrics in evaluating the Company’s
financial position and operating performance. Management believes that net revenue growth, pre-tax profit margin, earnings
per common share (EPS), and return on average common stockholders’ equity provide broad indicators of the Company’s
overall financial health, operating efficiency, and ability to generate acceptable returns. Expenses excluding interest as a
percentage of average client assets are considered by management to be a measure of operating efficiency. Results for the
years ended December 31, 2015, 2014, and 2013 are:
Growth Rate   
  
1-Year 
Year Ended December 31, 2014-2015 2015 2014 2013
Client Metrics:  
N
et new client assets (in billions)  12 % $ 139.4 $ 124.8 $ 41.6
Core net new client assets (in billions) (1,2)  8 % $ 134.7 $ 124.8 $ 140.8
Client assets (in billions, at year end)  2 % $ 2,513.8 $ 2,463.6 $ 2,249.4
Average client assets (in billions)  6 % $ 2,531.8 $ 2,384.0 $ 2,116.7
N
ew brokerage accounts (in thousands)  10 % 1,070 972 960
Active brokerage accounts (in thousands, at year end)  4 % 9,769 9,386 9,093
Assets receiving ongoing advisory services 
(in billions, at year end)  2 % $ 1,253.7 $ 1,228.1 $ 1,101.4
Client cash as a percentage of client assets 
(at year end)  13.0 % 12.3 % 13.1 %
Company Financial Metrics:               
N
et revenues  5 % $ 6,380 $ 6,058 $ 5,435
Expenses excluding interest  4 % 4,101 3,943 3,730
Income before taxes on income  8 % 2,279 2,115 1,705
Taxes on income  5 % 832 794 634
N
et income  10 % $ 1,447 $ 1,321 $ 1,071
Preferred stock dividends and other  38 % 83 60 61
N
et income available to common stockholders  8 % $ 1,364 $ 1,261 $ 1,010
Earnin
g
s
p
er common share
–
dilute
d
 8 % $ 1.03 $ .95 $ .78
N
et revenue growth from prior yea
r
 5 % 11 % 11 %
Pre-tax profit margin  35.7 % 34.9 % 31.4 %
Return on average common stockholders’ equity  12 % 12 % 11 %
Expenses excluding interest as a percentage of
average client assets 0.16 % 0.17 % 0.18 %
(1) 2015 excludes an inflow of $6.1 billion to reflect the final impact of the consolidation of its retirement plan recordkeeping platforms, an inflow of
$10.2 million relating to a 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.
(2) 2013 excludes an outflow of $74.5 billion relating to the planned transfer of a mutual fund clearing client and $24.7 billion to reflect the estimated
impact of the consolidation of its retirement plan recordkeeping technology platforms and subsequent resignation from certain retirement plan clients
for a total adjustment of $99.2 billion.
The Company’s financial results are highly correlated to the general overall strength of economic conditions and, more
specifically, to the direction of the U.S. equity and fixed income markets, the mortgage lending markets and residential credit
trends. Overall market conditions, interest rates, economic, political and regulatory trends, and industry competition are
among the factors that could affect results and which are unpredictable.
Interest rates have a direct correlation to the Company’s ability to generate net interest revenue, as interest-earning assets and
funding sources are sensitive to changes in the rate environment. To the extent short-term interest rates remain at current low
levels, the Company’s net interest revenue will continue to be constrained, even as growth in average balances helps to