Charles Schwab 2015 Annual Report Download - page 47

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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)
- 27 -
increase such revenue. Net interest revenue is also impacted by the amount and mix of interest-earning assets and interest-
bearing funding sources, as well as the Company’s ability to attract assets from new and existing clients.
The interest rate environment also affects asset management and administration fees through the fees earned on the
Company’s lineup of proprietary money market funds. In 2015, 2014 and 2013, the low interest rate environment caused the
Company to waive a portion of its money fund fees. To the extent that short-term rates remain low, asset management and
administration fees may continue to be negatively affected. Other drivers of asset management and administration fees
include securities valuations and the Company’s ability to attract assets from new and existing clients.
The Company generates trading revenue through commissions earned for executing trades for clients and principal
transaction revenue primarily from trading activity in client fixed income securities. Trading revenue is impacted by trading
volumes, the volatility of prices in the equity and fixed income markets, and commission rates. Volatility in the markets can
influence client behavior in terms of investment decisions and volume of trading activity.
2015 Compared to 2014
In 2015, the Company’s revenue and net income grew despite an environment that included significant equity market
volatility and continued low interest rates. The Standard & Poor’s 500 Index declined as much as 9% during the year and
ultimately ended the year down 1% when compared to the prior year. The federal funds short-term target rate increased
25 basis points in December 2015, however, the increase had limited effect on 2015 results. The average 3-month London
Interbank Offered Rate (LIBOR) yield improved 8 basis points to .32% compared to 2014. Long-term interest rates decreased
in 2015 compared to the same period in 2014. The average 10-year U.S. Treasury yield during 2015 was 2.13%, 40 basis
points lower than the average yield during 2014.
Strong client momentum continued as the Company’s innovative, full-service model continued to resonate with clients and
drive growth during the year. Core net new assets totaled $134.7 billion in 2015 compared to $124.8 billion in 2014. Total
client assets ended 2015 at $2.51 trillion, up 2% from the year ended 2014, despite the $89.2 billion impact of reduced
market valuation on client assets during the year.
The Company added 1.1 million new brokerage accounts to its client base during 2015, up 10% compared to 2014. Active
brokerage accounts ended 2015 at 9.8 million, up 4% on a year-over-year basis. Faced with economic uncertainty and the
resulting market volatility, investors increasingly turned to advice offerings throughout the year. Over 155,000 accounts
enrolled in one of the Company’s retail advisory solutions during 2015, 60% more than the year-earlier period, and total
accounts using these solutions reached 560,000, up 14% year-over-year.
During 2015, the Company’s net revenues increased 5% compared to 2014 primarily due to increases in net interest revenue
and asset management and administration fees, partially offset by a decrease in trading revenue.
x Net interest revenue increased primarily due to higher client cash balances generating increased interest-earning
assets, partially offset by lower average 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 in expenses, excluding interest, was limited to a 4% increase in 2015 primarily reflecting business growth related
increases in compensation, benefits and other expenses.
The combined effect of market conditions, strong business growth, and the Company’s overall spending discipline resulted in
a pre-tax profit margin of 35.7% in 2015.
2014 Compared to 2013
The Company operated in an environment of mixed market conditions during 2014 compared to 2013, as the Nasdaq
Composite Index, Standard & Poor’s 500 Index, and Dow Jones Industrial Average showed periods of volatility before