Charles Schwab 2015 Annual Report Download - page 51

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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)
- 31 -
OneSource® funds and equity and bond funds and ETFs, and higher service fees in other third party mutual funds
and ETFs, partially offset by lower net yields on money market fund assets.
x 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 Account Select®,
partially offset by a decrease in Windhaven®. Advice solutions fees increased by $122 million, or 17%, in 2014 from
2013 due to growth in client assets enrolled in advisory offers, including Schwab Private Client, ThomasPartners,
and Schwab Managed Portfolios™.
x Other balance-based asset management and administration service fees decreased by 3% in 2015 from 2014. Other
balance-based asset management and administration fees increased by $18 million, or 8%, in 2014 from 2013
primarily due to growth in client assets in transaction fee fund clearing, collective trust funds, and Advisor Services
– asset based fees.
Net Interest Revenue
Net interest revenue is the difference between interest earned on interest-earning assets and interest paid on funding sources.
The Company’s interest-earning assets are primarily funded through bank deposits and brokerage client account balances.
Interest-earning assets include cash and cash equivalents, segregated cash and investments, margin loans included in
receivables from brokerage clients, investment securities and bank loans. Revenue on interest-earning assets is affected by
various factors such as distribution and composition of assets, prevailing interest rates when purchased, and changes in
prepayment levels. Fees earned on securities borrowed and loaned are included in other interest revenue and expense. The
rates on the majority of the Company’s investment securities and loans re-price or reset based on short-term market rates and
the remainder is invested in fixed-rate loans and securities.
The Company’s interest-bearing liabilities include bank deposits, payables to brokerage clients and long-term debt. Interest-
bearing liabilities are primarily sensitive to short-term interest rates and the Company establishes the rates paid on most of
these liabilities. The Company expects that the rate paid on these liabilities will generally adjust at some fraction of the
movement in short-term market rates.
The Company expects that net interest revenue will increase as short-term market rates increase and decline should rates fall
below current levels. When interest rates fall, the Company may attempt to mitigate some of this negative impact by lowering
rates paid to clients on interest-bearing liabilities. The current low interest rate environment limits the extent to which the
Company can reduce interest expense on funding sources. The Company may also alter the amount and type of fixed rate
loans and securities that are added to the portfolio. Generally, increases in the percentage of fixed-rate assets relative to non-
interest-bearing liabilities will reduce the rate at which net interest revenue changes if rates move.
Non-interest bearing funding sources include non-interest bearing cash balances, stockholders’ equity and other
miscellaneous assets and liabilities.