Charles Schwab 2010 Annual Report Download - page 45

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)
2009. While the low interest rate environment caused additional money market mutual fund fee waivers from 2009, asset
management and administration fees were relatively flat due to higher average asset valuations and continued asset inflows. Expenses
excluding interest increased by $159 million, or 8%, in 2010 from 2009 primarily due to increases in compensation and benefits,
professional services, and other expenses. Other expense includes a charge relating to the Company’s termination of its sponsorship in
its Invest First and WorldPoints Visa credit cards in 2010 as a result of challenging credit card economics.
Net revenues decreased by $675 million, or 20%, in 2009 from 2008 due to decreases in asset management and administration fees
and net interest revenue, partially offset by an increase in other revenue. Asset management and administration fees decreased
primarily due to lower average asset valuations and money market mutual fund fee waivers. Net interest revenue decreased as a result
of the low interest rate environment, partially offset by higher average balances of interest-earning assets. The increase in other
revenue was primarily due to the recognition of a gain on the repurchase of a portion of the Company’s long-term debt. In addition,
other revenue in 2008 included a loss on the sale of a corporate debt security held in the Company’s available for sale portfolio. Net
revenues were also negatively impacted by net impairment charges relating to certain residential mortgage-backed securities in the
Company’s available for sale portfolio. Expenses excluding interest decreased by $201 million, or 10%, in 2009 from 2008, primarily
due to lower compensation and benefits, professional services, and advertising and market development expenses.
I
nstitutional Services
Net revenues decreased by $80 million, or 5%, in 2010 from 2009 due to decreases in asset management and administration fees,
trading revenue, and other revenue, offset by an increase in net interest revenue. Asset management and administration fees decreased
primarily due to money market mutual fund fee waivers, partially offset by the effect of higher average asset valuations and continued
asset inflows. Additionally, in August 2010 management transferred client assets associated with the Schwab Advisor Network to the
Investor Services segment and started recording the related asset management and administration fee revenue to that segment.
Trading revenue decreased due to lower average revenue per revenue trade resulting from improved online trade pricing for clients,
which was implemented in January 2010, and slightly lower daily average revenue trades in 2010. Other revenue was lower in
comparison to 2009 due to a gain on the repurchase of a portion of the Company’s long-term debt in 2009. Net interest revenue
increased due to higher average balances of interest-earning assets, partially offset by a decrease in the average yield earned.
Expenses excluding interest increased by $31 million, or 3%, in 2010 from 2009 primarily due to an increase in compensation and
benefits expense.
Net revenues decreased by $271 million, or 15%, in 2009 from 2008 due to decreases in asset management and administration fees,
net interest revenue, and trading revenue, partially offset by an increase in other revenue. Asset management and administration fees
decreased primarily due to lower average asset valuations and money market mutual fund fee waivers. Net interest revenue decreased
as a result of the low interest rate environment, partially offset by higher average balances of interest-earning assets. Trading revenue
decreased due to lower daily average revenue trades and lower average revenue per revenue trade. Net impairment losses on securities
increased due to credit deterioration of certain mortgage-backed securities’ underlying collateral. The increase in other revenue was
primarily due to the recognition of a gain on the repurchase of a portion of the Company’s long-term debt. Expenses excluding
interest decreased by $72 million, or 7%, in 2009 from 2008 primarily due to lower compensation and benefits and professional
services expenses, partially offset by an increase in other expense.
Unallocated
Expenses excluding interest in 2010 primarily include the recognition of certain significant charges. The Company recognized class
action litigation and regulatory reserves relating to the Schwab YieldPlus Fund and a charge relating to its decision to cover the net
remaining losses recognized by Schwab money market mutual funds as a result of their investments in a single structured investment
vehicle that defaulted in 2008. Expenses excluding interest in 2009 include facilities and severance charges relating to the Company’s
cost reduction measures.
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