Charles Schwab 2013 Annual Report Download - page 35

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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)
- 24 -
certificates, mortgage-backed securities guaranteed by the Government National Mortgage Association, deposits held at U.S.
banks and thrifts, and resale agreements collateralized by qualified securities. Additionally, Schwab and optionsXpress, Inc.
have established policies for the minimum credit quality and maximum maturity of these investments.
The following table presents net interest revenue information corresponding to interest-earning assets and funding sources on
the consolidated balance sheets:
Year Ended December 31, 2013 2012 2011
Interest Average Interest Average Interest Average
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest-earning assets:
Cash and cash equivalents $ 6,943 $ 16 0.23 % $ 7,130 $ 18 0.25 % $ 5,554 $ 13 0.23 %
Cash and investments segregated 25,419 35 0.14 % 25,263 46 0.18 % 25,831 39 0.15 %
Broker-related receivables (1) 377 - 0.04 % 351 - 0.04 % 310 - 0.05 %
Receivables from brokerage clients 11,800 434 3.68 % 10,928 446 4.08 % 10,637 467 4.39 %
Securities available for sale (2) 49,114 557 1.13 % 39,745 583 1.47 % 27,486 456 1.66 %
Securities held to maturity 24,915 610 2.45 % 15,371 397 2.58 % 16,050 492 3.07 %
Loans to banking clients 11,758 329 2.80 % 10,053 309 3.07 % 9,472 310 3.27 %
Loans held for sale - - - 18 1 4.12 % 65 3 4.62 %
Total interest-earning assets 130,326 1,981 1.52 % 108,859 1,800 1.65 % 95,405 1,780 1.87 %
Other interest revenue 104 114 120
Total interest-earning assets $ 130,326 $ 2,085 1.60 % $ 108,859 $ 1,914 1.76 % $ 95,405 $ 1,900 1.99 %
Funding sources:
Deposits from banking clients $ 85,465 $ 31 0.04 % $ 65,546 $ 42 0.06 % $ 52,701 $ 62 0.12 %
Payables to brokerage clients 30,258 3 0.01 % 29,831 3 0.01 % 29,992 3 0.01 %
Long-term debt 1,751 69 3.94 % 1,934 103 5.33 % 2,004 108 5.39 %
Total interest-bearing liabilities 117,474 103 0.09 % 97,311 148 0.15 % 84,697 173 0.20 %
N
on-interest-bearing funding sources 12,852 11,548 10,708
Other interest expense 2 2 2
Total funding sources $ 130,326 $ 105 0.08 % $ 108,859 $ 150 0.14 % $ 95,405 $ 175 0.18 %
N
et interest revenue $ 1
,
980 1.52 % $ 1
,
764 1.62 % $ 1
,
725 1.81 %
(1) Interest revenue was less than $500,000 in the period or periods presented.
(2) Amounts have been calculated based on amortized cost.
Net interest revenue increased in 2013 from 2012 primarily due to higher balances of interest-earning assets and higher
interest rates on new fixed-rate investments, including securities available for sale and securities held to maturity, partially
offset by the effect lower average short-term interest rates and the maturity of short-term interest-earning assets had on the
Company’s average net interest margin. The growth in the average balance of deposits from banking clients funded the
increase in the balance of securities available for sale and securities held to maturity. Net interest revenue also increased due
to the redemption of higher rate trust preferred securities and the exchange of higher rate Senior Notes during the third
quarter of 2012.
Net interest revenue increased in 2012 from 2011 primarily due to higher balances of interest-earning assets, primarily
securities available for sale, partially offset by the effect of low overall interest rates and higher amortization of premiums
relating to mortgage-backed securities. Growth in the average balance of deposits from banking clients funded the increase in
the balance of securities available for sale.
Trading Revenue
Trading revenue includes commission and principal transaction revenues. Commission revenue is affected by the number of
revenue trades executed and the average revenue earned per revenue trade. Principal transaction revenue is primarily
comprised of revenue from trading activity in client fixed income securities. To accommodate clients’ fixed income trading
activity, the Company maintains positions in fixed income securities, including state and municipal debt obligations, U.S.
Government, corporate debt, and other securities. The difference between the price at which the Company buys and sells
securities to and from its clients and other broker-dealers is recognized as principal transaction revenue. Principal transaction