Charles Schwab 2013 Annual Report Download - page 36

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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)
- 25 -
revenue also includes adjustments to the fair value of these securities positions. Factors that influence principal transaction
revenue include the volume of client trades and market price volatility.
Trading revenue increased by $45 million, or 5%, in 2013 from 2012 primarily due to higher daily average revenue trades
and two additional trading days in 2013. Trading revenue decreased by $59 million, or 6%, in 2012 from 2011 primarily due
to lower daily average revenue trades, partially offset by the inclusion of optionsXpress’ trading activity for the full year.
Daily average revenue trades increased by 4% in 2013 from 2012 primarily due to a higher volume of equity and mutual fund
trades, partially offset by a lower volume of future and option trades. Daily average revenue trades decreased by 7% in 2012
from 2011 primarily due to a lower volume of equity and mutual fund trades, partially offset by a higher volume of option
and future trades as a result of the inclusion of optionsXpress. Average revenue per revenue trade remained relatively flat
from 2011 to 2013.
Growth Rate
Year Ended December 31, 2012-2013 2013
2012 2011
Daily average revenue trades (1) (in thousands) 4% 295.0 282.7 303.8
Clients’ daily average trades (2) (in thousands) 11 % 490.5 440.9 451.1
N
umber of trading days (3) 1% 250.5 248.5 251.5
Average revenue per revenue trade - $ 12.31 $ 12.35 $ 12.15
(1) Includes all client trades that generate trading revenue (i.e., commission revenue or principal transaction revenue).
(2) Includes daily average revenue trades, trades by clients in asset-based pricing relationships, and all commission-free
t
rades, including the Company’s Mutual Fund OneSource funds and ETFs, and other proprietary products. Clients’ daily
average trades is a
n
indicator of client engagement with securities markets.
(3) October 29 and 30, 2012, were not included as trading days due to weather-related market closures.
Other Revenue – Net
Other revenue – net includes order flow revenue, nonrecurring gains, software fees from the Company’s portfolio
management services, exchange processing fees, realized gains or losses on sales of securities available for sale, and other
service fees.
Other revenue – net decreased by $20 million, or 8%, in 2013 compared to 2012 primarily due to a non-recurring gain of
$70 million relating to a confidential resolution of a vendor dispute in the second quarter of 2012 and realized gains of
$35 million from the sales of securities available for sale in 2012, partially offset by an increase in order flow revenue that
Schwab began receiving in November 2012.
Other revenue – net increased by $96 million, or 60%, in 2012 compared to 2011 primarily due to a non-recurring gain of
$70 million relating to a confidential resolution of a vendor dispute mentioned above. In November 2012, the Company
began receiving additional order flow rebates from market venues to which client orders are routed for execution. Order flow
revenue increased by $23 million due to this revenue and the inclusion of a full year of optionsXpress’ order flow revenue. In
December 2012, CSC redeemed the remaining outstanding portion of its 4.950% Senior Notes of $494 million that were due
in 2014, which resulted in the payment of a make-whole premium of $31 million that was recorded in other revenue – net.
Other revenue – net also included realized gains of $35 million from the sales of securities available for sale.
Provision for Loan Losses
The provision for loan losses decreased by $17 million in 2013, from $16 million to $(1) million in 2012 and 2013,
respectively, primarily due to improved residential real estate mortgage and HELOC credit quality in the Company’s loan
portfolio. The provision for loan losses was relatively flat in 2012 from 2011, reflecting stable levels of delinquencies and
nonaccrual loans experienced in 2012. Charge-offs were $11 million, $16 million, and $19 million in 2013, 2012, and 2011,
respectively. For further discussion on the Company’s credit risk and the allowance for loan losses, see “Risk Management –
Credit Risk” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements –
6. Loans to Banking Clients and Related Allowance for Loan Losses.”