Charles Schwab 2014 Annual Report Download

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2014
Annual
Report

Table of contents

  • Page 1
    2014 Annual Report

  • Page 2
    ...'s growth in client assets, market share, revenues, earnings, and profits (see "Letter From the Chief Executive Officer" and "Letter From the Chief Financial Officer"); operating efficiency; client demand for advisory services; and the launch of Schwab Intelligent Portfoliosâ„¢ and other innovative...

  • Page 3
    ... ." That's why we say, "Own your tomorrowâ„¢ Investing matters. Getting it right is more important than ever. 3 Letter From the CEO / 9 Letter From the CFO / 15 Form 10-K / / 12 Financial Highlights / / 13 Growth in Client Assets and Accounts 14 Executive Management i Board of Directors ii...

  • Page 4
    WALT BETTINGER PRESIDENT AND CHIEF EXECUTIVE OFFICER

  • Page 5
    ... FROM THE CHIEF EXECUTIVE OFFICER / 3 To My Fellow Stockholders At the close of each year, I am honored with the opportunity to craft a letter to you, my fellow stockholders. This letter is my chance to share perspectives on how your company performed and offer a glimpse into our future. In my...

  • Page 6
    4 / LETTER FROM THE CHIEF EXECUTIVE OFFICER Success Any discussion of success at Charles Schwab should start with a description of our strategy-"Through Clients' Eyes"-which is the foundation of everything we have achieved. These three words mean we operate our business with the interests of our ...

  • Page 7
    ... important drivers of regulatory oversight is to ensure financial services firms, and particularly banks, are well managed and adept at managing risk. All of us at Schwab support this objective. Falling Short And last but not least, any discussion of 2014 should include areas where we, as a company...

  • Page 8
    6 / LETTER FROM THE CHIEF EXECUTIVE OFFICER because in class action litigation, far too much of any settlement was lost in fees to class action lawyers, as opposed to going to our clients. As a result, we amended our account agreement to include a waiver of access to class action litigation in ...

  • Page 9
    ... investment advisors can use to create a turnkey, branded mobile presence for their firms, as well as tools that enable secure electronic signatures and wire transfer authorizations Schwab Intelligent Portfoliosâ„¢ Announced the planned launch of Schwab Intelligent Portfolios, a new automated...

  • Page 10
    JOE MARTINETTO CHIEF FINANCIAL OFFICER

  • Page 11
    ... sufficient strength for the Fed to start easing off its rate accommodation and our success with clients continued. Our financial formula was once again visibly working-we turned client growth into revenue growth, maintained the discipline to grow expenses more slowly than revenues, and delivered...

  • Page 12
    ... / LETTER FROM THE CHIEF FINANCIAL OFFICER Let's spend some time reviewing how things turned out, and then we can turn our attention to the financial picture for 2015. Our baseline assumptions for 2014 included a 6.5% rise , no change in interest rates, and client in the S&P 500 ® trading activity...

  • Page 13
    ... earning your support in the months and years ahead. No We achieved our record financial performance in 2014 in the face of an enormous impediment that remains in place to this day-abnormally low interest rates. The low rate environment caused us to waive $751 million in money market fund fees, and...

  • Page 14
    ... share Dividends declared per common share Weighted-average common shares outstanding-diluted Closing market price per share (at year-end) Book value per common share (at year-end) Net revenue growth Pre-tax profit margin Return on average common stockholders' equity Full-time equivalent employees...

  • Page 15
    ... 2013-14 2014 2013 2012 2011 2010 Assets in client accounts , other cash equivalents Schwab One® and deposits from banking clients Proprietary mutual funds (Schwab Funds® and Laudus Funds®): Money market funds Equity and bond funds (1) Total proprietary mutual funds Mutual Fund Marketplace...

  • Page 16
    ...Officer JAY L. ALLEN Executive Vice President and Chief Administrative Officer STEVEN H. ANDERSON Executive Vice President, Retirement Plan Services RON CARTER Executive Vice President, Operational Services MARIE A. CHANDOHA President and Chief Executive Officer, Charles Schwab Investment Management...

  • Page 17
    ... CHARLES SCHWAB CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 94-3025021 (I.R.S. Employer Identification No.) 211 Main Street, San Francisco, CA 94105 (Address of principal executive offices and zip code...

  • Page 18
    THE CHARLES SCHWAB CORPORATION Annual Report On Form 10-K For Fiscal Year Ended December 31, 2014 TABLE OF CONTENTS Part I Item 1. Business General Corporate Overview Business Acquisitions Business Strategy and Competitive Environment Products and Services Regulation Sources of Net Revenues ...

  • Page 19
    ... in San Francisco except as indicated), in wealth management, securities brokerage, banking, money management, and financial advisory services. At December 31, 2014, the Company had $2.46 trillion in client assets, 9.4 million active brokerage accounts(a), 1.4 million corporate retirement plan...

  • Page 20
    ...-feature brokerage accounts; individual retirement accounts; retirement plans for small to large businesses; 529 college savings accounts; designated brokerage accounts; equity incentive plan accounts; and margin loans, as well as access to fixed income securities, equity and debt offerings, options...

  • Page 21
    ... accounts, customized personal advice for tailored portfolios, and specialized planning and full-time portfolio management; Banking - checking accounts linked to brokerage accounts, savings accounts, certificates of deposit, demand deposit accounts, first lien residential real estate mortgage loans...

  • Page 22
    ... needs of clients who trade actively, Schwab and optionsXpress, Inc. both offer integrated Web- and software-based trading platforms, which incorporate intelligent order routing technology, real-time market data, options trading, premium stock or futures research, and multi-channel access, as well...

  • Page 23
    ... a variety of services, including access to insights on practice marketing and business development, business strategy and planning, and transition support. The Company maintains a website that provides interactive tools, educational content, and research reports to assist advisors thinking about...

  • Page 24
    ... markets. The regulations, to which broker-dealers and investment advisors are subject, cover all aspects of the securities business, including, among other things, sales and trading practices, publication of research, margin lending, uses and safekeeping of clients' funds and securities, capital...

  • Page 25
    ...(d) of the Securities Exchange Act of 1934. All such filings are available free of charge either on the Company's website or by request via email ([email protected]), telephone (415-667-1959), or mail (Charles Schwab Investor Relations at 211 Main Street, San Francisco, CA 94105). Item...

  • Page 26
    ... federal, state and SRO rules and regulations, including changes relating to money market mutual funds and broker-dealer fiduciary duties, may directly affect the operation and profitability of the Company or its specific business lines. The profitability of the Company could also be affected...

  • Page 27
    ..., and firms or exchanges handling client orders, or from external events and relationships impacting the Company and/or any of its key business partners and vendors. This risk also includes the risk of human error, execution errors, errors in models such as those used for asset management, capital...

  • Page 28
    ... Company has policies and procedures designed to manage this risk, the policies and procedures may not be fully effective. The Company's exposure mainly results from margin lending, clients' options trading, securities lending, mortgage lending, its role as a counterparty in financial contracts and...

  • Page 29
    ... from changes in the interest rates on its interest-earning assets (such as cash equivalents, short- and long-term investments, and mortgage and margin loans) relative to changes in the costs of its funding sources (including deposits in banking and uninvested cash in brokerage accounts, short-term...

  • Page 30
    ... or other exposures. The Company also faces risk related to external fraud involving the compromise of clients' personal electronic devices that can facilitate the unauthorized access to login and password information for their various online financial accounts, including those at the Company. Such...

  • Page 31
    ...CHARLES SCHWAB CORPORATION The Company's industry is characterized by aggressive price competition. The Company continually monitors its pricing in relation to competitors and periodically adjusts trade commission rates, interest rates on deposits and loans, fees for advisory services, and other fee...

  • Page 32
    ... all of the Company's branch offices are located in leased premises. The corporate headquarters, data centers, offices, and service centers support both of the Company's segments. Item 3. Legal Proceedings For a discussion of legal proceedings, see "Item 8 - Financial Statements and Supplementary...

  • Page 33
    ...'s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities CSC's common stock is listed on The New York Stock Exchange under the ticker symbol SCHW. The number of common stockholders of record as of January 30, 2015, was 6,869. The closing market price per share on...

  • Page 34
    THE CHARLES SCHWAB CORPORATION Issuer Purchases of Equity Securities The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the fourth quarter of 2014: Total Number of Shares Purchased as Part of Publicly Announced Program (1) (in ...

  • Page 35
    THE CHARLES SCHWAB CORPORATION Item 6. Selected Financial Data Selected Financial and Operating Data (In Millions, Except Per Share Amounts, Ratios, or as Noted) Growth Rates Compounded Annual 4-Year (1) 1-Year 2010-2014 2013-2014 Results of Operations Net revenues Expenses excluding interest Net...

  • Page 36
    ... results of operations of recording stock option expense (see "Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - 19. Employee Incentive, Retirement, and Deferred Compensation Plans"). Achievement of the expressed beliefs, objectives and expectations...

  • Page 37
    ...Company's stock repurchase activity; the level of brokerage client cash balances and deposits from banking clients; the availability and terms of external financing; capital needs and management; timing and amount of severance and other costs related to reducing the Company's San Francisco footprint...

  • Page 38
    ... in certain components of client assets (e.g., Mutual Fund OneSource® funds) directly impact asset management and administration fees. (3) New brokerage accounts include all brokerage accounts opened during the period, as well as any accounts added via acquisition. This metric measures the Company...

  • Page 39
    ...-time flows. Management considers this to be a useful metric when comparing period-to-period client asset flows. The following one-time flows were excluded from core net new assets. • 2013 excludes outflows of $74.5 billion relating to the planned transfer of a mutual fund clearing services client...

  • Page 40
    ...% in 2013 from 2012, primarily due to increases in asset management and administration fees, net interest revenue, and trading revenue, partially offset by a decrease in other revenue - net. Asset management and administration fees increased primarily due to increases in mutual fund service fees and...

  • Page 41
    ... to the Company's business, financial condition, and results of operations. The Company is pursuing lawsuits in state court in San Francisco for rescission and damages against issuers, underwriters, and dealers of individual non-agency residential mortgage-backed securities on which the Company...

  • Page 42
    ... revenue, and trading revenue all increased in 2013 as compared to 2012. Year Ended December 31, Growth Rate 2013-2014 Asset management and administration fees Schwab money market funds before fee waivers Fee waivers Schwab money market funds after fee waivers Equity and bond funds ® Mutual Fund...

  • Page 43
    .... Schwab Bank lends funds to banking clients primarily in the form of mortgage loans, HELOCs, and personal loans secured by securities. These loans are largely funded by interest-bearing deposits from banking clients. In clearing their clients' trades, Schwab and optionsXpress, Inc. hold cash...

  • Page 44
    ... Cash and investments segregated Broker-related receivables (1) Receivables from brokerage clients Securities available for sale (2) Securities held to maturity Loans to banking clients Loans held for sale Total interest-earning assets Other interest revenue Total interest-earning assets $ 2014...

  • Page 45
    ... 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 increased by $107 million, or 45%, in 2014 compared...

  • Page 46
    ... severance benefits resulting from changes in the Company's geographic footprint and due to annual salary increases. Incentive compensation was relatively flat in 2014 from 2013 primarily due to an increase in discretionary bonus costs, offset by higher 2013 expense related to a new payout schedule...

  • Page 47
    ... and corporate brokerage services. The Advisor Services segment provides custodial, trading, and support services to independent investment advisors, and retirement business services to independent retirement plan advisors and recordkeepers whose plan assets are held at Schwab Bank. Banking revenues...

  • Page 48
    ...Revenues Asset management and administration fees Net interest revenue Trading revenue Other - net Provision for loan losses Net impairment losses on securities Total net revenues Expenses Excluding Interest Income before taxes on income Investor Services 2014 2013 2012 Growth Rate 2013-2014 Advisor...

  • Page 49
    ... margin. Asset management and administration fees increased primarily due to increases in advice solutions fees and mutual fund service fees. Advice solutions fees increased due to growth in client assets enrolled in advisory offers, including Windhaven and Schwab Private Client. Mutual fund service...

  • Page 50
    ... margin and mortgage lending, and transaction settlement, in addition to funding cash dividends, acquisitions, investments, short- and long-term debt, and managing statutory capital requirements. CSC's liquidity needs are generally met through cash generated by its subsidiaries, as well as cash...

  • Page 51
    ... 2014. Schwab Schwab's liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $32.0 billion and $33.2 billion at December 31, 2014 and 2013, respectively. Management believes that brokerage client...

  • Page 52
    ...Corporation, Schwab has unsecured standby letter of credit agreements (LOCs) with five banks in favor of the Options Clearing Corporation aggregating $225 million at December 31, 2014. There were no funds drawn under any of these LOCs during 2014. In connection with its securities lending activities...

  • Page 53
    ...no funds drawn under this facility during 2014. optionsXpress, Inc. optionsXpress, Inc.'s liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $942 million at December 31, 2014. Management believes...

  • Page 54
    ...new office campus in Denver, Colorado in 2014. As in recent years, the Company adjusts its capital expenditures periodically as business conditions change. Management believes that funds generated by its operations will continue to be the primary funding source of its capital expenditures. Dividends...

  • Page 55
    ... services, and hardware- and software-related agreements. Includes purchase obligations that can be canceled by the Company without penalty. RISK MANAGEMENT The Company's business activities expose it to a variety of risks, including operational, credit, market, liquidity, compliance and legal risk...

  • Page 56
    ... policy and provides oversight of incentive compensation risk. The committee reviews and approves the Annual Risk Assessment of incentive compensation plans, and reports directly to the Board Compensation Committee. The Company's compliance, finance, internal audit, legal, and corporate risk...

  • Page 57
    ... ongoing process of upgrading, enhancing, and testing its technology systems. This effort is focused on meeting client needs, meeting market and regulatory changes, and deploying standardized technology platforms. Operational risk also includes the risk of human error, employee misconduct, external...

  • Page 58
    ..., for margin loan and securities lending agreements, collateral arrangements require that the fair value of such collateral exceeds the amounts loaned. The Company's credit risk exposure related to loans to banking clients is actively managed through individual and portfolio reviews performed by...

  • Page 59
    ... 31, 2014, respectively. These portfolios include U.S. agency and non-agency mortgage-backed securities, asset-backed securities, corporate debt securities, U.S. agency notes, certificates of deposit, and treasury securities. U.S. agency mortgage-backed securities do not have explicit credit ratings...

  • Page 60
    ...Except Ratios, or as Noted) Schwab performs clearing services for all securities transactions in its client accounts. Schwab has exposure to credit risk due to its obligation to settle transactions with clearing corporations, mutual funds, and other financial institutions even if Schwab's client or...

  • Page 61
    ... in these Funds. Certain of the Funds' positions include certificates of deposits, time deposits, commercial paper and corporate debt securities issued by counterparties in Europe. Management mitigates exposure to European holdings by employing a separate team of credit analysts that evaluate...

  • Page 62
    ... requirements. These procedures address issues such as business conduct and ethics, sales and trading practices, marketing and communications, extension of credit, client funds and securities, books and records, anti-money laundering, client privacy, and employment policies. Despite the Company...

  • Page 63
    ...and may obtain up to five prices on assets with higher risk of limited observable information, such as non-agency residential mortgage-backed securities. The Company's primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable...

  • Page 64
    ... Company's annual goodwill impairment testing date is April 1st. In testing for a potential impairment of goodwill on April 1, 2014, management performed an assessment of each of the Company's reporting units (generally defined as the Company's businesses for which financial information is available...

  • Page 65
    ... the allowance for loan loss for each loan segment. The allowance for personal loans secured by securities is established on a loan by loan basis. The market value of collateral pledged by borrowers is regularly reviewed to ensure the Company's commitment to extend credit is over-collateralized...

  • Page 66
    ... customer securities loaned out as part of the Company's securities lending activities. Equity market valuations may also affect the level of brokerage client trading activity, margin borrowing, and overall client engagement with the Company. Additionally, the Company earns mutual fund service fees...

  • Page 67
    ...changes in asset and liability mix. If the Company's guidelines for its net interest revenue sensitivity are breached, management must report the breach to the Company's Corporate Asset-Liability Management and Pricing Committee (Corporate ALCO) and establish a plan to address the interest rate risk...

  • Page 68
    ... Statements Note 1. Introduction and Basis of Presentation Note 2. Summary of Significant Accounting Policies Note 3. Receivables from Brokerage Clients Note 4. Other Securities Owned Note 5. Securities Available for Sale and Securities Held to Maturity Note 6. Loans to Banking Clients and Related...

  • Page 69
    ..., Net Revenues Asset management and administration fees Interest revenue Interest expense Net interest revenue Trading revenue Other - net Provision for loan losses Net impairment losses on securities (1) Total net revenues Expenses Excluding Interest Compensation and benefits Professional services...

  • Page 70
    ... losses on securities Other reclassifications included in other revenue Other Other comprehensive income (loss), before tax Income tax effect Other comprehensive income (loss), net of tax Comprehensive Income See Notes to Consolidated Financial Statements. $ 2014 1,321 $ 2013 1,071 $ 2012 928...

  • Page 71
    ...Loans to banking clients - net Equipment, office facilities, and property - net Goodwill Intangible assets - net Other assets Total assets Liabilities and Stockholders' Equity Deposits from banking clients Payables to brokers, dealers, and clearing organizations Payables to brokerage clients Accrued...

  • Page 72
    ... in loans to banking clients Purchase of equipment, office facilities, and property Cash paid in business acquisitions Other investing activities Net cash used for investing activities Cash Flows from Financing Activities Net change in deposits from banking clients Issuance of commercial paper...

  • Page 73
    ... on common stock Stock option exercises and other Stock-based compensation and related tax effects Other Balance at December 31, 2012 Net income Other comprehensive loss, net of tax Dividends declared on preferred stock Dividends declared on common stock Stock option exercises and other Stock-based...

  • Page 74
    ... loan holding company engaged, through its subsidiaries, in wealth management, securities brokerage, banking, money management, and financial advisory services. Charles Schwab & Co., Inc. (Schwab) is a securities broker-dealer with over 325 domestic branch offices in 45 states, as well as a branch...

  • Page 75
    ... Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Principal transaction revenue is primarily comprised of revenue from trading activity in client fixed income securities, which is recorded on a trade date basis. To...

  • Page 76
    ... direct origination costs or net purchase premiums. Additionally, loans are recorded net of an allowance for loan losses. The Company's loan portfolio includes four loan segments: residential real estate mortgages, home equity loans and lines of credit (HELOC), personal loans secured by securities...

  • Page 77
    ... certain costs incurred for purchasing or developing software for internal use are amortized on a straight-line basis over an estimated useful life of three or five years. Equipment, office facilities, and property are reviewed for impairment whenever events or changes in circumstances indicate that...

  • Page 78
    ...units (defined as the Company's businesses for which financial information is available and reviewed regularly by management) and compares it to their carrying values. The estimated fair values of the reporting units are established using an income approach based on a discounted cash flow model that...

  • Page 79
    ... Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Fair values of assets and liabilities Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly...

  • Page 80
    ... rates that reset monthly. The Company does not charge a fee to maintain a HELOC or personal loan. • • • • • • • • New Accounting Standards Not Yet Adopted In January 2014, the Financial Accounting Standards Board (FASB) issued new guidance for creditors of consumer mortgage...

  • Page 81
    ... Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements 4. Other Securities Owned A summary of other securities owned is as follows: December 31, Schwab Funds® money market funds Equity and bond mutual funds State and...

  • Page 82
    ..., Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements December 31, 2013 Securities available for sale: U.S. agency mortgage-backed securities Asset-backed securities Corporate debt securities U.S. agency notes Certificates of deposit...

  • Page 83
    ...Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Less than 12 months Fair Unrealized Value Losses $ 5,044 6,391 1,802 3,636 $ 47 33 14 104 2 200 698 43 741 941 $ December 31, 2013 Securities available for sale: U.S agency mortgage...

  • Page 84
    ... 6. Loans to Banking Clients and Related Allowance for Loan Losses 2014 $ 6,556 $ 30 $ 23 2013 $ 6,167 $ 7 $ 2012 $ 3,336 $ 35 $ - The composition of loans to banking clients by loan segment is as follows: December 31, Residential real estate mortgages Home equity loans and lines of credit Personal...

  • Page 85
    ..., Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Schwab Bank provides a co-branded loan origination program for Schwab Bank clients (the Program) with Quicken Loans, Inc. (Quicken Loans®). Pursuant to the...

  • Page 86
    ...Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements December 31, 2014 Residential real estate mortgages: Estimated Current LTV 70% - 90% - 100% Total Home equity loans and lines of credit: Estimated...

  • Page 87
    ... Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Weighted Average Updated FICO December 31, 2013 Residential real estate mortgages: Estimated Current LTV 70% - 90% - 100% Total Home equity loans and lines...

  • Page 88
    ..., Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements 7. Equipment, Office Facilities, and Property Equipment, office facilities, and property are detailed below: December 31, Software Buildings Leasehold...

  • Page 89
    ... swept from brokerage accounts Checking Savings and other Total interest-bearing deposits Non-interest-bearing deposits Total deposits from banking clients 11. Payables to Brokers, Dealers, and Clearing Organizations 2014 $ 82,101 12,318 7,832 102,251 564 $ 102,815 2013 $ 72,166 12,053 8,232 92...

  • Page 90
    ..., Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements 12. Payables to Brokerage Clients The principal source of funding for Schwab's margin lending is cash balances in brokerage client accounts, which are...

  • Page 91
    ... 2015. This facility replaced a similar facility that expired in June 2014. The funds under this facility are available for general corporate purposes. The financial covenants under this facility require Schwab to maintain a minimum net capital ratio, as defined, Schwab Bank to be well capitalized...

  • Page 92
    ... Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Guarantees and indemnifications: In the normal course of business, the Company provides certain indemnifications (i.e., protection...

  • Page 93
    (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements causes of action. On February 3, 2015, the parties entered into a settlement agreement under which the NYAG's complaint will be ...

  • Page 94
    ... Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements with other broker-dealers. However, the Company does not net securities lending transactions and therefore, the Company's securities loaned and securities borrowed...

  • Page 95
    ... loan. At December 31, 2014 and 2013, the Company had commitments to purchase First Mortgage loans of $226 million and $208 million, respectively. Schwab Bank also has commitments to extend credit related to its clients' unused HELOCs, personal loans secured by securities, and other lines of credit...

  • Page 96
    ...tables: Quoted Prices in Active Markets for Identical Assets (Level 1) $ 2,142 2,142 December 31, 2014 Cash equivalents: Money market funds Commercial paper Total cash equivalents Investments segregated and on deposit for regulatory purposes: Certificates of deposit U.S. Government securities Total...

  • Page 97
    ..., Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Quoted Prices in Active Markets for Identical Assets (Level 1) $ 1,141 1,141 December 31, 2013 Cash equivalents: Money market funds Commercial paper Total...

  • Page 98
    ... real estate mortgages Home equity loans and lines of credit Personal loans secured by securities Other Total loans to banking clients Other assets Total Liabilities: Deposits from banking clients Payables to brokers, dealers, and clearing organizations Payables to brokerage clients Accrued expenses...

  • Page 99
    ... Financial Statements Quoted Prices in Active Markets for Identical Assets (Level 1) $ December 31, 2013 Assets: Cash and cash equivalents Cash and investments segregated and on deposit for regulatory purposes Receivables from brokers, dealers, and clearing organizations Receivables from brokerage...

  • Page 100
    ... Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements The Series A Preferred Stock has no stated maturity and has a fixed dividend rate of 7.000% until February 2022 and a floating rate equal to three-month LIBOR plus...

  • Page 101
    ... offers retirement and employee stock purchase plans to eligible employees and sponsors deferred compensation plans for eligible officers and non-employee directors. A summary of the Company's stock-based compensation and related income tax benefit is as follows: Year Ended December 31, Stock option...

  • Page 102
    (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements The Company's stock option activity is summarized below: WeightedAverage Exercise Price per Share $ 16.74 $ 27.96 $ 19.04 $ 16....

  • Page 103
    (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements The Company's restricted stock units activity is summarized below: WeightedAverage Grant Date Fair Value per Unit $ 16.11 $ 28....

  • Page 104
    ...Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements The temporary differences that created deferred tax assets and liabilities are detailed below: December 31, Deferred tax assets: Employee compensation, severance, and benefits...

  • Page 105
    ... Deposit Insurance Corporation, as its deposit insurer, and the Consumer Financial Protection Bureau. CSC is required to serve as a source of strength for Schwab Bank. Prior to January 1, 2015, CSC, as a savings and loan holding company, was not subject to specific statutory capital requirements...

  • Page 106
    ...on its regulatory capital ratios at December 31, 2014 and 2013, Schwab Bank is considered well capitalized (the highest category) pursuant to banking regulatory guidelines. There are no conditions or events since December 31, 2014, that management believes have changed Schwab Bank's capital category...

  • Page 107
    ... Revenues: Asset management and administration fees Net interest revenue Trading revenue Other - net (1) Provision for loan losses Net impairment losses on securities Total net revenues 2014 Investor Services 2013 2012 2014 Advisor Services 2013 2012 2014 Unallocated 2013 2012 2014 Total 2013 2012...

  • Page 108
    ...Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements 24. Business Acquisition On December 14, 2012, the Company acquired ThomasPartners, Inc., a growth and dividend income-focused asset management firm, for $85 million in cash...

  • Page 109
    ... Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Condensed Balance Sheets December 31, Assets Cash and cash equivalents Receivables from subsidiaries Other securities owned - at fair value Loans to non-bank subsidiaries...

  • Page 110
    ... Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements Condensed Statements of Cash Flows Year Ended December 31, Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided...

  • Page 111
    (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements 27. Quarterly Financial Information (Unaudited) Fourth Quarter Third Quarter 1,551 1,033 321 312 1,316 .24 .24 .06 31.00 26.44...

  • Page 112
    ... financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management...

  • Page 113
    ... officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with accounting principles generally accepted in the United States of America. As of December 31, 2014, management...

  • Page 114
    ... financial reporting. Management's Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are included in "Item 8 - Financial Statements and Supplementary Data." Item 9B. None. PART III Item 10. Directors, Executive Officers, and Corporate...

  • Page 115
    ...and Chief Administrative Officer Executive Vice President - Advisor Services Executive Vice President, General Counsel and Corporate Secretary Executive Vice President - Investor Services Executive Vice President and Chief Financial Officer Executive Vice President - Client Solutions Mr. Schwab has...

  • Page 116
    ...served as Senior Vice President - Corporate Services of Schwab from 2004 until 2006. Mr. McCool also served as President and Chief Executive Officer of The Charles Schwab Trust Company (CSTC) from 2005 until 2007. Mr. McCool served as Senior Vice President - Plan Administrative Services of CSTC from...

  • Page 117
    ... listed below are filed as part of this annual report on Form 10-K. Exhibit Number 2.1 Exhibit Agreement and Plan of Merger, dated March 18, 2011, by and among The Charles Schwab Corporation, Neon Acquisition Corp. and optionsXpress Holdings, Inc., filed as Exhibit 2.1 to the Registrant's Form...

  • Page 118
    ...'s Form 10-K for the year ended December 31, 2013, and incorporated herein by reference. The Charles Schwab Corporation Corporate Executive Bonus Plan, restated to include amendments approved at the Annual Meeting of Stockholders on May 13, 2010, filed as Exhibit 10.331 to the Registrant's Form...

  • Page 119
    ... dated January 24, 2013, and incorporated herein by reference. Form of Notice and Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors' Deferred Compensation Plan II and The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as...

  • Page 120
    ... report on Form 10-K. Management contract or compensatory plan. Attached as Exhibit 101 to this Annual Report on Form 10-K for the annual period ended December 31, 2014, are the following materials formatted in XBRL (Extensible Business Reporting Language) (i) the Consolidated Statements of Income...

  • Page 121
    ..., on February 23, 2015. THE CHARLES SCHWAB CORPORATION (Registrant) BY: /s/ Walter W. Bettinger II Walter W. Bettinger II President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of...

  • Page 122
    THE CHARLES SCHWAB CORPORATION Index to Financial Statement Schedule Page Schedule II - Valuation and Qualifying Accounts Supplemental Financial Data for Charles Schwab Bank (Unaudited) F-2 F-3 - F-9 Schedules not listed are omitted because of the absence of the conditions under which they are ...

  • Page 123
    ...$ 1 Includes collections of previously written-off accounts. Excludes banking-related valuation and qualifying accounts. See "Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - 6. Loans to Banking Clients and Related Allowance for Loan Losses." F-2

  • Page 124
    ... the Securities Exchange Act of 1934, Industry Guide 3 - Statistical Disclosure by Bank Holding Companies. The accompanying unaudited financial information represents Charles Schwab Bank (Schwab Bank), which is a subsidiary of The Charles Schwab Corporation (CSC). CSC is a savings and loan holding...

  • Page 125
    ... for sale (2) Securities held to maturity Loans to banking clients (3) Loans held for sale Other interest-earning assets Total interest-earning assets Interest-bearing sources of funds: Interest-bearing banking deposits Total sources on which interest is paid Change in net interest revenue $ 33...

  • Page 126
    ... 2014 Securities available for sale: Asset-backed securities U.S. agency mortgage-backed securities Corporate debt securities U.S. agency notes Treasury securities Certificates of deposit Non-agency commercial mortgage-backed securities Other securities Total securities available for sale Securities...

  • Page 127
    THE CHARLES SCHWAB CORPORATION Supplemental Financial Data for Charles Schwab Bank (Unaudited) (Dollars in Millions) December 31, 2012 Securities available for sale: U.S. agency mortgage-backed securities Asset-backed securities Corporate debt securities Certificates of deposit U.S. agency notes ...

  • Page 128
    ... composition of the loan portfolio is as follows: December 31, Residential real estate mortgages Home equity loans and lines of credit Personal loans secured by securities Other Total loans to banking clients 2014 8,127 2,955 2,320 36 $ 13,438 $ $ 2013 8,006 3,041 1,384 34 $ 12,465 2012 6,507 3,287...

  • Page 129
    ... CHARLES SCHWAB CORPORATION Supplemental Financial Data for Charles Schwab Bank (Unaudited) (Dollars in Millions) An analysis of nonaccrual loans is as follows: December 31, Nonaccrual loans Average nonaccrual loans 2014 $ $ 35 39 $ $ 2013 48 43 $ $ 2012 48 48 $ $ 2011 52 51 $ $ 2010 51 40 Changes...

  • Page 130
    THE CHARLES SCHWAB CORPORATION Supplemental Financial Data for Charles Schwab Bank (Unaudited) (Dollars in Millions) 7. Deposits from Banking Clients The following table presents the average amount of and the average rate paid on deposit categories that are in excess of ten percent of average ...

  • Page 131
    ... to brokerage clients interest expense (2) Total fixed charges Preferred stock dividends Total fixed charges and preferred stock dividends (C) Ratio of earnings to fixed charges and preferred stock dividends (B) ÷ (C) (1) (3) 2014 $ 2,115 $ 2013 1,705 $ 2012 1,450 $ 2011 1,392 $ 2010 779...

  • Page 132
    ..., 2014. The following is a listing of the significant subsidiaries of the Registrant: Schwab Holdings, Inc. (holding company for Charles Schwab & Co., Inc.), a Delaware corporation Charles Schwab & Co., Inc., a California corporation Charles Schwab Bank, a Federal Savings Association Charles Schwab...

  • Page 133
    ...-173635 (The Charles Schwab Corporation Financial Consultant Career Achievement Award Program) (The Charles Schwab Corporation 2013 Stock Incentive Plan) (The Charles Schwab Corporation 2004 Stock Incentive Plan) (optionsXpress Holdings, Inc. 2008 Equity Incentive Plan, optionsXpress Holdings, Inc...

  • Page 134
    ...; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 23, 2015 /s/ Walter W. Bettinger II Walter W. Bettinger II President and Chief Executive Officer

  • Page 135
    ... b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 23, 2015 /s/ Joseph R. Martinetto Joseph R. Martinetto Executive Vice President and Chief Financial Officer

  • Page 136
    ... W. Bettinger II President and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and will be retained by The Charles Schwab Corporation and furnished to the Securities and Exchange Commission or its staff...

  • Page 137
    ... R. Martinetto Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and will be retained by The Charles Schwab Corporation and furnished to the Securities and Exchange Commission...

  • Page 138
    ... Corporate Governance Committee. CHRISTOPHER V. DODDS Senior Advisor, Carlyle Group, a private equity firm Age: 55. Director since 2014. Term expires in 2015. Member of the Risk Committee. STEPHEN A. ELLIS Chief Executive Officer, Asurion, LLC, a provider of consumer technology protection services...

  • Page 139
    ... CHARLES SCHWAB CORPORATION 211 Main Street San Francisco, CA 94105 (415) 667-7000 www.aboutschwab.com The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 325 offices and 9.4 million active brokerage accounts, 1.4 million corporate retirement plan...

  • Page 140
    THE CHARLES SCHWAB CORPORATION 211 Main Street San Francisco, CA 94105 (415) 667-7000 Schwab.com AboutSchwab.com twitter.com/CharlesSchwab linkedin.com/company/CharlesSchwab facebook.com/CharlesSchwab youtube.com/user/CharlesSchwab Printed on recycled paper. ©2015 The Charles Schwab Corporation. ...