Charles Schwab 2014 Annual Report Download - page 38

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)
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OVERVIEW
Management of the Company focuses on several key client activity and financial metrics in evaluating the Company’s
financial position and operating performance. Management believes that net revenue growth, pre-tax profit margin, earnings
per common share, and return on common stockholders’ equity provide broad indicators of the Company’s overall financial
health, operating efficiency, and ability to generate acceptable returns within the context of a given operating environment.
Expenses excluding interest as a percentage of average client assets is considered by management to be a measure of
operating efficiency. Results for the years ended December 31, 2014, 2013, and 2012 are:
Growth Rate
1-Year
Year Ended December 31, 2013-2014 2014 2013 2012
Client Metrics:
N
et new client assets (1) (in billions) N/M $ 124.8 $ 41.6 $ 139.7
Client assets (2) (in billions, at year end) 10 % $ 2,463.6 $ 2,249.4 $ 1,951.6
N
ew brokerage accounts (3) (in thousands) 1 % 972 960 900
Active brokerage accounts (4) (in thousands, at year end) 3 % 9,386 9,093 8,787
Assets receiving ongoing advisory services (5)
(in billions, at year end) 12 % $ 1,228.1 $ 1,101.4 $ 915.2
Client cash as a percentage of client assets (6)
(at year end) 12.3 % 13.1 % 14.7 %
Company Financial Metrics:
N
et revenues 11 % $ 6,058 $ 5,435 $ 4,883
Expenses excluding interest 6 % 3,943 3,730 3,433
Income before taxes on income 24 % 2,115 1,705 1,450
Taxes on income 25 % 794 634 522
N
et income 23 % $ 1,321 $ 1,071 $ 928
Preferred stock dividends (2)% 60 61 45
N
et income available to common stockholders 25 % $ 1,261 $ 1,010 $ 883
Earnin
g
s
p
er common share
–
dilute
d
22 % $ .95 $ .78 $ .69
N
et revenue growth from prior yea
r
11 % 11 % 4 %
Pre-tax profit margin 34.9 % 31.4 % 29.7 %
Return on average common stockholders’ equity (7) 12 % 11 % 11 %
Expenses excluding interest as a percentage of
average client assets 0.17 % 0.18 % 0.19 %
(1)
N
et new client assets is defined as the total inflows of client cash and securities to the firm less client outflows. Management believes
that this metric, along with core net new assets, depicts how well the Company’s products and services appeal to new and existing
clients. Core net new assets totaled $124.8 billion, $140.8 billion, and $112.4 billion in 2014, 2013, and 2012, respectively. See below
for items excluded from core net new assets.
(2) Client assets represent the market value of all client assets custodied at the Company. Management considers client assets to be
indicative of the Company’s appeal in the marketplace. Additionally, fluctuations in certain components of client assets (e.g., Mutual
Fund OneSource® funds) directly impact asset management and administration fees.
(3)
N
ew brokerage accounts include all brokerage accounts opened during the period, as well as any accounts added via acquisition. This
metric measures the Company’s effectiveness in attracting new clients and building stronger relationships with existing clients.
(4) Active brokerage accounts include accounts with balances or activity within the preceding eight months. This metric is an indicator of
the Company’s success in both attracting and retaining clients.
(5) Assets receiving ongoing advisory services include relationships under the guidance of independent advisors and assets enrolled in
one of the Company’s retail or other advisory solutions. This metric depicts how well the Company’s advisory products and se
r
vices
appeal to new and existing clients.
(6) Client cash as a percentage of client assets includes Schwab One®, certain cash equivalents, deposits from banking clients and money
m
arket fund balances, as a percentage of client assets. This measure is an indicator of clients’ engagement in the fixed income and
equity markets.
(7) Calculated as net income available to common stockholders divided by average common stockholders’ equity.
N/M Not meaningful.