Charles Schwab 2015 Annual Report Download - page 52

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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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, 2015 2014 2013
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 $ 9,358 $ 24 0.26 % $ 7,179 $ 16 0.22 % $ 6,943 $ 16 0.23 %
Cash and investments segregated 18,606 31 0.17 % 20,268 24 0.12 % 25,419 35 0.14 %
Broker-related receivables (1) 274 - 0.07 % 325 - 0.09 % 377 - 0.04 %
Receivables from brokerage clients 15,212 502 3.30 % 13,778 482 3.50 % 11,800 434 3.68 %
Securities available for sale (2) 62,249 629 1.01 % 52,057 546 1.05 % 49,114 557 1.13 %
Securities held to maturity 38,280 957 2.50 % 32,361 828 2.56 % 24,915 610 2.45 %
Bank loans 13,973 369 2.64 % 12,906 355 2.75 % 11,758 329 2.80 %
Total interest-earning assets 157,952 2,512 1.59 % 138,874 2,251 1.62 % 130,326 1,981 1.52 %
Other interest revenue 145 123 104
Total interest-earning assets $ 157,952 $ 2,657 1.68 % $ 138,874 $ 2,374 1.71 % $ 130,326 $ 2,085 1.60 %
Funding sources:
Bank deposits $ 113,464 $ 29 0.03 % $ 95,842 $ 30 0.03 % $ 85,465 $ 31 0.04 %
Payables to brokerage clients 25,651 2 0.01 % 26,731 2 0.01 % 30,258 3 0.01 %
Long-term debt 2,727 92 3.37 % 1,901 73 3.84 % 1,751 69 3.94 %
Total interest-bearing liabilities 141,842 123 0.09 % 124,474 105 0.08 % 117,474 103 0.09 %
N
on-interest-bearing funding sources 16,110 14,400 12,852
Other interest expense (3) 9 (3) 2
Total funding sources $ 157,952 $ 132 0.08 % $ 138,874 $ 102 0.07 % $ 130,326 $ 105 0.08 %
N
et interest revenue $ 2
,
525 1.60 % $ 2
,
272 1.64 % $ 1
,
980 1.52 %
(1) Interest revenue was less than $500,000 in the periods presented.
(2) Amounts have been calculated based on amortized cost.
(3) Includes the impact of capitalizing interest on building construction and software development.
Net interest revenue increased $253 million or 11% in 2015 from 2014 primarily due to higher average balances of interest-
earning assets, partially offset by the effect of lower net interest margins. The growth in the average balances in bank deposits
resulted from an increase in the uninvested cash balances in certain brokerage client accounts swept to Schwab Bank.
Net interest revenue increased $292 million or 15% in 2014 from 2013 primarily due to higher average balances of interest-
earning assets, including margin loans and the Company’s investment portfolio, and the effect higher average interest rates
on securities held to maturity had on the Company’s average net interest margin. The growth in the average balance of bank
deposits funded the increase in the balances of securities held to maturity and 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. Factors that influence principal transaction
revenue include the volume of client trades and market price volatility. To accommodate clients’ fixed income trading
activity, the Company maintains positions in fixed income securities, including U.S. 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
revenue also includes adjustments to the fair value of these securities positions.