Charles Schwab 2015 Annual Report Download - page 57

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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)
- 37 -
Net revenues increased by $472 million, or 11%, in 2014 from 2013 primarily due to increases in net interest revenue, asset
management and administration fees, and other revenue. Net interest revenue increased primarily due to higher balances of
interest-earning assets, and the effect higher average interest rates on securities held to maturity had on the Company’s
average net interest margin. Asset management and administration fees increased due to fees from mutual fund services,
advice solutions, and other asset management and administration services. Mutual fund and ETF service fees increased due to
growth in client assets invested in the Company’s Mutual Fund OneSource funds and equity and bond funds, partially offset
by a decrease in net money market mutual fund fees as a result of continued low yields on fund assets. Advice solution fees
increased due to growth in client assets enrolled in advisory offers. Other revenue increased primarily due to litigation
proceeds related to the Company’s non-agency RMBS portfolio and increases in order flow revenue. Expenses excluding
interest increased by $79 million, or 3%, in 2014 from 2013 primarily due to increases in compensation and benefits and
professional services expense, partially offset by a decrease in advertising and market development expense.
Advisor Services
Net revenues increased by $199 million, or 14%, in 2015 from 2014 primarily due to increases in net interest revenue, asset
management and administration fees, and other revenue. Net interest revenue increased primarily due to higher balances of
interest-earning assets, partially offset by the effect of lower net interest margins. Interest-earning assets have grown due to
growth in brokerage client cash swept to Schwab Bank. Asset management and administration fees increased primarily due to
higher net yields on money market fund assets and growth in client assets in equity and bond funds. Other revenue increased
primarily due to litigation proceeds relating to the Company’s non-agency RMBS portfolio. Expenses excluding interest
increased by $73 million, or 8%, in 2015 from 2014 primarily due to increases in growth in the business resulting in increases
in compensation and benefits, advertising and marketing, other expenses.
Net revenues increased by $100 million, or 8%, in 2014 from 2013 primarily due to an increase in asset management and
administration fees, net interest revenue, and other revenue. Asset management and administration fees increased due to fees
from mutual fund services, advice solutions, and other asset management and administration services. Mutual fund and ETF
service fees increased due to growth in client assets invested in the Company’s Mutual Fund OneSource funds and equity and
bond funds, partially offset by a decrease in net money market mutual fund fees as a result of continued low yields on fund
assets. Advice solutions fees increased due to growth in client assets enrolled in advisory offers. Net interest revenue
increased primarily due to higher 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. Other revenue increased primarily due to increases in order flow revenue. Expenses excluding interest increased by
$66 million, or 8%, in 2014 from 2013 primarily due to increases in compensation and benefits and professional services
expense.
Unallocated
Other revenue decreased in 2015 from 2014 due to a net insurance settlement of $45 million in 2014.
Expenses excluding interest decreased in 2015 from 2014 as a result of a $68 million charge in 2014 for estimated future
severance benefits resulting from changes in the Company’s geographic footprint.
RISK MANAGEMENT
The Company’s business activities expose it to a variety of risks, including operational, credit, market, liquidity, compliance
and legal risk. The Company has a comprehensive risk management program to identify and manage these risks and their
associated potential for financial and reputational impact. Despite the Company’s efforts to identify areas of risk and
implement risk management policies and procedures, there can be no assurance that the Company will not suffer unexpected
losses due to these risks.
The Company’s risk management process is comprised of risk identification and assessment, risk measurement, risk
monitoring and reporting and risk mitigation. The activities and organizations that comprise the risk management process are
described below.