Document and Entity Information
Document and Entity Information | ||
3 Months Ended
Mar. 31, 2010 | Apr. 23, 2010
| |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-03-31 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | SCHW | |
Entity Registrant Name | SCHWAB CHARLES CORP | |
Entity Central Index Key | 0000316709 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1,193,508,302 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income (USD $) | |||||||||||||||||||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 | |||||||||||||||||
Net Revenues | |||||||||||||||||||
Asset management and administration fees | $420 | $502 | |||||||||||||||||
Interest revenue | 391 | 346 | |||||||||||||||||
Interest expense | (65) | (40) | |||||||||||||||||
Net interest revenue | 326 | 306 | |||||||||||||||||
Trading revenue | 209 | 259 | |||||||||||||||||
Other | 31 | 58 | |||||||||||||||||
Net impairment losses on securities | (8) | [1] | (14) | [1] | |||||||||||||||
Total net revenues | 978 | 1,111 | |||||||||||||||||
Expenses Excluding Interest | |||||||||||||||||||
Compensation and benefits | 402 | 425 | |||||||||||||||||
Professional services | 80 | 60 | |||||||||||||||||
Occupancy and equipment | 68 | 81 | |||||||||||||||||
Advertising and market development | 62 | 58 | |||||||||||||||||
Communications | 52 | 53 | |||||||||||||||||
Depreciation and amortization | 37 | 42 | |||||||||||||||||
Class action litigation reserve | 196 | ||||||||||||||||||
Other | 68 | 37 | |||||||||||||||||
Total expenses excluding interest | 965 | 756 | |||||||||||||||||
Income before taxes on income | 13 | 355 | |||||||||||||||||
Taxes on income | (7) | (137) | |||||||||||||||||
Net Income | $6 | $218 | |||||||||||||||||
Weighted-Average Common Shares Outstanding - Diluted | 1,188 | 1,156 | |||||||||||||||||
Earnings Per Share - Basic | 0.19 | ||||||||||||||||||
Earnings Per Share - Diluted | 0.19 | ||||||||||||||||||
[1]Net impairment losses on securities includes total other-than-temporary impairment losses of $28 and $150, net of $20 and $136 recognized in other comprehensive income, for the three months ended March 31, 2010 and 2009, respectively. |
1_Condensed Consolidated Statem
Condensed Consolidated Statements of Income (Parenthetical) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Total other-than-temporary impairment losses | $28 | $150 |
Other-than-temporary impairment losses recognized in other comprehensive income | $20 | $136 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (USD $) | ||
In Millions | Mar. 31, 2010
| Dec. 31, 2009
|
Assets | ||
Cash and cash equivalents | $6,294 | $8,241 |
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $9,789 at March 31, 2010 and $8,346 at December 31, 2009) | 19,506 | 18,373 |
Receivables from brokers, dealers, and clearing organizations | 890 | 560 |
Receivables from brokerage clients - net | 9,017 | 8,627 |
Other securities owned - at fair value | 516 | 916 |
Securities available for sale | 23,429 | 22,120 |
Securities held to maturity (fair value - $8,852 at March 31, 2010 and $6,880 at December 31, 2009) | 8,763 | 6,839 |
Loans to banking clients - net | 7,601 | 7,348 |
Loans held for sale | 65 | 104 |
Equipment, office facilities, and property - net | 628 | 641 |
Goodwill | 528 | 528 |
Other assets | 1,100 | 1,134 |
Total assets | 78,337 | 75,431 |
Liabilities and Stockholders' Equity | ||
Deposits from banking clients | 42,055 | 38,820 |
Payables to brokers, dealers, and clearing organizations | 1,531 | 2,373 |
Payables to brokerage clients | 26,435 | 26,246 |
Accrued expenses and other liabilities | 1,336 | 1,407 |
Long-term debt | 1,309 | 1,512 |
Total liabilities | 72,666 | 70,358 |
Stockholders' equity: | ||
Preferred stock - 9,940,000 shares authorized; $.01 par value per share; none issued | ||
Common stock - 3 billion shares authorized; $.01 par value per share; 1,421,761,844 shares issued at March 31, 2010 and 1,392,091,544 shares issued at December 31, 2009 | 14 | 14 |
Additional paid-in capital | 2,866 | 2,298 |
Retained earnings | 7,177 | 7,243 |
Treasury stock, at cost - 228,591,078 shares at March 31, 2010 and 229,983,936 shares at December 31, 2009 | (4,275) | (4,291) |
Accumulated other comprehensive loss | (111) | (191) |
Total stockholders' equity | 5,671 | 5,073 |
Total liabilities and stockholders' equity | $78,337 | $75,431 |
2_Condensed Consolidated Balanc
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | ||
In Millions, except Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Cash and investments segregated and on deposit for regulatory purposes, resale agreements | $9,789 | $8,346 |
Securities held to maturity, fair value | $8,852 | $6,880 |
Preferred stock, shares authorized | 9,940,000 | 9,940,000 |
Preferred stock, par value | 0.01 | 0.01 |
Preferred stock, issued | 0 | 0 |
Common stock, shares authorized | 3,000,000,000 | 3,000,000,000 |
Common stock, par value | 0.01 | 0.01 |
Common stock, shares issued | 1,421,761,844 | 1,392,091,544 |
Treasury stock, shares | 228,591,078 | 229,983,936 |
3_Condensed Consolidated Statem
Condensed Consolidated Statements of Cash Flows (USD $) | |||||||||||||||||||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 | |||||||||||||||||
Cash Flows from Operating Activities | |||||||||||||||||||
Net income | $6 | $218 | |||||||||||||||||
Adjustments to reconcile net income to net cash (used for) provided by operating activities: | |||||||||||||||||||
Net impairment losses on securities | 8 | [1] | 14 | [1] | |||||||||||||||
Stock-based compensation | 21 | 18 | |||||||||||||||||
Depreciation and amortization | 37 | 42 | |||||||||||||||||
Excess tax benefits from stock-based compensation | (2) | (1) | |||||||||||||||||
Other | 4 | (25) | |||||||||||||||||
Originations of loans held for sale | (504) | (994) | |||||||||||||||||
Proceeds from sales of loans held for sale | 545 | 832 | |||||||||||||||||
Net change in: | |||||||||||||||||||
Cash and investments segregated and on deposit for regulatory purposes | (1,133) | (1,234) | |||||||||||||||||
Receivables from brokers, dealers, and clearing organizations | (322) | (39) | |||||||||||||||||
Receivables from brokerage clients | (390) | 782 | |||||||||||||||||
Other securities owned | 400 | 200 | |||||||||||||||||
Other assets | (5) | 34 | |||||||||||||||||
Payables to brokers, dealers, and clearing organizations | 171 | 109 | |||||||||||||||||
Payables to brokerage clients | 460 | 370 | |||||||||||||||||
Accrued expenses and other liabilities | 115 | (167) | |||||||||||||||||
Net cash (used for) provided by operating activities | (589) | 159 | |||||||||||||||||
Cash Flows from Investing Activities | |||||||||||||||||||
Purchases of securities available for sale | (4,622) | (2,147) | |||||||||||||||||
Principal payments on securities available for sale | 3,431 | 1,176 | |||||||||||||||||
Purchases of securities held to maturity | (3,178) | (484) | |||||||||||||||||
Principal payments on securities held to maturity | 238 | 4 | |||||||||||||||||
Net increase in loans to banking clients | (275) | (283) | |||||||||||||||||
Purchase of equipment, office facilities, and property | (29) | (32) | |||||||||||||||||
Other investing activities | (1) | ||||||||||||||||||
Net cash used for investing activities | (4,435) | (1,767) | |||||||||||||||||
Cash Flows from Financing Activities | |||||||||||||||||||
Net change in deposits from banking clients | 2,793 | 2,796 | |||||||||||||||||
Repayment of long-term debt | (201) | (39) | |||||||||||||||||
Excess tax benefits from stock-based compensation | 2 | 1 | |||||||||||||||||
Net proceeds from common stock offering | 543 | ||||||||||||||||||
Dividends paid | (72) | (69) | |||||||||||||||||
Proceeds from stock options exercised and other | 12 | 12 | |||||||||||||||||
Net cash provided by financing activities | 3,077 | 2,701 | |||||||||||||||||
(Decrease) increase in Cash and Cash Equivalents | (1,947) | 1,093 | |||||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 8,241 | 5,442 | |||||||||||||||||
Cash and Cash Equivalents at End of Period | 6,294 | 6,535 | |||||||||||||||||
Cash paid during the period for: | |||||||||||||||||||
Interest | 42 | 29 | |||||||||||||||||
Income taxes | 70 | 55 | |||||||||||||||||
Non-cash investing activity: | |||||||||||||||||||
Securities purchased during the period but settled after period end | $254 | ||||||||||||||||||
[1]Net impairment losses on securities includes total other-than-temporary impairment losses of $28 and $150, net of $20 and $136 recognized in other comprehensive income, for the three months ended March 31, 2010 and 2009, respectively. |
Introduction and Basis of Prese
Introduction and Basis of Presentation | |
3 Months Ended
Mar. 31, 2010 | |
Introduction and Basis of Presentation | 1. Introduction and Basis of Presentation The Charles Schwab Corporation (CSC) is a savings and loan holding company engaged, through its subsidiaries, in securities brokerage, banking, and related financial services. Charles Schwab Co., Inc. (Schwab) is a securities broker-dealer with 304 domestic branch offices in 45 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, U.K. In addition, Schwab serves clients in Hong Kong through one of CSCs subsidiaries. Other subsidiaries include Charles Schwab Bank (Schwab Bank), a federal savings bank, and Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwabs proprietary mutual funds, which are referred to as the Schwab Funds. The accompanying unaudited condensed consolidated financial statements include CSC and its majority-owned subsidiaries (collectively referred to as the Company). All material intercompany balances and transactions have been eliminated. These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP), which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements. Certain estimates include other-than-temporary impairment of securities available for sale and securities held to maturity, the valuation of goodwill, the allowance for credit losses, and legal reserves. Actual results could differ from those estimates. These condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature. Certain prior-year amounts have been reclassified to conform to the 2010 presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form10-K for the year ended December31, 2009. The Companys results for any interim period are not necessarily indicative of results for a full year or any other interim period. |
New Accounting Standards
New Accounting Standards | |
3 Months Ended
Mar. 31, 2010 | |
New Accounting Standards | 2. New Accounting Standards Adoption of New Accounting Standards Transfers of Financial Assets: On January1, 2010, the Company adopted new guidance on accounting for transfers of financial assets for transfers occurring after January1, 2010. This new guidance removes the concept of a qualifying special-purpose entity and amends the requirements for a transfer of a portion of a financial asset to be accounted for as a sale and related disclosures. This new standard applies to transfers of financial assets after January1, 2010. Consolidation of Variable Interest Entities: On January1, 2010, the Company adopted new guidance on consolidation of variable interest entities (VIEs). This new guidance amends the consolidation guidance applicable to VIEs, including changing the approach to determining a VIEs primary beneficiary (the reporting entity that must consolidate the VIE) and the frequency of reassessment. The adoption of this new guidance did not have a material impact on the Companys financial position, results of operations, earnings per share (EPS), or cash flows. |
Securities Available for Sale a
Securities Available for Sale and Securities Held to Maturity | |
3 Months Ended
Mar. 31, 2010 | |
Securities Available for Sale and Securities Held to Maturity | 3. Securities Available for Sale and Securities Held to Maturity The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale and securities held to maturity are as follows: March31, 2010 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities available for sale: U.S. agency residential mortgage-backed securities $ 12,891 $ 219 $ 6 $ 13,104 Non-agency residential mortgage-backed securities 2,291 1 424 1,868 U.S. agency notes 2,990 4 2,994 Corporate debt securities 2,324 9 2,333 Certificates of deposit 1,910 2 1,912 Asset-backed securities 1,104 14 1,118 Commercial paper 100 100 Total securities available for sale $ 23,610 $ 249 $ 430 $ 23,429 Securities held to maturity: U.S. agency residential mortgage-backed securities $ 7,109 $ 77 $ 20 $ 7,166 Asset-backed securities 1,321 24 1,345 Corporate debt securities 333 8 341 Total securities held to maturity $ 8,763 $ 109 $ 20 $ 8,852 December31, 2009 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities available for sale: U.S. agency residential mortgage-backed securities $ 11,601 $ 199 $ 21 $ 11,779 Non-agency residential mortgage-backed securities 2,460 519 1,941 U.S. agency notes 2,975 4 1 2,978 Corporate debt securities 2,368 13 1 2,380 Certificates of deposit 1,950 3 1,953 Asset-backed securities 1,077 12 1,089 Total securities available for sale $ 22,431 $ 231 $ 542 $ 22,120 Securities held to maturity: U.S. agency residential mortgage-backed securities $ 5,105 $ 36 $ 27 $ 5,114 Asset-backed securities 1,389 25 1,414 Corporate debt securities 345 7 352 Total securities held to maturity $ 6,839 $ 68 $ 27 $ 6,880 A summary of securities with unrealized losses, aggregated by category and period of continuous unrealized loss, is as follows: Less than 12 months 12 months or longer Total March31, 2010 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Securities available for sale: U.S. agency residential mortgage-backed securities $ 2,225 $ 4 $ 491 $ 2 $ 2,716 $ 6 Non-agency residential mortgage-backed securities 67 4 1,707 420 1,774 424 Total $ 2,292 $ 8 $ 2,198 $ 422 $ 4,490 $ 430 |
Loans to Banking Clients and Re
Loans to Banking Clients and Related Allowance for Credit Losses | |
3 Months Ended
Mar. 31, 2010 | |
Loans to Banking Clients and Related Allowance for Credit Losses | 4. Loans to Banking Clients and Related Allowance for Credit Losses The composition of the loan portfolio is as follows: March31, 2010 December31, 2009 Residential real estate mortgages $ 3,872 $ 3,710 Home equity lines of credit 3,350 3,304 Secured personal loans 418 366 Other 14 13 Total loans to banking clients 7,654 7,393 Allowance for credit losses (53 ) (45 ) Total loans to banking clients net $ 7,601 $ 7,348 Included in the loan portfolio are nonaccrual loans totaling $34million at March31, 2010 and December31, 2009. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $37million at March31, 2010 and December31, 2009. There were no loans accruing interest that were contractually 90 days or more past due at March31, 2010 or December31, 2009. The amount of interest revenue that would have been earned on nonaccrual loans, versus interest revenue recognized on these loans, was not material to the Companys results of operations for the first quarter of 2010 or 2009. Changes in the allowance for credit losses were as follows: Three Months Ended March31, 2010 2009 Balance at beginning of period $ 45 $ 20 Charge-offs (6 ) (1 ) Recoveries Provision for credit losses 14 9 Balance at end of period $ 53 $ 28 |
Commitments and Contingent Liab
Commitments and Contingent Liabilities | |
3 Months Ended
Mar. 31, 2010 | |
Commitments and Contingent Liabilities | 5. Commitments and Contingent Liabilities The Company has clients that sell (i.e., write) listed option contracts that are cleared by various clearing houses. The clearing houses establish margin requirements on these transactions. The Company satisfies the margin requirements by arranging standby letter of credit agreements (LOCs), in favor of the clearing houses, which are issued by multiple banks. At March31, 2010, the aggregate face amount of these LOCs totaled $445million. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. Schwab satisfies the collateral requirements by arranging LOCs, in favor of these brokerage clients, which are issued by multiple banks. At March31, 2010, the aggregate face amount of these LOCs totaled $29million. There were no funds drawn under any of these LOCs at March31, 2010. The Company also provides guarantees to securities clearing houses and exchanges under their standard membership agreement, which requires members to guarantee the performance of other members. Under the agreement, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Companys liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, the potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees. Legal contingencies: The Company is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. In addition, the Company is responding to certain litigation claims brought against former subsidiaries pursuant to indemnities it has provided to purchasers of those entities. Certain of these matters are described below. The Company believes it has strong defenses in all significant matters currently pending and is contesting liability and the damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions, or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Except as otherwise noted below, based on current information and consultation with counsel, management believes that the resolution of matters currently pending will not have a material impact on the financial condition or cash flows of the Company, but could be material to the Companys operating results for a particular future period, depending on results for that period. However, predicting the outcome of a matter is inherently difficult, particularly where claims are brought on behalf of various classes of claimants, claimants seek substantial or unspecified damages, or when investigations or legal proceedings are at an early stage, and in many cases |
Fair Values of Assets and Liabi
Fair Values of Assets and Liabilities | |
3 Months Ended
Mar. 31, 2010 | |
Fair Values of Assets and Liabilities | 6. 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 transaction between market participants at the measurement date. Fair value measurement accounting guidance describes the fair value hierarchy for disclosing assets and liabilities measured at fair value based on the inputs used to value them. The fair value hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are based on market pricing data obtained from sources independent of the Company. A quoted price in an active market provides the most reliable evidence of fair value and is generally used to measure fair value whenever available. Unobservable inputs reflect managements judgment about the assumptions market participants would use in pricing the asset or liability. Where inputs used to measure fair value of an asset or liability are from different levels of the hierarchy, the asset or liability is categorized based on the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input requires judgment. The fair value hierarchy includes three levels based on the objectivity of the inputs as follows: Level1 inputs are quoted prices in active markets as of the measurement date for identical assets or liabilities that the Company has the ability to access. This category includes active exchange-traded money market funds, mutual funds, and equity securities. The Company did not transfer any assets or liabilities between Level 1 and Level 2 as of March31, 2010, or December31, 2009. Level2 inputs are inputs other than quoted prices included in Level1 that are observable for the asset or liability, either directly or indirectly. Level2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates, benchmark yields, issuer spreads, new issue data, and collateral performance. This category includes residential mortgage-backed securities, asset-backed securities, corporate debt securities, certificates of deposit, commercial paper, U.S. agency and municipal debt securities, and U.S. Treasury securities. Level3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The Company did not have any financial assets or liabilities utilizing Level3 inputs as of March31, 2010, or December31, 2009. Assets and Liabilities Recorded at Fair Value The Companys assets recorded at fair value include certain investments segregated and on deposit for regulatory purposes, other securities owned, and securities available for sale. The Company uses prices obtained from an independent third-party pricing service to measure the fair value of investment securities categorized as Level 2. The Company validates prices received from the pricing service using various methods including comparison to pri |
Equity Offering
Equity Offering | |
3 Months Ended
Mar. 31, 2010 | |
Equity Offering | 7. Equity Offering On January26, 2010, the Company completed the sale of 29,670,300 shares of its common stock, $.01 par value, at a public offering price of $19.00 per share. Net proceeds received from the offering were $543million and are being used to support the Companys balance sheet growth, including expansion of its deposit base and migration of certain client balances from money market funds into Schwab Bank. |
Comprehensive Income and Accumu
Comprehensive Income and Accumulated Other Comprehensive Loss | |
3 Months Ended
Mar. 31, 2010 | |
Comprehensive Income and Accumulated Other Comprehensive Loss | 8. Comprehensive Income and Accumulated Other Comprehensive Loss The components of comprehensive income are as follows: Three Months Ended March31, 2010 2009 Net income $ 6 $ 218 Other comprehensive income: Change in net unrealized gain (loss) on securities available for sale: Unrealized gain on Non-OTTI securities 97 79 Unrealized gain (loss) on OTTI securities 25 (2 ) OTTI charges recognized in earnings 8 14 Income tax effect (50 ) (38 ) Total other comprehensive income 80 53 Comprehensive income $ 86 $ 271 Accumulated other comprehensive loss represents cumulative gains and losses that are not reflected in earnings. Accumulated other comprehensive loss balances were: Net unrealized loss onsecuritiesavailableforsale Total accumulated other comprehensive loss Portion of unrealizedloss on Non-OTTI securities Portion of unrealizedloss onOTTI securities Balance at December31, 2008 $ (553 ) $ $ (553 ) Reclassification of OTTI securities 80 (80 ) Other net change 53 53 Balance at March31, 2009 $ (420 ) $ (80 ) $ (500 ) Balance at December31, 2009 $ (77 ) $ (114 ) $ (191 ) Reclassification of OTTI securities 16 (16 ) Other net change 66 14 80 Balance at March31, 2010 $ 5 $ (116 ) $ (111 ) |
Earnings Per Share
Earnings Per Share | |
3 Months Ended
Mar. 31, 2010 | |
Earnings Per Share | 9. Earnings Per Share Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. Dilutive potential common shares are determined using the treasury stock method, and include outstanding stock options and unvested restricted stock awards and units. EPS under the basic and diluted computations are as follows: Three Months Ended March31, 2010 2009 Net income available to common shareholders (1) $ 6 $ 218 Weighted-average common shares outstanding basic 1,183 1,153 Common stock equivalent shares related to stock incentive plans 5 3 Weighted-average common shares outstanding diluted (2) 1,188 1,156 Basic EPS $ $ .19 Diluted EPS $ $ .19 (1) Net income available to participating securities (unvested restricted shares) was not material for the first quarter of 2010 or 2009. (2) Total antidilutive stock options and restricted stock awards excluded from the calculation of diluted EPS were 33million and 52million shares for the first quarters of 2010 and 2009, respectively. |
Regulatory Requirements
Regulatory Requirements | |
3 Months Ended
Mar. 31, 2010 | |
Regulatory Requirements | 10. Regulatory Requirements CSC is a savings and loan holding company and Schwab Bank, CSCs depository institution subsidiary, is a federal savings bank. CSC and Schwab Bank are both subject to supervision and regulation by the Office of Thrift Supervision. As a savings and loan holding company, CSC is not subject to specific statutory capital requirements. However, CSC is required to maintain capital that is sufficient to support the holding company and its subsidiaries business activities, and the risks inherent in those activities. Schwab Bank is required to maintain a capital level that at least equals minimum capital levels specified in federal banking laws and regulations. Failure to meet the minimum levels will result in certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on Schwab Bank. At March31, 2010, CSC and Schwab Bank met the capital level requirements. The regulatory capital and ratios for Schwab Bank at March31, 2010, are as follows: Actual MinimumCapital Requirement Minimum to be WellCapitalized Amount Ratio Amount Ratio Amount Ratio Tier 1 Capital $ 3,516 24.3 % $ 580 4.0 % $ 870 6.0 % Total Capital $ 3,569 24.6 % $ 1,160 8.0 % $ 1,450 10.0 % Tier 1 Leverage $ 3,516 7.6 % $ 1,839 4.0 % $ 2,299 5.0 % Tangible Equity $ 3,516 7.6 % $ 920 2.0 % N/A N/A Not applicable. Based on its regulatory capital ratios at March31, 2010, Schwab Bank is considered well capitalized (the highest category) pursuant to banking regulatory guidelines. There are no conditions or events since March31, 2010, that management believes have changed Schwab Banks capital category. Schwab is subject to Rule15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule). Schwab computes net capital under the alternative method permitted by the Uniform Net Capital Rule. This method requires the maintenance of minimum net capital, as defined, of the greater of 2% of aggregate debit balances arising from client transactions or a minimum dollar requirement, which is based on the type of business conducted by the broker-dealer. At March31, 2010, 2% of aggregate debits was $205million, which exceeded the minimum dollar requirement for Schwab of $250,000. At March31, 2010, Schwabs net capital was $1.1billion (11% of aggregate debit balances), which was $890million in excess of its minimum required net capital and $582million in excess of 5% of aggregate debit balances. Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans to its parent company or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement. |
Segment Information
Segment Information | |
3 Months Ended
Mar. 31, 2010 | |
Segment Information | 11. Segment Information The Company structures its operating segments according to its various types of clients and the services provided to those clients. The Companys two reportable segments are Investor Services and Institutional Services. The Company evaluates the performance of its segments on a pre-tax basis excluding items such as impairment charges on non-financial assets, discontinued operations, extraordinary items, and significant restructuring and other charges. Segment assets and liabilities are not disclosed because the balances are not used for evaluating segment performance and deciding how to allocate resources to segments. There are no revenues from transactions with other segments within the Company. Selected financial information for the Companys reportable segments is presented in the following table: Three Months Ended March31, 2010 2009 Net revenues: Investor Services $ 641 $ 706 Institutional Services 337 405 Unallocated Total net revenues $ 978 $ 1,111 Income before taxes on income: Investor Services $ 112 $ 242 Institutional Services 95 172 Unallocated (1) (194 ) (59 ) Income before taxes on income 13 355 Taxes on income (7 ) (137 ) Net income $ 6 $ 218 (1) Includes the recognition of a class action litigation reserve of $196million in the first quarter of 2010 and facilities and severance charges relating to the Companys cost reduction measures in the first quarter of 2009. |