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THE CHARLES SCHWAB CORPORATION
2010 Annual Report

Table of contents

  • Page 1
    the charles schwab corporation 2010 Annual Report

  • Page 2
    ... Management Form 10-K Board of Directors Corporate Contacts and Information The Charles Schwab Corporation, a leading provider of financial services, helps millions of individuals who invest on their own, through an independent investment advisor, or in a company-sponsored retirement or stock plan...

  • Page 3
    ...year to a time of building optimism as the year came to a close. Yes, our near-term financial performance continues to suffer from record low interest rates, but our valued clients are increasingly engaged, and we are more focused than ever on clients and their needs. Looking forward to 2011, I feel...

  • Page 4
    ...the chieF executive oFFicer money market funds' investments in a single structured investment vehicle; and we chose to exit the credit card business at a cost of $30 million. Although as stockholders we are pained by these charges and are disappointed in ourselves, we move into 2011 and begin a new...

  • Page 5
    .... For participants in Schwab-managed retirement plans, we continued to offer high-quality, low-cost programs that can help employees put more of their money into their own pockets when they retire. We also published a landmark study, "The New Rules of Engagement for 401(k) Plans," to help companies...

  • Page 6
    ... retirement plan sponsors. Going forward, we will continue to focus on what matters - and what drives stockholder value over the long term. • We will scale our business to make financial • We will innovate with new products and tools that we believe that the best investor is a knowledgeable...

  • Page 7
    ...2008 2009 2010 investor services advisor services other institutional services client accounts (in millions) 7.0 7.4 7.7 8.0 1.2 0.2 2007 0.4 1.4 0.6 1.5 0.7 1.5 2008 2009 2010* active brokerage accounts banking accounts corporate retirement plan participants * effective 2010, the number...

  • Page 8
    ... Chief Financial Officer Our clients have made it clear for some time that they want more from us, not less. Access to more investment products, more forms of help and advice, more value. They've also made it clear that they expect Schwab to remain a stable profitable financial institution...

  • Page 9
    ... of $433 million in fee waivers on our proprietary money market mutual funds - an increase of more than $200 million from 2009. And with fourth quarter 2010 revenues up 6 percent sequentially and 14 percent yearover-year, we're beginning 2011 with gathering financial as well as operating momentum...

  • Page 10
    ... oF net incoMe excluDing certain charges to reporteD net incoMe (In Millions, Except Per Share Amounts, Unaudited) aMount 2010 earnings per share(1) Net Income Excluding Certain Charges class action litigation and regulatory reserve Money market mutual fund charges other expense total charges tax...

  • Page 11
    ...-10 2009-10 2010 2009 2008 2007 2006 Assets in client accounts schwab one® , other cash equivalents and deposits from banking clients 27% proprietary funds (schwab Funds® and laudus Funds®): Money market funds 3% equity and bond funds (5%) total proprietary funds 1% Mutual Fund Marketplace...

  • Page 12
    ..., Chief Executive Officer, and Chief Investment Officer, Charles Schwab Investment Management, Inc. Executive Vice President, Institutional Services paul v. woolway Executive Vice President and Chief Operating Officer, Investor Services Executive Vice President and President, Charles Schwab Bank

  • Page 13
    ...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 Number) 211 Main Street, San Francisco, CA 94105 (Address of principal executive offices and zip code...

  • Page 14
    The number of shares of Common Stock outstanding as of January 31, 2011, was 1,203,314,123. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10-K incorporates certain information contained in the registrant's definitive proxy statement for its annual meeting of stockholders, to be held May ...

  • Page 15
    ... 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership...

  • Page 16
    ... located in San Francisco except as indicated), in securities brokerage, banking, asset management, and related financial services. At December 31, 2010, the Company had $1.57 trillion in client assets, 8.0 million active brokerage accounts(a), 1.5 million corporate retirement plan participants...

  • Page 17
    ... securities, and equity and debt offerings; • • Banking - checking accounts linked to brokerage accounts, savings accounts, certificates of deposit, demand deposit accounts, first mortgages, home equity lines of credit (HELOCs), and pledged asset loans; Trust - trust custody services, personal...

  • Page 18
    ...order routing technology, real-time market data, options trading, premium stock research, and multi-channel access, as well as sophisticated account and trade management features, risk management tools, decision support tools, and dedicated personal support. The Company serves both foreign investors...

  • Page 19
    ..., automatic fund mapping at conversion, and automatic contribution increases. Services also include support for Roth 401(k) accounts and profit sharing and defined benefit plans. The Company provides a robust suite of tools to plan sponsors to manage their plans, including plan-specific reports...

  • Page 20
    ... employee personal trading. The Corporate Brokerage Services unit also provides mutual fund clearing services to banks, brokerage firms and trust companies and offers Schwab-generated Investment Solutions outside the Company to institutional channels. Regulation CSC is a savings and loan holding...

  • Page 21
    ...15(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 22
    ...-agency residential mortgage-backed securities, consumer loan asset-backed securities, corporate debt securities, and certificates of deposit among other investments. These instruments are also subject to price fluctuations as a result of changes in the financial market's assessment of issuer credit...

  • Page 23
    ... can reduce interest rates on deposit accounts and still offer a competitive return. To the extent the overall yield on certain Schwab-sponsored money market mutual funds falls to a level at or below the management fees on those funds, the Company may waive a portion of its fee in order to continue...

  • Page 24
    ... the Company's business activities, financial position and profitability. The "Dodd-Frank Wall Street Reform and Consumer Protection Act" was signed into law in July 2010. This legislation makes extensive changes to the laws regulating financial services firms and requires significant rule-making...

  • Page 25
    ...rates, interest rates on deposits and loans, fees for advisory services, and other fee structures to enhance its competitive position. Increased price competition from other financial services firms, such as reduced commissions to attract trading volume or higher deposit rates to attract client cash...

  • Page 26
    ... of the Company's stock price are the following: • speculation in the investment community or the press about, or actual changes in, the Company's competitive position, organizational structure, executive team, operations, financial condition, financial reporting and results, effectiveness of cost...

  • Page 27
    ... Company's branch offices are located in leased premises. The corporate headquarters, data centers, offices, and service centers generally support all of the Company's segments. Item 3. Legal Proceedings For a discussion of legal proceedings, see "Item 8 - Financial Statements and Supplementary Data...

  • Page 28
    ...to Consolidated Financial Statements - 27. Quarterly Financial Information (Unaudited) and 19. Employee Incentive, Deferred Compensation, and Retirement Plans." The following graph shows a five-year comparison of cumulative total returns for CSC's common stock, the Dow Jones U.S. Investment Services...

  • Page 29
    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 2010: Total Number of Shares Purchased as Part of Publicly Announced Program (1) (in ...

  • Page 30
    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-Year 2009-2010 2006-2010 2010 2009 2008 2007 2006 Results of Operations Net revenues ...

  • Page 31
    ... information contained in this Annual Report on Form 10-K is presented on a continuing operations basis unless otherwise noted. (1) Net income in 2007 includes a gain of $1.2 billion, after tax, on the sale of U.S. Trust. (2) Both basic and diluted earnings per share in 2008, 2007, and 2006 include...

  • Page 32
    ...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. Clients' daily average trades is an indicator of client engagement with securities markets and the most prominent...

  • Page 33
    ... online trade pricing for clients, which was implemented in January 2010, and slightly lower daily average revenue trades in 2010. While the low interest rate environment caused over $200 million of additional money market mutual fund fee waivers from the prior year, the decrease in asset management...

  • Page 34
    ... trades decreased 4% to 414,800 from 2008. Net revenues decreased by 19% in 2009 from 2008, primarily due to the decreases in asset management and administration fees and net interest revenue. Asset management and administration fees decreased in 2009 primarily due to money market mutual fund fee...

  • Page 35
    ... Rate 2009-2010 Amount 2010 % of Total Net Revenues Amount 2009 % of Total Net Revenues Amount 2008 % of Total Net Revenues Asset management and administration fees Mutual fund service fees: Proprietary funds (Schwab Funds® and Laudus Funds®) Mutual Fund OneSource® Other Investment management...

  • Page 36
    ...and mutual fund clearing services as a result of lower average equity market valuations. Investment management and trust fees increased by $104 million, or 38%, in 2010 from 2009 primarily due to higher average balances of client assets participating in advisory and managed account services programs...

  • Page 37
    ... as well as to invest funding from deposits raised in excess of loans to banking clients. Schwab Bank's securities available for sale include residential mortgage-backed securities, U.S. agency notes, asset-backed securities, corporate debt securities, and certificates of deposit. Schwab Bank...

  • Page 38
    ... average balance of deposits from banking clients, which in turn funded increases in the average balances of securities held to maturity, securities available for sale, and loans to banking clients. These interest-earning assets are invested at rates above the cost of supporting funding sources. The...

  • Page 39
    ... nonaccrual loans in 2010 compared to 2009, partially offset by growth in the Company's residential real estate mortgage and HELOC portfolios. The provision for loan losses increased by $21 million, or 124%, in 2009 from 2008, primarily due to higher loan delinquencies and nonaccrual loans, as well...

  • Page 40
    ...Ended December 31, Growth Rate 2009-2010 2010 2009 2008 Compensation and benefits Professional services Occupancy and equipment Advertising and market development Communications Depreciation and amortization Class action litigation and regulatory reserve Money market mutual fund charges Other Total...

  • Page 41
    ... 31, 2008. Expenses Excluding Compensation and Benefits Professional services expense increased in 2010 from 2009 primarily due to increases in fees relating to technology services and enhancements, and investment advisor fees relating to the Company's managed account service programs. Professional...

  • Page 42
    ... investment advisors, as well as retirement plan services, plan administrator services, equity compensation plan services, and mutual fund clearing services. In addition, the Institutional Services segment supports the availability of Schwab proprietary mutual funds and collective trust funds...

  • Page 43
    ...Except Ratios, or as Noted) Financial information for the Company's reportable segments is presented in the following tables: Investor Services Year Ended December 31, Growth Rate 2010-2009 2010 2009 2008 Growth Rate 2010-2009 Institutional Services 2010 2009 2008 Net Revenues: Asset management and...

  • Page 44
    ... revenue decreased due to lower average revenue per revenue trade resulting from improved online trade pricing for clients, which was implemented in January 2010, and slightly lower daily average revenue trades in 2010. Other revenue was lower in comparison to 2009 due to a gain on the repurchase of...

  • Page 45
    ... to money market mutual fund fee waivers, partially offset by the effect of higher average asset valuations and continued asset inflows. Additionally, in August 2010 management transferred client assets associated with the Schwab Advisor Network to the Investor Services segment and started recording...

  • Page 46
    ... Statement) on file with the SEC which enables CSC to issue debt, equity and other securities. CSC maintains excess liquidity in the form of overnight cash deposits and short-term investments to cover daily funding needs and to support growth in the Company's business. Generally, CSC does not hold...

  • Page 47
    ... loan obligations secured by readily marketable securities. Receivables from and payables to brokers, dealers, and clearing organizations primarily represent current open transactions, which usually settle, or can be closed out, within a few business days. Liquidity needs relating to client trading...

  • Page 48
    ... cash held in certain Schwab brokerage client accounts is swept into deposit accounts at Schwab Bank. At December 31, 2010, these balances totaled $31.0 billion. Schwab Bank has access to traditional funding sources such as deposits, federal funds purchased, and repurchase agreements. Additionally...

  • Page 49
    ... offering price of $19.00 per share. Net proceeds received from the offering were $543 million and were used to support the Company's balance sheet growth, including expansion of its deposit base and migration of certain client balances from money market funds into deposit accounts at Schwab Bank...

  • Page 50
    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) Dividends CSC paid common stock cash dividends of $288 million and $279 million in 2010 and 2009, respectively. Since the ...

  • Page 51
    ...• Corporate Asset-Liability Management and Pricing Committee, which focuses on the Company's liquidity, capital resources, interest rate risk, and investments; • Credit and Market Risk Oversight Committee, which focuses on the credit exposures resulting from client activity (e.g., margin lending...

  • 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 Information Security and Privacy Steering Committee, which oversees information security and privacy programs and policies; ...

  • Page 53
    ... 768 for the First Mortgage and HELOC portfolios, respectively, at December 31, 2010. The Company does not offer loans that allow for negative amortization and does not originate or purchase subprime loans (generally defined as extensions of credit to borrowers with a FICO credit score of less than...

  • Page 54
    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) borrower has compensating credit factors. At December 31, 2010, approximately 2% of both the First Mortgage and HELOC ...

  • Page 55
    ...'s rating of "BBB-" or higher). 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...

  • Page 56
    ... practices, marketing and communications, extension of credit, client funds and securities, books and records, anti-money laundering, client privacy, employment policies, and contracts management. Despite the Company's efforts to maintain an effective compliance program and internal controls, legal...

  • Page 57
    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) CRITICAL ACCOUNTING ESTIMATES The consolidated financial statements of the Company have been prepared in accordance with ...

  • Page 58
    ... (see "Current Market and Regulatory Environment" and "Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - 6. Securities Available for Sale and Securities Held to Maturity"); • sources of liquidity, capital, and level of dividends (see "Liquidity...

  • Page 59
    ...'s results of operations of recording stock option expense (see "Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - 19. Employee Incentive, Deferred Compensation, and Retirement Plans"). • Achievement of the expressed beliefs, objectives and...

  • Page 60
    ... 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 and asset management fees based upon daily...

  • Page 61
    ... and the timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and management strategies, including changes in asset and liability mix. As represented by the simulations presented below, the Company is positioned so that the consolidated balance sheet...

  • Page 62
    ..., and Retirement Plans Note 20. Money Market Mutual Fund Charges Note 21. Taxes on Income Note 22. Earnings Per Share Note 23. Regulatory Requirements Note 24. Segment Information Note 25. Discontinued Operations Note 26. The Charles Schwab Corporation - Parent Company Only Financial Statements Note...

  • Page 63
    THE CHARLES SCHWAB CORPORATION Consolidated Statements of Income (In Millions, Except Per Share Amounts) Year Ended December 31, 2010 2009 2008 Net Revenues Asset management and administration fees Interest revenue Interest expense Net interest revenue Trading revenue Other Provision for loan ...

  • Page 64
    ...2009, respectively) Loans to banking clients - net Loans held for sale Equipment, office facilities, and property - net Goodwill Other assets Total assets Liabilities and Stockholders' Equity Deposits from banking clients Payables to brokers, dealers, and clearing organizations Payables to brokerage...

  • Page 65
    ... assets Payables to brokers, dealers, and clearing organizations Payables to brokerage clients Accrued expenses and other liabilities Net cash (used for) provided by operating activities Cash Flows from Investing Activities Purchases of securities available for sale Proceeds from sales of securities...

  • Page 66
    Non-cash investing activities: Issuance of common stock for business acquisition Securities purchased during the year but settled after year end Non-cash financing activity: Transfer of trust related balances to deposits from banking clients See Notes to Consolidated Financial Statements. - 48 - $ ...

  • Page 67
    ... for sale Total comprehensive income Dividends declared on common stock Stock option exercises and other Stock-based compensation Excess tax benefits from stock-based compensation Restricted shares withheld for tax Employee stock purchase plan purchases Balance at December 31, 2009 Comprehensive...

  • Page 68
    Restricted shares withheld for tax Employee stock purchase plan purchases Balance at December 31, 2010 - - 1,429 $ - - 14 - 4 $ 3,034 - - $ 7,409 $ (8) 13 (4,247) $ - - 16 (8) 17 $ 6,226 See Notes to Consolidated Financial Statements. - 49 -

  • Page 69
    ... 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 302 domestic branch offices in 45 states, as well as...

  • Page 70
    ... CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) money market funds, deposits with banks, certificates of deposit, federal funds sold, commercial paper, and treasury securities. Cash...

  • Page 71
    ... direct origination costs. 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 lines of credit (HELOC), personal loans secured by securities and other loans. Residential real...

  • Page 72
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) straight-line basis over an estimated useful life of three to ten years. Buildings are depreciated on a straight-line basis over ...

  • Page 73
    ...CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Adoption of New Accounting Standards Transfers of Financial Assets: On January 1, 2010, the Company adopted new guidance on accounting...

  • Page 74
    ... CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) material at December 31, 2009. The average yield earned on margin loans was 4.87% and 5.20% in 2010 and 2009, respectively. 5. Other Securities...

  • Page 75
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2009 Securities available for sale: U.S. ...

  • Page 76
    ... to its mortgage-related securities. Further, the Company has an adequate liquidity position at December 31, 2010, with cash and cash equivalents totaling $4.9 billion, a loan-to-deposit ratio of 17%, adequate access to short-term borrowing facilities and regulatory capital ratios in excess of "well...

  • Page 77
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The following table is a rollforward of the amount of credit losses recognized in earnings for OTTI securities held by the Company...

  • Page 78
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 7. Loans to Banking Clients and Related Allowance for Loan Losses The composition of loans to banking clients and the allowance ...

  • Page 79
    ... CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) An aging analysis by loan class is as follows: December 31, 2010 Current 30-59 days past due 60-89 days past due Greater than 90 days...

  • Page 80
    ... SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Residential real estate mortgages Originated first Purchased first mortgages mortgages Total Home equity lines of credit December 31, 2010...

  • Page 81
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Residential real estate mortgages Originated first Purchased first mortgages mortgages Total Home equity lines of credit December...

  • Page 82
    ... SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 9. Other Assets The components of other assets are as follows: December 31, 2010 2009 Accounts receivable (1) Prepaid expenses Deferred...

  • Page 83
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 13. Borrowings Long-term debt including unamortized debt discounts and premiums, where applicable, consists of the following: ...

  • Page 84
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Annual maturities on long-term debt outstanding at December 31, 2010, are as follows: 2011 2012 2013 2014 2015 Thereafter Total ...

  • Page 85
    ... mutual fund sub-advisor agreements, related to the adoption of AXA Rosenberg LLC's U.S. family of mutual funds, known as the Laudus Funds®. The Company has clients that sell (i.e., write) listed option contracts that are cleared by various clearing houses. The clearing houses establish margin...

  • Page 86
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Schwab is required to provide collateral to certain brokerage clients. Schwab satisfies the collateral requirements by arranging ...

  • Page 87
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) marketing. These cases were consolidated in a single action in June and July 2008, in the U.S. District Court for the Northern ...

  • Page 88
    ... CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The Company previously disclosed receipt of an SEC Wells notice in October 2009 that included potential charges against CSIM and Schwab Investments...

  • Page 89
    ... corporate debt securities and commercial paper issued by financial institutions and guaranteed under the FDIC Temporary Liquidity Guarantee Program. The Company's loans to banking clients include $4.7 billion and $3.7 billion of first lien residential real estate mortgage loans at December 31, 2010...

  • Page 90
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) related loan is sold. At December 31, 2010 and 2009, the derivative asset and liability for these forward sale commitments were ...

  • Page 91
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Assets and Liabilities Recorded at Fair Value The Company's assets recorded at fair value include certain cash equivalents, ...

  • Page 92
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant ...

  • Page 93
    ...value of the Company's loans held for sale is estimated using quoted market prices for securities backed by similar types of loans. Other assets include cost method investments whose carrying values approximate their fair values. Other assets also include Federal Home Loan Bank stock recorded at par...

  • Page 94
    ...CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios...Before tax 2010 Tax effect Net of tax Before tax 2009 Tax effect Net of tax Before tax 2008 Tax effect Net of tax Securities available for sale: Net...

  • Page 95
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 19. Employee Incentive, Deferred Compensation, and Retirement Plans A summary of the Company's stock-based compensation expense ...

  • Page 96
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Information on stock options granted and exercised is presented below: Year Ended December 31, 2010 2009 2008 Weighted-average ...

  • Page 97
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Employee Stock Purchase Plan Under the Company's Employee Stock Purchase Plan (ESPP), eligible employees can purchase shares of ...

  • Page 98
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Income tax expense from discontinued operations was $18 million in 2008 and was related to the determination of the final income ...

  • Page 99
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) The Company's unrecognized tax benefits, which are included in accrued expenses and other liabilities, represent the difference ...

  • Page 100
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 23. Regulatory Requirements CSC is a savings and loan holding company and Schwab Bank, CSC's depository institution subsidiary, is...

  • Page 101
    ... investment advisors, as well as retirement plan services, plan administrator services, equity compensation plan services, and mutual fund clearing services. In addition, the Institutional Services segment supports the availability of Schwab proprietary mutual funds and collective trust funds...

  • Page 102
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Financial information for the Company's reportable segments is presented in the following table: Year Ended December 31, Net ...

  • Page 103
    ... CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 26. The Charles Schwab Corporation - Parent Company Only Financial Statements Condensed Statements of Income Year Ended December 31, 2010 2009 2008...

  • Page 104
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Condensed Statements of Cash Flows Year Ended December 31, 2010 2009 2008 Cash Flows from Operating Activities Net income ...

  • Page 105
    THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 27. Quarterly Financial Information (Unaudited) Fourth Quarter Third Quarter Second Quarter First Quarter Year Ended December 31,...

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    ... our opinions. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and...

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    ...of and effected by the Company's chief executive 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...

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    .... 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. Other Information PART III Item 10. Directors, Executive Officers, and Corporate...

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    ... of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, and Laudus Institutional Trust, all registered investment companies. Mr. Bettinger has been President and Chief Executive Officer of CSC since 2008. In January 2010, he took...

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    ...Schwab Corporate and Retirement Services of CSC from 2007 until 2008 and of Schwab from 2006 until 2008. Mr. McCool 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...

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    ... Data" and are listed below: Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 2. Financial Statement...

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    ...Benefit Trust Agreement under the SchwabPlan Retirement Savings and Investment Plan dated August 17, 2007, filed as Exhibit 10.298 to the Registrant's Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference. The Charles Schwab Corporation Employee Stock Incentive Plan...

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    ...Unit Agreement for Non-Employee Directors under the Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.319 to the Registrant's Form 10-K for the year ended December 31, 2008 and incorporated herein by reference. The Charles Schwab Corporation Corporate Executive Bonus Plan, as...

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    ... 10-Q for the quarter ended June 30, 2010 and incorporated herein by reference. Form of Notice and Retainer Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan (supersedes Exhibit 10.328), filed as Exhibit 10.333 to the Registrant...

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    THE CHARLES SCHWAB CORPORATION Exhibit Number Exhibit Form of Notice and Restricted Stock Unit Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan (supersedes Exhibit 10.330), filed as Exhibit 10.335 to the Registrant's Form 10-Q for the quarter ended September 30, 2010 and ...

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    ... on February 24, 2011. 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...

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    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-8 Schedules not listed are omitted because of the absence of the conditions under which they are ...

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    ... (7) (11) $ $ $ 1 2 4 Represents 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 - 7. Loans to Banking Clients and Related Allowance for...

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    ... 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...

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    ...Interest-earning assets: Cash and cash equivalents (1) Securities available 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...

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    THE CHARLES SCHWAB CORPORATION Supplemental Financial Data for Charles Schwab Bank (Unaudited) (Dollars in Millions) 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 ...

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    ... CHARLES SCHWAB CORPORATION Supplemental Financial Data for Charles Schwab Bank (Unaudited) (Dollars in Millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2008 Securities available for sale: U.S. agency residential mortgage-backed securities Non-agency...

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    ...) 4. Loans to Banking Clients and Related Allowance for Loan Losses The composition of the loan portfolio is as follows: December 31, 2010 2009 2008 2007 2006 Residential real estate mortgages Home equity lines of credit Personal loans secured by securities Other Total loans to banking clients An...

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    ... Financial Data for Charles Schwab Bank (Unaudited) (Dollars in Millions) 5. Summary of Credit Loss on Banking Loans Experience 2010 2009 2008 2007 2006 December 31, Average loans Allowance to year end loans Allowance to nonperforming loans Nonperforming assets to average loans and real estate...

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    ... SCHWAB CORPORATION EXHIBIT 12.1 Computation of Ratio of Earnings to Fixed Charges (Dollar amounts in millions) (Unaudited) Year Ended December 31, 2010 2009 2008 2007 2006 Earnings from continuing operations before taxes on earnings Fixed charges Interest expense: Deposits from banking clients...

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    ... (as defined in Rule 1-02(w) of Regulation S-X) as of December 31, 2010. 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...

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    ... Statement No. 333-32058 /s/ Deloitte & Touche LLP San Francisco, California February 24, 2011 (The Charles Schwab Corporation Employee Stock Purchase Plan) (The Charles Schwab Corporation Deferred Compensation Plan II) (The Charles Schwab Corporation 2004 Stock Incentive Plan) (The Charles Schwab...

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    ... 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Walter W. Bettinger II, certify that: 1. I have reviewed this Annual Report on Form 10-K of The Charles Schwab Corporation; 2. Based on my knowledge, this report does not...

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    ..., whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Joseph R. Martinetto Joseph R. Martinetto Executive Vice President and Chief Financial Officer b) 3. 4. 5. Date: February 24, 2011

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    ... and Chief Executive Officer Date: February 24, 2011 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...

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    ... of the Company for the periods presented therein. /s/ Joseph R. Martinetto Joseph R. Martinetto Executive Vice President and Chief Financial Officer Date: February 24, 2011 A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and...

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    ... Corporation, a real estate and business management company term expires in 2012 Member of the Compensation Committee; Nominating and Corporate Governance Committee walter w. bettinger ii President and Chief Executive Officer, The Charles Schwab Corporation Former President and Chief Executive...

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    ...211 Main Street San Francisco, CA 94105 (415) 667-7000 www.aboutschwab.com The Charles Schwab Corporation is a leading provider of financial services, with more than 300 offices and approximately 8 million client brokerage accounts, 1.5 million corporate retirement plan participants, 700,000 banking...

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    THE CHARLES SCHWAB CORPORATION 211 Main Street San Francisco, CA 94105 (415) 667-7000 www.schwab.com www.aboutschwab.com MKT10448-23 (3/11)