Charles Schwab 2011 Annual Report Download - page 112

THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
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Federal tax examinations for all years ending through December 31, 2007, have been completed. The years open to
examination by state and local governments vary by jurisdiction.
23. Earnings Per Share
Basic EPS is computed by dividing net income available to common stockholders 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 include the effect of outstanding stock
options and unvested restricted stock awards and units. EPS under the basic and diluted computations is as follows:
Year Ended December 31, 2011 2010 2009
Net income available to common stockholders (1) $ 864 $ 454 $ 787
Weighted-average common shares outstanding — basic 1,227 1,191 1,156
Common stock equivalent shares related to stock incentive plans 2 3 4
Weighted-average common shares outstanding — diluted (2) 1,229 1,194 1,160
Basic EPS $ .70 $ .38 $ .68
Diluted EPS $ .70 $ .38 $ .68
(1) Net income available to participating securities (unvested restricted shares) was not material in 2011, 2010, or 2009.
(2) Antidilutive stock options and restricted stock awards excluded from the calculation of diluted EPS were 63 million,
52 million, and 53 million shares in 2011, 2010, and 2009, respectively.
24. Regulatory Requirements
CSC is a savings and loan holding company and Schwab Bank, CSC’s depository institution subsidiary, is a federal savings
bank. Prior to July 21, 2011, CSC and Schwab Bank were both subject to supervision and regulation by the Office of Thrift
Supervision (OTS). The “Dodd-Frank Wall Street Reform and Consumer Protection Act” legislation (Dodd-Frank Act)
eliminated the OTS effective July 21, 2011. As a result, the Board of Governors of the Federal Reserve System (Federal
Reserve) became CSC’s primary regulator and the Office of the Comptroller of the Currency became the primary regulator of
Schwab Bank. Effective July 21, 2011, CSC is required by the Dodd-Frank Act to serve as a source of strength for Schwab
Bank. While under the OTS, CSC was required to have a “prudential level of capital” to support CSC’s risk profile. The OTS
did not historically subject savings and loan holding companies, such as CSC, to consolidated regulatory capital
requirements. However, under the Dodd-Frank Act, CSC will be subject to new minimum leverage and minimum risk-based
capital ratio requirements that will be set by the Federal Reserve that are at least as stringent as the requirements generally
applicable to insured depository institutions as of July 21, 2011.
Schwab Bank is subject to regulation and supervision and to various requirements and restrictions under federal and state
laws, including regulatory capital guidelines. Among other things, these requirements also govern transactions with CSC and
its non-depository institution subsidiaries, including loans and other extensions of credit, investments and asset purchases,
dividends and investments. The federal banking agencies have broad powers to enforce these regulations, including the power
to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or
receiver. Under the Federal Deposit Insurance Act, Schwab Bank could be subject to restrictive actions if it were to fall within
one of the lowest three of five capital categories. Schwab Bank is required to maintain minimum capital levels as specified in
federal banking laws and regulations. Failure to meet the minimum levels could 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
December 31, 2011, CSC and Schwab Bank met the capital level requirements.