Charles Schwab 2015 Annual Report Download - page 81

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THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
- 61 -
Company was entitled to recover such fee waivers depending on the future performance of the funds and approval by the
boards of the respective funds until the third anniversary of the end of the fiscal year in which such fee waiver occurs, subject
to certain limitations. During the year ended December 31, 2015, the Company terminated the fee waiver reimbursement
agreements and, therefore, no longer has the right to receive reimbursement of waived fees.
Interest revenue
Interest revenue represents interest earned on cash and cash equivalents, cash and investments segregated, receivables from
brokers, dealers, and clearing organizations, receivables from brokerage clients, other securities owned, securities available
for sale, securities held to maturity, and bank loans. Interest revenue is recognized in the period earned based upon average or
daily asset balances and respective interest rates.
Trading revenue
Trading revenue includes commission and principal transaction revenues. Commission revenue is affected by the number of
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.
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of three months or less that are not segregated
and on deposit for regulatory purposes to be cash equivalents. Cash and cash equivalents include money market funds,
deposits with banks, certificates of deposit, commercial paper, and U.S. Treasury securities. Cash and cash equivalents also
include balances that Schwab Bank maintains at the Federal Reserve Bank.
Cash and investments segregated and on deposit for regulatory purposes
Cash and investments segregated and on deposit for regulatory purposes include securities purchased under agreements to
resell (resale agreements), which are collateralized by U.S. Government and agency securities. Resale agreements are
accounted for as collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The
Company obtains control of collateral with a market value equal to or in excess of the principal amount loaned and accrued
interest under resale agreements. Collateral is valued daily by the Company, with additional collateral obtained to ensure full
collateralization. Cash and investments segregated also include certificates of deposit and U.S. Government securities.
Certificates of deposit and U.S. Government securities are recorded at fair value. Pursuant to applicable regulations, client
cash balances not used for margin lending are segregated into investment accounts maintained for the exclusive benefit of
clients.
Receivables from brokerage clients
Receivables from brokerage clients include margin loans to clients and are recorded net of an allowance for doubtful
accounts. Receivables from brokerage clients that remain unsecured or partially secured for more than 30 days are fully
reserved.
Other securities owned
Other securities owned are recorded at fair value based on quoted market prices or other observable market data. Unrealized
gains and losses are included in trading revenue.