Charles Schwab 2010 Annual Report Download - page 101

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’s net capital was $1.2 billion (9% of aggregate debit balances), which was $930 million in excess of its minimum required
net capital and $553 million in excess of 5% of aggregate debit balances.
Schwab is also subject to Rule 15c3-3 under the Securities Exchange Act of 1934, which requires Schwab to maintain cash or
qualified securities in a segregated reserve account for the exclusive benefit of clients. In accordance with Rule 15c3-3, Schwab had
portions of its cash and investments segregated for the exclusive benefit of clients at December 31, 2010. Amounts included in cash
and investments segregated and on deposit for regulatory purposes represent actual balances on deposit, whereas cash and
investments required to be segregated and on deposit for regulatory purposes at December 31, 2010 and 2009 were $22.0 billion and
$18.9 billion, respectively. On January 4, 2011, the Company withdrew a net amount of $194 million of excess segregated cash from
its segregated reserve bank accounts. On January 5, 2010, the Company deposited a net amount of $1.0 billion into its segregated
reserve bank accounts.
24. Segment Information
Operating segments are defined as components of a company in which separate financial information is evaluated regularly by the
chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The
Company structures its operating segments according to its various types of clients and the services provided to those clients. The
Company’s two reportable segments are Investor Services and Institutional Services.
The Investor Services segment includes the Company’s retail client offering. The Institutional Services segment provides custodial,
trading, and support services to independent 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 on third-party platforms. Banking revenues and expenses
are allocated to the Company’s two segments based on which segment services the client.
The accounting policies of the segments are the same as those described in note “2 – Summary of Significant Accounting Policies.”
Financial information for the Company’s reportable segments is presented in the following table. For the computation of its segment
information, the Company utilizes an activity-based costing model to allocate traditional income statement line item expenses (e.g.,
compensation and benefits, depreciation and amortization, and professional services) to the business activities driving segment
expenses (e.g., client service, opening new accounts, or business development) and a funds transfer pricing methodology to allocate
certain revenues.
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. However, capital expenditures are used in resource allocation and are therefore disclosed. There are no
revenues from transactions with other segments within the Company. Capital expenditures are reported gross, and are not net of
proceeds from the sale of fixed assets.
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