CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of
ASU 2014-09, “Revenue – Revenue from Contracts with Customers”
and
ASU 2018-02, “Other Comprehensive Income – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2017
|
|
Adjustments Due to ASU 2014-09
|
|
Adjustments Due to ASU 2018-02
|
|
Balance at
January 1, 2018
|
Assets
|
|
|
|
|
|
|
|
|
Other assets
(1)
|
|
$
|
1,949
|
|
|
$
|
167
|
|
|
$
|
—
|
|
|
$
|
2,116
|
|
Stockholders
’
Equity
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
14,408
|
|
|
167
|
|
|
33
|
|
|
14,608
|
|
Accumulated other comprehensive income
|
|
(152
|
)
|
|
—
|
|
|
(33
|
)
|
|
(185
|
)
|
(1)
Adjustment is comprised of an increase in capitalized contract costs of
$219 million
, partially offset by an increase in deferred tax liabilities of
$52 million
.
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our condensed consolidated statement of income and condensed consolidated balance sheet were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
Statement of Income
|
|
As Reported
|
|
Balances Without Adoption of ASU 2014-09
|
|
Effect of Change
Higher/(Lower)
|
Expenses Excluding Interest
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
745
|
|
|
$
|
754
|
|
|
$
|
(9
|
)
|
Taxes on income
|
|
265
|
|
|
263
|
|
|
2
|
|
Net Income
|
|
866
|
|
|
859
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
Statement of Income
|
|
As Reported
|
|
Balances Without Adoption of ASU 2014-09
|
|
Effect of Change
Higher/(Lower)
|
Expenses Excluding Interest
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
1,515
|
|
|
$
|
1,535
|
|
|
$
|
(20
|
)
|
Taxes on income
|
|
484
|
|
|
479
|
|
|
5
|
|
Net Income
|
|
1,649
|
|
|
1,634
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
Balance Sheet
|
|
As Reported
|
|
Balances Without Adoption of ASU 2014-09
|
|
Effect of Change
Higher/(Lower)
|
Assets
|
|
|
|
|
|
|
Other assets
(1)
|
|
$
|
1,917
|
|
|
$
|
1,735
|
|
|
$
|
182
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
Retained earnings
|
|
15,903
|
|
|
15,721
|
|
|
182
|
|
(1)
Adjustment is comprised of an increase in capitalized contract costs of
$239 million
, partially offset by an increase in deferred tax liabilities of
$57 million
.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
3. Revenue Recognition
Disaggregated Revenue
Disaggregation of Schwab’s revenue by major source is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
2017
|
Net interest revenue
|
|
|
|
|
|
|
Interest revenue
|
$
|
1,590
|
|
|
$
|
1,127
|
|
|
$
|
3,011
|
|
$
|
2,182
|
|
Interest expense
|
(183
|
)
|
|
(74
|
)
|
|
(341
|
)
|
(129
|
)
|
Net interest revenue
|
1,407
|
|
|
1,053
|
|
|
2,670
|
|
2,053
|
|
Asset management and administration fees
|
|
|
|
|
|
|
|
|
Mutual funds and ETF service fees
|
458
|
|
|
513
|
|
|
951
|
|
1,019
|
|
Advice solutions
|
283
|
|
|
256
|
|
|
565
|
|
500
|
|
Other
|
73
|
|
|
76
|
|
|
149
|
|
149
|
|
Asset management and administration fees
|
814
|
|
|
845
|
|
|
1,665
|
|
1,668
|
|
Trading revenue
|
|
|
|
|
|
|
|
Commissions
|
157
|
|
|
142
|
|
|
346
|
|
320
|
|
Principal transactions
|
23
|
|
|
15
|
|
|
35
|
|
29
|
|
Trading revenue
|
180
|
|
|
157
|
|
|
381
|
|
349
|
|
Other
|
85
|
|
|
75
|
|
|
168
|
|
141
|
|
Total net revenues
|
$
|
2,486
|
|
|
$
|
2,130
|
|
|
$
|
4,884
|
|
$
|
4,211
|
|
For a summary of revenue provided by our reportable segments, see Note 17. The recognition of revenue is not impacted by the operating segment in which revenue is generated.
Net interest revenue
Net interest revenue, which is generated from financial instruments covered by various other areas of GAAP, is not within the scope of Accounting Standards Codification (ASC) 606,
Revenue From Contracts With Customers
(ASC 606), and is included in the table above in order to reconcile to total net revenues per the condensed consolidated statement of income. Net interest revenue is the difference between interest generated on interest earning assets and interest paid on funding sources. Our primary interest earning assets include cash and cash equivalents; segregated cash and investments; margin loans, which constitute the majority of receivables from brokerage clients; investment securities; and bank loans. Revenue on interest earning assets is affected by various factors, such as the composition of assets, prevailing interest rates at the time of origination or purchase, changes in interest rates on floating rate securities, and changes in prepayment levels for mortgage related securities and loans. Fees earned on securities borrowing and lending activities, which are conducted by CS&Co on assets held in client brokerage accounts, are included in other interest revenue and expense.
Asset management and administration fees
The majority of asset management and administration fees are generated through our proprietary and third-party mutual fund and ETF offerings, as well as fee-based advisory solutions. Mutual fund and ETF service fees are charged for investment management, shareholder, and administration services provided to Schwab Funds
®
and Schwab ETFs™, as well as recordkeeping, shareholder, and administration services provided to third-party funds. Advice solutions fees are charged for brokerage and asset management services provided to advice solutions clients. Both mutual fund and ETF service fees and advice solutions fees are earned and recognized over time. Fees are generally based on a percentage of the daily value of assets under management and are collected on a monthly or quarterly basis.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Trading revenue
Substantially all trading revenue is generated through commissions earned for executing trades for clients in individual equities, options, fixed income securities, and certain third-party mutual funds and ETFs. This revenue is earned and collected when the trades are executed.
Other revenue
Other revenue includes order flow revenue, other service fees, software fees from our portfolio management solutions, exchange processing fees, and nonrecurring gains. Generally, the most significant portion of other revenue is order flow revenue, which are payments received from execution venues to which CS&Co sends equity and option orders. Order flow revenue is recognized at the point-in-time that the trades are executed.
Capitalized contract costs
Deferred contract costs relate to sales commissions paid to employees for obtaining contracts with clients and are included in other assets on the condensed consolidated balance sheets. These costs are amortized to expense on a straight-line basis over a period that is consistent with how the related revenue is recognized. At
June 30, 2018
and January 1, 2018, we had
$239 million
and
$219 million
of deferred contract costs, respectively. Amortization expense related to deferred contract costs was
$11 million
and
$22 million
for the
second
quarter and
first six months
of
2018
, respectively, which was recorded in compensation and benefits expense on the condensed consolidated statements of income.
Contract balances
Receivables from contracts with customers within the scope of ASC 606 were
$353 million
at January 1, 2018 and
$352 million
at June 30, 2018 and were recorded in other assets on the condensed consolidated balance sheets. Schwab does not have any other significant contract assets or contract liability balances as of June 30, 2018 and January 1, 2018.
Unsatisfied performance obligations
We do not have any unsatisfied performance obligations other than those that are subject to an elective practical expedient under ASC 606. The practical expedient applies to and is elected for contracts where we recognize revenue at the amount to which we have the right to invoice for services performed.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
4. Investment Securities
The amortized cost, gross unrealized gains and losses, and fair value of AFS and HTM securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
|
$
|
22,977
|
|
|
$
|
50
|
|
|
$
|
80
|
|
|
$
|
22,947
|
|
U.S. Treasury securities
|
|
11,012
|
|
|
—
|
|
|
153
|
|
|
10,859
|
|
Asset-backed securities
(1)
|
|
10,710
|
|
|
20
|
|
|
10
|
|
|
10,720
|
|
Corporate debt securities
(2)
|
|
6,187
|
|
|
11
|
|
|
7
|
|
|
6,191
|
|
Certificates of deposit
|
|
2,690
|
|
|
3
|
|
|
1
|
|
|
2,692
|
|
U.S. agency notes
|
|
1,530
|
|
|
—
|
|
|
6
|
|
|
1,524
|
|
Commercial paper
(2)
|
|
505
|
|
|
—
|
|
|
—
|
|
|
505
|
|
Foreign government agency securities
|
|
50
|
|
|
—
|
|
|
2
|
|
|
48
|
|
Non-agency commercial mortgage-backed securities
|
|
36
|
|
|
—
|
|
|
—
|
|
|
36
|
|
Total available for sale securities
|
|
$
|
55,697
|
|
|
$
|
84
|
|
|
$
|
259
|
|
|
$
|
55,522
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
|
$
|
113,106
|
|
|
$
|
55
|
|
|
$
|
2,907
|
|
|
$
|
110,254
|
|
Asset-backed securities
(1)
|
|
16,356
|
|
|
125
|
|
|
10
|
|
|
16,471
|
|
Corporate debt securities
(2)
|
|
4,550
|
|
|
9
|
|
|
55
|
|
|
4,504
|
|
U.S. state and municipal securities
|
|
1,242
|
|
|
18
|
|
|
3
|
|
|
1,257
|
|
Non-agency commercial mortgage-backed securities
|
|
1,065
|
|
|
2
|
|
|
23
|
|
|
1,044
|
|
U.S. Treasury securities
|
|
223
|
|
|
—
|
|
|
9
|
|
|
214
|
|
Certificates of deposit
|
|
200
|
|
|
—
|
|
|
—
|
|
|
200
|
|
Foreign government agency securities
|
|
50
|
|
|
—
|
|
|
2
|
|
|
48
|
|
Total held to maturity securities
|
|
$
|
136,792
|
|
|
$
|
209
|
|
|
$
|
3,009
|
|
|
$
|
133,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
|
$
|
20,915
|
|
|
$
|
53
|
|
|
$
|
39
|
|
|
$
|
20,929
|
|
U.S. Treasury securities
|
|
9,583
|
|
|
—
|
|
|
83
|
|
|
9,500
|
|
Asset-backed securities
(1)
|
|
9,019
|
|
|
34
|
|
|
6
|
|
|
9,047
|
|
Corporate debt securities
(2)
|
|
6,154
|
|
|
16
|
|
|
1
|
|
|
6,169
|
|
Certificates of deposit
|
|
2,040
|
|
|
2
|
|
|
1
|
|
|
2,041
|
|
U.S. agency notes
|
|
1,914
|
|
|
—
|
|
|
8
|
|
|
1,906
|
|
Commercial paper
(2)
|
|
313
|
|
|
—
|
|
|
—
|
|
|
313
|
|
Foreign government agency securities
|
|
51
|
|
|
—
|
|
|
1
|
|
|
50
|
|
Non-agency commercial mortgage-backed securities
|
|
40
|
|
|
—
|
|
|
—
|
|
|
40
|
|
Total available for sale securities
|
|
$
|
50,029
|
|
|
$
|
105
|
|
|
$
|
139
|
|
|
$
|
49,995
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
|
$
|
101,197
|
|
|
$
|
290
|
|
|
$
|
1,034
|
|
|
$
|
100,453
|
|
Asset-backed securities
(1)
|
|
12,937
|
|
|
127
|
|
|
2
|
|
|
13,062
|
|
Corporate debt securities
(2)
|
|
4,078
|
|
|
13
|
|
|
5
|
|
|
4,086
|
|
U.S. state and municipal securities
|
|
1,247
|
|
|
57
|
|
|
—
|
|
|
1,304
|
|
Non-agency commercial mortgage-backed securities
|
|
994
|
|
|
10
|
|
|
5
|
|
|
999
|
|
U.S. Treasury securities
|
|
223
|
|
|
—
|
|
|
3
|
|
|
220
|
|
Certificates of deposit
|
|
200
|
|
|
—
|
|
|
—
|
|
|
200
|
|
Foreign government agency securities
|
|
50
|
|
|
—
|
|
|
1
|
|
|
49
|
|
Total held to maturity securities
|
|
$
|
120,926
|
|
|
$
|
497
|
|
|
$
|
1,050
|
|
|
$
|
120,373
|
|
(1)
Approximately
36
% and
42
% of asset-backed securities held as of June 30, 2018 and December 31, 2017, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately
46
% and
40
% of the asset-backed securities held as of June 30, 2018 and December 31, 2017, respectively.
(2)
As of June 30, 2018 and December 31, 2017, approximately
35
% and
41
%, respectively, of the total AFS and HTM investments in corporate debt securities and commercial paper were issued by institutions in the financial services industry. Approximately
21
% and
22%
of the holdings of these securities were issued by institutions in the information technology industry as of June 30, 2018 and December 31, 2017, respectively.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
At
June 30, 2018
, CSB had pledged securities with a fair value of $
21.9 billion
as collateral to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8). CSB also pledges certain investment securities as collateral to secure borrowing capacity at the Federal Reserve Bank discount window, and had pledged securities with a fair value of $
2.5 billion
as collateral for this facility at
June 30, 2018
. CSB also pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was
$900 million
at
June 30, 2018
.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
12 months
|
|
|
|
|
|
12 months
|
|
or longer
|
|
Total
|
June 30, 2018
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
$
|
7,861
|
|
|
$
|
68
|
|
|
$
|
1,732
|
|
|
$
|
12
|
|
|
$
|
9,593
|
|
|
$
|
80
|
|
U.S. Treasury securities
|
5,639
|
|
|
62
|
|
|
4,556
|
|
|
91
|
|
|
10,195
|
|
|
153
|
|
Asset-backed securities
|
2,495
|
|
|
7
|
|
|
348
|
|
|
3
|
|
|
2,843
|
|
|
10
|
|
Corporate debt securities
|
2,163
|
|
|
7
|
|
|
20
|
|
|
—
|
|
|
2,183
|
|
|
7
|
|
Certificates of deposit
|
549
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
549
|
|
|
1
|
|
U.S. agency notes
|
195
|
|
|
—
|
|
|
1,114
|
|
|
6
|
|
|
1,309
|
|
|
6
|
|
Foreign government agency securities
|
49
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
2
|
|
Total
|
$
|
18,951
|
|
|
$
|
147
|
|
|
$
|
7,770
|
|
|
$
|
112
|
|
|
$
|
26,721
|
|
|
$
|
259
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
$
|
68,494
|
|
|
$
|
1,539
|
|
|
$
|
24,984
|
|
|
$
|
1,368
|
|
|
$
|
93,478
|
|
|
$
|
2,907
|
|
Asset-backed securities
|
2,097
|
|
|
10
|
|
|
25
|
|
|
—
|
|
|
2,122
|
|
|
10
|
|
Corporate debt securities
|
2,637
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
2,637
|
|
|
55
|
|
U.S. state and municipal securities
|
118
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
118
|
|
|
3
|
|
Non-agency commercial mortgage-backed securities
|
902
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
902
|
|
|
23
|
|
U.S. Treasury securities
|
214
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
214
|
|
|
9
|
|
Foreign government agency securities
|
48
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
2
|
|
Total
|
$
|
74,510
|
|
|
$
|
1,641
|
|
|
$
|
25,009
|
|
|
$
|
1,368
|
|
|
$
|
99,519
|
|
|
$
|
3,009
|
|
Total securities with unrealized losses
(1)
|
$
|
93,461
|
|
|
$
|
1,788
|
|
|
$
|
32,779
|
|
|
$
|
1,480
|
|
|
$
|
126,240
|
|
|
$
|
3,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
$
|
5,696
|
|
|
$
|
21
|
|
|
$
|
2,548
|
|
|
$
|
18
|
|
|
$
|
8,244
|
|
|
$
|
39
|
|
U.S. Treasury securities
|
4,625
|
|
|
11
|
|
|
4,875
|
|
|
72
|
|
|
9,500
|
|
|
83
|
|
Asset-backed securities
|
904
|
|
|
3
|
|
|
424
|
|
|
3
|
|
|
1,328
|
|
|
6
|
|
Corporate debt securities
|
736
|
|
|
1
|
|
|
120
|
|
|
—
|
|
|
856
|
|
|
1
|
|
Certificates of deposit
|
799
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
799
|
|
|
1
|
|
U.S. agency notes
|
99
|
|
|
—
|
|
|
1,807
|
|
|
8
|
|
|
1,906
|
|
|
8
|
|
Foreign government agency securities
|
50
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
1
|
|
Total
|
$
|
12,909
|
|
|
$
|
38
|
|
|
$
|
9,774
|
|
|
$
|
101
|
|
|
$
|
22,683
|
|
|
$
|
139
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
$
|
42,102
|
|
|
$
|
310
|
|
|
$
|
24,753
|
|
|
$
|
724
|
|
|
$
|
66,855
|
|
|
$
|
1,034
|
|
Asset-backed securities
|
1,124
|
|
|
2
|
|
|
72
|
|
|
—
|
|
|
1,196
|
|
|
2
|
|
Corporate debt securities
|
1,078
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
1,078
|
|
|
5
|
|
Non-agency commercial mortgage-backed securities
|
607
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
607
|
|
|
5
|
|
U.S. Treasury securities
|
220
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
220
|
|
|
3
|
|
Foreign government agency securities
|
49
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
1
|
|
Total
|
$
|
45,180
|
|
|
$
|
326
|
|
|
$
|
24,825
|
|
|
$
|
724
|
|
|
$
|
70,005
|
|
|
$
|
1,050
|
|
Total securities with unrealized losses
(2)
|
$
|
58,089
|
|
|
$
|
364
|
|
|
$
|
34,599
|
|
|
$
|
825
|
|
|
$
|
92,688
|
|
|
$
|
1,189
|
|
(1)
The number of investment positions with unrealized losses totaled
332
for AFS securities and
1,543
for HTM securities.
(2)
The number of investment positions with unrealized losses totaled
251
for AFS securities and
938
for HTM securities.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
At
June 30, 2018
, substantially all securities in the investment portfolios were rated investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises.
Management evaluates whether investment securities are other-than-temporarily impaired (OTTI) on a quarterly basis as described in Note 2 in the
2017
Form 10-K.
No
amounts were recognized as OTTI in earnings or other comprehensive income in 2018 or 2017. As of
June 30, 2018
and
December 31, 2017
, Schwab did not hold any securities on which OTTI was previously recognized.
The maturities of AFS and HTM securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Within
1 year
|
|
After 1 year
through
5 years
|
|
After 5 years
through
10 years
|
|
After
10 years
|
|
Total
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
(1)
|
|
$
|
93
|
|
|
$
|
3,664
|
|
|
$
|
9,498
|
|
|
$
|
9,692
|
|
|
$
|
22,947
|
|
U.S. Treasury securities
|
|
3,194
|
|
|
7,665
|
|
|
—
|
|
|
—
|
|
|
10,859
|
|
Asset-backed securities
|
|
250
|
|
|
8,909
|
|
|
1,006
|
|
|
555
|
|
|
10,720
|
|
Corporate debt securities
|
|
2,253
|
|
|
3,938
|
|
|
—
|
|
|
—
|
|
|
6,191
|
|
Certificates of deposit
|
|
672
|
|
|
2,020
|
|
|
—
|
|
|
—
|
|
|
2,692
|
|
U.S. agency notes
|
|
861
|
|
|
663
|
|
|
—
|
|
|
—
|
|
|
1,524
|
|
Commercial paper
|
|
505
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
505
|
|
Foreign government agency securities
|
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Non-agency commercial mortgage-backed securities
(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
36
|
|
Total fair value
|
|
$
|
7,828
|
|
|
$
|
26,907
|
|
|
$
|
10,504
|
|
|
$
|
10,283
|
|
|
$
|
55,522
|
|
Total amortized cost
|
|
$
|
7,836
|
|
|
$
|
27,038
|
|
|
$
|
10,533
|
|
|
$
|
10,290
|
|
|
$
|
55,697
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
(1)
|
|
$
|
322
|
|
|
$
|
13,730
|
|
|
$
|
31,739
|
|
|
$
|
64,463
|
|
|
$
|
110,254
|
|
Asset-backed securities
|
|
—
|
|
|
1,083
|
|
|
8,978
|
|
|
6,410
|
|
|
16,471
|
|
Corporate debt securities
|
|
393
|
|
|
3,543
|
|
|
568
|
|
|
—
|
|
|
4,504
|
|
U.S. state and municipal securities
|
|
—
|
|
|
—
|
|
|
180
|
|
|
1,077
|
|
|
1,257
|
|
Non-agency commercial mortgage-backed securities
(1)
|
|
—
|
|
|
354
|
|
|
—
|
|
|
690
|
|
|
1,044
|
|
U.S. Treasury securities
|
|
—
|
|
|
—
|
|
|
214
|
|
|
—
|
|
|
214
|
|
Certificates of deposit
|
|
—
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
200
|
|
Foreign government agency securities
|
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Total fair value
|
|
$
|
715
|
|
|
$
|
18,958
|
|
|
$
|
41,679
|
|
|
$
|
72,640
|
|
|
$
|
133,992
|
|
Total amortized cost
|
|
$
|
716
|
|
|
$
|
19,252
|
|
|
$
|
42,448
|
|
|
$
|
74,376
|
|
|
$
|
136,792
|
|
(1)
Mortgage-backed securities have been allocated to maturity groupings based on final contractual maturities. Actual maturities will differ from final contractual maturities because borrowers on a certain portion of loans underlying these securities have the right to prepay their obligations.
Proceeds and gross realized gains and losses from sales of AFS securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Proceeds
|
|
$
|
115
|
|
|
$
|
4,421
|
|
|
$
|
115
|
|
|
$
|
5,485
|
|
Gross realized gains
|
|
—
|
|
|
6
|
|
|
—
|
|
|
7
|
|
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
5. Bank Loans and Related Allowance for Loan Losses
The composition of bank loans and delinquency analysis by loan type is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
Current
|
30-59 days
past due
|
60-89 days
past due
|
≥90 days past
due and other
nonaccrual loans
(3)
|
Total past due
and other
nonaccrual loans
|
Total
loans
|
Allowance
for loan
losses
|
Total
bank
loans
–
net
|
First Mortgages
(1,2)
|
$
|
10,126
|
|
$
|
15
|
|
$
|
2
|
|
$
|
15
|
|
$
|
32
|
|
$
|
10,158
|
|
$
|
17
|
|
$
|
10,141
|
|
HELOCs
(1,2)
|
1,686
|
|
2
|
|
1
|
|
9
|
|
12
|
|
1,698
|
|
7
|
|
1,691
|
|
Pledged asset lines
|
4,558
|
|
11
|
|
1
|
|
—
|
|
12
|
|
4,570
|
|
—
|
|
4,570
|
|
Other
|
169
|
|
—
|
|
—
|
|
—
|
|
—
|
|
169
|
|
2
|
|
167
|
|
Total bank loans
|
$
|
16,539
|
|
$
|
28
|
|
$
|
4
|
|
$
|
24
|
|
$
|
56
|
|
$
|
16,595
|
|
$
|
26
|
|
$
|
16,569
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
First Mortgages
(1,2)
|
$
|
9,983
|
|
$
|
14
|
|
$
|
2
|
|
$
|
17
|
|
$
|
33
|
|
$
|
10,016
|
|
$
|
16
|
|
$
|
10,000
|
|
HELOCs
(1,2)
|
1,928
|
|
—
|
|
3
|
|
12
|
|
15
|
|
1,943
|
|
8
|
|
1,935
|
|
Pledged asset lines
|
4,361
|
|
4
|
|
4
|
|
—
|
|
8
|
|
4,369
|
|
—
|
|
4,369
|
|
Other
|
176
|
|
—
|
|
—
|
|
—
|
|
—
|
|
176
|
|
2
|
|
174
|
|
Total bank loans
|
$
|
16,448
|
|
$
|
18
|
|
$
|
9
|
|
$
|
29
|
|
$
|
56
|
|
$
|
16,504
|
|
$
|
26
|
|
$
|
16,478
|
|
(1)
First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of
$74 million
and
$77 million
at
June 30, 2018
and
December 31, 2017
, respectively.
(2)
At
June 30, 2018
and
December 31, 2017
,
47%
and
48%
, respectively, of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole.
(3)
There were
no
loans accruing interest that were contractually 90 days or more past due at
June 30, 2018
or
December 31, 2017
.
At
June 30, 2018
, CSB had pledged
$11.1 billion
of First Mortgages and HELOCs as collateral to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8).
Substantially all of the bank loans were collectively evaluated for impairment at
June 30, 2018
and
December 31, 2017
.
Changes in the allowance for loan losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
First Mortgages
|
|
HELOCs
|
|
Other
|
|
Total
(1)
|
|
First Mortgages
|
|
HELOCs
|
|
Other
|
|
Total
(1)
|
Balance at beginning of period
|
|
$
|
17
|
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
27
|
|
|
$
|
17
|
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
26
|
|
Charge-offs
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
Recoveries
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Provision for loan losses
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at end of period
|
|
$
|
17
|
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
26
|
|
|
$
|
17
|
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
First Mortgages
|
|
HELOCs
|
|
Other
|
|
Total
(1)
|
|
First Mortgages
|
|
HELOCs
|
|
Other
|
|
Total
(1)
|
Balance at beginning of period
|
|
$
|
16
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
26
|
|
|
$
|
17
|
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
26
|
|
Charge-offs
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
Recoveries
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Provision for loan losses
|
|
1
|
|
|
(2
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at end of period
|
|
$
|
17
|
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
26
|
|
|
$
|
17
|
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
26
|
|
(1)
All pledged asset lines (PALs) were fully collateralized by securities with fair values in excess of borrowings at
June 30, 2018
and
December 31, 2017
.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
A summary of impaired bank loan related assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Nonaccrual loans
(1)
|
|
$
|
24
|
|
|
$
|
28
|
|
Other real estate owned
(2)
|
|
2
|
|
|
3
|
|
Total nonperforming assets
|
|
26
|
|
|
31
|
|
Troubled debt restructurings
|
|
6
|
|
|
11
|
|
Total impaired assets
|
|
$
|
32
|
|
|
$
|
42
|
|
(1)
Nonaccrual loans include nonaccrual troubled debt restructurings.
(2)
Included in other assets on the condensed consolidated balance sheets.
Credit Quality
In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following:
|
|
•
|
Borrower FICO scores at origination (Origination FICO);
|
|
|
•
|
Updated borrower FICO scores (Updated FICO);
|
|
|
•
|
Loan-to-value (LTV) ratios at origination (Origination LTV); and
|
|
|
•
|
Estimated current LTV ratios (Estimated Current LTV).
|
Borrowers’ FICO scores are provided by an independent third-party credit reporting service and were last updated in June 2018. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is estimated by reference to a home price appreciation index.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The credit quality indicators of the Company’s bank loan portfolio are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Balance
|
|
Weighted Average
Updated FICO
|
|
Utilization
Rate
(1)
|
|
Percent of
Loans that are on
Nonaccrual Status
|
First Mortgages:
|
|
|
|
|
|
|
|
|
Estimated Current LTV
|
|
|
|
|
|
|
|
|
<
70%
|
|
$
|
9,287
|
|
|
776
|
|
|
N/A
|
|
|
0.06
|
%
|
>70% –
<
90%
|
|
865
|
|
|
770
|
|
|
N/A
|
|
|
0.42
|
%
|
>90% –
<
100%
|
|
4
|
|
|
696
|
|
|
N/A
|
|
|
8.72
|
%
|
>100%
|
|
2
|
|
|
729
|
|
|
N/A
|
|
|
10.14
|
%
|
Total
|
|
$
|
10,158
|
|
|
776
|
|
|
N/A
|
|
|
0.10
|
%
|
HELOCs:
|
|
|
|
|
|
|
|
|
Estimated Current LTV
(2)
|
|
|
|
|
|
|
|
|
<
70%
|
|
$
|
1,580
|
|
|
772
|
|
|
31
|
%
|
|
0.11
|
%
|
>70% –
<
90%
|
|
105
|
|
|
754
|
|
|
48
|
%
|
|
1.04
|
%
|
>90% –
<
100%
|
|
8
|
|
|
741
|
|
|
72
|
%
|
|
2.39
|
%
|
>100%
|
|
5
|
|
|
714
|
|
|
76
|
%
|
|
2.03
|
%
|
Total
|
|
$
|
1,698
|
|
|
771
|
|
|
31
|
%
|
|
0.19
|
%
|
Pledged asset lines:
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average LTV
(2)
|
|
|
|
|
|
|
|
|
|
|
=70%
|
|
$
|
4,570
|
|
|
766
|
|
|
38
|
%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Balance
|
|
Weighted Average
Updated FICO
|
|
Utilization
Rate
(1)
|
|
Percent of
Loans that are on
Nonaccrual Status
|
First Mortgages:
|
|
|
|
|
|
|
|
|
Estimated Current LTV
|
|
|
|
|
|
|
|
|
<
70%
|
|
$
|
9,046
|
|
|
775
|
|
|
N/A
|
|
|
0.09
|
%
|
>70% –
<
90%
|
|
961
|
|
|
769
|
|
|
N/A
|
|
|
0.46
|
%
|
>90% –
<
100%
|
|
5
|
|
|
714
|
|
|
N/A
|
|
|
10.49
|
%
|
>100%
|
|
4
|
|
|
713
|
|
|
N/A
|
|
|
6.23
|
%
|
Total
|
|
$
|
10,016
|
|
|
775
|
|
|
N/A
|
|
|
0.14
|
%
|
HELOCs:
|
|
|
|
|
|
|
|
|
Estimated Current LTV
(2)
|
|
|
|
|
|
|
|
|
<
70%
|
|
$
|
1,773
|
|
|
772
|
|
|
32
|
%
|
|
0.18
|
%
|
>70% –
<
90%
|
|
148
|
|
|
755
|
|
|
47
|
%
|
|
0.84
|
%
|
>90% –
<
100%
|
|
14
|
|
|
742
|
|
|
64
|
%
|
|
2.85
|
%
|
>100%
|
|
8
|
|
|
718
|
|
|
72
|
%
|
|
4.91
|
%
|
Total
|
|
$
|
1,943
|
|
|
770
|
|
|
33
|
%
|
|
0.27
|
%
|
Pledged asset lines:
|
|
|
|
|
|
|
|
|
Weighted-Average LTV
(2)
|
|
|
|
|
|
|
|
|
=70%
|
|
$
|
4,369
|
|
|
765
|
|
|
41
|
%
|
|
—
|
|
(1)
The Utilization Rate is calculated using the outstanding balance divided by the associated total line of credit.
(2)
Represents the LTV for the full line of credit (drawn and undrawn).
N/A Not applicable.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
First Mortgages
|
|
HELOCs
|
Year of origination
|
|
|
|
|
|
Pre-2014
|
|
$
|
2,313
|
|
|
$
|
1,252
|
|
2014
|
|
461
|
|
|
99
|
|
2015
|
|
1,121
|
|
|
113
|
|
2016
|
|
2,734
|
|
|
101
|
|
2017
|
|
2,484
|
|
|
101
|
|
2018
|
|
1,045
|
|
|
32
|
|
Total
|
|
$
|
10,158
|
|
|
$
|
1,698
|
|
Origination FICO
|
|
|
|
|
|
|
<620
|
|
$
|
5
|
|
|
$
|
—
|
|
620 – 679
|
|
84
|
|
|
9
|
|
680 – 739
|
|
1,574
|
|
|
321
|
|
>
740
|
|
8,495
|
|
|
1,368
|
|
Total
|
|
$
|
10,158
|
|
|
$
|
1,698
|
|
Origination LTV
|
|
|
|
|
<
70%
|
|
$
|
7,677
|
|
|
$
|
1,194
|
|
>70% –
<
90%
|
|
2,476
|
|
|
496
|
|
>90% –
<
100%
|
|
5
|
|
|
8
|
|
Total
|
|
$
|
10,158
|
|
|
$
|
1,698
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
First Mortgages
|
|
HELOCs
|
Year of origination
|
|
|
|
|
|
Pre-2014
|
|
$
|
2,804
|
|
|
$
|
1,496
|
|
2014
|
|
530
|
|
|
116
|
|
2015
|
|
1,218
|
|
|
128
|
|
2016
|
|
2,886
|
|
|
111
|
|
2017
|
|
2,578
|
|
|
92
|
|
Total
|
|
$
|
10,016
|
|
|
$
|
1,943
|
|
Origination FICO
|
|
|
|
|
|
|
<620
|
|
$
|
6
|
|
|
$
|
1
|
|
620 – 679
|
|
89
|
|
|
10
|
|
680 – 739
|
|
1,569
|
|
|
365
|
|
>
740
|
|
8,352
|
|
|
1,567
|
|
Total
|
|
$
|
10,016
|
|
|
$
|
1,943
|
|
Origination LTV
|
|
|
|
|
|
|
<
70%
|
|
$
|
7,569
|
|
|
$
|
1,360
|
|
>70% –
<
90%
|
|
2,441
|
|
|
574
|
|
>90% –
<
100%
|
|
6
|
|
|
9
|
|
Total
|
|
$
|
10,016
|
|
|
$
|
1,943
|
|
At
June 30, 2018
, First Mortgage loans of
$9.2 billion
had adjustable interest rates. These mortgages have initial fixed interest rates for
three
to
ten
years and interest rates that adjust annually thereafter. Approximately
32%
of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately
63%
of the balance of these interest-only loans are not scheduled to reset for
three
or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The HELOC product has a
30
-year loan term with an initial draw period of
ten
years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a
20
-year amortizing loan. The interest rate during the initial draw period, and the
20
-year amortizing period, is a floating rate based on the prime rate plus a margin. HELOCs that convert to an amortizing loan may experience higher delinquencies, and higher loss rates, than those in the initial draw period. The allowance for loan loss methodology takes this increased inherent risk into consideration.
The following table presents when current outstanding HELOCs will convert to amortizing loans:
|
|
|
|
|
|
June 30, 2018
|
|
Balance
|
Converted to an amortizing loan by period end
|
|
$
|
537
|
|
Within 1 year
|
|
342
|
|
> 1 year – 3 years
|
|
152
|
|
> 3 years – 5 years
|
|
155
|
|
> 5 years
|
|
512
|
|
Total
|
|
$
|
1,698
|
|
At
June 30, 2018
,
$1.4 billion
of the HELOC portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At
June 30, 2018
, the borrowers on approximately
49%
of HELOC loan balances outstanding only paid the minimum amount due.
6. Variable Interest Entities
As of
June 30, 2018
and
December 31, 2017
, all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s Community Reinvestment Act-related investments and most of those related to Low-Income Housing Tax Credit (LIHTC) investments. As part of CSB’s community reinvestment initiatives, CSB invests with other institutional investors in funds that make equity investments in multifamily affordable housing properties. CSB receives tax credits and other tax benefits for these investments. CSB’s LIHTC investments are accounted for using the proportional amortization method, which amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is included in taxes on income on the consolidated statements of income.
Aggregate assets, liabilities, and maximum exposure to loss
The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but as to which we have concluded it is not the primary beneficiary, are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
Aggregate
assets
|
|
Aggregate
liabilities
|
|
Maximum
exposure
to loss
|
|
Aggregate
assets
|
|
Aggregate
liabilities
|
|
Maximum
exposure
to loss
|
LIHTC investments
(1)
|
|
$
|
339
|
|
|
$
|
208
|
|
|
$
|
339
|
|
|
$
|
304
|
|
|
$
|
203
|
|
|
$
|
304
|
|
Other CRA investments
(2)
|
|
68
|
|
|
—
|
|
|
119
|
|
|
69
|
|
|
—
|
|
|
125
|
|
Total
|
|
$
|
407
|
|
|
$
|
208
|
|
|
$
|
458
|
|
|
$
|
373
|
|
|
$
|
203
|
|
|
$
|
429
|
|
(1)
Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets.
(2)
Other CRA investments are recorded using either the adjusted cost method, equity method, or as HTM securities. Aggregate assets are included in other assets, HTM securities, or bank loans – net on the condensed consolidated balance sheets.
Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. During the
six
months ended
June 30, 2018
and
2017
, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide. CSB’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and CSB expects to pay substantially all of these commitments between
2018
and
2021
.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
7. Bank Deposits
Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Interest-bearing deposits:
|
|
|
|
|
Deposits swept from brokerage accounts
|
|
$
|
179,874
|
|
|
$
|
148,212
|
|
Checking
|
|
12,601
|
|
|
13,388
|
|
Savings and other
|
|
6,825
|
|
|
7,264
|
|
Total interest-bearing deposits
|
|
199,300
|
|
|
168,864
|
|
Non-interest-bearing deposits
|
|
622
|
|
|
792
|
|
Total bank deposits
|
|
$
|
199,922
|
|
|
$
|
169,656
|
|
8. Borrowings
CSC’s Senior Notes are unsecured obligations and rank equally with the other unsecured senior debt. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. The following table lists long-term debt by instrument outstanding as of
June 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
Date of
|
Principal Amount Outstanding
|
|
Issuance
|
June 30, 2018
|
December 31, 2017
|
Fixed-rate Senior Notes:
|
|
|
|
1.500% due March 10, 2018
(1)
|
03/10/15
|
$
|
—
|
|
$
|
625
|
|
2.200% due July 25, 2018
(2)
|
07/25/13
|
—
|
|
275
|
|
4.450% due July 22, 2020
|
07/22/10
|
700
|
|
700
|
|
3.250% due May 21, 2021
|
05/22/18
|
600
|
|
—
|
|
3.225% due September 1, 2022
|
08/29/12
|
256
|
|
256
|
|
2.650% due January 25, 2023
|
12/07/17
|
800
|
|
800
|
|
3.000% due March 10, 2025
|
03/10/15
|
375
|
|
375
|
|
3.850% due May 21, 2025
|
05/22/18
|
750
|
|
—
|
|
3.450% due February 13, 2026
|
11/13/15
|
350
|
|
350
|
|
3.200% due March 2, 2027
|
03/02/17
|
650
|
|
650
|
|
3.200% due January 25, 2028
|
12/07/17
|
700
|
|
700
|
|
Floating-rate Senior Notes:
|
|
|
|
Three-month LIBOR + 0.32% due May 21, 2021
|
05/22/18
|
600
|
|
—
|
|
Total Senior Notes
|
|
5,781
|
|
4,731
|
|
5.450% Finance lease obligation
(3)
|
06/04/04
|
57
|
|
61
|
|
Unamortized discount — net
|
|
(14
|
)
|
(14
|
)
|
Debt issuance costs
|
|
(35
|
)
|
(25
|
)
|
Total long-term debt
|
|
$
|
5,789
|
|
$
|
4,753
|
|
(1)
Redeemed on February 8, 2018.
(2)
Redeemed on June 25, 2018.
(3)
Schwab has a finance lease obligation related to an office building and land under a
20
-year lease. The remaining finance lease obligation is being reduced by a portion of the lease payments over the remaining lease term through June 30, 2024.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Annual maturities on long-term debt outstanding at
June 30, 2018
are as follows:
|
|
|
|
|
|
Maturities
|
2018
|
$
|
4
|
|
2019
|
8
|
|
2020
|
709
|
|
2021
|
1,209
|
|
2022
|
266
|
|
Thereafter
|
3,642
|
|
Total maturities
|
5,838
|
|
Unamortized discount — net
|
(14
|
)
|
Debt issuance costs
|
(35
|
)
|
Total long-term debt
|
$
|
5,789
|
|
Short-term borrowings:
CSB maintains a secured credit facility with the FHLB. Amounts available under this facility are dependent on the value of CSB’s First Mortgages, HELOCs, and the fair value of certain of CSB’s investment securities that are pledged as collateral. As of
June 30, 2018
, the collateral pledged by CSB provided a total borrowing capacity of
$30.3 billion
of which
no
amounts were outstanding. As of
December 31, 2017
, the collateral pledged by CSB provided a total borrowing capacity of
$32.3 billion
, of which
$15.0 billion
, was outstanding.
As a condition of the FHLB borrowings, CSB is required to hold FHLB stock, which was recorded in other assets on the condensed consolidated balance sheets. The investment in FHLB was
$17 million
at
June 30, 2018
and
$405 million
at
December 31, 2017
.
9. Commitments and Contingencies
Loan Portfolio:
CSB provides a co-branded loan origination program for CSB clients (the Program) with Quicken Loans, Inc. (Quicken Loans
®
). Pursuant to the Program, Quicken Loans originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. CSB purchased First Mortgages of
$594 million
and
$683 million
during the
second
quarters of
2018
and
2017
, respectively, and
$1.1 billion
and
$1.3 billion
during the first
six
months of 2018 and 2017, respectively. Schwab purchased HELOCs with commitments of
$100 million
and
$111 million
during the
second
quarters of
2018
and
2017
, respectively, and
$207 million
and
$229 million
during the first
six
months of 2018 and 2017, respectively.
The Company’s commitments to extend credit on bank lines of credit and to purchase First Mortgages are as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit
|
$
|
10,726
|
|
|
$
|
10,060
|
|
Commitments to purchase First Mortgage loans
|
309
|
|
|
308
|
|
Total
|
$
|
11,035
|
|
|
$
|
10,368
|
|
Guarantees and indemnifications:
Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We partially satisfy the margin requirements by arranging unsecured standby letter of credit agreements (LOCs), in favor of the Options Clearing Corporation, which are issued by several banks. At
June 30, 2018
, the aggregate face amount of these LOCs totaled
$225 million
. There were
no
funds drawn under any of these LOCs at
June 30, 2018
. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral.
Schwab also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. Schwab’s
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. 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:
Schwab 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.
Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; potential opportunities for settlement and the status of any settlement discussions; and potential insurance coverage and indemnification. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available.
Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any 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. Described below are certain matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company.
Total Bond Market Fund Litigation
: On August 28, 2008, a class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of investors in the Schwab Total Bond Market Fund
™
. The lawsuit, which alleged violations of state law and federal securities law in connection with the fund’s investment policy, named CSIM, Schwab Investments (registrant and issuer of the fund’s shares), and certain current and former fund trustees as defendants. Allegations include that the fund improperly deviated from its stated investment objectives by investing in collateralized mortgage obligations (CMOs) and investing more than
25%
of fund assets in CMOs and mortgage-backed securities without obtaining a fundholder vote. Plaintiff seeks unspecified compensatory and rescission damages, unspecified equitable and injunctive relief, costs, and attorneys’ fees on behalf of a putative class of investors who held shares as of August 31, 2007, and a putative class of investors who purchased the shares between September 1, 2017 and February 27, 2009. Plaintiff’s federal securities law claim and certain of plaintiff’s state law claims were dismissed. On August 8, 2011, the court dismissed plaintiff’s remaining claims with prejudice. Plaintiff appealed to the Ninth Circuit, which issued a ruling on March 9, 2015 reversing the district court’s dismissal of the case and remanding the case for further proceedings. Plaintiff filed a fourth amended complaint on June 25, 2015, and in decisions issued October 6, 2015 and February 23, 2016, the court dismissed all claims with prejudice. Plaintiff has appealed to the Ninth Circuit, where the case remains pending.
Crago Order Routing Litigation
: On July 13, 2016, a securities class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of a putative class of customers executing equity orders through CS&Co. The lawsuit names CS&Co and CSC as defendants and alleges that an agreement under which CS&Co routed orders to UBS Securities LLC between July 13, 2011 and December 31, 2014 violated CS&Co’s duty to seek best execution. Plaintiffs seek unspecified damages, interest, injunctive and equitable relief, and attorneys’ fees and costs. After a first amended complaint was dismissed with leave to amend, plaintiffs filed a second amended complaint on August 14, 2017. Defendants again moved to dismiss, and in a decision issued December 5, 2017, the court denied the motion. Defendants have answered the complaint to deny all allegations, and intend to vigorously contest the lawsuit.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
10. Financial Instruments Subject to Off-Balance Sheet Credit Risk
Resale agreements:
Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, it would be required to deposit cash and/or securities of an equal amount into its segregated reserve bank accounts in order to meet its segregated cash and investment requirement. Schwab’s resale agreements are not subject to master netting arrangements.
Securities lending:
Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was
$472 million
and
$215 million
at
June 30, 2018
and
December 31, 2017
, respectively. All of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us and is subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following table presents information about our resale agreements and securities lending activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities at
June 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets
|
|
|
|
|
Gross
Assets/
Liabilities
|
|
Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets
|
|
Net Amounts
Presented in the
Condensed
Consolidated
Balance Sheets
|
|
Counterparty
Offsetting
|
|
Collateral
|
|
Net
Amount
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resale agreements
(1)
|
|
$
|
5,391
|
|
|
$
|
—
|
|
|
$
|
5,391
|
|
|
$
|
—
|
|
|
$
|
(5,391
|
)
|
(2)
|
|
$
|
—
|
|
Securities borrowed
(3)
|
|
484
|
|
|
—
|
|
|
484
|
|
|
(362
|
)
|
|
(119
|
)
|
|
|
3
|
|
Total
|
|
$
|
5,875
|
|
|
$
|
—
|
|
|
$
|
5,875
|
|
|
$
|
(362
|
)
|
|
$
|
(5,510
|
)
|
|
|
$
|
3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities loaned
(4,5)
|
|
$
|
946
|
|
|
$
|
—
|
|
|
$
|
946
|
|
|
$
|
(362
|
)
|
|
$
|
(492
|
)
|
|
|
$
|
92
|
|
Total
|
|
$
|
946
|
|
|
$
|
—
|
|
|
$
|
946
|
|
|
$
|
(362
|
)
|
|
$
|
(492
|
)
|
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resale agreements
(1)
|
|
$
|
6,596
|
|
|
$
|
—
|
|
|
$
|
6,596
|
|
|
$
|
—
|
|
|
$
|
(6,596
|
)
|
(2)
|
|
$
|
—
|
|
Securities borrowed
(3)
|
|
222
|
|
|
—
|
|
|
222
|
|
|
(199
|
)
|
|
(22
|
)
|
|
|
1
|
|
Total
|
|
$
|
6,818
|
|
|
$
|
—
|
|
|
$
|
6,818
|
|
|
$
|
(199
|
)
|
|
$
|
(6,618
|
)
|
|
|
$
|
1
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities loaned
(4,5)
|
|
$
|
966
|
|
|
$
|
—
|
|
|
$
|
966
|
|
|
$
|
(199
|
)
|
|
$
|
(670
|
)
|
|
|
$
|
97
|
|
Total
|
|
$
|
966
|
|
|
$
|
—
|
|
|
$
|
966
|
|
|
$
|
(199
|
)
|
|
$
|
(670
|
)
|
|
|
$
|
97
|
|
(1)
Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets.
(2)
Actual collateral was greater than or equal to
102%
of the related assets. At
June 30, 2018
and
December 31, 2017
, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was
$5.5 billion
and
$6.7 billion
, respectively.
(3)
Included in receivables from brokers, dealers, and clearing organizations in the condensed consolidated balance sheets.
(4)
Included in payables to brokers, dealers, and clearing organizations in the condensed consolidated balance sheets. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at
June 30, 2018
and
December 31, 2017
.
(5)
Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities.
Margin lending:
Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, and the amounts that we had pledged:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Fair value of client securities available to be pledged
|
|
$
|
28,511
|
|
|
$
|
25,905
|
|
Fair value of client securities pledged for:
|
|
|
|
|
Fulfillment of requirements with the Options Clearing Corporation
(1)
|
|
2,921
|
|
|
2,280
|
|
Fulfillment of client short sales
|
|
1,831
|
|
|
2,011
|
|
Securities lending to other broker-dealers
|
|
741
|
|
|
784
|
|
Total collateral pledged
|
|
$
|
5,493
|
|
|
$
|
5,075
|
|
Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was
$104 million
as of
June 30, 2018
and
$78 million
as of
December 31, 2017
.
|
|
(1)
|
Client securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.
|
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
11. Fair Values of Assets and Liabilities
Assets and liabilities measured at fair value on a recurring basis
Schwab’s assets and liabilities measured at fair value on a recurring basis include certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, other securities owned, and AFS securities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. We generally obtain prices from at least three independent pricing sources for assets recorded at fair value.
Our primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing sources to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in a material difference in the recorded amounts.
For a description of the fair value hierarchy and Schwab’s fair value methodologies, including the use of independent third-party pricing services, see Note 2 in the
2017
Form 10-K. We did not transfer any assets or liabilities between Level 1, Level 2, or Level 3 during the
six months ended
June 30, 2018
, or the year ended
December 31, 2017
. In addition, the Company did not adjust prices received from the primary independent third-party pricing service at
June 30, 2018
or
December 31, 2017
.
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the fair value hierarchy for assets measured at fair value on a recurring basis. Liabilities recorded at fair value were not material, and therefore are not included in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at
Fair Value
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,103
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,103
|
|
Commercial paper
|
|
—
|
|
|
210
|
|
|
—
|
|
|
210
|
|
Total cash equivalents
|
|
1,103
|
|
|
210
|
|
|
—
|
|
|
1,313
|
|
Investments segregated and on deposit for regulatory purposes:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
—
|
|
|
1,999
|
|
|
—
|
|
|
1,999
|
|
U.S. Government securities
|
|
—
|
|
|
1,532
|
|
|
—
|
|
|
1,532
|
|
Total investments segregated and on deposit for regulatory purposes
|
|
—
|
|
|
3,531
|
|
|
—
|
|
|
3,531
|
|
Other securities owned:
|
|
|
|
|
|
|
|
|
|
|
|
Equity and bond mutual funds
|
|
399
|
|
|
—
|
|
|
—
|
|
|
399
|
|
Schwab Funds
®
money market funds
|
|
42
|
|
|
—
|
|
|
—
|
|
|
42
|
|
State and municipal debt obligations
|
|
—
|
|
|
42
|
|
|
—
|
|
|
42
|
|
Equity, U.S. Government and corporate debt, and other securities
|
|
3
|
|
|
39
|
|
|
—
|
|
|
42
|
|
Total other securities owned
|
|
444
|
|
|
81
|
|
|
—
|
|
|
525
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
|
—
|
|
|
22,947
|
|
|
—
|
|
|
22,947
|
|
U.S. Treasury securities
|
|
—
|
|
|
10,859
|
|
|
—
|
|
|
10,859
|
|
Asset-backed securities
|
|
—
|
|
|
10,720
|
|
|
—
|
|
|
10,720
|
|
Corporate debt securities
|
|
—
|
|
|
6,191
|
|
|
—
|
|
|
6,191
|
|
Certificates of deposit
|
|
—
|
|
|
2,692
|
|
|
—
|
|
|
2,692
|
|
U.S. agency notes
|
|
—
|
|
|
1,524
|
|
|
—
|
|
|
1,524
|
|
Commercial paper
|
|
—
|
|
|
505
|
|
|
—
|
|
|
505
|
|
Foreign government agency securities
|
|
—
|
|
|
48
|
|
|
—
|
|
|
48
|
|
Non-agency commercial mortgage-backed securities
|
|
—
|
|
|
36
|
|
|
—
|
|
|
36
|
|
Total available for sale securities
|
|
—
|
|
|
55,522
|
|
|
—
|
|
|
55,522
|
|
Total
|
|
$
|
1,547
|
|
|
$
|
59,344
|
|
|
$
|
—
|
|
|
$
|
60,891
|
|
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at
Fair Value
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
2,727
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,727
|
|
Total cash equivalents
|
|
2,727
|
|
|
—
|
|
|
—
|
|
|
2,727
|
|
Investments segregated and on deposit for regulatory purposes:
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
—
|
|
|
2,198
|
|
|
—
|
|
|
2,198
|
|
U.S. Government securities
|
|
—
|
|
|
3,658
|
|
|
—
|
|
|
3,658
|
|
Total investments segregated and on deposit for regulatory purposes
|
|
—
|
|
|
5,856
|
|
|
—
|
|
|
5,856
|
|
Other securities owned:
|
|
|
|
|
|
|
|
|
|
Equity and bond mutual funds
|
|
318
|
|
|
—
|
|
|
—
|
|
|
318
|
|
Schwab Funds
®
money market funds
|
|
135
|
|
|
—
|
|
|
—
|
|
|
135
|
|
State and municipal debt obligations
|
|
—
|
|
|
52
|
|
|
—
|
|
|
52
|
|
Equity, U.S. Government and corporate debt, and other securities
|
|
2
|
|
|
32
|
|
|
—
|
|
|
34
|
|
Total other securities owned
|
|
455
|
|
|
84
|
|
|
—
|
|
|
539
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
|
—
|
|
|
20,929
|
|
|
—
|
|
|
20,929
|
|
U.S. Treasury securities
|
|
—
|
|
|
9,500
|
|
|
—
|
|
|
9,500
|
|
Asset-backed securities
|
|
—
|
|
|
9,047
|
|
|
—
|
|
|
9,047
|
|
Corporate debt securities
|
|
—
|
|
|
6,169
|
|
|
—
|
|
|
6,169
|
|
Certificates of deposit
|
|
—
|
|
|
2,041
|
|
|
—
|
|
|
2,041
|
|
U.S. agency notes
|
|
—
|
|
|
1,906
|
|
|
—
|
|
|
1,906
|
|
Commercial paper
|
|
—
|
|
|
313
|
|
|
—
|
|
|
313
|
|
Foreign government agency securities
|
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
Non-agency commercial mortgage-backed securities
|
|
—
|
|
|
40
|
|
|
—
|
|
|
40
|
|
Total available for sale securities
|
|
—
|
|
|
49,995
|
|
|
—
|
|
|
49,995
|
|
Total
|
|
$
|
3,182
|
|
|
$
|
55,935
|
|
|
$
|
—
|
|
|
$
|
59,117
|
|
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Fair Value of Other Financial Instruments
The following tables present the fair value hierarchy for other financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Carrying
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,937
|
|
|
$
|
—
|
|
|
$
|
11,937
|
|
|
$
|
—
|
|
|
$
|
11,937
|
|
Cash and investments segregated and on deposit for
regulatory purposes
|
|
7,469
|
|
|
—
|
|
|
7,469
|
|
|
—
|
|
|
7,469
|
|
Receivables from brokers, dealers, and clearing
organizations
|
|
1,025
|
|
|
—
|
|
|
1,025
|
|
|
—
|
|
|
1,025
|
|
Receivables from brokerage clients
—
net
|
|
22,344
|
|
|
—
|
|
|
22,344
|
|
|
—
|
|
|
22,344
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
|
113,106
|
|
|
—
|
|
|
110,254
|
|
|
—
|
|
|
110,254
|
|
Asset-backed securities
|
|
16,356
|
|
|
—
|
|
|
16,471
|
|
|
—
|
|
|
16,471
|
|
Corporate debt securities
|
|
4,550
|
|
|
—
|
|
|
4,504
|
|
|
—
|
|
|
4,504
|
|
U.S. state and municipal securities
|
|
1,242
|
|
|
—
|
|
|
1,257
|
|
|
—
|
|
|
1,257
|
|
Non-agency commercial mortgage-backed securities
|
|
1,065
|
|
|
—
|
|
|
1,044
|
|
|
—
|
|
|
1,044
|
|
U.S. Treasury securities
|
|
223
|
|
|
—
|
|
|
214
|
|
|
—
|
|
|
214
|
|
Certificates of deposit
|
|
200
|
|
|
—
|
|
|
200
|
|
|
—
|
|
|
200
|
|
Foreign government agency securities
|
|
50
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
48
|
|
Total held to maturity securities
|
|
136,792
|
|
|
—
|
|
|
133,992
|
|
|
—
|
|
|
133,992
|
|
Bank loans
—
net:
|
|
|
|
|
|
|
|
|
|
|
First Mortgages
|
|
10,141
|
|
|
—
|
|
|
9,915
|
|
|
—
|
|
|
9,915
|
|
HELOCs
|
|
1,691
|
|
|
—
|
|
|
1,758
|
|
|
—
|
|
|
1,758
|
|
Pledged asset lines
|
|
4,570
|
|
|
—
|
|
|
4,570
|
|
|
—
|
|
|
4,570
|
|
Other
|
|
167
|
|
|
—
|
|
|
167
|
|
|
—
|
|
|
167
|
|
Total bank loans
—
net
|
|
16,569
|
|
|
—
|
|
|
16,410
|
|
|
—
|
|
|
16,410
|
|
Other assets
|
|
441
|
|
|
—
|
|
|
441
|
|
|
—
|
|
|
441
|
|
Total
|
|
$
|
196,577
|
|
|
$
|
—
|
|
|
$
|
193,618
|
|
|
$
|
—
|
|
|
$
|
193,618
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Bank deposits
|
|
$
|
199,922
|
|
|
$
|
—
|
|
|
$
|
199,922
|
|
|
$
|
—
|
|
|
$
|
199,922
|
|
Payables to brokers, dealers, and clearing organizations
|
|
3,319
|
|
|
—
|
|
|
3,319
|
|
|
—
|
|
|
3,319
|
|
Payables to brokerage clients
|
|
30,347
|
|
|
—
|
|
|
30,347
|
|
|
—
|
|
|
30,347
|
|
Accrued expenses and other liabilities
|
|
1,110
|
|
|
—
|
|
|
1,110
|
|
|
—
|
|
|
1,110
|
|
Long-term debt
|
|
5,789
|
|
|
—
|
|
|
5,718
|
|
|
—
|
|
|
5,718
|
|
Total
|
|
$
|
240,487
|
|
|
$
|
—
|
|
|
$
|
240,416
|
|
|
$
|
—
|
|
|
$
|
240,416
|
|
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Carrying
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,490
|
|
|
$
|
—
|
|
|
$
|
11,490
|
|
|
$
|
—
|
|
|
$
|
11,490
|
|
Cash and investments segregated and on deposit for
regulatory purposes
|
|
9,277
|
|
|
—
|
|
|
9,277
|
|
|
—
|
|
|
9,277
|
|
Receivables from brokers, dealers, and clearing
organizations
|
|
649
|
|
|
—
|
|
|
649
|
|
|
—
|
|
|
649
|
|
Receivables from brokerage clients
—
net
|
|
20,568
|
|
|
—
|
|
|
20,568
|
|
|
—
|
|
|
20,568
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed securities
|
|
101,197
|
|
|
—
|
|
|
100,453
|
|
|
—
|
|
|
100,453
|
|
Asset-backed securities
|
|
12,937
|
|
|
—
|
|
|
13,062
|
|
|
—
|
|
|
13,062
|
|
Corporate debt securities
|
|
4,078
|
|
|
—
|
|
|
4,086
|
|
|
—
|
|
|
4,086
|
|
U.S. state and municipal securities
|
|
1,247
|
|
|
—
|
|
|
1,304
|
|
|
—
|
|
|
1,304
|
|
Non-agency commercial mortgage-backed securities
|
|
994
|
|
|
—
|
|
|
999
|
|
|
—
|
|
|
999
|
|
U.S. Treasury securities
|
|
223
|
|
|
—
|
|
|
220
|
|
|
—
|
|
|
220
|
|
Certificates of deposit
|
|
200
|
|
|
—
|
|
|
200
|
|
|
—
|
|
|
200
|
|
Foreign government agency securities
|
|
50
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
49
|
|
Total held to maturity securities
|
|
120,926
|
|
|
—
|
|
|
120,373
|
|
|
—
|
|
|
120,373
|
|
Bank loans
—
net:
|
|
|
|
|
|
|
|
|
|
|
First Mortgages
|
|
10,000
|
|
|
—
|
|
|
9,917
|
|
|
—
|
|
|
9,917
|
|
HELOCs
|
|
1,935
|
|
|
—
|
|
|
2,025
|
|
|
—
|
|
|
2,025
|
|
Pledged asset lines
|
|
4,369
|
|
|
—
|
|
|
4,369
|
|
|
—
|
|
|
4,369
|
|
Other
|
|
174
|
|
|
—
|
|
|
174
|
|
|
—
|
|
|
174
|
|
Total bank loans
—
net
|
|
16,478
|
|
|
—
|
|
|
16,485
|
|
|
—
|
|
|
16,485
|
|
Other assets
|
|
781
|
|
|
—
|
|
|
781
|
|
|
—
|
|
|
781
|
|
Total
|
|
$
|
180,169
|
|
|
$
|
—
|
|
|
$
|
179,623
|
|
|
$
|
—
|
|
|
$
|
179,623
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Bank deposits
|
|
$
|
169,656
|
|
|
$
|
—
|
|
|
$
|
169,656
|
|
|
$
|
—
|
|
|
$
|
169,656
|
|
Payables to brokers, dealers, and clearing organizations
|
|
1,287
|
|
|
—
|
|
|
1,287
|
|
|
—
|
|
|
1,287
|
|
Payables to brokerage clients
|
|
31,243
|
|
|
—
|
|
|
31,243
|
|
|
—
|
|
|
31,243
|
|
Accrued expenses and other liabilities
|
|
1,463
|
|
|
—
|
|
|
1,463
|
|
|
—
|
|
|
1,463
|
|
Short-term borrowings
|
|
15,000
|
|
|
—
|
|
|
15,000
|
|
|
—
|
|
|
15,000
|
|
Long-term debt
|
|
4,753
|
|
|
—
|
|
|
4,811
|
|
|
—
|
|
|
4,811
|
|
Total
|
|
$
|
223,402
|
|
|
$
|
—
|
|
|
$
|
223,460
|
|
|
$
|
—
|
|
|
$
|
223,460
|
|
CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
12. Stockholders’ Equity
The Company’s preferred stock issued and outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued and Outstanding (In thousands) at
|
Liquidation Preference Per Share
|
Carrying Value at
|
|
Dividend Rate in Effect at June 30, 2018
|
Earliest Redemption Date
|
Date at Which Dividend Rate Becomes Floating
|
Floating Annual Rate of Three-Month LIBOR plus:
|
|
June 30, 2018
(1)
|
December 31, 2017
(1)
|
June 30, 2018
|
December 31, 2017
|
Issue Date
|
Fixed-rate:
|
|
|
|
|
|
|
|
|
|
|
Series C
|
600
|
|
600
|
|
$
|
1,000
|
|
$
|
585
|
|
$
|
585
|
|
08/03/15
|
6.000
|
%
|
12/01/20
|
N/A
|
N/A
|
|
Series D
|
750
|
|
750
|
|
1,000
|
|
728
|
|
728
|
|
03/07/16
|
5.950
|
%
|
06/01/21
|
N/A
|
N/A
|
|
Fixed-to-floating-rate:
|
|
|
|
|
|
|
|
|
|
|
Series A
|
400
|
|
400
|
|
1,000
|
|
397
|
|
397
|
|
01/26/12
|
7.000
|
%
|
02/01/22
|
02/01/22
|
4.820
|
%
|
Series E
|
6
|
|
6
|
|
100,000
|
|
591
|
|
591
|
|
10/31/16
|
4.625
|
%
|
03/01/22
|
03/01/22
|
3.315
|
%
|
Series F
|
5
|
|
5
|
|
100,000
|
|
492
|
|
492
|
|
10/31/17
|
5.000
|
%
|
12/01/27
|
12/01/27
|
2.575
|
%
|
Total preferred stock
|
1,761
|
|
1,761
|
|
|
|
$
|
2,793
|
|
$
|
2,793
|
|
|
|
|
|
|
(1)
Represented by depositary shares, except for Series A.
N/A Not applicable.
13. Accumulated Other Comprehensive Income
Accumulated other comprehensive income (AOCI) represents cumulative gains and losses that are not reflected in earnings. The components of other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Three Months Ended June 30,
|
Before
Tax
|
|
Tax
Effect
|
|
Net of
Tax
|
|
Before
Tax
|
|
Tax
Effect
|
|
Net of
Tax
|
Change in net unrealized gain (loss) on available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss)
|
$
|
(33
|
)
|
|
$
|
8
|
|
|
$
|
(25
|
)
|
|
$
|
29
|
|
|
$
|
(11
|
)
|
|
$
|
18
|
|
Other reclassifications included in other revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
3
|
|
|
(3
|
)
|
Change in net unrealized gain (loss) on held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of amounts previously recorded upon transfer from available for sale
|
9
|
|
|
(2
|
)
|
|
7
|
|
|
9
|
|
|
(4
|
)
|
|
5
|
|
Other comprehensive income (loss)
|
$
|
(24
|
)
|
|
$
|
6
|
|
|
$
|
(18
|
)
|
|
$
|
32
|
|
|
$
|
(12
|
)
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Six Months Ended June 30,
|
Before
Tax
|
|
Tax
Effect
|
|
Net of
Tax
|
|
Before
Tax
|
|
Tax
Effect
|
|
Net of
Tax
|
Change in net unrealized gain (loss) on available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss)
|
$
|
(141
|
)
|
|
$
|
34
|
|
|
$
|
(107
|
)
|
|
$
|
81
|
|
|
$
|
(30
|
)
|
|
$
|
51
|
|
Reclassification of net unrealized loss on securities transferred to held to maturity
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
227
|
|
|
(85
|
)
|
|
142
|
|
Other reclassifications included in other revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
3
|
|
|
(4
|
)
|
Change in net unrealized gain (loss) on held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of net unrealized loss on securities transferred from available for sale
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
(227
|
)
|
|
85
|
|
|
(142
|
)
|
Amortization of amounts previously recorded upon transfer from available for sale
|
18
|
|
|
(4
|
)
|
|
14
|
|
|
11
|
|
|
(5
|
)
|
|
6
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
1
|
|
|
(2
|
)
|
Other comprehensive income (loss)
|
$
|
(123
|
)
|
|
$
|
30
|
|
|
$
|
(93
|
)
|
|
$
|
82
|
|
|
$
|
(31
|
)
|
|
$
|
51
|
|