SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
Commission File Number: 1-9700
THE 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 No.) |
211 Main Street, San Francisco, CA 94105
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (415) 667-7000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ⌧ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ⌧ Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Accelerated filer ☐ Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ⌧
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,313,519,302 shares of $.01 par value Common Stock
Outstanding on April 24, 2015
THE CHARLES SCHWAB CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2015
Index
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Item 1. |
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5 – 21 |
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Item 2. |
Management’s Discussion and Analysis of Financial |
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22 – 40 |
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Item 3. |
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41 – 42 |
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Item 4. |
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42 |
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Item 1. |
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43 |
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Item 1A. |
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43 |
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Item 2. |
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Item 3. |
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44 |
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Item 4. |
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Item 5. |
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Item 6. |
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Part I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Income
(In Millions, Except Per Share Amounts)
(Unaudited)
|
Three Months Ended |
||||||
|
March 31, |
||||||
|
2015 |
2014 |
|||||
|
Net Revenues |
||||||
|
Asset management and administration fees |
$ |
644 |
$ |
611 | ||
|
Interest revenue |
617 | 579 | ||||
|
Interest expense |
(29) | (26) | ||||
|
Net interest revenue |
588 | 553 | ||||
|
Trading revenue |
227 | 247 | ||||
|
Other |
63 | 68 | ||||
|
Provision for loan losses |
4 | (1) | ||||
|
Total net revenues |
1,526 | 1,478 | ||||
|
Expenses Excluding Interest |
||||||
|
Compensation and benefits |
581 | 528 | ||||
|
Professional services |
114 | 106 | ||||
|
Occupancy and equipment |
83 | 80 | ||||
|
Advertising and market development |
69 | 63 | ||||
|
Communications |
58 | 56 | ||||
|
Depreciation and amortization |
54 | 48 | ||||
|
Other |
83 | 75 | ||||
|
Total expenses excluding interest |
1,042 | 956 | ||||
|
Income before taxes on income |
484 | 522 | ||||
|
Taxes on income |
182 | 196 | ||||
|
Net Income |
302 | 326 | ||||
|
Preferred stock dividends and other (1) |
11 | 8 | ||||
|
Net Income Available to Common Stockholders |
$ |
291 |
$ |
318 | ||
|
Weighted-Average Common Shares Outstanding — Diluted |
1,323 | 1,311 | ||||
|
Earnings Per Common Share — Basic |
$ |
.22 |
$ |
.24 |
||
|
Earnings Per Common Share — Diluted |
$ |
.22 |
$ |
.24 |
||
|
(1) |
Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units. |
See Notes to Condensed Consolidated Financial Statements.
- 1 -
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In Millions)
(Unaudited)
|
Three Months Ended |
||||||
|
March 31, |
||||||
|
2015 |
2014 |
|||||
|
Net Income |
$ |
302 |
$ |
326 | ||
|
Other comprehensive income, before tax: |
||||||
|
Change in net unrealized gain on securities available for sale: |
||||||
|
Net unrealized gain |
107 | 159 | ||||
|
Other reclassifications included in other revenue |
- |
(1) | ||||
|
Other comprehensive income, before tax |
107 | 158 | ||||
|
Income tax effect |
(41) | (59) | ||||
|
Other comprehensive income, net of tax |
66 | 99 | ||||
|
Comprehensive Income |
$ |
368 |
$ |
425 | ||
See Notes to Condensed Consolidated Financial Statements.
- 2 -
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Balance Sheets
(In Millions, Except Per Share and Share Amounts)
(Unaudited)
|
March 31, |
December 31, |
|||||
|
2015 |
2014 |
|||||
|
Assets |
||||||
|
Cash and cash equivalents |
$ |
9,011 |
$ |
11,363 | ||
|
Cash and investments segregated and on deposit for regulatory purposes |
||||||
|
(including resale agreements of $9,806 at March 31, 2015 and $10,186 |
||||||
|
at December 31, 2014) |
19,384 | 20,781 | ||||
|
Receivables from brokers, dealers, and clearing organizations |
457 | 469 | ||||
|
Receivables from brokerage clients — net |
16,013 | 15,669 | ||||
|
Other securities owned — at fair value |
657 | 516 | ||||
|
Securities available for sale |
61,366 | 54,783 | ||||
|
Securities held to maturity (fair value — $37,110 at March 31, 2015 and |
||||||
|
$34,743 at December 31, 2014) |
36,321 | 34,389 | ||||
|
Bank loans — net |
13,603 | 13,399 | ||||
|
Equipment, office facilities, and property — net |
1,058 | 1,039 | ||||
|
Goodwill |
1,227 | 1,227 | ||||
|
Intangible assets — net |
216 | 227 | ||||
|
Other assets |
856 | 780 | ||||
|
Total assets |
$ |
160,169 |
$ |
154,642 | ||
|
Liabilities and Stockholders’ Equity |
||||||
|
Bank deposits |
$ |
109,503 |
$ |
102,815 | ||
|
Payables to brokers, dealers, and clearing organizations |
2,410 | 2,004 | ||||
|
Payables to brokerage clients |
31,617 | 34,305 | ||||
|
Accrued expenses and other liabilities |
1,586 | 1,816 | ||||
|
Long-term debt |
2,895 | 1,899 | ||||
|
Total liabilities |
148,011 | 142,839 | ||||
|
Stockholders’ equity: |
||||||
|
Preferred stock — $.01 par value per share; aggregate liquidation |
||||||
|
preference of $885 |
873 | 872 | ||||
|
Common stock — 3 billion shares authorized; $.01 par value per share; |
||||||
|
1,487,543,446 shares issued |
15 | 15 | ||||
|
Additional paid-in capital |
4,085 | 4,050 | ||||
|
Retained earnings |
10,412 | 10,198 | ||||
|
Treasury stock, at cost — 174,397,672 shares at March 31, 2015 and |
||||||
|
176,821,202 shares at December 31, 2014 |
(3,458) | (3,497) | ||||
|
Accumulated other comprehensive income |
231 | 165 | ||||
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Total stockholders’ equity |
12,158 | 11,803 | ||||
|
Total liabilities and stockholders’ equity |
$ |
160,169 |
$ |
154,642 | ||
See Notes to Condensed Consolidated Financial Statements.
- 3 -
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows
(In Millions)
(Unaudited)
|
Three Months Ended |
||||||
|
March 31, |
||||||
|
2015 |
2014 |
|||||
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Cash Flows from Operating Activities |
||||||
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Net income |
$ |
302 |
$ |
326 | ||
|
Adjustments to reconcile net income to net cash (used for) provided by operating activities: |
||||||
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Provision for loan losses |
(4) | 1 | ||||
|
Stock-based compensation |
39 | 29 | ||||
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Depreciation and amortization |
54 | 48 | ||||
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Premium amortization, net, on securities available for sale and securities held to maturity |
38 | 27 | ||||
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Other |
(2) | 2 | ||||
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Net change in: |
||||||
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Cash and investments segregated and on deposit for regulatory purposes |
1,397 | 3,005 | ||||
|
Receivables from brokers, dealers, and clearing organizations |
12 | 29 | ||||
|
Receivables from brokerage clients |
(345) | (622) | ||||
|
Other securities owned |
(141) | 61 | ||||
|
Other assets |
(21) | (24) | ||||
|
Payables to brokers, dealers, and clearing organizations |
345 | 293 | ||||
|
Payables to brokerage clients |
(2,688) | (3,025) | ||||
|
Accrued expenses and other liabilities |
(291) | (81) | ||||
|
Net cash (used for) provided by operating activities |
(1,305) | 69 | ||||
|
Cash Flows from Investing Activities |
||||||
|
Purchases of securities available for sale |
(8,057) | (4,250) | ||||
|
Proceeds from sales of securities available for sale |
150 | 1,285 | ||||
|
Principal payments on securities available for sale |
1,412 | 1,738 | ||||
|
Purchases of securities held to maturity |
(2,658) | (2,271) | ||||
|
Principal payments on securities held to maturity |
767 | 520 | ||||
|
Net increase in bank loans |
(221) | (171) | ||||
|
Purchase of equipment, office facilities, and property |
(55) | (53) | ||||
|
Other investing activities |
- |
(8) | ||||
|
Net cash used for investing activities |
(8,662) | (3,210) | ||||
|
Cash Flows from Financing Activities |
||||||
|
Net change in bank deposits |
6,688 | 2,619 | ||||
|
Issuance of long-term debt |
998 |
- |
||||
|
Repayment of long-term debt |
(2) | (2) | ||||
|
Dividends paid |
(100) | (100) | ||||
|
Proceeds from stock options exercised and other |
28 | 65 | ||||
|
Other financing activities |
3 | 4 | ||||
|
Net cash provided by financing activities |
7,615 | 2,586 | ||||
|
Decrease in Cash and Cash Equivalents |
(2,352) | (555) | ||||
|
Cash and Cash Equivalents at Beginning of Period |
11,363 | 7,728 | ||||
|
Cash and Cash Equivalents at End of Period |
$ |
9,011 |
$ |
7,173 | ||
|
Supplemental Cash Flow Information |
||||||
|
Cash paid during the period for: |
||||||
|
Interest |
$ |
46 |
$ |
40 | ||
|
Income taxes |
$ |
54 |
$ |
51 | ||
|
Non-cash investing activity: |
||||||
|
Securities purchased during the period but settled after period end |
$ |
60 |
$ |
158 | ||
See Notes to Condensed Consolidated Financial Statements.
- 4 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
1.Introduction and Basis of Presentation
The Charles Schwab Corporation (CSC) is a savings and loan holding company engaged, through its subsidiaries, in wealth management, securities brokerage, banking, money management, and financial advisory services. Charles Schwab & Co., Inc. (Schwab) is a securities broker-dealer with over 325 domestic branch offices in 45 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, England. In addition, Schwab serves clients in Hong Kong through one of CSC’s subsidiaries. Other subsidiaries include Charles Schwab Bank (Schwab Bank), a federal savings bank, and Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds, which are referred to as the Schwab Funds®, and for Schwab’s exchange-traded funds, which are referred to as the Schwab ETFs™.
The accompanying unaudited condensed consolidated financial statements include CSC and its majority-owned subsidiaries (collectively referred to as the Company). Intercompany balances and transactions have been eliminated. These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (U.S.), which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements. Certain estimates relate to valuation of goodwill, allowance for loan losses, legal and regulatory reserves, and other-than-temporary impairment (OTTI) of securities available for sale and securities held to maturity. Actual results may differ from those estimates. These condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. These adjustments are of a normal recurring nature. The Company’s results for any interim period are not necessarily indicative of results for a full year or any other interim period. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
The Company’s significant accounting policies are included in note “2 – Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. There have been no significant changes to these accounting policies during the first quarter of 2015.
2.New Accounting Standards
Adoption of New Accounting Standard
In January 2014, the Financial Accounting Standards Board (FASB) issued new guidance for creditors of consumer mortgage loans, which was effective January 1, 2015. The guidance clarifies when physical possession of a property underlying a consumer mortgage loan transfers to the creditor, and therefore when a loan receivable should be derecognized and the real estate property underlying the loan should be recognized. The adoption of this new guidance in the first quarter of 2015 did not have an impact on the Company’s financial statements or earnings per common share (EPS) as the Company’s practice for recognizing foreclosed real estate was already consistent with the guidance.
New Accounting Standards Not Yet Adopted
In May 2014, the FASB issued new guidance on revenue recognition, which will become effective January 1, 2017. The guidance clarifies that revenue from contracts with customers should be recognized in a manner that depicts the timing of the related transfer of goods or performance of services at an amount that reflects the expected consideration. The Company is currently evaluating the impact of this new guidance on its financial statements and EPS.
In February 2015, the FASB issued new guidance that amends the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The new guidance will become effective January 1, 2016, and is applicable to all entities but provides an exception for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The Company is currently evaluating the impact of this new guidance on its financial statements and EPS.
In April 2015, the FASB issued new guidance that changes the presentation of debt issuance costs. The new guidance will require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Currently, debt issuance costs are presented as a separate asset. The new guidance, which will become effective January 1, 2016, will not impact the Company’s financial
- 5 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
results or EPS as the change only affects the balance sheet presentation of debt issuance costs; recognition and measurement of debt issuance costs will not be affected.
In April 2015, the FASB issued new guidance that clarifies customer’s accounting for fees paid in a cloud computing arrangement. Under the new guidance, if a cloud computing arrangement includes a software license, the customer shall account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the cloud computing arrangement does not include a software license, the customer shall account for the arrangement as a service contract. The guidance will become effective January 1, 2016. The Company is currently evaluating the impact of this new guidance on its financial statements and EPS.
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 held to maturity are as follows:
|
Gross |
Gross |
|||||||||||
|
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||
|
March 31, 2015 |
Cost |
Gains |
Losses |
Value |
||||||||
|
Securities available for sale: |
||||||||||||
|
U.S. agency mortgage-backed securities |
$ |
20,260 |
$ |
277 |
$ |
6 |
$ |
20,531 | ||||
|
Asset-backed securities |
20,459 | 69 | 24 | 20,504 | ||||||||
|
Corporate debt securities |
9,370 | 46 | 3 | 9,413 | ||||||||
|
U.S. agency notes |
5,233 | 2 | 13 | 5,222 | ||||||||
|
Treasury securities |
3,567 | 14 |
- |
3,581 | ||||||||
|
Certificates of deposit |
1,783 | 1 |
- |
1,784 | ||||||||
|
Non-agency commercial mortgage-backed securities |
309 | 7 |
- |
316 | ||||||||
|
Other securities |
15 |
- |
- |
15 | ||||||||
|
Total securities available for sale |
$ |
60,996 |
$ |
416 |
$ |
46 |
$ |
61,366 | ||||
|
Securities held to maturity: |
||||||||||||
|
U.S. agency mortgage-backed securities |
$ |
35,097 |
$ |
811 |
$ |
48 |
$ |
35,860 | ||||
|
Non-agency commercial mortgage-backed securities |
1,001 | 23 |
- |
1,024 | ||||||||
|
Treasury securities |
223 | 3 |
- |
226 | ||||||||
|
Total securities held to maturity |
$ |
36,321 |
$ |
837 |
$ |
48 |
$ |
37,110 | ||||
|
Gross |
Gross |
|||||||||||
|
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||
|
December 31, 2014 |
Cost |
Gains |
Losses |
Value |
||||||||
|
Securities available for sale: |
||||||||||||
|
Asset-backed securities |
$ |
19,320 |
$ |
64 |
$ |
18 |
$ |
19,366 | ||||
|
U.S. agency mortgage-backed securities |
18,487 | 242 | 12 | 18,717 | ||||||||
|
Corporate debt securities |
8,023 | 30 | 8 | 8,045 | ||||||||
|
U.S. agency notes |
3,839 |
- |
44 | 3,795 | ||||||||
|
Treasury securities |
2,993 | 2 | 1 | 2,994 | ||||||||
|
Certificates of deposit |
1,533 | 1 |
- |
1,534 | ||||||||
|
Non-agency commercial mortgage-backed securities |
310 | 7 |
- |
317 | ||||||||
|
Other securities |
15 |
- |
- |
15 | ||||||||
|
Total securities available for sale |
$ |
54,520 |
$ |
346 |
$ |
83 |
$ |
54,783 | ||||
|
Securities held to maturity: |
||||||||||||
|
U.S. agency mortgage-backed securities |
$ |
33,388 |
$ |
531 |
$ |
174 |
$ |
33,745 | ||||
|
Non-agency commercial mortgage-backed securities |
1,001 | 11 | 14 | 998 | ||||||||
|
Total securities held to maturity |
$ |
34,389 |
$ |
542 |
$ |
188 |
$ |
34,743 | ||||
- 6 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Schwab Bank pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $120 million at March 31, 2015.
A summary of securities with unrealized losses, aggregated by category and period of continuous unrealized loss, is as follows:
|
Less than |
12 months |
|||||||||||||||||
|
12 months |
or longer |
Total |
||||||||||||||||
|
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
|||||||||||||
|
March 31, 2015 |
Value |
Losses |
Value |
Losses |
Value |
Losses |
||||||||||||
|
Securities available for sale: |
||||||||||||||||||
|
U.S. agency mortgage-backed securities |
$ |
3,247 |
$ |
3 |
$ |
1,135 |
$ |
3 |
$ |
4,382 |
$ |
6 | ||||||
|
Asset-backed securities |
5,694 | 19 | 750 | 5 | 6,444 | 24 | ||||||||||||
|
Corporate debt securities |
1,079 | 1 | 655 | 2 | 1,734 | 3 | ||||||||||||
|
U.S. agency notes |
1,373 | 2 | 2,254 | 11 | 3,627 | 13 | ||||||||||||
|
Total |
$ |
11,393 |
$ |
25 |
$ |
4,794 |
$ |
21 |
$ |
16,187 |
$ |
46 | ||||||
|
Securities held to maturity: |
||||||||||||||||||
|
U.S. agency mortgage-backed securities |
$ |
6,253 |
$ |
30 |
$ |
2,044 |
$ |
18 |
$ |
8,297 |
$ |
48 | ||||||
|
Total |
$ |
6,253 |
$ |
30 |
$ |
2,044 |
$ |
18 |
$ |
8,297 |
$ |
48 | ||||||
|
Total securities with unrealized losses (1) |
$ |
17,646 |
$ |
55 |
$ |
6,838 |
$ |
39 |
$ |
24,484 |
$ |
94 | ||||||
|
(1) |
The number of investment positions with unrealized losses totaled 174 for securities available for sale and 71 for securities held to maturity. |
|
Less than |
12 months |
|||||||||||||||||
|
12 months |
or longer |
Total |
||||||||||||||||
|
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
|||||||||||||
|
December 31, 2014 |
Value |
Losses |
Value |
Losses |
Value |
Losses |
||||||||||||
|
Securities available for sale: |
||||||||||||||||||
|
Asset-backed securities |
$ |
5,754 |
$ |
15 |
$ |
792 |
$ |
3 |
$ |
6,546 |
$ |
18 | ||||||
|
U.S. agency mortgage-backed securities |
2,247 | 5 |
$ |
1,767 | 7 |
$ |
4,014 | 12 | ||||||||||
|
Corporate debt securities |
1,781 | 4 | 552 | 4 | 2,333 | 8 | ||||||||||||
|
U.S. agency notes |
- |
- |
3,696 | 44 | 3,696 | 44 | ||||||||||||
|
Treasury securities |
1,246 | 1 |
- |
- |
1,246 | 1 | ||||||||||||
|
Total |
$ |
11,028 |
$ |
25 |
$ |
6,807 |
$ |
58 |
$ |
17,835 |
$ |
83 | ||||||
|
Securities held to maturity: |
||||||||||||||||||
|
U.S. agency mortgage-backed securities |
$ |
264 |
$ |
1 |
$ |
10,415 |
$ |
173 |
$ |
10,679 |
$ |
174 | ||||||
|
Non-agency commercial mortgage-backed |
||||||||||||||||||
|
securities |
- |
- |
660 | 14 | 660 | 14 | ||||||||||||
|
Total |
$ |
264 |
$ |
1 |
$ |
11,075 |
$ |
187 |
$ |
11,339 |
$ |
188 | ||||||
|
Total securities with unrealized losses (1) |
$ |
11,292 |
$ |
26 |
$ |
17,882 |
$ |
245 |
$ |
29,174 |
$ |
271 | ||||||
|
(1) |
The number of investment positions with unrealized losses totaled 173 for securities available for sale and 111 for securities held to maturity. |
Management evaluates whether securities available for sale and securities held to maturity are OTTI on a quarterly basis as described in note “2—Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. There were no impairment charges recognized during the first quarters of 2015 or 2014.
- 7 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The maturities of securities available for sale and securities held to maturity at March 31, 2015 are as follows:
|
After 1 year |
After 5 years |
||||||||||||||
|
Within |
through |
through |
After |
||||||||||||
|
1 year |
5 years |
10 years |
10 years |
Total |
|||||||||||
|
Securities available for sale: |
|||||||||||||||
|
U.S. agency mortgage-backed securities (1) |
$ |
- |
$ |
1,440 |
$ |
6,866 |
$ |
12,225 |
$ |
20,531 | |||||
|
Asset-backed securities |
2 | 3,470 | 5,474 | 11,558 | 20,504 | ||||||||||
|
Corporate debt securities |
1,441 | 7,972 |
- |
- |
9,413 | ||||||||||
|
U.S. agency notes |
- |
5,222 |
- |
- |
5,222 | ||||||||||
|
Treasury securities |
- |
3,581 |
- |
- |
3,581 | ||||||||||
|
Certificates of deposit |
873 | 911 |
- |
- |
1,784 | ||||||||||
|
Non-agency commercial mortgage-backed |
|||||||||||||||
|
securities (1) |
- |
- |
- |
316 | 316 | ||||||||||
|
Other securities |
- |
- |
- |
15 | 15 | ||||||||||
|
Total fair value |
$ |
2,316 |
$ |
22,596 |
$ |
12,340 |
$ |
24,114 |
$ |
61,366 | |||||
|
Total amortized cost |
$ |
2,314 |
$ |
22,525 |
$ |
12,230 |
$ |
23,927 |
$ |
60,996 | |||||
|
Securities held to maturity: |
|||||||||||||||
|
U.S. agency mortgage-backed securities (1) |
$ |
- |
$ |
868 |
$ |
17,764 |
$ |
17,228 |
$ |
35,860 | |||||
|
Non-agency commercial mortgage-backed |
|||||||||||||||
|
securities (1) |
- |
- |
369 | 655 | 1,024 | ||||||||||
|
Treasury securities |
- |
- |
226 |
- |
226 | ||||||||||
|
Total fair value |
$ |
- |
$ |
868 |
$ |
18,359 |
$ |
17,883 |
$ |
37,110 | |||||
|
Total amortized cost |
$ |
- |
$ |
853 |
$ |
17,857 |
$ |
17,611 |
$ |
36,321 | |||||
|
(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 from sales of securities available for sale are as follows:
|
Three Months Ended |
||||||
|
March 31, |
||||||
|
2015 |
2014 |
|||||
|
Proceeds |
$ |
150 |
$ |
1,285 | ||
|
Gross realized gains |
$ |
- |
$ |
1 | ||
4.Bank Loans and Related Allowance for Loan Losses
The composition of bank loans by loan segment is as follows:
|
March 31, |
December 31, |
|||||
|
2015 |
2014 |
|||||
|
Residential real estate mortgages |
$ |
8,172 |
$ |
8,127 | ||
|
Home equity loans and lines of credit |
2,878 | 2,955 | ||||
|
Personal loans secured by securities |
2,549 | 2,320 | ||||
|
Other |
42 | 39 | ||||
|
Total bank loans (1) |
13,641 | 13,441 | ||||
|
Allowance for loan losses |
(38) | (42) | ||||
|
Total bank loans – net |
$ |
13,603 |
$ |
13,399 | ||
|
(1) |
All loans are evaluated for impairment by loan segment. |
- 8 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The Company has commitments to extend credit related to unused home equity lines of credit (HELOCs), personal loans secured by securities, and other lines of credit, which totaled $6.9 billion and $6.7 billion at March 31, 2015 and December 31, 2014, respectively. All of the personal loans were fully collateralized by securities with fair values in excess of borrowings at March 31, 2015 and December 31, 2014.
Schwab Bank provides a co-branded loan origination program for Schwab Bank clients (the Program) with Quicken Loans, Inc. (Quicken Loans®). Pursuant to the Program, Quicken Loans originates and services first lien residential real estate mortgage loans (First Mortgages) and HELOCs for Schwab Bank clients. Under the Program, Schwab Bank purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. Schwab Bank purchased First Mortgages of $440 million and $286 million during the first quarters of 2015 and 2014, respectively. Schwab Bank purchased HELOCs with commitments of $117 million and $172 million during the first quarters of 2015 and 2014, respectively.
Credit Quality
Changes in the allowance for loan losses were as follows:
|
Three Months Ended |
March 31, 2015 |
March 31, 2014 |
||||||||||||||||||||
|
Residential |
Home Equity |
Residential |
Home Equity |
|||||||||||||||||||
|
Real Estate |
Loans and |
Real Estate |
Loans and |
|||||||||||||||||||
|
Mortgages |
Lines of Credit |
Total |
Mortgages |
Lines of Credit |
Total |
|||||||||||||||||
|
Balance at beginning of period |
$ |
29 |
$ |
13 |
$ |
42 |
$ |
34 |
$ |
14 |
$ |
48 | ||||||||||
|
Charge-offs |
- |
(1) | (1) | (1) | (1) | (2) | ||||||||||||||||
|
Recoveries |
- |
1 | 1 |
- |
1 | 1 | ||||||||||||||||
|
Provision for loan losses |
(3) | (1) | (4) |
- |
1 | 1 | ||||||||||||||||
|
Balance at end of period |
$ |
26 |
$ |
12 |
$ |
38 |
$ |
33 |
$ |
15 |
$ |
48 | ||||||||||
The delinquency and nonaccrual analysis by loan class is as follows: