Charles Schwab 2015 Annual Report Download - page 87

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THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
- 67 -
x Financial instruments included in other assets primarily consist of LIHTC investments, cost method investments
and Federal Home Loan Bank (FHLB) stock, whose carrying values approximate their fair values. FHLB stock is
recorded at par, which approximates fair value.
x Bank deposits have no stated maturity and are recorded at the amount payable on demand as of the balance sheet
date. The Company considers the carrying value of these deposits to approximate their fair values.
x Financial instruments included in accrued expenses and other liabilities consist of commercial paper, drafts
payable, unfunded LIHTC commitments and certain amounts due under contractual obligations which are short-term
in nature and accordingly are recorded at amounts that approximate fair value.
x Long-term debt – Except for the finance lease obligation, the fair values of long-term debt are estimated using
indicative, non-binding quotes from independent brokers. The Company validates indicative prices for its debt
through comparison to other independent non-binding quotes. The finance lease obligation is recorded at carrying
value, which approximates fair value.
x Firm commitments to extend credit – The Company extends credit to banking clients through HELOCs and PALs.
The Company considers the fair value of these unused commitments to not be material because the interest rates
earned on these balances are based on floating interest rates that reset monthly.
New Accounting Standards
Adoption of New Accounting Standards
In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-04,
“Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40).” ASU 2014-04 provides new guidance for
creditors of consumer mortgage loans, and 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 EPS as the Company’s practice for
recognizing foreclosed real estate was already consistent with the guidance.
In August 2015, the FASB issued ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30).” Pursuant to the
Securities and Exchange Commission (SEC) Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting,
ASU 2015-15 provides clarification to ASU 2015-03 (discussed below) of SEC Staff views on the presentation and
subsequent measurement of debt issuance costs related to line-of-credit arrangements. The new guidance permits deferring
and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the
term of a line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit. The
adoption of this new guidance in the third quarter of 2015 did not have an impact on the Company’s financial statements or
EPS as the Company’s practice for recognizing debt issuance costs on line-of-credit arrangements was already consistent
with the guidance.
New Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides new
guidance on revenue recognition. 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 new guidance will become effective January 1, 2018, and permits entities to elect either full or
modified retrospective transition. Full retrospective transition will require a cumulative effect adjustment to retained earnings
as of the earliest comparative period presented. Modified retrospective transition will require a cumulative effect adjustment
to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The
Company is currently evaluating the impact of this new guidance on its financial statements and EPS.
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810),” which amends the analysis a reporting entity
must perform to determine whether it should consolidate certain types of legal entities. The new guidance became effective