Charles Schwab 2008 Annual Report Download - page 68

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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)
- 54 -
management considers these to be of the highest credit quality given the guarantee of principal and interest by the U.S.
agencies. Included in non-agency mortgage-backed securities are securities collateralized by loans that are considered to be
“Alt-A” (defined as loans with reduced documentation at origination). Although Alt-A mortgage-backed securities
experienced deteriorating credit characteristics and valuation pressure in 2008, management determined that no other-than-
temporary impairment existed at December 31, 2008 for these securities. At December 31, 2008, the amortized cost and fair
value of Alt-A mortgage-backed securities were $798 million and $429 million, respectively.
Included in corporate debt securities were $876 million of securities issued by financial institutions and guaranteed under the
FDIC Temporary Liquidity Guarantee Program. The Company recorded losses of $75 million related to two corporate debt
securities in its securities available for sale portfolio in 2008. On September 15, 2008, Lehman Brothers Holdings, Inc.
(Lehman) filed a Chapter 11 bankruptcy petition and on September 25, 2008, the FDIC seized Washington Mutual Bank. As a
result of these events, the Company sold these debt securities in 2008. These sales reflected significant unanticipated changes
in the financial condition of their issuers and do not impact the Company’ s ability and intent to hold the remaining securities.
The maturities of securities available for sale and securities held to maturity at December 31, 2008 are as follows:
Within 1-5 5-10 After
1 Year Years Years 10 Years Total
Securities available for sale:
U.S. agency mortgage-backed securities (1) $ - $ - $ 239 $ 7,990 $ 8,229
Non-agency mortgage-backed securities (1) - - 44 2,179 2,223
Corporate debt securities 490 1,243 - - 1,733
Certificates of deposit 774 148 - - 922
Asset-backed securities - 624 198 - 822
U.S. agency notes 316 201 - - 517
Total fair value $ 1,580 $ 2,216 $ 481 $ 10,169 $ 14,446
Total amortized cost $ 1,598 $ 2,265 $ 487 $ 11,006 $ 15,356
Securities held to maturity:
Asset-backed securities $ - $ 217 $ 27 $ - $ 244
Total fair value $ - $ 217 $ 27 $ - $ 244
Total amortized cost $ - $ 216 $ 27 $ - $ 243
(1) Mortgage-backed securities have been allocated over maturity groupings based on final contractual maturities. Actual
maturities will differ from final contractual maturities because a certain portion of loans underlying these securities
require scheduled principal payments and borrowers have the right to prepay obligations.
The proceeds and gross realized gains (losses) from the sale of securities available for sale are as follows:
December 31, 2008 2007 2006
Proceeds $ 14 $ - $ 81
Gross realized gains $ - $ - $ -
Gross realized losses $ (75) $ - $ -
Realized gains and losses from sales of securities available for sale and other-than-temporary impairment charges are included
in other revenue.