Charles Schwab 2010 Annual Report Download - page 93

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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)
Securities held to maturity include U.S. agency residential mortgage-backed securities, asset-backed securities collateralized by credit
card, student, and auto loans, and corporate debt securities. Securities held to maturity are recorded at amortized cost. The fair value
of these securities is obtained using an independent third-party pricing service, as discussed above.
L
oans to banking clients primarily include adjustable rate residential first-mortgage and HELOC loans. Loans to banking clients are
recorded at carrying value net of an allowance for loan losses. The fair value of the Company’s loans to banking clients is estimated
based on market prices for mortgage-backed securities collateralized by similar types of loans.
L
oans held for sale include fixed rate residential first-mortgage loans intended for sale. Loans held for sale are recorded at the lower
of cost or fair value. The fair value of the Company’s loans held for sale is estimated using quoted market prices for securities backed
by similar types of loans.
Other assets include cost method investments whose carrying values approximate their fair values. Other assets also include Federal
Home Loan Bank stock recorded at par, which approximates fair value.
D
eposits from banking clients: The Company considers the fair value of deposits with no stated maturity, such as deposits from
banking clients, to be equal to the amount payable on demand as of the balance sheet date.
L
ong-term debt includes Senior Notes, Medium-Term Notes, Junior Subordinated Notes, and a finance lease obligation. The fair
value of the Senior Notes, Medium-Term Notes, and Junior Subordinated Notes is estimated using indicative, non-binding quotes
from independent brokers. The finance lease obligation is recorded at carrying value, which approximates fair value.
Firm commitments to extend credit: The Company extends credit to banking clients through HELOC commitments. The Company
considers the fair value of unused HELOC commitments to be not material because the interest rate earned on HELOC outstanding
balances is based on the Prime rate and resets monthly. Future utilization of HELOC commitments will earn a then-current market
interest rate. The Company does not charge a fee to maintain a HELOC.
The table below presents the Company’s fair value estimates for financial instruments, excluding short-term financial assets and
liabilities, for which carrying amounts approximate fair value, and excluding financial instruments recorded at fair value.
December 31, 2010 2009
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial Assets:
Securities held to maturit
y
$ 17,762
$ 17,848
$ 6,839
$ 6,880
Loans to bankin
g
clients
–
net
$8,725
$8,469
$7,348
$6,888
Loans held for sale
$185
$194
$104
$107
Financial Liabilities:
Lon
g
-term debt
$2,006
$2,116
$1,512
$1,580
17. Equity Offering
On January 26, 2010, the Company completed the sale of 29,670,300 shares of its common stock, $.01 par value, at a public offering
price of $19.00 per share. Net proceeds received from the offering were $543 million and were used to support the Company’s
balance sheet growth, including expansion of its deposit base and migration of certain client balances from money market funds into
deposit accounts at Schwab Bank.
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