Charles Schwab 2015 Annual Report Download - page 104

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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)
- 84 -
value of client securities pledged to fulfill the Company’s proprietary short sales, which resulted from facilitating clients’
dividend reinvestment elections, was $303 million and $216 million at December 31, 2015 and 2014, respectively. The
Company may also pledge client securities to fulfill client margin requirements for open option contracts established with the
Options Clearing Corporation. The fair value of these pledged securities to the Options Clearing Corporation was $1.5 billion
and $1.3 billion at December 31, 2015 and 2014, respectively.
Financial Guarantees: See “Notes – 15. Commitments and Contingencies.”
Concentration Risk
The Company has exposure to concentration risk when holding large positions of financial instruments collateralized by
assets with similar economic characteristics or in securities of a single issuer or industry.
The fair value of the Company’s investments in mortgage-backed securities totaled $72.3 billion at December 31, 2015. Of
these, $71.0 billion were issued by U.S. agencies and $1.3 billion were issued by private entities (non-agency securities). The
fair value of the Company’s investments in mortgage-backed securities totaled $53.8 billion at December 31, 2014. Of these,
$52.5 billion were issued by U.S. agencies and $1.3 billion were non-agency securities. These U.S. agency and non-agency
securities are included in securities available for sale and securities held to maturity in the consolidated balance sheets.
The fair value of the Company’s investments in corporate debt securities and commercial paper totaled $11.1 billion and
$8.1 billion at December 31, 2015 and 2014, respectively, with the majority issued by institutions in the financial services
industry. These securities are included in securities available for sale, cash and cash equivalents, and other securities owned.
The Company’s bank loans include $7.5 billion and $7.4 billion of adjustable rate First Mortgages at December 31, 2015 and
2014, respectively. At December 31, 2015, approximately 39% of these mortgages consisted of loans with interest-only
payment terms. At December 31, 2015, the interest rates on approximately 53% of these interest-only loans are not scheduled
to reset for three or more years. For additional detail on concentrations in bank loans, see “Notes – 6. Bank Loans and
Related Allowance for Loan Losses.”
No single client accounted for more than 10% of the Company’s net revenues in 2015, 2014, or 2013. Substantially all of the
Company’s revenues and assets are generated or located in the U.S. The percentage of Schwab’s total client accounts located
in California was 23% at December 31, 2015, 2014, and 2013.
The Company also has exposure to concentration risk from its margin and securities lending activities collateralized by
securities of a single issuer or industry. This concentration risk is mitigated by collateral arrangements that require the fair
value of such collateral exceeds the amounts loaned, as described above.
17. Fair Values of Assets and Liabilities
For a description of the fair value hierarchy and the Company’s fair value methodologies, including the use of independent
third-party pricing services, see “Notes – 2. Summary of Significant Accounting Policies.” The Company did not transfer any
assets or liabilities between Level 1, Level 2, or Level 3 during 2015 or 2014. In addition, the Company did not adjust prices
received from the primary independent third-party pricing service at December 31, 2015 or 2014.