Fair Values of Assets and Liabilities

Assets and liabilities measured at fair value on a recurring basis

The Company’s assets and liabilities measured at fair value on a recurring basis include certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, other securities owned, and AFS securities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. The Company generally obtains prices from at least three independent pricing sources for assets recorded at fair value.

The Company’s primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. The Company compares the prices obtained from its primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. The Company does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in a material difference in the recorded amounts.

Fair value of other financial instruments

Descriptions of the valuation methodologies and assumptions used to estimate the fair value of other financial instruments are described below. The Company’s financial instruments not recorded at fair value but for which fair value can be approximated and disclosed include:


•	Cash and cash equivalents are short-term in nature and accordingly are recorded at amounts that approximate fair value.

•

Cash and investments segregated and on deposit for regulatory purposes include cash and securities purchased under resale agreements. Securities purchased under resale agreements are short-term in nature and are backed by collateral that both exceeds the carrying value of the resale agreement and is highly liquid in nature. Accordingly, the carrying values of these financial instruments approximate their fair values.


•	Receivables from/payables to brokers, dealers, and clearing organizations are short-term in nature, recorded at contractual amounts and historically have been settled at those values. Accordingly, the carrying values of these financial instruments approximate their fair values.


•	Receivables from/payables to brokerage clients — net are short-term in nature, recorded at contractual amounts and historically have been settled at those values. Accordingly, the carrying values of these financial instruments approximate their fair values.


•	HTM securities – The fair values of HTM securities are obtained using an independent third-party pricing service similar to investment assets recorded at fair value as discussed above.


•	Bank loans – The fair values of the Company’s First Mortgages and HELOCs are estimated based on prices of mortgage-backed securities collateralized by similar types of loans. PALs are non-purpose revolving lines of credit secured by eligible assets; accordingly, the carrying values of these loans approximate their fair values.


•	Financial instruments included in other assets primarily consist of LIHTC investments, cost method investments, and FHLB stock, whose carrying values approximate their fair values. FHLB stock is recorded at par, which approximates its fair value.


•	Bank deposits have no stated maturity and are recorded at the amount payable on demand as of the balance sheet date. The carrying values of these deposits approximate their fair values.


•	Financial instruments included in accrued expenses and other liabilities consist of drafts payable and certain amounts due under contractual obligations, including unfunded LIHTC commitments. The carrying values of these instruments approximate their fair values.


•	Short-term borrowings consist of commercial paper, borrowings on Schwab’s uncommitted, unsecured bank credit lines, and funds drawn on Schwab Bank’s secured credit facility with the Federal Home Loan Bank of San Francisco. Due to the short-term nature of these borrowings, carrying value approximates fair value.


•	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.


•	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.

For a description of the fair value hierarchy, see Note 2 in the 2016 Form 10-K. There were no significant changes in these policies and methodologies during the first nine months of 2017. The Company did not transfer any assets or liabilities between Level 1, Level 2, or Level 3 during the nine months ended September 30, 2017, or the year ended December 31, 2016. In addition, the Company did not adjust prices received from the primary independent third-party pricing service at September 30, 2017 or December 31, 2016.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets measured at fair value on a recurring basis. Liabilities recorded at fair value were not material, and therefore are not included in the following tables:



September 30, 2017	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Fair Value
Cash equivalents:
Money market funds	$	1,720	$	—	$	—	$	1,720
Commercial paper	—		115		—		115
Total cash equivalents	1,720		115		—		1,835
Investments segregated and on deposit for regulatory purposes:
Certificates of deposit	—		1,200		—		1,200
U.S. Government securities	—		3,814		—		3,814
Total investments segregated and on deposit for regulatory purposes	—		5,014		—		5,014
Other securities owned:
Equity and bond mutual funds	294		—		—		294
Schwab Funds^®money market funds	68		—		—		68
State and municipal debt obligations	—		35		—		35
Equity, U.S. Government and corporate debt, and other securities	4		26		—		30
Total other securities owned	366		61		—		427
Available for sale securities:
U.S. agency mortgage-backed securities	—		19,746		—		19,746
Asset-backed securities	—		9,996		—		9,996
Corporate debt securities	—		6,468		—		6,468
U.S. Treasury securities	—		7,699		—		7,699
Certificates of deposit	—		1,843		—		1,843
U.S. agency notes	—		1,907		—		1,907
Commercial paper	—		312		—		312
Non-agency commercial mortgage-backed securities	—		41		—		41
Foreign government agency securities	—		50		—		50
Total available for sale securities	—		48,062		—		48,062
Total	$	2,086	$	53,252	$	—	$	55,338



December 31, 2016	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Fair Value
Cash equivalents:
Money market funds	$	1,514	$	—	$	—	$	1,514
Total cash equivalents	1,514		—		—		1,514
Investments segregated and on deposit for regulatory purposes:
Certificates of deposit	—		2,525		—		2,525
U.S. Government securities	—		6,111		—		6,111
Total investments segregated and on deposit for regulatory purposes	—		8,636		—		8,636
Other securities owned:
Equity and bond mutual funds	272		—		—		272
Schwab Funds^®money market funds	108		—		—		108
State and municipal debt obligations	—		41		—		41
Equity, U.S. Government and corporate debt, and other securities	2		26		—		28
Total other securities owned	382		67		—		449
Available for sale securities:
U.S. agency mortgage-backed securities	—		33,195		—		33,195
Asset-backed securities	—		20,335		—		20,335
Corporate debt securities	—		9,852		—		9,852
U.S. Treasury securities	—		8,623		—		8,623
Certificates of deposit	—		2,071		—		2,071
U.S. agency notes	—		1,907		—		1,907
U.S. state and municipal securities	—		1,123		—		1,123
Commercial paper	—		214		—		214
Non-agency commercial mortgage-backed securities	—		45		—		45
Total available for sale securities	—		77,365		—		77,365
Total	$	1,896	$	86,068	$	—	$	87,964

Fair Value of Other Financial Instruments

The following tables present the fair value hierarchy for other financial instruments:



September 30, 2017	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Fair Value
Assets:
Cash and cash equivalents	$	10,418	$	—	$	10,418	$	—	$	10,418
Cash and investments segregated and on deposit for regulatory purposes	10,916		—		10,916		—		10,916
Receivables from brokers, dealers, and clearing organizations	665		—		665		—		665
Receivables from brokerage clients – net	18,456		—		18,456		—		18,456
Held to maturity securities:
U.S. agency mortgage-backed securities	96,045		—		95,816		—		95,816
Non-agency commercial mortgage-backed securities	995		—		1,006		—		1,006
Asset-backed securities	12,237		—		12,336		—		12,336
Corporate debt securities	3,377		—		3,403		—		3,403
U.S. Treasury securities	223		—		222		—		222
U.S. state and municipal securities	1,249		—		1,299		—		1,299
Certificates of deposit	200		—		200		—		200
Foreign government agency securities	50		—		50		—		50
Total held to maturity securities	114,376		—		114,332		—		114,332
Bank loans – net:
Residential real estate mortgages	9,786		—		9,771		—		9,771
Home equity loans and lines of credit	2,034		—		2,127		—		2,127
Pledged asset lines	4,279		—		4,279		—		4,279
Other	133		—		133		—		133
Total bank loans – net	16,232		—		16,310		—		16,310
Other assets	465		—		465		—		465
Total	$	171,528	$	—	$	171,562	$	—	$	171,562
Liabilities:
Bank deposits	$	165,263	$	—	$	165,263	$	—	$	165,263
Payables to brokers, dealers, and clearing organizations	5,427		—		5,427		—		5,427
Payables to brokerage clients	31,480		—		31,480		—		31,480
Accrued expenses and other liabilities	1,067		—		1,067		—		1,067
Short-term borrowings	5,000		—		5,000		—		5,000
Long-term debt	3,268		—		3,347		—		3,347
Total	$	211,505	$	—	$	211,584	$	—	$	211,584



December 31, 2016	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Fair Value
Assets:
Cash and cash equivalents	$	9,314	$	—	$	9,314	$	—	$	9,314
Cash and investments segregated and on deposit for regulatory purposes	13,533		—		13,533		—		13,533
Receivables from brokers, dealers, and clearing organizations	728		—		728		—		728
Receivables from brokerage clients – net	17,151		—		17,151		—		17,151
Held to maturity securities:
U.S. agency mortgage-backed securities	72,439		—		71,677		—		71,677
Non-agency commercial mortgage-backed securities	997		—		1,004		—		1,004
Asset-backed securities	941		—		941		—		941
Corporate debt securities	436		—		436		—		436
U.S. Treasury securities	223		—		219		—		219
Commercial paper	99		—		99		—		99
U.S. state and municipal securities	68		—		68		—		68
Total held to maturity securities	75,203		—		74,444		—		74,444
Bank loans – net:
Residential real estate mortgages	9,117		—		9,064		—		9,064
Home equity loans and lines of credit	2,342		—		2,458		—		2,458
Pledged asset lines	3,851		—		3,851		—		3,851
Other	93		—		94		—		94
Total bank loans – net	15,403		—		15,467		—		15,467
Other assets	328		—		328		—		328
Total	$	131,660	$	—	$	130,965	$	—	$	130,965
Liabilities:
Bank deposits	$	163,454	$	—	$	163,454	$	—	$	163,454
Payables to brokers, dealers, and clearing organizations	2,407		—		2,407		—		2,407
Payables to brokerage clients	35,894		—		35,894		—		35,894
Accrued expenses and other liabilities	1,169		—		1,169		—		1,169
Long-term debt	2,876		—		2,941		—		2,941
Total	$	205,800	$	—	$	205,865	$	—	$	205,865