Fair Values of Assets and Liabilities

9 Months Ended

Sep. 30, 2020

Assets and liabilities measured at fair value on a recurring basis

Schwab’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, AFS securities, and certain other assets. 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. Quoted prices for investments in exchange-traded securities represent end-of-day close prices published by exchanges. Quoted prices for money market funds and other mutual funds represent reported net asset values. 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 in active markets do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. We generally obtain prices from three independent third-party pricing sources for assets recorded at fair value.

Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposit; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, 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. We compare the prices obtained from the 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. Schwab 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 material differences in the amounts recorded.

For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2019 Form 10-K. The Company did not adjust prices received from the primary independent third-party pricing service at September 30, 2020 or December 31, 2019.

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, 2020	Level 1		Level 2		Level 3		Balance at Fair Value
Cash equivalents:
Money market funds	$	3,757	$	—	$	—	$	3,757

Total cash equivalents	3,757		—		—		3,757
Investments segregated and on deposit for regulatory purposes:
Certificates of deposit	—		901		—		901
U.S. Government securities	—		13,173		—		13,173
Total investments segregated and on deposit for regulatory purposes	—		14,074		—		14,074
Available for sale securities:
U.S. agency mortgage-backed securities	—		258,266		—		258,266
Asset-backed securities	—		19,321		—		19,321
Corporate debt securities	—		13,580		—		13,580
U.S. Treasury securities	—		7,902		—		7,902
U.S. state and municipal securities	—		1,690		—		1,690
Non-agency commercial mortgage-backed securities	—		1,266		—		1,266
Certificates of deposit	—		501		—		501


Foreign government agency securities	—		1,210		—		1,210
Other	—		22		—		22
Total available for sale securities	—		303,758		—		303,758
Other assets:
Equity and bond mutual funds	352		—		—		352
U.S. Government securities	—		276		—		276
State and municipal debt obligations	—		22		—		22
Equity, corporate debt, and other securities	94		37		—		131
Total other assets	446		335		—		781
Total	$	4,203	$	318,167	$	—	$	322,370


December 31, 2019	Level 1		Level 2		Level 3		Balance at Fair Value
Cash equivalents:
Money market funds	$	5,179	$	—	$	—	$	5,179
Commercial paper	—		2,498		—		2,498
Total cash equivalents	5,179		2,498		—		7,677
Investments segregated and on deposit for regulatory purposes:
Certificates of deposit	—		1,351		—		1,351
U.S. Government securities	—		7,276		—		7,276
Total investments segregated and on deposit for regulatory purposes	—		8,627		—		8,627
Available for sale securities:
U.S. agency mortgage-backed securities	—		46,155		—		46,155
Corporate debt securities	—		5,484		—		5,484
Asset-backed securities	—		4,987		—		4,987
U.S. Treasury securities	—		3,384		—		3,384
Certificates of deposit	—		1,004		—		1,004


Commercial paper	—		395		—		395

Non-agency commercial mortgage-backed securities	—		13		—		13
Total available for sale securities	—		61,422		—		61,422
Other assets:
Equity and bond mutual funds	442		—		—		442
U.S. Government securities	—		202		—		202
State and municipal debt obligations	—		47		—		47
Equity, corporate debt, and other securities	5		22		—		27
Total other assets	447		271		—		718
Total	$	5,626	$	72,818	$	—	$	78,444

Fair Value of Other Financial Instruments

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


September 30, 2020	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets
Cash and cash equivalents	$	23,708	$	23,708	$	—	$	—	$	23,708
Cash and investments segregated and on deposit for regulatory purposes	15,494		1,772		13,722		—		15,494

Receivables from brokerage clients — net	25,438		—		25,438		—		25,438












Bank loans — net:
First Mortgages	14,319		—		14,733		—		14,733
HELOCs	908		—		900		—		900
Pledged asset lines	6,885		—		6,885		—		6,885
Other	174		—		174		—		174
Total bank loans — net	22,286		—		22,692		—		22,692
Other assets	1,617		—		1,617		—		1,617

Liabilities
Bank deposits	$	320,717	$	—	$	320,717	$	—	$	320,717

Payables to brokerage clients	52,006		—		52,006		—		52,006
Accrued expenses and other liabilities	2,208		—		2,208		—		2,208

Long-term debt	7,829		—		8,717		—		8,717


December 31, 2019	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets
Cash and cash equivalents	$	21,668	$	21,668	$	—	$	—	$	21,668
Cash and investments segregated and on deposit for regulatory purposes	11,807		2,792		9,015		—		11,807

Receivables from brokerage clients — net	21,763		—		21,763		—		21,763
Held to maturity securities:
U.S. agency mortgage-backed securities	109,325		—		110,566		—		110,566
Asset-backed securities	17,806		—		17,771		—		17,771
Corporate debt securities	4,661		—		4,718		—		4,718
U.S. state and municipal securities	1,301		—		1,404		—		1,404
Non-agency commercial mortgage-backed securities	1,119		—		1,141		—		1,141
U.S. Treasury securities	223		—		228		—		228
Certificates of deposit	200		—		200		—		200
Foreign government agency securities	50		—		50		—		50
Other	21		—		21		—		21
Total held to maturity securities	134,706		—		136,099		—		136,099
Bank loans — net:
First Mortgages	11,693		—		11,639		—		11,639
HELOCs	1,113		—		1,153		—		1,153
Pledged asset lines	5,206		—		5,206		—		5,206
Other	200		—		200		—		200
Total bank loans — net	18,212		—		18,198		—		18,198
Other assets	1,014		—		1,014		—		1,014

Liabilities
Bank deposits	$	220,094	$	—	$	220,094	$	—	$	220,094

Payables to brokerage clients	39,220		—		39,220		—		39,220
Accrued expenses and other liabilities	1,882		—		1,882		—		1,882

Long-term debt	7,430		—		7,775		—		7,775

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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