Charles Schwab 2015 Annual Report Download - page 67

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)
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Contractual Obligations
The Company’s principal contractual obligations as of December 31, 2015 are shown in the following table. Management
believes that funds generated by its continuing operations, as well as cash provided by external financing, will continue to be
the primary funding sources in meeting these obligations. Excluded from this table are liabilities recorded on the consolidated
balance sheet that are generally short-term in nature (e.g., payables to brokers, dealers, and clearing organizations) or without
contractual payment terms (e.g., bank deposits, payables to brokerage clients, and deferred compensation).
Less than 1-3 3-5 More than 
December 31, 2015 1 Year Years Years 5 Years Total
Credit-related financial instruments (1)  $ 955 $ 1,635 $ 3,273 $ 1,975 $ 7,838
Long-term debt (2)  94 1,312 813 1,120 3,339
Leases (3)  111 191 114 172 588
Purchase obligations (4)  230 152 36 213 631
Total  $ 1,390 $ 3,290 $ 4,236 $ 3,480 $ 12,396
(1) Represents Schwab Bank’s commitments to extend credit to bankin
g
clients and purchase mort
g
a
g
e loans.
(2) Includes estimated future interest payments through 2017 for Mediu
m
-Term Notes and through 2026 for Senior Notes.
Amounts exclude maturities under a finance lease obli
g
ation and unamortized discounts and premiums.
(3) Represents minimum rental commitments, net of sublease commitments, and includes facilities under the Company’s
p
ast restructuring initiatives and rental commitments under a finance lease obligation.
(4) Consists of purchase obligations for services such as advertising and marketing, telecommunications, professional
services, and hardware- and software-related agreements. Includes purchase obligations that can be canceled by the
Company without penalty.
CAPITAL MANAGEMENT
The Company seeks to manage capital to a level and composition sufficient to support execution of its business strategy,
including anticipated balance sheet growth, providing financial support to its subsidiaries, and sustained access to the capital
markets, while at the same time meeting its regulatory capital requirements and serving as a source of financial strength to
Schwab Bank. The Company’s primary sources of capital are funds generated by the operations of its subsidiaries and
securities issuances by CSC in the capital markets. To ensure that it has a sufficient amount of capital to absorb unanticipated
losses or declines in asset values, the Company has adopted a policy to remain well capitalized even in stressed scenarios.
The level, composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives,
and legislative and regulatory developments.
Internal guidelines are set, for both the Company and its regulated subsidiaries, to ensure capital levels are in line with the
Company’s strategy and regulatory requirements, and capital forecasts are reviewed monthly at Capital Planning and Asset-
Liability Management and Pricing Committee meetings. A number of early warning indicators are monitored to help identify
potential problems that could impact capital and are reviewed with management as appropriate. In addition, the Company
monitors its subsidiaries’ capital levels and requirements. Subject to regulatory capital requirements and any required
approvals, any excess capital held by subsidiaries is transferred to CSC in the form of dividends and returns. When
subsidiaries have need of additional capital, funds are provided by CSC as equity investments and also as subordinated loans
(in a form approved as regulatory capital by regulators) for Schwab. The details and method used for each cash infusion are
based on an analysis of the particular entity’s needs and financing alternatives. The amounts and structure of infusions must
take into consideration maintenance of regulatory capital requirements, debt/equity ratios, and equity double leverage ratios.
The Company conducts regular capital stress testing to assess the potential financial impacts of various plausible adverse
macroeconomic and company-specific events to which CSC and its subsidiaries could be subjected. The objective of the
Company’s capital stress testing is (1) to explore various potential outcomes – including rare and extreme events and (2) to
assess impacts of potential stressful outcomes on both capital and liquidity. Additionally, the Company has a comprehensive
Capital Contingency Plan to provide action plans for certain low probability/high impact capital events that the Company
might face. The Capital Contingency Plan is issued under the authority of the Asset-Liability Management and Pricing