Charles Schwab 2013 Annual Report Download - page 42

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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CSC’s liquidity needs are generally met through cash generated by its subsidiaries, as well as cash provided by external
financing. CSC has a universal automatic shelf registration statement (Shelf Registration Statement) on file with the SEC
which enables CSC to issue debt, equity, and other securities. CSC maintains excess liquidity in the form of overnight cash
deposits and short-term investments to cover daily funding needs and to support growth in the Company’s business.
Generally, CSC does not hold liquidity at its subsidiaries in excess of amounts deemed sufficient to support the subsidiaries’
operations, including any regulatory capital requirements. Schwab, Schwab Bank, and optionsXpress, Inc. are subject to
regulatory requirements that may restrict them from certain transactions with CSC, as further discussed below. Management
believes that funds generated by the operations of CSC’s subsidiaries will continue to be the primary funding source in
meeting CSC’s liquidity needs, providing adequate liquidity to meet Schwab Bank’s capital guidelines, and maintaining
Schwab and optionsXpress, Inc.’s net capital.
On July 25, 2013, CSC issued $275 million of Senior Notes that mature in 2018 under its Shelf Registration Statement. The
Senior Notes have a fixed interest rate of 2.20% with interest payable semi-annually.
While CSC is not currently subject to specific statutory capital requirements, CSC is required to serve as a source of strength
for Schwab Bank and must have the ability to provide financial assistance if Schwab Bank experiences financial distress. To
manage capital adequacy, the Company currently utilizes a target Tier 1 Leverage Ratio for CSC, as currently defined by the
Federal Reserve, of at least 6%. At December 31, 2013, CSC’s Tier 1 Leverage Ratio was 6.4%, Tier 1 Capital Ratio was
16.7%, and Total Capital Ratio was 16.8%.
The following are details of CSC’s long-term debt:
Par Standard 
December 31, 2013 Outstanding Maturity Interest Rate Moody’s & Poor’s Fitch
Senior Notes $ 1,581 2015 – 2022 0.850% to 4.45% fixed A2 A A 
Medium Term Notes $ 250 2017 6.375% fixed A2 A A
CSC has authorization from its Board of Directors to issue unsecured commercial paper notes (Commercial Paper Notes) not
to exceed $1.5 billion. Management has set a current limit for the commercial paper program of $800 million. The maturities
of the Commercial Paper Notes may vary, but are not to exceed 270 days from the date of issue. The commercial paper is not
redeemable prior to maturity and cannot be voluntarily prepaid. The proceeds of the commercial paper program are to be
used for general corporate purposes. There were no borrowings of Commercial Paper Notes outstanding at December 31,
2013. CSC’s ratings for these short-term borrowings are P1 by Moody’s, A1 by Standard & Poor’s, and F1 by Fitch.
CSC maintains an $800 million committed, unsecured credit facility with a group of 12 banks, which is scheduled to expire
in June 2014. This facility replaced a similar facility that expired in June 2013 and both facilities were unused in 2013. The
funds under this facility are available for general corporate purposes. The financial covenants under this facility require
Schwab to maintain a minimum net capital ratio, as defined, Schwab Bank to be well capitalized, as defined, and CSC to
maintain a minimum level of stockholders’ equity. At December 31, 2013, the minimum level of stockholders’ equity
required under this facility was $7.1 billion (CSC’s stockholders’ equity at December 31, 2013, was $10.4 billion).
Management believes that these restrictions will not have a material effect on CSC’s ability to meet foreseeable dividend or
funding requirements.
CSC also has direct access to $647 million of the $942 million uncommitted, unsecured bank credit lines discussed below,
that are primarily utilized by Schwab to manage short-term liquidity. These lines were not used by CSC during 2013.
In addition, Schwab provides CSC with a $1.0 billion credit facility, which is scheduled to expire in December 2014. There
were no funds drawn under this facility at December 31, 2013.