Charles Schwab 2014 Annual Report Download - page 65

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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)
- 47 -
HELOC portfolios are considered in the allowance for loan loss methodology. This methodology results in loss factors that
are applied to the outstanding balances to determine the allowance for loan loss for each loan segment.
The allowance for personal loans secured by securities is established on a loan by loan basis. The market value of collateral
pledged by borrowers is regularly reviewed to ensure the Company’s commitment to extend credit is over-collateralized. If
collateral is in danger of falling below specified levels, the Company may reduce a borrower’s committed line or may
liquidate collateral. At December 31, 2014 and 2013, the allowance for loan losses related to personal loans secured by
securities was immaterial.
Legal and Regulatory Reserves
Reserves for legal and regulatory claims and proceedings reflect an estimate of probable losses for each matter, after
considering, among other factors, the progress of the case, prior experience and the experience of others in similar cases,
available defenses, insurance coverage and indemnification, and the opinions and views of legal counsel. In many cases,
including most class action lawsuits, it is not possible to determine whether a loss will be incurred, or to estimate the range of
that loss, until the matter is close to resolution, in which case no accrual is made until that time. Reserves are adjusted as
more information becomes available or when an event occurs requiring a change. Significant judgment is required in making
these estimates, and the actual cost of resolving a matter may ultimately differ materially from the amount reserved.
The Company’s management has discussed the development and selection of these critical accounting estimates with the
Audit Committee. Additionally, management has reviewed with the Audit Committee the Company’s significant estimates
discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.