Charles Schwab 2015 Annual Report Download - page 69

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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)
- 49 -
See “Item 8 – Financial Statements and Supplementary Data – Consolidated Balance Sheets and Notes to Consolidated
Financial Statements – 23. Regulatory Requirements” for additional information on the components of stockholder’s equity
and information on the capital requirements of each of the subsidiaries.
In addition to capital requirements, the Company’s subsidiaries are subject to various regulatory requirements that are
intended to ensure financial soundness and liquidity.
Schwab Bank is subject to regulatory requirements that restrict and govern the terms of affiliate transactions. In addition,
Schwab Bank is required to provide notice to, and may be required to obtain approval from, the OCC and the Federal
Reserve to declare dividends to CSC.
Dividends
CSC paid common stock cash dividends of $318 million ($0.24 per share) and $316 million ($0.24 per share) in 2015 and
2014, respectively. Since the initial dividend in 1989, CSC has paid 107 consecutive quarterly dividends and has increased
the quarterly dividend rate 19 times, resulting in a 20% compounded annual growth rate, excluding the special cash dividend
of $1.00 per common share in 2007. While the payment and amount of dividends are at the discretion of the Board of
Directors, subject to certain regulatory and other restrictions, CSC currently targets its common stock cash dividend at
approximately 20% to 30% of net income.
CSC paid Series A Preferred Stock cash dividends of $28 million ($70.00 per share) in 2015 and 2014, respectively. CSC
paid Series B Preferred Stock cash dividends of $29 million ($60.00 per share) in 2015 and 2014, respectively. CSC paid
Series C cash dividends of $12 million ($19.67 per share) in 2015.
Share Repurchases
There were no repurchases of CSC’s common stock in 2015 or 2014. As of December 31, 2015, CSC had remaining
authority from the Board of Directors to repurchase up to $596 million of its common stock, which is not subject to
expiration.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses the market and income approaches to determine the fair value of certain financial assets and liabilities
recorded at fair value, and to determine fair value disclosures. See “Item 8 – Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – 2. Summary of Significant Accounting Policies and 17. Fair Values of Assets
and Liabilities” for more information on the Company’s assets and liabilities recorded at fair value.
When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. When
utilizing market data with a 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.
At December 31, 2015 and 2014, the Company did not adjust prices received from the primary independent third-party
pricing service.