10.Variable Interest Entities

A VIE requires consolidation by the entity’s primary beneficiary. The Company evaluates all of the entities in which it is involved to determine if an entity is a VIE and if so, whether the Company is the primary beneficiary. See the “Principles of Consolidation” section of “Notes – 1. Introduction and Basis of Presentation” for discussion of the Company’s evaluations of VIEs and whether it is deemed to be the primary beneficiary of any VIEs in which it holds an interest. The Company was not the primary beneficiary of, and therefore, not required to consolidate any VIEs during 2015, 2014, or 2013.

Community Reinvestment Act investments

Schwab Bank is subject to the CRA. The CRA is intended to encourage banks to help meet the credit needs of the communities in which they operate, including low and moderate income neighborhoods, consistent with safe and sound banking operations. As part of Schwab Bank’s community reinvestment initiatives, Schwab Bank invests with other institutional investors in funds that make equity investments in multifamily affordable housing properties.

In 2014, Schwab Bank’s management approved a program to invest in LIHTC funds. Schwab Bank receives tax credits and other tax benefits for these investments. Schwab Bank’s LIHTC investments are accounted for using the proportional amortization method if certain criteria are met. See “Notes – 2. Summary of Significant Accounting Policies” for discussion of the application of the proportional amortization method. As of December 31, 2015, the majority of the Company’s VIEs are related to Schwab Bank’s LIHTC investments made in 2014 and 2015. Schwab Bank did not have any LIHTC investments prior to 2014. Schwab Bank also has investments in other CRA-related funds, which were invested prior to 2014.

During 2015 and 2014, Schwab Bank recorded amortization of $3.3 million and $0.3 million, respectively, and recognized tax credits and other tax benefits of $4.5 million and $0.5 million, respectively, associated with these investments, both of which are included in taxes on income. The carrying value of the LIHTC investments was $104 million and $45 million as of December 31, 2015 and 2014, respectively, which is included in other assets on the consolidated balance sheets. Schwab Bank recorded liabilities of $84 million and $40 million for unfunded commitments related to LIHTC investments at December 31, 2015 and 2014, respectively, which are included in accrued expenses and other liabilities on the consolidated balance sheets. Schwab Bank’s funding of these remaining commitments is dependent upon the occurrence of certain conditions and Schwab Bank expects to pay substantially all of these commitments between 2016 and 2020.

Aggregate assets, liabilities and maximum exposure to loss

The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which the Company holds a variable interest, but as to which the Company has concluded it is not the primary beneficiary, are summarized in the table below:


		December 31, 2015						December 31, 2014
						Maximum						Maximum
		Aggregate		Aggregate		exposure		Aggregate		Aggregate		exposure
		assets		liabilities		to loss		assets		liabilities		to loss
LIHTC Investments (1)	$	104	$	84	$	104	$	45	$	40	$	45
Other CRA Investments (2)		57		-		66		37		-		62
Total	$	161	$	84	$	170	$	82	$	40	$	107


(1)	LIHTC investments are recorded using the proportional amortization method.
(2)	Other CRA investments are recorded using either the cost method or the equity method. Aggregate assets are included in either other assets or bank loans – net on the consolidated balance sheets.

The Company’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. During the years ended December 31, 2015 and 2014, the Company did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide.