UNITED STATES
SECURITIES  AND  EXCHANGE  COMMISSION
Washington, D.C.  20549

FORM 10-Q

FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number: 1-9700

THE  CHARLES  SCHWAB  CORPORATION
(Exact name of registrant as specified in its charter)
Delaware94-3025021
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

211 Main Street,, San Francisco,, CA94105
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:  ((415) 667-7000
415) 667-7000

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock – $.01 par value per shareSCHWNew York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 6.00% Non-Cumulative Preferred Stock, Series CSCHW PrCNew York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 5.95% Non-Cumulative Preferred Stock, Series DSCHW PrDNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒                        Accelerated filer ☐
Non-accelerated filer☐filer ☐                        Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,287,412,9231,797,212,229 shares of $.01 par value Common Stock and 79,293,695shares of $.01 par value Nonvoting Common Stock outstanding on April 30,October 31, 2020


THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q
For the Quarter Ended March 31,September 30, 2020



 Index

Item 1.
1928
2029
2130
2231
23-2432-33
25-5434-70
Item 2.1-171-26
Item 3.27
Item 4.
71
Item 4.
Controls and Procedures
55
Item 1.
5672
Item 1A.
5672
Item 2.
5673
Item 3.
5773
Item 4.
5773
Item 5.
5773
Item 6.74-75
5876
Signature
59





Part I – FINANCIAL INFORMATION

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)



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


INTRODUCTION

The Charles Schwab Corporation (CSC) is a savings and loan holding company and engages, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.


Principal business subsidiaries of CSC include the following:

•
Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
•
Charles Schwab Bank, SSB (CSB), our principal banking entity; and
•
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries. subsidiaries as of September 30, 2020.

Principal business subsidiaries of CSC include the following:

•Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
•Charles Schwab Bank, SSB (CSB), our principal banking entity; and
•Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

Subsequent to September 30, 2020, the Company completed its previously announced acquisition of TD Ameritrade Holding Corporation and its consolidated subsidiaries (collectively referred to as “TD Ameritrade” or “TDA”), effective October 6, 2020. Upon completion of the acquisition, TD Ameritrade Holding Corporation (TDA Holding) became a wholly-owned subsidiary of CSC and the below became principal business subsidiaries of CSC:

•TD Ameritrade, Inc., an introducing securities broker-dealer; and
•TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services on a fully-disclosed basis to TD Ameritrade, Inc.

Unless otherwise noted, this Management’s Discussion and Analysis excludes the results of operations and financial condition of TD Ameritrade. See Overview and Item 1 – Notes 3 and 17 for additional information on our acquisition of TD Ameritrade.

Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.
Schwab was founded on the belief that all Americans deserve access to a better investing experience. Although much has changed in the intervening years, our purpose remains clear – to champion every client’s goals with passion and integrity. Guided by this purpose and our vision of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.”

This strategy emphasizes placing clients’ perspectives, needs, and desires at the forefront. Because investing plays a fundamental role in building financial security, we strive to deliver a better investing experience for our clients – individual investors and the people and institutions who serve them – by disrupting longstanding industry practices on their behalf and providing superior service. We also aim to offer a broad range of products and solutions to meet client needs with a focus on transparency, value, and trust. In addition, management works to couple Schwab’s scale and resources with ongoing expense discipline to keep costs low and ensure that products and solutions are affordable as well as responsive to client needs. In combination, these are the key elements of our “no trade-offs” approach to serving investors. We believe that following this strategy is the best way to maximize our market valuation and stockholder returns over time.

Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $45 trillion, which means the Company’s $3.50 trillion inSchwab’s and TD Ameritrade’s combined total client assets of approximately $6 trillion leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into
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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)

more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.

This Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (2019 Form 10-K).

On our website, https://www.aboutschwab.com, we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In addition, the website also includes the Dodd-Frank stress test results, our regulatory capital disclosures based on Basel III, and our quarterly average liquidity coverage ratio (LCR). The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with them.

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)



FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “expand,” “aim,” “maintain,” and other similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are estimates based on the best judgment of Schwab’s senior management. These statements relate to, among other things:
•Maximizing our market valuation and stockholder returns over time; our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I, Item 2);
•Impacts related to the coronavirus (COVID-19) pandemicpandemic; advancing strategic goals to drive scale, monetization and segmentation (see Overview);
Focus on scale and efficiency and balancing near-term profitability with continued reinvestment•Expected benefits from recently completed transactions; expected timing for long-term growth (see Overview);
Balance sheet management and Tier 1 Leverage Ratio operating objective (see Overview and Risk Management – Capital Management);
Pending transactions involvingthe TD Ameritrade USAA’s Investment Management Company (USAA-IMCO), and Wasmer, Schroeder & Company, LLC (Wasmer Schroeder), including anticipated closing, status and acquisition-related expenses; the funding for the USAA-IMCO transaction and entering into a referral agreementintegration; bank deposit account fee revenue; (see Overview, Risk Management, – Liquidity Risk, Capital Management, and Commitments and ContingenciesBusiness Acquisitions in Part I, Item 1, Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 9)3, and Subsequent Events in Item 1 – Note 17);
Timing•The expected impact of the final net stable funding ratio rule (see Current Regulatory Environment and ability to invest amounts currentlyOther Developments);
•Objective for amount of deposits held in excess reserves into higher yielding investmentsat the Federal Reserve (see Results of Operations);
•Net interest margin compression and net interest revenuerevenue; money market fund fee waivers (see Results of Operations);
•2020 capital expenditures (see Results of Operations);
•The phase-out of the use of LIBOR (see Risk Management);
•Sources of capitalcapital; Tier 1 Leverage Ratio operating objective (see Risk Management – Capital Management);
•
•The expected impact of new accounting standards not yet adopted (see Summary of Significant Accounting Policiesin Item 1 – Note 2);
•in Item 1 – Note 2);
The likelihood of indemnification and guarantee payment obligations (see Commitments and Contingencies in Item 1 – Note 9)10); and
•The impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 910 and Legal Proceedings in Part II, Item 1).

Achievement of the expressed beliefs, objectives, and expectations described in these statements is subject to certain risks and uncertainties that could cause actual results to differ materially from the expressed beliefs, objectives, and expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents incorporated by reference, as of the date of those documents.

Important factors that may cause actual results to differ include, but are not limited to:
General market conditions, including the level of interest rates, equity valuations, and trading activity;
Our ability to attract and retain clients, develop trusted relationships, and grow client assets;
Client use of our advisory solutions and other products and services;
The level of client assets, including cash balances;
Competitive pressure on pricing, including deposit rates;
Client sensitivity to interest rates;
Regulatory guidance;
Capital and liquidity needs and management;
Our ability to manage expenses;
Our ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance our infrastructure, in a timely and successful manner;
Our ability to monetize client assets;
The scope and duration of the COVID-19 pandemic and actions taken by governmental authorities to contain the spread of the virus and the economic impact;
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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)


Important factors that may cause actual results to differ include, but are not limited to:
The•General market conditions, including equity valuations, trading activity, the level of interest rates – which can impact money market fund fee waivers, and credit spreads;
•Our ability to attract and retain clients, develop trusted relationships, and grow client assets;
•Client use of our platformadvisory solutions and other products and services;
•The level of client assets, including cash balances;
•Competitive pressure on pricing, including deposit rates;
•Client sensitivity to handle increased client volume;interest rates;
Failure of the parties•Regulatory guidance;
•Capital and liquidity needs and management;
•Our ability to satisfy the closing conditions in the agreements for the pending acquisitions of TD Ameritrade, USAA-IMCOmanage expenses;
•Our ability to develop and Wasmer Schroederlaunch new and enhanced products, services, and capabilities, as well as enhance our infrastructure, in a timely manner or at all, including stockholder and regulatory approvals,successful manner;
•Our ability to monetize client assets;
•The scope and duration of the COVID-19 pandemic and actions taken by governmental authorities to contain the spread of the virus and the implementation of conversion or integration plans;economic impact;
Disruptions•The company’s ability to the parties’ businesses as a result of the announcement and pendency of the acquisitions;support client activity levels;
•The risk that expected revenue and expense synergies and other synergies and benefits from therecent acquisitions may not be fully realized or may take longer to realize than expected;
•Timing and ability to invest amounts held in excess reserves at the Federal Reserve into higher yielding investments in the company’s bank securities portfolio;
•Changes in prepayment levels for mortgage-backed and other asset-backed securities and loans;
•Client cash allocations and cash sorting;allocations;
•LIBOR trends;
Spreads on securities;
Mix of excess reserves to AFS securities;
•The availability and terms of external financing;
•The timing of campus expansion work and technology projects;
•Adverse developments in litigation or regulatory matters and any related charges; and
•Potential breaches of contractual terms for which we have indemnification and guarantee obligations.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in Part I – Item 1A – Risk Factors in the 2019 Form 10-K.



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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)


OVERVIEW
Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the third quarter and first nine months of 2020 and 2019 are:
Three Months Ended
September 30,		Percent
Change		Nine Months Ended
September 30,		Percent
Change
2020201920202019
Client Metrics   
Net new client assets (in billions) (1)
$51.2 $56.6 (10)%$261.8 $145.5 80 %
Core net new client assets (in billions)$42.7 $56.6 (25)%$162.5 $145.5 12 %
Client assets (in billions, at quarter end)$4,395.3 $3,768.4 17 %
Average client assets (in billions)$4,331.5 $3,736.1 16 %$4,033.3 $3,611.0 12 %
New brokerage accounts (in thousands) (2)
592 363 63 %2,853 1,135 151 %
Active brokerage accounts (in thousands, at quarter end)14,393 12,118 19 %
Assets receiving ongoing advisory services (in billions,
at quarter end)		$2,231.3 $1,977.9 13 %
Client cash as a percentage of client assets (at quarter end)12.8 %11.4 % 
Company Financial Information and Metrics   
Total net revenues$2,448 $2,711 (10)%$7,515 $8,115 (7)%
Total expenses excluding interest1,559 1,475 6 %4,691 4,379 7 %
Income before taxes on income889 1,236 (28)%2,824 3,736 (24)%
Taxes on income191 285 (33)%660 884 (25)%
Net income698 951 (27)%2,164 2,852 (24)%
Preferred stock dividends and other83 38 118 %171 127 35 %
Net income available to common stockholders$615 $913 (33)%$1,993 $2,725 (27)%
Earnings per common share — diluted$.48 $.70 (31)%$1.54 $2.05 (25)%
Net revenue growth from prior year(10)%5 % (7)%9 %
Pre-tax profit margin36.3 %45.6 % 37.6 %46.0 %
Return on average common stockholders’ equity (annualized)10 %20 % 12 %20 %
Expenses excluding interest as a percentage of average client
assets (annualized)		0.14 %0.16 %0.16 %0.16 %
Consolidated Tier 1 Leverage Ratio (at quarter end)5.7 %7.3 %
Non-GAAP Financial Measures (3)
Adjusted total expenses (4)
$1,492 $1,465 $4,488 $4,351 
Adjusted diluted EPS$.51 $.70 $1.66 $2.07 
Return on tangible common equity12 %21 %14 %22 %
(1) The third quarter and first nine months of 2020 include inflows of $8.5 billion related to the acquisition of Wasmer, Schroeder & Company, LLC. The first nine months of 2020 also includes $79.9 billion related to the acquisition of the assets of USAA’s Investment Management Company (USAA-IMCO) and an inflow of $10.9 billion from a mutual fund clearing services client.
(2) The first nine months of 2020 include 1.1 million new brokerage accounts related to the acquisition of assets from USAA-IMCO.
(3) See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
(4) Adjusted total expenses is a non-GAAP financial measure adjusting total expenses excluding interest. See Non-GAAP Financial Measures.

While the COVID-19 pandemic and challenging macroeconomic conditions persisted throughout the third quarter and first nine months of 2020, the Company’s business model and our continued focus on clients’ needs helped drive sustained business momentum. Schwab continued to operate without significant client disruption, advancing the Company’s strategic goals to drive scale, monetization, and segmentation in ways that benefit our clients. Most notably, subsequent to September 30, 2020, Schwab completed its acquisition of TD Ameritrade, which closed on October 6, 2020, as discussed further below.

Throughout the third quarter of 2020, the equity markets generally increased while both short- and long-term interest rates remained under pressure. Net new assets totaled $51.2 billion in the third quarter, despite seasonal tax outflows in July from a delayed tax filing deadline. In addition to an $8.5 billion inflow to our Advisor Services business related to closing our acquisition of Wasmer, Schroeder & Company, LLC, core net new assets totaled $42.7 billion in the third quarter of 2020, bringing year-to-date core net new assets to $162.5 billion, which represents a 5% annualized growth rate. New brokerage accounts totaled 592 thousand in the third quarter of 2020, and 2019 are:
 Three Months Ended
March 31,		 Percent
Change
 2020 2019 
Client Metrics     
Net new client assets (in billions)$73.2
 $51.7
 42%
Core net new client assets (in billions)$73.2
 $51.7
 42%
Client assets (in billions, at quarter end)$3,496.9
 $3,585.4
 (2)%
Average client assets (in billions)$3,918.8
 $3,465.7
 13%
New brokerage accounts (in thousands)609
 386
 58%
Active brokerage accounts (in thousands, at quarter end)12,736
 11,787
 8%
Assets receiving ongoing advisory services (in billions,
at quarter end)		$1,822.8
 $1,871.2
 (3)%
Client cash as a percentage of client assets (at quarter end)15.1% 11.3%  
Company Financial Metrics 
  
  
Total net revenues$2,617
 $2,723
 (4)%
Total expenses excluding interest1,570
 1,459
 8%
Income before taxes on income1,047
 1,264
 (17)%
Taxes on income252
 300
 (16)%
Net income795
 964
 (18)%
Preferred stock dividends and other38
 39
 (3)%
Net income available to common stockholders$757
 $925
 (18)%
Earnings per common share — diluted$.58
 $.69
 (16)%
Net revenue growth from prior year(4)% 14%  
Pre-tax profit margin40.0% 46.4%  
Return on average common stockholders’ equity (annualized)14% 20%  
Expenses excluding interest as a percentage of average client
assets (annualized)		0.16 % 0.17%  
Consolidated Tier 1 Leverage Ratio (at quarter end)6.9% 7.2%  

The first quarter of 2020 saw an unprecedented environment aswe ended the COVID-19 pandemic upended daily life both world-wide and here in the U.S. Throughout this challenging time, the Company operated without significant client disruption. Schwab’s unwavering focus on continuingperiod at 14.4 million accounts, up 19% from September 30, 2019. Our clients continued to earn our clients’ trust is made possible by the significant contributions of our employees, and the Company remains committed to serving our clients while protecting our employees’ wellbeing. In response to the pandemic, we have enabled approximately 95% of our employees to work remotely, and, in addition to other measures, we made a $1,000 payment to all non-officer employees to help them cover costs incurred due to the COVID-19 pandemic.

Core net new assets during the first quarter totaled $73.2 billion, up 42% from the first quarter of 2019. Clients opened 609,000 new brokerage accounts, bringing total active brokerage accounts to 12.7 million at quarter end, up 8% from March 2019. The first quarter saw record trading activity,be highly engaged with their investments, as daily average trades for the period reachedwere 1.5 million a 98% increase from the first quarter of 2019. Our ongoing and multi-year investments in our technology systems helped ensure we efficiently processed the quarter’s record trading activity and client interactions across our various communication channels.

Schwab’s first quarter financial results were shaped by this very challenging economic environment in which the decade-long bull market ended – with the S&P falling 20% during the period and the Federal Reserve cutting the target overnight rate 150 basis points to near zero in an emergency effort to help shield the economy amid pandemic concerns. Schwab’s first quarter net income totaled $795 million, a decrease of $169 million, or 18%, from the first quarter of 2019. Diluted earnings per common share in the first quarter of $0.58 represented a decrease of 16% from the first quarter of 2019.
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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)

in both the third quarter and first nine months of 2020, up 103% and 109%, respectively, from the same periods in 2019. Against this backdrop, total client assets ended the third quarter at $4.40 trillion, up 17% from September 30, 2019.

Our results of operations for the third quarter and first nine months of 2020 reflect the strength of our business model as well as our financial management, even as the current macroeconomic environment remained challenging. Schwab’s net income was $698 million and $2.2 billion for the third quarter and first nine months of 2020, decreasing 27% and 24%, respectively, from the same periods in 2019. Diluted earnings per common share (EPS) amounted to $.48 and $1.54 during the third quarter and first nine months of 2020, respectively, down 31% and 25% from the same periods in the prior year. Adjusted diluted EPS (1), which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, were $.51 and $1.66 during the third quarter and first nine months of 2020, respectively, down 27% and 20% from the same periods in the prior year.

Total net revenues were $2.4 billion and $7.5 billion in the third quarter were $2.6 billion, a decreaseand first nine months of 4%2020, declining 10% and 7%, respectively, from the first quartersame periods in the prior year, primarily as a result of 2019.lower net interest revenue. Net interest revenue declined 6% year-over-year to $1.6 billion, due towas helped by rising interest-earning asset levels throughout the third quarter and first nine months of 2020, though still decreased $288 million and $617 million, respectively, from the comparable periods in 2019. These declines in net interest revenue primarily resulted from the overall decline in both short- and long-term interest rates across maturities indriven by the quarter, which offsetFederal Reserve’s monetary easing, as well as the impactrelated acceleration of significantly higher levels of client cash balances held atmortgage-backed security prepayment speeds within our bank and broker-dealer subsidiaries.investment securities portfolio. Asset management and administration fees totaled $860 million and $2.5 billion during the third quarter and first nine months of $827 million represented a 10% increase2020, increasing 4% and 5%, respectively, from the first quarter of 2019, largelycomparable periods in the prior year. The growth in asset management and administration fees was due primarily to our clients’ sustained utilization of advice solutions along with increasedrising balances in purchasedadvisory solutions, which more than offset higher money market funds, helping offset sharp declines in equity market valuations.fund fee waivers. Trading revenue declined 13% year-over-year to $188 million due to12% and 11% during the third quarter and first nine months of 2020, respectively, compared with the same periods in the prior year, as our October 2019 pricing actions partiallymore than offset byincreased trading volumes throughout the significant increase in trading volume.first nine months of 2020.

Total expenses excluding interest were $1.6 billion and $4.7 billion in the third quarter and first nine months of 2020, representing an increaseincreases of 8%6% and 7%, respectively, relative to the comparable periods in 2019. In the third quarter and first nine months of 2020, total expenses excluding interest reflected acquisition and integration-related expenses of $42 million and $160 million, respectively, as well as amortization of acquired intangible assets of $25 million and $43 million, respectively. Exclusive of these items (1), adjusted total expenses were up 2% and 3% during the third quarter and first nine months of 2020, respectively, from the comparable periods in 2019.

Throughout the first nine months of 2020, the Company maintained its disciplined approach to capital management, helping sustain ongoing balance sheet growth. Total balance sheet assets increased to $419.4 billion at September 30, 2020, representing growth of 5% from the end of the second quarter ofand 43% from December 31, 2019. This total included approximately $27 million for the $1,000 payments to employees and other compensation and business continuity expenses relating to our pandemic response. Our first quarter expenses also included $37 million relating to our pending acquisitions described below. Our longstanding focus on scale and efficiency has helped us begin the year with a first quarter pre-tax profit margin of 40.0% and remains an important strength as we balance near-term profitability with continued reinvestment for long-term growth.

Regardless of the environment, our priorities for balance sheet management remain intact, including supporting our ongoing growth while also maintaining appropriate levels of liquidity and capital. With first quarter market volatility and lower interest rates driving a significant influx of client cash,in total balance sheet assets increasedwas driven by $77 billion duringgrowth in our client base and continued higher client cash allocations due to the reduced attractiveness of fixed income and other cash alternatives in the low rate environment. During the second quarter, to $371 billion at March 31st. Consistent with optimizing liquidity management during heightened volatility, we issued 5- and 10-year senior notes totaling $1.1$2.5 billion in March. We finished the first quarter with aof preferred stock, Series G, at an initial fixed rate of 5.375%, bringing total preferred stock to $5.3 billion, which represented approximately 23% of Tier 1 Leverage Ratio of 6.9%, consistent with our operating objective of 6.75%-7.00%. Capital at September 30, 2020. The Company’s Tier 1 leverage ratio was 5.7% at September 30, 2020.

Return on average common stockholders’ equity was 10% and 12% during the third quarter and first nine months of 2020, respectively, down from 20% in both the third quarter and first nine months of 2019. Return on tangible common equity (1) (ROTCE) was 12% and 14% for the third quarter and first quarternine months of 2020, down from 20%21% and 22% in the first quartercomparable periods of 2019, due to2019. The decreases in both return on average common stockholders’ equity and ROTCE reflect lower net income as well as a $3.9 billion increase insignificantly higher balances of average accumulated other comprehensive income (AOCI) due to unrealized gains in our available for sale (AFS) investment securities portfolio.

Our pending acquisitions(1) Adjusted diluted EPS, adjusted total expenses, and return on tangible common equity are non-GAAP financial measures. Please see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

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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)

Business and Asset Acquisitions

In addition to the October 6, 2020 acquisition of TD Ameritrade anddescribed below, the Company completed several acquisitions during the nine months ended September 30, 2020. On May 26, 2020, the Company completed its acquisition of the assets of USAA-IMCO remain on track,for $1.6 billion in cash. Along with anticipated closing of USAA-IMCO expected in mid-2020, and TD Ameritrade in the second half of 2020. In late February, weasset purchase agreement, the companies entered into a definitivelong-term referral agreement that makes Schwab the exclusive provider of wealth management and investment brokerage services for USAA members. The USAA-IMCO acquisition adds scale to acquirethe Company’s operations through the addition of 1.1 million brokerage and managed portfolio accounts with approximately $80 billion in client assets at the acquisition date. The transaction also provides Schwab the opportunity to further expand our client base by serving USAA’s members through the long-term referral agreement. See Item 1 – Note 3 for more information on the USAA-IMCO acquisition.

Additionally, during the second quarter of 2020 the Company completed its acquisition of technology and intellectual property of Motif, a financial technology company. The Motif assets help us build on our existing capabilities and help accelerate our development of thematic and direct index investing for Schwab’s retail investors and RIA clients. On July 1, 2020, the Company completed its acquisition of Wasmer, Schroeder & Company, LLC, which will addadds established strategies and new separately managed account offerings to our existing fixed income lineup. Our purchase of Wasmer Schroeder is also expected to close mid-2020, subject to satisfaction of customary closing conditions.

Subsequent EventEvents

On April 30,Acquisition of TD Ameritrade Holding Corporation

Effective October 6, 2020, the Company issuedcompleted its previously announced acquisition of TD Ameritrade. TD Ameritrade provides securities brokerage services, including trade execution, clearing services, and sold 2,500,000 depositary shares, each representingmargin lending, through its broker-dealer subsidiaries; and futures and foreign exchange trade execution services through its futures commission merchant (FCM) and forex dealer member (FDM) subsidiary. TDA also provides cash sweep and deposit account products through third-party relationships.

TDA’s principal securities broker-dealers, TD Ameritrade, Inc. and TDAC, are registered broker-dealers with the SEC and members of the Financial Industry Regulatory Authority, Inc. (FINRA). TD Ameritrade, Inc. is also a 1/100th ownershipregistered investment advisor with the SEC. TD Ameritrade Futures & Forex LLC (TDAFF) is registered as an FCM and FDM with the Commodity Futures Trading Commission (CFTC), and is a member of the National Futures Association (NFA).

TDA provides services to individual retail investors and traders and to RIAs predominantly through the Internet, a national branch network, and relationships with RIAs. At the time of acquisition, TD Ameritrade had approximately 10,000 employees. TD Ameritrade’s sources of net revenues consist primarily of commissions and transaction fees, bank deposit account fees, net interest revenue, and investment product fees.

•TDA’s commissions and transaction fees have included commissions earned on trades of certain securities and derivatives, as well as order flow revenue.

•TDA’s bank deposit account fees have been generated through TD Ameritrade’s insured deposit account agreement with TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions), as well as bank deposit account agreements with other third-party depository institutions, whereby uninvested cash held by certain of TDA’s brokerage clients is swept into Federal Deposit Insurance Corporation (FDIC)-insured (up to specified limits) money market deposit accounts at the TD Depository Institutions and other third-party depository institutions. TDA has earned revenue on client cash at these depository institutions based on the return of floating-rate and fixed-rate notional investments, less the interest paid to clients and certain other fees.

•TDA’s net interest revenue has been generated primarily through margin lending, securities lending activity, as well as segregated and operating cash and investments. Interest-bearing liabilities have primarily consisted of interest-bearing payables to brokerage clients.

•TDA’s investment product fee revenue has consisted of revenues earned on client assets invested in money market funds, other mutual funds, and certain investment programs. Investment product fees also includes referral and asset-based program fees on its client assets managed by independent RIAs utilizing TDA’s trading and investing platforms.
- 6 -

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)

Concurrently with the execution of the Agreement and Plan of Merger, dated as of November 24, 2019, as amended (the merger agreement), CSC entered into a stockholder agreement with The Toronto-Dominion Bank (TD Bank), a registration rights agreement with TD Bank and Charles R. Schwab, and an amended and restated insured deposit account agreement (IDA agreement) with the TD Depository Institutions. These agreements were effective upon the merger and are further detailed in Part I – Item 1 of our 2019 Form 10-K.

Effective upon the merger, Todd M. Ricketts, Brian M. Levitt, and Bharat B. Masrani were elected to CSC’s Board of Directors. Mr. Ricketts was designated by TD Ameritrade pursuant to the terms of the merger agreement and Messrs. Levitt and Masrani were designated by TD Bank pursuant to the terms of the merger agreement and the stockholder agreement between Schwab and TD Bank.

Integration Overview

We anticipate the acquisition of TD Ameritrade will significantly increase our scale to help support the Company’s ongoing efforts to enhance the client experience, provide deeper resources for individual investors as well as RIAs, and continue to improve our operating efficiency. With a combined total for Schwab and TD Ameritrade of approximately $6 trillion in client assets and 29 million brokerage accounts at the time of closing, we expect our enhanced scale will lower total expenses as a percentage of client assets. Combining the respective strengths of Schwab and TD Ameritrade will enable the Company to invest in enhanced client experience capabilities and further our financial success to the benefit of clients, employees, and stockholders.

The integration of Schwab’s and TD Ameritrade’s operations is expected to occur over 18 to 36 months from the date of acquisition, though planning for integration has been underway since the acquisition was announced on November 25, 2019. In October, the Company began efforts to reduce overlapping or redundant roles across the two firms and to rationalize branch locations of Schwab and TDA. These and other integration activities are expected to continue throughout the integration process. Until the integration is complete, Schwab and TD Ameritrade will continue to operate separate broker-dealers to serve their respective clients. Starting in the fourth quarter of 2020, TD Ameritrade will be incorporated into our two existing reportable segments.

Amended IDA Agreement and Bank Deposit Account Fee Revenue

In accordance with the amended IDA agreement with the TD Depository Institutions, cash held in TD Ameritrade’s eligible customer accounts will continue to be swept to money market deposit accounts at the TD Depository Institutions. Schwab will provide marketing, recordkeeping and support services to the TD Depository Institutions with respect to the money market deposit accounts for which Schwab receives an aggregate monthly fee, determined by reference to certain yields, less a service fee on client cash deposits held at the TD Depository Institutions, FDIC deposit assessments, and interest on deposits paid to customers. Under the amended IDA, the service fee on client cash deposits held at the TD Depository Institutions was reduced by 40%, from 25 basis points to 15 basis points for the life of the agreement. Under TDA’s prior IDA agreement, TDA had floors in place which enabled them to carve-out up to $20 billion of floating-rate investments from the applicable service fee during specified low-rate environments. Pursuant to the amended IDA agreement, the 15 basis point service fee will be applied across all designated fixed and floating IDA balances.

Beginning in the fourth quarter of 2020, we expect to begin recognizing significant bank deposit account fee revenue pursuant to the amended IDA agreement with the TD Depository Institutions and TDA’s existing agreements with other third-party depository institutions. The net fees earned by Schwab under these arrangements will be included in a sharenew revenue line item in our consolidated statement of 5.375% fixed-rate reset non-cumulative perpetual preferred stock, Series G, $0.01 par value per share, with a liquidation preferenceincome titled bank deposit account fees. In addition, as part of $100,000 per share (equivalentour management of $1,000 per depositary share). The net proceedsinterest rate risk, Schwab will begin performing interest rate sensitivity analysis on our bank deposit account fee revenue.

Beginning July 1, 2021, Schwab will have the option to begin reducing deposit balances swept to the TD Depository Institutions by up to $10 billion over each 12-month period, subject to certain limitations and adjustments, migrating them instead to Schwab’s balance sheet. Our ability to migrate these balances to our balance sheet is dependent on certain binding limitations, including Schwab’s obligation to move all of the offering were approximately $2.47uninsured IDA sweep balances on that date, and the requirement that Schwab can only move floating IDA balances. Schwab’s initial reduction will also be affected by the net change in IDA sweep balances between the effective date of the IDA agreement and June 30, 2021. In addition, Schwab also must maintain a minimum $50 billion after deductingIDA sweep balance through June 2031, and at least 80% of the underwriting discountIDA sweep balances must be designated as fixed-rate obligations through June 2026.
- 7 -

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and estimated offering expenses.Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

See Item 1 – Notes 3 and 17 as well as Risk Management, Off-Balance Sheet Arrangements, and Contractual Obligations for additional information on the acquisition of TD Ameritrade and related matters.

Planned Change of CSC Headquarters

Subsequent to September 30, 2020 and in conjunction with the close of the acquisition of TD Ameritrade, CSC’s Board of Directors approved an amendment to Section 1.02 of the Company’s Fourth Restated Bylaws to change our corporate headquarters from San Francisco to Westlake, Texas, effective January 1, 2021. Opened in late 2019, the Westlake location provides a more centrally located hub for the Company given our nationwide presence across our network of branches and operations centers.

Current Regulatory Environment and Other Developments

Effective March 20, 2020, CSB and Charles Schwab Premier Bank, SSB (CSPB) converted to Texas-chartered state savings banks. CSB and CSPB became members of the Federal Reserve and are subject to regulation, supervision and examination by the Federal Reserve and the Texas Department of Savings and Mortgage Lending.


In September 2020, the Federal Reserve issued a notice of proposed rulemaking that, among other things, would amend the stress testing rules for covered savings and loan holding companies to provide that their capital distribution assumptions would match those of comparable bank holding companies.The rule proposal also solicits feedback on whether large savings and loan holding companies (SLHCs) should be subject to the capital planning and stress capital buffer requirements that apply to large bank holding companies. The comment period for the proposed rule and SLHC questions ends on November 20, 2020.


In October 2020, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC issued a final net stable funding ratio (NSFR) rule that will require certain banking organizations with $100 billion or more in consolidated assets to maintain a minimum level of stable funding based on the liquidity characteristics of the banking organization’s assets, commitments, and derivative exposures over a one-year time horizon. The NSFR will be expressed as a ratio of a banking organization’s available stable funding to its required stable funding. Banking organizations subject to the full requirement must maintain an NSFR equal to at least 1.0 on an ongoing basis. As a banking organization subject to Category III standards with less than $75 billion in average weighted short-term wholesale funding, CSC will be subject to a reduced NSFR requirement equal to 85% of the full requirement. The rule will take effect on July 1, 2021 and beginning in 2023, holding companies regulated by the Federal Reserve will be required to publicly disclose their NSFR levels semiannually. The Company does not expect the NSFR rule to have a material impact on the Company’s business, financial condition, or results of operations.


- 8 -

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)


RESULTS OF OPERATIONS

Total Net Revenues

The following tables present a comparison of revenue by category:
 20202019
  2020 2019
Three Months Ended March 31,Percent
Change		 Amount % of
Total Net
Revenues		 Amount % of
Total Net
Revenues
Three Months Ended September 30,Three Months Ended September 30,Percent
Change		Amount% of
Total Net
Revenues		Amount% of
Total Net
Revenues
Net interest revenue         Net interest revenue
Interest revenue(15)% $1,708
 65% $1,998
 73%Interest revenue(24)%$1,432 59 %$1,892 70 %
Interest expense(57)% (136) (5)% (317) (11)%Interest expense(66)%(89)(4)%(261)(10)%
Net interest revenue(6)% 1,572
 60% 1,681
 62%Net interest revenue(18)%1,343 55 %1,631 60 %
Asset management and administration fees         Asset management and administration fees   
Mutual funds, ETFs, and collective trust funds (CTFs)9% 452
 17% 414
 16%
Mutual funds, exchange traded funds (ETFs), and collective trust
funds (CTFs)		Mutual funds, exchange traded funds (ETFs), and collective trust
funds (CTFs)		(5)%423 17 %445 16 %
Advice solutions12% 312
 12% 278
 10%Advice solutions22 %373 15 %305 11 %
Other—
 63
 3% 63
 2%Other(15)%64 3 %75 3 %
Asset management and administration fees10% 827
 32% 755
 28%Asset management and administration fees4 %860 35 %825 30 %
Trading revenue         Trading revenue  
Commissions(31)% 113
 4% 163
 6%Commissions(32)%108 4 %159 6 %
Principal transactions(9)% 20
 1% 22
 1%Principal transactions(54)%6 — 13 — 
Order flow revenue (1)
72% 55
 2% 32
 1%
Order flow revenue (1)
97 %67 3 %34 2 %
Trading revenue (1)
(13)% 188
 7% 217
 8%
Trading revenue (1)
(12)%181 7 %206 8 %
Other (1)
(57)% 30
 1% 70
 2%
Other (1)
31 %64 3 %49 2 %
Total net revenues(4)% $2,617
 100% $2,723
 100%Total net revenues(10)%$2,448 100 %$2,711 100 %

20202019
Nine Months Ended September 30,Percent
Change		Amount% of
Total Net
Revenues		Amount% of
Total Net
Revenues
Net interest revenue
Interest revenue(20)%$4,626 61 %$5,817 72 %
Interest expense(64)%(322)(4)%(896)(11)%
Net interest revenue(13)%4,304 57 %4,921 61 %
Asset management and administration fees
Mutual funds, ETFs, and CTFs1 %1,300 17 %1,287 16 %
Advice solutions14 %999 13 %878 11 %
Other(6)%189 3 %201 2 %
Asset management and administration fees5 %2,488 33 %2,366 29 %
Trading revenue
Commissions(30)%332 4 %477 6 %
Principal transactions(33)%36 1 %54 1 %
Order flow revenue (1)
96 %194 3 %99 1 %
Trading revenue (1)
(11)%562 8 %630 8 %
Other (1)
(19)%161 2 %198 2 %
Total net revenues(7)%$7,515 100 %$8,115 100 %
(1) InBeginning in the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.

- 9 -

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)

Net Interest Revenue

Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on floating rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans.

Interest rates across maturities declined during the first three months of 2020 relative to the end of 2019. DuringLate in the first quarter of 2020, the Federal Reserve cut the federal funds target overnight rate twice, for a total of 150 basis points to near zero; on the longer-end of the curve, the 10-year Treasury rate declined by over 120 basis points. TheLower interest rates across maturities persisted from the end of the first quarter through the third quarter of 2020, while credit spreads also compressed. Moreover, changes in the economic environment inthroughout the first quarternine months of 2020 resulting from the COVID-19 pandemic drove significantly higher levels of client cash sweep balances. GivenAs these balances rapidly accumulated in the rapid accumulationfirst quarter of these balances,2020, the Company initially placed a substantial amount in excess reserves held at the Federal Reserve, which totaled $58.7and subsequently deployed a significant amount of this cash build-up in the second and third quarters, as part of AFS securities purchases totaling $73.9 billion and $45.2 billion, respectively. These purchases were made at March 31,rates below the average yield on the existing AFS portfolio due to the current low interest rate environment. As of September 30, 2020, up from $18.8the Company held $21.9 billion, at the endor 6.8% of 2019. Similarly, from December 31, 2019 to March 31, 2020, payables to brokerage clients increased $10.0 billion while margin loan balances decreased $2.3 billion, contributing to growth in cash and investments segregated. Consistent with our existing asset-liability-management approach, we expect to invest the majority of the amounts currently heldtotal deposits, in excess reserves, into higher yielding investments overending the next several quarters.quarter within our longer-term objective of approximately 5-7%.

- 10 -

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)


The following tables present net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:
20202019
2020 2019
Three Months Ended March 31,Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate
Three Months Ended September 30,Three Months Ended September 30,Average BalanceInterest Revenue/ ExpenseAverage Yield/RateAverage BalanceInterest Revenue/ ExpenseAverage Yield/Rate
Interest-earning assets           Interest-earning assets      
Cash and cash equivalents$32,134
 $85
 1.04% $24,983
 $151
 2.42%Cash and cash equivalents$32,628 $8 0.10 %$22,288 $123 2.16 %
Cash and investments segregated23,716
 87
 1.45% 13,533
 83
 2.44%Cash and investments segregated33,214 14 0.16 %16,140 92 2.25 %
Broker-related receivables730
 2
 1.35% 257
 2
 2.75%
Broker-related receivables (1)
Broker-related receivables (1)
754 — 0.05 %216 2 2.34 %
Receivables from brokerage clients19,151
 168
 3.47% 18,972
 214
 4.52%Receivables from brokerage clients21,242 125 2.31 %19,438 205 4.13 %
Available for sale securities (1, 2)
197,745
 1,185
 2.39% 66,853
 451
 2.70%
Held to maturity securities (2)
—
 —
 —
 132,427
 916
 2.77%
Available for sale securities (2,3)
Available for sale securities (2,3)
276,081 1,103 1.59 %53,487 366 2.71 %
Held to maturity securities (3)
Held to maturity securities (3)
— — — 136,880 906 2.63 %
Bank loans18,897
 144
 3.06% 16,578
 149
 3.61%Bank loans21,668 134 2.46 %16,724 146 3.49 %
Total interest-earning assets292,373
 1,671
 2.28% 273,603
 1,966
 2.88%Total interest-earning assets385,587 1,384 1.43 %265,173 1,840 2.75 %
Other interest revenue  37
     32
  Other interest revenue48 52 
Total interest-earning assets$292,373
 $1,708
 2.33% $273,603
 $1,998
 2.92%Total interest-earning assets$385,587 $1,432 1.47 %$265,173 $1,892 2.82 %
Funding sources           Funding sources
Bank deposits$227,523
 $57
 0.10% $219,987
 $226
 0.42%Bank deposits$310,685 $12 0.02 %$208,592 $166 0.32 %
Payables to brokerage clients30,287
 8
 0.10% 22,184
 23
 0.43%Payables to brokerage clients40,169 1 0.01 %25,080 21 0.33 %
Short-term borrowings (3)
3
 —
 1.07% 30
 —
 2.48%
Short-term borrowings (1)
Short-term borrowings (1)
5 — 0.12 %21 — 2.48 %
Long-term debt7,527
 66
 3.53% 6,845
 62
 3.61%Long-term debt7,992 69 3.46 %7,425 67 3.58 %
Total interest-bearing liabilities265,340
 131
 0.20% 249,046
 311
 0.51%Total interest-bearing liabilities358,851 82 0.09 %241,118 254 0.42 %
Non-interest-bearing funding sources27,033
     24,557
    Non-interest-bearing funding sources26,736 24,055 
Other interest expense  5
     6
  Other interest expense7 7 
Total funding sources$292,373
 $136
 0.19% $273,603
 $317
 0.46%Total funding sources$385,587 $89 0.09 %$265,173 $261 0.39 %
Net interest revenue  $1,572
 2.14%   $1,681
 2.46%Net interest revenue$1,343 1.38 %$1,631 2.43 %
20202019
Nine Months Ended September 30,Average BalanceInterest Revenue/ ExpenseAverage Yield/RateAverage BalanceInterest Revenue/ ExpenseAverage Yield/Rate
Interest-earning assets
Cash and cash equivalents$40,410 $112 0.37 %$24,506 $432 2.33 %
Cash and investments segregated30,162 128 0.56 %14,771 264 2.36 %
Broker-related receivables638 2 0.60 %225 4 2.21 %
Receivables from brokerage clients19,442 404 2.73 %19,279 636 4.35 %
Available for sale securities (2,3)
236,204 3,434 1.93 %58,738 1,203 2.72 %
Held to maturity securities (3)
— — — 134,031 2,721 2.70 %
Bank loans20,248 411 2.70 %16,621 443 3.56 %
Total interest-earning assets347,104 4,491 1.72 %268,171 5,703 2.82 %
Other interest revenue135 114 
Total interest-earning assets$347,104 $4,626 1.77 %$268,171 $5,817 2.88 %
Funding sources
Bank deposits$275,860 $81 0.04 %$213,089 $616 0.39 %
Payables to brokerage clients36,001 10 0.04 %23,443 68 0.39 %
Short-term borrowings (1)
16 — 0.29 %18 — 2.49 %
Long-term debt8,014 212 3.53 %7,122 192 3.59 %
Total interest-bearing liabilities319,891 303 0.13 %243,672 876 0.48 %
Non-interest-bearing funding sources27,213 24,499 
Other interest expense19 20 
Total funding sources$347,104 $322 0.13 %$268,171 $896 0.45 %
Net interest revenue$4,304 1.64 %$4,921 2.43 %
(1) Interest revenue or expense was less than $500 thousand in the period or periods presented.
(2) Amounts have been calculated based on amortized cost.
(2) (3) On January 1, 2020, the Company transferred all of its investment securities designated as held to maturity (HTM) to the AFS category, as described in Item 1 –Note 4.5.
(3) Interest revenue or expense was less than $500,000 in the period or periods presented.

Net interest revenue decreased $109 million, or 6%, in the first quarter of 2020 compared to the same period in 2019, due primarily to lower average investment yields, partially offset by growth in interest-earning assets.

Average interest-earning assets for the first quarter of 2020 were higher by 7% compared to the same period in 2019. The increase in average interest-earning assets for the first quarter of 2020 was primarily driven by higher client cash balances in bank deposits and payables to brokerage clients.

Our net interest margin was 2.14% during the first quarter of 2020, down from 2.46% a year earlier. This decrease was driven primarily by lower yields received on interest-earning assets due largely to the Federal Reserve’s 2019 and 2020 interest rate decreases. We expect some net interest margin compression in coming quarters largely due to the impact of lower interest rates across maturities; at the same time, higher balances of cash and other interest-earning assets can be additive to net interest revenue. The amount of net interest margin compression and resulting net interest revenue is dependent on a number of factors, including the timing of investing cash into higher yielding assets, changes to LIBOR, and the level of client cash balances.





- 11 -

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)

Net interest revenue decreased $288 million, or 18%, and $617 million, or 13% in the third quarter and first nine months of 2020 compared to the same periods in 2019, due primarily to lower average investment yields partially offset by growth in interest-earning assets. Accelerated premium amortization on debt securities in the third quarter and first nine months of 2020 also contributed to the reduction in net interest revenue, as the decline in long-term interest rates in the first nine months of 2020 resulted in higher prepayments of mortgage-related debt securities.

Average interest-earning assets for the third quarter and first nine months of 2020 were higher by 45% and 29%, respectively, compared to the same periods in 2019. These increases in average interest-earning assets were primarily driven by higher client cash balances in bank deposits and payables to brokerage clients.

Our net interest margin was 1.38% and 1.64% during the third quarter and first nine months of 2020, respectively, down from 2.43% during both the third quarter and first nine months of 2019. These decreases were driven primarily by lower yields received on interest-earning assets due largely to the Federal Reserve’s 2019 and 2020 interest rate reductions and higher premium amortization on mortgage-related debt securities. The amount of any further net interest margin compression and resulting net interest revenue is dependent on a number of factors, including changes to LIBOR, premium amortization, and growth in client cash balances.

Asset Management and Administration Fees

The following tables present asset management and administration fees, average client assets, and average fee yields:
Three Months Ended September 30,20202019
Average
Client
Assets		RevenueAverage
Fee		Average
Client
Assets		RevenueAverage
Fee
Schwab money market funds before fee waivers$199,822 $153 0.30 %$177,892 $133 0.30 %
Fee waivers(44)— 
Schwab money market funds$199,822 109 0.22 %$177,892 133 0.30 %
Schwab equity and bond funds, ETFs, and CTFs306,899 75 0.10 %274,005 75 0.11 %
Mutual Fund OneSource® and other non-transaction fee funds
197,809 154 0.31 %192,409 153 0.32 %
Other third-party mutual funds and ETFs (1)
469,822 85 0.07 %486,285 84 0.07 %
Total mutual funds, ETFs, and CTFs (2)
$1,174,352 423 0.14 %$1,130,591 445 0.16 %
Advice solutions (2)
Fee-based$307,983 373 0.48 %$251,591 305 0.48 %
Non-fee-based73,850 — — 71,195 — — 
Total advice solutions$381,833 373 0.39 %$322,786 305 0.37 %
Other balance-based fees (3)
443,929 51 0.05 %421,241 56 0.05 %
Other (4)
13 19 
Total asset management and administration fees$860 $825 

- 12 -

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)

20202019
Three Months Ended March 31,2020 2019
Average
Client
Assets		 Revenue Average
Fee		 Average
Client
Assets		 Revenue Average
Fee
Nine Months Ended September 30,Nine Months Ended September 30,Average
Client
Assets		RevenueAverage
Fee		Average
Client
Assets		RevenueAverage
Fee
Schwab money market funds before fee waiversSchwab money market funds before fee waivers$205,544 $469 0.30 %$166,053 $378 0.30 %
Fee waiversFee waivers(59)— 
Schwab money market funds$203,772
 $152
 0.30% $158,268
 $122
 0.31%Schwab money market funds$205,544 410 0.27 %$166,053 378 0.30 %
Schwab equity and bond funds, ETFs, and CTFs290,808
 76
 0.11% 244,314
 70
 0.12%Schwab equity and bond funds, ETFs, and CTFs290,759 219 0.10 %260,034 219 0.11 %
Mutual Fund OneSource® and other non-transaction fee funds
188,583
 147
 0.31% 187,223
 147
 0.32%
Mutual Fund OneSource ® and other non-transaction fee funds
187,153 436 0.31 %190,847 452 0.32 %
Other third-party mutual funds and ETFs (1)
451,959
 77
 0.07% 452,461
 75
 0.07%
Other third-party mutual funds and ETFs (1)
446,007 235 0.07 %469,901 238 0.07 %
Total mutual funds, ETFs, and CTFs (2)
$1,135,122
 452
 0.16% $1,042,266
 414
 0.16%
Total mutual funds, ETFs, and CTFs (2)
$1,129,463 1,300 0.15 %$1,086,835 1,287 0.16 %
Advice solutions (2)
           
Advice solutions (2)
Fee-based$263,256
 312
 0.48% $230,394
 278
 0.49%Fee-based$277,297 999 0.48 %$241,678 878 0.49 %
Non-fee-based71,229
 —
 —
 66,756
 —
 —
Non-fee-based71,438��— — 69,136 — — 
Total advice solutions$334,485
 312
 0.38% $297,150
 278
 0.38%Total advice solutions$348,735 999 0.38 %$310,814 878 0.38 %
Other balance-based fees (3)
432,847
 54
 0.05% 392,191
 52
 0.05%
Other balance-based fees (3)
428,191 150 0.05 %407,762 162 0.05 %
Other (4)
  9
     11
  
Other (4)
39 39 
Total asset management and administration fees  $827
     $755
  Total asset management and administration fees$2,488 $2,366 
(1) Beginning in the fourth quarter of 2019, Schwab ETF OneSource™ was discontinued as a result of the elimination of online trading commissions for U.S. and Canadian-listed ETFs.
(2) Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above.
(3) Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.
(4) Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

Asset management and administration fees increased by $72$35 million, or 10%4%, and $122 million, or 5% in the third quarter and first quarternine months of 2020, respectively, compared to the same periodperiods in 2019. This increase wasThese increases were primarily driven by higher revenuebalances in advice solutions, including managed account assets from increased balances inUSAA, as well as purchased money market funds, and advice solutions in the third quarter and first quarternine months of 2020 relative to the first quartersame periods in 2019. These increases were partially offset by the effect of 2019, helping offset declinesmoney market fund fee waivers due to declining portfolio yields. The amount of fee waivers in equitycoming quarters is dependent on a variety of factors, including the level of short-term interest rates and client preferences across our money market valuations in the first quarter of 2020.fund line-up.

The following table presentstables present a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource® and other non-transaction fee (NTF) funds. These funds generated 45%39% and 43% of the asset management and administration fees earned during the third quarter and first quartersnine months of 2020, respectively, compared to 44% of asset management and administration fees for both the third quarter and first nine months of 2019:
Schwab Money
Market Funds		Schwab Equity and
Bond Funds, ETFs, and CTFs
Mutual Fund OneSource®
and Other NTF funds
Three Months Ended September 30,202020192020201920202019
Balance at beginning of period$211,558 $168,064 $273,346 $254,460 $192,999 $197,777 
Net inflows (outflows)(21,280)18,044 3,564 7,408 (2,504)(5,586)
Net market gains (losses) and other34 843 17,539 1,296 13,098 2,482 
Balance at end of period$190,312 $186,951 $294,449 $263,164 $203,593 $194,673 

Schwab Money
Market Funds		Schwab Equity and
Bond Funds, ETFs, and CTFs
Mutual Fund OneSource®
and Other NTF funds
Nine Months Ended September 30,202020192020201920202019
Balance at beginning of period$200,826 $153,472 $286,275 $209,471 $202,068 $180,532 
Net inflows (outflows)(11,665)30,735 8,679 20,789 (17,557)(16,729)
Net market gains (losses) and other1,151 2,744 (505)32,904 19,082 30,870 
Balance at end of period$190,312 $186,951 $294,449 $263,164 $203,593 $194,673 

- 13 -

Schwab Money
Market Funds		 Schwab Equity and
Bond Funds, ETFs, and CTFs		 
Mutual Fund OneSource® 
and Other NTF funds
Three Months Ended March 31,2020 2019 2020 2019 2020 2019
Balance at beginning of period$200,826
 $153,472
 $286,275
 $209,471
 $202,068
 $180,532
Net inflows (outflows)1,989
 5,152
 6,531
 7,248
 (10,565) (6,206)
Net market gains (losses) and other913
 1,045
 (57,183) 24,168
 (29,864) 20,790
Balance at end of period$203,728
 $159,669
 $235,623
 $240,887
 $161,639
 $195,116


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)


Trading Revenue
The following table presents trading revenue and related information:

Three Months Ended March 31, Percent
Change

2020 2019 
Trading revenue (1)
$188
 $217
 (13)%
Clients’ daily average trades (DATs) (in thousands)1,540
 777
 98%
Number of trading days62.0
 61.0
 2%
Revenue per trade (2)
$1.97
 $4.58
 (57)%
Note:Effective October 7, 2019, CS&Co eliminated online trade commissions for U.S. and Canadian-listed stocks and ETFs, as well as the base charge on options.
(1)
In the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.
(2)
Revenue per trade is calculated as trading revenue divided by DATs multiplied by the number of trading days.

Three Months Ended September 30,Percent
Change		Nine Months Ended
September 30,		Percent
Change
2020201920202019
Trading revenue (1)
$181 $206 (12)%$562 $630 (11)%
Clients’ daily average trades (DATs) (in thousands)1,460 718 103 %1,539 737 109 %
Number of trading days64.0 63.5 1 %189.0 187.5 1 %
Revenue per trade (2)
$1.94 $4.52 (57)%$1.93 $4.56 (58)%
Trading revenue decreased $29 million, or 13%,Note:     Effective October 7, 2019, CS&Co eliminated online trade commissions for U.S. and Canadian-listed stocks and ETFs, as well as the base charge on options.
(1)     Beginning in the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.
(2)     Revenue per trade is calculated as trading revenue divided by DATs multiplied by the number of trading days.

Trading revenue decreased $25 million, or 12%, and $68 million, or 11%, in the third quarter and first nine months of 2020 compared to the same periodperiods in 2019, due primarily to our October 2019 pricing actions, which more than offset a significant increase in clients’ daily average trades and higher order flow revenue amid heightened market volatility.revenue. Order flow revenue was $55$67 million and $32$34 million during the third quarters of 2020 and 2019, and $194 million and $99 million during the first quartersnine months of 2020 and 2019, respectively. The increaseincreases in order flow revenue during the first quarter of 2020 waswere due to a higher volume of trades.trades throughout the third quarter and first nine months of 2020 relative to the same periods in 2019.

Other Revenue

Other revenue includes exchange processing fees, certain service fees, software fees, exchange processing fees, and non-recurring gains. Other revenue decreased $40increased $15 million, or 57%31%, in the third quarter of 2020 compared to the third quarter of 2019 primarily due to increases in exchange processing fees and other service fees.

Other revenue decreased $37 million, or 19% in the first quarternine months of 2020 compared to the same period in 2019. This decrease was2019 primarily driven by a gain from the sale of a portfolio management and reporting software solution for advisors to Tamarac Inc. recognized in the second quarter of 2019, a gain from the assignment of leased office space recognized in the first quarter of 2019, from the assignment of leased office space, as well asand an increase in the allowance for credit losses on bank loans in the first quarter of 2020. These decreases in the first nine months of 2020 compared with the same period in 2019 were partially offset by higher exchange processing fees due to higher trade volume.


- 14 -

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)


Total Expenses Excluding Interest
The following table shows a comparison of expenses excluding interest:
Three Months Ended
March 31,		 Percent
Change		Three Months Ended
September 30,		Percent
Change		Nine Months Ended
September 30,		Percent
Change
2020 2019 2020201920202019
Compensation and benefits     Compensation and benefits
Salaries and wages$502
 $476
 5%Salaries and wages$532 $546 (3)%$1,557 $1,498 4 %
Incentive compensation227
 216
 5%Incentive compensation179 183 (2)%587 597 (2)%
Employee benefits and other168
 158
 6%Employee benefits and other129 128 1 %412 419 (2)%
Total compensation and benefits$897
 $850
 6%Total compensation and benefits$840 $857 (2)%$2,556 $2,514 2 %
Professional services182
 170
 7%Professional services194 168 15 %574 516 11 %
Occupancy and equipment142
 131
 8%Occupancy and equipment155 144 8 %449 408 10 %
Advertising and market development67
 69
 (3)%Advertising and market development66 71 (7)%203 217 (6)%
Communications75
 62
 21%Communications73 63 16 %226 187 21 %
Depreciation and amortization96
 83
 16%
Depreciation and amortization (1)
Depreciation and amortization (1)
97 82 18 %284 235 21 %
Amortization of acquired intangible assets (1)
Amortization of acquired intangible assets (1)
25 6 N/M43 20 115 %
Regulatory fees and assessments34
 32
 6%Regulatory fees and assessments36 30 20 %106 92 15 %
Other77
 62
 24%Other73 54 35 %250 190 32 %
Total expenses excluding interest$1,570
 $1,459
 8%Total expenses excluding interest$1,559 $1,475 6 %$4,691 $4,379 7 %
Expenses as a percentage of total net revenues     Expenses as a percentage of total net revenues
Compensation and benefits34% 31%  Compensation and benefits34 %32 %34 %31 %
Advertising and market development3% 3%  Advertising and market development3 %3 %3 %3 %
Full-time equivalent employees (in thousands)     Full-time equivalent employees (in thousands)
At quarter end20.2
 20.0
 1%At quarter end22.119.812 %
Average20.0
 19.9
 1%Average22.120.29 %21.120.15 %
(1) Beginning in the third quarter of 2020, amortization of acquired intangible assets was reclassified from depreciation and amortization. Prior periods have been reclassified to reflect this change.
N/M Not meaningful.

Expenses excluding interestincreased by 6% and 7% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019. Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased 2% and 3% in the third quarter and first nine months of 2020, respectively. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
Total compensation and benefits increasedremained relatively flat in the third quarter and first quarternine months of 2020, compared to the same periodperiods in 2019, reflecting annual merit increases and an increase2019. Increases in employee headcount in 2020 to support our expanding client base.base as well as acquisition and integration-related activity, including the hiring of approximately 400 former USAA employees in connection with the USAA-IMCO acquisition, were partially offset by severance charges incurred in the third quarter of 2019 and a lower corporate bonus accrual in 2020. The increase wasin the year-to-date amounts also due toreflected the Company’s payment of $1,000 to all non-officer employees in March 2020 to help them cover costs incurred due to the COVID-19 pandemic.
Professional services expense increased in the third quarter and first quarternine months of 2020 compared to the same periodperiods in 2019, primarily due to expenses relating to pending acquisitionsacquisition and overall growth in the business.integration-related activity.
Occupancy and equipment expense increased in the third quarter and first quarternine months of 2020 compared to the same periodperiods in 2019, primarily due to an increase in technology equipment costs associated with higher customer trade volumes.volumes and overall growth in the business.
Communications expense increased in the third quarter and first quarternine months of 2020 compared to the same periodperiods in 2019, primarily due to higher customer trade volumes as well as overall growth in our business and client base.
Depreciation and amortization expenses grew in the third quarter and first quarternine months of 2020 compared to the same periodperiods in 2019, primarily due to higher amortization of purchased and internally developed software, as well as higher depreciation of buildings and equipment related to expansion of our campuses in the U.S. in 2019 and 2020, as well as higher amortization2020. Amortization of purchased and internally developed software associated with continued investments in software and technology enhancements.
Other expenses increasedacquired intangible assets grew due to acquisitions completed in the first quartersecond and third quarters of 2020 compared to the same period in 2019, primarily resulting from increases in processing fees and related expenses due to higher customer trade volumes and market volatility, as well as expenses relating to pending acquisitions. These increases were partially offset by lower travel and entertainment expense.

Capital expenditures were $250 million and $181 million in the first quarter of 2020 and 2019, respectively. The increase in capital expenditures from the prior year was primarily due to higher capitalized software costs, partially offset by lower building expansion in 2020 relative to the first quarter of 2019. Excluding any potential impact of the pending acquisition of TD Ameritrade, we anticipate capital expenditures for full-year 2020 to be approximately 5-6% of total net revenues.
2020.
- 15 -

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)

Other expenses increased in the third quarter and first nine months of 2020 compared to the same periods in 2019, primarily resulting from acquisition and integration-related costs and increases in processing fees and related expenses due to higher customer trade volumes and market volatility. These increases were partially offset by lower travel and entertainment expense.

Capital expenditures were $122 million and $541 million in the third quarter and first nine months of 2020, respectively, compared with $190 million and $544 million in the third quarter and first nine months of 2019, respectively. Capital expenditures decreased in the third quarter and first nine months of 2020 compared to the same periods in 2019, primarily due to lower building expansion in 2020 relative to the first nine months of 2019, largely offset by higher capitalized software costs. We anticipate capital expenditures for full-year 2020 to be approximately 5-6% of total net revenues.

Taxes on Income

Taxes on income were $252$191 million and $300$285 million for the firstthird quarters of 2020 and 2019, respectively, resulting in effective income tax rates on income before taxes of 24.1%21.5% and 23.1%, respectively. Taxes on income were $660 million and $884 million for the first nine months of 2020 and 2019, respectively, resulting in effective income tax rates on income before taxes of 23.4% and 23.7%, respectively. The increasedecrease in the effective tax rate in the third quarter and first quarternine months of 2020 compared to the same periods in 2019 was primarily due to federal tax benefits recognized during the current period including settlement of the IRS examination of tax years 2011-2014 and an increase in Low-Income Housing Tax Credit (LIHTC) benefits. Partially offsetting the decrease in the prior yeareffective tax rate from these items was due toan increase in nondeductible acquisition costs and FDIC insurance premium disallowance, as well as a decrease in equity compensation tax deduction benefits and an increase in nondeductible acquisition costs, partially offset by state-related tax benefits recognized during the first quarternine-month period.
- 16 -

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of 2020.Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

Segment Information

Financial information for our segments is presented in the following tables:
Investor ServicesAdvisor ServicesTotal
Investor Services Advisor Services Total
Three Months Ended March 31,Percent Change 2020 2019 Percent Change 2020 2019 Percent Change 2020 2019
Three Months Ended September 30,Three Months Ended September 30,Percent Change20202019Percent Change20202019Percent Change20202019
Net Revenues                 Net Revenues         
Net interest revenue(6)% $1,128
 $1,195
 (9)% $444
 $486
 (6)% $1,572
 $1,681
Net interest revenue(20)%$948 $1,182 (12)%$395 $449 (18)%$1,343 $1,631 
Asset management and administration fees13% 600
 533
 2% 227
 222
 10% 827
 755
Asset management and administration fees10 %643 586 (9)%217 239 4 %860 825 
Trading revenue (1)
(16)% 119
 141
 (9)% 69
 76
 (13)% 188
 217
Trading revenue (1)
(1)%139 140 (36)%42 66 (12)%181 206 
Other (1)
(52)% 20
 42
 (64)% 10
 28
 (57)% 30
 70
Other (1)
42 %51 36 — 13 13 31 %64 49 
Total net revenues(2)% 1,867
 1,911
 (8)% 750
 812
 (4)% 2,617
 2,723
Total net revenues(8)%1,781 1,944 (13)%667 767 (10)%2,448 2,711 
Expenses Excluding Interest9% 1,154
 1,062
 5% 416
 397
 8% 1,570
 1,459
Expenses Excluding Interest9 %1,167 1,070 (3)%392 405 6 %1,559 1,475 
Income before taxes on income(16)% $713
 $849
 (20)% $334
 $415
 (17)% $1,047
 $1,264
Income before taxes on income(30)%$614 $874 (24)%$275 $362 (28)%$889 $1,236 
                 
Net New Client Assets (in billions)21% $35.3
 $29.2
 68% $37.9
 $22.5
 42% $73.2
 $51.7
Net New Client Assets (in billions) (2)
Net New Client Assets (in billions) (2)
(26)%$18.9 $25.4 4 %$32.3 $31.2 (10)%$51.2 $56.6 
Investor ServicesAdvisor ServicesTotal
Nine Months Ended September 30,Percent Change20202019Percent Change20202019Percent Change20202019
Net Revenues
Net interest revenue(14)%$3,028 $3,531 (8)%$1,276 $1,390 (13)%$4,304 $4,921 
Asset management and administration fees9 %1,826 1,679 (4)%662 687 5 %2,488 2,366 
Trading revenue (1)
(6)%396 421 (21)%166 209 (11)%562 630 
Other (1)
6 %122 115 (53)%39 83 (19)%161 198 
Total net revenues(7)%5,372 5,746 (10)%2,143 2,369 (7)%7,515 8,115 
Expenses Excluding Interest9 %3,489 3,189 1 %1,202 1,190 7 %4,691 4,379 
Income before taxes on income(26)%$1,883 $2,557 (20)%$941 $1,179 (24)%$2,824 $3,736 
Net New Client Assets (in billions) (2)
131 %$167.2 $72.5 30 %$94.6 $73.0 80 %$261.8 $145.5 
(1) InBeginning in the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.
(2) In the third quarter and first nine months of 2020, Advisor Services includes an inflow of $8.5 billion related to the acquisition of Wasmer, Schroeder & Company, LLC. Also in the first nine months of 2020, Investor Services includes inflows of $79.9 billion related to the acquisition of the assets of USAA-IMCO and $10.9 billion from a mutual fund clearing services client.

Investor Services

Total net revenuesdecreased by 2%8% and 7% in the third quarter and first quarternine months of 2020, respectively, compared to the same periodperiods in 2019, primarily due to decreases in net interest revenue trading revenue and othertrading revenue, partially offset by an increase in asset management and administration fees. Net interest revenue decreased primarily due to lower average investment yields, partially offset by growth in interest-earning assets. Trading revenue decreased primarily as a result of the Company’sour 2019 pricing actions, partially offset bymore than offsetting higher trading volume. The decreasevolume in other revenue was primarily driven by a gain recognized in the first quarter of 2019 from the assignment of leased office space, as well as an increase in the allowance for credit losses on bank loans in the first quarter of 2020. Asset management and administration fees increased primarily due to higher balances in advice solutions, including managed account assets from USAA, as well as increased balances in purchased money market funds, and advice solutions.partially offset by money market fund fee waivers.

Expenses excluding interest increased by 9% both in the third quarter and first quarternine months of 2020, compared to the same periodperiods in 2019, primarily due to higherincreases in compensation and benefits, professional services, depreciation and amortization, amortization of acquired intangible assets, and other expenses. Compensation and benefits increased in the first quarter or 2020 due to annual merit increases andprimarily as a result of increased headcount to support our expanding client base and acquisition and integration-related activities, as well as the Company’s March 2020 payment of $1,000 to all non-officer employees in March 2020 to help them cover costs incurred due to the COVID-19 pandemic.pandemic, partially offset by severance charges incurred in the third quarter of 2019 and a lower corporate bonus accrual in 2020. Professional services also increased driven by expenses relatedprimarily due to pending acquisitionsacquisition and overall growth in the business.integration-related activity. Depreciation and amortization increased primarily due to higher amortization of purchased and internally developed software and higher depreciation of buildings and equipment related to expansion of our campus expansion, as well as higher amortizationcampuses in 2019 and 2020. Amortization of purchased and internally developed software associated with continued investments in software and technology enhancements.acquired intangible assets increased due to our 2020 acquisitions. Other expenses increased primarily due to increased processing fees associated with higher customer trade volumesacquisition and expenses related to pending acquisitions, partially offset by lower travel and entertainment expenses.

integration-
- 17 -

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)

related costs, as well as exchange processing fees and related expenses resulting from higher customer trade volumes and market volatility, partially offset by lower travel and entertainment expenses.

Advisor Services

Total net revenuesdecreasedby 8%13% and 10% in the third quarter and first quarternine months of 2020, respectively, compared to the same periodperiods in 2019, primarily due to decreases in net interest revenue, asset management and administration fees, trading revenue, and other revenue, partially offset by an increase in asset management and administration fees.revenue. Net interest revenue decreased primarily due to lower average investment yields, partially offset by growth in interest-earning assets. Asset management and administration fees decreased primarily due to lower Mutual Fund OneSource® balances. Trading revenue decreased primarily as a result of the Company’s 2019 pricing actions, partially offset by higher trading volume. The year to date decrease in other revenue was primarily driven by a gain from the sale of a portfolio management and reporting software solution for advisors to Tamarac Inc. recognized in the second quarter of 2019, and a gain from the assignment of leased office space recognized in the first quarter of 2019 from the assignment of leased office space. Asset management and administration fees increased primarily due to increased balances in purchased money market funds.2019.

Expenses excluding interest increased by 5%remained relatively flat, decreasing 3% and increasing 1% in the third quarter and first quarternine months of 2020, respectively, compared to the same periodperiods in 2019,2019. Compensation and benefits decreased primarily due to higher compensation and benefits expense as well as higher depreciation and amortization expense. Compensation and benefits increased in the firstthird quarter of 2019 severance charges and a lower corporate bonus accrual in 2020, due to annual merit increases andpartially offset by increased headcount to support our expanding client base, as well asand the Company’s March 2020 payment of $1,000 to all non-officer employees in March 2020 to help them cover costs incurred due to the COVID-19 pandemic. Largely offsetting this decrease were increases in professional services, depreciation and amortization, and communications. The increase in professional services was driven by expenses related to our acquisitions and overall growth in the business. Depreciation and amortization expense increased primarily due to higher amortization of purchased and internally developed software, and higher depreciation of buildings and equipment related to expansion of our campus expansion, as well ascampuses. Communications expense increased due to higher amortization of internally developed software associated with continued investmentscustomer trade volumes and overall growth in softwareour business and technology enhancements.client base.


RISK MANAGEMENT

Schwab’s business activities expose us to a variety of risks, including operational, credit, market, liquidity, and compliance risks. The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational impact. For a discussion of our risk management programs, see Item 7 – Risk Management in the 2019 Form 10-K.

Net Interest Revenue Simulation

For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulations include all interest rate-sensitive assets and liabilities. Key assumptions include the projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans.

Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may reprice at different times or by different amounts, and the spread between short and long-term interest rates. Interest-earning assets primarily include investment securities, margin loans and bank loans. These assets are sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment. Because we establish the rates paid on certain brokerage client cash balances and bank deposits and the rates charged on certain margin and bank loans, and control the composition of our investment securities, we have some ability to manage our net interest spread, depending on competitive factors and market conditions.

- 18 -

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)

Net interest revenue sensitivity analysis assumes that the asset and liability structure of the consolidated balance sheet would not be changed as a result of the simulated changes in interest rates. As we actively manage the consolidated balance sheet and interest rate exposure, in all likelihood we would take steps to manage additional interest rate exposure that could result from changes in the interest rate environment. The following table shows the simulated net interest revenue change over the next 12 months beginning March 31,September 30, 2020 and December 31, 2019 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:
March 31, 2020 December 31, 2019September 30, 2020December 31, 2019
Increase of 100 basis points15.8% 4.8%Increase of 100 basis points13.9 %4.8 %
Decrease of 100 basis points(7.8)% (7.4)%Decrease of 100 basis points(4.8)%(7.4)%
The change in net interest revenue sensitivities as of March 31,September 30, 2020 reflects a significantly lower interest rate curve from the fourth quarter of 2019 due to the global economic impact from the COVID-19 pandemic. Higher short-term interest rates would

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)


positively impact net interest revenue as yields on interest earninginterest-earning assets are expected to rise faster than the cost of funding sources. A decline in interest rates could negatively impact the yield on the Company’s investment and loan portfolio to a greater degree than any offsetting reduction in interest expense from funding sources, compressing net interest margin.

In addition to measuring the effect of a gradual 100 basis point parallel increase or decrease in current interest rates, we regularly simulate the effects of larger parallel- and non-parallel shifts in interest rates on net interest revenue.

Economic Value of Equity Simulation

Management also uses economic value of equity (EVE) simulations to measure interest rate risk. EVE sensitivity measures the long-term impact of interest rate changes on the net present value of assets and liabilities. EVE is calculated by subjecting the balance sheet to hypothetical instantaneous shifts in the level of interest rates. This analysis is highly dependent upon asset and liability assumptions based on historical behaviors as well as our expectations of the economic environment. Key assumptions in our EVE calculation include projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, term structure models of interest rates, non-maturity deposit behavior, and pricing assumptions.

As a result of the low interest rate environment in the third quarter and first quarternine months of 2020, the downward assessments of our net interest revenue and EVE simulations as of March 31,September 30, 2020 reflected the assumption of non-negative investment yields.

Through our IDA agreement and bank deposit account agreements with other third-party depository institutions resulting from our acquisition of TD Ameritrade, we expect to start earning significant bank deposit account fee revenue beginning in the fourth quarter of 2020. Though accounted for and presented separately from net interest revenue, bank deposit account fee revenue will be sensitive to interest rates. Therefore, beginning in the fourth quarter of 2020, management will evaluate bank deposit account fee revenue as part of Schwab’s comprehensive management of our exposure to interest rate risk, through modeling and simulation analysis.

See Overview and Item 1 – Notes 3 and 17 for additional information on the Company’s acquisition of TD Ameritrade and the amended IDA agreement.

Expected Phase-out of LIBOR

The Company has established a firm-wide team to address the likely discontinuation of LIBOR. As part of our efforts, we have inventoriedassessed our LIBOR exposures, the largest of which are certain investment securities and loans. In purchasing new investment securities, we ensure that appropriate fall-back language is in the security’s prospectus in the event that LIBOR is unavailable or deemed unreliable.unreliable, and we have sold certain securities lacking appropriate fall-back language. We are updating loan agreements to ensure new LIBOR-based loans adequately provide for an alternative to LIBOR. Furthermore, we plan to phase-out the use of LIBOR as a reference rate in our new lending products before December 2021. Consistent with our “Through Clients’ Eyes” strategy, our focus throughout the LIBOR transition process is to ensure clients are treated fairly and consistently as this major change is occurring in the financial markets. The market transition process has not yet progressed to a point at which the impact to the Company’s consolidated financial statements of LIBOR’s discontinuation can be estimated.

- 19 -

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)

Liquidity Risk

Funding Sources

Schwab’s primary source of funds is cash generated by client activity which includes bank deposits and cash balances in client brokerage accounts. These funds are used to purchase investment securities and extend loans to clients.

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, repurchase agreements, and cash provided by external financing.
To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments. For unanticipated liquidity needs, we also maintain a buffer of highly liquid investments, including U.S. Treasury securities.


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)


In addition to internal sources of liquidity, Schwab has access to external funding. The following table describes external debt facilities available at March 31,September 30, 2020:
DescriptionBorrower Outstanding Available
Federal Home Loan Bank secured credit facility (1)
Banking subsidiaries $—
 $43,602
Federal Reserve discount window (2)
Banking subsidiaries —
 8,169
Uncommitted, unsecured lines of credit with various external banksCSC, CS&Co —
 1,642
Unsecured commercial paper (3)
CSC —
 750
Committed, unsecured credit facility with various external banksCSC —
 750
DescriptionBorrowerOutstandingAvailable
Federal Home Loan Bank secured credit facility (1)
Banking subsidiaries$— $45,461 
Federal Reserve discount window (2)
Banking subsidiaries— 7,552 
Uncommitted, unsecured lines of credit with various external banksCSC, CS&Co— 1,522 
Unsecured commercial paperCSC— 750 
Committed, unsecured credit facility with various external banksCSC— 700 
(1) Amounts available are dependent on the amount of first lien residential real estate mortgage loans (First Mortgages), home equity lines of credit (HELOCs), and the fair value of certain investment securities that are pledged as collateral.
(2) Amounts available are dependent on the fair value of certain investment securities that are pledged as collateral.
(3)
 CSC has authorization from its Board of Directors to issue Commercial Paper Notes to not exceed $1.5 billion. Management has set a current limit not to exceed the amount of the committed, unsecured credit facility.

CSC’s ratings for Commercial Paper Notes are P1 by Moody’s Investor Service (Moody’s), A1 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at March 31,September 30, 2020 and December 31, 2019.
CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities.

Liquidity Coverage Ratio

Pursuant to the 2019 interagency regulatory capital and liquidity rules, beginning in the first quarter of 2020, Schwab became subject to a reduced LCR rule requiring the Company to hold high quality liquid assets (HQLA) in an amount equal to at least 85% of the Company’s projected net cash outflows over a prospective 30-calendar-day period of acute liquidity stress, calculated on each business day. See Part I – Item 1 – Regulation in the 2019 Form 10-K for additional information. The Company was in compliance with the reduced LCR rule at March 31,September 30, 2020. The table below presents information about our average daily LCR:
 Average for the
Three Months Ended
March 31, 2020
 
Total eligible high quality liquid assets$49,234
Net cash outflows$43,212
LCR114%

Borrowings
Average for the
Three Months Ended
September 30, 2020
Total eligible high quality liquid assets$70,021 
Net cash outflows$64,595 
LCR108 %
The following are details of the Senior Notes:
March 31, 2020Par
Outstanding		 MaturityWeighted Average
Interest Rate		Moody’sStandard
& Poor’s		Fitch
Senior Notes$8,581
 2020 - 20303.46%A2AA

New Debt Issuances

The new debt issuances in 2020 were senior unsecured obligations with interest payable semi-annually. Additional details are as follows:
- 20 -
Issuance DateIssuance AmountMaturity DateInterest Rate
3/24/2020$600
3/24/20254.200%
3/24/2020$500
3/22/20304.625%


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)


Borrowings
Acquisition
The following are details of USAA-IMCOthe Senior Notes:

September 30, 2020Par
Outstanding		MaturityWeighted Average
Interest Rate		Moody’sStandard
& Poor’s		Fitch
CSC Senior Notes$7,881 2021 - 20303.27%A2AA
We expect
2020 Debt Issuances

Schwab’s debt issuances in 2020 were senior unsecured obligations with interest payable semi-annually. Additional details are as follows:
Issuance DateIssuance AmountMaturity DateInterest Rate
03/24/20$600 03/24/254.200 %
03/24/20$500 03/22/304.625 %

2020 Equity Issuances

CSC’s preferred stock issued and net proceeds for the nine months ended September 30, 2020 are as follows:
Date Issued and SoldNet Proceeds
Series GApril 30, 2020$2,470 

For further discussion of CSC’s debt and equity, see Item 1 – Notes 9 and 13.

TD Ameritrade Acquisition

Subsequent to utilize cash generated from operations to fundSeptember 30, 2020, the $1.8Company completed its acquisition of TD Ameritrade, effective October 6, 2020. TDA Holding has $3.6 billion purchase of assets from USAA-IMCO. The transaction is expected to closepar value unsecured Senior Notes (TDA Senior Notes) outstanding, which were recognized at the date of acquisition at provisional fair value with no change in mid-2020, subject to satisfactionexisting terms. For additional information on our acquisition of closing conditions, including regulatory approvalsTD Ameritrade and the implementationterms of conversion plans.the TDA Senior Notes, see Item 1 – Notes 3 and 9.


TD Ameritrade Lines of Credit and Revolving Credit Facilities

TDAC utilizes secured uncommitted lines of credit for short-term liquidity, under which TDAC borrows on either a demand or short-term basis and pledges client margin securities as collateral. There were no borrowings outstanding under the secured uncommitted lines of credit as of the effective time of the acquisition on October 6, 2020.

TDAC has access to two senior unsecured committed revolving credit facilities with an aggregate principal amount of $1.45 billion, consisting of an $850 million senior revolving credit facility and a $600 million senior revolving credit facility, maturing on April 20, 2021 and April 21, 2022, respectively. There were no borrowings outstanding under the TDAC senior revolving facilities as of the effective time of the acquisition on October 6, 2020.

TDA Holding has access to a senior unsecured committed revolving credit facility in the aggregate principal amount of $300 million. The maturity date of the TDA Holding revolving credit facility is April 21, 2022. As of October 6, 2020, Schwab entered into a guaranty supplement to guarantee the obligations of TD Ameritrade under this credit agreement. The provision of the guaranty supplement by Schwab was a condition for certain financial covenant and reporting obligations being modified in the credit agreement. There were no borrowings outstanding under the TDA Holding revolving credit facility as of the effective time of the acquisition on October 6, 2020.


- 21 -

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)

CAPITAL MANAGEMENT

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including anticipated balance sheet growth, providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries. Schwab’s primary sources of capital are funds generated by the operations of subsidiaries and securities issuances by CSC in the capital markets. To ensure that Schwab has sufficient capital to absorb unanticipated losses or declines in asset values, we have adopted a policy to remain well capitalized even in stressed scenarios. In addition, our near-term capital management incorporates preparations for closing the USAA-IMCO transaction, including the allocation of capital to support client cash that will be added to our balance sheet.

As a result of the significant inflow of client cash in the first quarternine months of 2020, our consolidated Tier 1 Leverage Ratio declined from 7.3% at year-end 2019 to 6.9%5.7% at March 31, 2020. While we continue to maintainSeptember 30, 2020, below our long-term operating objective of 6.75%-7.00%, but well above the regulatory minimum of 4.00%. The pace of our Tier 1 Leverage Ratio is likelyreturn to decline further into the buffer we maintain between our long-term operating objective over time depends on a number of factors including the overall size of the Company’s balance sheet, earnings, and our regulatory requirement. Moreover, our Tier 1 Leverage Ratio may remain below the level seen at March 31, 2020 in coming quarters before returningcapital issuance and deployment. We continue to our operating objective over time. We expect to continue managingmanage our capital position in accordance with our policy and strategy described above and in further detail in the 2019 Form 10-K.

Regulatory Capital Requirements

CSC and CSB are subject to various capital requirements set by regulatory agencies as discussed in further detail in the 2019 Form 10-K and in Item 1 – Note 14.15. As of March 31,September 30, 2020, CSC and CSB are considered well capitalized.


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)


The following table details CSC’s consolidated and CSB’s capital ratios as of March 31,September 30, 2020 and December 31, 2019:
March 31, 2020 (1)
December 31, 2019 (1)
September 30, 2020 (1)
December 31, 2019 (1)
CSC CSB CSC CSBCSCCSBCSCCSB
Total stockholders’ equity$26,270
 $18,862
 $21,745
 $14,832
Total stockholders’ equity$31,331 $21,606 $21,745 $14,832 
Less:       Less:
Preferred stock2,793
 —
 2,793
 —
Preferred stock5,263 — 2,793 — 
Common Equity Tier 1 Capital before regulatory adjustments$23,477
 $18,862
 $18,952
 $14,832
Common Equity Tier 1 Capital before regulatory adjustments$26,068 $21,606 $18,952 $14,832 
Less:       Less:
Goodwill, net of associated deferred tax liabilities$1,184
 $13
 $1,184
 $13
Goodwill, net of associated deferred tax liabilities$1,694 $13 $1,184 $13 
Other intangible assets, net of associated deferred tax liabilities97
 —
 104
 —
Other intangible assets, net of associated deferred tax liabilities1,234 — 104 — 
Deferred tax assets, net of valuation allowances and deferred tax liabilities4
 —
 4
 —
Deferred tax assets, net of valuation allowances and deferred tax liabilities16 11 4 — 
Accumulated other comprehensive income (AOCI) adjustment (1)
3,995
 3,436
 —
 —
AOCI adjustment (1)
AOCI adjustment (1)
5,686 4,934 — — 
Common Equity Tier 1 Capital$18,197
 $15,413
 $17,660
 $14,819
Common Equity Tier 1 Capital$17,438 $16,648 $17,660 $14,819 
Tier 1 Capital$20,990
 $15,413
 $20,453
 $14,819
Tier 1 Capital$22,701 $16,648 $20,453 $14,819 
Total Capital21,023
 15,445
 20,472
 14,837
Total Capital22,735 16,680 20,472 14,837 
Risk-Weighted Assets99,039
 78,082
 90,512
 71,521
Risk-Weighted Assets109,364 87,019 90,512 71,521 
Total Leverage Exposure310,299
 228,916
 286,813
 216,582
Total Leverage Exposure408,295 302,520 286,813 216,582 
Common Equity Tier 1 Capital/Risk-Weighted Assets18.4% 19.7% 19.5% 20.7%Common Equity Tier 1 Capital/Risk-Weighted Assets15.9 %19.1 %19.5 %20.7 %
Tier 1 Capital/Risk-Weighted Assets21.2% 19.7% 22.6% 20.7%Tier 1 Capital/Risk-Weighted Assets20.8 %19.1 %22.6 %20.7 %
Total Capital/Risk-Weighted Assets21.2% 19.8% 22.6% 20.7%Total Capital/Risk-Weighted Assets20.8 %19.2 %22.6 %20.7 %
Tier 1 Leverage Ratio6.9% 6.9% 7.3% 7.1%Tier 1 Leverage Ratio5.7 %5.6 %7.3 %7.1 %
Supplementary Leverage Ratio6.8% 6.7% 7.1% 6.8%Supplementary Leverage Ratio5.6 %5.5 %7.1 %6.8 %
(1) In the interagency regulatory capital and liquidity rules adopted in October 2019, Category III banking organizations such as CSC were given the ability to opt-out of the inclusion of AOCI in regulatory capital, and CSC made this opt-out election as of January 1, 2020. Therefore, AOCI is excluded from the amounts and ratios presented as of March 31,September 30, 2020. In 2019, CSC and CSB were required to include all components of AOCI in regulatory capital; the amounts and ratios for December 31, 2019 are presented on this basis.

CSB is also subject to regulatory requirements that restrict and govern the terms of affiliate transactions. In addition, CSB is required to provide notice to, and may be required to obtain approval from, the Federal Reserve to declare dividends to CSC.

As a broker-dealer, CS&Co is subject to regulatory requirements of the Uniform Net Capital Rule. At March 31,September 30, 2020, CS&Co was in compliance with its net capital requirements.
- 22 -

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)

In addition to the capital requirements above, Schwab’s subsidiaries are subject to other regulatory requirements intended to ensure financial soundness and liquidity. See Item 1 – Note 1415 for additional information on the components of stockholders’ equity and information on the capital requirements of significant subsidiaries.


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)


Dividends

On January 30, 2020, the Board of Directors of the Company declared a one cent, or 6%, increase in the quarterly cash dividend to $0.18$.18 per common share.

Cash dividends paid and per share amounts for the first threenine months of 2020 and 2019 are as follows:
20202019
 2020 2019
Three Months Ended March 31, Cash Paid Per Share
Amount		 Cash Paid Per Share
Amount
Nine Months Ended September 30,Nine Months Ended September 30,Cash PaidPer Share
Amount		Cash PaidPer Share
Amount
Common Stock $233
 $0.18
 $228
 $0.17
Common Stock$700 $.54 $679 $.51 
Series A Preferred Stock (1)
 14
 35.00
 14
 35.00
Series A Preferred Stock (1)
28 70.00 28 70.00 
Series C Preferred Stock (2)
 9
 15.00
 9
 15.00
Series C Preferred Stock (2)
27 45.00 27 45.00 
Series D Preferred Stock (2)
 11
 14.88
 11
 14.88
Series D Preferred Stock (2)
33 44.64 33 44.64 
Series E Preferred Stock (3)
 14
 2,312.50
 14
 2,312.50
Series E Preferred Stock (3)
28 4,625.00 28 4,625.00 
Series F Preferred Stock (4)
 —
 —
 —
 —
Series F Preferred Stock (4)
13 2,500.00 13 2,500.00 
Series G Preferred Stock (5)
Series G Preferred Stock (5)
45 1,806.60 N/AN/A
(1) Dividends paid semi-annually until February 1, 2022 and quarterly thereafter.
(2) Dividends paid quarterly.
(3) Dividends paid semi-annually until March 1, 2022 and quarterly thereafter.
(4) Dividends paid semi-annually beginning on June 1, 2018 until December 1, 2027, and quarterly thereafter.

(5) Series G Preferred Stock was issued on April 30, 2020. Dividends are paid quarterly, and the first dividend was paid on September 1, 2020.
N/A Not applicable.

Share Repurchases

On January 30, 2019, CSC publicly announced that its Board of Directors authorized the repurchase of up to $4.0 billion of common stock. The authorization does not have an expiration date. There were no repurchases of CSC’s common stock under this authorization during the third quarter and first quarternine months of 2020. As of September 30, 2020, leaving $1.8 billion remainingremained on our existing authorization as of March 31, 2020.authorization.

OTHER

Foreign Exposure
At March 31,September 30, 2020, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At March 31,September 30, 2020, the fair value of these holdings totaled $8.5$10.1 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.6$6.1 billion, the NetherlandsGermany at $834$950 million, and SwedenCanada at $675$794 million. In addition, Schwab had outstanding margin loans to foreign residents of $909 million$1.1 billion at March 31,September 30, 2020.

Off-Balance Sheet Arrangements
Schwab enters into various off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of our clients. These arrangements include firm commitments to extend credit. Additionally, Schwab enters into guarantees and other similar arrangements in the ordinary course of business. For information on each of these arrangements, see Item 1 – Note 5, NoteNotes 6, Note 8, Note7, 9, 10, and Note 10,11, and Item 8 – Note 14 in the 2019 Form 10-K.


Subsequent to September 30, 2020, and concurrent with the closing of the acquisition of TD Ameritrade effective October 6, 2020, the Company entered into an IDA agreement with the TD Bank Depository Institutions. Pursuant to the IDA agreement, certain TD Ameritrade, Inc. and TDAC brokerage customer deposits are required to be swept to the TD Bank Depository
- 23 -

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)

Institutions. TD Ameritrade also maintains agreements pursuant to which client brokerage cash deposits are swept to other third-party depository institutions. See Item 1 – Note 17 for additional information on the IDA agreement.

Contractual Obligations

TD Ameritrade’s contractual obligations as of October 6, 2020, the effective date of the acquisition, are primarily comprised of principal and interest on long-term debt. As of the date of acquisition, TDA Holding’s long-term debt had a par value of $3.6 billion. The table below summarizes the estimated future interest and principal payments of TDA Holding’s long-term debt as of October 6, 2020.

October 6, 2020Less than
1 Year		1-3
Years		3-5
Years		More than
5 Years		Total
Long-term debt (1)
$99 $1,509 $1,015 $1,395 $4,018 
(1) Includes principal and estimated future interest payments through 2029 for the TDA Senior Notes. Interest payments are estimated based on the contractual terms of the TDA Senior Notes. Amounts exclude the fair value adjustment resulting from purchase accounting.

Other contractual obligations of TD Ameritrade include leases and purchase obligations entered into in the ordinary course of business for goods and services such as professional services, software, employee compensation and benefits, telecommunications, market information, and advertising and marketing.


CRITICAL ACCOUNTING ESTIMATES

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2019 Form 10-K. There have been no changes to critical accounting estimates during the first threenine months of 2020.





- 24 -

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)

NON-GAAP FINANCIAL MEASURES

In addition to disclosing financial results in accordance with GAAP, Management’s Discussion and Analysis of Financial Condition and Results of Operations contain references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide useful supplemental information about the financial performance of the Company, and facilitate meaningful comparison of Schwab’s results in the current period to both historic and future results. These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may not be comparable to non-GAAP financial measures presented by other companies.

Schwab’s use of non-GAAP measures is reflective of certain adjustments made to GAAP financial measures as described below.
Non-GAAP Adjustment or MeasureDefinitionUsefulness to Management and Investors
Acquisition and integration-related costs and amortization of acquired intangible assetsSchwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, and, where applicable, the income tax effect of these expenses.

Adjustments made to exclude amortization of acquired intangible assets are reflective of all acquired intangible assets, which were recorded as part of purchase accounting. These acquired intangible assets contribute to the Company’s revenue generation. Amortization of acquired intangible assets will continue in future periods over their remaining useful lives.		We exclude acquisition and integration-related costs and amortization of acquired intangible assets for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and may be useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods.

Acquisition and integration-related costs fluctuate based on the timing of acquisitions and integration activities, thereby limiting comparability of results among periods, and are not representative of the costs of running the Company’s ongoing business. Amortization of acquired intangible assets is excluded because management does not believe it is indicative of the Company’s underlying operating performance.
Return on tangible common equityReturn on tangible common equity represents annualized adjusted net income available to common stockholders as a percentage of average tangible common equity. Tangible common equity represents common equity less goodwill, acquired intangible assets – net, and related deferred tax liabilities.Acquisitions typically result in the recognition of significant amounts of goodwill and acquired intangible assets. We believe return on tangible common equity may be useful to investors as a supplemental measure to facilitate assessing capital efficiency and returns relative to the composition of Schwab’s balance sheet.

The following tables present reconciliations of GAAP measures to non-GAAP measures:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Total expenses excluding interest (GAAP)$1,559 $1,475 $4,691 $4,379 
Acquisition and integration-related costs (1)
(42)(4)(160)(8)
Amortization of acquired intangible assets(25)(6)(43)(20)
Adjusted total expenses (non-GAAP)$1,492 $1,465 $4,488 $4,351 
(1) Acquisition and integration-related costs are primarily included in professional services, compensation and benefits, and other expense.
- 25 -

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)

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
AmountDiluted EPSAmountDiluted EPSAmountDiluted EPSAmountDiluted EPS
Net income available to common stockholders (GAAP),
Earnings per common share — diluted (GAAP)		$615 $.48 $913 $.70 $1,993 $1.54 $2,725 $2.05 
Acquisition and integration-related costs42 .03 4 — 160 .12 8 .01 
Amortization of acquired intangible assets25 .02 6 — 43 .03 20 .02 
Income tax effects (1)
(16)(.02)(3)— (49)(.03)(7)(.01)
Adjusted net income available to common stockholders
(non-GAAP), Adjusted diluted EPS (non-GAAP)		$666 $.51 $920 $.70 $2,147 $1.66 $2,746 $2.07 
(1) The income tax effects of the non-GAAP adjustments are determined using an effective tax rate reflecting the exclusion of non-deductible acquisition costs and are used to present the acquisition and integration-related costs and amortization of acquired intangible assets on an after-tax basis.

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Return on average common stockholders' equity (GAAP)10 %20 %12 %20 %
Average common stockholders' equity$25,810 $18,544 $22,511 $18,219 
Less: Average goodwill(1,735)(1,227)(1,482)(1,227)
Less: Average acquired intangible assets — net(1,268)(137)(693)(143)
Plus: Average deferred tax liabilities related to goodwill and acquired intangible assets — net67 67 67 67 
Average tangible common equity$22,874 $17,247 $20,403 $16,916 
Adjusted net income available to common stockholders (1)
$666 $920 $2,147 $2,746 
Return on tangible common equity (non-GAAP)12 %21 %14 %22 %
(1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).


- 26 -

THE CHARLES SCHWAB CORPORATION


Item 3. Quantitative and Qualitative Disclosures About Market Risk

For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2.

- 27 -

Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Income
(In Millions, Except Per Share Amounts)
(Unaudited)

 Three Months Ended March 31,
 2020 2019
Net Revenues   
Interest revenue$1,708
 $1,998
Interest expense(136) (317)
Net interest revenue1,572
 1,681
Asset management and administration fees827
 755
Trading revenue (1)
188
 217
Other (1)
30
 70
Total net revenues2,617
 2,723
Expenses Excluding Interest   
Compensation and benefits897
 850
Professional services182
 170
Occupancy and equipment142
 131
Advertising and market development67
 69
Communications75
 62
Depreciation and amortization96
 83
Regulatory fees and assessments34
 32
Other77
 62
Total expenses excluding interest1,570
 1,459
Income before taxes on income1,047
 1,264
Taxes on income252
 300
Net Income795
 964
Preferred stock dividends and other (2)
38
 39
Net Income Available to Common Stockholders$757
 $925
Weighted-Average Common Shares Outstanding:   
Basic1,287
 1,333
Diluted (3)
1,294
 1,344
Earnings Per Common Shares Outstanding:   
Basic$.59
 $.69
Diluted (3)
$.58
 $.69

Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Net Revenues
Interest revenue$1,432 $1,892 $4,626 $5,817 
Interest expense(89)(261)(322)(896)
Net interest revenue1,343 1,631 4,304 4,921 
Asset management and administration fees860 825 2,488 2,366 
Trading revenue (1)
181 206 562 630 
Other (1)
64 49 161 198 
Total net revenues2,448 2,711 7,515 8,115 
Expenses Excluding Interest
Compensation and benefits840 857 2,556 2,514 
Professional services194 168 574 516 
Occupancy and equipment155 144 449 408 
Advertising and market development66 71 203 217 
Communications73 63 226 187 
Depreciation and amortization (2)
97 82 284 235 
Amortization of acquired intangible assets (2)
25 6 43 20 
Regulatory fees and assessments36 30 106 92 
Other73 54 250 190 
Total expenses excluding interest1,559 1,475 4,691 4,379 
Income before taxes on income889 1,236 2,824 3,736 
Taxes on income191 285 660 884 
Net Income698 951 2,164 2,852 
Preferred stock dividends and other (3)
83 38 171 127 
Net Income Available to Common Stockholders$615 $913 $1,993 $2,725 
Weighted-Average Common Shares Outstanding:
Basic1,289 1,300 1,288 1,320 
Diluted (4)
1,294 1,308 1,294 1,329 
Earnings Per Common Shares Outstanding:
Basic$.48 $.70 $1.55 $2.06 
Diluted (4)
$.48 $.70 $1.54 $2.05 
(1) InBeginning in the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.
(2) Beginning in the third quarter of 2020, amortization of acquired intangible assets was reclassified from depreciation and amortization. Prior periods have been reclassified to reflect this change.
(3) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
(3)(4) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 19 million and 1617 million shares for the third quarters of 2020 and 2019, respectively, and 20 million and 18 million shares for the first quartersnine months of 2020 and 2019, respectively.

See Notes to Condensed Consolidated Financial Statements.


- 28 -

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In Millions)
(Unaudited)


Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Net income$698 $951 $2,164 $2,852 
Other comprehensive income (loss), before tax:  
Change in net unrealized gain (loss) on available for sale securities:  
Net unrealized gain (loss)97 51 7,361 496 
Other reclassifications included in other revenue(3)(1)(3)(5)
Amortization of amounts previously recorded upon transfer to held to maturity
from available for sale		0 10 0 30 
Other0 0 1 0 
Other comprehensive income (loss), before tax94 60 7,359 521 
Income tax effect(19)(15)(1,761)(125)
Other comprehensive income (loss), net of tax75 45 5,598 396 
Comprehensive Income$773 $996 $7,762 $3,248 
 Three Months Ended
March 31,
 2020 2019
Net income$795
 $964
Other comprehensive income (loss), before tax: 
  
Change in net unrealized gain (loss) on available for sale securities: 
  
Net unrealized gain (loss)5,151
 227
Other reclassifications included in other revenue—
 (1)
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale—
 12
Other comprehensive income (loss), before tax5,151
 238
Income tax effect(1,244) (57)
Other comprehensive income (loss), net of tax3,907
 181
Comprehensive Income$4,702
 $1,145

See Notes to Condensed Consolidated Financial Statements.


- 29 -

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Balance Sheets
(In Millions, Except Per Share and Share Amounts)
(Unaudited)


September 30, 2020December 31, 2019
Assets  
Cash and cash equivalents$27,465 $29,345 
Cash and investments segregated and on deposit for regulatory purposes (including resale
   agreements of $13,711 at September 30, 2020 and $9,028 at December 31, 2019)
29,579 20,483 
Receivables from brokerage clients — net25,441 21,767 
Available for sale securities (amortized cost of $296,199 at September 30, 2020 and
  $61,155 at December 31, 2019)
303,758 61,422 
Held to maturity securities0 134,706 
Bank loans — net22,286 18,212 
Equipment, office facilities, and property — net2,346 2,128 
Goodwill1,737 1,227 
Acquired intangible assets — net (1)
1,258 128 
Other assets (1)
5,485 4,587 
Total assets$419,355 $294,005 
Liabilities and Stockholders’ Equity  
Bank deposits$320,717 $220,094 
Payables to brokerage clients52,006 39,220 
Accrued expenses and other liabilities7,465 5,516 
Long-term debt7,836 7,430 
Total liabilities388,024 272,260 
Stockholders’ equity:  
Preferred stock — $.01 par value per share; aggregate liquidation preference of $5,350
  and $2,850 at September 30, 2020 and December 31, 2019, respectively
5,263 2,793 
Common stock — 3 billion shares authorized; $.01 par value per share; 1,487,543,446
  shares issued
15 15 
Additional paid-in capital4,797 4,656 
Retained earnings21,261 19,960 
Treasury stock, at cost — 198,123,876 shares at September 30, 2020 and 201,818,100
  shares at December 31, 2019
(5,691)(5,767)
Accumulated other comprehensive income (loss)5,686 88 
Total stockholders’ equity31,331 21,745 
Total liabilities and stockholders’ equity$419,355 $294,005 
(1) Beginning in the second quarter of 2020, acquired intangible assets — net was reclassified from other assets. Prior periods have been reclassified to reflect this change.
 March 31, 2020 December 31, 2019
Assets   
Cash and cash equivalents$68,458
 $29,345
Cash and investments segregated and on deposit for regulatory purposes (including resale
agreements of $17,044 at March 31, 2020 and $9,028 at December 31, 2019)		34,309
 20,483
Receivables from brokerage clients — net19,001
 21,767
Available for sale securities (amortized cost of $215,873 and $61,155 at March 31, 2020
and December 31, 2019, respectively)		221,232
 61,422
Held to maturity securities—
 134,706
Bank loans — net19,521
 18,212
Equipment, office facilities, and property — net2,291
 2,128
Goodwill1,227
 1,227
Other assets4,740
 4,715
Total assets$370,779
 $294,005
Liabilities and Stockholders’ Equity   
Bank deposits$277,477
 $220,094
Payables to brokerage clients49,251
 39,220
Accrued expenses and other liabilities9,259
 5,516
Long-term debt8,522
 7,430
Total liabilities344,509
 272,260
Stockholders’ equity:   
Preferred stock — $.01 par value per share; aggregate liquidation preference of $2,8502,793
 2,793
Common stock — 3 billion shares authorized; $.01 par value per share; 1,487,543,446
shares issued		15
 15
Additional paid-in capital4,714
 4,656
Retained earnings20,487
 19,960
Treasury stock, at cost — 200,222,755 shares at March 31, 2020 and 201,818,100
shares at December 31, 2019		(5,734) (5,767)
Accumulated other comprehensive income (loss)3,995
 88
Total stockholders’ equity26,270
 21,745
Total liabilities and stockholders’ equity$370,779
 $294,005

See Notes to Condensed Consolidated Financial Statements.


- 30 -

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity
(In Millions)
(Unaudited)

Accumulated Other Comprehensive Income (Loss)
Preferred StockCommon StockAdditional Paid-in CapitalRetained EarningsTreasury Stock,
at cost		Total
SharesAmount
Balance at June 30, 2019$2,793 1,488 $15 $4,599 $18,680 $(4,866)$99 $21,320 
Net income— — — — 951 — — 951 
Other comprehensive income (loss), net of tax— — — — — — 45 45 
Dividends declared on preferred stock— — — — (34)— — (34)
Dividends declared on common stock — $.17 per share— — — — (223)— — (223)
Repurchase of common stock— — — — — (771)— (771)
Stock option exercises and other— — — (2)— 19 — 17 
Share-based compensation— — — 33 — — — 33 
Other— — — 10 0 6 — 16 
Balance at September 30, 2019$2,793 1,488 $15 $4,640 $19,374 $(5,612)$144 $21,354 
Balance at June 30, 2020$5,263 1,488 $15 $4,760 $20,876 $(5,710)$5,611 $30,815 
Net income— — — — 698 — — 698 
Other comprehensive income (loss), net of tax— — — — — — 75 75 
Dividends declared on preferred stock— — — — (79)— — (79)
Dividends declared on common stock — $0.18 per share— — — — (234)— — (234)
Stock option exercises and other— — — (3)— 9 — 6 
Share-based compensation— — — 32 — — — 32 
Other— — — 8 0 10 — 18 
Balance at September 30, 2020$5,263 1,488 $15 $4,797 $21,261 $(5,691)$5,686 $31,331 
Accumulated Other Comprehensive Income (Loss)
Preferred StockCommon StockAdditional Paid-in CapitalRetained EarningsTreasury Stock,
at cost		Total
SharesAmount
Balance at December 31, 2018$2,793 1,488 $15 $4,499 $17,329 $(3,714)$(252)$20,670 
Net income— — — — 2,852 — — 2,852 
Other comprehensive income (loss), net of tax— — — — — — 396 396 
Dividends declared on preferred stock— — — — (115)— — (115)
Dividends declared on common stock — $.51 per share— — — — (679)— — (679)
Repurchase of common stock— — — — — (1,991)— (1,991)
Stock option exercises and other— — — (15)— 80 — 65 
Share-based compensation— — — 121 — — — 121 
Other— — — 35 (13)13 — 35 
Balance at September 30, 2019$2,793 1,488 $15 $4,640 $19,374 $(5,612)$144 $21,354 
Balance at December 31, 2019$2,793 1,488 $15 $4,656 $19,960 $(5,767)$88 $21,745 
Net income— — — — 2,164 — — 2,164 
Other comprehensive income (loss), net of tax— — — — — — 5,598 5,598 
Issuance of preferred stock, net2,470 — — — — — — 2,470 
Dividends declared on preferred stock— — — — (160)— — (160)
Dividends declared on common stock — $.54 per share— — — — (700)— — (700)
Stock option exercises and other— — — (13)— 48 — 35 
Share-based compensation— — — 123 — — — 123 
Other— — — 31 (3)28 — 56 
Balance at September 30, 2020$5,263 1,488 $15 $4,797 $21,261 $(5,691)$5,686 $31,331 
See Notes to Consolidated Financial Statements.

- 31 -
             Accumulated Other Comprehensive Income (Loss)  
 Preferred Stock Common stock Additional Paid-in Capital Retained Earnings Treasury Stock,
at cost		  Total
  Shares Amount     
Balance at December 31, 2018$2,793
 1,488
 $15
 $4,499
 $17,329
 $(3,714) $(252) $20,670
Net income—
 —
 —
 —
 964
 —
 —
 964
Other comprehensive income (loss), net of tax—
 —
 —
 —
 —
 —
 181
 181
Dividends declared on preferred stock—
 —
 —
 —
 (34) —
 —
 (34)
Dividends declared on common stock — $.17 per share—
 —
 —
 —
 (228) —
 —
 (228)
Stock option exercises and other—
 —
 —
 (14) —
 40
 —
 26
Share-based compensation—
 —
 —
 53
 —
 —
 —
 53
Other—
 —
 —
 10
 (14) (3) —
 (7)
Balance at March 31, 2019$2,793
 1,488
 $15
 $4,548
 $18,017
 $(3,677) $(71) $21,625
                
Balance at December 31, 2019$2,793
 1,488
 $15
 $4,656
 $19,960
 $(5,767) $88
 $21,745
Net income—
 —
 —
 —
 795
 —
 —
 795
Other comprehensive income (loss), net of tax—
 —
 —
 —
 —
 —
 3,907
 3,907
Dividends declared on preferred stock—
 —
 —
 —
 (34) —
 —
 (34)
Dividends declared on common stock — $.18 per share—
 —
 —
 —
 (233) —
 —
 (233)
Stock option exercises and other—
 —
 —
 (8) —
 31
 —
 23
Share-based compensation—
 —
 —
 56
 —
 —
 —
 56
Other—
 —
 —
 10
 (1) 2
 —
 11
Balance at March 31, 2020$2,793
 1,488
 $15
 $4,714
 $20,487
 $(5,734) $3,995
 $26,270

See Notes to Condensed Consolidated Financial Statements.


THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows
(in Millions)
(Unaudited)


 Three Months Ended
March 31,
 2020 2019
Cash Flows from Operating Activities 
  
Net income$795
 $964
Adjustments to reconcile net income to net cash provided by (used for) operating activities: 
  
Share-based compensation56
 56
Depreciation and amortization96
 83
Premium amortization, net, on available for sale and held to maturity securities190
 68
Other83
 33
Net change in: 
  
Investments segregated and on deposit for regulatory purposes(3,810) (1,520)
Receivables from brokerage clients2,763
 1,121
Other assets187
 (58)
Payables to brokerage clients10,031
 (3,025)
Accrued expenses and other liabilities(273) (317)
Net cash provided by (used for) operating activities10,118
 (2,595)
Cash Flows from Investing Activities   
Purchases of available for sale securities(27,769) (1,132)
Proceeds from sales of available for sale securities69
 10,652
Principal payments on available for sale securities10,191
 6,039
Purchases of held to maturity securities—
 (1,235)
Principal payments on held to maturity securities—
 3,996
Net change in bank loans(1,327) 81
Purchases of equipment, office facilities, and property(156) (139)
Purchases of Federal Home Loan Bank stock—
 (2)
Purchases of Federal Reserve stock(182) —
Other investing activities(22) 25
Net cash provided by (used for) investing activities(19,196) 18,285
Cash Flows from Financing Activities   
Net change in bank deposits57,383
 (11,969)
Issuance of long-term debt1,089
 —
Dividends paid(281) (276)
Proceeds from stock options exercised23
 26
Other financing activities(6) (10)
Net cash provided by (used for) financing activities58,208
 (12,229)
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted49,130
 3,461
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Period45,577
 38,227
Cash and Cash Equivalents, including Amounts Restricted at End of Period$94,707
 $41,688

Nine Months Ended
September 30,
20202019
Cash Flows from Operating Activities  
Net income$2,164 $2,852 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:  
Share-based compensation124 131 
Depreciation and amortization284 235 
Amortization of acquired intangible assets43 20 
Premium amortization, net, on available for sale and held to maturity securities1,012 282 
Other250 127 
Net change in:  
Investments segregated and on deposit for regulatory purposes(14,431)(858)
Receivables from brokerage clients(3,609)576 
Other assets(556)(742)
Payables to brokerage clients8,314 2,896 
Accrued expenses and other liabilities0 (498)
Net cash provided by (used for) operating activities(6,405)5,021 
Cash Flows from Investing Activities  
Purchases of available for sale securities(146,865)(20,744)
Proceeds from sales of available for sale securities2,895 21,710 
Principal payments on available for sale securities42,681 18,374 
Purchases of held to maturity securities0 (18,861)
Principal payments on held to maturity securities0 13,653 
Net change in bank loans(4,103)(338)
Cash acquired in acquisition, net of cash paid2,756 0 
Purchases of equipment, office facilities, and property(465)(515)
Purchases of Federal Home Loan Bank stock(12)(2)
Purchases of Federal Reserve stock(190)0 
Other investing activities(142)(18)
Net cash provided by (used for) investing activities(103,445)13,259 
Cash Flows from Financing Activities  
Net change in bank deposits100,623 (22,096)
Issuance of long-term debt1,089 593 
Repayment of long-term debt(700)0 
Net proceeds from preferred stock offerings2,470 0 
Dividends paid(874)(808)
Proceeds from stock options exercised35 65 
Repurchases of common stock0 (1,964)
Other financing activities(8)(13)
Net cash provided by (used for) financing activities102,635 (24,223)
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted(7,215)(5,943)
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Period45,577 38,227 
Cash and Cash Equivalents, including Amounts Restricted at End of Period$38,362 $32,284 

Continued on following page.


- 32 -


THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows
(in Millions)
(Unaudited)


Continued from previous page.
Three Months Ended
March 31,		Nine Months Ended
September 30,
2020 201920202019
Supplemental Cash Flow Information   Supplemental Cash Flow Information  
Non-cash investing activity:   Non-cash investing activity:
Securities transferred from held to maturity to available for sale, at fair value$136,099
 $8,771
Securities transferred from held to maturity to available for sale, at fair value$136,099 $8,771 
Securities purchased during the period but settled after period end$2,634
 $—
Additions of equipment, office facilities, and property$94
 $42
Additions of equipment, office facilities, and property$76 $29 
Non-cash financing activity:   Non-cash financing activity:
Extinguishment of finance lease obligation through an assignment agreement$—
 $52
Extinguishment of finance lease obligation through an assignment agreement$0 $52 
Common stock repurchased during the period but settled after period endCommon stock repurchased during the period but settled after period end$0 $27 
Other Supplemental Cash Flow Information   Other Supplemental Cash Flow Information
Cash paid during the period for:   Cash paid during the period for:  
Interest$169
 $336
Interest$361 $922 
Income taxes$20
 $23
Income taxes$609 $907 
Amounts included in the measurement of lease liabilities$37
 $32
Amounts included in the measurement of lease liabilities$113 $99 
Leased assets obtained in exchange for new operating lease liabilities$64
 $28
Leased assets obtained in exchange for new operating lease liabilities$152 $87 
   
March 31, 2020 March 31, 2019September 30, 2020September 30, 2019
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (1)
   
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (1)
Cash and cash equivalents$68,458
 $32,558
Cash and cash equivalents$27,465 $20,252 
Restricted cash and cash equivalents amounts included in cash and investments segregated
and on deposit for regulatory purposes		26,249
 9,130
Restricted cash and cash equivalents amounts included in cash and investments segregated
and on deposit for regulatory purposes		10,897 12,032 
Total cash and cash equivalents, including amounts restricted shown in the
statement of cash flows		$94,707
 $41,688
Total cash and cash equivalents, including amounts restricted shown in the
statement of cash flows		$38,362 $32,284 
(1) For more information on the nature of restrictions on restricted cash and cash equivalents, see Note 14.15.

See Notes to Condensed Consolidated Financial Statements.

- 33 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)


1.    Introduction and Basis of Presentation
The Charles Schwab Corporation (CSC) is a savings and loan holding company and engages, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.


Principal business subsidiaries of CSC include the following:

•
Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
•
Charles Schwab Bank, SSB (CSB), our principal banking entity; and
•
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries. subsidiaries as of September 30, 2020.

Principal business subsidiaries of CSC include the following:

•Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
•Charles Schwab Bank, SSB (CSB), our principal banking entity; and
•Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

Subsequent to September 30, 2020, the Company completed its previously announced acquisition of TD Ameritrade Holding Corporation and its consolidated subsidiaries (collectively referred to as “TD Ameritrade” or “TDA”), effective October 6, 2020. Upon completion of the acquisition, TD Ameritrade Holding Corporation (TDA Holding) became a wholly-owned subsidiary of CSC and the below became principal business subsidiaries of CSC:

•TD Ameritrade, Inc., an introducing securities broker-dealer; and
•TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services on a fully-disclosed basis to TD Ameritrade, Inc.

Unless otherwise noted, these condensed consolidated financial statements exclude the results of operations and financial condition of TD Ameritrade. See Notes 3 and 17 for additional information on our acquisition of TD Ameritrade.

These unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the U.S. (GAAP),GAAP, which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements and in the related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. While management makes its best judgment, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in Schwab’s 2019 Form 10-K.
Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation. Beginning in the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue in the condensed consolidated statements of income. Beginning in the second quarter of 2020, acquired intangible assets – net was reclassified from other assets and presented separately in the condensed consolidated balance sheets. Beginning in the third quarter of 2020, amortization of acquired intangible assets was reclassified from depreciation and amortization and presented separately in the condensed consolidated statements of income. Prior period amounts have been reclassified to reflect this change.these changes.
The significant accounting policies are included in Note 2 in the 2019 Form 10-K. There have been no significant changes to these accounting policies during the first threenine months of 2020, except as described in Note 2 below.


2.    Summary of Significant Accounting Policies

Cash and investments segregated and on deposit for regulatory purposes

Pursuant to Rule 15c3-3 of the Securities Exchange Act of 1934 and other applicable regulations, Schwab maintains cash or qualified securities in segregated reserve accounts for the exclusive benefit of clients. Cash and investments segregated and on deposit for regulatory purposes include resale agreements, which are collateralized by U.S. Government and agency securities.
- 34 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Resale agreements are accounted for as collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The Company obtains collateral with a market value equal to or in excess of the principal amount loaned and accrued interest under resale agreements. Collateral is valued daily by the Company, with additional collateral obtained to ensure full collateralization. Cash and investments segregated also include certificates of deposit and U.S. Government securities. Certificates of deposit and U.S. Government securities are recorded at fair value.

Schwab applies the practical expedient based on collateral maintenance provisions under Accounting Standards Codification (ASC) 326, Financial Instruments – Credit Losses, in estimating an allowance for credit losses for resale agreements. This practical expedient can be applied for financial assets with collateral maintenance provisions requiring the borrower to continually adjust the amount of the collateral securing the financial assets as a result of fair value changes in the collateral. In accordance with the practical expedient, when the Company reasonably expects that borrowers (or counterparties, as applicable) will replenish the collateral as required, there is no expectation of credit losses when the collateral’s fair value is greater than the amortized cost of the financial asset. If the amortized cost exceeds the fair value of collateral, then credit losses are estimated only on the unsecured portion.

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Receivables from brokerage clients

Receivables from brokerage clients include margin loans to securities brokerage clients and other trading receivables from clients. Margin loans are collateralized by client securities and are carried at the amount receivable, net of an allowance for credit losses. Collateral is required to be maintained at specified minimum levels at all times. The Company monitors margin levels and requires clients to provide additional collateral, or reduce margin positions, to meet minimum collateral requirements if the fair value of the collateral changes. Schwab applies the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for margin loans. An allowance for credit losses on unsecured or partially secured receivables from brokerage clients is estimated based on the aging of those receivables. Unsecured balances due to confirmed fraud are reserved immediately. The Company’s policy is to charge off any delinquent margin loans, including the accrued interest on such loans, no later than at 90 days past due. Accrued interest charged off is recognized as credit loss expense and is included in other expenses in the condensed consolidated statements of income. Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in accordance with federal regulations. The collateral is not reflected in the consolidated financial statements. The allowance for credit losses for receivables from brokerage clients and related activity were immaterial for all periods presented.

AFS investment securities

AFS investment securities are recorded at fair value and unrealized gains and losses, other than losses related to credit factors, are reported, net of taxes, in AOCI included in stockholders’ equity. Realized gains and losses from sales of AFS investment securities are determined on a specific identification basis and are included in other revenue.

An AFS investment security is impaired if the fair value of the security is less than its amortized cost basis. Management evaluates AFS debt investment securities with unrealized losses to determine whether the security impairment has resulted from a credit loss or other factors. This evaluation is performed quarterly on an individual security basis.

The evaluation of whether credit loss exists is inherently judgmental. This evaluation considers multiple factors including: the financial condition of the issuer; the payment structure of the security; external credit ratings; our internal credit ratings; the security’s market implied credit spread; for asset-backed securities, the amount of credit support provided by the structure of the security to absorb credit losses on the underlying collateral; recent events specific to the issuer and the issuer’s industry; and whether all scheduled principal and interest payments have been received.

If management determines that the impairment of an AFS debt investment security (or a portion of the impairment) is related to credit losses, an allowance for credit losses will be recorded for that security through a charge to earnings. The allowance for credit losses is measured as the difference between the amortized cost and the present value of expected cash flows and is limited to the difference between amortized cost and the fair value of the security. The Company estimates credit losses on a discounted cash flow basis using the security’s effective interest rate. Changes in the allowance for credit losses will be recorded through earnings in the period of the change.

- 35 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
If it is determined that the Company intends to sell the impaired security or if it is more likely than not that the Company will be required to sell such security before any anticipated recovery of the amortized cost basis, any allowance for credit losses of that security will be written off and the amortized cost basis of the security will be written down to fair value with any incremental impairment recorded through earnings.

The Company excludes accrued interest from the fair value and the amortized cost basis of the AFS debt investment securities for the purposes of identifying and measuring impairment of the securities. AFS debt investment securities are placed on nonaccrual status on a timely basis and any accrued interest receivable is reversed through interest income.

Securities borrowed and securities loaned

Securities borrowed transactions require Schwab to deliver cash to the lender in exchange for securities; the receivables from these transactions are included in other assets on the condensed consolidated balance sheets. For securities loaned, Schwab receives collateral in the form of cash in an amount equal to or greater than the market value of securities loaned; the payables from these transactions are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. The market value of securities borrowed and loaned are monitored, with additional collateral obtained or refunded to ensure full

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

collateralization. Fees received or paid are recorded in interest revenue or interest expense. Schwab applies the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for securities borrowed receivables.

Bank loans and related allowance for credit losses

Bank loans are recorded at their contractual principal amounts and include unamortized direct origination costs or net purchase discounts or premiums. Direct origination costs and premiums and discounts are recognized in interest revenue using the effective interest method over the contractual life of the loan and are adjusted for actual prepayments. Additionally, management estimates an allowance for credit losses, which is deducted from the amortized cost basis of loans to arrive at the amount expected to be collected. The bank loan portfolio includes four loan types: First Mortgages, HELOCs,three portfolio segments: residential real estate, pledged asset lines (PALs), and other loans. We use these segments when developing and documenting our methodology for determining the allowance for credit losses. Residential real estate portfolio segment is divided into two classes of financing receivables for purposes of monitoring and assessing credit risk: First Mortgages and HELOCs.

Schwab records an allowance for credit losses through a charge to earnings based on our estimate of current expected credit losses for the existing portfolio. We review the allowance for credit losses quarterly, taking into consideration current economic conditions, reasonable and supportable forecasts, the composition of the existing loan portfolio, past loss experience, and any other risks inherent in the portfolio to ensure that the allowance for credit losses is maintained at an appropriate level.

PALs are collateralized by marketable securities with liquid markets. Credit lines are over-collateralized and borrowers are required to maintain collateral at specified levels at all times. The required collateral levels are determined based on the type of security pledged. Additionally, collateral market value is monitored on a daily basis and a borrower’s credit line may be reduced or collateral may be liquidated if the collateral is in danger of falling below specified levels. As such, the credit loss inherent within this portfolio is limited. Schwab applies the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for PALs.

The methodology to establish an allowance for credit losses for First Mortgages and HELOCsresidential real estate portfolio segment utilizes statistical models that estimate prepayments, defaults, and expected losses for these loan segmentsthis portfolio segment based on predicted behavior of individual loans within the segments.segment. The methodology also evaluates concentrations in the loan types,classes of financing receivables, including loan products within those types,classes, year of origination, and geographical distribution of collateral.

Expected credit losses are forecast using a loan-level simulation of the delinquency status of the loans over the term of the loans. The simulation starts with the current relevant risk indicators, including the current delinquent status of each loan, the estimated current LTV ratio (Estimated Current LTV) of each loan, the term and structure of each loan, current key interest rates including U.S. Treasury and LIBOR rates, and borrower FICO scores. The more significant variables in the simulation include delinquency roll rates, loss severity, housing prices, interest rates, and unemployment rate. Delinquency roll rates (i.e., the rates at which loans transition through delinquency stages and ultimately result in a loss) are estimated from our historical loss experience adjusted for current trends and market information, which includes current and forecast conditions. Loss severity (i.e., loss given default) estimates are based on our historical loss experience and market trends, both current and
- 36 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
forecast. The loss severity estimate used in the allowance for credit loss methodology for HELOC loansHELOCs is higher than that used in the methodology for First Mortgages. Housing price trends are derived from historical home price indices and econometric forecasts of future home values. Factors affecting the home price index include housing inventory, unemployment, interest rates, and inflation expectations. Interest rate projections are based on the current term structure of interest rates and historical volatilities to project various possible future interest rate paths. The unemployment rate forecast is typically based on the recent consensus of regularly published economic surveys. Linear interpolation is applied to revert to long-term trends after the reasonable and supportable forecast period.

The methodology described above results in loss factors that are applied to the amortized cost basis of loans, exclusive of accrued interest receivable, to determine the allowance for credit losses for First Mortgages and HELOCs.

Management also estimates a liability for expected credit losses on the Company’s commitments to extend credit related to unused HELOCs and commitments to purchase first mortgages. See Note 910 for additional information on these commitments. The liability is calculated by applying the loss factors described above to the commitments expected to be funded and is included in accrued expenses and other liabilities on the condensed consolidated balance sheets. The liability for expected credit losses on these commitments and related activity were immaterial for all periods presented.


THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Schwab considers loan modifications in which it makes an economic concession to a borrower experiencing financial difficulty to be troubled debt restructurings (TDRs).

Nonaccrual and Nonperforming loans

First Mortgages, HELOCs, PALs, and other loans are considered past due when a payment is due and unpaid for 30 days. Loans are placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless the loans are well-secured and in the process of collection), or when the full timely collection of interest or principal becomes uncertain, including loans to borrowers who have filed for bankruptcy. HELOC loans secured by a second lien are placed on non-accrual status if the associated first lien is 90 days or more delinquent, regardless of the payment status of the HELOC. When a loan is placed on nonaccrual status, the accrued interest receivable is written off by reversing interest income and the loan is accounted for on the cash or cost recovery method until qualifying for return to accrual status. Generally, a nonaccrual loan may be returned to accrual status when all delinquent interest and principal is repaid and the borrower demonstrates a sustained period of performance, or when the loan is both well-secured and in the process of collection and collectability is no longer doubtful. Loans on nonaccrual status and other real estate owned are considered nonperforming assets.

Loan Charge-Offs

The Company charges off a loan in the period that it is deemed uncollectible and records a reduction in the allowance for credit losses and the loan balance. Our charge-off policy for First Mortgage and HELOC loans is to assess the value of the property when the loan has been delinquent for 180 days or has been discharged in bankruptcy proceedings, regardless of whether the property is in foreclosure, and charge-off the amount of the loan balance in excess of the estimated current value of the underlying property less estimated costs to sell. The Company’s policy for PALs is to charge off any delinquent loans no later than at 90 days past due.
- 37 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

New Accounting Standards

Adoption of New Accounting Standards
StandardDescriptionDate of AdoptionEffects on the Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
Provides guidance for recognizing impairment of most debt instruments measured at amortized cost, including loans and HTM debt securities. Requires estimating current expected credit losses (CECL) over the remaining life of an instrument or a portfolio of instruments with similar risk characteristics based on relevant information about past events, current conditions, and reasonable forecasts. The initial estimate of, and the subsequent changes in, CECL will be recognized as credit loss expense through current earnings and will be reflected as an allowance for credit losses offsetting the carrying value of the financial instrument(s) on the balance sheet. Amends the other-than-temporary impairment (OTTI) model for AFS debt securities by requiring the use of an allowance, rather than directly reducing the carrying value of the security, and eliminating consideration of the length of time such security has been in an unrealized loss position as a factor in concluding whether a credit loss exists.


Adoption requires modified retrospective transition through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the entity applies the new guidance except that a prospective transition is required for AFS debt securities for which an OTTI has been recognized prior to the effective date.
January 1, 2020The Company adopted CECL as of January 1, 2020 using the modified retrospective method. The adoption of CECL resulted in an immaterial increase in the Company’s allowance for credit losses and an increase in the liability for expected credit losses on commitments to extend credit, both primarily related to First Mortgages and HELOCs. The adoption impact was recorded as an adjustment to retained earnings as of the date of adoption.
ASU 2018-15, “Intangibles– Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”
Aligns the criteria for capitalizing implementation costs for cloud computing arrangements (CCA) that are service contracts with internal-use software that is developed or purchased and CCAs that include an internal-use software license. This guidance requires that the capitalized implementation costs be recognized over the period of the CCA service contract, subject to impairment evaluation on an ongoing basis.


The guidance prescribes the balance sheet, income statement, and statement of cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures.


Adoption provides for retrospective or prospective application to all implementation costs incurred after the date of adoption.

January 1, 2020The Company adopted this guidance prospectively on January 1, 2020. As such, adoption had no impact on the Company’s financial statements. Historically, Schwab has expensed implementation costs as they are incurred for CCAs that are service contracts. Therefore, adopting this guidance will change the Company’s accounting treatment for these types of implementation costs going forward.
- 38 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

New Accounting Standards Not Yet Adopted
StandardDescriptionRequired Date of AdoptionEffects on the Financial Statements or Other Significant Matters
ASU 2020-4, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”



Provides optional expedients and exceptions for applying existing accounting guidance to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met, including simplifying accounting analyses for contract modifications.


This guidance only applies to the items listed above if they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and only for a limited period of time. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions subject to the same accounting guidance that would have otherwise been applied.


Once elected, the amendments must be applied prospectively.
N/A. Effective March 12, 2020 through December 31, 2022The Company is evaluatingadopted this guidance prospectively as of October 1, 2020. There was no impact to the expedients and exceptions provided by this guidance. The elected amendments will be applied prospectively and the Company is currently evaluating the potential impacts on itsCompany’s consolidated financial statements.statements upon initial adoption.



- 39 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

3.    Business Acquisitions
3.
TD Ameritrade

Subsequent to September 30, 2020, Schwab completed its previously announced acquisition of TD Ameritrade effective October 6, 2020. As a result of the acquisition, TDA Holding became a wholly-owned subsidiary of CSC. TD Ameritrade provides securities brokerage services, including trade execution, clearing services, and margin lending, through its broker-dealer subsidiaries, and futures and foreign exchange trade execution services through its FCM and FDM subsidiary. TD Ameritrade also provides cash sweep and deposit account products through the IDA agreement, as well as bank deposit account agreements with other third-party depository institutions. The Company anticipates this transaction will add scale to help support the Company’s ongoing efforts to enhance the client experience, provide deeper resources for individual investors as well as RIAs, and continue to improve its operating efficiency. The acquisition brings together approximately $6 trillion in total client assets and 29 million brokerage accounts at the time closing.
In exchange for each share of TD Ameritrade common stock, TD Ameritrade stockholders received 1.0837 shares of CSC common stock, except for TD Bank and its affiliates which received a portion in nonvoting common stock. In connection with the transaction, Schwab issued approximately 586 million common shares to TD Ameritrade stockholders consisting of approximately 509 million shares of common stock and 77 million shares of nonvoting common stock, as described below. For further details on the new class of nonvoting common stock, see Note 17.

Provisional information regarding the acquisition that was available in the limited time since October 6, 2020 is provided below. Due to the timing of the close of the acquisition, certain information described in ASC 805, Business Combinations is not yet available and will be disclosed in subsequent periods.
The fair value of the purchase price transferred upon completion of the acquisition included the fair value of CSC common stock and nonvoting common stock that was issued to TD Ameritrade stockholders, as well as the fair value of assumed TD Ameritrade equity awards attributable to pre-combination services. The provisional purchase price was calculated as follows:
Fair value of consideration for TD Ameritrade outstanding common stock$21,664 
Fair value of replaced TD Ameritrade equity awards attributable to pre-combination services (1)
94 
Provisional purchase price$21,758 
(1) Share-based awards held by TD Ameritrade employees prior to the acquisition date were assumed by Schwab and converted into share-based awards with respect to CSC common stock, after giving effect to the exchange ratio of 1.0837. Such share-based awards are otherwise subject to the same terms and conditions as were applicable immediately before the merger, except for performance-based restricted stock units which were converted into time-based restricted stock units. The portion of the fair value of the share-based awards that relates to services performed by the employees prior to the acquisition date is included in the purchase price.

The Company accounted for the TD Ameritrade acquisition as a business combination under GAAP and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values, except for certain exceptions to the recognition principle of acquisition accounting, such as leases, share-based payments, and income taxes, as of the date of acquisition. The determination of fair values requires management to make significant estimates and assumptions. The estimated fair values of the assets acquired and liabilities assumed are considered provisional and are based on currently available information. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition date. The Company expects to finalize the valuation of assets and liabilities as soon as practicable, but not later than one year from the acquisition date. Any adjustments to the initial estimates of the fair value of the acquired assets and liabilities assumed will be recorded as adjustments to the respective assets and liabilities, with the residual amounts allocated to goodwill.
- 40 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following table summarizes provisional information including the purchase price, fair values and estimates of the assets acquired and liabilities assumed, and resulting goodwill as of the October 6, 2020 acquisition date.
Purchase price$21,758 
Fair value of assets acquired:
Cash and cash equivalents3,484 
Cash and investments segregated and on deposit for regulatory purposes14,236 
Receivables from brokerage clients28,009 
Available for sale securities1,779 
Acquired intangible assets8,880 
Equipment, office facilities, and property466 
Other assets3,061 
Total assets acquired59,915 
Fair value of liabilities assumed:
Payables to brokerage clients37,602 
Accrued expenses and other liabilities6,990 
Long-term debt3,829 
Total liabilities assumed48,421 
Fair value of net identifiable assets acquired11,494 
Goodwill$10,264 

The provisional identifiable tangible and intangible assets of $466 million and $8.9 billion, respectively, are subject to depreciation and amortization. The following table summarizes the major classes of provisional tangible and intangible assets and their respective weighted-average estimated useful lives:
Estimated Fair ValueWeighted-Average Estimated Useful Life (Years)
Equipment, office facilities and property
Real property (1)
$226 37
Personal property (2)
162 2
Construction in progress49 N/A
Land29 N/A
Total equipment, office facilities and property$466 
Acquired intangible assets
Client relationships$8,700 20
Existing technology165 2
Trade names15 2
Total acquired intangible assets$8,880 
(1) Consists primarily of buildings.
(2) Consists primarily of equipment and leasehold improvements.
N/A Not applicable.

The estimated fair values of real property, personal property, construction in progress, and land were determined using a sales comparison and cost approach, including consideration of functional and economic obsolescence. The Company estimated the weighted-average useful lives of the assets based on the current condition and expected future use of the assets. The estimated fair values of client relationships, existing technology, and trade names were estimated using a multi-period excess earnings approach, cost approach, and relief from royalty approach, respectively. The multi-period excess earnings method starts with a forecast of all of the expected future net cash flows associated with the asset, and the relief from royalty method starts with a forecast of the royalties saved by the Company because it owns the asset. The forecasts are then adjusted to present value by applying an appropriate discount rate that reflects the risks associated with the cash flow streams. The cost approach uses replacement cost as an indicator of fair value.
- 41 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Goodwill of $10.3 billion is primarily attributable to the scale, skill sets, operations, and synergies that can be leveraged to enable the combined company to build a stronger enterprise and will not be deductible for tax purposes.

In connection with the TD Ameritrade acquisition, the Company incurred various professional fees and other costs such as advisory, legal, and accounting fees. In total, the Company incurred acquisition and integration-related costs of $42 million and $103 million for the three and nine months ended September 30, 2020, respectively, and $1 million for the nine months ended September 30, 2019, which are primarily included in professional services and compensation and benefits expense on the condensed consolidated statements of income. Upon completion of the acquisition on October 6, 2020, the Company also recognized professional services expense of $26 million for transaction advisory services received.

See Notes 9, 10, 13, 15, and 17 for additional information on the TD Ameritrade acquisition.

USAA-IMCO
On May 26, 2020, the Company completed its acquisition of the assets of USAA-IMCO for $1.6 billion in cash. Along with the asset purchase agreement, the companies entered into a long-term referral agreement that makes Schwab the exclusive provider of wealth management and investment brokerage services for USAA members. The USAA-IMCO acquisition adds scale to the Company’s operations through the addition of over 1000000 brokerage and managed portfolio accounts with approximately $80 billion in client assets at the acquisition date. The transaction also provides Schwab the opportunity to further expand our client base by serving USAA’s members through the long-term referral agreement.

The Company accounted for the USAA-IMCO acquisition as a business combination under GAAP and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. The determination of fair values requires management to make significant estimates and assumptions. The estimated fair values of the assets acquired and liabilities assumed are considered provisional and are based on currently available information. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition date. The Company expects to finalize the valuation of assets and liabilities as soon as practicable, but not later than one year from the acquisition date. During the three months ended September 30, 2020, we made a $43 million post-closing adjustment to the purchase price resulting in reductions of $9 million and $34 million to our initial estimate of the fair value of the intangible assets acquired and to goodwill, respectively.

The following table summarizes the purchase price, provisional fair values of the assets acquired and liabilities assumed, and resulting goodwill as of the May 26, 2020 acquisition date, adjusted for the post-closing adjustments described above.
Purchase price$1,581 
Fair value of assets acquired:
Cash segregated and on deposit for regulatory purposes4,392 
Receivables from brokerage clients80 
Acquired intangible assets1,109 
Total assets acquired5,581 
Fair value of liabilities assumed:
Payables to brokerage clients4,472 
Total liabilities assumed4,472 
Fair value of net identifiable assets acquired1,109 
Goodwill$472 

- 42 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The provisional identifiable intangible assets of $1.1 billion are subject to amortization. The following table summarizes the major classes of intangible assets acquired and their respective weighted-average estimated useful lives.
Estimated Fair ValueWeighted-Average Estimated Useful Life (years)
Customer relationships$962 18
Brokerage referral agreement (1)
142 20
Royalty-free license5 7
Total acquired intangible assets$1,109 
(1) The brokerage referral agreement has an initial term of 5 years and is automatically renewable for one-year increments thereafter.

The estimated fair values of customer relationships, the brokerage referral agreement, and the royalty-free license were estimated using the multi-period excess earnings, with-and-without, and relief from royalty methods, respectively. The multi-period excess earnings method starts with a forecast of all of the expected future net cash flows associated with the asset, and the relief from royalty method starts with a forecast of the royalties saved by the Company because it owns the asset. The with-and-without method quantifies the difference between forecasted cash flows with the asset and without the asset. The forecasts are then adjusted to present value by applying an appropriate discount rate that reflects the risks associated with the cash flow streams.

Goodwill recorded of $472 million, primarily attributable to the additional scale and anticipated synergies from the USAA-IMCO acquisition, was assigned to the Investor Services segment and will be deductible for tax purposes.

The Company’s condensed consolidated statements of income include total net revenues and net loss attributable to the USAA-IMCO acquisition of $99 million and $4 million, respectively, for the three months ended September 30, 2020 and $138 million and $41 million, respectively, for the period May 26, 2020 through September 30, 2020.

In connection with the acquisition, the Company agreed to reimburse USAA for certain contract termination fees and severance costs incurred by USAA. These costs totaled $20 million, after post-closing adjustments, for the nine months ended September 30, 2020 and are included in other expense on the condensed consolidated statements of income. Additionally, the Company incurred various professional fees and other costs related to the USAA-IMCO acquisition, such as advisory, legal, and accounting fees. In total, the Company incurred acquisition and integration-related costs of $4 million for the three months ended September 30, 2019, and $52 million and $7 million, after post-closing adjustments, for the nine months ended September 30, 2020 and 2019, respectively, which are primarily included in other expense, compensation and benefits, and professional services on the condensed consolidated statements of income. Acquisition and integration-related costs for the three months ended September 30, 2020 were immaterial.

Pro Forma Financial Information (Unaudited)

The following table presents unaudited pro forma financial information as if the USAA-IMCO acquisition had occurred on January 1, 2019. The unaudited pro forma results reflect adjustments for acquisition and integration-related costs, amortization of acquired intangible assets, and their related income tax effects, and do not reflect potential revenue growth or cost savings that may be realized as a result of the acquisition. Pro forma net income for the nine months ended September 30, 2020 excludes after-tax acquisition and integration-related costs of $39 million. These costs, and after-tax acquisition and integration-related costs of $10 million incurred in 2019, are included in pro forma net income for the nine months ended September 30, 2019. The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of future operations or results had the USAA-IMCO acquisition been completed as of January 1, 2019.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Total net revenues$2,448 $2,796 $7,618 $8,369 
Net income$613 $906 $1,949 $2,631 

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THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
4.    Revenue Recognition
Disaggregated Revenue
Disaggregation of Schwab’s revenue by major source is as follows:
 Three Months Ended
March 31,
 20202019
Net interest revenue   
Interest revenue$1,708
 $1,998
Interest expense(136) (317)
Net interest revenue1,572
 1,681
Asset management and administration fees   
Mutual funds, ETFs, and CTFs452
 414
Advice solutions312
 278
Other63
 63
Asset management and administration fees827
 755
Trading revenue   
Commissions113
 163
Principal transactions20
 22
Order flow revenue (1)
55
 32
Trading revenue (1)
188
 217
Other (1)
30
 70
Total net revenues$2,617
 $2,723

Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Net interest revenue
Interest revenue$1,432 $1,892 $4,626 $5,817 
Interest expense(89)(261)(322)(896)
Net interest revenue1,343 1,631 4,304 4,921 
Asset management and administration fees
Mutual funds, ETFs, and CTFs423 445 1,300 1,287 
Advice solutions373 305 999 878 
Other64 75 189 201 
Asset management and administration fees860 825 2,488 2,366 
Trading revenue
Commissions108 159 332 477 
Principal transactions6 13 36 54 
Order flow revenue (1)
67 34 194 99 
Trading revenue (1)
181 206 562 630 
Other (1)
64 49 161 198 
Total net revenues$2,448 $2,711 $7,515 $8,115 
(1) InBeginning in the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.

For a summary of revenue provided by our reportable segments, see Note 15.16. The recognition of revenue is not impacted by the operating segment in which revenue is generated.
Contract balances
Receivables from contracts with customers within the scope of ASC 606, Revenue From Contracts With Customers (ASC 606) were $588$357 million at March 31,September 30, 2020 and $356 million at December 31, 2019 and were recorded in other assets on the condensed consolidated balance sheets. Schwab did not have any other significant contract assets or contract liability balances as of March 31,September 30, 2020 or December 31, 2019.

Unsatisfied performance obligations
We do not have any unsatisfied performance obligations other than those that are subject to an elective practical expedient under ASC 606. The practical expedient applies to and is elected for contracts where we recognize revenue at the amount to which we have the right to invoice for services performed.


- 44 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

4.5.    Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities are as follows:
March 31, 2020 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Available for sale securities        
U.S. agency mortgage-backed securities $173,812
 $6,007
 $224
 $179,595
Asset-backed securities (1)
 23,077
 49
 645
 22,481
Corporate debt securities (2)
 11,192
 136
 106
 11,222
U.S. Treasury securities 3,616
 48
 —
 3,664
U.S. state and municipal securities 1,493
 96
 11
 1,578
Non-agency commercial mortgage-backed securities 1,215
 16
 5
 1,226
Certificates of deposit 1,000
 3
 5
 998
Commercial paper (2,3)
 397
 —
 1
 396
Foreign government agency securities 50
 1
 —
 51
Other 21
 —
 —
 21
Total available for sale securities $215,873
 $6,356
 $997
 $221,232
December 31, 2019        
September 30, 2020September 30, 2020Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
Available for sale securities        Available for sale securities    
U.S. agency mortgage-backed securities $45,964
 $312
 $121
 $46,155
Corporate debt securities (2)
 5,427
 57
 —
 5,484
Asset-backed securities (1)
 4,970
 30
 13
 4,987
U.S. Treasury securities 3,387
 3
 6
 3,384
Certificates of deposit 1,000
 4
 —
 1,004
Commercial paper (2,3)
 394
 1
 —
 395
Non-agency commercial mortgage-backed securities 13
 —
 —
 13
Total available for sale securities $61,155
 $407
 $140
 $61,422
Held to maturity securities        
U.S. agency mortgage-backed securities $109,325
 $1,521
 $280
 $110,566
U.S. agency mortgage-backed securities$251,323 $7,223 $280 $258,266 
Asset-backed securities (1)
 17,806
 50
 85
 17,771
Asset-backed securities (1)
19,320 177 176 19,321 
Corporate debt securities (2)
 4,661
 57
 —
 4,718
Corporate debt securities (2)
13,192 388 0 13,580 
U.S. Treasury securitiesU.S. Treasury securities7,871 31 0 7,902 
U.S. state and municipal securities 1,301
 103
 —
 1,404
U.S. state and municipal securities1,548 142 0 1,690 
Non-agency commercial mortgage-backed securities 1,119
 22
 —
 1,141
Non-agency commercial mortgage-backed securities1,214 52 0 1,266 
U.S. Treasury securities 223
 5
 —
 228
Certificates of deposit 200
 —
 —
 200
Certificates of deposit500 1 0 501 
Foreign government agency securities 50
 —
 —
 50
Foreign government agency securities1,209 2 1 1,210 
Other 21
 —
 —
 21
Other22 0 0 22 
Total held to maturity securities $134,706
 $1,758
 $365
 $136,099
Total available for sale securitiesTotal available for sale securities$296,199 $8,016 $457 $303,758 

December 31, 2019
Available for sale securities
U.S. agency mortgage-backed securities$45,964 $312 $121 $46,155 
Corporate debt securities (2)
5,427 57 0 5,484 
Asset-backed securities (1)
4,970 30 13 4,987 
U.S. Treasury securities3,387 3 6 3,384 
Certificates of deposit1,000 4 0 1,004 
Commercial paper (2,3)
394 1 0 395 
Non-agency commercial mortgage-backed securities13 0 0 13 
Total available for sale securities$61,155 $407 $140 $61,422 
Held to maturity securities
U.S. agency mortgage-backed securities$109,325 $1,521 $280 $110,566 
Asset-backed securities (1)
17,806 50 85 17,771 
Corporate debt securities (2)
4,661 57 0 4,718 
U.S. state and municipal securities1,301 103 0 1,404 
Non-agency commercial mortgage-backed securities1,119 22 0 1,141 
U.S. Treasury securities223 5 0 228 
Certificates of deposit200 0 0 200 
Foreign government agency securities50 0 0 50 
Other21 0 0 21 
Total held to maturity securities$134,706 $1,758 $365 $136,099 
(1) Approximately 42%49% and 43% of asset-backed securities held as of March 31,September 30, 2020 and December 31, 2019, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately 43%37% and 42% of the asset-backed securities held as of March 31,September 30, 2020 and December 31, 2019, respectively.
(2) As of March 31,September 30, 2020 approximately 32%47% of the total AFS, and as of December 31, 2019approximately 32%, of the total AFS and HTM investments in corporate debt securities and commercial paper were issued by institutions in the financial services industry.
(3) Included in cash and cash equivalents on the condensed consolidated balance sheets, but excluded from this table is $4.1 billion and $2.5 billion of AFS commercial paper as of March 31, 2020 and December 31, 2019 respectively.(NaN as of September 30, 2020). These holdings have maturities of three months or less and an aggregate market value equal to amortized cost.

In October 2019, the Federal Reserve issued a final enhanced prudential standards rule, and the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC jointly issued a final regulatory capital and liquidity rule. With total consolidated assets of $294.0 billion at December 31, 2019, CSC is designated as a Category III firm pursuant to the framework established by the final rules. Accordingly, the Company opted to exclude AOCI from its regulatory capital as permitted by the regulatory capital and liquidity rule beginning January 1, 2020. In accordance with ASC 320 and as of January 1, 2020, the Company transferred all of its investment securities designated as HTM to the AFS category without tainting our intent to hold other debt securities to maturity. At the date of transfer, these securities had a total amortized cost of $134.7 billion and a total net unrealized gain of $1.4 billion.

At March 31,September 30, 2020, our banking subsidiaries had pledged securities with a fair value of $35.7$36.9 billion as collateral to secure borrowing capacity on secured credit facilities with the Federal Home Loan Bank (FHLB) (see Note 8)9). Our banking subsidiaries also pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount
- 45 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

subsidiaries also pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a fair value of $8.2$7.6 billion as collateral for this facility at March 31,September 30, 2020. The Company also pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $1.1$1.3 billion at March 31,September 30, 2020.

Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, are as follows:
Less than 12 months12 months or longerTotal
September 30, 2020Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
Available for sale securities      
Asset-backed securities$4,053 $83 $3,993 $93 $8,046 $176 
U.S. agency mortgage-backed securities41,247 266 5,852 14 47,099 280 
Foreign government agency securities658 1 0 0 658 1 
Total$45,958 $350 $9,845 $107 $55,803 $457 
 Less than 12 months 12 months or longer Total
   
March 31, 2020Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
Available for sale securities           
Asset-backed securities$15,852
 $515
 $2,638
 $130
 $18,490
 $645
U.S. agency mortgage-backed securities11,077
 100
 11,661
 124
 22,738
 224
Corporate debt securities4,835
 106
 —
 —
 4,835
 106
Certificates of deposit795
 5
 —
 —
 795
 5
Non-agency commercial mortgage-backed securities397
 5
 12
 —
 409
 5
Commercial paper396
 1
 —
 —
 396
 1
U.S. state and municipal securities182
 11
 —
 —
 182
 11
Total$33,534
 $743
 $14,311
 $254
 $47,845
 $997
December 31, 2019    
Available for sale securities       
U.S. agency mortgage-backed securities$16,023 $94 $6,592 $27 $22,615 $121 
Asset-backed securities960 6 298 7 1,258 13 
U.S. Treasury securities510 0 1,243 6 1,753 6 
Total$17,493 $100 $8,133 $40 $25,626 $140 
Held to maturity securities      
U.S. agency mortgage-backed securities$16,183 $100 $18,910 $180 $35,093 $280 
Asset-backed securities7,507 63 2,898 22 10,405 85 
Total$23,690 $163 $21,808 $202 $45,498 $365 
Total securities with unrealized losses$41,183 $263 $29,941 $242 $71,124 $505 
December 31, 2019           
Available for sale securities            
U.S. agency mortgage-backed securities$16,023
 $94
 $6,592
 $27
 $22,615
 $121
Asset-backed securities960
 6
 298
 7
 1,258
 13
U.S. Treasury securities510
 —
 1,243
 6
 1,753
 6
Total$17,493
 $100
 $8,133
 $40
 $25,626
 $140
Held to maturity securities 
  
  
  
  
  
U.S. agency mortgage-backed securities$16,183
 $100
 $18,910
 $180
 $35,093
 $280
Asset-backed securities7,507
 63
 2,898
 22
 10,405
 85
Total$23,690
 $163
 $21,808
 $202
 $45,498
 $365
Total securities with unrealized losses$41,183
 $263
 $29,941
 $242
 $71,124
 $505

At March 31,September 30, 2020, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises.

For a description of management’s quarterly evaluation of AFS securities in unrealized loss positions see Note 2. NaN amounts were recognized as credit loss expense and 0 securities were written down to fair value through earnings for the nine months ended September 30, 2020. NaN of the Company’s AFS securities held as of September 30, 2020 had an allowance for credit losses. NaN amounts were recognized as OTTI in earnings or other comprehensive income during the year ended December 31, 2019, and as of December 31, 2019, Schwab did not hold any securities on which OTTI was previously recognized.

The Company had $489$597 million of accrued interest receivable as of March 31,September 30, 2020 for AFS securities, and $471 million of accrued interest receivable for AFS and HTM securities as of December 31, 2019. These amounts are excluded from the amortized cost basis of AFS and HTM securities and included in other assets on the condensed consolidated balance sheets. There were 0 write-offs of accrued interest receivable on AFS securities during the threenine months ended March 31,September 30, 2020, or write-offs of accrued interest receivable on AFS securities or HTM securities during the year ended December 31, 2019.
- 46 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Please refer to Note 2 for a description of management’s quarterly evaluation of AFS securities in unrealized loss positions. NaN amounts were recognized as credit loss expense and 0 securities were written down to fair value through earnings for the three months ended March 31, 2020. NaN of the Company’s AFS securities held as of March 31, 2020 had an allowance for credit losses. NaN amounts were recognized as OTTI in earnings or other comprehensive income during the year ended December 31, 2019, and as of December 31, 2019, Schwab did not hold any securities on which OTTI was previously recognized.

In the table below, mortgage-backed securities and other asset-backed securities have been allocated to maturity groupings based on final contractual maturities. As borrowers may have the right to call or prepay certain obligations underlying our investment securities, actual maturities may differ from the scheduled contractual maturities presented below.

The maturities of AFS securities are as follows:
March 31, 2020Within
1 year		 After 1 year
through
5 years		 After 5 years
through
10 years		 After
10 years		 Total
September 30, 2020September 30, 2020Within
1 year		After 1 year
through
5 years		After 5 years
through
10 years		After
10 years		Total
Available for sale securities         Available for sale securities     
U.S. agency mortgage-backed securities$1,158
 $18,885
 $51,687
 $107,865
 $179,595
U.S. agency mortgage-backed securities$1,437 $21,995 $60,619 $174,215 $258,266 
Asset-backed securities43
 7,818
 6,091
 8,529
 22,481
Asset-backed securities10 6,402 4,469 8,440 19,321 
Corporate debt securities2,410
 7,612
 1,200
 —
 11,222
Corporate debt securities4,262 7,000 2,318 0 13,580 
U.S. Treasury securities2,834
 830
 —
 —
 3,664
U.S. Treasury securities7,559 343 0 0 7,902 
U.S. state and municipal securities—
 98
 603
 877
 1,578
U.S. state and municipal securities0 104 765 821 1,690 
Non-agency commercial mortgage-backed securities—
 —
 —
 1,226
 1,226
Non-agency commercial mortgage-backed securities0 0 0 1,266 1,266 
Certificates of deposit702
 296
 —
 —
 998
Certificates of deposit501 0 0 0 501 
Commercial paper396
 —
 —
 —
 396
Foreign government agency securities—
 51
 —
 —
 51
Foreign government agency securities125 1,085 0 0 1,210 
Other—
 —
 —
 21
 21
Other0 0 0 22 22 
Total fair value$7,543
 $35,590
 $59,581
 $118,518
 $221,232
Total fair value$13,894 $36,929 $68,171 $184,764 $303,758 
Total amortized cost$7,531
 $35,024
 $57,258
 $116,060
 $215,873
Total amortized cost$13,820 $35,591 $65,043 $181,745 $296,199 


Proceeds and gross realized gains and losses from sales of AFS securities are as follows:
Three Months Ended
September 30,		Nine Months Ended September 30,
2020201920202019
Proceeds$2,825 $5,436 $2,895 $21,710 
Gross realized gains4 5 4 15 
Gross realized losses1 4 1 10 
 Three Months Ended
March 31,
 
 2020 2019
Proceeds$69
 $10,652
Gross realized gains—
 3
Gross realized losses—
 2



- 47 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

5.6.    Bank Loans and Related Allowance for Credit Losses
The composition of bank loans and delinquency analysis by loan typeportfolio segment and class of financing receivable is as follows:
March 31, 2020Current30-59 days
past due		60-89 days
past due
>90 days past
due and other
nonaccrual loans (3)
Total past due
and other
nonaccrual loans		Total
loans		Allowance
for credit
losses		Total
bank
loans – net
First Mortgages (1,2)
$12,751
$32
$3
$12
$47
$12,798
$21
$12,777
HELOCs (1,2)
1,055
2
1
9
12
1,067
4
1,063
Pledged asset lines5,458
6
3
—
9
5,467
—
5,467
Other216
—
—
2
2
218
4
214
Total bank loans$19,480
$40
$7
$23
$70
$19,550
$29
$19,521
         
December 31, 2019        
First Mortgages (1,2)
$11,665
$24
$4
$11
$39
$11,704
$11
$11,693
HELOCs (1,2)
1,105
2
1
9
12
1,117
4
1,113
Pledged asset lines5,202
4
—
—
4
5,206
—
5,206
Other201
—
—
2
2
203
3
200
Total bank loans$18,173
$30
$5
$22
$57
$18,230
$18
$18,212

September 30, 2020Current30-59 days
past due		60-89 days
past due
>90 days past
due and other
nonaccrual loans (3)
Total past due
and other
nonaccrual loans		Total
loans		Allowance
for credit
losses		Total
bank
loans – net
Residential real estate:
First Mortgages (1,2)
$14,294 $19 $1 $26 $46 $14,340 $21 $14,319 
HELOCs (1,2)
898 1 0 15 16 914 6 908 
Total residential real estate15,192 20 1 41 62 15,254 27 15,227 
Pledged asset lines6,875 4 6 0 10 6,885 0 6,885 
Other176 0 0 1 1 177 3 174 
Total bank loans$22,243 $24 $7 $42 $73 $22,316 $30 $22,286 
December 31, 2019        
Residential real estate:
First Mortgages (1,2)
$11,665 $24 $4 $11 $39 $11,704 $11 $11,693 
HELOCs (1,2)
1,105 2 1 9 12 1,117 4 1,113 
Total residential real estate12,770 26 5 20 51 12,821 15 12,806 
Pledged asset lines5,202 4 0 0 4 5,206 0 5,206 
Other201 0 0 2 2 203 3 200 
Total bank loans$18,173 $30 $5 $22 $57 $18,230 $18 $18,212 
(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $77$75 million and $74 million at March 31,September 30, 2020 and December 31, 2019, respectively.
(2) At March 31,September 30, 2020 and December 31, 2019, 45% of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole.
(3) There were 0 loans accruing interest that were contractually 90 days or more past due at March 31,September 30, 2020 or December 31, 2019.

At March 31,September 30, 2020, CSB had pledged $11.9$13.6 billion of First Mortgages and HELOCs as collateral to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8)9).

Changes in the allowance for credit losses on bank loans were as follows:
 March 31, 2020 March 31, 2019
Three Months EndedFirst Mortgages HELOCs Other 
Total (1)
 First Mortgages HELOCs Other 
Total (1)
Balance at beginning of period$11
 $4
 $3
 $18
 $14
 $5
 $2
 $21
Adoption of ASU 2016-131
 —
 ��
 1
 —
 —
 —
 —
Charge-offs—
 —
 —
 —
 —
 —
 —
 —
Recoveries—
 —
 —
 —
 —
 1
 —
 1
Provision for credit losses9
 —
 1
 10
 —
 (1) —
 (1)
Balance at end of period$21
 $4
 $4
 $29
 $14
 $5
 $2
 $21
Note:    Substantially all of the bank loans were collectively evaluated for impairment at December 31, 2019.
(1) All PALs were fully collateralized by securities with fair values in excess of borrowings as of each period presented.

While credit quality metrics and overall performance of the bank loans portfolio remain strong, a higher estimate of expected losses on First Mortgages in the first quarter of 2020 reflects management’s recognition of rapidly deteriorating economic conditions related to the impact of the COVID-19 pandemic and measures introduced by the federal, state, and local authorities to combat it. Management’s reasonable and supportable forecast period is 2020-2021 and includes a sharp increase in the unemployment rate in the second quarter of 2020 and a moderate decline in home prices through the remainder of 2020, with reversion to long-term trends after 2021.

September 30, 2020September 30, 2019
Three Months EndedFirst MortgagesHELOCsTotal residential real estateOther
Total (1)
First MortgagesHELOCsTotal residential real estateOther
Total (1)
Balance at beginning of period$22 $4 $26 $4 $30 $12 $5 $17 $2 $19 
Provision for credit losses(1)2 1 (1)0 (2)(1)(3)1 (2)
Balance at end of period$21 $6 $27 $3 $30 $10 $4 $14 $3 $17 
- 48 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

September 30, 2020September 30, 2019
Nine Months EndedFirst MortgagesHELOCsTotal residential real estateOther
Total (1)
First MortgagesHELOCsTotal residential real estateOther
Total (1)
Balance at beginning of
period		$11 $4 $15 $3 $18 $14 $5 $19 $2 $21 
Adoption of ASU
2016-13		1 0 1 0 1 0 0 0 0 0 
Recoveries1 0 1 0 1 1 1 2 0 2 
Provision for credit
losses		8 2 10 0 10 (5)(2)(7)1 (6)
Balance at end of period$21 $6 $27 $3 $30 $10 $4 $14 $3 $17 
Note:    Substantially all of the bank loans were collectively evaluated for impairment at December 31, 2019.
(1) All PALs were fully collateralized by securities with fair values in excess of borrowings as of each period presented.

Although uncertainty around the economic outlook persists due to the ongoing COVID-19 pandemic, credit quality metrics and overall performance of the bank loan portfolios remained strong. Management’s reasonable and supportable forecast period extends through 2024, with limited growth in home prices anticipated over the near term and a return to full employment not expected until 2024. During the third quarter of 2020, continued strong credit quality metrics and a modestly improved macroeconomic outlook relative to June 30, 2020 produced a stable projection of loss rates. The ACL has increased from January 1, 2020 to September 30, 2020, primarily due to growth in mortgage loan origination during the first nine months of 2020, driven by the continued low interest rate environment.

A summary of bank loan-related nonperforming assets and troubled debt restructurings is as follows:
March 31, 2020 December 31, 2019September 30, 2020December 31, 2019
Nonaccrual loans (1)
$23
 $22
Nonaccrual loans (1)
$42 $22 
Other real estate owned (2)
1
 1
Other real estate owned (2)
1 1 
Total nonperforming assets24
 23
Total nonperforming assets43 23 
Troubled debt restructurings2
 2
Troubled debt restructurings1 2 
Total nonperforming assets and troubled debt restructurings$26
 $25
Total nonperforming assets and troubled debt restructurings$44 $25 
(1) Nonaccrual loans include nonaccrual troubled debt restructurings.
(2) Included in other assets on the condensed consolidated balance sheets.

Credit Quality
In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following:
•Year of origination;
•Borrower FICO scores at origination (Origination FICO);
•Updated borrower FICO scores (Updated FICO);
•Loan-to-value (LTV) ratios at origination (Origination LTV); and
•Estimated current LTV ratios (Estimated Current LTV).
Borrowers’ FICO scores are provided by an independent third-party credit reporting service and updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index.

- 49 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

The credit quality indicators of the Company’s bank loan portfolio are detailed below:
First Mortgages Amortized Cost Basis by Origination Year
First Mortgages Amortized Cost Basis by Origination Year 
March 31, 202020202019201820172016pre-2016Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
September 30, 2020September 30, 202020202019201820172016pre-2016Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
Origination FICO Origination FICO
<620$—
$—
$—
$—
$—
$3
$3
$—
$—
$—
<620$0 $0 $0 $0 $0 $2 $2 $0 $0 $0 
620 – 67911
14
6
14
19
20
84
2
4
6
620 – 67922 14 4 11 17 17 85 1 3 4 
680 – 739222
480
193
278
271
369
1,813
108
100
208
680 – 739626 405 132 214 200 287 1,864 91 88 179 
≥7401,719
3,498
886
1,447
1,689
1,659
10,898
482
371
853
≥7405,443 2,837 582 1,058 1,249 1,220 12,389 406 325 731 
Total$1,952
$3,992
$1,085
$1,739
$1,979
$2,051
$12,798
$592
$475
$1,067
Total$6,091 $3,256 $718 $1,283 $1,466 $1,526 $14,340 $498 $416 $914 
Origination LTV Origination LTV
≤70%$1,578
$3,120
$771
$1,290
$1,669
$1,453
$9,881
$432
$331
$763
≤70%$5,064 $2,552 $506 $967 $1,243 $1,081 $11,413 $368 $294 $662 
>70% – ≤90%374
872
314
449
310
594
2,913
160
139
299
>70% – ≤90%1,027 704 212 316 223 442 2,924 130 118 248 
>90% – ≤100%—
—
—
—
—
4
4
—
5
5
>90% – ≤100%0 0 0 0 0 3 3 0 4 4 
Total$1,952
$3,992
$1,085
$1,739
$1,979
$2,051
$12,798
$592
$475
$1,067
Total$6,091 $3,256 $718 $1,283 $1,466 $1,526 $14,340 $498 $416 $914 
Weighted Average
Updated FICO		 Weighted Average
Updated FICO
<620$4
$5
$3
$5
$4
$24
$45
$5
$14
$19
<620$6 $4 $2 $3 $1 $18 $34 $3 $11 $14 
620 – 67914
49
23
23
21
54
184
14
21
35
620 – 67947 37 18 24 20 38 184 15 22 37 
680 – 739192
385
135
184
177
264
1,337
84
75
159
680 – 739514 300 92 148 129 196 1,379 65 61 126 
≥7401,742
3,553
924
1,527
1,777
1,709
11,232
489
365
854
≥7405,524 2,915 606 1,108 1,316 1,274 12,743 415 322 737 
Total$1,952
$3,992
$1,085
$1,739
$1,979
$2,051
$12,798
$592
$475
$1,067
Total$6,091 $3,256 $718 $1,283 $1,466 $1,526 $14,340 $498 $416 $914 
Estimated Current LTV (1)
 
Estimated Current LTV (1)
≤70%$1,578
$3,168
$884
$1,646
$1,956
$2,026
$11,258
$558
$450
$1,008
≤70%$5,198 $2,802 $650 $1,251 $1,457 $1,512 $12,870 $478 $400 $878 
>70% – ≤90%374
824
199
93
23
22
1,535
34
20
54
>70% – ≤90%893 454 68 32 9 13 1,469 20 13 33 
>90% – ≤100%—
—
2
—
—
2
4
—
3
3
>90% – ≤100%0 0 0 0 0 0 0 0 2 2 
>100%—
—
—
—
—
1
1
—
2
2
>100%0 0 0 0 0 1 1 0 1 1 
Total$1,952
$3,992
$1,085
$1,739
$1,979
$2,051
$12,798
$592
$475
$1,067
Total$6,091 $3,256 $718 $1,283 $1,466 $1,526 $14,340 $498 $416 $914 
Percent of Loans on
Nonaccrual Status		0.03%0.03%0.03%0.05%0.08%0.34%0.09%0.14%1.69%0.84%Percent of Loans on
Nonaccrual Status		0.09 %0.05 %0.01 %0.15 %0.17 %0.99 %0.18 %0.63 %2.74 %1.64 %
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.

March 31, 2020 Balance Weighted Average Updated FICO Percent of Loans on Nonaccrual Status
September 30, 2020September 30, 2020BalanceWeighted Average Updated FICOPercent of Loans on Nonaccrual Status
Pledged Asset Lines     Pledged Asset Lines
Weighted-Average LTV (1)
     
Weighted-Average LTV (1)
=70% $5,467
 769
 —=70%$6,885 772 0 
(1) Represents the LTV for the full line of credit (drawn and undrawn).

- 50 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

First Mortgages Amortized Cost Basis by Origination Year First Mortgages Amortized Cost Basis by Origination Year
December 31, 20192019201820172016pre-2016Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCsDecember 31, 20192019201820172016pre-2016Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
Origination FICO Origination FICO
<620$—
$—
$—
$—
$3
$3
$—
$—
$—
<620$0 $0 $0 $0 $3 $3 $0 $0 $0 
620 – 67912
6
14
20
25
77
1
4
5
620 – 67912 6 14 20 25 77 1 4 5 
680 – 739478
220
304
290
421
1,713
114
105
219
680 – 739478 220 304 290 421 1,713 114 105 219 
≥7403,512
1,058
1,593
1,839
1,909
9,911
496
397
893
≥7403,512 1,058 1,593 1,839 1,909 9,911 496 397 893 
Total$4,002
$1,284
$1,911
$2,149
$2,358
$11,704
$611
$506
$1,117
Total$4,002 $1,284 $1,911 $2,149 $2,358 $11,704 $611 $506 $1,117 
Origination LTV Origination LTV
≤70%$3,104
$906
$1,427
$1,812
$1,679
$8,928
$444
$354
$798
≤70%$3,104 $906 $1,427 $1,812 $1,679 $8,928 $444 $354 $798 
>70% – ≤90%898
378
484
337
676
2,773
167
147
314
>70% – ≤90%898 378 484 337 676 2,773 167 147 314 
>90% – ≤100%—
—
—
—
3
3
—
5
5
>90% – ≤100%0 0 0 0 3 3 0 5 5 
Total$4,002
$1,284
$1,911
$2,149
$2,358
$11,704
$611
$506
$1,117
Total$4,002 $1,284 $1,911 $2,149 $2,358 $11,704 $611 $506 $1,117 
Weighted Average
Updated FICO		 Weighted Average
Updated FICO
<620$5
$4
$5
$3
$25
$42
$6
$15
$21
<620$5 $4 $5 $3 $25 $42 $6 $15 $21 
620 – 67945
36
32
26
68
207
18
22
40
620 – 67945 36 32 26 68 207 18 22 40 
680 – 739474
153
213
199
307
1,346
92
80
172
680 – 739474 153 213 199 307 1,346 92 80 172 
≥7403,478
1,091
1,661
1,921
1,958
10,109
495
389
884
≥7403,478 1,091 1,661 1,921 1,958 10,109 495 389 884 
Total$4,002
$1,284
$1,911
$2,149
$2,358
$11,704
$611
$506
$1,117
Total$4,002 $1,284 $1,911 $2,149 $2,358 $11,704 $611 $506 $1,117 
Estimated Current LTV (1)
 
Estimated Current LTV (1)
≤70%$3,125
$1,018
$1,790
$2,119
$2,330
$10,382
$578
$478
$1,056
≤70%$3,125 $1,018 $1,790 $2,119 $2,330 $10,382 $578 $478 $1,056 
>70% – ≤90%877
265
121
30
27
1,320
33
23
56
>70% – ≤90%877 265 121 30 27 1,320 33 23 56 
>90% – ≤100%—
1
—
—
1
2
—
3
3
>90% – ≤100%0 1 0 0 1 2 0 3 3 
>100%—
—
—
—
—
—
—
2
2
>100%0 0 0 0 0 0 0 2 2 
Total$4,002
$1,284
$1,911
$2,149
$2,358
$11,704
$611
$506
$1,117
Total$4,002 $1,284 $1,911 $2,149 $2,358 $11,704 $611 $506 $1,117 
Percent of Loans on
Nonaccrual Status		0.04%0.04%0.04%0.08%0.25%0.09%0.19%1.57%0.83%Percent of Loans on
Nonaccrual Status		0.04 %0.04 %0.04 %0.08 %0.25 %0.09 %0.19 %1.57 %0.83 %
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.
December 31, 2019 Balance Weighted Average Updated FICO Percent of Loans on Nonaccrual Status
Pledged Asset Lines      
Weighted-Average LTV (1)
      
=70% $5,206
 766
 —

December 31, 2019BalanceWeighted Average Updated FICOPercent of Loans on Nonaccrual Status
Pledged Asset Lines
Weighted-Average LTV (1)
=70%$5,206 766 0 
(1) Represents the LTV for the full line of credit (drawn and undrawn).

At March 31,September 30, 2020, First Mortgage loans of $11.4$12.6 billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 25%26% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 72%76% of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates.
At March 31,September 30, 2020 and December 31, 2019, Schwab had $45 million and $46 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the condensed consolidated balance sheets.

- 51 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

The HELOC product has a 30-year loan term with an initial draw period of ten years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a 20-year amortizing loan. The interest rate during the initial draw period and the 20-year amortizing period is a floating rate based on the prime rate plus a margin.

The following table presents HELOCs converted to amortizing loans during each period presented:
Three Months Ended March 31, 2020 March 31, 2019
HELOCs converted to amortizing loans $11
 $25

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
HELOCs converted to amortizing loans$9 $13 $25 $41 

The following table presents when current outstanding HELOCs will convert to amortizing loans:
March 31, 2020 Balance
Converted to an amortizing loan by period end $475
Within 1 year 43
> 1 year – 3 years 83
> 3 years – 5 years 138
> 5 years 328
Total $1,067
September 30, 2020Balance
Converted to an amortizing loan by period end$416 
Within 1 year37 
> 1 year – 3 years83 
> 3 years – 5 years112 
> 5 years266 
Total$914 


At March 31,September 30, 2020, $867$731 million of the HELOC portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At March 31,September 30, 2020, the borrowers on approximately 53% of HELOC loan balances outstanding only paid the minimum amount due.


6.7.    Variable Interest Entities
As of March 31,September 30, 2020 and December 31, 2019, all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s Community Reinvestment Act (CRA)-related investments and most of those are related to Low-Income Housing Tax Credit (LIHTC)LIHTC investments. As part of CSB’s community reinvestment initiatives, CSB invests in funds that make equity investments in multifamily affordable housing properties and receives tax credits and other tax benefits for these investments.
Aggregate assets, liabilities and maximum exposure to loss
The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below:
 March 31, 2020 December 31, 2019September 30, 2020December 31, 2019
 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss		 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss		Aggregate
assets		Aggregate
liabilities		Maximum
exposure
to loss		Aggregate
assets		Aggregate
liabilities		Maximum
exposure
to loss
LIHTC investments (1)
 $513
 $261
 $513
 $516
 $275
 $516
LIHTC investments (1)
$583 $292 $583 $516 $275 $516 
Other CRA investments (2)
 117
 —
 152
 120
 —
 154
Other CRA investments (2)
116 0 151 120 0 154 
Total $630
 $261
 $665
 $636
 $275
 $670
Total$699 $292 $734 $636 $275 $670 
(1) Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets.
(2) Other CRA investments are recorded using either the adjusted cost method, equity method, heldaccounted for investmentas loans at amortized cost, equity method investments, AFS securities, or as AFS securities.using the adjusted cost method. Aggregate assets are included in AFS securities, bank loans – net, or other assets on the condensed consolidated balance sheets.

Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. CSB’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and CSB expects to pay substantially all of these commitments between 2020 and 2023. During the threenine months ended March 31,September 30, 2020 and year ended
- 52 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

ended December 31, 2019, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide.


7.8.    Bank Deposits

Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:
September 30, 2020December 31, 2019
Interest-bearing deposits:  
Deposits swept from brokerage accounts$298,344 $201,531 
Checking15,508 12,650 
Savings and other6,131 5,168 
Total interest-bearing deposits319,983 219,349 
Non-interest-bearing deposits734 745 
Total bank deposits$320,717 $220,094 

 March 31, 2020 December 31, 2019
Interest-bearing deposits:    
Deposits swept from brokerage accounts $257,370
 $201,531
Checking 13,657
 12,650
Savings and other 5,750
 5,168
Total interest-bearing deposits 276,777
 219,349
Non-interest-bearing deposits 700
 745
Total bank deposits $277,477
 $220,094



- 53 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

8.9.    Borrowings

CSC’s Senior Notes are unsecured obligations. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. The following table lists long-term debt by instrument outstanding as of March 31,September 30, 2020 and December 31, 2019.
Date ofPrincipal Amount Outstanding
IssuanceSeptember 30, 2020December 31, 2019
Fixed-rate Senior Notes:
4.450% due July 22, 2020 (1)
07/22/10$0 $700 
3.250% due May 21, 202105/22/18600 600 
3.225% due September 1, 202208/29/12256 256 
2.650% due January 25, 202312/07/17800 800 
3.550% due February 1, 202410/31/18500 500 
3.000% due March 10, 202503/10/15375 375 
4.200% due March 24, 202503/24/20600 0 
3.850% due May 21, 202505/22/18750 750 
3.450% due February 13, 202611/13/15350 350 
3.200% due March 2, 202703/02/17650 650 
3.200% due January 25, 202812/07/17700 700 
4.000% due February 1, 202910/31/18600 600 
3.250% due May 22, 202905/22/19600 600 
4.625% due March 22, 203003/24/20500 0 
Floating-rate Senior Notes:
Three-month LIBOR +0.32% due May 21, 202105/22/18600 600 
Total Senior Notes7,881 7,481 
0.610% Finance lease obligation
07/01/207 0 
Unamortized discount — net(12)(14)
Debt issuance costs(40)(37)
Total long-term debt$7,836 $7,430 
 Date ofPrincipal Amount Outstanding
 IssuanceMarch 31, 2020December 31, 2019
Fixed-rate Senior Notes:   
4.450% due July 22, 202007/22/10$700
$700
3.250% due May 21, 202105/22/18600
600
3.225% due September 1, 202208/29/12256
256
2.650% due January 25, 202312/07/17800
800
3.550% due February 1, 202410/31/18500
500
3.000% due March 10, 202503/10/15375
375
4.200% due March 24, 202503/24/20600
—
3.850% due May 21, 202505/22/18750
750
3.450% due February 13, 202611/13/15350
350
3.200% due March 2, 202703/02/17650
650
3.200% due January 25, 202812/07/17700
700
4.000% due February 1, 202910/31/18600
600
3.250% due May 22, 202905/22/19600
600
4.625% due March 22, 203003/24/20500
—
Floating-rate Senior Notes:   
Three-month LIBOR + 0.32% due May 21, 202105/22/18600
600
Total Senior Notes 8,581
7,481
Unamortized discount — net (14)(14)
Debt issuance costs (45)(37)
Total long-term debt $8,522
$7,430
(1) Matured on July 22, 2020.




Annual maturities on all long-term debt outstanding at March 31,September 30, 2020 are as follows:
MaturitiesMaturities
2020$700
2020$0 
20211,200
20211,200 
2022256
2022256 
2023800
2023807 
2024500
2024500 
Thereafter5,125
Thereafter5,125 
Total maturities8,581
Total maturities7,888 
Unamortized discount — net(14)Unamortized discount — net(12)
Debt issuance costs(45)Debt issuance costs(40)
Total long-term debt$8,522
Total long-term debt$7,836 

- 54 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Short-term borrowings: Our banking subsidiaries maintain secured credit facilities with the FHLB. Amounts available under these facilities are dependent on the amount of our First Mortgages, HELOCs, and the fair value of certain of their investment

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

securities that are pledged as collateral. As of March 31,September 30, 2020 and December 31, 2019, the collateral pledged provided a total borrowing capacity of $43.6$45.5 billion and $34.2 billion, respectively, of which 0 amounts were outstanding at the end of either period.

As a condition of the FHLB borrowings, we are required to hold FHLB stock, which was recorded in other assets on the condensed consolidated balance sheets. The investment in FHLB was $47 million and $35 million at March 31,September 30, 2020 and December 31, 2019.2019, respectively.

Additionally, our banking subsidiaries have access to funding through the Federal Reserve discount window. Amounts available are dependent upon the fair value of certain investment securities that are pledged as collateral. As of March 31,September 30, 2020 and December 31, 2019, the collateral pledged provided total borrowing capacity of $8.2$7.6 billion and $8.5 billion, respectively, of which 0 amounts were outstanding at the end of either period.

During the first quarter of 2020, CSB and CSPB became members of the Federal Reserve. As a condition of our Federal Reserve membership, we are required to hold Federal Reserve stock, which totaled $182$190 million at March 31,September 30, 2020.


TDA Senior Notes

9.As of October 6, 2020, the effective date of our acquisition of TD Ameritrade, TD Ameritrade’s debt outstanding was recognized at provisional fair value and with no change in existing terms. The TD Ameritrade debt outstanding on the acquisition date included $3.6 billion par value of TDA Senior Notes. These notes are unsecured obligations. TDA Holding may redeem some or all of the TDA Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate TDA Senior Notes and quarterly for the floating-rate TDA Senior Notes.

The following table details the TDA Senior Notes outstanding as of October 6, 2020.

Date of issuancePrincipal Amount Outstanding
Fixed-rate TDA Senior Notes:
2.950% due April 1, 202203/09/15$750 
3.750% due April 1, 202411/01/18400 
3.625% due April 1, 202510/22/14500 
3.300% due April 1, 202704/27/17800 
2.750% due October 1, 202908/16/19500 
Floating-rate TDA Senior Notes:
Three-month LIBOR + 0.43% due November 1, 202111/01/18600 
Total TDA Senior Notes principal outstanding (1)
$3,550 
(1) The TDA Senior Notes were recorded at fair value as of the date of acquisition on October 6, 2020. See Note 3.


- 55 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
10.    Commitments and Contingencies

Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Quicken Loans, Inc. (Quicken Loans®). Pursuant to the Program, Quicken Loans originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. CSB purchased First Mortgages of $2.2$1.6 billion and $411$842 million during the third quarters of 2020 and 2019, respectively, and $6.5 billion and $2.0 billion during the first quartersnine months of 2020 and 2019, respectively. CSB purchased HELOCs with commitments of $107$122 million and $62$52 million during the third quarters of 2020 and 2019, respectively, and $362 million and $180 million during the first quartersnine months of 2020 and 2019, respectively.

The Company’s commitments to extend credit on bank lines of credit and to purchase First Mortgages are as follows:
September 30, 2020December 31, 2019
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit$8,784 $10,753 
Commitments to purchase First Mortgage loans2,238 1,521 
Total$11,022 $12,274 
 March 31, 2020 December 31, 2019
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit$9,708
 $10,753
Commitments to purchase First Mortgage loans3,095
 1,521
Total$12,803
 $12,274


Guarantees and indemnifications: Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We partially satisfy the margin requirements by arranging unsecured standby letter of credit agreements (LOCs), in favor of the Options Clearing Corporation, which are issued by several banks. At March 31,September 30, 2020, the aggregate face amount of these LOCs totaled $20$15 million. There were 0 funds drawn under any of these LOCs at March 31,September 30, 2020. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral.

Schwab also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. Schwab’s liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. At March 31,September 30, 2020, amounts posted as collateral with such clearing houses and exchanges included $212$242 million of U.S. Treasury securities, which are included in other assets on the condensed consolidated balance sheet. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, 0 liability has been recognized for these guarantees.

Acquisition of TD Ameritrade: On November 25, 2019, CSC announced a definitive agreement to acquire TD Ameritrade in an all-stock transaction. At the time of announcement, TD Ameritrade had approximately 12000000 brokerage accounts and $1.3 trillion in total client assets. Under the agreement, TD Ameritrade stockholders will receive 1.0837 CSC shares for each TD Ameritrade share. Based on the closing price of CSC common stock on November 20, 2019, the merger consideration represented approximately $26 billion. The transaction is expected to close in the second half of 2020, subject to satisfaction of closing conditions. Under certain circumstances, CSC or TD Ameritrade could be required to pay the other party a termination fee of $950 million or reimburse the other party’s fees up to $50 million.

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Acquisition of USAA-IMCO: On July 25, 2019, the Company announced a definitive agreement to acquire assets of USAA-IMCO, including over 1000000 brokerage and managed portfolio accounts with approximately $90 billion in client assets at the time of announcement, for $1.8 billion in cash. The companies have also agreed to enter into a long-term referral agreement, effective at closing of the acquisition, that would make Schwab the exclusive wealth management and brokerage provider for USAA members. The transaction is expected to close in mid-2020, subject to satisfaction of closing conditions, including regulatory approvals and the implementation of conversion plans.

Legal contingencies: Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies.

Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available.

Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are matters in which there is a reasonable possibility of a material loss, or where the matter may otherwise be of significant interest to stockholders. Unless noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information
- 56 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company.

Crago Order Routing Litigation: On July 13, 2016, a securities class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of a putative class of customers executing equity orders through CS&Co. The lawsuit names CS&Co and CSC as defendants and alleges that an agreement under which CS&Co routed orders to UBS Securities LLC between July 13, 2011 and December 31, 2014 violated CS&Co’s duty to seek best execution. Plaintiffs seek unspecified damages, interest, injunctive and equitable relief, and attorneys’ fees and costs. After a first amended complaint was dismissed with leave to amend, plaintiffs filed a second amended complaint on August 14, 2017. Defendants again moved to dismiss, and in a decision issued December 5, 2017, the court denied the motion. Defendants have answered the complaint to deny all allegations, and are vigorously contesting the lawsuit.

TD Ameritrade Acquisition Litigation: Since March 10, 2020, six lawsuitsAs disclosed previously, Schwab and TD Ameritrade have been filed by purported TD Ameritrade stockholdersresponding to a lawsuit challenging the sufficiency of disclosuresacquisition which was filed on May 12, 2020 in the Form S-4 Registration Statement filedDelaware Court of Chancery (Hawkes v. Bettino et al.) on that date with the SEC in connection with Schwab’sbehalf of a proposed acquisitionclass of TD Ameritrade. All six lawsuits name the membersAmeritrade’s stockholders, excluding, among others, TD Bank. The complaint names as defendants each member of the TD Ameritrade board of directors at the time the acquisition was approved, as defendants. Twowell as TD Bank and Schwab. On June 11, 2020, plaintiff dismissed a claim that had sought to enjoin voting on or consummation of the lawsuits also nameacquisition. Still pending are separate claims asserted in the complaint for breach of fiduciary duty by certain members of the TD Ameritrade board, TD Bank, and against Schwab as a defendant. In additionfor aiding and abetting such breaches, the allegation being that the amendment of the Insured Deposit Account Agreement TD Bank negotiated directly with Schwab allowed TD Bank to divert merger consideration from TD Ameritrade’s minority public stockholders. Plaintiff seeks to recover monetary damages, costs and fees,attorneys’ fees. Schwab and the lawsuits seekother defendants consider the allegations to enjoinbe entirely without merit and are contesting the voteremaining claims in the lawsuit.

Acquisition of TD Ameritrade

Effective October 6, 2020, the Company acquired TD Ameritrade. The contractual obligations of TD Ameritrade stockholders andat the closingtime of acquisition are primarily comprised of the acquisition;TDA Senior Notes, as detailed in Note 9. TD Ameritrade’s broker-dealer and FCM/FDM subsidiaries’ operations include the execution, settlement, and financing of various client securities, options, futures and foreign exchange transactions. These activities may expose TD Ameritrade to credit risk and losses in the event the transaction is consummated,clients are unable to set aside the transaction and obtain rescissionary damages. The Company considers the complaintsfulfill their contractual obligations.

Similar to be without merit and would expect to contest the claims in due course.

Complaints filed are as follows: Kent v.Schwab, TD Ameritrade Holding Corporation et al.is a member of and provides guarantees to securities clearing houses and exchanges under standard membership agreements. TD Ameritrade also engages third-party firms to clear its clients’ futures and options on futures transactions and to facilitate clients’ foreign exchange trading. TD Ameritrade has agreed to indemnify these firms for any loss that they may incur from the client transactions introduced to them by TD Ameritrade.

,
As of the effective date of the acquisition, TD Ameritrade’s legal contingencies include a variety of litigation claims and demands and regulatory investigations and other government proceedings, including, among other things, a putative class action filed March 18, 2020 in U.S. District Court forregarding the Districtrouting of Delaware (Schwab entities named); client orders as discussed below.

Ford Order Routing LitigationStein v.: On September 15, 2014, TDA Holding, TD Ameritrade, Holding Corporation et al., filed March 23, 2020 in U.S. District Court for the DistrictInc. and its former CEO, Frederick J. Tomczyk, were sued on behalf of Delaware; Roth v. TD Ameritrade Holding Corporation et al., filed March 30, 2020 in United States District Court for the District of New Jersey; Litwin v. TD Ameritrade Holding Corporation et al., filed April 2, 2020 in U.S. District Court for the District of New Jersey; Bernstein v. TD Ameritrade Holding Corporation et al., a putative class action filed April 6, 2020 in U.S.of TD Ameritrade, Inc. clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices. Plaintiffs seek unspecified damages and injunctive and other relief. On September 14, 2018, the District Court granted plaintiff’s motion for class certification, and defendants petitioned for an immediate appeal of the District Court’s class certification decision. The U.S. Court of New Jersey (CSC named);Appeals, 8th Circuit, granted defendants’ petition on December 18, 2018, and Garrison v. TD Ameritrade Holding Corporation et al., filed April 6, 2020 in U.S District Court fora decision on defendants’ appeal is pending. Defendants are vigorously contesting the Southern District of New York. lawsuit, and the Company is unable to predict the outcome or the potential loss, if any, that may result.


- 57 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

10.11.     Financial Instruments Subject to Off-Balance Sheet Credit Risk

Resale agreements: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investment requirement. Schwab’s resale agreements are not subject to master netting arrangements.

Securities lending: Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $73$503 million and $719 million at March 31,September 30, 2020 and December 31, 2019, respectively. Most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets.
- 58 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

The following table presents information about our resale agreements and securities lending activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities.
Gross
Assets/
Liabilities		Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets		Net Amounts
Presented in the
Condensed
Consolidated
Balance Sheets		Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets		Net
Amount
 Gross
Assets/
Liabilities		 Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets		 Net Amounts
Presented in the
Condensed
Consolidated
Balance Sheets		 Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets		 Net
Amount		Counterparty
Offsetting		Collateral
 Counterparty
Offsetting		 Collateral 
March 31, 2020            
September 30, 2020September 30, 2020
Assets            Assets      
Resale agreements (1)
 $17,044
 $—
 $17,044
 $—
 $(17,044)
(2) 
 $—
Resale agreements (1)
$13,711 $0 $13,711 $0 $(13,711)(2)$0 
Securities borrowed (3)
 78
 —
 78
 (71) (6) 1
Securities borrowed (3)
516 0 516 (507)(8)1 
Total $17,122
 $—
 $17,122
 $(71) $(17,050) $1
Total$14,227 $0 $14,227 $(507)$(13,719)$1 
Liabilities            Liabilities      
Securities loaned (4,5)
 $1,335
 $—
 $1,335
 $(71) $(1,106) $158
Securities loaned (4,5)
$1,432 $0 $1,432 $(507)$(789)$136 
Total $1,335
 $—
 $1,335
 $(71) $(1,106) $158
Total$1,432 $0 $1,432 $(507)$(789)$136 
            
December 31, 2019            December 31, 2019      
Assets            Assets      
Resale agreements (1)
 $9,028
 $—
 $9,028
 $—
 $(9,028)
(2) 
 $—
Resale agreements (1)
$9,028 $0 $9,028 $0 $(9,028)(2)$0 
Securities borrowed (3)
 735
 —
 735
 (730) (5) —
Securities borrowed (3)
735 0 735 (730)(5)0 
Total $9,763
 $—
 $9,763
 $(730) $(9,033) $—
Total$9,763 $0 $9,763 $(730)$(9,033)$0 
Liabilities            Liabilities      
Securities loaned (4,5)
 $1,251
 $—
 $1,251
 $(730) $(445) $76
Securities loaned (4,5)
$1,251 $0 $1,251 $(730)$(445)$76 
Total $1,251
 $—
 $1,251
 $(730) $(445) $76
Total$1,251 $0 $1,251 $(730)$(445)$76 
(1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets.
(2) Actual collateral was greater than or equal to the value of the related assets. At March 31,September 30, 2020 and December 31, 2019, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $17.2$13.9 billion and $9.2 billion, respectively.
(3) Included in other assets in the condensed consolidated balance sheets.
(4) Included in accrued expenses and other liabilities in the condensed consolidated balance sheets. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at March 31,September 30, 2020 and December 31, 2019.
(5) Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities.

Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged under such regulations and from securities borrowed transactions:
 March 31, 2020 December 31, 2019September 30, 2020December 31, 2019
Fair value of client securities available to be pledgedFair value of client securities available to be pledged $22,896
 $26,685
Fair value of client securities available to be pledged$31,828 $26,685 
Fair value of securities pledged for:Fair value of securities pledged for:    Fair value of securities pledged for:
Fulfillment of requirements with the Options Clearing Corporation (1)
Fulfillment of requirements with the Options Clearing Corporation (1)
 $4,622
 $2,171
Fulfillment of requirements with the Options Clearing Corporation (1)
$4,808 $2,171 
Fulfillment of client short salesFulfillment of client short sales 2,102
 2,293
Fulfillment of client short sales2,964 2,293 
Securities lending to other broker-dealersSecurities lending to other broker-dealers 1,277
 1,017
Securities lending to other broker-dealers1,119 1,017 
Total collateral pledgedTotal collateral pledged $8,001
 $5,481
Total collateral pledged$8,891 $5,481 
Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $104$162 million as of March 31,September 30, 2020 and $142 million as of December 31, 2019.
(1)
(1)     Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.
Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.



- 59 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

11.12.    Fair Values of Assets and Liabilities

Assets and liabilities measured at fair value on a recurring basis

Schwab’s assets and liabilities measured at fair value on a recurring basis include: certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, and certain other assets. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. Quoted prices for investments in exchange-traded securities represent end-of-day close prices published by exchanges. Quoted prices for money market funds and other mutual funds represent reported net asset values. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices in active markets do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. We generally obtain prices from three independent third-party pricing sources for assets recorded at fair value.

Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposit; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, 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. We compare the prices obtained from the 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. Schwab 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 material differences in the amounts recorded.

For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2019 Form 10-K. The Company did not adjust prices received from the primary independent third-party pricing service at March 31,September 30, 2020 or December 31, 2019.



- 60 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets measured at fair value on a recurring basis. Liabilities recorded at fair value were not material, and therefore are not included in the following tables:
March 31, 2020Level 1 Level 2 Level 3 Balance at
Fair Value
September 30, 2020September 30, 2020Level 1Level 2Level 3Balance at
Fair Value
Cash equivalents:       Cash equivalents:
Money market funds$5,152
 $—
 $—
 $5,152
Money market funds$3,757 $0 $0 $3,757 
Commercial paper—
 4,057
 —
 4,057
Total cash equivalents5,152
 4,057
 —
 9,209
Total cash equivalents3,757 0 0 3,757 
Investments segregated and on deposit for regulatory purposes:       Investments segregated and on deposit for regulatory purposes:
Certificates of deposit—
 1,949
 —
 1,949
Certificates of deposit0 901 0 901 
U.S. Government securities—
 12,649
 —
 12,649
U.S. Government securities0 13,173 0 13,173 
Total investments segregated and on deposit for regulatory purposes—
 14,598
 —
 14,598
Total investments segregated and on deposit for regulatory purposes0 14,074 0 14,074 
Available for sale securities:       Available for sale securities:
U.S. agency mortgage-backed securities—
 179,595
 —
 179,595
U.S. agency mortgage-backed securities0 258,266 0 258,266 
Asset-backed securities—
 22,481
 —
 22,481
Asset-backed securities0 19,321 0 19,321 
Corporate debt securities—
 11,222
 —
 11,222
Corporate debt securities0 13,580 0 13,580 
U.S. Treasury securities—
 3,664
 —
 3,664
U.S. Treasury securities0 7,902 0 7,902 
U.S. state and municipal securities—
 1,578
 —
 1,578
U.S. state and municipal securities0 1,690 0 1,690 
Non-agency commercial mortgage-backed securities—
 1,226
 —
 1,226
Non-agency commercial mortgage-backed securities0 1,266 0 1,266 
Certificates of deposit—
 998
 —
 998
Certificates of deposit0 501 0 501 
Commercial paper—
 396
 —
 396
Foreign government agency securities—
 51
 —
 51
Foreign government agency securities0 1,210 0 1,210 
Other—
 21
 —
 21
Other0 22 0 22 
Total available for sale securities—
 221,232
 —
 221,232
Total available for sale securities0 303,758 0 303,758 
Other assets:       Other assets:
Equity and bond mutual funds379
 —
 —
 379
Equity and bond mutual funds352 0 0 352 
U.S. Government securities—
 251
 —
 251
U.S. Government securities0 276 0 276 
State and municipal debt obligations—
 41
 —
 41
State and municipal debt obligations0 22 0 22 
Equity, corporate debt, and other securities3
 21
 —
 24
Equity, corporate debt, and other securities94 37 0 131 
Total other assets382
 313
 —
 695
Total other assets446 335 0 781 
Total$5,534
 $240,200
 $—
 $245,734
Total$4,203 $318,167 $0 $322,370 
- 61 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

December 31, 2019Level 1Level 2Level 3Balance at
Fair Value
Cash equivalents:
Money market funds$5,179 $0 $0 $5,179 
Commercial paper0 2,498 0 2,498 
Total cash equivalents5,179 2,498 0 7,677 
Investments segregated and on deposit for regulatory purposes:
Certificates of deposit0 1,351 0 1,351 
U.S. Government securities0 7,276 0 7,276 
Total investments segregated and on deposit for regulatory purposes0 8,627 0 8,627 
Available for sale securities:
U.S. agency mortgage-backed securities0 46,155 0 46,155 
Corporate debt securities0 5,484 0 5,484 
Asset-backed securities0 4,987 0 4,987 
U.S. Treasury securities0 3,384 0 3,384 
Certificates of deposit0 1,004 0 1,004 
Commercial paper0 395 0 395 
Non-agency commercial mortgage-backed securities0 13 0 13 
Total available for sale securities0 61,422 0 61,422 
Other assets:
Equity and bond mutual funds442 0 0 442 
U.S. Government securities0 202 0 202 
State and municipal debt obligations0 47 0 47 
Equity, corporate debt, and other securities5 22 0 27 
Total other assets447 271 0 718 
Total$5,626 $72,818 $0 $78,444 
December 31, 2019Level 1 Level 2 Level 3 Balance at
Fair Value
Cash equivalents:       
Money market funds$5,179
 $—
 $—
 $5,179
Commercial paper—
 2,498
 —
 2,498
Total cash equivalents5,179
 2,498
 —
 7,677
Investments segregated and on deposit for regulatory purposes:       
Certificates of deposit—
 1,351
 —
 1,351
U.S. Government securities—
 7,276
 —
 7,276
Total investments segregated and on deposit for regulatory purposes—
 8,627
 —
 8,627
Available for sale securities:       
U.S. agency mortgage-backed securities—
 46,155
 —
 46,155
Corporate debt securities—
 5,484
 —
 5,484
Asset-backed securities—
 4,987
 —
 4,987
U.S. Treasury securities—
 3,384
 —
 3,384
Certificates of deposit—
 1,004
 —
 1,004
Commercial paper—
 395
 —
 395
Non-agency commercial mortgage-backed securities—
 13
 —
 13
Total available for sale securities—
 61,422
 —
 61,422
Other assets:       
Equity and bond mutual funds442
 —
 —
 442
U.S. Government securities—
 202
 —
 202
State and municipal debt obligations—
 47
 —
 47
Equity, corporate debt, and other securities5
 22
 —
 27
Total other assets447
 271
 —
 718
Total$5,626
 $72,818
 $—
 $78,444
- 62 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Fair Value of Other Financial Instruments
The following tables present the fair value hierarchy for other financial instruments:
September 30, 2020Carrying
Amount		Level 1Level 2Level 3Balance at
Fair Value
Assets     
Cash and cash equivalents$23,708 $23,708 $0 $0 $23,708 
Cash and investments segregated and on deposit for
regulatory purposes		15,494 1,772 13,722 0 15,494 
Receivables from brokerage clients — net25,438 0 25,438 0 25,438 
Bank loans — net:     
First Mortgages14,319 0 14,733 0 14,733 
HELOCs908 0 900 0 900 
Pledged asset lines6,885 0 6,885 0 6,885 
Other174 0 174 0 174 
Total bank loans — net22,286 0 22,692 0 22,692 
Other assets1,617 0 1,617 0 1,617 
Liabilities     
Bank deposits$320,717 $0 $320,717 $0 $320,717 
Payables to brokerage clients52,006 0 52,006 0 52,006 
Accrued expenses and other liabilities2,208 0 2,208 0 2,208 
Long-term debt7,829 0 8,717 0 8,717 
December 31, 2019Carrying
Amount		Level 1Level 2Level 3Balance at
Fair Value
Assets     
Cash and cash equivalents$21,668 $21,668 $0 $0 $21,668 
Cash and investments segregated and on deposit for
regulatory purposes		11,807 2,792 9,015 0 11,807 
Receivables from brokerage clients — net21,763 0 21,763 0 21,763 
Held to maturity securities:    
U.S. agency mortgage-backed securities109,325 0 110,566 0 110,566 
Asset-backed securities17,806 0 17,771 0 17,771 
Corporate debt securities4,661 0 4,718 0 4,718 
U.S. state and municipal securities1,301 0 1,404 0 1,404 
Non-agency commercial mortgage-backed securities1,119 0 1,141 0 1,141 
U.S. Treasury securities223 0 228 0 228 
Certificates of deposit200 0 200 0 200 
Foreign government agency securities50 0 50 0 50 
Other21 0 21 0 21 
Total held to maturity securities134,706 0 136,099 0 136,099 
Bank loans — net:     
First Mortgages11,693 0 11,639 0 11,639 
HELOCs1,113 0 1,153 0 1,153 
Pledged asset lines5,206 0 5,206 0 5,206 
Other200 0 200 0 200 
Total bank loans — net18,212 0 18,198 0 18,198 
Other assets1,014 0 1,014 0 1,014 
Liabilities     
Bank deposits$220,094 $0 $220,094 $0 $220,094 
Payables to brokerage clients39,220 0 39,220 0 39,220 
Accrued expenses and other liabilities1,882 0 1,882 0 1,882 
Long-term debt7,430 0 7,775 0 7,775 
- 63 -
March 31, 2020Carrying
Amount		 Level 1 Level 2 Level 3 Balance at
Fair Value
Assets         
Cash and cash equivalents$59,249
 $59,249
 $—
 $—
 $59,249
Cash and investments segregated and on deposit for
regulatory purposes		19,668
 2,637
 17,031
 —
 19,668
Receivables from brokerage clients — net18,998
 —
 18,998
 —
 18,998
Bank loans — net:         
First Mortgages12,777
 —
 12,969
 —
 12,969
HELOCs1,063
 —
 1,054
 —
 1,054
Pledged asset lines5,467
 —
 5,467
 —
 5,467
Other214
 —
 214
 —
 214
Total bank loans — net19,521
 —
 19,704
 —
 19,704
Other assets812
 —
 812
 —
 812
Liabilities         
Bank deposits$277,477
 $—
 $277,477
 $—
 $277,477
Payables to brokerage clients49,251
 —
 49,251
 —
 49,251
Accrued expenses and other liabilities4,648
 —
 4,648
 —
 4,648
Long-term debt8,522
 —
 8,736
 —
 8,736


THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

13.    Stockholders’ Equity
On April 30, 2020, the Company issued and sold 2,500,000 depositary shares, each representing a 1/100th ownership interest in a share of 5.375% fixed-rate reset non-cumulative perpetual preferred stock, Series G, $0.01 par value per share, with a liquidation preference of $100,000 per share (equivalent to $1,000 per Depositary Share). The net proceeds of the offering were approximately $2.47 billion, after deducting the underwriting discount and offering expenses.
December 31, 2019Carrying
Amount		 Level 1 Level 2 Level 3 Balance at
Fair Value
Assets         
Cash and cash equivalents$21,668
 $21,668
 $—
 $—
 $21,668
Cash and investments segregated and on deposit for
regulatory purposes		11,807
 2,792
 9,015
 —
 11,807
Receivables from brokerage clients — net21,763
 —
 21,763
 —
 21,763
Held to maturity securities:         
U.S. agency mortgage-backed securities109,325
 —
 110,566
 —
 110,566
Asset-backed securities17,806
 —
 17,771
 —
 17,771
Corporate debt securities4,661
 —
 4,718
 —
 4,718
U.S. state and municipal securities1,301
 —
 1,404
 —
 1,404
Non-agency commercial mortgage-backed securities1,119
 —
 1,141
 —
 1,141
U.S. Treasury securities223
 —
 228
 —
 228
Certificates of deposit200
 —
 200
 —
 200
Foreign government agency securities50
 —
 50
 —
 50
Other21
 —
 21
 —
 21
Total held to maturity securities134,706
 —
 136,099
 —
 136,099
Bank loans — net:         
First Mortgages11,693
 —
 11,639
 —
 11,639
HELOCs1,113
 —
 1,153
 —
 1,153
Pledged asset lines5,206
 —
 5,206
 —
 5,206
Other200
 —
 200
 —
 200
Total bank loans — net18,212
 —
 18,198
 —
 18,198
Other assets1,014
 —
 1,014
 —
 1,014
Liabilities         
Bank deposits$220,094
 $—
 $220,094
 $—
 $220,094
Payables to brokerage clients39,220
 —
 39,220
 —
 39,220
Accrued expenses and other liabilities1,882
 —
 1,882
 —
 1,882
Long-term debt7,430
 —
 7,775
 —
 7,775




THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

12.    Stockholders’ Equity
On January 30, 2019, CSC publicly announced that its Board of Directors authorized a share repurchase program to repurchase up to $4.0 billion of common stock. The share repurchase authorization does not have an expiration date. There were 0 repurchases of CSC’s common stock under this authorization during the threenine months ended March 31, 2020September 30, 2020. During the three and 2019.

nine months ended September 30, 2019, CSC repurchased 20 million and 49 million shares of its common stock under this authorization for $771 million and $2.0 billion, respectively.

The Company’s preferred stock issued and outstanding is as follows:

 Liquidation Preference Per Share  Dividend Rate in Effect at March 31, 2020Earliest Redemption DateDate at Which Dividend Rate Becomes FloatingFloating Annual Rate of Three-Month LIBOR plus:Liquidation Preference Per ShareDividend Rate in Effect at September 30, 2020Earliest Redemption DateDate at Which Dividend Rate Becomes Floating or Resets
Floating Annual Rate of Three-Month LIBOR/ Term Five-Year Treasury plus (2):
Shares Issued and Outstanding (in thousands) atCarrying Value at Shares Issued and Outstanding (in thousands) atCarrying Value at
March 31,
2020 (1)
December 31, 2019 (1)
March 31, 2020December 31, 2019Issue Date
September 30,
2020 (1)
December 31, 2019 (1)
September 30, 2020December 31, 2019Issue Date
Fixed-rate:      Fixed-rate:
Series C600
600
$1,000
$585
$585
08/03/156.000%12/01/20N/AN/A
Series C600 600 $1,000 $585 $585 08/03/156.000 %12/01/20N/A
Series D750
750
1,000
728
728
03/07/165.950%06/01/21N/AN/A
Series D750 750 1,000 728 728 03/07/165.950 %06/01/21N/A
Fixed-to-floating-rate:      
Fixed-to-floating-rate/Fixed-rate reset:Fixed-to-floating-rate/Fixed-rate reset:
Series A400
400
1,000
397
397
01/26/127.000%02/01/2202/01/224.820%Series A400 400 1,000 397 397 01/26/127.000 %02/01/2202/01/224.820 %
Series E6
6
100,000
591
591
10/31/164.625%03/01/2203/01/223.315%Series E6 6 100,000 591 591 10/31/164.625 %03/01/2203/01/223.315 %
Series F5
5
100,000
492
492
10/31/175.000%12/01/2712/01/272.575%Series F5 5 100,000 492 492 10/31/175.000 %12/01/2712/01/272.575 %
Series GSeries G25 0 100,000 2,470 0 04/30/205.375 %06/01/2506/01/254.971 %
Total preferred stock1,761
1,761


$2,793
$2,793
    Total preferred stock1,786 1,761 $5,263 $2,793  
(1) Represented by depositary shares, except for Series A.
(2) The Series G dividend rate resets on each five-year anniversary beginning on June 1, 2025 based on the five-year Treasury rate; Series G is only redeemable on reset dates. The dividend rates for all other series of preferred stock will float based on LIBOR.
N/A Not applicable.

Dividends declared on the Company’s preferred stock are as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Total
Declared		Per Share
Amount		Total
Declared		Per Share
Amount		Total
Declared		Per Share
Amount		Total
Declared		Per Share
Amount
Series A$0 $0 $0 $0 $14.0 $35.00 $14.0 $35.00 
Series C9.0 15.00 9.0 15.00 27.0 45.00 27.0 45.00 
Series D11.2 14.88 11.2 14.88 33.5 44.64 33.5 44.64 
Series E13.8 2,312.50 13.8 2,312.50 27.7 4,625.00 27.7 4,625.00 
Series F0 0 0 0 12.5 2,500.00 12.5 2,500.00 
Series G (1)
45.2 1,806.60 0 0 45.2 1,806.60 0 0 
Total$79.2 $34.0 $159.9 $114.7 
  Three Months Ended March 31,
  2020 2019
  Total
Declared		 Per Share
Amount		 Total
Declared		 Per Share
Amount
Series A $—
 $—
 $—
 $—
Series C 9.0
 15.00
 9.0
 15.00
Series D 11.2
 14.88
 11.2
 14.88
Series E 13.9
 2,312.50
 13.9
 2,312.50
Series F —
 —
 —
 —
Total $34.1
   $34.1
  
(1) Series G preferred stock was issued on April 30, 2020. Dividends are paid quarterly, and the first dividend was paid on September 1, 2020.

Subsequent to September 30, 2020, the Company’s acquisition of TD Ameritrade, effective October 6, 2020, resulted in significant equity issuances. Please see Notes 3 and 17 for additional information on the TD Ameritrade acquisition.
- 64 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

13.14.    Accumulated Other Comprehensive Income
The components of other comprehensive income (loss) are as follows:
20202019
2020 2019
Three Months Ended March 31,Before
Tax		 Tax
Effect		 Net of
Tax		 Before
Tax		 Tax
Effect		 Net of
Tax
Three Months Ended September 30,Three Months Ended September 30,Before
Tax		Tax
Effect		Net of
Tax		Before
Tax		Tax
Effect		Net of
Tax
Change in net unrealized gain (loss) on available for sale securities:           Change in net unrealized gain (loss) on available for sale securities:
Net unrealized gain (loss)$5,151
 $(1,244) $3,907
 $227
 $(54) $173
Net unrealized gain (loss)$97 $(20)$77 $51 $(12)$39 
Other reclassifications included in other revenue—
 —
 —
 (1) —
 (1)Other reclassifications included in other revenue(3)1 (2)(1)0 (1)
Amortization of amounts previously recorded upon transfer to held to maturity
from available for sale		—
 —
 —
 12
 (3) 9
Amortization of amounts previously recorded upon transfer to held to
maturity from available for sale		0 0 0 10 (3)7 
Other comprehensive income (loss)$5,151
 $(1,244) $3,907
 $238
 $(57) $181
Other comprehensive income (loss)$94 $(19)$75 $60 $(15)$45 

20202019
Nine Months Ended September 30,Before
Tax		Tax
Effect		Net of
Tax		Before
Tax		Tax
Effect		Net of
Tax
Change in net unrealized gain (loss) on available for sale securities:
Net unrealized gain (loss)$7,361 $(1,762)$5,599 $496 $(119)$377 
Other reclassifications included in other revenue(3)1 (2)(5)1 (4)
Amortization of amounts previously recorded upon transfer to held to
maturity from available for sale		0 0 0 30 (7)23 
Other1 0 1 0 0 0 
Other comprehensive income (loss)$7,359 $(1,761)$5,598 $521 $(125)$396 

AOCI balances are as follows:
Total AOCI
Balance at June 30, 2019$99 
Available for sale securities:
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity39 
Other reclassifications included in other revenue(1)
Held to maturity securities:
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale7 
Balance at September 30, 2019$144 
Balance at June 30, 2020$5,611 
Available for sale securities:
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity77 
Other reclassifications included in other revenue(2)
Balance at September 30, 2020$5,686 
- 65 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
 Total AOCI
Balance at December 31, 2018$(252)
Available for sale securities: 
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity154
Net unrealized gain on securities transferred to available for sale from held to maturity (1)
19
Other reclassifications included in other revenue(1)
Held to maturity securities: 
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale9
Balance at March 31, 2019$(71)
  
Balance at December 31, 2019$88
Available for sale securities: 
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity2,850
Net unrealized gain on securities transferred to available for sale from held to maturity (2)
1,057
Balance at March 31, 2020$3,995
Total AOCI
Balance at December 31, 2018$(252)
Available for sale securities:
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity358 
Net unrealized gain on securities transferred to available for sale from held to maturity (1)
19 
Other reclassifications included in other revenue(4)
Held to maturity securities:
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale23 
Balance at September 30, 2019$144 
Balance at December 31, 2019$88 
Available for sale securities:
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity4,542 
Net unrealized gain on securities transferred to available for sale from held to maturity (2)
1,057 
Other reclassifications included in other revenue(2)
Other1 
Balance at September 30, 2020$5,686 
(1) In the first quarter of 2019, the Company made an election to transfer a portion of its HTM securities to AFS as part of its adoption of ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The transfer resulted in a net of tax increase to AOCI of $19 million.
(2) On January 1, 2020, the Company transferred all of its investment securities designated as HTM to the AFS category. The transfer resulted in a net of tax increase to AOCI of $1.1 billion. See Note 45 for additional discussion on the 2020 transfer of HTM securities to AFS.





- 66 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

14.15.    Regulatory Requirements

At March 31,September 30, 2020, CSC and CSB met all of their respective capital requirements. The regulatory capital and ratios for CSC (consolidated) and CSB are as follows:
Actual (1)
Minimum to be
Well Capitalized		Minimum Capital Requirement

 
Actual (1)
 Minimum to be
Well Capitalized		 Minimum Capital Requirement
March 31, 2020 Amount Ratio Amount Ratio Amount 
Ratio (2)
September 30, 2020September 30, 2020AmountRatioAmountRatioAmount
Ratio (2)
CSC            CSC      
Common Equity Tier 1 Risk-Based Capital $18,197
 18.4% N/A
   $4,457
 4.5%Common Equity Tier 1 Risk-Based Capital$17,438 15.9 %N/A $4,921 4.5 %
Tier 1 Risk-Based Capital 20,990
 21.2% N/A
   5,942
 6.0%Tier 1 Risk-Based Capital22,701 20.8 %N/A 6,562 6.0 %
Total Risk-Based Capital 21,023
 21.2% N/A
   7,923
 8.0%Total Risk-Based Capital22,735 20.8 %N/A 8,749 8.0 %
Tier 1 Leverage 20,990
 6.9% N/A
   12,137
 4.0%Tier 1 Leverage22,701 5.7 %N/A 16,071 4.0 %
Supplementary Leverage Ratio 20,990
 6.8% N/A
   9,309
 3.0%Supplementary Leverage Ratio22,701 5.6 %N/A12,249 3.0 %
CSB            CSB  
Common Equity Tier 1 Risk-Based Capital $15,413
 19.7% $5,075
 6.5% $3,514
 4.5%Common Equity Tier 1 Risk-Based Capital$16,648 19.1 %$5,656 6.5 %$3,916 4.5 %
Tier 1 Risk-Based Capital 15,413
 19.7% 6,247
 8.0% 4,685
 6.0%Tier 1 Risk-Based Capital16,648 19.1 %6,962 8.0 %5,221 6.0 %
Total Risk-Based Capital 15,445
 19.8% 7,808
 10.0% 6,247
 8.0%Total Risk-Based Capital16,680 19.2 %8,702 10.0 %6,962 8.0 %
Tier 1 Leverage 15,413
 6.9% 11,114
 5.0% 8,891
 4.0%Tier 1 Leverage16,648 5.6 %14,813 5.0 %11,850 4.0 %
Supplementary Leverage Ratio 15,413
 6.7% N/A
 N/A
 6,867
 3.0%Supplementary Leverage Ratio16,648 5.5 %N/AN/A9,076 3.0 %
            
December 31, 2019            December 31, 2019     
CSC            CSC      
Common Equity Tier 1 Risk-Based Capital $17,660
 19.5% N/A
   $4,073
 4.5%Common Equity Tier 1 Risk-Based Capital$17,660 19.5 %N/A $4,073 4.5 %
Tier 1 Risk-Based Capital 20,453
 22.6% N/A
   5,431
 6.0%Tier 1 Risk-Based Capital20,453 22.6 %N/A 5,431 6.0 %
Total Risk-Based Capital 20,472
 22.6% N/A
   7,241
 8.0%Total Risk-Based Capital20,472 22.6 %N/A 7,241 8.0 %
Tier 1 Leverage 20,453
 7.3% N/A
   11,189
 4.0%Tier 1 Leverage20,453 7.3 %N/A 11,189 4.0 %
Supplementary Leverage Ratio 20,453
 7.1% N/A
   8,604
 3.0%Supplementary Leverage Ratio20,453 7.1 %N/A8,604 3.0 %
CSB            CSB      
Common Equity Tier 1 Risk-Based Capital $14,819
 20.7% $4,649
 6.5% $3,218
 4.5%Common Equity Tier 1 Risk-Based Capital$14,819 20.7 %$4,649 6.5 %$3,218 4.5 %
Tier 1 Risk-Based Capital 14,819
 20.7% 5,722
 8.0% 4,291
 6.0%Tier 1 Risk-Based Capital14,819 20.7 %5,722 8.0 %4,291 6.0 %
Total Risk-Based Capital 14,837
 20.7% 7,152
 10.0% 5,722
 8.0%Total Risk-Based Capital14,837 20.7 %7,152 10.0 %5,722 8.0 %
Tier 1 Leverage 14,819
 7.1% 10,486
 5.0% 8,389
 4.0%Tier 1 Leverage14,819 7.1 %10,486 5.0 %8,389 4.0 %
Supplementary Leverage Ratio 14,819
 6.8% N/A
 N/A
 6,497
 3.0%Supplementary Leverage Ratio14,819 6.8 %N/AN/A6,497 3.0 %
(1) In the interagency regulatory capital and liquidity rules adopted in October 2019, Category III banking organizations such as CSC were given the ability to opt-out of the inclusion of AOCI in regulatory capital, and CSC made this opt-out election as of January 1, 2020. Therefore, AOCI is excluded from the amounts and ratios presented as of March 31,September 30, 2020. In 2019, CSC and CSB were required to include all components of AOCI in regulatory capital; the amounts and ratios for December 31, 2019 are presented on this basis.
(2) Under the Basel III capital rule, CSC and CSB are also required to maintain a capital conservation buffer and a countercyclical capital buffer above the regulatory minimum risk-based capital ratios. The capital conservation buffer and countercyclical capital buffer were 2.5% and zero percent, respectively, for both periods presented. If either buffer falls below the minimum requirement, the Company would be subject to limits on capital distributions and discretionary bonus payments to executive officers. At March 31,September 30, 2020, the minimum capital requirement plus capital conservation buffer and countercyclical capital buffer for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital ratios were 7.0%, 8.5%, and 10.5%, respectively.
N/A Not applicable.

Based on its regulatory capital ratios at March 31,September 30, 2020, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since March 31,September 30, 2020 that management believes have changed CSB’s capital category.

At March 31,September 30, 2020, the balance sheets of CSPB and Charles Schwab Trust Bank (Trust Bank) consisted primarily of investment securities, and the entities held total assets of $22.4$28.3 billion and $10.7$11.7 billion, respectively. Based on their regulatory capital ratios, at March 31, 2020, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules.
- 67 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

capital ratios, at September 30, 2020, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules.
On July 1, 2020, CS&Co registered as an FCM with the CFTC. On July 26, 2020, Charles Schwab Futures, Inc., a wholly-owned subsidiary of CSC, transferred its futures business and all of its assets and liabilities to CS&Co. This transfer was accounted for as a common control transaction and did not have an impact on the condensed consolidated financial statements.
Net capital and net capital requirements for CS&Co are as follows:
  March 31, 2020 December 31, 2019
Net Capital $3,472
 $3,700
Minimum net capital required 0.250
 0.250
2% of aggregate debit balances 419
 446
Net Capital in excess of required net capital $3,053
 $3,254

September 30, 2020December 31, 2019
Net Capital$2,166 $3,700 
Minimum net capital required1.000 0.250 
2% of aggregate debit balances595 446 
Net Capital in excess of required net capital$1,571 $3,254 
Pursuant to Rule 15c3-3 of the Securities Exchange Act of 1934 and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at March 31,September 30, 2020. The SEC Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit. Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the condensed consolidated statements of cash flows.


Certain subsidiaries of TD Ameritrade are also subject to regulatory capital requirements, including TD Ameritrade’s principal securities broker-dealers, TD Ameritrade, Inc. and TDAC, as well as its FCM and FDM entity, TDAFF. As of October 6, 2020, the effective date of the acquisition, TD Ameritrade, Inc., TDAC, and TDAFF were in compliance with their respective regulatory capital requirements. See Notes 3 and 17 for additional information on our acquisition of TD Ameritrade.

15.
16.    Segment Information
Schwab’s 2 reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are attributed to the 2 segments based on which segment services the client.
Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments.
- 68 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Financial information for the segments is presented in the following table:
Investor ServicesAdvisor ServicesTotal
Investor Services Advisor Services Total
Three Months Ended March 31,2020 2019 2020 2019 2020 2019
Three Months Ended September 30,Three Months Ended September 30,202020192020201920202019
Net Revenues           Net Revenues
Net interest revenue$1,128
 $1,195
 $444
 $486
 $1,572
 $1,681
Net interest revenue$948 $1,182 $395 $449 $1,343 $1,631 
Asset management and administration fees600
 533
 227
 222
 827
 755
Asset management and administration fees643 586 217 239 860 825 
Trading revenue (1)
119
 141
 69
 76
 188
 217
Trading revenue (1)
139 140 42 66 181 206 
Other (1)
20
 42
 10
 28
 30
 70
Other (1)
51 36 13 13 64 49 
Total net revenues1,867
 1,911
 750
 812
 2,617
 2,723
Total net revenues1,781 1,944 667 767 2,448 2,711 
Expenses Excluding Interest1,154
 1,062
 416
 397
 1,570
 1,459
Expenses Excluding Interest1,167 1,070 392 405 1,559 1,475 
Income before taxes on income$713
 $849
 $334
 $415
 $1,047
 $1,264
Income before taxes on income$614 $874 $275 $362 $889 $1,236 

Investor ServicesAdvisor ServicesTotal
Nine Months Ended September 30,202020192020201920202019
Net Revenues
Net interest revenue$3,028 $3,531 $1,276 $1,390 $4,304 $4,921 
Asset management and administration fees1,826 1,679 662 687 2,488 2,366 
Trading revenue (1)
396 421 166 209 562 630 
Other (1)
122 115 39 83 161 198 
Total net revenues5,372 5,746 2,143 2,369 7,515 8,115 
Expenses Excluding Interest3,489 3,189 1,202 1,190 4,691 4,379 
Income before taxes on income$1,883 $2,557 $941 $1,179 $2,824 $3,736 
(1) InBeginning in the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.


16.17.    Subsequent EventEvents
On April 30,October 6, 2020, the Company completed its acquisition of TD Ameritrade, pursuant to the merger agreement. As a result of the acquisition, TDA Holding became a wholly-owned subsidiary of CSC. The Company issued approximately 586 million common shares to TD Ameritrade stockholders in the acquisition, including shares of a new, nonvoting class of CSC common stock. Immediately prior to the acquisition, on October 6, 2020, the Company amended its certificate of incorporation to create the nonvoting class of common stock with 300 million shares authorized for issuance and sold 2,500,000 depositaryto increase the number of authorized shares each representingof capital stock by the same amount. Additionally, in conjunction with the acquisition on October 6, 2020, the stockholder agreement with TD Bank, the registration rights agreement with TD Bank and Charles R. Schwab, and the amended and restated IDA agreement with the TD Depository Institutions, as further detailed in Part I – Item 1 of our 2019 Form 10-K, became effective.
Under the amended IDA agreement, which replaced the previous IDA agreement between the TD Depository Institutions and TD Ameritrade, the TD Depository Institutions make available to Schwab customers FDIC-insured (up to specified limits) money market deposit accounts. Schwab provides marketing, recordkeeping and support services to the TD Depository Institutions with respect to the money market deposit accounts for which Schwab receives an aggregate monthly fee, determined by reference to certain yields, less a 1/100th ownershipservice fee on client cash deposits held at the TD Depository Institutions, FDIC deposit assessments, and interest on deposits paid to customers (on a net basis, the “sweep arrangement fee”). Though unlikely, in the event the sweep arrangement fee computation were to result in a share of 5.375% fixed-rate reset non-cumulative perpetual preferred stock, Series G, $0.01 par value per share, with a liquidation preference of $100,000 per share (equivalent of $1,000 per depositary share). The net proceedsnegative amount in any given month, Schwab would be required to pay the TD Depository Institutions. Under the terms of the offering were approximately $2.47amended IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions was reduced to 15 basis points from the 25 basis points paid by TD Ameritrade under its previous IDA agreement. Additionally, the previous IDA agreement had floors in place which enabled TD Ameritrade to carve-out up to $20 billion after deductingof IDA deposits designated as floating-rate investments from the underwriting discountapplicable service fee during specified low-rate environments. Under the amended IDA agreement, the renegotiated 15 basis point rate will be applied across all designated fixed and estimated offering expenses.
floating IDA balances.
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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The sweep arrangement fee received by Schwab under the amended IDA agreement, as well as bank deposit account agreements with other third-party depository institutions, will be included in a new revenue line item in our consolidated statement of income titled bank deposit account fees.
Under the amended IDA agreement, there will be an initial period during which the amounts swept to the TD Depository Institutions will solely be composed of customer funds from the TD Ameritrade subsidiary broker-dealers. Following this initial period, CSC’s subsidiary broker-dealers can sweep client funds to money market deposit accounts at the TD Depository Institutions, subject to certain limits. Beginning July 1, 2021, CSC’s subsidiary broker-dealers, including the TD Ameritrade broker-dealers, will have the option to reduce deposit balances swept to the TD Depository Institutions by up to $10 billion over each 12-month period, subject to certain limits and adjustments. Such limits and adjustments include Schwab’s obligation to move all of the uninsured IDA sweep balances on July 1, 2021 to its balance sheet or to other third-party depository institutions, which will count against the optional reduction amount, and the requirement that Schwab can only move floating IDA balances. Schwab’s initial reduction will also be affected by the net change in IDA sweep balances between the effective date of the amended IDA agreement and June 30, 2021. In addition, Schwab is also required to maintain a minimum $50 billion IDA balance through June 2031 and at least 80% of the IDA balances must be designated as fixed-rate obligations through June 2026.
The amended IDA agreement will have an initial expiration date of July 1, 2031, subject to automatic renewal for a five-year term if not terminated by either CSC or the TD Depository Institutions two years prior to the expiration date. For further details surrounding the amended IDA agreement, see Part I – Item 1 of our 2019 Form 10-K.
Pursuant to the merger agreement, CSC issued approximately 177 million shares of common stock and approximately 77 million shares of nonvoting common stock to TD Bank and its affiliates on October 6, 2020. Those shares of common stock and nonvoting common stock were issued in reliance upon an exemption from registration afforded by Section 4(a)(2) of the Securities Act. Following this issuance, TD Bank exchanged an aggregate of approximately 2 million shares of CSC common stock for an equal number of shares of CSC nonvoting common stock and held approximately 79 million shares of nonvoting common stock as of October 31, 2020. TD Bank and its affiliates are not permitted to own more than 9.9% of CSC common stock. This limit is interpreted in accordance with the applicable rules of the Federal Reserve and includes shares of CSC common stock deemed to be beneficially owned directly or indirectly by TD Bank and its affiliates.

See Notes 3, 9, 10, 13, and 15 for additional information on the TD Ameritrade acquisition.
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THE CHARLES SCHWAB CORPORATION


Item 4.     Controls and Procedures
Evaluation of disclosure controls and procedures: The management of the Company, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31,September 30, 2020. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31,September 30, 2020.
Changes in internal control over financial reporting: No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) was identified during the quarter ended March 31,September 30, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



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THE CHARLES SCHWAB CORPORATION



PART  II  -  OTHER  INFORMATION


Item 1.     Legal Proceedings
For a discussion of legal proceedings, see Part I – Item 1 – Note 9.10.


Item 1A.     Risk Factors

During the first threenine months of 2020, there have been no material changes to the risk factors in Part I – Item 1A – Risk Factors in the 2019 Form 10-K except as described below. The risk factor described below updates, and should be read together with, the risk factors disclosed in Part I – Item 1A – Risk Factors, in our 2019 Annual Report on Form 10-K.

The challenging economic environment triggered by the COVID-19 pandemic has impacted and will continue to impact our business, results of operations and financial condition.
The COVID‑19 pandemic has adversely impacted the economic environment, leading to lower interest rates across the curve lower equity market valuations and heightened volatility in the financial markets. These developments have had, and may continue to have, a negative impact on our net interest revenue and asset management and administration fees. Additionally, in March 2020, we experienced a significant increase in client cash balances held at our bank and broker-dealer subsidiaries, which caused our Tier 1 Leverage Ratio to decline and is likely to cause the ratio to further decline into the buffer we maintain between our long-term operating objective and our regulatory requirement. This will limit our ability to return excess capital to stockholders, including through share repurchases, until the ratio returns to higher levels. Furthermore, many of our employees and those of our outsourced service providers are subject to “shelter-in-place” restrictions.working remotely. Certain of our client service response and processing times have increased as a result of very high levels of client engagement, our employees working remotely, and the temporary loss of services from some of our outsourced service providers. Credit markets have been adversely impacted due to both uncertainty regarding the pandemic’s economic impact and the anticipation that high levels of unemployment will have a significant impact on retail credit and commercial real estate forbearances and delinquencies. We may experience higher levels of delinquencies on our portfolios of first mortgages and home equity lines of credit. We may also experience higher credit spreads in certain sectors within our portfolio of investment securities, especially those asset-backed securities and commercial mortgage-backed securities with exposure to retail loans and commercial real estate. These and other impacts of the COVID‑19 pandemic could have the effects of heightening many of the other risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019 incorporated by reference herein. The extent to which the COVID‑19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic, actions taken by governmental authorities to contain the financial and economic impact of the pandemic and the spread of COVID‑19, further changes in credit quality and spreads, and reactions in the financial markets.


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THE CHARLES SCHWAB CORPORATION


Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On January 30, 2019, CSC publicly announced that its Board of Directors authorized the repurchase of up to $4.0 billion of common stock. The authorization does not have an expiration date. There were no share repurchases under this authorization during the firstthird quarter of 2020.



THE CHARLES SCHWAB CORPORATION



The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the firstthird quarter of 2020 (in millions, except number of shares, which are in thousands, and per share amounts):
Month Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced ProgramMonthTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramApproximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Program
January:        
July:July:
Share repurchase program —
 $—
 —
 $1,780
Share repurchase program— $— — $1,780 
Employee transactions (1)
 7
 $47.96
 N/A
 N/A
Employee transactions (1)
2 $33.75 N/AN/A
February:        
August:August:
Share repurchase program —
 $—
 —
 $1,780
Share repurchase program— $— — $1,780 
Employee transactions (1)
 3
 $46.33
 N/A
 N/A
Employee transactions (1)
2 $33.21 N/AN/A
March:        
September:September:
Share repurchase program —
 $—
 —
 $1,780
Share repurchase program— $— — $1,780 
Employee transactions (1)
 134
 $40.65
 N/A
 N/A
Employee transactions (1)
11 $35.84 N/AN/A
Total:        Total:
Share repurchase program —
 $—
 —
 $1,780
Share repurchase program— $— — $1,780 
Employee transactions (1)
 144
 $41.12
 N/A
 N/A
Employee transactions (1)
15 $35.22 N/AN/A
(1) Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. CSC may receive shares delivered or attested to pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options granted under employee stock incentive plans, which are commonly referred to as stock swap exercises.
N/A Not applicable.


Item 3.     Defaults Upon Senior Securities

None.


Item 4.     Mine Safety Disclosures

Not applicable.


Item 5.     Other Information
None.
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THE CHARLES SCHWAB CORPORATION



Item 6.     Exhibits
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit
Number
Exhibit 
   
3.21
Certificate of Designations of 5.375% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series G, of The Charles Schwab Corporation, filed as Exhibit 3.1 to the Registrant’s Form 8-K dated April 30, 2020, and incorporated herein by reference.
 
   
31.1
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
   
31.2
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
   
32.1
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)
   
32.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)
   
101.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.(2)
   
101.SCHInline XBRL Taxonomy Extension Schema(2)
   
101.CALInline XBRL Taxonomy Extension Calculation(2)
   
101.DEFInline XBRL Extension Definition(2)
   
101.LABInline XBRL Taxonomy Extension Label(2)
   
101.PREInline XBRL Taxonomy Extension Presentation(2)
   
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 
   
(1)Furnished as an exhibit to this Quarterly Report on Form 10-Q. 
   
(2)Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 are the following materials formatted in Inline XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. 


Exhibit
Number		Exhibit
3.11
Fifth Restated Certificate of Incorporation, effective May 7, 2001, of the Registrant, filed as Exhibit 3.11 to the Registrant’s Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
3.11(i)
Amendment to Fifth Restated Certificate of Incorporation of the Registrant, effective October 6, 2020, filed as Exhibit 3.1 to the Registrant’s Form 8-K dated October 2, 2020, and incorporated herein by reference.
3.14
Fourth Restated Bylaws, as amended on January 27, 2010, of the Registrant, filed as Exhibit 3.14 to the Registrant’s Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
3.14(i)
Amendment to Fourth Restated Bylaws of the Registrant, to be effective January 1, 2021, filed as Exhibit 3.2 to the Registrant’s Form 8-K dated October 2, 2020, and incorporated herein by reference.
10.412
Form of Notice and Retainer Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation 2013 Stock Incentive Plan and successor plans (supersedes Exhibit 10.397).
(1), (2)
10.413
Form of Notice and Retainer Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation 2013 Stock Incentive Plan and successor plans (supersedes Exhibit 10.398).
(1), (2)
10.414
Form of Notice and Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors’ Deferred Compensation Plan II and successor plans (supersedes Exhibit 10.399).
(1), (2)
10.415
Form of Notice and Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors’ Deferred Compensation Plan II and successor plans (supersedes Exhibit 10.401).
(1), (2)
10.416
Credit Agreement, dated April 21, 2017, among TD Ameritrade Holding Corporation, the lenders party thereto, U.S. Bank National Association, as syndication agent, Barclays Bank PLC, TD Securities (USA) LLC and Wells Fargo Securities, LLC, as co-documentation agents and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.1 to TD Ameritrade Holding Corporation’s Form 8-K dated April21, 2017, and incorporated herein by reference.
10.417
First Amendment, dated as of August 3, 2020, to Credit Agreement dated April 21, 2017, among TD Ameritrade Holding Corporation, the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.1 to TD Ameritrade Holding Corporation’s Form 8-K dated August3, 2020, and incorporated herein by reference.
10.418
Credit Agreement, dated April 21, 2017, among TD Ameritrade Clearing, Inc., the lenders party thereto, U.S. Bank National Association, as syndication agent, Barclays Bank PLC, TD Securities (USA) LLC and Wells Fargo Securities, LLC, as co-documentation agents and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.2 to TD Ameritrade Holding Corporation’s Form 8-K dated April 21, 2017, and incorporated herein by reference.
10.419
First Amendment, dated May 17, 2018, to Credit Agreement, dated April 21, 2017, among TD Ameritrade Clearing, Inc., the lenders party thereto, U.S. Bank National Association, as syndication agent, Barclays Bank PLC, TD Securities (USA) LLC, Wells Fargo Securities, LLC, and Industrial and Commercial Bank of China Ltd., New York Branch, as co-documentation agents and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.2 to TD Ameritrade Holding Corporation’s Form 8-K dated May 17, 2018, and incorporated herein by reference.
10.420
Second Amendment, dated as of August 3, 2020, to Credit Agreement dated April 21, 2017, among TD Ameritrade Clearing, Inc., the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.2 to TD Ameritrade Holding Corporation’s Form 8-K dated August 3, 2020, and incorporated herein by reference.
10.421
Credit Agreement, dated May 16, 2019, among TD Ameritrade Clearing, Inc., the lenders parties thereto, Wells Fargo Securities, LLC, Barclays Bank PLC, Citibank, N.A., JPMorgan Chase Bank, N.A., U.S. Bank National Association, TD Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley Senior Funding, Inc., as joint bookrunners and joint lead arrangers, and Wells Fargo Bank, National Association, as administrative agent, filed as Exhibit 10.1 to TD Ameritrade Holding Corporation’s Form 8-K dated May 15, 2019, and incorporated herein by reference.
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THE CHARLES SCHWAB CORPORATION



Exhibit
Number		Exhibit 
10.422
31.1 
31.2 
32.1(1)
32.2(1)
101.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.(3)
101.SCHInline XBRL Taxonomy Extension Schema(3)
101.CALInline XBRL Taxonomy Extension Calculation(3)
101.DEFInline XBRL Extension Definition(3)
101.LABInline XBRL Taxonomy Extension Label(3)
101.PREInline XBRL Taxonomy Extension Presentation(3)
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1)Furnished as an exhibit to this Quarterly Report on Form 10-Q.
(2)Management contract or compensatory plan.
(3)Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 are the following materials formatted in Inline XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. 

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THE CHARLES SCHWAB CORPORATION



SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


THE CHARLES SCHWAB CORPORATION
(Registrant)
THE CHARLES SCHWAB CORPORATION
Date:November 9, 2020(Registrant)
Date:May 8, 2020/s/ Peter Crawford
Peter Crawford
Executive Vice President and Chief Financial Officer


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