|
| Total net revenues | (9) | % | | $ | 18,837 | | 100 | % | | $ | 20,762 | | 100 | % | | $ | 18,520 | | 100 | % |
N/M Not meaningful. Percentage changes greater than 200% are presented as not meaningful.
Net Interest Revenue
Schwab’s primary interest-earning assets include cash and cash equivalents; cash and investments segregated; margin loans, which constitute the majority of receivables from brokerage clients; investment securities; and bank loans. Fees earned and expenses incurred on securities lending and borrowing activities are conducted by our broker-dealer subsidiaries using assets held in client brokerage accounts. Schwab’s interest-bearing liabilities are comprised of bank deposits, which include brokered
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)
CDs issued by CSB; payables to brokerage clients; FHLB borrowings, other short-term borrowings (e.g., commercial paper, repurchase agreements, other secured borrowings); and long-term debt. Schwab deploys the funds from these sources into the assets outlined above.
As Schwab builds its client base, we attract new client sweep cash, which is a primary driver of funding balance sheet growth. We do not use short-term, wholesale borrowings to support our long-term investment activity, but may use such funding for short-term liquidity purposes or to provide temporary funding as we have in 2022 and 2023. Non-interest-bearing funding sources include stockholders’ equity, certain client cash balances, and other miscellaneous liabilities.
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 cash and cash equivalents, floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, FHLB borrowings, other short-term borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities. See also Risk Management – Market Risk.
Interest rates increased significantly beginning late in the first quarter of 2022 through the third quarter of 2023. Short-term rates were near zero until the Federal Reserve began an aggressive tightening cycle in March 2022 in response to rising inflation, ultimately increasing the federal funds target overnight rate eleven times between March 2022 and July 2023 for a total increase of 525 basis points and maintaining the upper bound of the target overnight rate at 5.50% through year-end 2023. Long-term rates increased throughout 2022 and 2023, generally at a slower pace, thus leading to an inverted yield curve.
Schwab’s average interest-earning assets in 2023 were lower compared with 2022, primarily due to clients’ reallocation of cash from sweep products to higher-yielding investment solutions in the second half of 2022 and during 2023, which resulted primarily from the rapid increases to the federal funds overnight rate. These changes in client cash allocations reduced average balances of bank deposits and payables to brokerage clients. To support this client cash allocation activity, the Company has been utilizing temporary supplemental funding beginning in the fourth quarter of 2022 and throughout 2023, including drawing upon FHLB secured lending facilities and issuing brokered CDs. The average pace of client cash allocation out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second quarter of 2023, and, apart from an increase in August following the Federal Reserve’s July rate increase, continued to decline during the second half of 2023. In the fourth quarter of 2023, the Company saw bank deposits and payables to brokerage clients increase by a total of $17.5 billion, or 5%, due in part to typical seasonal cash inflows near year-end.
Schwab saw strength in net new client assets during 2022, which, along with transfers of BDA balances to the Company’s balance sheet (see Bank Deposit Account Fees), drove growth in Schwab’s average interest-earning assets in 2022 relative to 2021. Partially offsetting this growth, we experienced significant seasonal tax outflows in the second quarter of 2022, and, due to the rapid increases to the federal funds overnight rate, changes in client cash allocations increased in the second half of 2022 which resulted in a total decrease in bank deposits and payables to brokerage clients of 18% since year-end 2021. During 2022, the Company increased its cash holdings and reduced the duration of incremental investment securities purchases to provide flexibility to help support such changes in client cash allocations associated with higher short-term interest rates.
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 presents net interest revenue information corresponding to interest-earning assets and funding sources on the consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2023 | | 2022 | | 2021 |
| Average
Balance | | Interest
Revenue/
Expense | | Average
Yield/
Rate | | Average
Balance | | Interest Revenue/
Expense | | Average
Yield/
Rate | | Average
Balance | | Interest Revenue/
Expense | | Average
Yield/
Rate |
| Interest-earning assets | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 37,846 | | | $ | 1,894 | | | 4.94 | % | | $ | 57,163 | | | $ | 812 | | | 1.40 | % | | $ | 40,325 | | | $ | 40 | | | 0.10 | % |
| Cash and investments segregated | 28,259 | | | 1,355 | | | 4.73 | % | | 49,430 | | | 691 | | | 1.38 | % | | 43,942 | | | 24 | | | 0.05 | % |
| | | | | | |
| Receivables from brokerage clients | 61,914 | | | 4,793 | | | 7.64 | % | | 75,614 | | | 3,321 | | | 4.33 | % | | 77,768 | | | 2,455 | | | 3.11 | % |
Available for sale securities (1,2) | 137,178 | | | 2,987 | | | 2.17 | % | | 260,392 | | | 4,139 | | | 1.58 | % | | 357,122 | | | 4,641 | | | 1.30 | % |
Held to maturity securities (1,2) | 165,634 | | | 2,872 | | | 1.73 | % | | 112,357 | | | 1,688 | | | 1.50 | % | | — | | | — | | | — | |
| Bank loans | 40,234 | | | 1,664 | | | 4.14 | % | | 38,816 | | | 1,083 | | | 2.79 | % | | 28,789 | | | 620 | | | 2.15 | % |
| Total interest-earning assets | 471,065 | | | 15,565 | | | 3.28 | % | | 593,772 | | | 11,734 | | | 1.96 | % | | 547,946 | | | 7,780 | | | 1.41 | % |
| Securities lending revenue | | | 419 | | | | | | | 471 | | | | | | | 720 | | | |
| Other interest revenue | | | 127 | | | | | | | 22 | | | | | | | 6 | | | |
| Total interest-earning assets | $ | 471,065 | | | $ | 16,111 | | | 3.39 | % | | $ | 593,772 | | | $ | 12,227 | | | 2.04 | % | | $ | 547,946 | | | $ | 8,506 | | | 1.54 | % |
| Funding sources | | | | | | | | | | | | | | | | | |
Bank deposits (3) | $ | 306,505 | | | $ | 3,363 | | | 1.10 | % | | $ | 424,168 | | | $ | 723 | | | 0.17 | % | | $ | 381,549 | | | $ | 54 | | | 0.01 | % |
| Payables to brokerage clients | 66,842 | | | 271 | | | 0.41 | % | | 97,825 | | | 123 | | | 0.13 | % | | 91,667 | | | 9 | | | 0.01 | % |
Other short-term borrowings (5) | 7,144 | | | 375 | | | 5.25 | % | | 2,719 | | | 48 | | | 1.75 | % | | 3,040 | | | 9 | | | 0.30 | % |
Federal Home Loan Bank borrowings (4,5) | 34,821 | | | 1,810 | | | 5.14 | % | | 2,274 | | | 106 | | | 4.59 | % | | — | | | — | | | — | |
| Long-term debt | 22,636 | | | 715 | | | 3.16 | % | | 20,714 | | | 498 | | | 2.40 | % | | 17,704 | | | 384 | | | 2.17 | % |
| Total interest-bearing liabilities | 437,948 | | | 6,534 | | | 1.49 | % | | 547,700 | | | 1,498 | | | 0.27 | % | | 493,960 | | | 456 | | | 0.09 | % |
| Non-interest-bearing funding sources | 33,117 | | | | | | | 46,072 | | | | | | | 53,986 | | | | | |
| Securities lending expense | | | 147 | | | | | | | 48 | | | | | | | 24 | | | |
| Other interest expense | | | 3 | | | | | | | (1) | | | | | | | (4) | | | |
| Total funding sources | $ | 471,065 | | | $ | 6,684 | | | 1.41 | % | | $ | 593,772 | | | $ | 1,545 | | | 0.26 | % | | $ | 547,946 | | | $ | 476 | | | 0.09 | % |
| Net interest revenue | | | $ | 9,427 | | | 1.98 | % | | | | $ | 10,682 | | | 1.78 | % | | | | $ | 8,030 | | | 1.45 | % |
(1) Amounts have been calculated based on amortized cost. Interest revenue on investment securities is presented net of related premium amortization.
(2) During 2022, the Company transferred a portion of its investment securities designated as AFS to the HTM category, as described in Item 8 – Note 5.
(3) Average balance includes $36.0 billion and $437 million of brokered CDs in 2023 and 2022, respectively.
(4) Average balance and interest revenue/expense was less than $500 thousand in the period or periods presented.
(5) Beginning in 2023, FHLB borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.
Net interest revenue decreased $1.3 billion, or 12%, in 2023 from 2022 primarily due to increased utilization of higher-cost supplemental funding sources to support client cash allocations in the rising rate environment, and lower average interest-earning assets, which more than offset the benefits of higher average yields on interest-earning assets. Net premium amortization of investment securities decreased to $830 million in 2023 from $1.4 billion in 2022 as a result of increases in market interest rates and a smaller investment securities portfolio. Average interest-earning assets for 2023 were lower by 21% compared to 2022, which was primarily due to lower bank deposits and payables to brokerage clients as a result of clients allocating cash out of sweep products into higher-yielding investment solutions due to higher market interest rates.
Net interest margin increased to 1.98% in 2023, from 1.78% in 2022, as higher market interest rates improved yields on interest-earning assets, which more than offset the higher rates paid across interest-bearing funding sources.
The Company’s higher average balances in 2023 relative to 2022 of FHLB borrowings, repurchase agreements, and brokered CDs resulted in higher funding costs. The Company prioritizes repayment of the outstanding balances of its supplemental funding sources, and during the second half of 2023, the total outstanding balance of these funding sources decreased by $17.5 billion. Our use and the financial impacts of such supplemental funding is dependent on several factors, including the volume and pace of clients’ cash allocation activity, which is driven primarily by changes in market interest rates, as well as asset gathering. While client cash realignment activity has slowed significantly since the second quarter of 2023, continued uncertainty remains, including in regard to the path of market interest rates and client behavior, which will significantly impact our utilization of supplemental funding sources. The impacts to net interest revenue of using supplemental funding sources also depend on the type of funding source used and levels of interest rates. The Company currently expects its outstanding balances of supplemental funding sources to decrease over time. Certain amounts outstanding at December 31, 2023 will require rollover into new borrowings, the amount and costs of which will depend on the above noted factors. See also Risk Management –
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, Item 8 – Note 11 Bank Deposits, and Item 8 – Note 12 Borrowings for additional information on these and other funding sources.
Net interest revenue increased $2.7 billion, or 33%, in 2022 from 2021 primarily due to higher average yields on interest-earning assets as a result of higher market interest rates. Net premium amortization of investment securities decreased to $1.4 billion in 2022 from $2.3 billion in 2021. These benefits were partially offset by higher rates paid on funding sources, higher average FHLB borrowings and long-term debt outstanding, and lower balances of margin loans and lower securities lending revenue due to decreased market demand.
Average interest-earning assets for 2022 were higher by 8%, compared to 2021. This increase was primarily due to higher average balances of bank deposits and payables to brokerage clients, which resulted from net new client asset inflows as well as transfers of BDA balances to our balance sheet during 2022. These year-over-year increases in average balances were offset by client cash allocation decisions in response to higher short-term market interest rates during 2022, as clients moved certain cash balances out of bank deposits and payables to brokerage clients.
Net interest margin increased to 1.78% in 2022, from 1.45% in 2021. Higher market interest rates improved yields on interest-earning assets, which more than offset the higher rates paid across interest-bearing funding sources.
Asset Management and Administration Fees
Asset management and administration fees include mutual fund, ETF, and CTF service fees and fees for other asset-based financial services provided to individual and institutional clients. Schwab earns mutual fund, ETF, and CTF service fees for shareholder services, administration, and investment management provided to its proprietary funds, and recordkeeping and shareholder services provided to third-party funds. Asset management and administration fees are based upon the daily balances of client assets invested in these funds and do not include securities lending revenues earned by proprietary mutual funds, ETFs, and CTFs, as those amounts, net of program fees, are credited to the fund shareholders. Proprietary CTFs may, but generally do not, directly participate in securities lending. The fair values of client assets included in proprietary and third-party mutual funds, ETFs, and CTFs are based on quoted market prices and other observable market data.
We also earn asset management fees for advice solutions, which include managed portfolios, specialized strategies, and customized investment advice. Other asset management and administration fees include various asset-based fees such as trust fees, 401(k) recordkeeping fees, mutual fund clearing fees, and non-balance based service and transaction fees.
Asset management and administration fees vary with changes in the balances of client assets due to market fluctuations and client activity.
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 presents asset management and administration fees, average client assets, and average fee yields:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2023 | | 2022 | | 2021 |
| Average
Client
Assets | | Revenue | | Average
Fee | | Average
Client
Assets | | Revenue | | Average
Fee | | Average
Client
Assets | | Revenue | | Average
Fee |
Schwab money market funds before fee
waivers | $ | 391,864 | | | $ | 1,034 | | | 0.26 | % | | $ | 179,791 | | | $ | 499 | | | 0.28 | % | | $ | 155,821 | | | $ | 457 | | | 0.29 | % |
| Fee waivers | | | — | | | | | | | (57) | | | | | | | (326) | | | |
| Schwab money market funds | 391,864 | | | 1,034 | | | 0.26 | % | | 179,791 | | | 442 | | | 0.25 | % | | 155,821 | | | 131 | | | 0.08 | % |
| Schwab equity and bond funds, ETFs, and CTFs | 471,832 | | | 382 | | | 0.08 | % | | 433,005 | | | 364 | | | 0.08 | % | | 423,999 | | | 380 | | | 0.09 | % |
Mutual Fund OneSource® and other NTF funds (1) | 249,131 | | | 657 | | | 0.26 | % | | 202,015 | | | 602 | | | 0.30 | % | | 229,342 | | | 724 | | | 0.32 | % |
Other third-party mutual funds and ETFs (1) | 640,689 | | | 490 | | | 0.08 | % | | 768,871 | | | 647 | | | 0.08 | % | | 898,248 | | | 726 | | | 0.08 | % |
Total mutual funds, ETFs, and CTFs (2) | $ | 1,753,516 | | | 2,563 | | | 0.15 | % | | $ | 1,583,682 | | | 2,055 | | | 0.13 | % | | $ | 1,707,410 | | | 1,961 | | | 0.11 | % |
Advice solutions (2) | | | | | | | | | | | | | | | | | |
| Fee-based | $ | 458,114 | | | 1,868 | | | 0.41 | % | | $ | 441,336 | | | 1,854 | | | 0.42 | % | | $ | 452,503 | | | 1,993 | | | 0.44 | % |
| Non-fee-based | 96,633 | | | — | | | — | | | 89,525 | | | — | | | — | | | 89,911 | | | — | | | — | |
| Total advice solutions | $ | 554,747 | | | 1,868 | | | 0.34 | % | | $ | 530,861 | | | 1,854 | | | 0.35 | % | | $ | 542,414 | | | 1,993 | | | 0.37 | % |
Other balance-based fees (3) | 608,170 | | | 254 | | | 0.04 | % | | 561,416 | | | 244 | | | 0.04 | % | | 614,787 | | | 259 | | | 0.04 | % |
Other (4) | | | 71 | | | | | | | 63 | | | | | | | 61 | | | |
| Total asset management and administration fees | | | $ | 4,756 | | | | | | | $ | 4,216 | | | | | | | $ | 4,274 | | | |
(1) In 2022 and 2023, includes transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and other NTF funds.
(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 $540 million, or 13%, in 2023 from 2022, primarily as a result of higher balances in Schwab money market funds and the elimination of fee waivers on those funds as well as higher average client asset balances due to stronger equity markets. Money market fund balances increased in 2023 as clients shifted their cash allocations to higher-yielding investment solutions, and money market fund fee waivers were eliminated during 2022, both due primarily to the Federal Reserve’s increases to the federal funds target overnight rate. The increases in asset management and administration fees in 2023 were also due to growth in Schwab equity and bond funds, ETFs, and CTFs, partially offset by lower balances of certain third-party mutual funds and ETFs.
Asset management and administration fees declined by $58 million, or 1%, in 2022 from 2021, due to lower balances in Mutual Fund OneSource® and other third-party mutual funds, as well as advice solutions, relative to 2021. Balances declined primarily due to equity market weakness during 2022, which negatively impacted client asset valuations. These decreases offset the benefit of lower money market fund fee waivers, which were eliminated during the second quarter of 2022 as a result of the Federal Reserve’s increases to the federal funds target overnight rate.
The following table presents 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 NTF funds. The following funds generated 44%, 33%, and 29% of the asset management and administration fees earned during 2023, 2022, and 2021, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Schwab Money | | Schwab Equity and | | Mutual Fund OneSource® |
| | Market Funds | | Bond Funds, ETFs, and CTFs | | and Other NTF Funds |
| Year Ended December 31, | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Balance at beginning of period | | $ | 278,926 | | | $ | 146,509 | | | $ | 176,089 | | | $ | 412,942 | | | $ | 454,864 | | | $ | 341,689 | | | $ | 235,738 | | | $ | 234,940 | | | $ | 223,857 | |
| Net inflows (outflows) | | 180,513 | | | 130,483 | | | (29,621) | | | 23,301 | | | 35,156 | | | 48,291 | | | (28,741) | | | (43,851) | | | (15,760) | |
Net market gains (losses) and other (1) | | 16,970 | | | 1,934 | | | 41 | | | 69,906 | | | (77,078) | | | 64,884 | | | 99,225 | | | 44,649 | | | 26,843 | |
| Balance at end of period | | $ | 476,409 | | | $ | 278,926 | | | $ | 146,509 | | | $ | 506,149 | | | $ | 412,942 | | | $ | 454,864 | | | $ | 306,222 | | | $ | 235,738 | | | $ | 234,940 | |
(1) Includes $39.8 billion and $77.7 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and Other NTF Funds in 2023 and 2022, respectively.
Trading Revenue
Trading revenue includes commissions, order flow revenue, and principal transaction revenues. Commission revenue is affected by volume and mix of trades executed. Order flow revenue is comprised of payments received from trade execution venues to which our broker-dealer subsidiaries send equity and option orders. Order flow revenue is affected by volume and mix of client trades, as well as pricing received from trade execution venues. Principal transactions revenue is recognized primarily as a result of accommodating clients’ fixed income trading activity, and includes adjustments to the fair value of securities positions
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)
held to facilitate such client trading activity. Principal transactions revenue also includes unrealized gains and losses on cash and investments segregated for regulatory purposes.
The following tables present trading revenue, trade details, and related information: | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | Percent Change
2022-2023 | | 2023 | | 2022 | | 2021 |
| Commissions | (10) | % | | $ | 1,601 | | | $ | 1,787 | | | $ | 2,050 | |
| Order flow revenue | | | | | | | |
| Options | (19) | % | | 949 | | | 1,170 | | | 1,320 | |
| Equities | (20) | % | | 455 | | | 568 | | | 733 | |
| Total order flow revenue | (19) | % | | 1,404 | | | 1,738 | | | 2,053 | |
| Principal transactions | 52 | % | | 225 | | | 148 | | | 49 | |
| Total trading revenue | (12) | % | | $ | 3,230 | | | $ | 3,673 | | | $ | 4,152 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | Percent Change 2022-2023 | | 2023 | | 2022 | | 2021 |
| DATs (in thousands) | (9) | % | | 5,394 | | | 5,925 | | | 6,507 | |
| Product as a percentage of DATs | | | | | | | |
| Equities | | | 49 | % | | 50 | % | | 61 | % |
| Derivatives | | | 23 | % | | 23 | % | | 21 | % |
| ETFs | | | 20 | % | | 21 | % | | 13 | % |
| Mutual funds | | | 6 | % | | 5 | % | | 4 | % |
| Fixed income | | | 2 | % | | 1 | % | | 1 | % |
| | | | | | | |
| Number of trading days | (1) | % | | 249.0 | | | 250.5 | | | 251.5 | |
Revenue per trade (1) | (2) | % | | $ | 2.41 | | | $ | 2.47 | | | $ | 2.54 | |
(1) Revenue per trade is calculated as trading revenue divided by DATs multiplied by the number of trading days.
Trading revenue decreased $443 million, or 12%, in 2023 compared to 2022, primarily due to lower options order flow revenue from changes in the mix of client trading activity and narrower quoted spreads in the options market, and lower equity order flow revenue reflecting a shift toward more low-price securities and lower equity trading activity overall. Additionally, commissions decreased as a result of lower client trading activity and fewer trading days. Partially offsetting the decrease in 2023 compared to 2022, principal transactions revenue increased as a result of higher volume in clients’ fixed income trading and higher market interest rates.
Trading revenue decreased $479 million, or 12%, in 2022 compared to 2021, primarily due to lower client trading activity in 2022 relative to 2021, driven by the extraordinary trading volume experienced during the first quarter of 2021, as well as changes in the mix of client trading activity toward more ETFs and fewer single stocks, and toward more index options and futures and fewer single stock options. These factors drove lower commissions and order flow revenue in 2022 relative to 2021. Partially offsetting these decreases, principal transactions revenue increased as a result of higher volume in clients’ fixed income trading and higher market interest rates.
Bank Deposit Account Fees
The Company earns bank deposit account fee revenue from the TD Depository Institutions. These fees are affected by changes in interest rates and the composition of balances designated as fixed- and floating-rate obligation amounts.
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 presents bank deposit account fee revenue, average BDA balances, average net yield, and average balances earning fixed- and floating-rate yields: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Percent Change
2022-2023 | | 2023 | | 2022 | | 2021 |
| Bank deposit account fees | | (50) | % | | $ | 705 | | | $ | 1,409 | | | $ | 1,315 | |
| Average BDA balances | | (29) | % | | $ | 104,227 | | | $ | 147,273 | | | $ | 158,434 | |
| Average net yield | | | | 0.68 | % | | 0.96 | % | | 0.83 | % |
| Percentage of average BDA balances designated as: | | | | | | | | |
| Fixed-rate balances | | | | 92 | % | | 79 | % | | 79 | % |
| Floating-rate balances | | | | 8 | % | | 21 | % | | 21 | % |
In January 2023, the Company ended its arrangements with other third-party banks to simplify bank sweep operations ahead of the first TD Ameritrade client transition group in February 2023. In addition, the FDIC implemented a 2-basis-point increase to the initial base deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023. This increase in the FDIC’s deposit insurance assessment results in a decrease to bank deposit account fee revenue, dependent on BDA balance levels.
Bank deposit account fees decreased $704 million, or 50%, in 2023 compared to 2022. The decrease was primarily due to lower average BDA balances, an increase in the amount paid to clients due to higher interest rates, and breakage fees of $97 million incurred during the first quarter of 2023 as a result of ending the other third-party bank arrangements. These factors also contributed to the decrease in average net yield in 2023 compared to 2022. The decrease in average BDA balances in 2023 compared to 2022 was primarily due to client cash allocation decisions in response to rising short-term market interest rates throughout 2022 and through the first three quarters of 2023. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of December 31, 2023 were 86% and 14%, respectively.
Bank deposit account fees increased $94 million, or 7%, in 2022 compared to 2021. This was primarily due to higher market interest rates, which helped to increase the average net yield in 2022. The Company transferred net amounts of $21.0 billion and $10.6 billion of BDA balances to its balance sheet from the TD Depository Institutions and other third-party banks during 2022 and 2021, respectively. The transfer of these balances to our balance sheet, as well as client cash allocation decisions in response to higher short-term market interest rates in 2022, led to the decrease in average BDA balances in 2022 compared to 2021. The percentages of BDA balances designated as fixed-rate and floating-rate obligations as of December 31, 2022 were 87% and 13%, respectively.
Other Revenue
Other revenue includes exchange processing fees, certain service fees, other gains and losses from the sale of assets, and the provision for credit losses on bank loans.
Other revenue decreased $63 million, or 8%, in 2023 compared to 2022 primarily due to lower exchange processing fees, net losses on sales of AFS securities, and certain lower service fees, partially offset by lower provision for credit losses on bank loans. Exchange processing fees decreased primarily due to a decrease in the SEC fee rate which became effective in the first quarter of 2023 and lower year-to-date options volume. The provision for credit losses on bank loans was lower as loan loss factors decreased while the total balance of First Mortgages increased slightly compared to year-end 2022. The Company’s provision for credit losses on bank loans in 2022 reflected increased loan loss factors driven primarily by higher forecasted interest rates earlier in the Federal Reserve’s monetary tightening, as well as growth in the loan portfolio. In addition, other revenue in 2022 included $46 million in gains on the sale of Schwab Compliance Technologies, Inc. and certain investments. Other revenue increased $33 million, or 4%, in 2022 compared to 2021 primarily due to these gains and higher exchange processing fees, partially offset by a higher provision for credit losses on bank loans, certain lower service fees due to lower trading volume, and net losses on sales of AFS securities in 2022. Exchange processing fees had increased in 2022 as a result of an SEC fee rate increase which became effective in the second quarter of 2022.
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 total expenses excluding interest: | | | | | | | | | | | | | | | | | | | | | | | |
| Percent Change 2022-2023 | | 2023 | | 2022 | | 2021 |
| Compensation and benefits | | | | | | | |
| Salaries and wages | 15 | % | | $ | 4,046 | | | $ | 3,527 | | | $ | 3,161 | |
| Incentive compensation | (15) | % | | 1,239 | | | 1,458 | | | 1,443 | |
| Employee benefits and other | 8 | % | | 1,030 | | | 951 | | | 846 | |
| Total compensation and benefits | 6 | % | | $ | 6,315 | | | $ | 5,936 | | | $ | 5,450 | |
| Professional services | 3 | % | | 1,058 | | | 1,032 | | | 994 | |
| Occupancy and equipment | 7 | % | | 1,254 | | | 1,175 | | | 976 | |
| Advertising and market development | (5) | % | | 397 | | | 419 | | | 485 | |
| Communications | 7 | % | | 629 | | | 588 | | | 587 | |
| Depreciation and amortization | 23 | % | | 804 | | | 652 | | | 549 | |
| Amortization of acquired intangible assets | (10) | % | | 534 | | | 596 | | | 615 | |
| Regulatory fees and assessments | 109 | % | | 547 | | | 262 | | | 275 | |
| Other | 29 | % | | 921 | | | 714 | | | 876 | |
| Total expenses excluding interest | 10 | % | | $ | 12,459 | | | $ | 11,374 | | | $ | 10,807 | |
| Expenses as a percentage of total net revenues | | | | | | | |
| Compensation and benefits | | | 34 | % | | 29 | % | | 29 | % |
| Advertising and market development | | | 2 | % | | 2 | % | | 3 | % |
| Full-time equivalent employees (in thousands) | | | | | | | |
| At year end | (7) | % | | 33.0 | | 35.3 | | 33.4 |
| Average | 2 | % | | 35.4 | | 34.7 | | 32.5 |
Total expenses excluding interest increased $1.1 billion, or 10%, in 2023 from 2022, and $567 million, or 5%, in 2022 from 2021. Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased $643 million, or 6%, in 2023 from 2022 and $662 million, or 7%, in 2022 from 2021. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results. The Company began incurring restructuring costs in the third quarter of 2023 in connection with actions to streamline its operations to prepare for post-integration of TD Ameritrade (see below and Overview – Other for additional information). The Company currently anticipates total expenses excluding interest in full-year 2024 will be generally consistent with full-year 2023 levels, except in regard to acquisition and integration-related costs and restructuring costs. See Overview for additional information regarding these costs, and below for discussion of current and prior year results.
Total compensation and benefits increased in 2023 from 2022 due to restructuring costs recognized during the second half of 2023 related to position eliminations, higher average employee headcount to support TDA client account transitions, and annual merit increases, partially offset by lower incentive compensation. The 2022 increase was a result of growth in employee headcount to support our expanding client base, annual merit increases, as well as a 5% employee salary increase and other targeted compensation adjustments that went into effect in late 2021. Compensation and benefits included acquisition and integration-related costs of $187 million, $220 million, and $283 million in 2023, 2022, and 2021, respectively. Compensation and benefits also included restructuring costs of $292 million in 2023.
Professional services expense slightly increased in 2023 from 2022, primarily due to increased utilization of professional services to support overall growth of the business. The increase in 2022 from 2021 was primarily due to increased utilization of technology-related and other professional services to support overall growth of the business and enhancement to technological infrastructure to support our expanding client base, as well as the integration of TD Ameritrade. Professional services included acquisition and integration-related costs of $135 million, $140 million, and $132 million in 2023, 2022, and 2021, respectively.
Occupancy and equipment expense increased in 2023 from 2022, and in 2022 from 2021, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade. Occupancy and equipment included acquisition and integration-related costs of $28 million, $21 million, and $39 million in 2023, 2022, and 2021, respectively. Occupancy and equipment also included restructuring costs of $17 million in 2023.
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)
Advertising and market development expense decreased in 2023 from 2022, primarily as a result of lower advertising costs and lower client promotional spending for TD Ameritrade. The decrease in 2022 from 2021 was also primarily due to lower spending for marketing communications for TD Ameritrade.
Communications expense increased in 2023 compared to 2022, primarily as a result of client communications related to TDA account transitions completed during 2023. Communications expense was flat in 2022 compared to 2021.
Depreciation and amortization expense increased in 2023 from 2022, and in 2022 from 2021, primarily as a result of higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures to support the TDA integration and enhance our technological infrastructure to support growth of the business.
Amortization of acquired intangible assets decreased in 2023 from 2022, and in 2022 from 2021, as certain assets from the TDA acquisition were fully amortized by the beginning of the fourth quarter of 2022.
Regulatory fees and assessments increased in 2023 from 2022, primarily as a result of an FDIC special assessment of $172 million recorded during the fourth quarter of 2023 and higher FDIC deposit insurance assessments during 2023, reflecting greater use of brokered CDs and a 2-basis point increase to the FDIC deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023. These increases were partially offset by a lower assessment base. See Current Regulatory and Other Developments for discussion of the FDIC special assessment. The decrease in 2022 from 2021 was primarily due to lower client trading activity, partially offset by higher FDIC assessments and other regulatory assessments due to year-over-year average asset growth and overall growth of the business.
Other expense increased in 2023 from 2022, primarily due to impairment charges in 2023 related to closing certain leased corporate offices for restructuring and TDA integration. The decrease in 2022 from 2021 was primarily due to the recognition of a charge of approximately $200 million in 2021 for a regulatory matter settled in 2022, partially offset by higher exchange processing fees as a result of fee rate increases beginning in the second quarter of 2022 and also higher clearing charges. Other expense included acquisition and integration-related costs of $27 million and restructuring costs of $181 million in 2023.
Capital expenditures primarily include capitalized software costs, information technology and telecommunications equipment, and buildings. Total capital expenditures were $804 million, $952 million, and $1,041 million in 2023, 2022, and 2021, respectively. Capital expenditures decreased 16% in 2023 compared to 2022, as lower capitalized information technology equipment and buildings more than offset an increase in capitalized software costs. We continued to invest in our technological infrastructure in 2023 to support the TDA integration as well as greater capacity for our expanding client base. Capital expenditures decreased in 2022 compared to 2021, as higher capitalized software costs were offset by lower building expansion and capitalized information technology equipment.
Capital expenditures were 4.3% of total net revenues in 2023, slightly above our estimated range for the year. As we complete the TDA client transitions and the rest of the integration in 2024, we anticipate capital expenditures for the year to be within our longer term expectation of 3-5% of total net revenues.
Taxes on Income
Schwab’s effective income tax rate on income before taxes was 20.6% in 2023, 23.5% in 2022, and 24.1% in 2021. The decrease in the effective tax rate in 2023 from 2022 was primarily related to a decrease in state tax expense and the recognition of certain tax credits in 2023, partially offset by an increase in non-deductible FDIC deposit insurance assessments and a decrease in equity compensation tax deduction benefits. The decrease in the effective tax rate in 2022 from 2021 was primarily related to reversal of tax reserves in 2022 due to the resolution of certain state tax matters and tax benefits recognized on the portion of the 2021 charge for a regulatory matter settled in 2022 that was determined upon final settlement to be deductible. Partially offsetting the decreases in the effective tax rate from these items was a decrease in equity compensation tax deduction benefits, higher state income tax rates, and an increase in non-deductible compensation in 2022.
Segment Information
Revenues and expenses are attributed to the two 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. Net revenues in both segments are generated from the underlying client assets and trading activity; differences in the composition of net revenues between the segments are based on
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 composition of client assets, client trading frequency, and pricing unique to each. While both segments leverage the scale and efficiency of our platforms, segment expenses reflect the dynamics of serving millions of clients in Investor Services versus the thousands of RIAs on the Advisor Services platform.
Financial information for our segments is presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investor Services | | Advisor Services | | Total |
| Percent Change
2022-2023 | | 2023 | | 2022 | | 2021 | | Percent Change
2022-2023 | | 2023 | | 2022 | | 2021 | | Percent Change
2022-2023 | | 2023 | | 2022 | | 2021 |
| Year Ended December 31, | | | | | | | | | |
| Net Revenues | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest revenue | (9)% | | $ | 7,095 | | | $ | 7,819 | | $ | 6,052 | | | (19)% | | $ | 2,332 | | | $ | 2,863 | | | $ | 1,978 | | | (12)% | | $ | 9,427 | | | $ | 10,682 | | | $ | 8,030 | |
Asset management and
administration fees | 11% | | 3,398 | | | 3,049 | | 3,130 | | | 16% | | 1,358 | | | 1,167 | | | 1,144 | | | 13% | | 4,756 | | | 4,216 | | | 4,274 | |
| Trading revenue | (12)% | | 2,806 | | | 3,181 | | 3,753 | | | (14)% | | 424 | | | 492 | | | 399 | | | (12)% | | 3,230 | | | 3,673 | | | 4,152 | |
Bank deposit account
fees | (43)% | | 524 | | | 916 | | 964 | | | (63)% | | 181 | | | 493 | | | 351 | | | (50)% | | 705 | | | 1,409 | | | 1,315 | |
| Other | (4)% | | 582 | | | 605 | | 562 | | | (23)% | | 137 | | | 177 | | | 187 | | | (8)% | | 719 | | | 782 | | | 749 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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|
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| Secured uncommitted lines of credit with various external banks | CS&Co | 950 | | — | | (3) | January 2024 - February 2024 | 5.70% |
| Secured uncommitted lines of credit with various external banks | TDAC | 700 | | — | | (3) | January 2024 - February 2024 | 5.72% |
(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of December 31, 2023. Incremental borrowing capacity may be made available by pledging additional assets, subject to applicable facility terms. See below and Item 8 – Note 12 for additional information.
(2) Secured borrowing capacity is made available based on the banking subsidiaries’ or CSC’s ability to provide collateral deemed acceptable by each respective counterparty. See Item 8 – Note 17 for additional information.
(3) Secured borrowing capacity is made available based on CS&Co’s or TDAC’s ability to provide acceptable collateral to the lenders as determined by the credit agreements.
N/A Not applicable.
Available borrowing capacity from the FHLB and Federal Reserve facilities maintained by our banking subsidiaries is dependent on the value of assets pledged and the terms of the borrowing arrangements. As of December 31, 2023, the Company had additional investment securities with a par value of approximately $142 billion or a fair value of approximately $131 billion available to be pledged to obtain additional capacity. These securities could be used to provide additional borrowing capacity of up to $142 billion as of December 31, 2023, dependent on the facility utilized. Additional details regarding availability and use of these facilities is described below.
Amounts available under secured credit facilities with the FHLB are dependent on the value of our First Mortgages, HELOCs, and the value of certain of our investment securities that are pledged as collateral. These credit facilities are also available as backup financing in the event the outflow of client cash from the banking subsidiaries’ respective balance sheets is greater than maturities and paydowns on investment securities and bank loans. CSC’s banking subsidiaries must each maintain positive tangible capital, as defined by the Federal Housing Finance Agency, in order to place new draws upon these credit facilities, and the Company manages capital with consideration of minimum tangible capital ratios at our banking subsidiaries. Tangible capital pursuant to the requirements of the FHLB borrowing facilities for our banking subsidiaries is common equity less goodwill and intangible assets.
Our banking subsidiaries also have access to short-term secured funding through the Federal Reserve discount window. Amounts available under the Federal Reserve discount window are dependent on the fair value of certain investment securities that are pledged as collateral. Our banking subsidiaries may also engage with external financial institutions in repurchase agreements collateralized by investment securities as another source of short-term liquidity. In addition, our banking subsidiaries are counterparties to the standing repo facility with the Federal Reserve Bank of New York; other than de minimis tests performed to satisfy the Federal Reserve Bank of New York’s testing requirements, this facility was not used during 2023 and there were no amounts outstanding at December 31, 2023. Beginning in 2023, CSC maintains a standing bilateral repurchase agreement with an external bank. Other than de minimis tests, this facility was not used during 2023 and there were no amounts outstanding under this facility at December 31, 2023.
On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program, offering loans through March 11, 2024 of up to one year in length to eligible financial institutions with U.S. Treasury securities, agency debt, mortgage-backed securities, and other qualifying assets pledged as collateral. Borrowing capacity available under this program is dependent upon the par value of the investment securities that are pledged as collateral. The Company is eligible to obtain advances under this program. This facility was not used during 2023.
CSC’s ratings for Commercial Paper Notes were P1 by Moody’s Investor Service (Moody’s), A2 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at December 31, 2023. During the second quarter of 2023,
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)
Standard & Poor’s downgraded its rating of CSC’s Commercial Paper Notes from A1 to A2, and Moody’s changed its outlook from positive to stable.
CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities.
CS&Co maintains uncommitted, unsecured bank credit lines with a group of banks as a source of short-term liquidity, which can also be accessed by CSC. CS&Co also maintains secured, uncommitted lines of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral, based on the terms of the agreements. TDAC maintains secured uncommitted lines of credit, under which TDAC borrows on either a demand or short-term basis and pledges client margin securities as collateral.
In the fourth quarter of 2022 and in 2023, CSB issued brokered CDs as a supplemental funding source. The following table provides information about brokered CDs issued by CSB and outstanding as of December 31, 2023:
| | | | | | | | | | | |
| Amount Outstanding | Maturity | Weighted-Average Interest Rate |
| Brokered CDs | $ | 48,297 | | January 2024 - April 2025 | 5.15% |
Cash Flow Activity
As a result of rapidly increasing short-term interest rates beginning in 2022, the Company saw an increase in the pace at which clients moved certain cash balances out of our sweep features and into higher-yielding alternatives at Schwab. As a result of these outflows, our banking subsidiaries have supplemented excess cash on hand and cash generated by maturities and paydowns on our investment securities portfolios with fixed- and floating-rate FHLB advances, repurchase agreements, and issuances of brokered CDs. The average pace of client cash allocations out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second quarter of 2023, and, apart from an increase in August following the Federal Reserve’s July rate increase, continued to decline during the second half of 2023. See also Results of Operations – Net Interest Revenue.
In the fourth quarter of 2023, the Company’s FHLB borrowings and total other short-term borrowings decreased by $6.4 billion as a result of repayments during the period. Bank deposits increased during the fourth quarter of 2023 by $5.5 billion, resulting from an increase of $2.8 billion in deposits swept from brokerage accounts due to the slowed pace of client cash realignment decisions and seasonal cash inflows near year-end, as well as an increase of $2.9 billion in brokered CDs.
Cash and cash equivalents increased $3.1 billion from year-end 2022 to $43.3 billion at December 31, 2023; cash and cash equivalents, including amounts restricted, increased $15.8 billion to $74.5 billion as of year-end 2023. This increase was driven by net cash provided by investing and operating activities, partially offset by net cash used for financing activities. Bank deposits decreased $76.8 billion in 2023, resulting primarily from a decrease of $113.5 billion in deposits swept from brokerage accounts due to client cash allocation decisions, partially offset by a net increase in brokered CDs of $42.3 billion. Offsetting the decrease in bank deposits, investing cash flows from our AFS and HTM securities totaled $58.9 billion in 2023, cash flows from operating activities totaled $19.6 billion, and the Company increased FHLB borrowings and other short-term borrowings by a total of $15.9 billion in 2023.
In 2022, cash and cash equivalents decreased $22.8 billion to end the year at $40.2 billion. Cash and cash equivalents, including amounts restricted, decreased $34.6 billion during 2022 to $58.7 billion at December 31, 2022. This decrease was driven primarily by net cash used for financing activities, partially offset by net cash provided by investing activities. Bank deposits decreased $77.1 billion in 2022, primarily due to a decrease of $78.5 billion in deposits swept from brokerage accounts due to client cash allocation decisions, partially offset by the issuance of $6.0 billion of brokered CDs. In 2022, FHLB borrowings and other short-term borrowings increased $12.2 billion, and investing cash flows from AFS and HTM securities were $39.4 billion.
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 Coverage Ratio
Schwab is subject to the full LCR rule, which requires the Company to hold HQLA in an amount equal to at least 100% 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 for additional information. The Company was in compliance with the LCR rule at December 31, 2023, and the table below presents information about our average daily LCR:
| | | | | | | | | | | |
| Average for the Three Months Ended |
| December 31, 2023 | | September 30, 2023 |
| Total eligible HQLA | $ | 58,056 | | | $ | 60,781 | |
| Net cash outflows | 44,793 | | | 51,351 | |
| LCR | 130 | % | | 119 | % |
To support growth in margin loan balances at our broker-dealer subsidiaries while meeting our LCR requirements, the Company may issue commercial paper or draw on secured lines of credit, in addition to capital markets issuances.
Net Stable Funding Ratio
Schwab is subject to disclosure requirements under the NSFR rule, which requires the semi-annual public disclosure of its NSFR levels beginning in the second quarter of 2023. The NSFR rule stipulates that the Company’s available stable funding (ASF) must be at least 100% of the Company’s required stable funding (RSF). ASF is calculated by assessing the stability of the Company’s funding sources and RSF is calculated by evaluating the characteristics of the Company’s assets, derivatives, and off-balance-sheet exposures. The Company was in compliance with the NSFR rule at December 31, 2023, and the table below presents information about our average NSFR:
| | | | | | | | |
| Average for the Three Months Ended |
| December 31, 2023 | September 30, 2023 |
| ASF | $ | 197,756 | | $ | 202,775 | |
| RSF | 157,560 | | 161,270 | |
| NSFR | 126 | % | 126 | % |
Long-Term Borrowings
The Company’s long-term debt is primarily comprised of Senior Notes and totaled $26.1 billion and $20.8 billion at December 31, 2023 and 2022, respectively.
The following table provides information about our Senior Notes outstanding at December 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
| Par Outstanding | Maturity | Weighted-Average
Interest Rate | Moody’s | Standard
& Poor’s | Fitch |
| CSC Senior Notes | $ | 25,862 | | 2024 - 2034 | 3.64% | A2 | A- | A |
| TDA Holding Senior Notes | $ | 213 | | 2024 - 2029 | 3.47% | A2 | A- | — |
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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)
The following table details CSC’s cash dividends paid and per share amounts:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2023 | | 2022 |
| Cash Paid | | Per Share
Amount | | Cash Paid | | Per Share
Amount |
| Common and Nonvoting Common Stock | $ | 1,838 | | | $ | 1.00 | | | $ | 1,591 | | | $ | .84 | |
| Preferred Stock: | | | | | | | |
Series A (1) | N/A | | N/A | | 33 | | | 82.73 | |
|
Series D (2) | 45 | | | 59.52 | | | 45 | | | 59.52 | |
Series E (3) | N/A | | N/A | | 37 | | | 6,161.42 | |
Series F (4) | 24 | | | 5,000.00 | | | 25 | | | 5,000.00 | |
Series G (2) | 132 | | | 5,375.00 | | | 134 | | | 5,375.00 | |
Series H (2) | 90 | | | 4,000.00 | | | 100 | | | 4,000.00 | |
Series I (2) | 83 | | | 4,000.00 | | | 90 | | | 4,000.00 | |
Series J (2) | 27 | | | 44.52 | | | 27 | | | 44.52 | |
Series K (5) | 37 | | | 5,000.00 | | | 28 | | | 3,708.33 | |
(1) Series A was redeemed on November 1, 2022. Prior to redemption, dividends were paid semi-annually until February 1, 2022 and quarterly thereafter. The final dividend was paid on November 1, 2022.
(2) Dividends are paid quarterly.
(3) Series E was redeemed on December 1, 2022. Prior to redemption, dividends were paid semi-annually until March 1, 2022 and quarterly thereafter. The final dividend was paid on December 1, 2022.
(4) Dividends are paid semi-annually until December 1, 2027 and quarterly thereafter.
(5) Series K was issued on March 4, 2022. Dividends are paid quarterly, and the first dividend was paid on June 1, 2022.
N/A Not applicable.
In addition, on January 24, 2024, the Board of Directors of the Company declared a dividend of $.25 per common share.
Share Repurchases
On July 27, 2022, CSC publicly announced that its Board of Directors approved a new share repurchase authorization to repurchase up to $15.0 billion of common stock, replacing the previous and now terminated share repurchase authorization of up to $4.0 billion of common stock. The new share repurchase authorization does not have an expiration date. On August 1, 2022, CSC purchased, directly from an affiliate of TD Bank, 15 million shares of nonvoting common stock for a total of $1.0 billion, or approximately $66.53 per share. The shares of nonvoting common stock automatically converted into common stock and were purchased under CSC’s new share repurchase authorization. The purchase price paid by CSC was equal to the lowest price per share that the affiliate of TD Bank received in a contemporaneous share sale facilitated by a third-party market maker, which resulted in a purchase price lower than the closing price on August 1, 2022. CSC repurchased an additional 32 million shares of its common stock under the new authorization for $2.4 billion during the year ended December 31, 2022. CSC repurchased 37 million shares of its common stock under the new authorization for $2.8 billion during 2023; we did not initiate repurchases after the first quarter of 2023. As of December 31, 2023, approximately $8.7 billion remained on the new authorization. There were no repurchases of CSC’s common stock under the terminated authorization during 2022.
The Company repurchased 11,620 depositary shares representing interests in Series F preferred stock for $11 million, 42,036 depositary shares representing interests in Series G preferred stock for $42 million, 273,251 depositary shares representing interests in Series H preferred stock for $235 million, and 194,567 depositary shares representing interests in Series I preferred stock for $179 million on the open market during 2023; we did not initiate repurchases after the first quarter of 2023. The repurchase prices are inclusive of $3 million of dividends accrued by the stockholders as of the repurchase date.
Beginning in 2023, share repurchases, net of issuances, are subject to a nondeductible 1% excise tax which was recognized as a direct and incremental cost associated with these transactions. For repurchases of common stock, the tax is recorded as part of the cost basis of the treasury stock repurchased, resulting in no impact to the consolidated statement of income. For repurchases of preferred stock, the tax impact is included within preferred stock dividends and other on the consolidated statement of income.
FOREIGN EXPOSURE
At December 31, 2023, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At December 31, 2023, the fair value of these holdings totaled $12.8 billion, with the top three exposures being to issuers and counterparties domiciled in the United Kingdom at $5.0 billion, France at $3.2 billion,
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)
and Canada at $1.5 billion. At December 31, 2022, the fair value of these holdings totaled $16.4 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.1 billion, the United Kingdom at $4.8 billion, and Canada at $1.7 billion. In addition, Schwab had outstanding margin loans to foreign residents of $2.5 billion at both December 31, 2023 and 2022.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Schwab uses the market approach to determine the fair value of certain financial assets and liabilities recorded at fair value, and to determine fair value disclosures. See Item 8 – Notes 2 and 18 for more information on our assets and liabilities recorded at fair value.
CRITICAL ACCOUNTING ESTIMATES
The consolidated financial statements of Schwab have been prepared in accordance with GAAP. Item 8 – Note 2 contains more information on our significant accounting policies made in applying these accounting principles.
While the majority of the revenues, expenses, assets, and liabilities are not based on estimates, there are certain accounting principles that require management to make estimates regarding matters that are uncertain and susceptible to change where such change may result in a material adverse impact on Schwab’s financial position and financial results. These critical accounting estimates are described below. Management regularly reviews the estimates and assumptions used in the preparation of the financial statements for reasonableness and adequacy.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of the Board of Directors. Additionally, management has reviewed with the Audit Committee the Company’s significant estimates discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Income Taxes
Schwab estimates income tax expense based on amounts expected to be owed to the various tax jurisdictions in which we operate, including federal, state and local domestic jurisdictions, and immaterial amounts owed to several foreign jurisdictions. The estimated income tax expense is reported in the consolidated statements of income in taxes on income. Accrued taxes are reported in other assets or accrued expenses and other liabilities on the consolidated balance sheets and represent the net estimated amount due to or to be received from taxing jurisdictions either currently or deferred to future periods. Deferred taxes arise from differences between assets and liabilities measured for financial reporting purposes versus income tax reporting purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit management believes is more likely than not to be realized upon settlement. In estimating accrued taxes, we assess the relative merits and risks of the appropriate tax treatment considering statutory, judicial and regulatory guidance in the context of the tax position. Because of the complexity of tax laws and regulations, interpretation can be difficult and subject to legal judgment given specific facts and circumstances.
Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by various taxing authorities, and newly enacted statutory, judicial, and regulatory guidance that impacts the relative merits and risks of tax positions. These changes, when they occur, affect accrued taxes and can be significant to the operating results of the Company. See Item 8 – Note 22 for more information on the Company’s income taxes.
Legal and Regulatory Reserves
Reserves for legal and regulatory claims and proceedings reflect an estimate of probable losses for each matter, after considering, among other factors, the progress of the case, prior experience and the experience of others in similar cases, available defenses, and the opinions and views of legal counsel. In many cases, including most class action lawsuits, it is not possible to determine whether a loss will be incurred, or to estimate the range of that loss, until the matter is close to resolution, in which case no accrual is made until that time. Reserves are adjusted as more information becomes available. Significant judgment is required in making these estimates, and the actual cost of resolving a matter may ultimately differ materially from the amount reserved. See Item 8 – Note 14 for more information on the Company’s contingencies related to legal and regulatory reserves.
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 generally accepted accounting principles in the U.S. (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. Beginning in the third quarter of 2023, these adjustments also include restructuring costs, which the Company began incurring in connection with its previously announced plans to streamline its operations to prepare for post-integration of TD Ameritrade. See Item 8 – Note 15 for additional information.
| | | | | | | | |
| Non-GAAP Adjustment or Measure | Definition | Usefulness to Investors and Uses by Management |
Acquisition and integration-related costs, amortization of acquired intangible assets and restructuring costs | Schwab 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, restructuring costs 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, amortization of acquired intangible assets and restructuring costs for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and is useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods.
Costs related to acquisition and integration or restructuring fluctuate based on the timing of acquisitions, integration and restructuring 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 equity | Return 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. |
| Adjusted Tier 1 Leverage Ratio | Adjusted Tier 1 Leverage Ratio represents the Tier 1 Leverage Ratio as prescribed by bank regulatory guidance for the consolidated company and for CSB, adjusted to reflect the inclusion of AOCI in the ratio. | Inclusion of the impacts of AOCI in the Company’s Tier 1 Leverage Ratio provides additional information regarding the Company’s current capital position. We believe Adjusted Tier 1 Leverage Ratio may be useful to investors as a supplemental measure of the Company’s capital levels. |
The Company also uses adjusted diluted EPS and return on tangible common equity as components of performance criteria for employee bonus and certain executive management incentive compensation arrangements. The Compensation Committee of CSC’s Board of Directors maintains discretion in evaluating performance against these criteria.
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 reconciliations of GAAP measures to non-GAAP measures:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | 2022 | 2021 |
| Total expenses excluding interest (GAAP) | | $ | 12,459 | | $ | 11,374 | | $ | 10,807 | |
Acquisition and integration-related costs (1) | | (401) | | (392) | | (468) | |
| Amortization of acquired intangible assets | | (534) | | (596) | | (615) | |
Restructuring costs (2) | | (495) | | — | | — | |
| Adjusted total expenses (non-GAAP) | | $ | 11,029 | | $ | 10,386 | | $ | 9,724 | |
(1) Acquisition and integration-related costs for 2023 primarily consist of $187 million of compensation and benefits, $135 million of professional services,
$28 million of occupancy and equipment, and $27 million of other. Acquisition and integration-related costs for 2022 primarily consist of $220 million of compensation and benefits, $140 million of professional services, and $21 million of occupancy and equipment. Acquisition and integration-related costs for 2021 primarily consist of $283 million of compensation and benefits, $132 million of professional services, and $39 million of occupancy and equipment.
(2) Restructuring costs for 2023 primarily consist of $292 million of compensation and benefits, $17 million of occupancy and equipment, and $181 million of other. There were no restructuring costs for 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | 2022 | 2021 |
| Amount | Diluted EPS | Amount | Diluted EPS | Amount | Diluted EPS |
Net income available to common stockholders (GAAP),
Earnings per common share — diluted (GAAP) | $ | 4,649 | | $ | 2.54 | | $ | 6,635 | | $ | 3.50 | | $ | 5,360 | | $ | 2.83 | |
| Acquisition and integration-related costs | 401 | | .22 | | 392 | | .21 | | 468 | | .25 | |
| Amortization of acquired intangible assets | 534 | | .29 | | 596 | | .31 | | 615 | | .32 | |
Restructuring costs | 495 | | .27 | | — | | — | | — | | — | |
Income tax effects (1) | (338) | | (.19) | | (237) | | (.12) | | (268) | | (.15) | |
Adjusted net income available to common stockholders
(non-GAAP), Adjusted diluted EPS (non-GAAP) | $ | 5,741 | | $ | 3.13 | | $ | 7,386 | | $ | 3.90 | | $ | 6,175 | | $ | 3.25 | |
(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, amortization of acquired intangible assets and restructuring costs on an after-tax basis.
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | 2022 | 2021 |
| Return on average common stockholders’ equity (GAAP) | | 16 | % | 18 | % | 11 | % |
| Average common stockholders’ equity | | $ | 29,334 | | $ | 36,605 | | $ | 47,318 | |
| Less: Average goodwill | | (11,951) | | (11,952) | | (11,952) | |
| Less: Average acquired intangible assets — net | | (8,524) | | (9,084) | | (9,685) | |
Plus: Average deferred tax liabilities related to goodwill and acquired intangible
assets — net | | 1,805 | | 1,870 | | 1,919 | |
| Average tangible common equity | | $ | 10,664 | | $ | 17,439 | | $ | 27,600 | |
Adjusted net income available to common stockholders (1) | | $ | 5,741 | | $ | 7,386 | | $ | 6,175 | |
| Return on tangible common equity (non-GAAP) | | 54 | % | 42 | % | 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).
| | | | | | | | |
|
| CSC | CSB |
| Tier 1 Leverage Ratio (GAAP) | 8.5 | % | 10.1 | % |
| Tier 1 Capital | $ | 40,602 | | $ | 31,777 | |
| Plus: AOCI adjustment | (18,131) | | (15,746) | |
| Adjusted Tier 1 Capital | 22,471 | | 16,031 | |
| Average assets with regulatory adjustments | 476,069 | | 315,851 | |
| Plus: AOCI adjustment | (19,514) | | (17,194) | |
| Adjusted average assets with regulatory adjustments | $ | 456,555 | | $ | 298,657 | |
| Adjusted Tier 1 Leverage Ratio (non-GAAP) | 4.9 | % | 5.4 | % |
| |
| |
THE CHARLES SCHWAB CORPORATION
| | | | | | | | | | | | | | | | | |
| Consolidated Statements of Income | | | | | |
| (In Millions, Except Per Share Amounts) | | | | | |
| | | | | |
| Year Ended December 31, | 2023 | | 2022 | | 2021 |
| Net Revenues | | | | | |
| Interest revenue | $ | | | | $ | | | | $ | | |
| Interest expense | () | | | () | | | () | |
| Net interest revenue | | | | | | | | |
Asset management and administration fees (1) | | | | | | | | |
| Trading revenue | | | | | | | | |
| Bank deposit account fees | | | | | | | | |
| Other | | | | | | | | |
|
|
| Total net revenues | | | | | | | | |
| Expenses Excluding Interest | | | | | |
| Compensation and benefits | | | | | | | | |
| Professional services | | | | | | | | |
| Occupancy and equipment | | | | | | | | |
| Advertising and market development | | | | | | | | |
| Communications | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| Amortization of acquired intangible assets | | | | | | | | |
| Regulatory fees and assessments | | | | | | | | |
| Other | | | | | | | | |
| Total expenses excluding interest | | | | | | | | |
| Income before taxes on income | | | | | | | | |
| Taxes on income | | | | | | | | |
| Net Income | | | | | | | | |
| Preferred stock dividends and other | | | | | | | | |
| Net Income Available to Common Stockholders | $ | | | | $ | | | | $ | | |
| Weighted-Average Common Shares Outstanding: | | | | | |
| Basic | | | | | | | | |
| Diluted | | | | | | | | |
Earnings Per Common Shares Outstanding (2): | | | | | |
| Basic | $ | | | | $ | | | | $ | | |
| Diluted | $ | | | | $ | | | | $ | | |
|
(1) fee waivers were recognized for the year ended December 31, 2023. Includes fee waivers of $ million and $ million for the years ended December 31, 2022 and 2021, respectively.
(2)
See Notes to Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
| | | | | | | | | | | | | | | | | |
| Consolidated Statements of Comprehensive Income | | | | | |
| (In Millions) | | | | | |
| | | | | |
| Year Ended December 31, | 2023 | | 2022 | | 2021 |
| Net income | $ | | | | $ | | | | $ | | |
| Other comprehensive income (loss), before tax: | | | | | |
| Change in net unrealized gain (loss) on available for sale securities: | | | | | |
| Net unrealized gain (loss) excluding transfers to held to maturity | | | | () | | | () | |
| Reclassification of net unrealized loss transferred to held to maturity | | | | | | | | |
| Other reclassifications included in other revenue | | | | | | | () | |
| Change in net unrealized gain (loss) on held to maturity securities: | | | | | |
| Reclassification of net unrealized loss transferred from available for sale | | | | () | | | | |
Amortization of amounts previously recorded upon transfer to held to maturity
from available for sale | | | | | | | | |
| Other | () | | | | | | () | |
| Other comprehensive income (loss), before tax | | | | () | | | () | |
| Income tax effect | () | | | | | | | |
| Other comprehensive income (loss), net of tax | | | | () | | | () | |
| Comprehensive Income (Loss) | $ | | | | $ | () | | | $ | () | |
See Notes to Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
| | | | | | | | | | | |
Consolidated Balance Sheets (1) | | | |
| (In Millions, Except Per Share and Share Amounts) | | | |
| | | |
| December 31, | 2023 | | 2022 |
| Assets | | | |
| Cash and cash equivalents | $ | | | | $ | | |
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $ and $ at December 31, 2023 and 2022, respectively) | | | | | |
| Receivables from brokerage clients — net | | | | | |
Available for sale securities (amortized cost of $ and $ at December 31, 2023 and 2022, respectively; including assets pledged of $ and $, respectively) | | | | | |
Held to maturity securities (including assets pledged of $ and $ at December 31, 2023 and 2022, respectively) | | | | | |
| Bank loans — net | | | | | |
| Equipment, office facilities, and property — net | | | | | |
| Goodwill | | | | | |
| Acquired intangible assets — net | | | | | |
| Other assets | | | | | |
| Total assets | $ | | | | $ | | |
| Liabilities and Stockholders’ Equity | | | |
| Bank deposits | $ | | | | $ | | |
| Payables to brokerage clients | | | | | |
| Accrued expenses and other liabilities | | | | | |
| Other short-term borrowings | | | | | |
Federal Home Loan Bank borrowings | | | | | |
| Long-term debt | | | | | |
| Total liabilities | | | | | |
| Stockholders’ equity: | | | |
Preferred stock — $ par value per share; aggregate liquidation preference of $ and $ at December 31, 2023 and 2022, respectively | | | | | |
Common stock — billion shares authorized; $ par value per share; shares issued at December 31, 2023 and 2022 | | | | | |
Nonvoting common stock — million shares authorized; $ par value per share; shares issued at December 31, 2023 and 2022 | | | | | |
| Additional paid-in capital | | | | | |
| Retained earnings | | | | | |
Treasury stock, at cost — and shares at December 31, 2023 and 2022, respectively | () | | | () | |
| Accumulated other comprehensive income (loss) | () | | | () | |
| Total stockholders’ equity | | | | | |
| Total liabilities and stockholders’ equity | $ | | | | $ | | |
(1)
See Notes to Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Stockholders’ Equity |
| (In Millions) | | | | | | | | | |
| | | Nonvoting
Common Stock | Additional
Paid-In
Capital | | | Accumulated Other Comprehensive Income (Loss) | |
| Preferred
Stock | Common Stock | Retained
Earnings | Treasury Stock,
at cost | |
| Shares | Amount | Shares | Amount | Total |
| Balance at December 31, 2020 | $ | | | | | $ | | | | | $ | | | $ | | | $ | | | $ | () | | $ | | | $ | | |
| Net income | — | | — | | — | | — | | — | | — | | | | — | | — | | | |
| Other comprehensive income (loss), net of tax | — | | — | | — | | — | | — | | — | | — | | — | | () | | () | |
|
| Issuance of preferred stock, net | | | — | | — | | — | | — | | — | | — | | — | | — | | | |
| Redemption of preferred stock | () | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
| Dividends declared on preferred stock | — | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
Dividends declared on common stock — $ per share | — | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
|
|
|
| Stock option exercises and other | — | | — | | — | | — | | — | | () | | — | | | | — | | | |
| Share-based compensation | — | | — | | — | | — | | — | | | | — | | — | | — | | | |
| Other | — | | — | | — | | — | | — | | | | — | | () | | — | | | |
| Balance at December 31, 2021 | | | | | | | | | | | | | | | () | | () | | | |
| Net income | — | | — | | — | | — | | — | | — | | | | — | | — | | | |
| Other comprehensive income (loss), net of tax | — | | — | | — | | — | | — | | — | | — | | — | | () | | () | |
| Issuance of preferred stock, net | | | — | | — | | — | | — | | — | | — | | — | | — | | | |
| Redemption of preferred stock | () | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
| Dividends declared on preferred stock | — | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
Dividends declared on common stock — $ per share | — | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
| Repurchase of common stock | — | | — | | — | | — | | — | | — | | — | | () | | — | | () | |
| Repurchase of nonvoting common stock | — | | | | — | | () | | — | | — | | — | | () | | — | | () | |
Conversion of nonvoting common stock to
common stock | — | | | | — | | () | | — | | — | | — | | — | | — | | — | |
| Stock option exercises and other | — | | — | | — | | — | | — | | () | | — | | | | — | | | |
| Share-based compensation | — | | — | | — | | — | | — | | | | — | | — | | — | | | |
| Other | — | | — | | — | | — | | — | | | | — | | () | | — | | | |
| Balance at December 31, 2022 | | | | | | | | | | | | | | | () | | () | | | |
| Net income | — | | — | | — | | — | | — | | — | | | | — | | — | | | |
| Other comprehensive income (loss), net of tax | — | | — | | — | | — | | — | | — | | — | | — | | | | | |
Redemption and repurchase of preferred stock,
inclusive of tax | () | | — | | — | | — | | — | | — | | | | — | | — | | () | |
|
|
| Dividends declared on preferred stock | — | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
Dividends declared on common stock — $ per share | — | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
| Repurchase of common stock, inclusive of tax | — | | — | | — | | — | | — | | — | | — | | () | | — | | () | |
|
|
|
|
|
|
| Proceeds from FHLB borrowings | | | | | | |
| Repayments of FHLB borrowings | () | | () | | | |
| Proceeds from other short-term borrowings | | | | | | |
| Repayments of other short-term borrowings | () | | () | | () | |
| Issuances of long-term debt | | | | | | |
| Repayments of long-term debt | () | | () | | () | |
| Repurchases of common stock and nonvoting common stock | () | | () | | | |
| Issuance of preferred stock, net | | | | | | |
| Redemption and repurchase of preferred stock | () | | () | | () | |
| Dividends paid | () | | () | | () | |
| Proceeds from stock options exercised | | | | | | |
| Other financing activities | () | | () | | () | |
| Net cash provided by (used for) financing activities | () | | () | | | |
| Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted | | | () | | | |
| Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year | | | | | | |
| Cash and Cash Equivalents, including Amounts Restricted at End of Year | $ | | | $ | | | $ | | |
Continued on following page.
THE CHARLES SCHWAB CORPORATION
Continued from previous page.
| | | | | | | | | | | |
| Year Ended December 31, | 2023 | 2022 | 2021 |
| Supplemental Cash Flow Information | | | |
| Non-cash investing activity: | | | |
|
| Securities transferred from available for sale to held to maturity, at fair value | $ | | | $ | | | $ | | |
|
| Changes in accrued equipment, office facilities, and property purchases | $ | | | $ | () | | $ | | |
|
| Non-cash financing activity: | | | |
|
| Common stock repurchased during the period but settled after period end | $ | | | $ | | | $ | | |
| Other Supplemental Cash Flow Information | | | |
| Cash paid during the period for: | | | |
| Interest | $ | | | $ | | | $ | | |
| Income taxes | $ | | | $ | | | $ | | |
| Amounts included in the measurement of lease liabilities | $ | | | $ | | | $ | | |
| Leased assets obtained in exchange for new operating lease liabilities | $ | | | $ | | | $ | | |
| Leased assets obtained in exchange for new finance lease liabilities | $ | | | $ | | | $ | | |
| | | | | | | | | | | |
| December 31, | 2023 | 2022 | 2021 |
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2) | | | |
| Cash and cash equivalents | $ | | | $ | | | $ | | |
Restricted cash and cash equivalents amounts included in cash and investments segregated
and on deposit for regulatory purposes | | | | | | |
Total cash and cash equivalents, including amounts restricted shown in the
statement of cash flows | $ | | | $ | | | $ | | |
(1)
(2)
See Notes to Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
1.
domestic branch offices in states and the District of Columbia, as well as locations in Puerto Rico, the United Kingdom, Hong Kong, and Singapore.
Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
2.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
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 the residential real estate portfolio segment utilizes statistical models that estimate prepayments, defaults, and expected losses for this portfolio segment based on predicted behavior of individual loans within the segment. The methodology also evaluates concentrations in the classes of financing receivables, including loan products within those classes, year of origination, and geographical distribution of collateral.
Expected credit losses are estimated using a loan-level model that projects each loan’s behavior over its term based on forecasted voluntary housing turnover, the rates of refinancing, delinquency transition rates, and severity of loss. The model takes into account the current relevant risk indicators, including each loan’s term and structure, current delinquency status, and the estimated current LTV ratio, as well as borrower FICO scores and current key interest rates including U.S. Treasury, SOFR, Prime, and mortgage rates. The more significant variables in the model include delinquency roll rates, housing prices, interest rates, and the 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 over a full economic cycle. Loss severity (i.e., loss given default) estimates are based on forecasted net equity associated with each loan and property, as well as loss experience and market trends, both current and forecasted. 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. Mortgage rates are estimated based on forecasted spread, while the rest of the interest rates used by the model are projected based on the forward rates. 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 14 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
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
to years| Buildings | years |
| Building and land improvements | years |
| Software | to years (1) |
| Leasehold improvements | Lesser of useful life or lease term |
(1) Amortized over contractual term if shorter than the estimated useful life.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
independent third-party pricing sources for such assets recorded at fair value.
Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposits; 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
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
3.
| | $ | | | | $ | | | | Cash and investments segregated | | | | | | | | |
| Receivables from brokerage clients | | | | | | | | |
| Available for sale securities | | | | | | | | |
| Held to maturity securities | | | | | | | | |
| Bank loans | | | | | | | | |
| Securities lending revenue | | | | | | | | |
| Other interest revenue | | | | | | | | |
| Interest revenue | | | | | | | | |
| Bank deposits | () | | | () | | | () | |
| Payables to brokerage clients | () | | | () | | | () | |
Other short-term borrowings (1) | () | | | () | | | () | |
Federal Home Loan Bank borrowings (1) | () | | | () | | | | |
| Long-term debt | () | | | () | | | () | |
| Securities lending expense | () | | | () | | | () | |
| Other interest expense | () | | | | | | | |
| Interest expense | () | | | () | | | () | |
| Net interest revenue | | | | | | | | |
| Asset management and administration fees | | | | | |
| Mutual funds, ETFs, and CTFs | | | | | | | | |
| Advice solutions | | | | | | | | |
| Other | | | | | | | | |
| Asset management and administration fees | | | | | | | | |
| Trading revenue | | | | | |
| Commissions | | | | | | | | |
| Order flow revenue | | | | | | | | |
| Principal transactions | | | | | | | | |
| Trading revenue | | | | | | | | |
| Bank deposit account fees | | | | | | | | |
| Other | | | | | | | | |
|
| Total net revenues | $ | | | | $ | | | | $ | | |
(1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information.
For additional discussion of contract balances, see Note 9. For a summary of revenue provided by our reportable segments, see Note 24. The recognition of revenue is not impacted by the operating segment in which revenue is generated.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
4.
| | $ | | | | Other brokerage receivables | | | | | |
Receivables from brokerage clients — net (1) | $ | | | | $ | | |
| Payables | | | |
| Interest-bearing payables | $ | | | | $ | | |
| Non-interest-bearing payables | | | | | |
| Payables to brokerage clients | $ | | | | $ | | |
(1) The allowance for credit losses for receivables from brokerage clients and related activity was immaterial for all periods presented.
At December 31, 2023 and 2022, approximately % of total CS&Co and TD Ameritrade, Inc. client accounts were located in California.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
5.
| | $ | | | | $ | | | | $ | | | | U.S. Treasury securities | | | | | | | | | | | |
Corporate debt securities (1) | | | | | | | | | | | |
Asset-backed securities (2) | | | | | | | | | | | |
| Foreign government agency securities | | | | | | | | | | | |
| U.S. state and municipal securities | | | | | | | | | | | |
| Non-agency commercial mortgage-backed securities | | | | | | | | | | | |
| Certificates of deposit | | | | | | | | | | | |
| Other | | | | | | | | | | | |
Unallocated portfolio layer method fair value basis adjustments (3) | () | | | | | | () | | | — | |
Total available for sale securities (4) | $ | | | | $ | | | | $ | | | | $ | | |
| Held to maturity securities | | | | | | | |
| U.S. agency mortgage-backed securities | $ | | | | $ | | | | $ | | | | $ | | |
| Total held to maturity securities | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| December 31, 2022 | | | | | | | |
| Available for sale securities | | | | | | | |
| U.S. agency mortgage-backed securities | $ | | | | $ | | | | $ | | | | $ | | |
| U.S. Treasury securities | | | | | | | | | | | |
Asset-backed securities (2) | | | | | | | | | | | |
Corporate debt securities (1) | | | | | | | | | | | |
| Certificates of deposit | | | | | | | | | | | |
| Foreign government agency securities | | | | | | | | | | | |
| U.S. state and municipal securities | | | | | | | | | | | |
Non-agency commercial mortgage-backed securities | | | | | | | | | | | |
| Other | | | | | | | | | | | |
Total available for sale securities (4) | $ | | | | $ | | | | $ | | | | $ | | |
| Held to maturity securities | | | | | | | |
| U.S. agency mortgage-backed securities | $ | | | | $ | | | | $ | | | | $ | | |
| Total held to maturity securities | $ | | | | $ | | | | $ | | | | $ | | |
(1) As of December 31, 2023 and 2022, approximately % and %, respectively, of the total AFS corporate debt securities were issued by institutions in the financial services industry.
(2) Approximately % and % of asset-backed securities held as of December 31, 2023 and 2022, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately % and % of the asset-backed securities held as of December 31, 2023 and 2022, respectively.
(3) This represents the amount of PLM basis adjustments related to AFS securities hedged in a closed portfolio. See Notes 2 and 16 for more information on PLM hedge accounting.
million of AFS commercial paper as of December 31, 2022 ( as of December 31, 2023). These holdings have maturities of three months or less at the time of acquisition, and an aggregate market value equal to amortized cost.
During 2022, the Company transferred a total of $ billion of U.S. agency mortgage-backed securities with a total net pre-tax unrealized loss at the times of transfer of $ billion from the AFS category to the HTM category. The transfer of these securities to the HTM category reduces the Company’s exposure to fluctuations in AOCI that can result from unrealized losses on AFS securities due to changes in market interest rates. The unrealized loss at the time of transfer is amortized over the remaining life of the security, offsetting the amortization of the security’s premium or discount, and resulting in no impact to net income. As of December 31, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ billion net of tax effect ($ billion pre-tax).
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
At December 31, 2023, our banking subsidiaries had pledged HTM and AFS securities as collateral under repurchase agreements with external financial institutions. HTM securities pledged were U.S. agency mortgage-backed securities with an aggregate amortized cost of $ billion, and AFS securities pledged were U.S. agency mortgage-backed securities with an aggregate fair value of $ billion. Securities pledged as collateral under these repurchase agreements may be sold, repledged, or otherwise used by the counterparties. See Notes 2, 12, and 17 for additional information on these repurchase agreements.
At December 31, 2023, our banking subsidiaries had pledged AFS securities consisting of U.S. Treasury securities with an aggregate fair value of $ million as initial margin on interest rate swaps (see Notes 16 and 17). All of Schwab’s interest rate swaps are cleared through CCPs which require the Company to post initial margin as collateral against potential losses. Initial margin is posted through futures commission merchants (FCM) which serve as the intermediary between CCPs and Schwab. The FCM agreements governing our swaps allow for securities pledged as initial margin to be sold, repledged, or otherwise used by the FCM.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | U.S. Treasury securities | | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | | | | | | | |
Asset-backed securities (1) | | | | | | | | | | | | | | | | | |
| Foreign government agency securities | | | | | | | | | | | | | | | | | |
| U.S. state and municipal securities | | | | | | | | | | | | | | | | | |
| Non-agency commercial mortgage-backed securities | | | | | | | | | | | | | | | | | |
|
| Other | | | | | | | | | | | | | | | | | |
Total (2) | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | | |
| Available for sale securities | | | | | | | | | | | |
| U.S. agency mortgage-backed securities | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| U.S. Treasury securities | | | | | | | | | | | | | | | | | |
| Asset-backed securities | | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | | | | | | | |
| Certificates of deposit | | | | | | | | | | | | | | | | | |
| Foreign government agency securities | | | | | | | | | | | | | | | | | |
| U.S. state and municipal securities | | | | | | | | | | | | | | | | | |
| Non-agency commercial mortgage-backed securities | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
|
|
|
|
|
|
|
|
| (1) Unrealized losses less than 12 months amounts were less than $ thousand.
(2) For purposes of this table, unrealized losses on AFS securities excludes the unallocated PLM fair value hedge basis adjustments of $ million at December 31, 2023.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
The Company had $ million and $ million of accrued interest receivable for AFS and HTM securities as of December 31, 2023 and 2022, respectively. These amounts are excluded from the amortized cost basis and fair market value of AFS and HTM securities and included in other assets on the consolidated balance sheets. There were write-offs of accrued interest receivable on AFS and HTM securities during the years ended December 31, 2023 or 2022.
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. As of December 31, 2023, the estimated effective duration, which reflects anticipated future payments, of our total AFS and HTM investment securities portfolio is approximately years. The estimated effective duration of our AFS investment securities portfolio is approximately years as of December 31, 2023. Including the impact of the Company’s use of derivative instruments to manage changes in the fair values of our AFS investment portfolio, the effective duration of our total AFS and HTM investments securities as of December 31, 2023 is approximately years and for our AFS investment securities is approximately years (see Note 16).
| | $ | | | | $ | | | | $ | | | | $ | | |
| U.S. Treasury securities | | | | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | | | | |
| Asset-backed securities | | | | | | | | | | | | | | |
| Foreign government agency securities | | | | | | | | | | | | | | |
| U.S. state and municipal securities | | | | | | | | | | | | | | |
| Non-agency commercial mortgage-backed securities | | | | | | | | | | | | | | |
| Certificates of deposit | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | |
| Total fair value | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Total amortized cost (1) | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Weighted-average yield (2) | | % | | | % | | | % | | | % | | | % |
| | | | | | | | | |
| Held to maturity securities | | | | | | | | | |
| U.S. agency mortgage-backed securities | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Total fair value | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Total amortized cost | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Weighted-average yield (2) | | % | | | % | | | % | | | % | | | % |
(1) For purposes of this table, the amortized cost of AFS securities excludes the unallocated PLM fair value hedge basis adjustments of $ million at December 31, 2023.
(2) The weighted-average yield is computed using the amortized cost at December 31, 2023.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| | $ | | | | $ | | | | Gross realized gains | | | | | | | | |
| Gross realized losses | | | | | | | | |
6.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | HELOCs (1,2) | | | | | | | | | | | | | | | | | | | | | | | |
| Total residential real estate | | | | | | | | | | | | | | | | | | | | | | | |
| Pledged asset lines | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | | | | |
| Total bank loans | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | | | | | | |
| Residential real estate: | | | | | | | | | | | | | | | |
First Mortgages (1,2) | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
HELOCs (1,2) | | | | | | | | | | | | | | | | | | | | | | | |
| Total residential real estate | | | | | | | | | | | | | | | | | | | | | | | |
| Pledged asset lines | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | | | | |
| Total bank loans | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $ million and $ million at December 31, 2023 and 2022, respectively.
(2) At both December 31, 2023 and 2022, % 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 loans accruing interest that were contractually 90 days or more past due at December 31, 2023 or 2022.
At December 31, 2023, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 12).
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | |
| Charge-offs | | | | | | | | | | | | | | | | | |
| Recoveries | | | | | | | | | | | | | | | | | |
| Provision for credit losses | () | | | () | | | () | | | | | | | | | () | |
| Balance at end of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | | |
| Balance at beginning of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
|
| Charge-offs | | | | | | | | | | () | | | | | | () | |
| Recoveries | | | | | | | | | | | | | | | | | |
| Provision for credit losses | | | | | | | | | | | | | | | | | |
| Balance at end of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | | |
| Balance at beginning of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
|
| Charge-offs | | | | | | | | | | | | | () | | | () | |
| Recoveries | | | | | | | | | | | | | | | | | |
| Provision for credit losses | () | | | () | | | () | | | | | | | | | () | |
| Balance at end of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
As discussed in Note 2, the Company charges off any unsecured PAL balances no later than 90-days past due. PALs are also subject to the collateral maintenance practical expedient under ASC 326 Financial Instruments — Credit Losses. All PALs were fully collateralized by securities with fair values in excess of borrowings as of December 31, 2023 and 2022, respectively. Therefore, no allowance for credit losses for PALs as of those dates was required.
During 2023, the U.S. economy continued to be challenged by elevated inflation, tightening monetary policy, and geopolitical unrest. However, amid sustained economic growth, supply and demand moved to a more balanced state, as inflation began to abate. While the Federal Reserve held the policy rate steady during the last quarter of the year, our allowance assumes a near term continuation of elevated interest rates with only a slight increase in unemployment and modest home price depreciation. Though higher mortgage rates are softening demand and reducing borrower affordability, we expect constrained housing supply to keep home prices relatively stable. Furthermore, credit quality metrics in the Company’s bank loans portfolio have improved in recent years and remain very strong. As a result of these factors, we decreased projected loss rates at December 31, 2023, as compared to December 31, 2022.
| | $ | | | Other real estate owned (2) | | | | | |
|
|
| Total nonperforming assets | $ | | | | $ | | |
(1) Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02.
(2) Included in other assets on the consolidated balance sheets.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | | 620 – 679 | | | | | | | | | | | | | | | | | | | | |
| 680 – 739 | | | | | | | | | | | | | | | | | | | | |
| ≥740 | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Origination LTV | | | | | | | | | | |
| ≤70% | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| >70% – ≤90% | | | | | | | | | | | | | | | | | | | | |
| >90% – ≤100% | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Updated FICO | | | | | | | | | | |
| <620 | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| 620 – 679 | | | | | | | | | | | | | | | | | | | | |
| 680 – 739 | | | | | | | | | | | | | | | | | | | | |
| ≥740 | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
Estimated Current LTV (1) | | | | | | | | | | |
| ≤70% | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| >70% – ≤90% | | | | | | | | | | | | | | | | | | | | |
| >90% – ≤100% | | | | | | | | | | | | | | | | | | | | |
| >100% | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Gross charge-offs | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
Percent of Loans on
Nonaccrual Status | | % | | % | | % | | % | | % | | % | | % | | % | | % | | % |
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | | 620 – 679 | | | | | | | | | | | | | | | | | | |
| 680 – 739 | | | | | | | | | | | | | | | | | | |
| ≥740 | | | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Origination LTV | | | | | | | | | |
| ≤70% | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| >70% – ≤90% | | | | | | | | | | | | | | | | | | |
| >90% – ≤100% | | | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Updated FICO | | | | | | | | | |
| <620 | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| 620 – 679 | | | | | | | | | | | | | | | | | | |
| 680 – 739 | | | | | | | | | | | | | | | | | | |
| ≥740 | | | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
Estimated Current LTV (1) | | | | | | | | | |
| ≤70% | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| >70% – ≤90% | | | | | | | | | | | | | | | | | | |
| >90% – ≤100% | | | | | | | | | | | | | | | | | | |
| >100% | | | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
Percent of Loans on
Nonaccrual Status | | % | | % | | % | | % | | % | | % | | % | | % | | % |
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.
At December 31, 2023, First Mortgage loans of $ billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to and interest rates that adjust annually thereafter. Approximately % of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately % 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 December 31, 2023 and 2022, Schwab had $ million and $ million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and is included in other assets on the consolidated balance sheets.
The HELOC product has a -year loan term with an initial draw period of from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a -year amortizing loan. The interest rate during the initial draw period and the -year amortizing period is a floating rate based on the prime rate plus a margin.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| | Within 1 year | | |
| > 1 year – 3 years | | |
| > 3 years – 5 years | | |
| > 5 years | | |
| Total | $ | | |
(1) Includes $ million of HELOCs converted to amortizing loans during the year ended December 31, 2023.
At December 31, 2023, $ 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 December 31, 2023, the borrowers on approximately % of HELOC loan balances outstanding only paid the minimum amount due.
7.
| | $ | | | | Buildings | | | | | |
| Information technology and telecommunications equipment | | | | | |
| Leasehold improvements | | | | | |
| Land | | | | | |
| Construction in progress | | | | | |
| Other | | | | | |
| Total equipment, office facilities, and property | | | | | |
| Accumulated depreciation and amortization | () | | | () | |
| Total equipment, office facilities, and property — net | $ | | | | $ | | |
As a result of its TDA integration and restructuring efforts, the Company recognized impairment losses on fixed assets of $ million during the year ended December 31, 2023. These losses are included in other expense on the consolidated statements of income. For the purpose of measuring impairment loss, the fair value of the asset group was determined using a discounted cash flow analysis. The fair value of the asset group was not material at December 31, 2023. See Note 15 for additional information regarding the Company’s exit costs related to its TDA integration and restructuring activities.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
8.
| | $ | | | | $ | | | |
|
|
| Total | $ | | |
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
12.
billion in aggregate principal amount of TDA Holding’s senior notes offered in the exchange, %, or approximately $ billion, were tendered and accepted. The new senior notes issued by CSC have the same interest rates and maturity dates as the TDA Holding senior notes. At December 31, 2023, $ million not exchanged remained outstanding across series of senior notes issued by TDA Holding. The debt exchange was treated as a debt modification for accounting purposes.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
12/07/17 | $ | | | $ | | | % due February 1, 2024 | 10/31/18 | | | | |
% due March 18, 2024 | 03/18/21 | | | | |
% due April 1, 2024 | 09/24/21 | | | | |
% due March 10, 2025 | 03/10/15 | | | | |
% due March 24, 2025 | 03/24/20 | | | | |
% due April 1, 2025 | 09/24/21 | | | | |
% due May 21, 2025 | 05/22/18 | | | | |
% due February 13, 2026 | 11/13/15 | | | | |
% due March 11, 2026 | 12/11/20 | | | | |
% due May 13, 2026 | 05/13/21 | | | | |
% due March 2, 2027 | 03/02/17 | | | | |
% due March 3, 2027 | 03/03/22 | | | | |
% due April 1, 2027 | 09/24/21 | | | | |
% due January 25, 2028 | 12/07/17 | | | | |
% due March 20, 2028 | 03/18/21 | | | | |
% due February 1, 2029 | 10/31/18 | | | | |
% due May 22, 2029 | 05/22/19 | | | | |
% due October 1, 2029 | 09/24/21 | | | | |
% due March 22, 2030 | 03/24/20 | | | | |
% due March 11, 2031 | 12/11/20 | | | | |
% due May 13, 2031 | 05/13/21 | | | | |
% due December 1, 2031 | 08/26/21 | | | | |
% due March 3, 2032 | 03/03/22 | | | | |
% due August 24, 2026 | 08/24/23 | | | | |
| CSC Floating-rate Senior Notes: | | | |
|
SOFR + % due March 18, 2024 (1) | 03/18/21 | | | | |
SOFR + % due May 13, 2026 | 05/13/21 | | | | |
SOFR + % due March 3, 2027 | 03/03/22 | | | | |
| CSC Fixed-to-Floating rate Senior Notes: | | | |
% due May 19, 2029 (2) | 05/19/23 | | | | |
% due May 19, 2034 (3) | 05/19/23 | | | | |
% due August 24, 2034 (4) | 08/24/23 | | | | |
% due November 17, 2029 (5) | 11/17/23 | | | | |
| Total CSC Senior Notes | | | | | |
| TDA Holding Fixed-rate Senior Notes: | | | |
|
% due April 1, 2024 | 11/01/18 | | | | |
% due April 1, 2025 | 10/22/14 | | | | |
% due April 1, 2027 | 04/27/17 | | | | |
% due October 1, 2029 | 08/16/19 | | | | |
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(1) Costs related to facility closures. These costs, which are primarily comprised of impairment and accelerated amortization of ROU assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties. Impairment charges are included in other expense, while accelerated amortization of ROU assets and accelerated depreciation of fixed assets are included in occupancy and equipment and depreciation expense, respectively, on the consolidated statements of income.
Other
With significant progress now made in the integration of TD Ameritrade, the Company has begun to take incremental actions to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. In order to achieve anticipated cost savings through these actions, the Company expects to incur total exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $ million inclusive of costs recognized through December 31, 2023 of $ million. The Company anticipates the remaining costs, primarily related to real estate, will be incurred during 2024. In addition to ASC 420, certain of the costs associated with these activities are accounted for in accordance with ASC 360, ASC 712, ASC 718, and ASC 842.
| | $ | | | | $ | | | |
Amounts recognized in expense (2) | | | | | | | | |
| Costs paid or otherwise settled | () | | | () | | | () | |
Balance at December 31, 2023 (1) | $ | | | | $ | | | | $ | | |
(1) Included in accrued expenses and other liabilities on the consolidated balance sheets.
(2) Amounts recognized in expense for severance pay and other termination benefits are included in compensation and benefits on the consolidated statements of income.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | |
| Occupancy and equipment | | | | | | | | | | | | | | | | | | | | |
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(1) Includes the amortized cost basis of closed portfolios of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. The amortized cost basis of the closed portfolios used in these hedging relationships is $ billion, of which $ billion is designated in a portfolio layer hedging relationship. The cumulative basis adjustments associated with these hedging relationships are a reduction of the amortized cost basis of the closed portfolios of $ million.
(2) Excludes the amortized cost and fair value hedging adjustment of AFS securities for which hedge accounting has been discontinued. The cumulative amount of fair value hedging adjustments remaining for these securities is a reduction of the amortized cost basis of less than $ thousand, which is recorded in AFS securities on the consolidated balance sheet and amortized to interest revenue as a yield adjustment over the lives of the securities.
The table below presents the effect of the Company’s interest rate swaps designated as fair value hedges on the consolidated statement of income:
| | | | | | |
| Year Ended December 31, | 2023 | |
| Gain (loss) on fair value hedging relationships recognized in interest revenue: | | |
| Hedged items | $ | () | | |
Derivatives designated as hedging instruments (1) | | | |
(1) Excludes net income (expense) from periodic interest accruals and receipts (payments) of $ million.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
17.
billion and $ million at December 31, 2023 and 2022, respectively. 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 consolidated balance sheets.
Repurchase agreements: Schwab enters into collateralized repurchase agreements with external financial institutions in which the Company sells securities and agrees to repurchase these securities on a specified future date at a stated repurchase price. These repurchase agreements are collateralized by investment securities with a fair value equal to or in excess of the secured borrowing liability. Decreases in security prices posted as collateral for repurchase agreements may require Schwab to transfer cash or additional securities deemed acceptable by the counterparty. To mitigate this risk, Schwab monitors the fair value of underlying securities pledged as collateral compared to the related liability. Our collateralized repurchase agreements with each external financial institution are considered to be enforceable master netting arrangements. However, we do not net these arrangements. As such, the secured short-term borrowings associated with these collateralized repurchase agreements are presented gross in the consolidated balance sheets.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| | $ | | | | $ | | | | $ | | | | $ | () | | (2) | | $ | | |
Securities borrowed (3) | | | | | | | | | | | () | | | () | | | | | |
Interest rate swaps (4) | | | | | | | | | | | | | | | | (5) | | | |
| Total | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | | $ | | |
| Liabilities | | | | | | | | | | | | | |
Repurchase agreements (6) | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | | | $ | | |
Securities loaned (7) | | | | | | | | | | | () | | | () | | | | | |
Secured short-term borrowings (8) | | | | | | | | | | | | | | () | | | | | |
Interest rate swaps (4) | | | | | | | | | | | | | | | | (5) | | | |
| Total | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | | $ | | |
| | | | | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | |
Resale agreements (1) | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | (2) | | $ | | |
Securities borrowed (3) | | | | | | | | | | | () | | | () | | | | | |
| Total | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | | $ | | |
| Liabilities | | | | | | | | | | | | | |
Repurchase agreements (6) | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | | | $ | | |
Securities loaned (7) | | | | | | | | | | | () | | | () | | | | | |
| Total | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | | $ | | |
(1) Included in cash and investments segregated and on deposit for regulatory purposes in the consolidated balance sheets.
(2) Actual collateral was greater than or equal to the value of the related assets. At December 31, 2023 and 2022, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $ billion and $ billion, respectively.
(3) Included in other assets in the consolidated balance sheets.
(4) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the consolidated balance sheets. Amounts were less than $ thousand during the periods presented.
(5) At December 31, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $ million. See Notes 5 and 16 for additional information.
(6) Included in other short-term borrowings in the consolidated balance sheets. Actual collateral value was greater than or equal to the value of the related liabilities. At December 31, 2023 and 2022, the fair value of collateral pledged in connection with repurchase agreements was $ billion and $ billion, respectively. See Note 12 for additional information.
(7) Included in accrued expenses and other liabilities in the consolidated balance sheets. Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at December 31, 2023 and 2022.
(8) Included in other short-term borrowings in the consolidated balance sheets. See below for collateral pledged and Note 12 for additional information.
Client trade settlement: Schwab is obligated to settle transactions with brokers and other financial institutions even if our clients fail to meet their obligations to us. Clients are required to complete their transactions on settlement date, generally two business days after the trade date. If clients do not fulfill their contractual obligations, we may incur losses. We have established procedures to reduce this risk by requiring deposits from clients in excess of amounts prescribed by regulatory requirements for certain types of trades, and therefore the potential to make payments under these client transactions is remote. Accordingly, no liability has been recognized for these transactions.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| $ | | | | Fair value of securities pledged for: | | |
Fulfillment of requirements with the Options Clearing Corporation (1) | $ | | | $ | | |
| Fulfillment of client short sales | | | | |
| Securities lending to other broker-dealers | | | | |
| Collateral for secured short-term borrowings | | | | |
| Total collateral pledged to third parties | $ | | | $ | | |
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 $ million and $ million as of December 31, 2023 and 2022, respectively.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
18.
| $ | | | $ | | | $ | | | |
|
| Total cash equivalents | | | | | | | | |
| Investments segregated and on deposit for regulatory purposes: | | | | |
| U.S. Government securities | | | | | | | | |
|
| Total investments segregated and on deposit for regulatory purposes | | | | | | | | |
| Available for sale securities: | | | | |
| U.S. agency mortgage-backed securities | | | | | | | | |
| U.S. Treasury securities | | | | | | | | |
| Corporate debt securities | | | | | | | | |
| Asset-backed securities | | | | | | | | |
| Foreign government agency securities | | | | | | | | |
| U.S. state and municipal securities | | | | | | | | |
| Non-agency commercial mortgage-backed securities | | | | | | | | |
| Certificates of deposit | | | | | | | | |
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| Other | | | | | | | | |
| Total available for sale securities | | | | | | | | |
| Other assets: | | | | |
| Other securities owned: | | | | |
| Equity, corporate debt, and other securities | | | | | | | | |
| Mutual funds and ETFs | | | | | | | | |
| State and municipal debt obligations | | | | | | | | |
| U.S. Government securities | | | | | | | | |
| Total other securities owned | | | | | | | | |
|
| Total other assets | | | | | | | | |
| Total assets | $ | | | $ | | | $ | | | $ | | |
| Accrued expenses and other liabilities: | | | | |
|
| Other | $ | | | $ | | | $ | | | $ | | |
| Total accrued expenses and other liabilities | | | | | | | | |
| Total liabilities | $ | | | $ | | | $ | | | $ | | |
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| $ | | | $ | | | $ | | | | Commercial paper | | | | | | | | |
| Total cash equivalents | | | | | | | | |
| Investments segregated and on deposit for regulatory purposes: | | | | |
| U.S. Government securities | | | | | | | | |
| Certificates of deposit | | | | | | | | |
| Total investments segregated and on deposit for regulatory purposes | | | | | | | | |
| Available for sale securities: | | | | |
| U.S. agency mortgage-backed securities | | | | | | | | |
| U.S. Treasury securities | | | | | | | | |
| Asset-backed securities | | | | | | | | |
| Corporate debt securities | | | | | | | | |
| Certificates of deposit | | | | | | | | |
| Foreign government agency securities | | | | | | | | |
| U.S. state and municipal securities | | | | | | | | |
| Non-agency commercial mortgage-backed securities | | | | | | | | |
|
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| Other | | | | | | | | |
| Total available for sale securities | | | | | | | | |
| Other assets: | | | | |
| Other securities owned: | | | | |
| Equity, corporate debt, and other securities | | | | | | | | |
| Mutual funds and ETFs | | | | | | | | |
| State and municipal debt obligations | | | | | | | | |
| U.S. Government securities | | | | | | | | |
|
| Total other securities owned | | | | | | | | |
| Total other assets | | | | | | | | |
| Total assets | $ | | | $ | | | $ | | | $ | | |
| Accrued expenses and other liabilities: | | | | |
| Other | $ | | | $ | | | $ | | | $ | | |
| Total accrued expenses and other liabilities | | | | | | | | |
| Total liabilities | $ | | | $ | | | $ | | | $ | | |
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| $ | | | $ | | | $ | | | $ | | | | Cash and investments segregated and on deposit for regulatory purposes | | | | | | | | | | |
|
| Receivables from brokerage clients — net | | | | | | | | | | |
| Held to maturity securities: | | | | | |
| U.S. agency mortgage-backed securities | | | | | | | | | | |
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| Total held to maturity securities | | | | | | | | | | |
| Bank loans — net: | | | | | |
| First Mortgages | | | | | | | | | | |
| HELOCs | | | | | | | | | | |
| Pledged asset lines | | | | | | | | | | |
| Other | | | | | | | | | | |
| Total bank loans — net | | | | | | | | | | |
| Other assets | | | | | | | | | | |
|
| Liabilities | | | | | |
| Bank deposits | $ | | | $ | | | $ | | | $ | | | $ | | |
|
| Payables to brokerage clients | | | | | | | | | | |
| Accrued expenses and other liabilities | | | | | | | | | | |
| Other short-term borrowings | | | | | | | | | | |
| Federal Home Loan Bank borrowings | | | | | | | | | | |
| Long-term debt | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | Carrying
Amount | Level 1 | Level 2 | Level 3 | Balance at
Fair Value |
| Assets | | | | | |
| Cash and cash equivalents | $ | | | $ | | | $ | | | $ | | | $ | | |
| Cash and investments segregated and on deposit for regulatory purposes | | | | | | | | | | |
|
| Receivables from brokerage clients — net | | | | | | | | | | |
| Held to maturity securities: | | | | | |
| U.S. agency mortgage-backed securities | | | | | | | | | | |
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| Total held to maturity securities | | | | | | | | | | |
| Bank loans — net: | | | | | |
| First Mortgages | | | | | | | | | | |
| HELOCs | | | | | | | | | | |
| Pledged asset lines | | | | | | | | | | |
| Other | | | | | | | | | | |
| Total bank loans — net | | | | | | | | | | |
| Other assets | | | | | | | | | | |
|
| Liabilities | | | | | |
| Bank deposits | $ | | | $ | | | $ | | | $ | | | $ | | |
|
| Payables to brokerage clients | | | | | | | | | | |
| Accrued expenses and other liabilities | | | | | | | | | | |
| Other short-term borrowings | | | | | | | | | | |
| Federal Home Loan Bank borrowings | | | | | | | | | |
| Long-term debt | | | | | | | | | | |
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Other reclassifications included in other revenue, net of tax expense (benefit) of $() | () | |
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Other, net of tax expense (benefit) of $() | () | |
| Balance at December 31, 2021 | $ | () | |
|
| Available for sale securities: | |
Net unrealized gain (loss), excluding transfers to held to maturity, net of tax expense (benefit) of $() | () | |
|
Net unrealized loss on securities transferred to held to maturity, net of tax benefit of $ | | |
Other reclassifications included in other revenue, net of tax expense (benefit) of $ | | |
| Held to maturity securities: | |
Net unrealized loss on securities transferred from available for sale, net of tax benefit of $ | () | |
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ | | |
Other, net of tax expense (benefit) of $ | | |
| Balance at December 31, 2022 | $ | () | |
|
| Available for sale securities: | |
Net unrealized gain (loss), net of tax expense (benefit) of $ | | |
Other reclassifications included in other revenue, net of tax expense (benefit) of $ | | |
| Held to maturity securities: | |
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ | | |
Other, net of tax expense (benefit) of $() | () | |
| Balance at December 31, 2023 | $ | () | |
In 2022, the Company transferred a portion of its AFS securities to the HTM category. As of December 31, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ billion net of tax effect ($ billion pre-tax). See Note 5 for additional discussion on the 2022 transfers of AFS securities to HTM.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
21.
| | $ | | | | $ | | | | Restricted stock unit expense | | | | | | | | |
| Employee stock purchase plan expense | | | | | | | | |
| Total share-based compensation expense | $ | | | | $ | | | | $ | | |
Income tax benefit on share-based compensation expense (1) | $ | () | | | $ | () | | | $ | () | |
million, $ million, and $ million in 2023, 2022, and 2021, respectively.
The Company issues shares for stock options and restricted stock units from treasury stock. On May 17, 2022, stockholders approved the 2022 Stock Incentive Plan which, among other things, increased the number of shares of common stock available for issuance to million, plus up to million shares from outstanding awards from predecessor stock incentive plans that expire, are forfeited or cancelled, or that are reacquired by the Company after May 17, 2022. At December 31, 2023, the Company was authorized to grant up to million common shares under its existing stock incentive plans. Additionally, at December 31, 2023, the Company had million shares reserved for future issuance under its employee stock purchase plan.
As of December 31, 2023, there was $ million of total unrecognized compensation cost related to outstanding stock options and restricted stock units, which is expected to be recognized through 2027 with a remaining weighted-average service period of years for stock options, years for restricted stock units without performance conditions, and years for performance-based restricted stock units.
Stock Option Plan
Options are granted for the purchase of shares of common stock at an exercise price not less than market value on the date of grant, and expire from the date of grant. Options generally vest annually over a one- to period from the date of grant.
| | $ | | | | | | $ | | | |
| Granted | | | | | | | | | |
| Exercised | () | | | | | | | | |
Forfeited (1) | | | | | | | | | |
Expired (1) | | | | | | | | | |
| Outstanding at December 31, 2023 | | | | $ | | | | | | $ | | |
| Vested and expected to vest at December 31, 2023 | | | | $ | | | | | | $ | | |
| Vested and exercisable at December 31, 2023 | | | | $ | | | | | | $ | | |
(1) Number of options was less than thousand.
The aggregate intrinsic value in the table above represents the difference between CSC’s closing stock price and the exercise price of each in-the-money option on the last trading day of the period presented.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| | $ | | | | $ | | | | Cash received from options exercised | | | | | | | | |
| Tax benefit realized on options exercised | | | | | | | | |
| Aggregate intrinsic value of options exercised | | | | | | | | |
We use an option pricing model to estimate the fair value of options granted. The model takes into account the contractual term of the stock option, expected volatility, dividend yield, and the risk-free interest rate. Expected volatility is based on the implied volatility of publicly-traded options on CSC’s stock. Dividend yield is based on the average historical CSC dividend yield. The risk-free interest rate is based on the yield of a U.S. Treasury zero-coupon issue with a remaining term similar to the contractual term of the option. We use historical option exercise data, which includes employee termination data, to estimate the probability of future option exercises.
% | | | % | | | % | | Weighted-average expected volatility | | % | | | % | | | % |
| Weighted-average risk-free interest rate | | % | | | % | | | % |
| Expected life (in years) | - | | - | | - |
Restricted Stock Units
Restricted stock units are awards that entitle the holder to receive shares of CSC’s common stock following a vesting period and are restricted from transfer or sale until vested. Restricted stock units without performance conditions generally vest annually over a one- to period, while performance-based restricted stock units generally cliff vest over a period and also require the Company to achieve certain financial or other measures prior to vesting. The fair value of restricted stock units is based on the market price of the Company’s stock on the date of grant. The fair value of the restricted stock units that vested during each of the years 2023, 2022, and 2021 was $ million, $ million, and $ million, respectively.
| | | | | | | | $ | | | |
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(1) Amounts are included in other assets on the consolidated balance sheet at December 31, 2023 and 2022.
% | | | % | | | % |
| State income taxes, net of federal tax benefit | | | | | | | | |
| Research and development credits | () | | | | | | | |
| Equity compensation benefit | () | | | () | | | () | |
| Other | () | | | () | | | | |
| Effective income tax rate | | % | | | % | | | % |
| | $ | | | | Additions for tax positions related to the current year | | | | | |
| Additions for tax positions related to prior years | | | | | |
|
| Reductions for tax positions related to prior years | () | | | () | |
| Reductions due to lapse of statute of limitations | () | | | () | |
| Reductions for settlements with tax authorities | () | | | () | |
| Balance at end of year | $ | | | | $ | | |
Unrecognized tax benefits totaled $ million and $ million as of December 31, 2023 and 2022, respectively, $ million and $ million of which if recognized, would affect the annual effective tax rate.
Interest and penalties were accrued related to unrecognized tax benefits in tax expense. At December 31, 2023 and 2022, we had accrued approximately $ million and $ million, respectively, for the payment of interest and penalties.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
23.
| | | % | | N/A | | | | $ | | | | | % | | Tier 1 Risk-Based Capital | | | | | % | | N/A | | | | | | | | % |
| Total Risk-Based Capital | | | | | % | | N/A | | | | | | | | % |
| Tier 1 Leverage | | | | | % | | N/A | | | | | | | | % |
| Supplementary Leverage Ratio | | | | | % | | N/A | | | | | | | | % |
| CSB | | | | | | | | | | | |
| Common Equity Tier 1 Risk-Based Capital | $ | | | | | % | | $ | | | | | % | | $ | | | | | % |
| Tier 1 Risk-Based Capital | | | | | % | | | | | | % | | | | | | % |
| Total Risk-Based Capital | | | | | % | | | | | | % | | | | | | % |
| Tier 1 Leverage | | | | | % | | | | | | % | | | | | | % |
| Supplementary Leverage Ratio | | | | | % | | N/A | | | | | | | | % |
| | | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | | |
| CSC | | | | | | | | | | | |
| Common Equity Tier 1 Risk-Based Capital | $ | | | | | % | | N/A | | | | $ | | | | | % |
| Tier 1 Risk-Based Capital | | | | | % | | N/A | | | | | | | | % |
| Total Risk-Based Capital | | | | | % | | N/A | | | | | | | | % |
| Tier 1 Leverage | | | | | % | | N/A | | | | | | | | % |
| Supplementary Leverage Ratio | | | | | % | | N/A | | | | | | | | % |
| CSB | | | | | | | | | | | |
| Common Equity Tier 1 Risk-Based Capital | $ | | | | | % | | $ | | | | | % | | $ | | | | | % |
| Tier 1 Risk-Based Capital | | | | | % | | | | | | % | | | | | | % |
| Total Risk-Based Capital | | | | | % | | | | | | % | | | | | | % |
| Tier 1 Leverage | | | | | % | | | | | | % | | | | | | % |
Supplementary Leverage Ratio | | | | | % | | N/A | | | | | | | | % |
(1) Under risk-based capital rules, CSC and CSB are also required to maintain additional capital buffers above the regulatory minimum risk-based capital ratios. As of December 31, 2023, CSC was subject to a stress capital buffer of 2.5%. In addition, CSB is required to maintain a capital conservation buffer of 2.5%. CSC and CSB are also required to maintain a countercyclical capital buffer above the regulatory minimum risk-based capital ratios, which was zero for both periods presented. If a buffer falls below the minimum requirement, CSC and CSB would be subject to increasingly strict limits on capital distributions and discretionary bonus payments to executive officers. At December 31, 2023, the minimum capital ratio requirements for both CSC and CSB, inclusive of their respective buffers, were 7.0%, 8.5%, and 10.5% for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital, respectively.
N/A Not applicable.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
As securities broker-dealers, CS&Co, TDAC, and TD Ameritrade, Inc. are subject to the SEC’s Uniform Net Capital Rule. CS&Co, TDAC, and TD Ameritrade, Inc. each compute net capital under the alternative method permitted by the Uniform Net Capital Rule, which requires the maintenance of minimum net capital, as defined, of the greater of 2% of aggregate debit balances arising from client transactions or a minimum dollar requirement, which is based on the type of business conducted by the broker-dealer. Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans if such payment would result in a net capital amount of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.
| | $ | | | | Minimum dollar requirement | | | | | |
| 2% of aggregate debit balances | | | | | |
| Net capital in excess of required net capital | $ | | | | $ | | |
| TDAC | | | |
| Net capital | $ | | | | $ | | |
| Minimum dollar requirement | | | | | |
| 2% of aggregate debit balances | | | | | |
| Net capital in excess of required net capital | $ | | | | $ | | |
| TD Ameritrade, Inc. | | | |
| Net capital | $ | | | | $ | | |
| Minimum dollar requirement | | | | | |
| 2% of aggregate debit balances | | | | | |
| Net capital in excess of required net capital | $ | | | | $ | | |
Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at December 31, 2023. The SEC’s 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, whereas cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2023 for CS&Co totaled $ billion and for TDAC totaled $ billion. As of January 3, 2024, CS&Co had deposited $ billion of cash into its segregated reserve accounts. As of January 2, 2024, TDAC had deposited $ million of cash into its segregated reserve accounts. Cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2022 for CS&Co totaled $ billion and for TDAC totaled $ billion. 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 consolidated statements of cash flows.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
24.
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, investment advisory, and banking and trust 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 trust, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are attributed to the segments based on which segment services the client.
The accounting policies of the segments are the same as those described in Note 2. For the computation of its segment information, Schwab utilizes an activity-based costing model to allocate traditional income statement line item expenses (e.g., compensation and benefits, depreciation and amortization, and professional services) to the business activities driving segment expenses (e.g., client service, opening new accounts, or business development) and a funds transfer pricing methodology to allocate certain revenues.
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 revenues from transactions between the segments.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Asset management and administration fees | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Trading revenue | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bank deposit account fees | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total net revenues | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses Excluding Interest | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income before taxes on income | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Capital expenditures | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Depreciation and amortization | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Amortization of acquired intangible assets | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
25.
classes. Diluted earnings per share is calculated using the treasury stock method for outstanding stock options and non-vested restricted stock units and the if-converted method for nonvoting common stock. The if-converted method assumes conversion of all nonvoting common stock to common stock.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| $ | | | $ | | | $ | | | $ | | | $ | | | Preferred stock dividends and other (1) | () | | () | | () | | () | | () | | () | |
| Net income available to common stockholders | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Denominator | | | | | | |
| Weighted-average common shares outstanding — basic | | | | | | | | | | | | |
| Basic earnings per share | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Diluted earnings per share: | | | | | | |
| Numerator | | | | | | |
| Net income available to common stockholders | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
Reallocation of net income available to common
stockholders as a result of conversion of nonvoting to
voting shares | | | | | | | | | | | | |
Allocation of net income available to common
stockholders: | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Denominator | | | | | | |
| Weighted-average common shares outstanding — basic | | | | | | | | | | | | |
| Conversion of nonvoting shares to voting shares | | | | | | | | | | | | |
Common stock equivalent shares related to stock incentive
plans | | | | | | | | | | | | |
Weighted-average common shares outstanding — diluted (2) | | | | | | | | | | | | |
| Diluted earnings per share | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
(1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
(2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled million, million, and million in 2023, 2022, and 2021, respectively.
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
26. The Charles Schwab Corporation – Parent Company Only Financial Statements
| | $ | | | | $ | | | | Interest expense | () | | | () | | | () | |
| Net interest expense | () | | | () | | | () | |
|
| Other revenue | | | | () | | | () | |
| Expenses Excluding Interest: | | | | | |
| Professional services | () | | | () | | | () | |
| Regulatory fees and assessments | () | | | () | | | () | |
| Compensation and benefits | () | | | () | | | () | |
| Other expenses excluding interest | () | | | () | | | () | |
| Loss before income tax benefit and equity in net income of subsidiaries | () | | | () | | | () | |
| Income tax benefit (expense) | | | | | | | | |
| Loss before equity in net income of subsidiaries | () | | | () | | | () | |
| Equity in net income of subsidiaries: | | | | | |
| Equity in undistributed net income (distributions in excess of net income) of subsidiaries | | | | () | | | | |
| Dividends from bank subsidiaries | | | | | | | | |
| Dividends from non-bank subsidiaries | | | | | | | | |
| Net Income | | | | | | | | |
Preferred stock dividends and other (1) | | | | | | | | |
| Net Income Available to Common Stockholders | $ | | | | $ | | | | $ | | |
(1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
| | $ | | | | Receivables from subsidiaries | | | | | |
| Available for sale securities | | | | | |
|
|
| Loans to non-bank subsidiaries | | | | | |
| Investment in non-bank subsidiaries | | | | | |
| Investment in bank subsidiaries | | | | | |
| Other assets | | | | | |
| Total assets | $ | | | | $ | | |
| Liabilities and Stockholders’ Equity | | | |
| Accrued expenses and other liabilities | $ | | | | $ | | |
| Payables to subsidiaries | | | | | |
| Short-term borrowings | | | | | |
| Long-term debt | | | | | |
| Total liabilities | | | | | |
| Stockholders’ equity | | | | | |
| Total liabilities and stockholders’ equity | $ | | | | $ | | |
THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
| | $ | | | | $ | | | | Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | | |
| Dividends in excess of (equity in undistributed) earnings of subsidiaries | () | | | | | | () | |
| Other | () | | | | | | | |
| Net change in: | | | | | |
|
| Other assets | () | | | () | | | | |
| Accrued expenses and other liabilities | | | | () | | | | |
| Net cash provided by (used for) operating activities | | | | | | | | |
| Cash Flows from Investing Activities | | | | | |
| Due from (to) subsidiaries — net | () | | | | | | | |
| Increase in investments in subsidiaries | () | | | () | | | () | |
|
| Purchases of available for sale securities | () | | | () | | | () | |
| Proceeds from sales of available for sale securities | | | | | | | | |
| Principal payments on available for sale securities | | | | | | | | |
|
| Other investing activities | () | | | () | | | | |
| Net cash provided by (used for) investing activities | () | | | () | | | () | |
| Cash Flows from Financing Activities | | | | | |
|
|
| Proceeds from short-term borrowings | | | | | | | | |
| Repayments of short-term borrowings | () | | | () | | | () | |
| Issuances of long-term debt | | | | | | | | |
| Repayments of long-term debt | () | | | () | | | () | |
| Repurchases of common stock and nonvoting common stock | () | | | () | | | | |
| Issuance of preferred stock, net | | | | | | | | |
| Redemption and repurchase of preferred stock | () | | | () | | | () | |
| Dividends paid | () | | | () | | | () | |
| Proceeds from stock options exercised | | | | | | | | |
|
| Net cash provided by (used for) financing activities | () | | | () | | | | |
| Increase (Decrease) in Cash and Cash Equivalents | | | | | | | | |
| Cash and Cash Equivalents at Beginning of Year | | | | | | | | |
| Cash and Cash Equivalents at End of Year | $ | | | | $ | | | | $ | | |
| Supplemental Cash Flow Information | | | | | |
| Non-cash investing and financing activity: | | | | | |
| Exchange of TDA Holding-issued senior notes for CSC-issued senior notes | $ | | | | $ | | | | $ | | |
| Common stock repurchased during the period but settled after period end | $ | | | | $ | | | | $ | | |
THE CHARLES SCHWAB CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of The Charles Schwab Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of The Charles Schwab Corporation and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
THE CHARLES SCHWAB CORPORATION
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Asset Management and Administration Fees (AMAF) and Trading Revenue – Refer to Note 3 to the financial statements
Critical Audit Matter Description
Net revenues from the third-party mutual funds and advice solutions components of AMAF are generated through third-party mutual fund offerings, and fee-based advisory solutions, respectively. Commissions within trading revenue are generated through fees earned for executing trades for clients in individual equities, options, and certain third-party mutual funds and exchange traded funds (ETFs). Third-party mutual funds, advice solutions, and commissions are made up of a significant volume of low-dollar transactions, and use automated systems to process and record these transactions based on underlying information sourced from multiple systems and contractual terms with individual investors and third-party mutual funds.
Given that the Company’s processes to record revenue from third-party mutual funds, advice solutions, and commissions are highly automated and involve multiple systems and databases, auditing these revenue components was complex and challenging due to the extent of audit effort required and involvement of professionals with expertise in information technology (IT) necessary for us to identify, test, and evaluate the Company’s systems, software applications, and automated controls.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s systems to process the third-party mutual funds and advice solutions within AMAF, and commissions within trading revenue transactions included the following, among others:
•With the assistance of our IT specialists, we:
◦Identified the significant systems used to process third-party mutual funds, advice solutions, and commissions revenue transactions and, using a risk-based approach, tested the relevant general IT controls over each of these systems.
◦Performed testing of automated business controls and system interface controls (including batch processing) within the relevant third-party mutual funds, advice solutions, and commissions revenue streams.
◦For a sample of pricing rules, inspected configuration and ascertained that the relevant systems applied appropriate rates and calculated advice solutions and commissions revenue completely and accurately.
•We tested internal controls within the relevant third-party mutual funds, advice solutions, and commissions revenue business processes, including those in place to reconcile the various systems to the Company’s general ledger.
•We created data visualizations to evaluate recorded third-party mutual funds, advice solutions, and commissions revenue and evaluate trends in the data.
•For a sample of third-party mutual funds, advice solutions, and commissions revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to contractual agreements and testing the mathematical accuracy of the recorded revenue.
•For a sample of accounts, we tested the accuracy and completeness of assets under management by obtaining independent pricing support and reconciling total positions to third-party statements.
February 23, 2024
We have served as the Company’s auditor since 1976.
THE CHARLES SCHWAB CORPORATION
Management’s Report on Internal Control Over Financial Reporting
Management of The Charles Schwab Corporation, together with its subsidiaries (the Company), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of and effected by the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2023, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting was effective as of December 31, 2023.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
The Company’s internal control over financial reporting as of December 31, 2023, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on the previous pages.
THE CHARLES SCHWAB CORPORATION
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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 December 31, 2023. 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 December 31, 2023.
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 December 31, 2023, that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are included in Item 8.
Item 9B. Other Information
trading arrangements for the sale of shares of our common stock as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| | | Plans | | | |
| Action | Date | Rule 10b5-1 (1) | Non-Rule 10b5-1 (2) | Number of Securities to
be Sold | | Latest Expiration (3) |
, | Adoption | | | | | (4) | 10/15/2024 |
, | Adoption | | | | | (5) | 12/31/2024 |
, | Adoption | | | | | (4) | 10/18/2024 |
(1) Intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).(2) Not intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
(3) Plans expire at close of trading on the dates presented or such earlier date upon the completion of all trades under the plan (or the expiration of the orders relating to such trades without execution).
(4) Securities to be sold under the plan represent shares to be acquired upon the exercise of stock options. In addition to these shares, the trading arrangement allows for the sale of the net after-tax shares of common stock to be received by the officer upon the March 1, 2024 vesting of performance-based restricted stock units. The actual number of shares that will be released to the officer in connection with the performance-based restricted stock units and sold under the trading arrangement will be net of the number of shares withheld to satisfy tax withholding obligations arising from the vesting of such shares and is not yet determinable.
(5) Includes shares to be sold by a trust for which the director’s spouse is a trustee.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The information relating to directors of CSC required to be furnished pursuant to this item is incorporated by reference from portions of the Company’s definitive proxy statement for its annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A by April 30, 2024 (the Proxy Statement). The Company’s Code of Conduct and Business Ethics, applicable to directors and all employees, including senior financial officers, is available on the Company’s website at https://www.aboutschwab.com/governance. If the Company makes any amendments to or grants any waivers from its Code of Conduct and Business Ethics, which are required to be disclosed pursuant to the Securities Exchange Act of 1934, the Company will make such disclosures on this website.
THE CHARLES SCHWAB CORPORATION
Schwab Executive Officers of the Registrant
The following table provides certain information about each of the Company’s executive officers as of December 31, 2023.
| | | | | | | | | | | |
| Executive Officers of the Registrant |
| | | |
| Name | Age | Title |
| Charles R. Schwab | 86 | Co-Chairman of the Board |
| Walter W. Bettinger II | 63 | Co-Chairman of the Board and Chief Executive Officer |
| Richard A. Wurster | 50 | President |
| Bernard J. Clark | 65 | Managing Director and Head of Advisor Services |
| Jonathan M. Craig | 52 | Managing Director and Head of Investor Services and Marketing |
| Peter B. Crawford | 55 | Managing Director and Chief Financial Officer |
| Joseph R. Martinetto | 61 | Managing Director and Chief Operating Officer |
| Peter J. Morgan III | 59 | Managing Director, General Counsel and Corporate Secretary |
| Nigel J. Murtagh | 60 | Managing Director and Chief Risk Officer |
Mr. Schwab has been a director of CSC since its incorporation in 1986. He served as Chairman of the Board from 1986 to 2022 and has served as Co-Chairman of the Board since 2022. He also served as Chief Executive Officer of CSC from 1986 to 1997 and as Co-Chief Executive Officer from 1998 until 2003. He was re-appointed Chief Executive Officer in 2004 and served in that role until 2008. He served as Chairman of the Board and a director of CS&Co until 2018.
Mr. Bettinger has been Chief Executive Officer and a director of CSC since 2008 and has been Co-Chairman of the Board since 2022. He has served as a director of CSB since 2006 and has been Co-Chairman of the Board of CSB since 2022. He also serves as Chairman and trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, and Schwab Strategic Trust, all registered investment companies, and affiliates of CSC. Mr. Bettinger served as Director, President and Chief Executive Officer of CS&Co from 2008 until 2021. He served as President of CSC from 2007 to 2021, CSC Chief Operating Officer from 2007 until 2008, and as Executive Vice President and President – Schwab Investor Services of CSC and CS&Co from 2005 to 2007. Mr. Bettinger joined Schwab in 1995.
Mr. Wurster has been President of CSC since 2021 and has served as President and director of CS&Co since 2021. He served as CEO of Charles Schwab Investment Management, Inc. from 2019 to 2021 and has been a director since 2021. He serves as trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, and Schwab Strategic Trust. He was CEO of Charles Schwab Investment Advisory, Inc. from 2018 to 2021. Mr. Wurster was CEO of ThomasPartners, Inc. and Windhaven Investment Management, Inc., subsidiaries of CSC, from 2016 to 2018. Mr. Wurster joined Schwab in 2016.
Mr. Clark has been Managing Director and Head of Advisor Services of CSC and CS&Co since 2022 and was Executive Vice President – Advisor Services of CS&Co from 2010 to 2022 and of CSC from 2012 to 2022. He has served as a director of CS&Co since 2023. From 2006 until 2010, Mr. Clark served as Senior Vice President – Schwab Institutional Sales of CS&Co. Mr. Clark joined Schwab in 1998.
Mr. Craig has been Managing Director and Head of Investor Services and Marketing of CSC and CS&Co since 2022. Prior to that he served as Senior Executive Vice President of CSC and CS&Co from 2018 to 2022, Executive Vice President – Client and Marketing Solutions of CSC and CS&Co from 2017 until 2018 and Executive Vice President and Chief Marketing Officer of CSC and CS&Co from 2012 until 2018. Mr. Craig joined Schwab in 2000.
Mr. Crawford has been Managing Director of CSC and CS&Co since 2022, Executive Vice President from 2017 to 2022 of CSC and CS&Co and Chief Financial Officer of CSC and CS&Co since 2017. Prior to his appointment as Chief Financial Officer, Mr. Crawford was Executive Vice President of Finance of CS&Co from 2015 to 2017. He served as Senior Vice President of Schwab’s asset management and client solutions organization from 2008 to 2015. He has served as a director of Charles Schwab Investment Management, Inc. since 2016 and of CS&Co since 2018. Mr. Crawford joined Schwab in 2001.
Mr. Martinetto has been Managing Director of CSC since 2022 and was Managing Director of CS&Co from 2022 to 2023. He has served as Chief Operating Officer of CSC since 2018. He served as Senior Executive Vice President of CSC and CS&Co from 2015 to 2022, Chief Operating Officer of CS&Co from 2018 to 2023, Chief Financial Officer of CSC and CS&Co from
THE CHARLES SCHWAB CORPORATION
2007 until 2017, and Executive Vice President of CSC and CS&Co from 2007 until 2015. He has served as Co-Chairman of CSB since 2023. From 2016 to 2022, Mr. Martinetto was a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, and Schwab Strategic Trust. He also served as Co-Chairman of CSB since 2023. From 2016 to 2022, Mr. Martinetto was a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, and Schwab Strategic Trust. He also served on the Board of Directors of CS&Co from 2007 to 2023. Mr. Martinetto joined Schwab in 1997.
Mr. Morgan has been Managing Director of CSC and CS&Co since 2022, Executive Vice President of CSC from 2019 to 2022, General Counsel and Corporate Secretary of CSC since 2019, and Executive Vice President and Corporate Secretary of CS&Co from 2020 to 2022. He was Senior Vice President and Deputy General Counsel of CS&Co from 2009 to 2020. He has served as General Counsel of CSB since 2009, including as Executive Vice President and General Counsel since 2019, and as Senior Vice President and General Counsel from 2015 to 2019. Mr. Morgan joined Schwab in 1999.
Mr. Murtagh has been Managing Director and Chief Risk Officer of CSC and CS&Co since 2022 and was Executive Vice President and Chief Risk Officer of CSC and CS&Co from 2012 to 2022. He served as Senior Vice President and Chief Credit Officer of CS&Co from 2002 until 2012 and of CSC from 2008 until 2012 when he was also Head of Fixed Income Research for Charles Schwab Investment Management. Mr. Murtagh joined Schwab in 2000.
Item 11. Executive Compensation
The information required to be furnished pursuant to this item is incorporated by reference from portions of the Proxy Statement. In addition, the information from a portion of the Proxy Statement under “Compensation Committee Report,” is incorporated by reference from the Proxy Statement and furnished on this Form 10-K, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required to be furnished pursuant to this item is incorporated by reference from portions of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required to be furnished pursuant to this item is incorporated by reference from portions of the Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required to be furnished pursuant to this item is incorporated by reference from a portion of the Proxy Statement.
THE CHARLES SCHWAB CORPORATION
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of this Report
1. Financial Statements
The financial statements and independent auditors’ report are included in Part II – Item 8 and are listed below:
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
Other financial statement schedules required pursuant to this Item are omitted because of the absence of conditions under which they are required or because the information is included in the Company’s consolidated financial statements and notes in Part II – Item 8.
THE CHARLES SCHWAB CORPORATION
(b) Exhibits
The exhibits listed below are filed as part of this annual report on Form 10-K.
| | | | | | | | |
Exhibit
Number | Exhibit | |
| 2.1 | | |
| | |
| 2.2 | | |
| | |
| 3.11 | | |
| | |
| 3.11(i) | | |
| | |
| 3.18 | | |
| | |
| 3.20 | | |
| | |
| 3.21 | | |
| | |
| 3.22 | | |
| | |
| 3.23 | | |
| | |
| 3.24 | | |
| | |
| 3.26 | | |
| | |
| 3.28 | | |
| | |
| 3.29 | | |
| | |
| 3.30 | | |
| | |
| 4.3 | | |
| | |
| 4.5 | | |
| | |
| 4.6 | | |
| | |
| 4.7 | | |
| | |
THE CHARLES SCHWAB CORPORATION
| | | | | | | | |
Exhibit
Number | Exhibit | |
| 4.8 | | |
| | |
| 4.9 | | |
| | |
| 4.10 | | |
| | |
| 4.11 | | |
| | |
| 4.12 | Neither the Registrant nor its subsidiaries are parties to any instrument with respect to long-term debt for which securities authorized thereunder exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. Copies of instruments with respect to long-term debt of lesser amounts will be provided to the SEC upon request. | |
| | |
| 4.13 | | |
| | |
| 4.14 | | |
| | |
| 4.15 | | |
| | |
| 4.16 | | |
| | |
| 10.4 | Form of Release Agreement dated as of March 31, 1987 among BAC, Registrant, Schwab Holdings, Inc., Charles Schwab & Co., Inc., and former shareholders of Schwab Holdings, Inc., filed as the identically-numbered exhibit to Registrant’s Registration Statement No. 33-16192 on Form S-1 and incorporated herein by reference. | |
| | |
| 10.57 | Registration Rights and Stock Restriction Agreement, dated as of March 31, 1987, between the Registrant and the holders of the Common Stock, filed as Exhibit 4.23 to Registrant’s Registration Statement No. 33-16192 on Form S-1 and incorporated herein by reference. | |
| | |
| 10.72 | | |
| | |
| 10.267 | | (2) |
| | |
| 10.271 | | (2) |
| | |
| 10.272 | | (2) |
| | |
| 10.314 | | (2) |
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| 10.319 | | (2) |
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| 10.338 | | (2) |
| | |
THE CHARLES SCHWAB CORPORATION
| | | | | | | | |
| | |
Exhibit
Number | Exhibit | |
| 10.341 | | (2) |
| | |
| 10.354 | | (2) |
| | |
| 10.356 | | (2) |
| | |
| 10.358 | | (2) |
| | |
| 10.359 | | (2) |
| | |
| 10.370 | | (2) |
| | |
| 10.372 | | (2) |
| | |
| 10.374 | | (2) |
| | |
| 10.375 | | (2) |
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| 10.379 | | (2) |
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| 10.381 | | (2) |
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| 10.383 | | (2) |
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| 10.384 | | (2) |
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| 10.387 | | (2) |
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| 10.389 | | (2) |
| | |
| 10.393 | | (2) |
| | |
| 10.394 | | (2) |
| | |
THE CHARLES SCHWAB CORPORATION
| | | | | | | | |
| | |
Exhibit
Number | Exhibit | |
| 10.396 | | (2) |
| | |
| 10.397 | | (2) |
| | |
| 10.398 | | (2) |
| | |
| 10.399 | | (2) |
| | |
| 10.401 | | (2) |
| | |
| 10.402 | | (2) |
| | |
| 10.403 | | (2) |
| | |
| 10.404 | | (2) |
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| 10.405 | | |
| | |
| 10.406 | | |
| | |
| 10.407 | | |
| | |
| 10.407(i) | Consent, Agreement, and Joinder to the Amended and Restated IDA Agreement, dated as of October 6, 2020, by and among Charles Schwab & Co., Inc., TD Ameritrade, Inc., TD Ameritrade Clearing, Inc., and TD Ameritrade Trust Company, filed as Exhibit 10.1 to TD Ameritrade Holding Corporation’s Form 8-K dated October 6, 2020, and incorporated herein by reference. | |
| | |
| 10.407(ii) | Amendment to Amended and Restated Insured Deposit Agreement, dated as of November 24, 2021, by and among TD Bank USA, National Association, TD Bank, National Association, and The Charles Schwab Corporation, TD Ameritrade, Inc., TD Ameritrade Clearing, Inc., TD Ameritrade Trust Company, and Charles Schwab & Co., Inc., filed as Exhibit 10.407(ii) to the Registrant’s Form 10-K for the year ended December 31, 2021, and incorporated herein by reference.** | |
| | |
10.407(iii) | Second Amendment to Amended and Restated Insured Deposit Agreement, dated February 14, 2023, by and among TD Bank USA, National Association, TD Bank, National Association, and The Charles Schwab Corporation, TD Ameritrade, Inc., TD Ameritrade Clearing, Inc., Charles Schwab Trust Bank, as successor to TD Ameritrade Trust Company, and Charles Schwab & Co., Inc., filed as Exhibit 10.407 (iii) to the Registrant’s Form 10-K for the year ended December 31, 2022, and incorporated herein by reference. | |
| | |
10.407(iv) | Second Amended and Restated Insured Deposit Account Agreement, dated May 4, 2023, by and among TD Bank USA, National Association and TD Bank, National Association, and The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Trust Bank, TD Ameritrade, Inc., and TD Ameritrade Clearing, Inc., filed as Exhibit 10.1 to the Registrant’s Form 8-K dated May 4, 2023, and incorporated herein by reference.** | |
| | |
THE CHARLES SCHWAB CORPORATION
| | | | | | | | |
Exhibit
Number | Exhibit | |
| 10.408 | | (2) |
| | |
| 10.410 | | (2) |
| | |
| 10.412 | | (2) |
| | |
| 10.413 | | (2) |
| | |
| 10.414 | | (2) |
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| 10.415 | | (2) |
| | |
| 10.423 | | (2) |
| | |
| 10.424 | | (2) |
| | |
| 10.426 | | (2) |
| | |
| 10.427 | | (2) |
| | |
| 10.428 | | (2) |
| | |
| 10.429 | | (2) |
| | |
| 10.430 | | |
| | |
| 10.431 | | (2) |
| | |
| 10.432 | | (2) |
| | |
| 10.433 | | (2) |
| | |
| 10.434 | | (2) |
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| 21.1 | | |
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| 23.1 | | |
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| 31.1 | | |
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| 31.2 | | |
| | |
| 32.1 | | (1) |
| | |
THE CHARLES SCHWAB CORPORATION
| | | | | | | | |
| | |
Exhibit
Number | Exhibit | |
| 32.2 | | (1) |
| | |
| 97.1 | | |
| | |
| 101.INS | Inline XBRL Instance Document | (3) |
| | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | (3) |
| | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation | (3) |
| | |
| 101.DEF | Inline XBRL Extension Definition | (3) |
| | |
| 101.LAB | Inline XBRL Taxonomy Extension Label | (3) |
| | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| | |
| (1) | Furnished as an exhibit to this annual report on Form 10-K. | |
| | |
| (2) | Management contract or compensatory plan. | |
| | |
| (3) | Attached as Exhibit 101 to this Annual Report on Form 10-K for the annual period ended December 31, 2023, are the following materials formatted in XBRL (Extensible Business Reporting Language) (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Consolidated Financial Statements. | |
* The schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Schwab agrees to furnish supplementally a copy of such schedules and exhibits, or any section thereof, to the SEC upon request.
** Certain confidential information contained in this agreement has been omitted because it is not material and would be competitively harmful if publicly disclosed.
Item 16. Form 10-K Summary
None.
THE CHARLES SCHWAB CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on February 23, 2024.
| | | | | | | | |
| THE CHARLES SCHWAB CORPORATION |
| (Registrant) |
| | |
| BY: | /s/ Walter W. Bettinger II |
| | Walter W. Bettinger II |
| | Co-Chairman of the Board and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on February 23, 2024.
| | | | | | | | |
| Signature / Title | | Signature / Title |
| | |
| /s/ Walter W. Bettinger II | | /s/ Peter Crawford |
| Walter W. Bettinger II, | | Peter Crawford, |
Co-Chairman of the Board and Chief Executive Officer
(principal executive officer) | | Managing Director and Chief Financial Officer
(principal financial and accounting officer) |
| | |
| /s/ Charles R. Schwab | | /s/ John K. Adams, Jr. |
| Charles R. Schwab, Co-Chairman of the Board | | John K. Adams, Jr., Director |
| | |
| /s/ Marianne C. Brown | | /s/ Joan T. Dea |
| Marianne C. Brown, Director | | Joan T. Dea, Director |
| | |
| /s/ Christopher V. Dodds | | /s/ Stephen A. Ellis |
| Christopher V. Dodds, Director | | Stephen A. Ellis, Director |
| | |
| /s/ Mark A. Goldfarb | | /s/ Frank C. Herringer |
| Mark A. Goldfarb, Director | | Frank C. Herringer, Director |
| | |
| /s/ Brian M. Levitt | | /s/ Gerri K. Martin-Flickinger |
| Brian M. Levitt, Director | | Gerri K. Martin-Flickinger, Director |
| | |
| /s/ Bharat B. Masrani | | /s/ Todd M. Ricketts |
| Bharat B. Masrani, Director | | Todd M. Ricketts, Director |
| | |
| /s/ Charles A. Ruffel | | /s/ Arun Sarin |
| Charles A. Ruffel, Director | | Arun Sarin, Director |
| | |
| /s/ Carrie Schwab-Pomerantz | | /s/ Paula A. Sneed |
| Carrie Schwab-Pomerantz, Director | | Paula A. Sneed, Director |
| | |
|
|
THE CHARLES SCHWAB CORPORATION
| | | | | |
| |
| |
| |
| SUPPLEMENTAL INFORMATION |
|
| |
| |
| |
| |
| Disclosure | Page |
| Average Balance Sheets and Net Interest Revenue | F-2 |
| Analysis of Changes in Net Interest Revenue | F-3 |
| Bank Loan Portfolio | F-4 |
| Allowance for Credit Losses on Bank Loans | F-5 |
| Bank Deposits | F-6 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
THE CHARLES SCHWAB CORPORATION
Supplemental Financial Data (Unaudited)
(Dollars in Millions)
As a savings and loan holding company, the Company provides the following supplemental information pursuant to Subpart 1400 of Regulation S-K. Other information required by Subpart 1400 of Regulation S-K is presented throughout this Annual Report on Form 10-K.
1. Average Balance Sheets and Net Interest Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | 2023 | 2022 | 2021 |
| Average | | Average | Average | | Average | Average | | Average |
| Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate |
| Assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 37,846 | | $ | 1,894 | | 4.94 | % | $ | 57,163 | | $ | 812 | | 1.40 | % | $ | 40,325 | | $ | 40 | | 0.10 | % |
| Cash and investments segregated | 28,259 | | 1,355 | | 4.73 | % | 49,430 | | 691 | | 1.38 | % | 43,942 | | 24 | | 0.05 | % |
| | |
| Receivables from brokerage clients | 61,914 | | 4,793 | | 7.64 | % | 75,614 | | 3,321 | | 4.33 | % | 77,768 | | 2,455 | | 3.11 | % |
Available for sale securities (1,2) | 137,178 | | 2,987 | | 2.17 | % | 260,392 | | 4,139 | | 1.58 | % | 357,122 | | 4,641 | | 1.30 | % |
Held to maturity securities (1,2) | 165,634 | | 2,872 | | 1.73 | % | 112,357 | | 1,688 | | 1.50 | % | — | | — | | — | |
Bank loans (3) | 40,234 | | 1,664 | | 4.14 | % | 38,816 | | 1,083 | | 2.79 | % | 28,789 | | 620 | | 2.15 | % |
| Total interest-earning assets | 471,065 | | 15,565 | | 3.28 | % | 593,772 | | 11,734 | | 1.96 | % | 547,946 | | 7,780 | | 1.41 | % |
| Securities lending revenue | | 419 | | | | 471 | | | | 720 | | |
| Other interest revenue | | 127 | | | | 22 | | | | 6 | | |
| Total interest-earning assets | 471,065 | | 16,111 | | 3.39 | % | 593,772 | | 12,227 | | 2.04 | % | 547,946 | | 8,506 | | 1.54 | % |
Non-interest-earning assets (4,5) | 34,695 | | | | 24,962 | | | | 41,930 | | | |
| Total assets | $ | 505,760 | | | | $ | 618,734 | | | | $ | 589,876 | | | |
| | | | | | | | | |
| Liabilities and Stockholders’ Equity: | | | | | | | | | |
| Bank deposits | $ | 306,505 | | $ | 3,363 | | 1.10 | % | $ | 424,168 | | $ | 723 | | 0.17 | % | $ | 381,549 | | $ | 54 | | 0.01 | % |
| Payables to brokerage clients | 66,842 | | 271 | | 0.41 | % | 97,825 | | 123 | | 0.13 | % | 91,667 | | 9 | | 0.01 | % |
Other short-term borrowings (7) | 7,144 | | 375 | | 5.25 | % | 2,719 | | 48 | | 1.75 | % | 3,040 | | 9 | | 0.30 | % |
Federal Home Loan Bank borrowings (6,7) | 34,821 | | 1,810 | | 5.14 | % | 2,274 | | 106 | | 4.59 | % | — | | — | | — | |
| Long-term debt | 22,636 | | 715 | | 3.16 | % | 20,714 | | 498 | | 2.40 | % | 17,704 | | 384 | | 2.17 | % |
| Total interest-bearing liabilities | 437,948 | | 6,534 | | 1.49 | % | 547,700 | | 1,498 | | 0.27 | % | 493,960 | | 456 | | 0.09 | % |
| Securities lending expense | | 147 | | | | 48 | | | | 24 | | |
| Other interest expense | | 3 | | | | (1) | | | | (4) | | |
Non-interest-bearing liabilities (4,8) | 30,279 | | | | 27,596 | | | | 39,182 | | | |
Total liabilities (9) | 468,227 | | 6,684 | | 1.41 | % | 575,296 | | 1,545 | | 0.26 | % | 533,142 | | 476 | | 0.09 | % |
Stockholders’ equity (4) | 37,533 | | | | 43,438 | | | | 56,734 | | | |
| Total liabilities and stockholders’ equity | $ | 505,760 | | | | $ | 618,734 | | | | $ | 589,876 | | | |
| | | | | | | | | |
| Net interest revenue | | $ | 9,427 | | | | $ | 10,682 | | | | $ | 8,030 | | |
| Net yield on interest-earning assets | | | 1.98 | % | | | 1.78 | % | | | 1.45 | % |
(1) Amounts have been calculated based on amortized cost.
(2) During 2022, the Company transferred a portion of its investment securities designated as AFS to the HTM category, as described in Part II – Item 8 – Note 5.
(3) Includes average principal balances of nonaccrual loans.
(4) Average balance calculation based on month end balances.
(5) Non-interest-earning assets include equipment, office facilities, and property – net, goodwill, acquired intangible assets – net, and other assets that do not generate interest income.
(6) Average balance and interest revenue/expense was less than $500 thousand in the period or periods presented.
(7) Beginning in 2023, FHLB borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.
(8) Non-interest-bearing liabilities consist of other liabilities that do not generate interest expense.
(9)Average rate calculation based on total funding sources.
THE CHARLES SCHWAB CORPORATION
Supplemental Financial Data (Unaudited)
(Dollars in Millions)
2. Analysis of Changes in Net Interest Revenue
An analysis of the year-to-year changes in the categories of interest revenue and interest expense resulting from changes in volume and rate is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 Compared to 2022
Increase (Decrease) Due to
Change in: | | 2022 Compared to 2021
Increase (Decrease) Due to
Change in: |
| Average
Volume | | Average
Rate | | Total | | Average
Volume | | Average
Rate | | Total |
| Interest-earning assets: | | | | | | | | | | | |
Cash and cash equivalents (1) | $ | (270) | | | $ | 1,352 | | | $ | 1,082 | | | $ | 17 | | | $ | 755 | | | $ | 772 | |
| Cash and investments segregated | (292) | | | 956 | | | 664 | | | 3 | | | 664 | | | 667 | |
| Receivables from brokerage clients | (593) | | | 2,065 | | | 1,472 | | | (67) | | | 933 | | | 866 | |
Available for sale securities (2,3) | (1,947) | | | 795 | | | (1,152) | | | (2,945) | | | 2,443 | | | (502) | |
Held to maturity securities (2,3) | 799 | | | 385 | | | 1,184 | | | 1,688 | | | — | | | 1,688 | |
Bank loans (4) | 40 | | | 541 | | | 581 | | | 216 | | | 247 | | | 463 | |
| Securities lending revenue | — | | | (52) | | | (52) | | | — | | | (249) | | | (249) | |
| Other interest revenue | — | | | 105 | | | 105 | | | — | | | 16 | | | 16 | |
| Total interest-earning assets | $ | (2,263) | | | $ | 6,147 | | | $ | 3,884 | | | $ | (1,088) | | | $ | 4,809 | | | $ | 3,721 | |
| Interest-bearing sources of funds: | | | | | | | | | | | |
| Bank deposits | $ | (200) | | | $ | 2,840 | | | $ | 2,640 | | | $ | 4 | | | $ | 665 | | | $ | 669 | |
| Payables to brokerage clients | (40) | | | 188 | | | 148 | | | 1 | | | 113 | | | 114 | |
Other short-term borrowings (5) | 77 | | | 250 | | | 327 | | | (100) | | | 139 | | | 39 | |
Federal Home Loan Bank borrowings (5) | 1,494 | | | 210 | | | 1,704 | | | 106 | | | — | | | 106 | |
| Long-term debt | 46 | | | 171 | | | 217 | | | 65 | | | 49 | | | 114 | |
| Securities lending expense | — | | | 99 | | | 99 | | | — | | | 24 | | | 24 | |
| Other interest expense | — | | | 4 | | | 4 | | | — | | | 3 | | | 3 | |
| Total sources on which interest is paid | 1,377 | | | 3,762 | | | 5,139 | | | 76 | | | 993 | | | 1,069 | |
| Change in net interest revenue | $ | (3,640) | | | $ | 2,385 | | | $ | (1,255) | | | $ | (1,164) | | | $ | 3,816 | | | $ | 2,652 | |
Note: Changes that are not due solely to volume or rate have been allocated to rate.
(1) Includes deposits with banks and short-term investments.
(2) Amounts have been calculated based on amortized cost.
(3) During 2022, the Company transferred a portion of its investment securities designated as AFS to the HTM category, as described in Part II – Item 8 – Note 5.
(4) Includes average principal balances of nonaccrual loans.
(5) Beginning in 2023, FHLB borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.
THE CHARLES SCHWAB CORPORATION
Supplemental Financial Data (Unaudited)
(Dollars in Millions)
3. Bank Loan Portfolio
The maturities of the bank loan portfolio are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | Within
1 year | | After 1 year
through
5 years | | After
5 years through 15 years | | After 15 years | | Total |
| Residential real estate: | | | | | | | | | |
| First Mortgages | $ | — | | | $ | 37 | | | $ | 1,358 | | | $ | 24,758 | | | $ | 26,153 | |
| HELOCs | — | | | — | | | 113 | | | 366 | | | 479 | |
| Total residential real estate | — | | | 37 | | | 1,471 | | | 25,124 | | | 26,632 | |
| Pledged asset lines | 13,303 | | | 245 | | | — | | | — | | | 13,548 | |
| Other | 7 | | | 266 | | | 24 | | | — | | | 297 | |
| Total | $ | 13,310 | | | $ | 548 | | | $ | 1,495 | | | $ | 25,124 | | | $ | 40,477 | |
Note: Maturities in the above table are based upon the contractual terms of the loans. The maturities for HELOCs are based on 30-year loan terms, with an initial draw period of ten years, followed by a 20-year amortizing period.
The interest sensitivity of loans with contractual maturities in excess of one year is as follows:
| | | | | | | | | | | | | | | | | |
| December 31, 2023 | After 1 year
through
5 years | | After
5 years through 15 years | | After 15 years |
| Loans with floating or adjustable interest rates: | | | | | |
| Residential real estate: | | | | | |
| First Mortgages | $ | — | | | $ | 45 | | | $ | 21,488 | |
| HELOCs | — | | | 113 | | | 366 | |
| Total residential real estate | — | | | 158 | | | 21,854 | |
| Pledged asset lines | 245 | | | — | | | — | |
| Other | — | | | — | | | — | |
| Total loans with floating or adjustable interest rates | 245 | | | 158 | | | 21,854 | |
| Loans with predetermined interest rates: | | | | | |
| Residential real estate: | | | | | |
| First Mortgages | $ | 37 | | | $ | 1,313 | | | $ | 3,270 | |
| HELOCs | — | | | — | | | — | |
| Total residential real estate | 37 | | | 1,313 | | | 3,270 | |
| Pledged asset lines | — | | | — | | | — | |
| Other | 266 | | | 24 | | | — | |
| Total loans with predetermined interest rates | 303 | | | 1,337 | | | 3,270 | |
| Total | $ | 548 | | | $ | 1,495 | | | $ | 25,124 | |
Note: Maturities in the above table are based upon the contractual terms of the loans. The maturities for HELOCs are based on 30-year loan terms, with an initial draw period of ten years, followed by a 20-year amortizing period.
THE CHARLES SCHWAB CORPORATION
Supplemental Financial Data (Unaudited)
(Dollars in Millions)
4. Allowance for Credit Losses on Bank Loans
The following table presents several credit ratios related to the Company’s bank loans portfolio. See Part II – Item 8 – Note 6 for the values underlying these ratios:
| | | | | | | | | | | |
| December 31, | 2023 | | 2022 |
| Allowance for credit losses to total year-end loans | 0.09 | % | | 0.18 | % |
| Nonaccrual loans to total year-end loans | 0.04 | % | | 0.06 | % |
| Allowance for credit losses to total nonaccrual year-end loans | 253 | % | | 317 | % |
The following table presents information regarding average loans outstanding during the period and the ratio of net charge-offs (recoveries) during the period to average loans outstanding:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2023 | | 2022 | | 2021 |
| Average loans | | Net charge-offs (recoveries) to average loans | | Average loans | | Net charge-offs (recoveries) to average loans | | Average loans | | Net charge-offs (recoveries) to average loans |
| Residential real estate: | | | | | | | | | | | |
| First Mortgages | $ | 25,748 | | | $ | — | | | $ | 23,639 | | | — | | | $ | 17,673 | | | — | |
| HELOCs | 525 | | | — | | | 617 | | | (.16) | % | | 731 | | | (.14) | % |
| Total residential real estate | 26,273 | | | — | | | 24,256 | | | — | | | 18,404 | | | (.01) | % |
| Pledged asset lines | 13,727 | | | — | | | 14,360 | | | .03 | % | | 10,201 | | | — | |
| Other | 234 | | | — | | | 200 | | | — | | | 184 | | | .54 | % |
| Total | $ | 40,234 | | | $ | — | | | $ | 38,816 | | | .01 | % | | $ | 28,789 | | | — | |
The increase in the Company’s average loan portfolio in the periods presented has been driven by growth in First Mortgages and PALs, with a slight decrease in PALs in 2023. Growth in these loan types is due in large part to overall growth in Schwab’s client base and net new client assets during the periods presented, as well as a low interest rate environment observed through early 2022. The decrease in the ratios of the allowance for credit losses to year-end loans and nonaccrual loans is primarily due to a decrease in the allowance for credit losses resulting from a decrease in projected loss rates and improved credit quality metrics in the Company’s bank loans portfolio in recent years as discussed in Part II – Item 8 – Note 6 and lower nonaccrual First Mortgages outstanding.
The following table presents the allocation of the allowance for credit losses for bank loans and loans by category as a percentage of total bank loans:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | 2023 | | 2022 |
| Allowance for Credit Losses | | Percent of loans to total loans | | Allowance for Credit Losses | | Percent of loans to total loans |
| Residential real estate: | | | | | | | |
| First Mortgages | $ | 32 | | | 65 | % | | $ | 66 | | | 63 | % |
| HELOCs | 2 | | | 1 | % | | 4 | | | 1 | % |
| Total residential real estate | 34 | | | 66 | % | | 70 | | | 64 | % |
| Pledged asset lines | — | | | 33 | % | | — | | | 36 | % |
| Other | 4 | | | 1 | % | | 3 | | | — | |
| Total | $ | 38 | | | 100 | % | | $ | 73 | | | 100 | % |
THE CHARLES SCHWAB CORPORATION
Supplemental Financial Data (Unaudited)
(Dollars in Millions)
5. Bank Deposits
The following table presents the average amount of, and the average rate paid on, deposit categories that are in excess of ten percent of average total bank deposits:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2023 | | 2022 |
| Amount | Rate | | Amount | Rate |
| Analysis of average daily deposits: | | | | | |
| Money market and other savings deposits | $ | 233,091 | | 0.59 | % | | $ | 367,426 | | 0.17 | % |
| Interest-bearing demand deposits | 37,386 | | 0.41 | % | | 56,306 | | 0.15 | % |
Time certificates of deposit (1) | 36,028 | | 5.08 | % | | | |
| Total | $ | 306,505 | | | | $ | 423,732 | | |
(1) Time certificates of deposit did not exceed ten percent of average total bank deposits for the year ended December 31, 2022.
As of December 31, 2023 and 2022, uninsured bank deposits totaled approximately $34.5 billion and $68.9 billion, respectively. As of December 31, 2023 and 2022, the Company’s bank deposits did not include any time deposits that were in excess of FDIC insurance limits or were otherwise uninsured.
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