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| Schwab money market funds | $ | 499,887 | | $ | 336 | | 0.27 | % | | $ | 316,391 | | $ | 213 | | 0.27 | % |
| Schwab equity and bond funds, ETFs, and CTFs | 539,661 | | 107 | | 0.08 | % | | 450,581 | | 91 | | 0.08 | % |
Mutual Fund OneSource® and other no-transaction-fee (NTF) funds | 314,576 | | 209 | | 0.27 | % | | 222,437 | | 148 | | 0.27 | % |
Other third-party mutual funds and ETFs | 605,625 | | 106 | | 0.07 | % | | 676,344 | | 133 | | 0.08 | % |
Total mutual funds, ETFs, and CTFs (1) | $ | 1,959,749 | | 758 | | 0.16 | % | | $ | 1,665,753 | | 585 | | 0.14 | % |
Advice solutions (1) | | | | | | | |
| Fee-based | $ | 506,133 | | 503 | | 0.40 | % | | $ | 443,027 | | 453 | | 0.41 | % |
| Non-fee-based | 106,032 | | — | | — | | | 94,469 | | — | | — | |
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Bank deposit account fees increased $32 million, or 21%, in the first quarter of 2024, compared to the same period in 2023. The increase was primarily due to $97 million of breakage fees incurred that resulted in lower bank deposit account fee revenue in the first quarter of 2023. In addition, the average amount of floating-rate BDA balances increased in the first quarter of 2024 compared to the first quarter of 2023, which contributed to an increase in average net yield. These factors were partially offset by a decrease in average BDA balances in the first quarter of 2024 compared to the same period in 2023, primarily due to client cash allocation decisions in response to higher short-term market interest rates. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of March 31, 2024 were 88% and 12%, 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 $26 million, or 14%, in the first quarter of 2024 compared to the same period in 2023, primarily due to lower exchange processing fees 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. The provision for credit losses on bank loans was lower in the first quarter of 2024 compared to the same period in 2023, as during the first quarter of 2024, loan loss factors decreased while the total balance of first lien residential real estate mortgage loans (First Mortgages) remained consistent with year-end 2023.
Subsequent to March 31, 2024, the SEC announced that effective May 22, 2024, it would increase its fee rates applicable to most securities transactions from the rate in effect since late February 2023. This change will result in higher exchange processing fees per security transaction in other revenue and a corresponding increase in other expense, resulting in no impact to net income.
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 presents a comparison of expenses excluding interest:
| | | | | | | | | | | | | | | | | | | | |
| 2024 | | 2023 | | |
| Compensation and benefits | | | | | | | | |
| Salaries and wages | $ | 854 | | | $ | 972 | | | (12) | % | | | |
| Incentive compensation | 387 | | | 364 | | | 6 | % | | | |
| Employee benefits and other | 297 | | | 302 | | | (2) | % | | | |
| Total compensation and benefits | $ | 1,538 | | | $ | 1,638 | | | (6) | % | | | |
| Professional services | 241 | | | 258 | | | (7) | % | | | |
| Occupancy and equipment | 265 | | | 299 | | | (11) | % | | | |
| Advertising and market development | 88 | | | 88 | | | — | | | | |
| Communications | 141 | | | 146 | | | (3) | % | | | |
| Depreciation and amortization | 228 | | | 177 | | | 29 | % | | | |
| Amortization of acquired intangible assets | 130 | | | 135 | | | (4) | % | | | |
| Regulatory fees and assessments | 125 | | | 83 | | | 51 | % | | | |
| Other | 186 | | | 182 | | | 2 | % | | | |
| Total expenses excluding interest | $ | 2,942 | | | $ | 3,006 | | | (2) | % | | | |
| Expenses as a percentage of total net revenues | | | | | | | | |
| Compensation and benefits | 32 | % | | 32 | % | | | | | |
| Advertising and market development | 2 | % | | 2 | % | | | | | |
| Full-time equivalent employees (in thousands) | | | | | | | | |
| At quarter end | 32.6 | | 36.0 | | (9) | % | | | |
| Average | 32.7 | | 35.6 | | (8) | % | | | |
|
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| Secured uncommitted lines of credit with various external banks | CS&Co | — | | — | | (4) | N/A | — |
Secured uncommitted lines of credit with various
external banks | TDAC | 700 | | — | | (4) | April 2024 | 5.69% |
Unsecured, committed revolving line of credit with various external banks | CSC | — | | 2,100 | | (5) | N/A | — |
(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of March 31, 2024. Incremental borrowing capacity may be made available by pledging additional assets, subject to applicable facility terms. See below and Note 8 for additional information.
(2) On March 11, 2024, the Federal Reserve Bank Term Funding Program (BTFP) ceased to make new loans available. As such, during the first quarter of 2024, the Company reallocated certain amounts of collateral previously pledged under the BTFP to the Federal Reserve discount window. The BTFP was not used by the Company during the first quarter of 2024.
(3) 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 Note 12 for additional information.
(4) 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.
(5) During the first quarter of 2024, CSC entered into an unsecured committed revolving line of credit with various external banks.
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 March 31, 2024, the Company had additional investment securities with a par value of approximately $135 billion or a fair value of approximately $124 billion available to be pledged to obtain additional capacity. 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, home equity lines of credit (HELOCs), and the fair 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 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 the first three months of 2024 and there were no amounts outstanding at March 31, 2024. CSC maintains a standing bilateral repurchase agreement with an external bank. This facility was not used during the first quarter of 2024 and there were no amounts outstanding under this facility at March 31, 2024.
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 March 31, 2024.
CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities.
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)
Beginning in the first quarter of 2024, CSC has access to an unsecured, committed revolving line of credit with various external banks. This line will expire in January 2025. Other than an overnight borrowing to test the availability, the facility was not used during the first quarter of 2024.
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.
During 2023 and the first three months of 2024, CSB issued brokered CDs as a supplemental funding source. The following table provides information about brokered CDs issued by CSB and outstanding as of March 31, 2024:
| | | | | | | | | | | |
| Amount Outstanding | Maturity | Weighted-Average Interest Rate |
| Brokered CDs | $ | 39,128 | | April 2024 - April 2025 | 5.22% |
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 half of 2023, and continued to decrease in the first quarter of 2024.
Cash and cash equivalents decreased $11.6 billion from year-end 2023 to $31.8 billion at March 31, 2024; cash and cash equivalents, including amounts restricted, decreased $16.8 billion to $57.7 billion at March 31, 2024. This decrease reflected repayments of supplemental funding balances of $8.8 billion and maturities of long-term debt of $3.3 billion. Bank deposits decreased during the first quarter of 2024 by $20.5 billion, resulting from a decrease of $11.4 billion in deposits swept from brokerage accounts due to client cash allocations and a decrease in brokered CDs of $9.2 billion. Partially offsetting the decrease in bank deposits and repayment of borrowings, net investing cash flows from our AFS and HTM securities totaled $10.0 billion in the first three months of 2024.
Liquidity Coverage Ratio
Schwab is subject to the full LCR rule, which requires the Company to hold high quality liquid assets (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 – Business – Regulation in the 2023 Form 10-K for additional information. The Company was in compliance with the LCR rule at March 31, 2024, and the table below presents information about our average daily LCR:
| | | | | | | | | | | |
| Average for the Three Months Ended |
| March 31, 2024 | | December 31, 2023 |
| Total eligible HQLA | $ | 58,841 | | | $ | 58,056 | |
| Net cash outflows | 45,195 | | | 44,793 | |
| LCR | 130 | % | | 130 | % |
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. In managing compliance with our LCR requirements, the broker-dealer subsidiaries may also retain client cash balances rather than sweeping such balances to our banking subsidiaries.
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)
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. 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 March 31, 2024.
Long-Term Borrowings
The Company’s long-term debt is primarily comprised of Senior Notes and totaled $22.9 billion and $26.1 billion at March 31, 2024 and December 31, 2023, respectively.
The following table provides information about our Senior Notes outstanding at March 31, 2024:
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | Par
Outstanding | Maturity | Weighted Average
Interest Rate | Moody’s | Standard
& Poor’s | Fitch |
| CSC Senior Notes | $ | 22,612 | | 2024 - 2034 | 3.72% | A2 | A- | A |
| Ameritrade Holding Senior Notes | 213 | | 2024 - 2029 | 3.47% | A2 | A- | — |
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(1) Changes in market interest rates can result in unrealized gains or losses on AFS securities, which are included in AOCI. As a Category III banking organization, CSC has elected to exclude AOCI from regulatory capital.
The Company’s consolidated Tier 1 Leverage Ratio increased to 8.8% at March 31, 2024 from 8.5% at year-end 2023. This increase during the first quarter was primarily due to lower total Company assets and also the benefit of net income earned during the quarter. Total balance sheet assets decreased $24.4 billion, or 5%, during the first quarter of 2024 due primarily to a decrease of $11.4 billion in bank sweep deposits, a decrease of $9.2 billion in brokered CDs, and repayment of $3.3 billion in long-term debt. CSB’s Tier 1 Leverage Ratio also increased from year-end 2023, ending the first quarter of 2024 at 10.4% primarily as a result of lower total assets as well as net income during the quarter.
In light of the Federal Reserve’s 2023 regulatory capital rule proposal, which among other things, would require the Company to include AOCI in regulatory capital (See Part II – Item 7 – Current Regulatory and Other Developments in the 2023 Form 10-K), the Company has developed an adjusted Tier 1 Leverage Ratio, which is a non-GAAP financial measure that includes AOCI in the ratio. The primary component of AOCI for Schwab is unrealized gains and losses on our AFS investment securities portfolio and on securities transferred from AFS to the HTM category. As of March 31, 2024, our adjusted Tier 1 Leverage Ratio, which includes AOCI in the ratio, was 5.3% for CSC consolidated and 5.7% for CSB (see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results). The Company is continuing to retain and accrete capital organically well ahead of the Federal Reserve’s proposed regulatory capital rules’ transition period.
IDA Agreement
Certain brokerage client deposits are swept off-balance sheet to the TD Depository Institutions pursuant to the 2023 IDA agreement. During the first three months of 2024, Schwab did not move IDA balances to its balance sheet. The Company’s overall capital management strategy includes supporting migration of IDA balances in future periods as available pursuant to the terms of the 2023 IDA agreement. The Company’s ability to migrate these balances to its balance sheet is dependent upon multiple factors including having sufficient capital levels to sustain these incremental deposits. See Item 1 – Note 9 for further information on the 2023 IDA agreement.
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)
Dividends
Cash dividends paid and per share amounts, exclusive of amounts related to preferred stock repurchases, for the first three months of 2024 and 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2024 | | 2023 |
| Three Months Ended March 31, | Cash Paid | | Per Share
Amount | | Cash Paid | | Per Share
Amount |
| Common and Nonvoting Common Stock | $ | 459 | | | $ | .25 | | | $ | 463 | | | $ | .25 | |
| Preferred Stock: | | | | | | | |
|
Series D (1) | 11 | | | 14.88 | | | 11 | | | 14.88 | |
|
Series F (2) | — | | | — | | | — | | | — | |
Series G (1) | 33 | | | 1,343.75 | | | 33 | | | 1,343.75 | |
Series H (1) | 22 | | | 1,000.00 | | | 24 | | | 1,000.00 | |
Series I (1) | 21 | | | 1,000.00 | | | 21 | | | 1,000.00 | |
Series J (1) | 7 | | | 11.13 | | | 7 | | | 11.13 | |
Series K (1) | 9 | | | 1,250.00 | | | 9 | | | 1,250.00 | |
(1) Dividends paid quarterly.
(2) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter.
Share Repurchases
On July 27, 2022, CSC publicly announced that its Board of Directors approved a 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 share repurchase authorization does not have an expiration date. There were no repurchases of CSC’s common stock during the three months ended March 31, 2024. CSC repurchased 37 million shares of its common stock for $2.8 billion during the three months ended March 31, 2023. As of March 31, 2024, approximately $8.7 billion remained on the authorization.
There were no repurchases of CSC’s preferred stock during the three months ended March 31, 2024. During the three months ended March 31, 2023, the Company repurchased on the open market 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. The repurchase prices are inclusive of $3 million of dividends accrued by the stockholders as of the repurchase date.
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 condensed consolidated statement of income. For repurchases of preferred stock, the tax impact is included within preferred stock dividends and other on the condensed consolidated statement of income.
OTHER
Foreign Exposure
At March 31, 2024, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At March 31, 2024, the fair value of these holdings totaled $13.0 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.9 billion, the United Kingdom at $2.7 billion, and Canada at $887 million. 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, and Canada at $1.5 billion. In addition, Schwab had outstanding margin loans to foreign residents of $2.7 billion and $2.5 billion at March 31, 2024 and December 31, 2023, respectively.
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)
CRITICAL ACCOUNTING ESTIMATES
Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Critical Accounting Estimates in the 2023 Form 10-K. There have been no changes to critical accounting estimates during the first three months of 2024.
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 Ameritrade. See Part I – Item 1 – Note 10 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:
| | | | | | | | | | | |
|
| 2024 | | 2023 |
| Total expenses excluding interest (GAAP) | $ | 2,942 | | | $ | 3,006 | |
Acquisition and integration-related costs (1) | (38) | | | (98) | |
| Amortization of acquired intangible assets | (130) | | | (135) | |
Restructuring costs (2) | 28 | | | — | |
| Adjusted total expenses (non-GAAP) | $ | 2,802 | | | $ | 2,773 | |
(1) Acquisition and integration-related costs for the three months ended March 31, 2024 primarily consist of $17 million of compensation and benefits, and $17 million of professional services. Acquisition and integration-related costs for the three months ended March 31, 2023 primarily consist of $58 million of compensation and benefits, $33 million of professional services, and $4 million of occupancy and equipment.
(2) Restructuring costs for the three months ended March 31, 2024 reflect a change in estimate of $31 million in compensation and benefits, partially offset by $2 million of occupancy and equipment expense and $1 million of other expense for the period. There were no restructuring costs for the three months ended March 31, 2023.
| | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2024 | 2023 | | |
| Amount | Diluted
EPS | Amount | Diluted
EPS | | |
Net income available to common stockholders (GAAP),
Earnings per common share — diluted (GAAP) | $ | 1,251 | | $ | .68 | | $ | 1,533 | | $ | .83 | | | |
| Acquisition and integration-related costs | 38 | | .02 | | 98 | | .05 | | | |
| Amortization of acquired intangible assets | 130 | | .07 | | 135 | | .07 | | | |
| Restructuring costs | (28) | | (.01) | | — | | — | | | |
Income tax effects (1) | (33) | | (.02) | | (56) | | (.02) | | | |
Adjusted net income available to common stockholders
(non-GAAP), Adjusted diluted EPS (non-GAAP) | $ | 1,358 | | $ | .74 | | $ | 1,710 | | $ | .93 | | | |
(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.
| | | | | | | | | | |
| Three Months Ended
March 31, | |
| 2024 | 2023 | | |
| Return on average common stockholders’ equity (GAAP) | 15 | % | 23 | % | | |
| Average common stockholders’ equity | $ | 32,493 | | $ | 27,028 | | | |
| Less: Average goodwill | (11,951) | | (11,951) | | | |
| Less: Average acquired intangible assets — net | (8,196) | | (8,724) | | | |
Plus: Average deferred tax liabilities related to goodwill and
acquired intangible assets — net | 1,759 | | 1,842 | | | |
| Average tangible common equity | $ | 14,105 | | $ | 8,195 | | | |
Adjusted net income available to common stockholders (1) | $ | 1,358 | | $ | 1,710 | | | |
| Return on tangible common equity (non-GAAP) | 39 | % | 83 | % | | |
(1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).
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)
| | | | | | | | | | |
| March 31, 2024 | |
| CSC | CSB | | |
Tier 1 Leverage Ratio (GAAP) | 8.8 | % | 10.4 | % | | |
Tier 1 Capital | $ | 41,598 | | $ | 31,944 | | | |
| Plus: AOCI adjustment | (17,568) | | (15,297) | | | |
| Adjusted Tier 1 Capital | 24,030 | | 16,647 | | | |
Average assets with regulatory adjustments | 471,116 | | 306,869 | | | |
| Plus: AOCI adjustment | (17,817) | | (15,664) | | | |
| Adjusted average assets with regulatory adjustments | $ | 453,299 | | $ | 291,205 | | | |
Adjusted Tier 1 Leverage Ratio (non-GAAP) | 5.3 | % | 5.7 | % | | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2.
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Income
(In Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2024 | | 2023 |
| Net Revenues | | | |
| Interest revenue | $ | | | | $ | | |
| Interest expense | () | | | () | |
| Net interest revenue | | | | | |
Asset management and administration fees | | | | | |
| 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 (1): | | | |
| Basic | $ | | | | $ | | |
| Diluted | $ | | | | $ | | |
(1)
See Notes to Condensed Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In Millions)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2024 | | 2023 |
| Net income | $ | | | | $ | | |
| Other comprehensive income (loss), before tax: | | | |
| Change in net unrealized gain (loss) on available for sale securities: | | | |
| Net unrealized gain (loss) | | | | | |
| | | |
| Other reclassifications included in other revenue | | | | | |
| Change in net unrealized gain (loss) on held to maturity securities: | | | |
| | | |
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 Condensed Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Balance Sheets
(In Millions, Except Per Share and Share Amounts)
(Unaudited)
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Assets | | | |
| Cash and cash equivalents | $ | | | | $ | | |
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $ and $ at March 31, 2024 and December 31, 2023, respectively) | | | | | |
| Receivables from brokerage clients — net | | | | | |
Available for sale securities (amortized cost of $ at March 31, 2024 and $ at December 31, 2023; including assets pledged of $ and $, respectively) | | | | | |
Held to maturity securities (including assets pledged of $ at March 31, 2024 and $ at December 31, 2023) | | | | | |
| 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 $ at March 31, 2024 and December 31, 2023 | | | | | |
Common stock — billion shares authorized; $ par value per share; shares issued at March 31, 2024 and December 31, 2023 | | | | | |
Nonvoting common stock — million shares authorized; $ par value per share; shares issued at March 31, 2024 and December 31, 2023 | | | | | |
| Additional paid-in capital | | | | | |
| Retained earnings | | | | | |
Treasury stock, at cost — and shares at March 31, 2024 and December 31, 2023, respectively | () | | | () | |
| Accumulated other comprehensive income (loss) | () | | | () | |
| Total stockholders’ equity | | | | | |
| Total liabilities and stockholders’ equity | $ | | | | $ | | |
See Notes to Condensed Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity
(In Millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accumulated Other Comprehensive Income (Loss) | |
| Preferred Stock | Common Stock | Nonvoting
Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock,
at cost | Total |
| Shares | Amount | Shares | Amount |
| 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 | — | | — | | — | | — | | — | | — | | — | | () | | — | | () | |
| | |
| | |
| Stock option exercises and other | — | | — | | — | | — | | — | | () | | — | | | | — | | | |
| Share-based compensation | — | | — | | — | | — | | — | | | | — | | — | | — | | | |
| Other | — | | — | | — | | — | | — | | | | — | | () | | — | | () | |
| Balance at March 31, 2023 | $ | | | | | $ | | | | | $ | | | $ | | | $ | | | $ | () | | $ | () | | $ | | |
| | | | | | | | | | |
| Balance at December 31, 2023 | $ | | | | | $ | | | | | $ | | | $ | | | $ | | | $ | () | | $ | () | | $ | | |
| Net income | — | | — | | — | | — | | — | | — | | | | — | | — | | | |
| Other comprehensive income (loss), net of tax | — | | — | | — | | — | | — | | — | | — | | — | | | | | |
| | |
| | |
| | |
| Dividends declared on preferred stock | — | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
Dividends declared on common stock — $ per share | — | | — | | — | | — | | — | | — | | () | | — | | — | | () | |
| | |
| | |
| | |
| Stock option exercises and other | — | | — | | — | | — | | — | | () | | — | | | | — | | | |
| Share-based compensation | — | | — | | — | | — | | — | | | | — | | — | | — | | | |
| Other | — | | — | | — | | — | | — | | | | — | | () | | — | | () | |
| Balance at March 31, 2024 | $ | | | | | $ | | | | | $ | | | $ | | | $ | | | $ | () | | $ | () | | $ | | |
See Notes to Condensed Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows
(in Millions)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2024 | | 2023 |
| Cash Flows from Operating Activities | | | |
| Net income | $ | | | | $ | | |
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | |
| Share-based compensation | | | | | |
| Depreciation and amortization | | | | | |
| Amortization of acquired intangible assets | | | | | |
| Provision (benefit) for deferred income taxes | () | | | | |
| Premium amortization, net, on available for sale and held to maturity securities | | | | | |
| Other | | | | | |
| Net change in: | | | |
| Investments segregated and on deposit for regulatory purposes | | | | | |
| Receivables from brokerage clients | () | | | | |
| Other assets | () | | | | |
| Payables to brokerage clients | () | | | () | |
| Accrued expenses and other liabilities | () | | | () | |
| Net cash provided by (used for) operating activities | () | | | | |
| Cash Flows from Investing Activities | | | |
| Purchases of available for sale securities | () | | | | |
| Proceeds from sales of available for sale securities | | | | | |
| Principal payments on available for sale securities | | | | | |
|
| Principal payments on held to maturity securities | | | | | |
| Net change in bank loans | () | | | | |
|
| Purchases of equipment, office facilities, and property | () | | | () | |
| Purchases of FHLB stock | () | | | () | |
| Proceeds from sales of FHLB stock | | | | | |
| Purchases of Federal Reserve stock | () | | | | |
| Proceeds from sales of Federal Reserve stock | | | | | |
| Other investing activities | () | | | () | |
| Net cash provided by (used for) investing activities | | | | | |
| Cash Flows from Financing Activities | | | |
| Net change in bank deposits | () | | | () | |
|
|
|
| Proceeds from FHLB borrowings | | | | | |
| Repayments of FHLB borrowings | () | | | () | |
| Proceeds from other short-term borrowings | | | | | |
| Repayments of other short-term borrowings | () | | | () | |
|
| Repayments of long-term debt | () | | | () | |
|
| Redemption and repurchase of preferred stock | | | | () | |
| Dividends paid | () | | | () | |
| Proceeds from stock options exercised | | | | | |
| Repurchases of common stock and nonvoting common stock | | | | () | |
| 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 Period | $ | | | | $ | | |
Continued on following page.
THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows
(in Millions)
(Unaudited)
Continued from previous page.
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2024 | | 2023 |
| Supplemental Cash Flow Information | | | |
| Non-cash investing activity: | | | |
|
|
|
|
| Changes in accrued equipment, office facilities, and property purchases | $ | () | | | $ | | |
|
|
|
|
| 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 | $ | | | | $ | | |
|
| | | |
| March 31, 2024 | | March 31, 2023 |
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (1) | | | |
| 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)
See Notes to Condensed Consolidated Financial Statements.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
1.
The significant accounting policies are included in Item 8 – Note 2 in the 2023 Form 10-K. There have been no significant changes to these accounting policies during the first three months of 2024.
2.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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 | () | | | () | |
Federal Home Loan Bank borrowings | () | | | () | |
| 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 | $ | | | | $ | | | Note: For a summary of revenue provided by our reportable segments, see Note 18. The recognition of revenue is not impacted by the operating segment in which revenue is generated.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The Company had net contract assets of $ million and $ million at March 31, 2024 and December 31, 2023, respectively, related to the buy down of fixed-rate obligation amounts pursuant to the 2023 IDA agreement. These amounts are included in other assets on the condensed consolidated balance sheets and are amortized on a straight-line basis over the remaining contractual term as a reduction to bank deposit account fee revenue. For additional discussion of the 2023 IDA agreement, see Note 9.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
4.
| | $ | | | | $ | | | | $ | | |
| 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 | | | | | | | | | | | | |
|
|
| Other | | | | | | | | | | | | |
Unallocated portfolio layer method fair value basis adjustments (3) | | () | | | | | | () | | | — | |
Total available for sale securities | | $ | | | | $ | | | | $ | | | | $ | | |
| Held to maturity securities | | | | | | | | |
| U.S. agency mortgage-backed securities | | $ | | | | $ | | | | $ | | | | $ | | |
|
|
|
|
|
|
|
|
|
| Total held to maturity securities | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | |
| December 31, 2023 | | | | | | | | |
| Available for sale securities | | | | | | | | |
| U.S. agency mortgage-backed securities | | $ | | | | $ | | | | $ | | | | $ | | |
| 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 | | $ | | | | $ | | | | $ | | | | $ | | |
| Held to maturity securities | | | | | | | | |
| U.S. agency mortgage-backed securities | | $ | | | | $ | | | | $ | | | | $ | | |
| Total held to maturity securities | | $ | | | | $ | | | | $ | | | | $ | | |
(1) As of March 31, 2024 and December 31, 2023, approximately % and %, respectively, of the total AFS in corporate debt securities were issued by institutions in the financial services industry.
(2) Approximately % and % of asset-backed securities held as of March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023, respectively.
(3) This represents the amount of PLM basis adjustments related to AFS securities hedged in a closed portfolio. See Note 11 for more information on PLM hedge accounting.
At March 31, 2024, our banking subsidiaries had pledged investment securities with a value of $ billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 8). Our banking subsidiaries also pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a value of $ billion as collateral for this facility at March 31, 2024. The Company also pledges investment securities issued by federal agencies to secure certain trust deposits. The value of these pledged securities was $ billion at March 31, 2024.
At March 31, 2024, 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
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
At March 31, 2024, 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 11 and 12). All of Schwab’s interest rate swaps are cleared through central counterparty (CCP) clearing houses 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 the 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, 2023 | | | | | | | | | | | |
| Available for sale securities | | | | | | | | | | | |
U.S. agency mortgage-backed securities (1) | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| 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) | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
(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 and
$ million at March 31, 2024, and December 31, 2023, respectively.
At March 31, 2024, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises.
For a description of management’s quarterly evaluation of AFS securities in unrealized loss positions, see Item 8 – Note 2 in the 2023 Form 10-K. amounts were recognized as credit loss expense and securities were written down to fair value through earnings for the three months ended March 31, 2024 and the year ended December 31, 2023. of the Company’s AFS securities held as of March 31, 2024 and December 31, 2023 had an allowance for credit losses. All HTM securities as of March 31, 2024 and December 31, 2023 were U.S. agency mortgage-backed securities and therefore had allowance for credit losses because expected nonpayment of the amortized cost basis is zero.
The Company had $ million and $ million of accrued interest for AFS and HTM securities as of March 31, 2024 and December 31, 2023, 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 condensed consolidated balance sheets. There were writeoffs of accrued interest receivable on AFS and HTM securities during the three months ended March 31, 2024, or for the year ended December 31, 2023.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| AFS and HTM investment securities portfolio | |
Estimated effective duration, inclusive of derivatives (1): | |
AFS investment securities portfolio | |
| AFS and HTM investment securities portfolio | |
(1) See Note 11 for additional discussion on the Company’s derivatives.
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.
| | $ | | | | $ | | | | $ | | | | $ | | | | 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 | | | | | | | | | | | | | | |
| |
| |
| Other | | | | | | | | | | | | | | |
| Total fair value | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Total amortized cost (1) | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| |
| Held to maturity securities | | | | | | | | | |
| U.S. agency mortgage-backed securities | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Total fair value | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Total amortized cost | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | (1) For purposes of this table, the amortized cost of AFS securities excludes the unallocated PLM fair value hedge basis adjustments of $ million at March 31, 2024.
| | $ | | |
| Gross realized gains | | | | | |
| Gross realized losses | | | | | |
|
|
|
|
| Total | $ | | |
8.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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 August 24, 2026 | 08/24/23 | | | | |
% 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 | | | | |
| CSC Floating-rate Senior Notes: | | | |
|
SOFR + % due March 18, 2024 | 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 (1) | 05/19/23 | | | | |
% due November 17, 2029 (2) | 11/17/23 | | | | |
% due May 19, 2034 (3) | 05/19/23 | | | | |
% due August 24, 2034 (4) | 08/24/23 | | | | |
| Total CSC Senior Notes | | | | | |
| Ameritrade 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 | | | | |
|
|
| Total Ameritrade Holding Senior Notes | | | | | |
| Finance lease liabilities | | | | | |
| Unamortized premium — net | | | | | |
| Debt issuance costs | | () | | () | |
| Total long-term debt | | $ | | | $ | | |
(1) The May 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of %, payable semi-annually, until the interest reset date on May 19, 2028. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus %, payable quarterly.
(2) The November 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of %, payable semi-annually, until the interest reset date on November 17, 2028. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus %, payable quarterly.
(3) The May 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of %, payable semi-annually, until the interest reset date on May 19, 2033. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus %, payable quarterly.
(4) The August 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of %, payable semi-annually, until the interest reset date on August 24, 2033. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus %, payable quarterly.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| Thereafter | | |
| Total maturities | | |
| Unamortized premium — net | | |
| Debt issuance costs | () | |
| Total long-term debt | $ | | |
FHLB borrowings: Our banking subsidiaries maintain secured credit facilities with the FHLB. Amounts available under these facilities are dependent on the amount of bank loans and the value of certain investment securities that are pledged as collateral. There was $ billion and $ billion outstanding under these facilities as of March 31, 2024 and December 31, 2023, respectively, and these borrowings had a weighted-average interest rate of % and %, respectively. As of March 31, 2024 and December 31, 2023, the collateral pledged provided additional borrowing capacity of $ billion and $ billion, respectively.
Other short-term borrowings: Total other short-term borrowings outstanding at March 31, 2024 and December 31, 2023 were $ billion and $ billion, respectively, and had a weighted-average interest rate of % and %, respectively. Additional information regarding our other short-term borrowings facilities is described below.
The Company may engage with external financial institutions in repurchase agreements collateralized by investment securities as another source of short-term liquidity. The Company had $ billion and $ billion outstanding pursuant to such repurchase agreements at March 31, 2024 and December 31, 2023, respectively. Repurchase agreements outstanding at March 31, 2024 mature between April 2024 and December 2024.
Our banking subsidiaries have access to funding through the Federal Reserve discount window. Amounts available are dependent upon the value of certain investment securities that are pledged as collateral. As of March 31, 2024 and December 31, 2023, our collateral pledged provided total borrowing capacity of $ billion and $ billion, respectively, of which amounts were outstanding at the end of either period. During the first quarter of 2024 and the year ended December 31, 2023, our banking subsidiaries had access to funding through the Federal Reserve Bank Term Funding Program. This program offered loans through March 11, 2024 of up to one year in length, and amounts available were dependent upon the par value of certain investment securities pledged as collateral. This facility was not used during the first quarter of 2024. As of December 31, 2023, our collateral pledged provided total borrowing capacity of $ billion. There were borrowings outstanding at December 31, 2023.
CSC has the ability to issue up to $ billion of commercial paper notes with maturities of up to days. There were amounts outstanding at March 31, 2024 or December 31, 2023. Beginning in the first quarter of 2024, CSC has access to an unsecured, committed revolving line of credit with various external banks with a total borrowing capacity of $ billion. There were amounts outstanding as of March 31, 2024. CSC and CS&Co also have access to uncommitted lines of credit with external banks with total borrowing capacity of $ billion; amounts were outstanding as of March 31, 2024 or December 31, 2023.
CS&Co 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, under which there were borrowings at March 31, 2024 and $ million outstanding as of December 31, 2023. TDAC also 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. There was $ million outstanding at March 31, 2024 and December 31, 2023.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| $ | | | $ | | | | Other short-term borrowings | | | | | | |
| Total | $ | | | $ | | | $ | | |
9.
million and $ million during the first quarters of 2024 and 2023, respectively. CSB purchased HELOCs with commitments of $ million and $ million during the first quarters of 2024 and 2023, respectively.
| | $ | | | | Commitments to purchase First Mortgage loans | | | | | |
| Total | $ | | | | $ | | |
Guarantees and indemnifications: Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We satisfy the margin requirements of these transactions through pledging certain client securities. For additional information on these pledged securities, refer to Note 12. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral.
The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the amounts it has posted as collateral. The Company also engages third-party firms to clear clients’ futures and options on futures transactions and to facilitate clients’ foreign exchange trading, and has agreed to indemnify these firms for any losses that they may incur from the client transactions introduced to them by the Company. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, liability has been recognized for these guarantees.
IDA agreement: On May 4, 2023, the Company executed the 2023 IDA agreement with the TD Depository Institutions that replaced and superseded the previous agreement dated November 24, 2019, as amended. The 2023 IDA agreement specifies responsibilities, including certain contingent obligations, of the Company going forward. Pursuant to the 2023 IDA agreement, uninvested cash within eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions. Schwab provides recordkeeping and support services to the TD Depository Institutions with respect to the deposit accounts for which Schwab receives an aggregate monthly fee. The Company’s ability to migrate these balances to its balance sheet is dependent on multiple factors including having sufficient capital levels to sustain these incremental deposits and certain binding limitations specified in the 2023 IDA agreement. During the first three months of 2024, Schwab did move IDA balances to its balance sheet.
The 2023 IDA agreement extends the agreement term to sweep balances to the TD Depository Institutions through July 1, 2034, and requires that Schwab maintain minimum and maximum IDA balances as follows:
•Through September 10, 2025, Schwab must maintain minimum balances above the total of then-outstanding unmatured fixed-rate obligation amounts, with a maximum of $ billion above this total amount. During this period, withdrawals of IDA balances by Schwab are generally permitted only to the extent of withdrawals initiated by Schwab customers, with limited exceptions, except to the extent necessary for Schwab to maintain balances below the applicable maximum.
•After September 10, 2025, withdrawals of IDA balances are permitted at Schwab’s discretion, subject to an obligation to maintain IDA balances above a minimum of $ billion, with a maximum of $ billion.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
As of March 31, 2024, the total ending IDA balance was $ billion, of which $ billion was fixed-rate obligation amounts and $ billion was floating-rate obligation amounts. As of December 31, 2023, the total ending IDA balance was $ billion, of which $ billion was fixed-rate obligation amounts and $ billion was floating-rate obligation amounts.
Legal contingencies: Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies.
Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available.
Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company.
Corrente Antitrust Litigation: On June 6, 2022, CSC was sued in the U.S. District Court for the Eastern District of Texas on behalf of a putative class of customers who purchased or sold securities through CS&Co or TD Ameritrade, Inc. from October 26, 2020 to the present. The lawsuit alleges that CSC’s acquisition of Ameritrade violated Section 7 of the Clayton Act because it has resulted in an anticompetitive market for the execution of retail customer orders. Plaintiffs seek unspecified damages, as well as injunctive and other relief. A motion by the Company to dismiss the lawsuit was denied by the court on February 24, 2023, and discovery is proceeding.
Ford Order Routing Litigation: On September 15, 2014, Ameritrade Holding, TD Ameritrade, Inc. and its former CEO, Frederick J. Tomczyk, were sued in the U.S. District Court for the District of Nebraska on behalf of a putative class of TD Ameritrade, Inc. clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices. Plaintiff seeks unspecified damages and injunctive and other relief. On September 14, 2018, the District Court granted plaintiff’s motion for class certification, and defendants petitioned for an immediate appeal of the District Court’s class certification decision. On April 23, 2021, the U.S. Court of Appeals, 8th Circuit, issued a decision reversing the District Court’s certification of a class and remanding the case back to the District Court for further proceedings. Plaintiff renewed his motion for class certification, which the District Court granted on September 20, 2022. Defendants are appealing the District Court’s ruling before the U.S. Court of Appeals, 8th Circuit.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
10.
million to $ million, consisting of employee compensation and benefits, facility exit costs, and certain other costs. During the three months ended March 31, 2024 and 2023, the Company recognized $ million and $ million of acquisition-related exit costs, respectively. The Company expects that remaining exit and other related costs will be incurred and charged to expense over the next months, with some costs expected to be incurred after client transition to decommission duplicative platforms and complete integration work. In addition to ASC 420 Exit or Disposal Cost Obligations (ASC 420), certain of the costs associated with these activities are accounted for in accordance with ASC 360 Property, Plant and Equipment (ASC 360), ASC 712 Compensation — Nonretirement Post Employment Benefits (ASC 712), ASC 718 Compensation — Stock Compensation (ASC 718), and ASC 842 Leases (ASC 842).
| | $ | | | | $ | | | | |
| |
| Costs paid or otherwise settled | () | | | () | | | () | |
Balance at March 31, 2024 (1) | $ | | | | $ | | | | $ | | |
(1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | |
| | | | | |
| Other | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | |
| |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | (1) Costs related to facility closures. These costs, which are primarily comprised of impairment and accelerated amortization of ROU assets, relate to the impact of abandoning leased properties. Impairment charges are included in other expense, while accelerated amortization of ROU assets are included in occupancy and equipment on the condensed consolidated statements of income.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | |
| |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
The following table summarizes the Ameritrade integration exit and other related costs incurred from October 6, 2020 through March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investor Services | | Advisor Services | | |
| Employee Compensation and Benefits | | Facility Exit Costs (1) | | Investor Services Total | | Employee Compensation and Benefits | | Facility Exit Costs (1) | | Advisor Services Total | | Total |
| Compensation and benefits | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | |
| Occupancy and equipment | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | | | | | | | | | | | | | | | | |
| Professional services | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
(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 are included in occupancy and equipment on the condensed consolidated statements of income.
Other
With significant progress made in the integration of Ameritrade, the Company took incremental actions in 2023 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 exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $ million inclusive of costs recognized through March 31, 2024 as described below. 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 March 31, 2024 (1) | $ | | | | $ | | | | $ | | |
(1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets.
(2) Amounts recognized in expense for severance pay and other termination benefits are included in compensation and benefits on the condensed consolidated statements of income. The three months ended March 31, 2024 includes a reduction of the liability resulting from changes in estimates of $ million and $ million in Investor Services and Advisor Services, respectively.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | () | | | $ | () | | | | | | | |
| Occupancy and equipment | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| Other | | | | | | | | | | | | | | | | | | | | |
| Total | $ | () | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | () | | | $ | () | |
(1) Costs related to facility closures. These costs, which are primarily comprised of accelerated amortization of ROU assets, relate to the impact of abandoning leased properties.
The following table summarizes the restructuring exit and other related costs incurred from July 1, 2023 through March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investor Services | | Advisor Services | | |
| Employee Compensation and Benefits | | Facility Exit Costs (1) | | Investor Services Total | | Employee Compensation and Benefits | | Facility Exit Costs (1) | | Advisor Services Total | | Total |
| Compensation and benefits | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | |
| Occupancy and equipment | | | | | | | | | | | | | | | | | | | | |
| | | | | |
|
|
|
|
|
|
(1) Excludes net income from periodic interest accruals and receipts of $ million for the three months ended March 31, 2024.
12.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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 condensed consolidated balance sheets.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| | $ | | | | $ | | | | $ | | | | $ | () | | (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, 2023 | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | |
Resale agreements (1) | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | (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 | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | | $ | | |
(1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets.
(2) Actual collateral was greater than or equal to the value of the related assets. At March 31, 2024 and December 31, 2023, 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 condensed consolidated balance sheets.
(4) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. Derivative assets and liabilities as of December 31, 2023 were less than $ thousand.
(5) At March 31, 2024 and December 31, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $ million and $ million, respectively. See Notes 4 and 11 for additional information.
(6) Included in other short-term borrowings in the condensed consolidated balance sheets. Actual collateral value was greater than or equal to the value of the related liabilities. At March 31, 2024 and December 31, 2023, the fair value of collateral pledged in connection with repurchase agreements was $ billion and $ billion, respectively. See Note 8 for additional information.
(7) Included in accrued expenses and other liabilities in the condensed 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 March 31, 2024 and December 31, 2023.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| | $ | | | | Fair value of 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 | | $ | | | | $ | | |
million and $ million at March 31, 2024 and December 31, 2023, respectively.
13.
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 similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in material differences in the amounts recorded.
Liabilities measured at fair value on a recurring basis include interest rate swaps, securities sold but not yet purchased, and repurchase liabilities related to client-held fractional shares of equities, ETFs, and other securities, which are included in other assets on the condensed consolidated balance sheets. The fair values of securities sold but not yet purchased are based on quoted market prices or other observable market data. The Company has elected the fair value option pursuant to ASC 825 Financial Instruments for the repurchase liabilities to match the measurement and accounting of the related client-held fractional shares. The fair values of the repurchase liabilities are based on quoted market prices or other observable market data consistent with the related client-held fractional shares. Unrealized gains and losses on client-held fractional shares offset the unrealized gains and losses on the corresponding repurchase liabilities, resulting in no impact to the condensed consolidated statements of income. The Company’s liabilities to repurchase client-held fractional shares do not have credit risk, and, as a result, the Company has not recognized any gains or losses in the condensed consolidated statements of income or comprehensive income attributable to instrument-specific credit risk for these repurchase liabilities. The repurchase liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2023 Form 10-K. The Company did not adjust prices received from the primary independent third-party pricing service at March 31, 2024 or December 31, 2023.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
| | $ | | | | $ | | | | $ | | | |
|
| 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 | | | | | | | | | | | |
|
|
|
| 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 | | | | | | | | | | | |
| Interest rate swaps | | | | | | | | | | | |
| 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 Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| | $ | | | | $ | | | | $ | | | |
| 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 | | | | | | | | | | | |
|
| 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 Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| | $ | | | | $ | | | | $ | | | | $ | | | 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 | | | | | | | | | | | | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| 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, 2023 | 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 | | | | | | | | | | | | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| 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 | | | | | | | | | | | | | | |
| |
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
14.
billion of common stock, replacing the previous and now terminated share repurchase authorization of up to $ billion of common stock. The share repurchase authorization does not have an expiration date. There were repurchases of CSC’s common stock during the three months ended March 31, 2024. CSC repurchased million shares of its common stock for $ billion during the three months ended March 31, 2023. As of March 31, 2024, approximately $ billion remained on the authorization.
There were repurchases of CSC’s preferred stock during the three months ended March 31, 2024. The Company repurchased depositary shares representing interests in Series F preferred stock for $ million, depositary shares representing interests in Series G preferred stock for $ million, depositary shares representing interests in Series H preferred stock for $ million, and depositary shares representing interests in Series I preferred stock for $ million on the open market during the three months ended March 31, 2023. The repurchase prices are inclusive of $ million of dividends accrued by the stockholders as of the repurchase date.
Share repurchases, net of issuances, are subject to a nondeductible excise tax which was recognized as a direct and incremental cost associated with these transactions.
| | | $ | | | $ | | | $ | | | 03/07/16 | | % | 06/01/21 | N/A | N/A | N/A |
| Series J | | | | | | | | | | | 03/30/21 | | % | 06/01/26 | N/A | N/A | N/A |
Fixed-to-floating rate/Fixed-rate reset: | | | | | | | | | |
| Series F | | | | | | | | | | | 10/31/17 | | % | 12/01/27 | 12/01/27 | M LIBOR(4) | | % |
Series G (2) | | | | | | | | | | | 04/30/20 | | % | 06/01/25 | 06/01/25 | -Year Treasury | | % |
Series H (3) | | | | | | | | | | | 12/11/20 | | % | 12/01/30 | 12/01/30 | -Year Treasury | | % |
Series I (2) | | | | | | | | | | | 03/18/21 | | % | 06/01/26 | 06/01/26 | -Year Treasury | | % |
Series K (2) | | | | | | | | | | | 03/04/22 | | % | 06/01/27 | 06/01/27 | -Year Treasury | | % |
Total preferred
stock | | | | | | $ | | | $ | | | | | | | | |
(1) Represented by depositary shares.
(2) The dividend rate for Series G, Series I, and Series K resets on each anniversary from the first reset date.
(3) The dividend rate for Series H resets on each anniversary from the first reset date.
(4) The reset/floating rate for Series F will be determined by the calculation agent prior to the commencement of the floating rate period using what the calculation agent determines to be the industry-accepted substitute or successor base rate to LIBOR.
N/A Not applicable.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
| | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | |
Series F (3) | | | | | | | | | | | | | | | | | | | | |
Series G (2) | | | | | | | | | | | | | | | | | | | | |
Series H (2) | | | | | | | | | | | | | | | | | | | | |
Series I (2) | | | | | | | | | | | | | | | | | | | | |
Series J (2) | | | | | | | | | | | | | | | | | | | | |
Series K (2) | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | | | | | | $ | | | | | | | | | | | | |
|
|
|
|
|
|
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ | | |
Other (1) | () | |
| Balance at March 31, 2024 | $ | () | |
(1) Tax expense (benefit) was less than $ thousand.
billion net of tax effect ($ billion pre-tax).
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
16.
| $ | | | $ | | | $ | | | 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.
million and million for the three months ended March 31, 2024 and 2023, respectively.
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
17.
| | | % | | 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, 2023 | | | | | | | | | | | | |
| 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 | | | | | | | | % |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| (2) | Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 are the following materials formatted in Inline XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. |
THE CHARLES SCHWAB CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | THE CHARLES SCHWAB CORPORATION |
| | | (Registrant) |
| | | |
| | | |
| | | |
| Date: | May 9, 2024 | | /s/ Peter Crawford |
| | | Peter Crawford |
| | | Managing Director and Chief Financial Officer |
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