UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)~~



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMarch 31, ~~2019~~2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 1-9700

THE CHARLES SCHWAB CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		94-3025021
(State or other jurisdiction of incorporation or organization)	~~94-3025021~~	(I.R.S. Employer Identification No.)

211 Main Street, San Francisco, CA94105

(Address of principal executive offices and zip code)

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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock – $.01 par value per share	SCHW	New York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 6.00% Non-Cumulative Preferred Stock, Series C	SCHW PrC	New York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 5.95% Non-Cumulative Preferred Stock, Series D	SCHW PrD	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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



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

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer☐ Smaller reporting company ☐

Emerging growth company ☐

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

Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock – $.01 par value per share~~	~~SCHW~~	~~New York Stock Exchange~~
~~Depositary Shares, each representing a 1/40~~^th ~~ownership interest in~~ ~~a share of 6.00% Non-Cumulative Preferred Stock, Series C~~	~~SCHW PrC~~	~~New York Stock Exchange~~
~~Depositary Shares, each representing a 1/40~~^th ~~ownership interest in~~ ~~a share of 5.95% Non-Cumulative Preferred Stock, Series D~~	~~SCHW PrD~~	~~New York Stock Exchange~~

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

~~1,335,009,396~~1,287,412,923 shares of $.01 par value Common Stock ~~Outstanding~~outstanding on April 30, ~~2019~~2020

THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q

For the Quarter EndedMarch 31, ~~2019~~2020

Index



Part I - Financial Information


	Item 1.	Condensed Consolidated Financial Statements (Unaudited):

		Statements of Income	1519
		Statements of Comprehensive Income	1620
		Balance Sheets	1721
		Statements of Stockholders’ Equity	1822
		Statements of Cash Flows	~~19-20~~23-24
		Notes	~~21-49~~25-54

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~1-13~~1-17

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1418

	Item 4.	Controls and Procedures	5055

Part II - Other Information

	Item 1.	Legal Proceedings	5056

	Item 1A.	Risk Factors	5056

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5056

	Item 3.	Defaults Upon Senior Securities	5257

	Item 4.	Mine Safety Disclosures	5257

	Item 5.	Other Information	5257

	Item 6.	Exhibits	5358

Signature			5459

Part I – FINANCIAL INFORMATION

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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

INTRODUCTION

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

~~Significant~~Principal business subsidiaries of CSC include the following:

~~Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;~~

~~Charles Schwab Bank (CSB), a federal savings bank; and~~


•	Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;


•	Charles Schwab Bank, SSB (CSB), our principal banking entity; and


•	Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds^®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

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

Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.

Schwab was founded on the belief that all Americans deserve access to a better investing experience. Although much has changed in the intervening years, our purpose remains clear – to champion every client’s goals with passion and integrity. Guided by this purpose and our vision of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.”

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

Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $45 trillion, which means the Company’s ~~$3.59~~$3.50 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.

This Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018 (2018~~2019 (2019 Form 10-K).

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

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “expand,” “aim,” “maintain,” and other similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are estimates based on the best judgment of Schwab’s senior management. These statements relate to, among other things:

Maximizing our market valuation and stockholder returns over time; our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I, Item 2);

~~Ongoing investments~~Impacts related to ~~drive efficiency and scale~~the coronavirus (COVID-19) pandemic (see Overview);

~~Capital returns to stockholders~~Focus on scale and efficiency and balancing near-term profitability with continued reinvestment for long-term growth (see Overview);

~~2019 capital expenditures~~Balance sheet management and Tier 1 Leverage Ratio operating objective (see ~~Results of Operations)~~Overview and Risk Management – Capital Management);

~~The expected impact of new accounting standards not yet adopted~~Pending transactions involving TD Ameritrade, USAA’s Investment Management Company (USAA-IMCO), and Wasmer, Schroeder & Company, LLC (Wasmer Schroeder), including anticipated closing, status and acquisition-related expenses; the funding for the USAA-IMCO transaction and entering into a referral agreement (see ~~New Accounting Standards~~Overview, Risk Management – Liquidity Risk, Capital Management, and Commitments and Contingencies in Part I, Item 1, Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 2)9);

Timing and ability to invest amounts currently held in excess reserves into higher yielding investments (see Results of Operations);

Net interest margin compression and net interest revenue (see Results of Operations);

2020 capital expenditures (see Results of Operations);

The phase-out of the use of LIBOR (see Risk Management);

Sources of capital (see Risk Management – Capital Management);


•	The expected impact of new accounting standards not yet adopted (see Summary of Significant Accounting Policiesin Item 1 – Note 2);

The likelihood of indemnification and guarantee payment obligations (see Commitments and Contingencies in Item 1 – Note ~~10)~~9); and

The impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 109 and Legal Proceedings in Part II, Item 1).

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

Important factors that may cause actual results to differ include, but are not limited to:

General market conditions, including the level of interest rates, equity valuations, and trading activity;

Our ability to attract and retain clients, develop trusted relationships, and grow client assets;

Client use of our ~~advice~~advisory solutions and other products and services;

The level of client assets, including cash balances;

Competitive pressure on pricing, including deposit rates;

Client sensitivity to interest rates;

Regulatory guidance;

Capital and liquidity needs and management;

Our ability to manage expenses;

Our ability to develop and launch new and enhanced products, services, and capabilities, as well as ~~implement~~enhance our infrastructure, in a timely and successful manner;

Our ability to monetize client assets;

The scope and duration of the COVID-19 pandemic and actions taken by governmental authorities to contain the spread of the virus and the economic impact;

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 ability of our platform to handle increased client volume;

Failure of the parties to satisfy the closing conditions in the agreements for the pending acquisitions of TD Ameritrade, USAA-IMCO and Wasmer Schroeder in a timely manner or at all, including stockholder and regulatory approvals, and the implementation of conversion or integration plans;

Disruptions to the parties’ businesses as a result of the announcement and pendency of the acquisitions;

The risk that expected revenue, expense and other synergies and benefits from the acquisitions may not be fully realized or may take longer to realize than expected;

Client cash allocations and cash sorting;

LIBOR trends;

Spreads on securities;

Mix of excess reserves to AFS securities;

The availability and terms of external financing;

The timing of campus expansion work and technology projects;

~~The effect of adverse~~Adverse developments in litigation or regulatory matters and ~~the extent of~~ any related charges; and

Potential breaches of contractual terms for which we have indemnification and guarantee obligations.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in Part I – Item 1A – Risk Factors in the ~~2018~~2019 Form 10-K.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

OVERVIEW

Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the first ~~quarters~~quarter of 2020 and 2019 ~~and 2018~~ are:


	Three Months Ended March 31,						Percent Change		Three Months Ended March 31,						Percent Change
	2019			2018			Percent Change		2020			2019			Percent Change
Client Metrics
Net new client assets (in billions) ⁽¹⁾	$	51.7		$	(18.8	)	N/M		$	73.2		$	51.7		42	%
Core net new client assets (in billions)	$	51.7		$	65.6		(21	)%	$	73.2		$	51.7		42	%
Client assets (in billions, at quarter end)	$	3,585.4		$	3,305.4		8	%	$	3,496.9		$	3,585.4		(2	)%
Average client assets (in billions)	$	3,465.7		$	3,382.1		2	%	$	3,918.8		$	3,465.7		13	%
New brokerage accounts (in thousands)	386			443			(13	)%	609			386			58	%
Active brokerage accounts (in thousands, at quarter end)	11,787			11,005			7	%	12,736			11,787			8	%
Assets receiving ongoing advisory services (in billions, at quarter end)	$	1,871.2		$	1,717.6		9	%	$	1,822.8		$	1,871.2		(3	)%
Client cash as a percentage of client assets (at quarter end)	11.3		%	11.0		%			15.1		%	11.3		%
Company Financial Metrics
Total net revenues	$	2,723		$	2,398		14	%	$	2,617		$	2,723		(4	)%
Total expenses excluding interest	1,459			1,396			5	%	1,570			1,459			8	%
Income before taxes on income	1,264			1,002			26	%	1,047			1,264			(17	)%
Taxes on income	300			219			37	%	252			300			(16	)%
Net income	$	964		$	783		23	%	795			964			(18	)%
Preferred stock dividends and other	39			37			5	%	38			39			(3	)%
Net income available to common stockholders	$	925		$	746		24	%	$	757		$	925		(18	)%
Earnings per common share — diluted	$	.69		$	.55		25	%	$	.58		$	.69		(16	)%
Net revenue growth from prior year	14		%	15		%			(4		)%	14		%
Pre-tax profit margin	46.4		%	41.8		%			40.0		%	46.4		%
Return on average common stockholders’ equity	20		%	18		%
Return on average common stockholders’ equity (annualized)									14		%	20		%
Expenses excluding interest as a percentage of average client assets (annualized)	0.17		%	0.17		%			0.16		%	0.17		%
Consolidated Tier 1 Leverage Ratio (at quarter end)	7.2		%	7.5		%			6.9		%	7.2		%

⁽¹⁾

The ~~three months ended March 31, 2018 includes outflows~~first quarter of ~~$84.4~~2020 saw an unprecedented environment as the COVID-19 pandemic upended daily life both world-wide and here in the U.S. Throughout this challenging time, the Company operated without significant client disruption. Schwab’s unwavering focus on continuing to earn our clients’ trust is made possible by the significant contributions of our employees, and the Company remains committed to serving our clients while protecting our employees’ wellbeing. In response to the pandemic, we have enabled approximately 95% of our employees to work remotely, and, in addition to other measures, we made a $1,000 payment to all non-officer employees to help them cover costs incurred due to the COVID-19 pandemic.

Core net new assets during the first quarter totaled $73.2 billion, up 42% from ~~certain mutual fund clearing services clients.~~

~~N/M Not meaningful.~~

~~Net income for~~ the first quarter of ~~2019 grew $181~~2019. Clients opened 609,000 new brokerage accounts, bringing total active brokerage accounts to 12.7 million at quarter end, up 8% from March 2019. The first quarter saw record trading activity, as daily average trades for the period reached 1.5 million, a 98% increase from the first quarter of 2019. Our ongoing and multi-year investments in our technology systems helped ensure we efficiently processed the quarter’s record trading activity and client interactions across our various communication channels.

Schwab’s first quarter financial results were shaped by this very challenging economic environment in which the decade-long bull market ended – with the S&P falling 20% during the period and the Federal Reserve cutting the target overnight rate 150 basis points to near zero in an emergency effort to help shield the economy amid pandemic concerns. Schwab’s first quarter net income totaled $795 million, a decrease of $169 million, or ~~23%~~18%, from the same period in 2018, driven primarily by growth in net interest revenue and disciplined expense management during a mixed geopolitical and economic environment. Total net revenues rose by $325 million, or 14%, primarily due to an increasefirst quarter of $418 million, or 33%, in net interest revenue resulting from improvement in our net interest margin following the Federal Reserve’s four rate hikes in 2018, as well as higher interest-earning assets stemming from the transfer of sweep money market funds to bank and broker-dealer sweep, and client cash allocations. Asset management and administration fees decreased $96 million, or 11%, mainly as a result of lower money market fund revenue as we executed on sweep transfers. Trading revenue declined by 8% as client trading activity remained strong, but below the volume seen2019. Diluted earnings per common share in the first quarter of ~~2018.~~

~~Total expenses excluding interest grew $63 million, or 5%, inclusive~~$0.58 represented a decrease of hiring to support the Company’s expanding client base and ongoing investments in projects to further drive efficiency and scale. Our disciplined expense management helped produce a 900 basis point gap between year-over-year revenue and expense growth, and a 46.4% pre-tax profit margin for16% from the first quarter of 2019.

~~Clients opened~~ ~~386,000~~ new brokerage accounts during the first quarter of 2019, and the number of active brokerage accounts totaled 11.8 million at March 31, 2019. Core net new assets gathered during the first quarter of 2019 were $51.7 billion, representing a 6% annualized growth rate, and total client assets grew 8% year-over-year to reach $3.59 trillion at quarter end.

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)

~~During~~Total net revenues in the quarter were $2.6 billion, a decrease of 4% from the first quarter of 2019. Net interest revenue declined 6% year-over-year to $1.6 billion, due to declines in interest rates across maturities in the quarter, which offset the impact of significantly higher levels of client cash balances held at our bank and broker-dealer subsidiaries. Asset management and administration fees of $827 million represented a 10% increase from the first quarter of 2019, largely due to our clients’ sustained utilization of advice solutions along with increased balances in purchased money market funds, helping offset sharp declines in equity market valuations. Trading revenue declined 13% year-over-year to $188 million due to our October 2019 pricing actions, partially offset by the significant increase in trading volume.

Total expenses excluding interest were $1.6 billion in the quarter, representing an increase of 8% from the first quarter of 2019. This total included approximately $27 million for the $1,000 payments to employees and other compensation and business continuity expenses relating to our pandemic response. Our first quarter expenses also included $37 million relating to our pending acquisitions described below. Our longstanding focus on scale and efficiency has helped us begin the year with a first quarter pre-tax profit margin of 40.0% and remains an important strength as we balance near-term profitability with continued ~~to emphasize effective~~reinvestment for long-term growth.

Regardless of the environment, our priorities for balance sheet management ~~transferring $11.6~~remain intact, including supporting our ongoing growth while also maintaining appropriate levels of liquidity and capital. With first quarter market volatility and lower interest rates driving a significant influx of client cash, total balance sheet assets increased by $77 billion ~~from sweep money market funds~~during the quarter to ~~bank~~$371 billion at March 31^st. Consistent with optimizing liquidity management during heightened volatility, we issued 5- and ~~broker-dealer sweep. In April 2019, we completed all remaining planned transfers. In January 2019, we announced a 31% increase~~10-year senior notes totaling $1.1 billion in ~~our dividend to $0.17 per common share, and a $4 billion stock repurchase authorization, which we expect to access in coming quarters to return excess capital to stockholders.~~March. We finished the first quarter ~~of 2019~~ with a Tier 1 Leverage Ratio of ~~7.2%~~6.9%, ~~and we achieved a 20% return~~consistent with our operating objective of 6.75%-7.00%. Return on average common stockholders’ equity was 14% for the ~~third consecutive quarter.~~

~~RESULTS OF OPERATIONS~~

~~Total Net Revenues~~

~~The following table presents a comparison~~first quarter of ~~revenue by category:~~

2019 2018
Three Months Ended March 31, Percent
Change Amount % of
Total Net
Revenues Amount % of
Total Net
Revenues
Net interest revenue
Interest revenue 41 % $ 1,998
73 % $ 1,421
59 %
Interest expense 101 % (317 ) (11 )% (158 ) (6 )%
Net interest revenue 33 % 1,681
62 % 1,263
53 %
Asset management and administration fees
Mutual funds, ETFs, and collective trust funds (CTFs) ⁽¹⁾
(18 )% 414
16 % 504
21 %
Advice solutions (1 )% 278
10 % 282
12 %
Other ⁽¹⁾
(3 )% 63
2 % 65
3 %
Asset management and administration fees (11 )% 755
28 % 851
36 %
Trading revenue
Commissions (14 )% 163
6 % 189
7 %
Principal transactions 83 % 22
1 % 12
1 %
Trading revenue (8 )% 185
7 % 201
8 %
Other 23 % 102
3 % 83
3 %
Total net revenues 14 % $ 2,723
100 % $ 2,398
100 %

⁽¹⁾ ~~Beginning~~2020, down from 20% in the first quarter of 2019, due to lower net income as well as a ~~change was made~~$3.9 billion increase in accumulated other comprehensive income (AOCI) due to ~~move CTFs from other asset management~~unrealized gains in our available for sale (AFS) investment securities portfolio.

Our pending acquisitions of TD Ameritrade and ~~administration fees. Prior periods have been recast~~assets of USAA-IMCO remain on track, with anticipated closing of USAA-IMCO expected in mid-2020, and TD Ameritrade in the second half of 2020. In late February, we entered into a definitive agreement to ~~reflect this change.~~acquire Wasmer Schroeder, which will add established strategies and new separately managed account offerings to our existing fixed income lineup. Our purchase of Wasmer Schroeder is also expected to close mid-2020, subject to satisfaction of customary closing conditions.

Subsequent Event

On April 30, 2020, the Company issued and sold 2,500,000 depositary shares, each representing a 1/100th ownership interest in a share of 5.375% fixed-rate reset non-cumulative perpetual preferred stock, Series G, $0.01 par value per share, with a liquidation preference of $100,000 per share (equivalent of $1,000 per depositary share). The net proceeds of the offering were approximately $2.47 billion, after deducting the underwriting discount and estimated offering expenses.

Current Regulatory Environment andOther Developments

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

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

RESULTS OF OPERATIONS

Total Net Revenues

The following tables present a comparison of revenue by category:



			2020					2019
Three Months Ended March 31,	Percent Change		Amount			% of Total Net Revenues		Amount			% of Total Net Revenues
Net interest revenue
Interest revenue	(15	)%	$	1,708		65	%	$	1,998		73	%
Interest expense	(57	)%	(136		)	(5	)%	(317		)	(11	)%
Net interest revenue	(6	)%	1,572			60	%	1,681			62	%
Asset management and administration fees
Mutual funds, ETFs, and collective trust funds (CTFs)	9	%	452			17	%	414			16	%
Advice solutions	12	%	312			12	%	278			10	%
Other	—		63			3	%	63			2	%
Asset management and administration fees	10	%	827			32	%	755			28	%
Trading revenue
Commissions	(31	)%	113			4	%	163			6	%
Principal transactions	(9	)%	20			1	%	22			1	%
Order flow revenue ⁽¹⁾	72	%	55			2	%	32			1	%
Trading revenue ⁽¹⁾	(13	)%	188			7	%	217			8	%
Other ⁽¹⁾	(57	)%	30			1	%	70			2	%
Total net revenues	(4	)%	$	2,617		100	%	$	2,723		100	%

⁽¹⁾ In the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.

Net Interest Revenue

~~The following table presents net interest revenue information corresponding to~~Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and ~~funding sources~~spreads at the time of origination or purchase, changes in interest rates on floating rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans.

Interest rates across maturities declined during the first three months of 2020 relative to the end of 2019. During the first quarter of 2020, the Federal Reserve cut the federal funds target overnight rate twice, for a total of 150 basis points to near zero; on the ~~condensed consolidated balance sheets:~~

2019 2018
Three Months Ended March 31, Average Balance Interest Revenue/ Expense Average Yield/ Rate Average Balance Interest Revenue/ Expense Average Yield/ Rate
Interest-earning assets
Cash and cash equivalents $ 24,983
$ 151
2.42 % $ 17,084
$ 66
1.53 %
Cash and investments segregated 13,533
83
2.44 % 13,969
48
1.37 %
Broker-related receivables 257
2
2.75 % 287
1
1.32 %
Receivables from brokerage clients 18,972
214
4.52 % 18,872
179
3.79 %
Available for sale securities⁽¹⁾
66,853
451
2.70 % 50,371
240
1.91 %
Held to maturity securities 132,427
916
2.77 % 121,412
721
2.38 %
Bank loans 16,578
149
3.61 % 16,456
130
3.19 %
Total interest-earning assets 273,603
1,966
2.88 % 238,451
1,385
2.33 %
Other interest revenue 32
36

Total interest-earning assets $ 273,603
$ 1,998
2.92 % $ 238,451
$ 1,421
2.39 %
Funding sources
Bank deposits $ 219,987
$ 226
0.42 % $ 176,988
$ 64
0.15 %
Payables to brokerage clients 22,184
23
0.43 % 22,469
7
0.14 %
Short-term borrowings ⁽²⁾
30
—
2.48 % 12,170
47
1.55 %
Long-term debt 6,845
62
3.61 % 4,392
37
3.37 %
Total interest-bearing liabilities 249,046
311
0.51 % 216,019
155
0.29 %
Non-interest-bearing funding sources 24,557
22,432

Other interest expense 6
3

Total funding sources $ 273,603
$ 317
0.46 % $ 238,451
$ 158
0.27 %
Net interest revenue $ 1,681
2.46 % $ 1,263
2.12 %

⁽¹⁾~~Amounts have been calculated based on amortized cost.~~

⁽²⁾~~Interest expense was less than $500,000~~longer-end of the curve, the 10-year Treasury rate declined by over 120 basis points. The changes in the ~~three months ended March 31, 2019.~~

~~Net interest revenue increased $418 million, or 33%,~~economic environment in the first quarter of 2020 resulting from the COVID-19 pandemic drove significantly higher levels of client cash sweep balances. Given the rapid accumulation of these balances, the Company initially placed a substantial amount in excess reserves at the Federal Reserve, which totaled $58.7 billion at March 31, 2020, up from $18.8 billion at the end of 2019. Similarly, from December 31, 2019 ~~compared~~ to ~~the same period in 2018, primarily due~~March 31, 2020, payables to ~~higher interest rates and~~brokerage clients increased $10.0 billion while margin loan balances decreased $2.3 billion, contributing to growth in ~~interest-earning assets.~~

~~Our net interest margin improved~~cash and investments segregated. Consistent with our existing asset-liability-management approach, we expect to ~~2.46% during~~invest the ~~first quarter of 2019, up from 2.12% a year earlier, as a result~~majority of the ~~Federal Reserve’s 2018 interest rate increases, partially offset by~~amounts currently held in excess reserves into higher ~~interest rates paid on bank deposits and other interest-bearing liabilities.~~yielding investments over the next several quarters.

Average interest earning assets were 15% higher during the first quarter of 2019 compared to the same period in 2018. This increase primarily reflects higher bank deposits due to transfers from sweep money market funds to bank sweep, and changes in client cash allocations, partially offset by client purchases of investment products. Federal Home Loan Bank (FHLB) advances were used to provide temporary funding for investments ahead of deposit growth during the first quarter of 2018; there were no FHLB borrowings in the first quarter of 2019.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

The following tables present net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:



	2020						2019
Three Months Ended March 31,	Average Balance		Interest Revenue/ Expense		Average Yield/Rate		Average Balance		Interest Revenue/ Expense		Average Yield/Rate
Interest-earning assets
Cash and cash equivalents	$	32,134	$	85	1.04	%	$	24,983	$	151	2.42	%
Cash and investments segregated	23,716		87		1.45	%	13,533		83		2.44	%
Broker-related receivables	730		2		1.35	%	257		2		2.75	%
Receivables from brokerage clients	19,151		168		3.47	%	18,972		214		4.52	%
Available for sale securities^{(1, 2)}	197,745		1,185		2.39	%	66,853		451		2.70	%
Held to maturity securities⁽²⁾	—		—		—		132,427		916		2.77	%
Bank loans	18,897		144		3.06	%	16,578		149		3.61	%
Total interest-earning assets	292,373		1,671		2.28	%	273,603		1,966		2.88	%
Other interest revenue			37						32
Total interest-earning assets	$	292,373	$	1,708	2.33	%	$	273,603	$	1,998	2.92	%
Funding sources
Bank deposits	$	227,523	$	57	0.10	%	$	219,987	$	226	0.42	%
Payables to brokerage clients	30,287		8		0.10	%	22,184		23		0.43	%
Short-term borrowings ⁽³⁾	3		—		1.07	%	30		—		2.48	%
Long-term debt	7,527		66		3.53	%	6,845		62		3.61	%
Total interest-bearing liabilities	265,340		131		0.20	%	249,046		311		0.51	%
Non-interest-bearing funding sources	27,033						24,557
Other interest expense			5						6
Total funding sources	$	292,373	$	136	0.19	%	$	273,603	$	317	0.46	%
Net interest revenue			$	1,572	2.14	%			$	1,681	2.46	%

⁽¹⁾Amounts have been calculated based on amortized cost.

⁽²⁾On January 1, 2020, the Company transferred all of its investment securities designated as held to maturity (HTM) to the AFS category, as described in Note 4.

⁽³⁾Interest revenue or expense was less than $500,000 in the period or periods presented.

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

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

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

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)

Asset Management and Administration Fees

The following ~~table presents~~tables present asset management and administration fees, average client assets, and average fee yields:


Three Months Ended March 31,	2019						2018						2020						2019
Three Months Ended March 31,	Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee
Schwab money market funds	$	158,268	$	122	0.31	%	$	156,362	$	182	0.47	%	$	203,772	$	152	0.30	%	$	158,268	$	122	0.31	%
Schwab equity and bond funds, ETFs, and CTFs ⁽¹⁾	244,314		70		0.12	%	212,519		74		0.14	%	290,808		76		0.11	%	244,314		70		0.12	%
Mutual Fund OneSource^® and other non-transaction fee funds	187,223		147		0.32	%	222,669		178		0.32	%	188,583		147		0.31	%	187,223		147		0.32	%
Other third-party mutual funds and ETFs ⁽²⁾⁽¹⁾	452,461		75		0.07	%	319,722		70		0.09	%	451,959		77		0.07	%	452,461		75		0.07	%
Total mutual funds, ETFs, and CTFs ^(1,3)	$	1,042,266	414		0.16	%	$	911,272	$	504	0.22	%
Advice solutions ⁽³⁾
Total mutual funds, ETFs, and CTFs ⁽²⁾													$	1,135,122	452		0.16	%	$	1,042,266	414		0.16	%
Advice solutions ⁽²⁾
Fee-based	$	230,394	278		0.49	%	$	224,760	282		0.51	%	$	263,256	312		0.48	%	$	230,394	278		0.49	%
Non-fee-based	66,756		—		—		59,762		—		—		71,229		—		—		66,756		—		—
Total advice solutions	$	297,150	278		0.38	%	$	284,522	282		0.40	%	$	334,485	312		0.38	%	$	297,150	278		0.38	%
Other balance-based fees^(1,4)	392,191		52		0.05	%	410,443		55		0.05	%
Other balance-based fees ⁽³⁾													432,847		54		0.05	%	392,191		52		0.05	%
Other ⁽⁵⁾⁽⁴⁾			11						10						9						11
Total asset management and administration fees			$	755					$	851					$	827					$	755

⁽¹⁾ Beginning in the ~~first~~fourth quarter of 2019, ~~a change was made to move CTFs from other balance-based fees. Prior periods have been recast to reflect this change.~~

⁽²⁾ ~~Includes~~ Schwab ETF OneSource™. was discontinued as a result of the elimination of online trading commissions for U.S. and Canadian-listed ETFs.

⁽³⁾⁽²⁾Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above.

⁽⁴⁾⁽³⁾ Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.

⁽⁵⁾⁽⁴⁾ Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

Asset management and administration fees ~~decreased~~increased by ~~$96~~$72 million, or ~~11%~~10%, in the first quarter of 2020 compared to the same period in ~~2018.~~2019. This ~~decrease~~increase was ~~due to lower sweep money market fund revenue as a result of transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource~~^®~~. Part of the decline was offset~~primarily driven by higher revenue from ~~growing asset~~increased balances in purchased money market funds and ~~other third-party mutual funds and ETFs.~~advice solutions in the first quarter of 2020 relative to the first quarter of 2019, helping offset declines in equity market valuations in the first quarter of 2020.

The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource^®and other non-transaction fee (NTF) funds. These funds generated 45% of the asset management and administration fees earned during the first ~~quarter~~quarters of ~~2019, compared to 51% for the same period in 2018:~~2020 and 2019:


	Schwab Money Market Funds					Schwab Equity and Bond Funds, ETFs, and CTFs ⁽¹⁾					Mutual Fund OneSource^® and Other NTF funds						Schwab Money Market Funds				Schwab Equity and Bond Funds, ETFs, and CTFs					Mutual Fund OneSource^® and Other NTF funds
Three Months Ended March 31,	2019		2018			2019		2018			2019			2018			2020		2019		2020			2019		2020			2019
Balance at beginning of period	$	153,472	$	163,650		$	209,471	$	196,784		$	180,532		$	225,202		$	200,826	$	153,472	$	286,275		$	209,471	$	202,068		$	180,532
Net inflows (outflows)	5,152		(19,122		)	7,248		8,785			(6,206		)	(4,929		)	1,989		5,152		6,531			7,248		(10,565		)	(6,206		)
Net market gains (losses) and other	1,045		467			24,168		(2,378		)	20,790			1,341			913		1,045		(57,183		)	24,168		(29,864		)	20,790
Balance at end of period	$	159,669	$	144,995		$	240,887	$	203,191		$	195,116		$	221,614		$	203,728	$	159,669	$	235,623		$	240,887	$	161,639		$	195,116

⁽¹⁾ ~~Beginning in the first quarter of 2019, CTFs are included in these balances. Prior periods have been recast to reflect this change.~~

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Trading Revenue

The following table presents trading revenue and ~~the~~ related ~~drivers:~~information:

Three Months Ended March 31, Percent
Change

2019 2018
Daily average revenue trades (DARTs) (in thousands) 418
462
(10 )%
Clients’ daily average trades (in thousands) 777
812
(4 )%
Number of trading days 61.0
61.0
—
Daily average revenue per revenue trade $ 7.19
$ 7.24
(1 )%
Trading revenue $ 185
$ 201
(8 )%



	Three Months Ended March 31,				Percent Change
	2020		2019		Percent Change
Trading revenue ⁽¹⁾	$	188	$	217	(13	)%
Clients’ daily average trades (DATs) (in thousands)	1,540		777		98	%
Number of trading days	62.0		61.0		2	%
Revenue per trade ⁽²⁾	$	1.97	$	4.58	(57	)%


Note:	Effective October 7, 2019, CS&Co eliminated online trade commissions for U.S. and Canadian-listed stocks and ETFs, as well as the base charge on options.


⁽¹⁾	In the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.


⁽²⁾	Revenue per trade is calculated as trading revenue divided by DATs multiplied by the number of trading days.

~~DART volumes~~Trading revenue decreased ~~10%~~$29 million, or 13%, in the first quarter of ~~2019~~2020 compared to the same period in ~~2018, while~~2019, due primarily to our 2019 pricing actions, which more than offset a significant increase in clients’ daily average trades and higher order flow revenue ~~per~~amid heightened market volatility. Order flow revenue ~~trade remained relatively consistent. This led~~was $55 million and $32 million during the first quarters of 2020 and 2019, respectively. The increase in order flow revenue during the first quarter of 2020 was due to a ~~decrease in trading revenue~~higher volume of ~~$16 million, or 8%.~~trades.

Other Revenue

Other revenue includes ~~order flow revenue, other~~certain service fees, software fees, ~~from our portfolio management solutions,~~ exchange processing fees, and non-recurring gains. Other revenue ~~increased $19~~decreased $40 million, or ~~23%~~57%, in the first quarter of ~~2019~~2020 compared to the same period in ~~2018~~2019. This decrease was primarily ~~due to~~driven by a gain recognized in the first quarter of 2019 from the assignment of leased office ~~space. Order flow revenue was $32 million and $38 million during~~space, as well as an increase in the allowance for credit losses on bank loans in the first ~~quarters~~quarter of ~~2019 and 2018, respectively. This decrease was primarily due to lower volume of trades.~~2020.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Total Expenses Excluding Interest

The following table shows a comparison of expenses excluding interest:


	Three Months Ended March 31,						Percent Change		Three Months Ended March 31,						Percent Change
	2019			2018			Percent Change		2020			2019			Percent Change
Compensation and benefits
Salaries and wages	$	476		$	411		16	%	$	502		$	476		5	%
Incentive compensation	216			212			2	%	227			216			5	%
Employee benefits and other	158			147			7	%	168			158			6	%
Total compensation and benefits	$	850		$	770		10	%	$	897		$	850		6	%
Professional services	170			156			9	%	182			170			7	%
Occupancy and equipment	131			122			7	%	142			131			8	%
Advertising and market development	69			73			(5	)%	67			69			(3	)%
Communications	62			62			—		75			62			21	%
Depreciation and amortization	83			73			14	%	96			83			16	%
Regulatory fees and assessments	32			51			(37	)%	34			32			6	%
Other	62			89			(30	)%	77			62			24	%
Total expenses excluding interest	$	1,459		$	1,396		5	%	$	1,570		$	1,459		8	%
Expenses as a percentage of total net revenues
Compensation and benefits	31		%	32		%			34		%	31		%
Advertising and market development	3		%	3		%			3		%	3		%
Full-time equivalent employees (in thousands)
At quarter end	20.0			18.2			10	%	20.2			20.0			1	%
Average	19.9			18.0			11	%	20.0			19.9			1	%

Total compensation and benefits increased in the first quarter of ~~2019~~2020 compared to the same period in ~~2018, primarily due to~~2019, reflecting annual merit increases and an increase in employee headcount to support our expanding client base.

The increase was also due to the Company’s payment of $1,000 to all non-officer employees in March 2020 to help them cover costs incurred due to the COVID-19 pandemic.

Professional services expense increased in the first quarter of ~~2019~~2020 compared to the same period in ~~2018,~~2019, primarily due to expenses relating to pending acquisitions and overall growth in the ~~business and investments in projects to further drive efficiency and scale.~~business.

Occupancy and equipment expense increased in the first quarter of ~~2019~~2020 compared to the same period in ~~2018,~~2019, primarily due to an increase in ~~software maintenance expenses and additional licenses~~technology equipment costs associated with higher customer trade volumes.

Communications expense increased in the first quarter of 2020 compared to ~~support~~the same period in 2019, primarily due to higher customer trade volumes as well as overall growth in ~~the business.~~our business and client base.

Depreciation and amortization expenses grew in the first quarter of ~~2019~~2020 compared to the same period in ~~2018,~~2019, primarily due to higher depreciation of buildings and equipment related to expansion of our campuses in the U.S. in 2019 and 2020, as well as higher amortization of purchased and internally developed software associated with continued investments in software and technology enhancements.

~~Regulatory fees and assessments decreased~~Other expenses increased in the first quarter of ~~2019~~2020 compared to the same period in ~~2018,~~2019, primarily resulting from increases in processing fees and related expenses due to ~~a decrease in FDIC insurance assessments resulting from the elimination of the FDIC surcharge in the fourth quarter of 2018.~~higher customer trade volumes and market volatility, as well as expenses relating to pending acquisitions. These increases were partially offset by lower travel and entertainment expense.

~~Other expenses decreased~~Capital expenditures were $250 million and $181 million in the first quarter of ~~2019 compared to the same period in 2018, primarily due to lower bad debt expense.~~

~~Capital expenditures were $181 million~~2020 and ~~$135 million in the first quarters of~~ 2019, ~~and 2018,~~ respectively. The increase in capital expenditures from the prior year was primarily due to higher capitalized software costs, partially offset by lower building expansion in 2020 relative to the ~~expansion~~first quarter of ~~our campuses in~~2019. Excluding any potential impact of the ~~U.S. We~~pending acquisition of TD Ameritrade, we anticipate capital expenditures for full-year ~~2019 will reach~~2020 to be approximately ~~7-9%~~5-6% of total net revenues.

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)

Taxes on Income

Taxes on income were ~~$300~~$252 million and ~~$219~~$300 million for the first quarters of ~~2019~~2020 and ~~2018,~~2019, respectively, resulting in effective income tax rates on income before taxes of ~~23.7%~~24.1% and ~~21.9%~~23.7%, respectively. The increase in the effective tax rate in the first quarter of 2020 compared to the same period in the prior year was ~~primarily~~ due to a decrease in equity compensation ~~benefit~~tax deduction benefits and an increase in ~~the first quarter of 2019 compared to the same period in 2018, as well as~~nondeductible acquisition costs, partially offset by state-related tax benefits recognized during the first quarter of ~~2018.~~2020.

Segment Information

Financial information for our segments is presented in the following ~~table:~~tables:


	Investor Services						Advisor Services						Total						Investor Services						Advisor Services						Total
Three Months Ended March 31,	Percent Change		2019		2018		Percent Change		2019		2018		Percent Change		2019		2018		Percent Change		2020		2019		Percent Change		2020		2019		Percent Change		2020		2019
Net Revenues
Net interest revenue	25	%	$	1,195	$	957	59	%	$	486	$	306	33	%	$	1,681	$	1,263	(6	)%	$	1,128	$	1,195	(9	)%	$	444	$	486	(6	)%	$	1,572	$	1,681
Asset management and administration fees	(10	)%	533		593		(14	)%	222		258		(11	)%	755		851		13	%	600		533		2	%	227		222		10	%	827		755
Trading revenue(1)	(13	)%	111		127		—		74		74		(8	)%	185		201		(16	)%	119		141		(9	)%	69		76		(13	)%	188		217
Other(1)	13	%	72		64		58	%	30		19		23	%	102		83		(52	)%	20		42		(64	)%	10		28		(57	)%	30		70
Total net revenues	10	%	1,911		1,741		24	%	812		657		14	%	2,723		2,398		(2	)%	1,867		1,911		(8	)%	750		812		(4	)%	2,617		2,723
Expenses Excluding Interest	2	%	1,062		1,042		12	%	397		354		5	%	1,459		1,396		9	%	1,154		1,062		5	%	416		397		8	%	1,570		1,459
Income before taxes on income	21	%	$	849	$	699	37	%	$	415	$	303	26	%	$	1,264	$	1,002	(16	)%	$	713	$	849	(20	)%	$	334	$	415	(17	)%	$	1,047	$	1,264

Net New Client Assets (in billions)																			21	%	$	35.3	$	29.2	68	%	$	37.9	$	22.5	42	%	$	73.2	$	51.7

⁽¹⁾ In the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.

Investor Services

Total net revenues ~~grew~~decreased by ~~10%~~2% in the first quarter of ~~2019~~2020 compared to the same period in ~~2018,~~2019, primarily due to ~~an increase~~decreases in net interest revenue, trading revenue and other revenue, partially offset by ~~lower~~an increase in asset management and administration fees. Net interest revenue ~~increased~~decreased primarily due to ~~higher net interest margin and higher~~lower average investment yields, partially offset by growth in interest-earning assets. Trading revenue decreased primarily as a result of the Company’s 2019 pricing actions, partially offset by higher trading volume. The decrease in other revenue was primarily driven by a gain recognized in the first quarter of 2019 from the assignment of leased office space, as well as an increase in the allowance for credit losses on bank loans in the first quarter of 2020. Asset management and administration fees ~~decreased~~increased primarily due to ~~lower~~increased balances in purchased money market ~~fund revenue as a result of transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource~~^®.funds and advice solutions.

Expenses excluding interest increased by 2%9% in the first quarter of ~~2019~~2020 compared to the same period in ~~2018,~~2019, primarily due to higher compensation and benefits, professional services, depreciation and amortization, and other expenses. Compensation and benefits increased in the first quarter or 2020 due to annual merit increases and increased headcount to support our expanding client ~~base. This increase~~base, as well as the Company’s payment of $1,000 to all non-officer employees in ~~expense was partially offset by a decrease in FDIC insurance assessments~~March 2020 to help them cover costs incurred due to the ~~elimination of the FDIC surcharge~~COVID-19 pandemic. Professional services also increased, driven by expenses related to pending acquisitions and overall growth in the ~~fourth quarter of 2018~~business. Depreciation and ~~lower bad debt expense.~~

~~Advisor Services~~

~~Total net revenues grew by 24% in the first quarter of 2019 compared to the same period in 2018, primarily~~amortization increased due to ~~an increase~~higher depreciation of buildings and equipment related to our campus expansion, as well as higher amortization of purchased and internally developed software associated with continued investments in ~~net interest revenue,~~software and technology enhancements. Other expenses increased due to increased processing fees associated with higher customer trade volumes and expenses related to pending acquisitions, partially offset by lower ~~asset management~~travel and administration fees. Net interest revenue increased primarily due to higher net interest margin and higher interest-earning assets. Asset management and administration fees decreased primarily due to lower money market fund revenue as a result of transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource^®.entertainment expenses.

Expenses excluding interest increased by 12% in the first quarter of 2019 compared to the same period in 2018, primarily due to higher compensation and benefits due to increased headcount to support our expanding client base. This increase in expense was partially offset by lower bad debt expense and a decrease in FDIC insurance assessments due to the elimination of the FDIC surcharge in the fourth quarter of 2018.

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)

Advisor Services

Total net revenues decreased by 8% in the first quarter of 2020 compared to the same period in 2019, primarily due to decreases in net interest revenue, trading revenue, and other revenue, partially offset by an increase in asset management and administration fees. Net interest revenue decreased primarily due to lower average investment yields, partially offset by growth in interest-earning assets. Trading revenue decreased primarily as a result of the Company’s 2019 pricing actions, partially offset by higher trading volume. The decrease in other revenue was primarily driven by a gain recognized in the first quarter of 2019 from the assignment of leased office space. Asset management and administration fees increased primarily due to increased balances in purchased money market funds.

Expenses excluding interest increased by 5% in the first quarter of 2020 compared to the same period in 2019, primarily due to higher compensation and benefits expense as well as higher depreciation and amortization expense. Compensation and benefits increased in the first quarter of 2020 due to annual merit increases and increased headcount to support our expanding client base, as well as the Company’s payment of $1,000 to all non-officer employees in March 2020 to help them cover costs incurred due to the COVID-19 pandemic. Depreciation and amortization expense increased primarily due to higher depreciation of buildings and equipment related to our campus expansion, as well as higher amortization of internally developed software associated with continued investments in software and technology enhancements.

RISK MANAGEMENT

Schwab’s business activities expose us to a variety of risks, including operational, credit, market, liquidity, and compliance risks. The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational impact. For a discussion of our risk management programs, see Item 7 – Risk Management in the ~~2018~~2019 Form 10-K.

Net Interest Revenue Simulation

~~Schwab’s investment strategy is structured to produce an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall.~~ For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The ~~simulation includes~~simulations include all ~~interest-sensitive~~interest rate-sensitive assets and liabilities. Key ~~variables in~~assumptions include the ~~simulation include the~~projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, repricing of financial instruments, ~~prepayment,~~and reinvestment of matured or paid-down securities and ~~product pricing assumptions. The simulations involve assumptions that~~loans.

Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may reprice at different times or by different amounts, and the spread between short and long-term interest rates. Interest-earning assets primarily include investment securities, margin loans and bank loans. These assets are ~~inherently uncertain and, as a result, cannot precisely estimate the impact of~~sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment. Because we establish the rates paid on certain brokerage client cash balances and bank deposits and the rates charged on certain margin and bank loans, and control the composition of our investment securities, we have some ability to manage our net interest ~~revenue. Actual results may differ from simulated results due to balance growth or decline~~spread, depending on competitive factors and ~~the timing, magnitude, and frequency of~~market conditions.

Net interest ~~rate changes, as well as changes in market conditions and management strategies, including changes in asset and liability mix.~~

~~The simulations in the following table assume~~revenue sensitivity analysis assumes that the asset and liability structure of the consolidated balance ~~sheets~~sheet would not be changed as a result of the simulated changes in interest rates. As we actively manage the consolidated balance ~~sheets~~sheet and interest rate exposure, in all likelihood we would take steps to manage additional interest rate exposure that could result from changes in the interest rate environment. The following table shows the simulated net interest revenue change over the next 12 months beginning March 31, ~~2019~~2020 and December 31, ~~2018~~2019 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Increase of 100 basis points	5.1	%	4.4	%	15.8	%	4.8	%
Decrease of 100 basis points	(5.4	)%	(4.9	)%	(7.8	)%	(7.4	)%

The change in net interest revenue sensitivities as of March 31, 2020 reflects a significantly lower interest rate curve from the fourth quarter of 2019 due to the global economic impact from the COVID-19 pandemic. Higher short-term interest rates would

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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

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

Economic Value of Equity Simulation

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

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

Expected Phase-out of LIBOR

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

Liquidity Risk

Funding Sources

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

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, repurchase agreements, and cash provided by external financing.

To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments. For unanticipated liquidity needs, we also maintain a buffer of highly liquid investments, including U.S. Treasury ~~notes, is also maintained.~~securities.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

In addition to internal sources of liquidity, Schwab has access to external funding. The following table describes external debt facilities available at March 31, ~~2019:~~2020:


Description	Borrower	Outstanding		Available		Borrower	Outstanding		Available
Federal Home Loan Bank secured credit facility ⁽¹⁾	Banking subsidiaries	$	—	$	36,122	Banking subsidiaries	$	—	$	43,602
Federal Reserve discount window ⁽²⁾						Banking subsidiaries	—		8,169
Uncommitted, unsecured lines of credit with various external banks	CSC, CS&Co	—		1,432		CSC, CS&Co	—		1,642
Unsecured commercial paper ⁽²⁾	CSC	—		750
Unsecured commercial paper ⁽³⁾						CSC	—		750
Committed, unsecured credit facility with various external banks	CSC	—		750		CSC	—		750
Federal Reserve Bank discount window ⁽³⁾	Banking subsidiaries	—		8,446

⁽¹⁾Amounts available are dependent on the amount of ~~First Mortgages, HELOCs,~~first lien residential real estate mortgage loans (First Mortgages), home equity lines of credit (HELOCs), and the fair value of certain investment securities that are pledged as collateral.

⁽²⁾Amounts available are dependent on the fair value of certain investment securities that are pledged as collateral.

⁽³⁾ CSC has authorization from its Board of Directors to issue Commercial Paper Notes to not exceed $1.5 billion. Management has set a current limit not to exceed the amount of the committed, unsecured credit facility.

⁽³⁾~~Amounts available are dependent on the fair value of certain investment securities that are pledged as collateral.~~

CSC’s ratings for Commercial Paper Notes are P1 by Moody’s Investor Service (Moody’s), A1 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch). at March 31, 2020 and December 31, 2019.

~~The Company was~~CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities.

Liquidity Coverage Ratio

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


	Average for the Three Months Ended March 31, 2019			Average for the Three Months Ended March 31, 2020
	Average for the Three Months Ended March 31, 2019			Average for the Three Months Ended March 31, 2020
Total eligible high quality liquid assets	$	38,797		$	49,234
Net cash outflows ⁽¹⁾	$	34,992		$	43,212
LCR	111		%	114		%

⁽¹⁾~~This amount represents modified net cash outflows as defined by the LCR rule, which requires that high quality liquid assets (HQLA) cover 70% of total stressed net cash outflows.~~

~~As Schwab’s consolidated balance sheet assets were above $250 billion at December 31, 2018, Schwab became subject to the full LCR rule on April 1, 2019.~~

Borrowings

The following are details of the Senior Notes:



March 31, 2020	Par Outstanding		Maturity	Weighted Average Interest Rate	Moody’s	Standard & Poor’s	Fitch
Senior Notes	$	8,581	2020 - 2030	3.46%	A2	A	A

New Debt Issuances

The new debt issuances in 2020 were senior unsecured obligations with interest payable semi-annually. Additional details are as follows:

March 31, 2019 Par
Outstanding Maturity Weighted Average
Interest Rate Moody’s Standard
& Poor’s Fitch
Senior Notes $ 6,881
2020 - 2029 3.42% A2 A A



Issuance Date	Issuance Amount		Maturity Date	Interest Rate
3/24/2020	$	600	3/24/2025	4.200	%
3/24/2020	$	500	3/22/2030	4.625	%

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Acquisition of USAA-IMCO

We expect to utilize cash generated from operations to fund the $1.8 billion purchase of assets from USAA-IMCO. The transaction is expected to close in mid-2020, subject to satisfaction of closing conditions, including regulatory approvals and the implementation of conversion plans.

CAPITAL MANAGEMENT

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

As a result of the significant inflow of client cash in the first quarter of 2020, our consolidated Tier 1 Leverage Ratio declined from 7.3% at year-end 2019 to 6.9% at March 31, 2020. While we continue to maintain our long-term operating objective of 6.75%-7.00%, our Tier 1 Leverage Ratio is likely to decline further into the buffer we maintain between our long-term operating objective and our regulatory requirement. Moreover, our Tier 1 Leverage Ratio may remain below the level seen at March 31, 2020 in coming quarters before returning to our operating objective over time. We expect to continue managing our capital position in accordance with our policy and strategy described above and in further detail in the 2019 Form 10-K.

Regulatory Capital Requirements

CSC and CSB are subject to various capital requirements set by regulatory agencies as discussed in further detail in the 2019 Form 10-K and in Item 1 – Note 14. As of March 31, 2020, CSC and CSB are considered well capitalized.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

~~Regulatory Capital Requirements~~

CSC and CSB are subject to various capital requirements set by regulatory agencies as discussed in further detail in the 2018 Form 10-K and in Item 1 – Note 15. As of March 31, 2019, CSC and CSB are considered well capitalized.

The following table details CSC’s consolidated and CSB’s capital ratios as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


	March 31, 2019 ⁽¹⁾						December 31, 2018						March 31, 2020 ⁽¹⁾						December 31, 2019 ⁽¹⁾
	CSC			CSB			CSC			CSB			CSC			CSB			CSC			CSB
Total stockholders’ equity	$	21,625		$	15,744		$	20,670		$	15,615		$	26,270		$	18,862		$	21,745		$	14,832
Less:
Preferred stock	2,793			—			2,793			—			2,793			—			2,793			—
Common Equity Tier 1 Capital before regulatory adjustments	$	18,832		$	15,744		$	17,877		$	15,615		$	23,477		$	18,862		$	18,952		$	14,832
Less:
Goodwill, net of associated deferred tax liabilities	$	1,188		$	13		$	1,188		$	13		$	1,184		$	13		$	1,184		$	13
Other intangible assets, net of associated deferred tax liabilities	118			—			125			—			97			—			104			—
Deferred tax assets, net of valuation allowances and deferred tax liabilities	3			1			3			1			4			—			4			—
AOCI adjustment ⁽¹⁾	—			—			(252		)	(231		)
Accumulated other comprehensive income (AOCI) adjustment ⁽¹⁾													3,995			3,436			—			—
Common Equity Tier 1 Capital	$	17,523		$	15,730		$	16,813		$	15,832		$	18,197		$	15,413		$	17,660		$	14,819
Tier 1 Capital	$	20,316		$	15,730		$	19,606		$	15,832		$	20,990		$	15,413		$	20,453		$	14,819
Total Capital	20,338			15,751			19,628			15,853			21,023			15,445			20,472			14,837
Risk-Weighted Assets	88,362			76,114			95,441			80,513			99,039			78,082			90,512			71,521
Total Leverage Exposure ⁽¹⁾	287,713			229,292			N/A			N/A			310,299			228,916			286,813			216,582
Common Equity Tier 1 Capital/Risk-Weighted Assets	19.8		%	20.7		%	17.6		%	19.7		%	18.4		%	19.7		%	19.5		%	20.7		%
Tier 1 Capital/Risk-Weighted Assets	23.0		%	20.7		%	20.5		%	19.7		%	21.2		%	19.7		%	22.6		%	20.7		%
Total Capital/Risk-Weighted Assets	23.0		%	20.7		%	20.6		%	19.7		%	21.2		%	19.8		%	22.6		%	20.7		%
Tier 1 Leverage Ratio	7.2		%	7.0		%	7.1		%	7.2		%	6.9		%	6.9		%	7.3		%	7.1		%
Supplementary Leverage Ratio ⁽¹⁾	7.1		%	6.9		%	N/A			N/A			6.8		%	6.7		%	7.1		%	6.8		%

⁽¹⁾~~Beginning~~In the interagency regulatory capital and liquidity rules adopted in October 2019, Category III banking organizations such as CSC were given the ability to opt-out of the inclusion of AOCI in regulatory capital, and CSC made this opt-out election as of January 1, 2020. Therefore, AOCI is excluded from the amounts and ratios presented as of March 31, 2020. In 2019, CSC and CSB ~~are subject to the “advanced approaches” framework under the Basel III capital rule. As a result, we are now~~were required to include all components of ~~accumulated other comprehensive income (AOCI)~~AOCI in regulatory capital and report our supplementary leverage ratio, which is calculated as Tier 1 capital divided by total leverage exposure. Total leverage exposure includes all on-balance sheet assets and certain off-balance sheet exposures, including unused commitments. Prior to 2019, CSC and CSB elected to opt-out of the requirement to include most components of AOCI in Common Equity Tier 1 Capital;capital; the amounts and ratios for December 31, ~~2018~~2019 are presented on this basis.

~~N/A Not applicable.~~

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

~~Schwab’s primary~~As a broker-dealer, ~~subsidiary,~~ CS&Co is subject to regulatory requirements of the Uniform Net Capital Rule. At March 31, ~~2019,~~2020, CS&Co was in compliance with its net capital requirements.

In addition to the capital requirements above, Schwab’s subsidiaries are subject to other regulatory requirements intended to ensure financial soundness and liquidity. See Item 1 – Note 1514 for additional information on the components of stockholders’ equity and information on the capital requirements of significant subsidiaries.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Dividends

On January 30, ~~2019,~~2020, the Board of Directors of the Company declared a ~~four~~one cent, or ~~31%~~6%, increase in the quarterly cash dividend to ~~$.17~~$0.18 per common share.

Cash dividends paid and per share amounts for the first three months of ~~2019~~2020 and ~~2018~~2019 are as follows:


	2019				2018				2020				2019
Three Months Ended March 31,	Cash Paid		Per Share Amount		Cash Paid		Per Share Amount		Cash Paid		Per Share Amount		Cash Paid		Per Share Amount
Common Stock	$	228	$	.17	$	136	$	.10	$	233	$	0.18	$	228	$	0.17
Series A Preferred Stock ⁽¹⁾	14		35.00		14		35.00		14		35.00		14		35.00
Series C Preferred Stock ⁽²⁾	9		15.00		9		15.00		9		15.00		9		15.00
Series D Preferred Stock ⁽²⁾	11		14.88		11		14.88		11		14.88		11		14.88
Series E Preferred Stock ⁽³⁾	14		2,312.50		14		2,312.50		14		2,312.50		14		2,312.50
Series F Preferred Stock ⁽⁴⁾	—		—		N/A		N/A		—		—		—		—

⁽¹⁾Dividends paid semi-annually until February 1, 2022 and quarterly thereafter.

⁽²⁾Dividends paid quarterly.

⁽³⁾Dividends paid semi-annually until March 1, 2022 and quarterly thereafter.

⁽⁴⁾ Dividends paid semi-annually beginning on June 1, 2018 until December 1, 2027, and quarterly thereafter.

~~N/A Not applicable.~~

Share Repurchases

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

OTHER

Foreign ~~Holdings~~Exposure

At March 31, ~~2019,~~2020, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At March 31, ~~2019,~~2020, the fair value of these holdings totaled ~~$7.0~~$8.5 billion, with the top three exposures being to issuers and counterparties domiciled in France at ~~$2.0~~$5.6 billion, the Netherlands at $834 million, and Sweden at ~~$1.0 billion, and Canada at $0.8 billion.~~

$675 million. In addition, to the direct holdings in foreign companies and securities issued by foreign government agencies, Schwab has indirect exposure to foreign countries through its investments in CSIM money market funds (collectively, the Funds) resulting from brokerage clearing activities. Certain of the Funds’ positions include certificates of deposit, time deposits, commercial paper, and corporate debt securities issued by counterparties in foreign countries. Schwab had outstanding margin loans to foreign residents of ~~$631~~$909 million at March 31, ~~2019.~~2020.

Off-Balance Sheet Arrangements

Schwab enters into various off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of our clients. These arrangements include firm commitments to extend credit. Additionally, Schwab enters into guarantees and other similar arrangements in the ordinary course of business. For information on each of these arrangements, see Item 1 – Note 5, Note 6, Note 8, Note ~~10,~~9, and Note ~~11,~~10, and Item 8 – Note 14 in the ~~2018~~2019 Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the ~~2018~~2019 Form 10-K. There have been no changes to critical accounting estimates during the first three months of ~~2019.~~2020.

THE CHARLES SCHWAB CORPORATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Part I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Income

(In Millions, Except Per Share Amounts)

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Net Revenues
Interest revenue	$	1,708		$	1,998
Interest expense	(136		)	(317		)
Net interest revenue	1,572			1,681
Asset management and administration fees	827			755
Trading revenue ⁽¹⁾	188			217
Other ⁽¹⁾	30			70
Total net revenues	2,617			2,723
Expenses Excluding Interest
Compensation and benefits	897			850
Professional services	182			170
Occupancy and equipment	142			131
Advertising and market development	67			69
Communications	75			62
Depreciation and amortization	96			83
Regulatory fees and assessments	34			32
Other	77			62
Total expenses excluding interest	1,570			1,459
Income before taxes on income	1,047			1,264
Taxes on income	252			300
Net Income	795			964
Preferred stock dividends and other ⁽²⁾	38			39
Net Income Available to Common Stockholders	$	757		$	925
Weighted-Average Common Shares Outstanding:
Basic	1,287			1,333
Diluted ⁽³⁾	1,294			1,344
Earnings Per Common Shares Outstanding:
Basic	$	.59		$	.69
Diluted ⁽³⁾	$	.58		$	.69

Three Months Ended March 31,
2019 2018
Net Revenues
Interest revenue    $ 1,998
$ 1,421
Interest expense    (317 ) (158 )
Net interest revenue    1,681
1,263
Asset management and administration fees    755
851
Trading revenue    185
201
Other    102
83
Total net revenues    2,723
2,398
Expenses Excluding Interest
Compensation and benefits    850
770
Professional services    170
156
Occupancy and equipment    131
122
Advertising and market development    69
73
Communications    62
62
Depreciation and amortization    83
73
Regulatory fees and assessments 32
51
Other    62
89
Total expenses excluding interest    1,459
1,396
Income before taxes on income    1,264
1,002
Taxes on income    300
219
Net Income    964
783
Preferred stock dividends and other ⁽¹⁾
   39
37
Net Income Available to Common Stockholders    $ 925
$ 746
Weighted-Average Common Shares Outstanding:
Basic    1,333
1,347
Diluted ⁽²⁾
1,344
1,362
Earnings Per Common Shares Outstanding:
Basic    $ .69
$ .55
Diluted ⁽²⁾
   $ .69
$ .55

⁽¹⁾ In the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.

⁽²⁾Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.

^{(2) (3)}Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 1619 million and 1116 million shares for the first quarters of 2020 and 2019, ~~and 2018,~~ respectively.

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,						Three Months Ended March 31,
	2019			2018			2020			2019
Net income	$	964		$	783		$	795		$	964
Other comprehensive income (loss), before tax:
Change in net unrealized gain (loss) on available for sale securities:
Net unrealized gain (loss)	227			(108		)	5,151			227
Other reclassifications included in other revenue	(1		)	—			—			(1		)
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale	12			9			—			12
Other comprehensive income (loss), before tax	238			(99		)	5,151			238
Income tax effect	(57		)	24			(1,244		)	(57		)
Other comprehensive income (loss), net of tax	181			(75		)	3,907			181
Comprehensive Income	$	1,145		$	708		$	4,702		$	1,145

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, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	32,558		$	27,938		$	68,458		$	29,345
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $6,861 at March 31, 2019 and $7,195 at December 31, 2018)	13,924			13,563
Receivables from brokers, dealers, and clearing organizations	616			553
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $17,044 at March 31, 2020 and $9,028 at December 31, 2019)							34,309			20,483
Receivables from brokerage clients — net	20,529			21,651			19,001			21,767
Other securities owned — at fair value	521			539
Available for sale securities	60,005			66,578
Available for sale securities (amortized cost of $215,873 and $61,155 at March 31, 2020 and December 31, 2019, respectively)							221,232			61,422
Held to maturity securities	132,420			144,009			—			134,706
Bank loans — net	16,510			16,609			19,521			18,212
Equipment, office facilities, and property — net	1,813			1,769			2,291			2,128
Goodwill	1,227			1,227			1,227			1,227
Other assets	2,692			2,046			4,740			4,715
Total assets	$	282,815		$	296,482		$	370,779		$	294,005
Liabilities and Stockholders’ Equity
Bank deposits	$	219,454		$	231,423		$	277,477		$	220,094
Payables to brokers, dealers, and clearing organizations	1,602			1,831
Payables to brokerage clients	29,701			32,726			49,251			39,220
Accrued expenses and other liabilities	3,604			2,954			9,259			5,516
Long-term debt	6,829			6,878			8,522			7,430
Total liabilities	261,190			275,812			344,509			272,260
Stockholders’ equity:
Preferred stock — $.01 par value per share; aggregate liquidation preference of $2,850	2,793			2,793			2,793			2,793
Common stock — 3 billion shares authorized; $.01 par value per share; 1,487,543,446 shares issued	15			15			15			15
Additional paid-in capital	4,548			4,499			4,714			4,656
Retained earnings	18,017			17,329			20,487			19,960
Treasury stock, at cost — 153,141,949 shares at March 31, 2019 and 155,116,695 shares at December 31, 2018	(3,677		)	(3,714		)
Treasury stock, at cost — 200,222,755 shares at March 31, 2020 and 201,818,100 shares at December 31, 2019							(5,734		)	(5,767		)
Accumulated other comprehensive income (loss)	(71		)	(252		)	3,995			88
Total stockholders’ equity	21,625			20,670			26,270			21,745
Total liabilities and stockholders’ equity	$	282,815		$	296,482		$	370,779		$	294,005

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 Additional Paid-in Capital Retained Earnings Treasury Stock,
at cost Total
Shares Amount
Balance at December 31, 2017 $ 2,793
1,488
$ 15
$ 4,353
$ 14,408
$ (2,892 ) $ (152 ) $ 18,525
Adoption of accounting standards —
—
—
—
200
—
(33 ) 167
Net income —
—
—
—
783
—
—
783
Other comprehensive income (loss), net of tax —
—
—
—
—
—
(75 ) (75 )
Dividends declared on preferred stock —
—
—
—
(34 ) —
—
(34 )
Dividends declared on common stock — $.10 per
share
—
—
—
—
(135 ) —
—
(135 )
Stock option exercises and other —
—
—
(12 ) —
61
—
49
Share-based compensation —
—
—
47
—
—
—
47
Other —
—
—
9
—
(6 ) —
3
Balance at March 31, 2018 $ 2,793
1,488
$ 15
$ 4,397
$ 15,222
$ (2,837 ) $ (260 ) $ 19,330

Balance at December 31, 2018 $ 2,793
1,488
$ 15
$ 4,499
$ 17,329
$ (3,714 ) $ (252 ) $ 20,670
Net income —
—
—
—
964
—
—
964
Other comprehensive income (loss), net of tax —
—
—
—
—
—
181
181
Dividends declared on preferred stock —
—
—
—
(34 ) —
—
(34 )
Dividends declared on common stock — $.17 per
share
—
—
—
—
(228 ) —
—
(228 )
Stock option exercises and other —
—
—
(14 ) —
40
—
26
Share-based compensation —
—
—
53
—
—
—
53
Other —
—
—
10
(14 ) (3 ) —
(7 )
Balance at March 31, 2019 $ 2,793
1,488
$ 15
$ 4,548
$ 18,017
$ (3,677 ) $ (71 ) $ 21,625



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

Balance at December 31, 2019	$	2,793	1,488	$	15	$	4,656		$	19,960		$	(5,767	)	$	88		$	21,745
Net income	—		—	—		—			795			—			—			795
Other comprehensive income (loss), net of tax	—		—	—		—			—			—			3,907			3,907
Dividends declared on preferred stock	—		—	—		—			(34		)	—			—			(34		)
Dividends declared on common stock — $.18 per share	—		—	—		—			(233		)	—			—			(233		)
Stock option exercises and other	—		—	—		(8		)	—			31			—			23
Share-based compensation	—		—	—		56			—			—			—			56
Other	—		—	—		10			(1		)	2			—			11
Balance at March 31, 2020	$	2,793	1,488	$	15	$	4,714		$	20,487		$	(5,734	)	$	3,995		$	26,270

See Notes to Condensed Consolidated Financial Statements.

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Cash Flows

(in Millions)

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Cash Flows from Operating Activities
Net income	$	795		$	964
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Share-based compensation	56			56
Depreciation and amortization	96			83
Premium amortization, net, on available for sale and held to maturity securities	190			68
Other	83			33
Net change in:
Investments segregated and on deposit for regulatory purposes	(3,810		)	(1,520		)
Receivables from brokerage clients	2,763			1,121
Other assets	187			(58		)
Payables to brokerage clients	10,031			(3,025		)
Accrued expenses and other liabilities	(273		)	(317		)
Net cash provided by (used for) operating activities	10,118			(2,595		)
Cash Flows from Investing Activities
Purchases of available for sale securities	(27,769		)	(1,132		)
Proceeds from sales of available for sale securities	69			10,652
Principal payments on available for sale securities	10,191			6,039
Purchases of held to maturity securities	—			(1,235		)
Principal payments on held to maturity securities	—			3,996
Net change in bank loans	(1,327		)	81
Purchases of equipment, office facilities, and property	(156		)	(139		)
Purchases of Federal Home Loan Bank stock	—			(2		)
Purchases of Federal Reserve stock	(182		)	—
Other investing activities	(22		)	25
Net cash provided by (used for) investing activities	(19,196		)	18,285
Cash Flows from Financing Activities
Net change in bank deposits	57,383			(11,969		)
Issuance of long-term debt	1,089			—
Dividends paid	(281		)	(276		)
Proceeds from stock options exercised	23			26
Other financing activities	(6		)	(10		)
Net cash provided by (used for) financing activities	58,208			(12,229		)
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted	49,130			3,461
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Period	45,577			38,227
Cash and Cash Equivalents, including Amounts Restricted at End of Period	$	94,707		$	41,688

Three Months Ended
March 31,
2019 2018
Cash Flows from Operating Activities

Net income $ 964
$ 783
Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Share-based compensation 56
50
Depreciation and amortization 83
73
Premium amortization, net, on available for sale and held to maturity securities 68
96
Other 33
36
Net change in:

Investments segregated and on deposit for regulatory purposes (1,520 ) 853
Receivables from brokers, dealers, and clearing organizations (61 ) (245 )
Receivables from brokerage clients 1,121
(595 )
Other securities owned 18
39
Other assets (15 ) (16 )
Payables to brokers, dealers, and clearing organizations (229 ) (325 )
Payables to brokerage clients (3,025 ) (155 )
Accrued expenses and other liabilities (88 ) (346 )
Net cash provided by (used for) operating activities (2,595 ) 248
Cash Flows from Investing Activities
Purchases of available for sale securities (1,132 ) (4,631 )
Proceeds from sales of available for sale securities 10,652
—
Principal payments on available for sale securities 6,039
2,695
Purchases of held to maturity securities (1,235 ) (8,235 )
Principal payments on held to maturity securities 3,996
3,548
Net increase in bank loans 81
74
Purchases of equipment, office facilities, and property (139 ) (122 )
Purchases of Federal Home Loan Bank stock (2 ) —
Proceeds from sales of Federal Home Loan Bank stock —
172
Other investing activities 25
(40 )
Net cash provided by (used for) investing activities 18,285
(6,539 )
Cash Flows from Financing Activities
Net change in bank deposits ⁽¹⁾
(11,969 ) 20,528
Net change in short-term borrowings —
(15,000 )
Repayment of long-term debt —
(627 )
Dividends paid (276 ) (184 )
Proceeds from stock options exercised 26
49
Other financing activities (10 ) (10 )
Net cash provided by (used for) financing activities (12,229 ) 4,756
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted 3,461
(1,535 )
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year 38,227
19,160
Cash and Cash Equivalents, including Amounts Restricted at End of Period $ 41,688
$ 17,625

Continued on following ~~page~~page.

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Cash Flows

(in Millions)

(Unaudited)

Continued from previous ~~page~~page.


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Supplemental Cash Flow Information
Non-cash investing activity:
Securities transferred from held to maturity to available for sale, at fair value					$	136,099	$	8,771
Securities purchased during the period but settled after period end	$	—	$	160	$	2,634	$	—
Additions of equipment, office facilities, and property					$	94	$	42
Non-cash financing activity:
Extinguishment of finance lease obligation through an assignment agreement	$	52	$	—	$	—	$	52
Other Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	336	$	169	$	169	$	336
Income taxes	$	23	$	3	$	20	$	23
Amounts included in the measurement of lease liabilities ⁽²⁾	$	32	N/A
Leased assets obtained in exchange for new operating lease liabilities ⁽²⁾	$	28	N/A
Amounts included in the measurement of lease liabilities					$	37	$	32
Leased assets obtained in exchange for new operating lease liabilities					$	64	$	28

	March 31, 2019		March 31, 2018		March 31, 2020		March 31, 2019
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet ⁽³⁾
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet ⁽¹⁾
Cash and cash equivalents	$	32,558	$	14,145	$	68,458	$	32,558
Restricted cash and cash equivalents amounts included in cash and investments segregated and on deposit for regulatory purposes	9,130		3,480		26,249		9,130
Total cash and cash equivalents, including amounts restricted shown in the statement of cash flows	$	41,688	$	17,625	$	94,707	$	41,688

⁽¹⁾ ~~Includes transfers from other sweep features to bank sweep of $10.2 billion and $24.9 billion for the three months ended March 31, 2019 and 2018, respectively.~~

⁽²⁾ ~~These amounts are presented beginning in 2019 as part of the adoption of ASU 2016-02. See Notes 2 and 9 for additional information related to this adoption.~~

⁽³⁾ For more information on the nature of restrictions on restricted cash and cash equivalents, see Note ~~15.~~14.

~~N/A Not applicable~~

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. Introduction and Basis of Presentation

~~Significant~~Principal business subsidiaries of CSC include the following:

~~Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;~~

~~Charles Schwab Bank (CSB), a federal savings bank; and~~


•	Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;


•	Charles Schwab Bank, SSB (CSB), our principal banking entity; and


•	Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds^®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

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

These unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the U.S. (GAAP), which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements and in the related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. While management makes its best judgment, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in Schwab’s ~~2018~~2019 Form 10-K.

Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation. Beginning in the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue in the condensed consolidated statements of income. Prior period amounts have been reclassified to reflect this change.

The significant accounting policies are included in Note 2 in the ~~2018~~2019 Form 10-K. There have been no significant changes to these accounting policies during the first three months of ~~2019,~~2020, except as described in Note 2 below.

2. Summary of Significant Accounting Policies

Cash and investments segregated and on deposit for regulatory purposes

Pursuant to Rule 15c3-3 of the Securities Exchange Act of 1934 and other applicable regulations, Schwab maintains cash or qualified securities in segregated reserve accounts for the exclusive benefit of clients. Cash and investments segregated and on deposit for regulatory purposes include resale agreements, which are collateralized by U.S. Government and agency securities. Resale agreements are accounted for as collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The Company obtains collateral with a market value equal to or in excess of the principal amountloaned and accrued interest under resale agreements. Collateral is valued daily by the Company, with additional collateral obtained to ensure full collateralization. Cash and investments segregated also include certificates of deposit and U.S. Government securities. Certificates of deposit and U.S. Government securities are recorded at fair value.

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

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

2. Receivables from brokerage clients

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

AFS investment securities

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

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

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

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

If it is determined that the Company intends to sell the impaired security or if it is more likely than not that the Company will be required to sell such security before any anticipated recovery of the amortized cost basis, any allowance for credit losses of that security will be written off and the amortized cost basis of the security will be written down to fair value with any incremental impairment recorded through earnings.

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

Securities borrowed and securities loaned

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

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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

Bank loans and related allowance for credit losses

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

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

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

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

Expected credit losses are forecast using a loan-level simulation of the delinquency status of the loans over the term of the loans. The simulation starts with the current relevant risk indicators, including the current delinquent status of each loan, the estimated current LTV ratio (Estimated Current LTV) of each loan, the term and structure of each loan, current key interest rates including U.S. Treasury and LIBOR rates, and borrower FICO scores. The more significant variables in the simulation include delinquency roll rates, loss severity, housing prices, interest rates, and unemployment rate. Delinquency roll rates (i.e., the rates at which loans transition through delinquency stages and ultimately result in a loss) are estimated from our historical loss experience adjusted for current trends and market information, which includes current and forecast conditions. Loss severity (i.e., loss given default) estimates are based on our historical loss experience and market trends, both current and forecast. The loss severity estimate used in the allowance for credit loss methodology for HELOC loans is higher than that used in the methodology for First Mortgages. Housing price trends are derived from historical home price indices and econometric forecasts of future home values. Factors affecting the home price index include housing inventory, unemployment, interest rates, and inflation expectations. Interest rate projections are based on the current term structure of interest rates and historical volatilities to project various possible future interest rate paths. The unemployment rate forecast is typically based on the recent consensus of regularly published economic surveys. Linear interpolation is applied to revert to long-term trends after the reasonable and supportable forecast period.

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

Management also estimates a liability for expected credit losses on the Company’s commitments to extend credit related to unused HELOCs and commitments to purchase first mortgages. See Note 9 for additional information on these commitments. The liability is calculated by applying the loss factors described above to the commitments expected to be funded and is included in accrued expenses and other liabilities on the condensed consolidated balance sheets. The liability for expected credit losses on these commitments and related activity were immaterial for all periods presented.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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

Nonaccrual and Nonperforming loans

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

Loan Charge-Offs

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

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

New Accounting Standards

Adoption of New Accounting Standards



Standard	Description	Date of Adoption	Effects on the Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) ~~2016-02, “Leases (Topic 842)”~~	Amends the accounting for leases by lessees and lessors. The primary change from the new guidance is the recognition of right-of-use (ROU) assets and lease liabilities by lessees for those leases classified as operating leases. Additional changes include accounting for lease origination and executory costs, required lessee reassessments during the lease term due to changes in circumstances, and expanded lease disclosures. Adoption provides for modified retrospective transition as of the beginning of the earliest comparative period presented in the financial statements in which the entity first applies the new standard or, optionally, through another transition method by which a cumulative-effect adjustment is recorded to retained earnings as of the beginning of the period of adoption. Certain transition relief is permitted if elected by the entity.	~~January 1, 2019~~	The Company adopted the new lease accounting guidance as of January 1, 2019 under the optional transition method provided electing not to recast its comparative periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The adoption resulted in a gross up of the consolidated balance sheet due to recognition of ROU assets and lease liabilities primarily related to the CS&Co leases of office space and branches. The amounts were based on the present value of our remaining operating lease payments. The Company’s ROU assets and related lease liabilities upon adoption were $596 million and $662 million, respectively. Further details on the impact of adoption are included below in this Note as well as in Note 9.
~~ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”~~	Shortens the amortization period for the premium on certain callable debt securities to the earliest call date. The amendments are applicable to any purchased individual debt security with an explicit and noncontingent call feature with a fixed price on a preset date. ASU 2017-08 does not impact the accounting for callable debt securities held at a discount. ~~Adoption requires modified retrospective transition as of the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings.~~	~~January 1, 2019~~	The Company adopted this guidance as of January 1, 2019 using the modified retrospective method. Adoption resulted in an immaterial cumulative-effect adjustment to retained earnings as of the date of adoption.
~~ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (ASU 2017-12)~~	This ASU amends hedge accounting guidance to better align hedge accounting with risk management activities, while reducing the complexity of applying and reporting on hedge accounting. In addition, for a closed pool of prepayable financial assets, entities will be able to hedge an amount that is not expected to be affected by prepayments, defaults and other events under the “last-of-layer” method. The guidance also permits a one-time reclassification of debt securities eligible to be hedged under the “last-of-layer” method from held to maturity (HTM) to available for sale (AFS) upon adoption.	~~January 1, 2019~~	The Company adopted this ASU on January 1, 2019. As part of its adoption, the Company made a one-time election to reclassify a portion of its HTM securities eligible to be hedged under the “last-of-layer” method to AFS. As of January 1, 2019, the securities reclassified had a fair value of $8.8 billion and resulted in a net of tax increase to AOCI of $19 million. The adoption of this standard had no other impact on the Company’s financial statements.

~~CHARLES SCHWAB CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)~~

~~(Unaudited)~~

~~New Accounting Standards Not Yet Adopted~~



~~Standard~~	~~Description~~	~~Required Date of Adoption~~	~~Effects on the Financial Statements or Other Significant Matters~~
~~ASU~~ 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”	Provides guidance for recognizing impairment of most debt instruments measured at amortized cost, including loans and HTM debt securities. Requires estimating current expected credit losses (CECL) over the remaining life of an instrument or a portfolio of instruments with similar risk characteristics based on relevant information about past events, current conditions, and reasonable forecasts. The initial estimate of, and the subsequent changes in, CECL will be recognized as credit loss expense through current earnings and will be reflected as an allowance for credit losses offsetting the carrying value of the financial instrument(s) on the balance sheet. Amends the ~~OTTI~~other-than-temporary impairment (OTTI) model for AFS debt securities by requiring the use of an allowance, rather than directly reducing the carrying value of the security, and eliminating consideration of the length of time such security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. Adoption requires modified retrospective transition through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the entity applies the new guidance except that a prospective transition is required for AFS debt securities for which an OTTI has been recognized prior to the effective date.	January 1, 2020 ~~(early adoption permitted)~~	The Company ~~continues to evaluate~~adopted CECL as of January 1, 2020 using the ~~impact~~modified retrospective method. The adoption of ~~this guidance on its financial statements. The Company expects that its~~CECL resulted in an immaterial increase in the Company’s allowance for credit losses ~~will~~and an increase ~~when CECL is adopted,~~in the liability for expected credit losses on commitments to extend credit, both primarily ~~due~~related to First Mortgages and HELOCs. The adoption impact was recorded as an ~~incremental allowance that will be recorded on its HTM corporate debt securities. The incremental allowance at adoption is expected~~adjustment to ~~be immaterial, but the extent~~retained earnings as of ~~the impact of adoption will depend on, among other things, the economic environment and the size and type of loan and securities portfolios held by the Company on~~ the date of adoption. A large portion of the securities in the Company’s portfolio will have zero expectation of credit losses based on industry views and regulatory guidance for U.S. Treasury and certain government agency-backed securities. Further, we expect to apply the practical expedient based on continuous collateral replenishment to the Company’s pledged asset lines (PALs) and margin loans. The Company has substantially developed its credit loss estimation methods for the securities in its portfolio that do not have zero expectation of credit losses, including corporate debt securities and structured products. Our focus during the remainder of 2019 is on continuing the development of policies and processes that will be required to implement CECL, testing and validation of credit loss estimation methods, and performance of CECL parallel runs.

~~CHARLES SCHWAB CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)~~

~~(Unaudited)~~




~~Standard~~	~~Description~~	~~Required Date of Adoption~~	~~Effects on the Financial Statements or Other Significant Matters~~
ASU 2018-15, “Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”	Aligns the criteria for capitalizing implementation costs for cloud computing arrangements (CCA) that are service contracts with internal-use software that is developed or purchased and CCAs that include an internal-use software license. This guidance requires that the capitalized implementation costs be recognized over the period of the CCA service contract, subject to impairment evaluation on an ongoing basis. The guidance prescribes the balance sheet, income statement, and statement of cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. Adoption provides for retrospective or prospective application to all implementation costs incurred after the date of adoption.	January 1, 2020 ~~(early~~	The Company adopted this guidance prospectively on January 1, 2020. As such, adoption ~~permitted)~~	had no impact on the Company’s financial statements. Historically, Schwab has expensed implementation costs as they are incurred for CCAs that are service contracts. Therefore, adopting this guidance will change the Company’s accounting treatment for these types of implementation ~~costs. The Company plans to adopt this guidance on a prospective basis and continues to evaluate the impacts of this guidance on its financial statements, including EPS.~~ costs going forward.

~~The cumulative effect of the changes made to our consolidated January 1, 2019 balance sheet for the adoption of~~ ~~ASU 2016-02, Leases (Topic 842)~~ ~~were as follows:~~

Balance at
December 31, 2018 Adjustments Due to ASU 2016-02 Balance at
January 1, 2019
Assets
Other assets ⁽¹⁾
$ 2,046
$ 588
$ 2,634
Liabilities
Accrued expenses and other liabilities ⁽²⁾
$ 2,954
$ 588
$ 3,542

⁽¹⁾The adoption adjustment is comprised of two parts: 1) an increase of $596 million for the recognition of the January 1, 2019 ROU asset and 2) an $8 million decrease related to prepaid rent and initial direct costs, which were reclassified to the ROU asset upon adoption of ASU 2016-02.

⁽²⁾The adoption adjustment is comprised of two parts: 1) an increase of $662 million for the recognition of the January 1, 2019 lease liability and 2) a $74 million decrease related to deferred rent and lease incentives, which were reclassified to the ROU asset upon adoption of ASU 2016-02.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

New Accounting Standards Not Yet Adopted



Standard	Description	Required Date of Adoption	Effects on the Financial Statements or Other Significant Matters
ASU 2020-4, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”	Provides optional expedients and exceptions for applying existing accounting guidance to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met, including simplifying accounting analyses for contract modifications. This guidance only applies to the items listed above if they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and only for a limited period of time. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions subject to the same accounting guidance that would have otherwise been applied. Once elected, the amendments must be applied prospectively.	N/A. Effective March 12, 2020 through December 31, 2022	The Company is evaluating the expedients and exceptions provided by this guidance. The elected amendments will be applied prospectively and the Company is currently evaluating the potential impacts on its 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)

3. Revenue Recognition

Disaggregated Revenue

Disaggregation of Schwab’s revenue by major source is as follows:



	Three Months Ended March 31,
	2020			2019
Net interest revenue
Interest revenue	$	1,708		$	1,998
Interest expense	(136		)	(317		)
Net interest revenue	1,572			1,681
Asset management and administration fees
Mutual funds, ETFs, and CTFs	452			414
Advice solutions	312			278
Other	63			63
Asset management and administration fees	827			755
Trading revenue
Commissions	113			163
Principal transactions	20			22
Order flow revenue ⁽¹⁾	55			32
Trading revenue ⁽¹⁾	188			217
Other ⁽¹⁾	30			70
Total net revenues	$	2,617		$	2,723

Three Months Ended
March 31,
2019 2018
Net interest revenue
Interest revenue $ 1,998
$ 1,421
Interest expense (317 ) (158 )
Net interest revenue 1,681
1,263
Asset management and administration fees

Mutual funds, ETFs, and collective trust funds (CTFs) ⁽¹⁾
414
504
Advice solutions 278
282
Other ⁽¹⁾
63
65
Asset management and administration fees 755
851
Trading revenue
Commissions 163
189
Principal transactions 22
12
Trading revenue 185
201
Other 102
83
Total net revenues $ 2,723
$ 2,398

⁽¹⁾ ~~Beginning in~~ In the first quarter of ~~2019, a change~~2020, order flow revenue was ~~made to move CTFs~~reclassified from other ~~asset management and administration fees.~~revenue to trading revenue. Prior ~~periods~~period amounts have been ~~recast~~reclassified to reflect this change.

For a summary of revenue provided by our reportable segments, see Note ~~16.~~15. The recognition of revenue is not impacted by the operating segment in which revenue is generated.

Contract balances

Receivables from contracts with customers within the scope of ~~Accounting Standards Codification (ASC)~~ASC 606, Revenue From Contracts With Customers (ASC 606) were ~~$315~~$588 million at March 31, ~~2019~~2020 and ~~$307~~$356 million at December 31, ~~2018~~2019 and were recorded in other assets on the condensed consolidated balance sheets. Schwab ~~does~~did not have any other significant contract assets or contract liability balances as of March 31, 2020 or December 31, 2019.

Unsatisfied performance obligations

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

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

4. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of ~~AFS and HTM~~the Company’s investment securities are as follows:


March 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2020									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale securities
U.S. agency mortgage-backed securities	$	31,010	$	154	$	72	$	31,092
U.S. Treasury securities	10,343		1		69		10,275
Asset-backed securities ⁽¹⁾	8,423		22		6		8,439
Corporate debt securities ⁽²⁾	6,499		37		4		6,532
Certificates of deposit	3,138		8		—		3,146
U.S. agency notes	250		—		1		249
Commercial paper ^(2,3)	209		—		—		209
Foreign government agency securities	50		—		—		50
Non-agency commercial mortgage-backed securities	13		—		—		13
Total available for sale securities	$	59,935	$	222	$	152	$	60,005
Held to maturity securities
U.S. agency mortgage-backed securities	$	106,532	$	536	$	1,146	$	105,922	$	173,812	$	6,007	$	224	$	179,595
Asset-backed securities ⁽¹⁾	18,465		67		27		18,505		23,077		49		645		22,481
Corporate debt securities ⁽²⁾	4,479		12		14		4,477		11,192		136		106		11,222
U.S. Treasury securities									3,616		48		—		3,664
U.S. state and municipal securities	1,313		69		—		1,382		1,493		96		11		1,578
Non-agency commercial mortgage-backed securities	1,145		10		5		1,150		1,215		16		5		1,226
U.S. Treasury securities	223		—		2		221
Certificates of deposit	200		1		—		201		1,000		3		5		998
Commercial paper ^(2,3)									397		—		1		396
Foreign government agency securities	50		—		1		49		50		1		—		51
Other	13		—		—		13		21		—		—		21
Total held to maturity securities	$	132,420	$	695	$	1,195	$	131,920
Total available for sale securities									$	215,873	$	6,356	$	997	$	221,232


December 31, 2018
December 31, 2019
Available for sale securities
U.S. agency mortgage-backed securities	$	25,594	$	44	$	82	$	25,556	$	45,964	$	312	$	121	$	46,155
Corporate debt securities ⁽²⁾									5,427		57		—		5,484
Asset-backed securities ⁽¹⁾									4,970		30		13		4,987
U.S. Treasury securities	18,410		—		108		18,302		3,387		3		6		3,384
Asset-backed securities ⁽¹⁾	10,086		14		15		10,085
Corporate debt securities ⁽²⁾	7,477		10		20		7,467
Certificates of deposit	3,682		4		1		3,685		1,000		4		—		1,004
U.S. agency notes	900		—		2		898
Commercial paper ^(2,3)	522		—		—		522		394		1		—		395
Foreign government agency securities	50		—		1		49
Non-agency commercial mortgage-backed securities	14		—		—		14		13		—		—		13
Total available for sale securities	$	66,735	$	72	$	229	$	66,578	$	61,155	$	407	$	140	$	61,422
Held to maturity securities
U.S. agency mortgage-backed securities	$	118,064	$	217	$	2,188	$	116,093	$	109,325	$	1,521	$	280	$	110,566
Asset-backed securities ⁽¹⁾	18,502		83		39		18,546		17,806		50		85		17,771
Corporate debt securities ⁽²⁾	4,477		2		47		4,432		4,661		57		—		4,718
U.S. state and municipal securities	1,327		24		3		1,348		1,301		103		—		1,404
Non-agency commercial mortgage-backed securities	1,156		3		17		1,142		1,119		22		—		1,141
U.S. Treasury securities	223		—		6		217		223		5		—		228
Certificates of deposit	200		1		—		201		200		—		—		200
Foreign government agency securities	50		—		1		49		50		—		—		50
Other	10		—		—		10		21		—		—		21
Total held to maturity securities	$	144,009	$	330	$	2,301	$	142,038	$	134,706	$	1,758	$	365	$	136,099

⁽¹⁾Approximately ~~39%~~42% and ~~36%~~43% of asset-backed securities held as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately ~~41%~~43% and 42% of the asset-backed securities held as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

⁽²⁾As of March 31, ~~2019~~2020 approximately 32% of the total AFS, and as of December 31, ~~2018,~~ 2019approximately ~~25% and 26%~~32%, ~~respectively,~~ of the total AFS and HTM investments in corporate debt securities and commercial paper were issued by institutions in the financial services industry. ~~Approximately 14% and 18% of the holdings of these securities were issued by institutions in the information technology industry as of March 31, 2019 and December 31, 2018, respectively.~~

⁽³⁾ Included in cash and cash equivalents on the condensed consolidated balance sheets, but excluded from this table is ~~$4.3~~$4.1 billion and ~~$4.9~~$2.5 billion of AFS commercial paper as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. These holdings have maturities of three months or less and an aggregate market value equal to amortized cost.

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

At March 31, 2020, our banking subsidiaries had pledged securities with a fair value of $35.7 billion as collateral to secure borrowing capacity on secured credit facilities with the Federal Home Loan Bank (FHLB) (see Note 8). Our banking

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

On January 1, 2019 the Company transferred certain U.S. agency mortgage-backed securities with a fair value of $8.8 billion from the HTM category to the AFS category as permitted by ASU 2017-12. For additional information on the transfer, see Notes 2 and 14.

At March 31, 2019, our banking subsidiaries had pledged securities with a fair value of $27.9 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 8). Certain banking subsidiaries also pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve ~~Bank~~ discount window, and had pledged securities with a fair value of ~~$8.4~~$8.2 billion as collateral for this facility at March 31, ~~2019. CSB~~2020. The Company also pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was ~~$916 million~~$1.1 billion at March 31, ~~2019.~~2020.

~~CHARLES SCHWAB CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)~~

~~(Unaudited)~~

Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, are as follows:


	Less than				12 months								Less than 12 months				12 months or longer				Total
	12 months				or longer				Total				Less than 12 months								Total
March 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2020													Fair Value		Unrealized Losses		12 months or longer	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale securities
Asset-backed securities													$	15,852	$	515	$	2,638	$	130	$	18,490	$	645
U.S. agency mortgage-backed securities	$	9,897	$	40	$	5,204	$	32	$	15,101	$	72	11,077		100		11,661		124		22,738		224
U.S. Treasury securities	1,139		1		8,509		68		9,648		69
Asset-backed securities	1,586		1		761		5		2,347		6
Corporate debt securities	802		2		544		2		1,346		4		4,835		106		—		—		4,835		106
U.S. agency notes	—		—		249		1		249		1
Certificates of deposit													795		5		—		—		795		5
Non-agency commercial mortgage-backed securities													397		5		12		—		409		5
Commercial paper													396		1		—		—		396		1
U.S. state and municipal securities													182		11		—		—		182		11
Total	$	13,424	$	44	$	15,267	$	108	$	28,691	$	152	$	33,534	$	743	$	14,311	$	254	$	47,845	$	997
Held to maturity securities
U.S. agency mortgage-backed securities	$	6,515	$	28	$	64,563	$	1,118	$	71,078	$	1,146
Asset-backed securities	7,285		25		376		2		7,661		27
Corporate debt securities	743		4		2,383		10		3,126		14
Non-agency commercial mortgage-backed securities	—		—		697		5		697		5
U.S. Treasury securities	—		—		221		2		221		2
Foreign government agency securities	—		—		50		1		50		1
Total	$	14,543	$	57	$	68,290	$	1,138	$	82,833	$	1,195
Total securities with unrealized losses ⁽¹⁾	$	27,967	$	101	$	83,557	$	1,246	$	111,524	$	1,347


December 31, 2018
December 31, 2019
Available for sale securities
U.S. agency mortgage-backed securities	$	9,529	$	32	$	4,257	$	50	$	13,786	$	82	$	16,023	$	94	$	6,592	$	27	$	22,615	$	121
Asset-backed securities													960		6		298		7		1,258		13
U.S. Treasury securities	4,951		6		7,037		102		11,988		108		510		—		1,243		6		1,753		6
Asset-backed securities	4,050		9		837		6		4,887		15
Corporate debt securities	3,561		19		254		1		3,815		20
Certificates of deposit	1,217		1		150		—		1,367		1
U.S. agency notes	195		—		304		2		499		2
Foreign government agency securities	—		—		49		1		49		1
Total	$	23,503	$	67	$	12,888	$	162	$	36,391	$	229	$	17,493	$	100	$	8,133	$	40	$	25,626	$	140
Held to maturity securities
U.S. agency mortgage-backed securities	$	29,263	$	222	$	56,435	$	1,966	$	85,698	$	2,188	$	16,183	$	100	$	18,910	$	180	$	35,093	$	280
Asset-backed securities	6,795		35		376		4		7,171		39		7,507		63		2,898		22		10,405		85
Corporate debt securities	2,909		29		1,066		18		3,975		47
U.S. state and municipal securities	77		2		18		1		95		3
Non-agency commercial mortgage-backed securities	283		2		632		15		915		17
U.S. Treasury securities	—		—		218		6		218		6
Foreign government agency securities	—		—		49		1		49		1
Total	$	39,327	$	290	$	58,794	$	2,011	$	98,121	$	2,301	$	23,690	$	163	$	21,808	$	202	$	45,498	$	365
Total securities with unrealized losses ⁽²⁾	$	62,830	$	357	$	71,682	$	2,173	$	134,512	$	2,530
Total securities with unrealized losses													$	41,183	$	263	$	29,941	$	242	$	71,124	$	505

⁽¹⁾~~The number of investment positions with unrealized losses totaled 412 for AFS securities and 1,302 for HTM securities.~~

⁽²⁾~~The number of investment positions with unrealized losses totaled 441 for AFS securities and 1,524 for HTM securities.~~

At March 31, ~~2019,~~2020, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises.

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

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

~~Management evaluates whether investment securities are other-than-temporarily impaired (OTTI) on a quarterly basis as described in~~Please refer to Note 2 for a description of management’s quarterly evaluation of AFS securities in unrealized loss positions. NaN amounts were recognized as credit loss expense and 0 securities were written down to fair value through earnings for the ~~2018 Form 10-K. No~~three months ended March 31, 2020. NaN of the Company’s AFS securities held as of March 31, 2020 had an allowance for credit losses. NaN amounts were recognized as OTTI in earnings or other comprehensive income during the ~~three months ended March 31, 2019 or the~~ year ended December 31, ~~2018. As of March 31,~~ 2019, and as of December 31, ~~2018,~~2019, Schwab did not hold any securities on which OTTI was previously recognized.

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

The maturities of AFS ~~and HTM~~ securities are as follows:



March 31, 2020	Within 1 year		After 1 year through 5 years		After 5 years through 10 years		After 10 years		Total
Available for sale securities
U.S. agency mortgage-backed securities	$	1,158	$	18,885	$	51,687	$	107,865	$	179,595
Asset-backed securities	43		7,818		6,091		8,529		22,481
Corporate debt securities	2,410		7,612		1,200		—		11,222
U.S. Treasury securities	2,834		830		—		—		3,664
U.S. state and municipal securities	—		98		603		877		1,578
Non-agency commercial mortgage-backed securities	—		—		—		1,226		1,226
Certificates of deposit	702		296		—		—		998
Commercial paper	396		—		—		—		396
Foreign government agency securities	—		51		—		—		51
Other	—		—		—		21		21
Total fair value	$	7,543	$	35,590	$	59,581	$	118,518	$	221,232
Total amortized cost	$	7,531	$	35,024	$	57,258	$	116,060	$	215,873

March 31, 2019 Within
1 year After 1 year
through
5 years After 5 years
through
10 years After
10 years Total
Available for sale securities
U.S. agency mortgage-backed securities $ 96
$ 2,434
$ 12,315
$ 16,247
$ 31,092
U.S. Treasury securities 6,289
3,986
—
—
10,275
Asset-backed securities 5
7,284
841
309
8,439
Corporate debt securities 1,471
5,061
—
—
6,532
Certificates of deposit 1,439
1,707
—
—
3,146
U.S. agency notes 249
—
—
—
249
Commercial paper 209
—
—
—
209
Foreign government agency securities —
50
—
—
50
Non-agency commercial mortgage-backed securities —
—
—
13
13
Total fair value $ 9,758
$ 20,522
$ 13,156
$ 16,569
$ 60,005
Total amortized cost $ 9,773
$ 20,516
$ 13,179
$ 16,467
$ 59,935
Held to maturity securities
U.S. agency mortgage-backed securities $ 205
$ 15,176
$ 32,437
$ 58,104
$ 105,922
Asset-backed securities —
2,362
8,896
7,247
18,505
Corporate debt securities 705
3,180
592
—
4,477
U.S. state and municipal securities —
92
345
945
1,382
Non-agency commercial mortgage-backed securities —
362
—
788
1,150
U.S. Treasury securities —
—
221
—
221
Certificates of deposit 201
—
—
—
201
Foreign government agency securities —
49
—
—
49
Other —
—
—
13
13
Total fair value $ 1,111
$ 21,221
$ 42,491
$ 67,097
$ 131,920
Total amortized cost $ 1,114
$ 21,212
$ 42,433
$ 67,661
$ 132,420

Proceeds and gross realized gains and losses from sales of AFS securities are as follows:



	Three Months Ended March 31,
	Three Months Ended March 31,
	2020		2019
Proceeds	$	69	$	10,652
Gross realized gains	—		3
Gross realized losses	—		2

Three Months Ended
March 31,

2019 2018
Proceeds $ 10,652
$ —
Gross realized gains 3
—
Gross realized losses 2
—

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

5. Bank Loans and Related Allowance for ~~Loan~~Credit Losses

The composition of bank loans and delinquency analysis by loan type is as follows:



March 31, 2020	Current		30-59 days past due		60-89 days past due		>90 days past due and other nonaccrual loans ⁽³⁾		Total past due and other nonaccrual loans		Total loans		Allowance for credit losses		Total bank loans – net
First Mortgages ^(1,2)	$	12,751	$	32	$	3	$	12	$	47	$	12,798	$	21	$	12,777
HELOCs ^(1,2)	1,055		2		1		9		12		1,067		4		1,063
Pledged asset lines	5,458		6		3		—		9		5,467		—		5,467
Other	216		—		—		2		2		218		4		214
Total bank loans	$	19,480	$	40	$	7	$	23	$	70	$	19,550	$	29	$	19,521

December 31, 2019
First Mortgages ^(1,2)	$	11,665	$	24	$	4	$	11	$	39	$	11,704	$	11	$	11,693
HELOCs ^(1,2)	1,105		2		1		9		12		1,117		4		1,113
Pledged asset lines	5,202		4		—		—		4		5,206		—		5,206
Other	201		—		—		2		2		203		3		200
Total bank loans	$	18,173	$	30	$	5	$	22	$	57	$	18,230	$	18	$	18,212

March 31, 2019 Current 30-59 days
past due 60-89 days
past due
>90 days past
due and other
nonaccrual loans ⁽³⁾
Total past due
and other
nonaccrual loans Total
loans Allowance
for loan
losses Total
bank
loans – net
First Mortgages ^(1,2)
$ 10,354
$ 22
$ —
$ 14
$ 36
$ 10,390
$ 14
$ 10,376
HELOCs ^(1,2)
1,380
4
2
8
14
1,394
5
1,389
Pledged asset lines 4,571
4
1
—
5
4,576
—
4,576
Other 171
—
—
—
—
171
2
169
Total bank loans $ 16,476
$ 30
$ 3
$ 22
$ 55
$ 16,531
$ 21
$ 16,510

December 31, 2018
First Mortgages ^(1,2)
$ 10,349
$ 21
$ 2
$ 12
$ 35
$ 10,384
$ 14
$ 10,370
HELOCs ^(1,2)
1,493
3
1
8
12
1,505
5
1,500
Pledged asset lines 4,558
3
—
—
3
4,561
—
4,561
Other 180
—
—
—
—
180
2
178
Total bank loans $ 16,580
$ 27
$ 3
$ 20
$ 50
$ 16,630
$ 21
$ 16,609

⁽¹⁾First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of ~~$72~~$77 million and ~~$73~~$74 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

⁽²⁾At March 31, ~~2019~~2020 and December 31, ~~2018, 47%~~2019, 45% of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole.

⁽³⁾There were no0 loans accruing interest that were contractually 90 days or more past due at March 31, ~~2019~~2020 or December 31, ~~2018.~~2019.

At March 31, ~~2019,~~2020, CSB had pledged ~~$10.9~~$11.9 billion of First Mortgages and HELOCs as collateral to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8).

Changes in the allowance for credit losses on bank loans were as follows:



	March 31, 2020								March 31, 2019
Three Months Ended	First Mortgages		HELOCs		Other		Total ⁽¹⁾		First Mortgages		HELOCs			Other		Total ⁽¹⁾
Balance at beginning of period	$	11	$	4	$	3	$	18	$	14	$	5		$	2	$	21
Adoption of ASU 2016-13	1		—		��		1		—		—			—		—
Charge-offs	—		—		—		—		—		—			—		—
Recoveries	—		—		—		—		—		1			—		1
Provision for credit losses	9		—		1		10		—		(1		)	—		(1		)
Balance at end of period	$	21	$	4	$	4	$	29	$	14	$	5		$	2	$	21

Note: Substantially all of the bank loans were collectively evaluated for impairment at ~~both March 31, 2019 and~~ December 31, ~~2018.~~2019.

~~Changes in the allowance for loan losses were as follows:~~

March 31, 2019 March 31, 2018
Three Months Ended First Mortgages HELOCs Other
Total ⁽¹⁾
First Mortgages HELOCs Other
Total ⁽¹⁾
Balance at beginning of period $ 14
$ 5
$ 2
$ 21
$ 16
$ 8
$ 2
$ 26
Charge-offs —
—
—
—
—
—
—
—
Recoveries —
1
—
1
—
—
—
—
Provision for loan losses —
(1 ) —
(1 ) 1
(1 ) 1
1
Balance at end of period $ 14
$ 5
$ 2
$ 21
$ 17
$ 7
$ 3
$ 27

⁽¹⁾All ~~pledged asset lines (PALs)~~PALs were fully collateralized by securities with fair values in excess of borrowings as of each period presented.

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

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

A summary of ~~impaired~~ bank loan-related nonperforming assets and troubled debt restructurings is as follows:


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Nonaccrual loans ⁽¹⁾	$	22	$	21	$	23	$	22
Other real estate owned ⁽²⁾	4		3		1		1
Total nonperforming assets	26		24		24		23
Troubled debt restructurings	3		4		2		2
Total impaired assets	$	29	$	28
Total nonperforming assets and troubled debt restructurings					$	26	$	25

⁽¹⁾ Nonaccrual loans include nonaccrual troubled debt restructurings.

⁽²⁾ Included in other assets on the condensed consolidated balance sheets.

Credit Quality

In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following:

Year of origination;

Borrower FICO scores at origination (Origination FICO);

Updated borrower FICO scores (Updated FICO);

Loan-to-value (LTV) ratios at origination (Origination LTV); and

Estimated current LTV ratios (Estimated Current LTV).

Borrowers’ FICO scores are provided by an independent third-party credit reporting service and updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The credit quality indicators of the Company’s bank loan portfolio are detailed below:

March 31, 2019 Balance Weighted Average
Updated FICO Percent of
Loans that are on
Nonaccrual Status
First Mortgages
Estimated Current LTV
<70%
$ 9,322
777
0.07 %
>70% – <90%
1,065
771
0.33 %
>90% – <100%
2
691
—
>100% 1
756
—
Total $ 10,390
776
0.09 %
HELOCs
Estimated Current LTV ⁽¹⁾

<70%
$ 1,302
770
0.18 %
>70% – <90%
83
752
0.94 %
>90% – <100%
6
739
0.49 %
>100% 3
695
5.98 %
Total $ 1,394
769
0.23 %
Pledged asset lines
Weighted-Average LTV ⁽¹⁾

=70% $ 4,576
765
—

December 31, 2018 Balance Weighted Average
Updated FICO Percent of
Loans that are on
Nonaccrual Status
First Mortgages
Estimated Current LTV
<70%
$ 9,396
776
0.04 %
>70% – <90%
985
769
0.41 %
>90% – <100%
2
717
—
>100% 1
753
—
Total $ 10,384
775
0.07 %
HELOCs
Estimated Current LTV ⁽¹⁾

<70%
$ 1,416
770
0.13 %
>70% – <90%
80
752
0.60 %
>90% – <100%
6
729
3.36 %
>100% 3
702
—
Total $ 1,505
769
0.17 %
Pledged asset lines
Weighted-Average LTV ⁽¹⁾

=70% $ 4,561
766
—



	First Mortgages Amortized Cost Basis by Origination Year
March 31, 2020	2020			2019			2018			2017			2016			pre-2016			Total First Mortgages			Revolving HELOCs amortized cost basis			HELOCs converted to term loans			Total HELOCs
Origination FICO
<620	$	—		$	—		$	—		$	—		$	—		$	3		$	3		$	—		$	—		$	—
620 – 679	11			14			6			14			19			20			84			2			4			6
680 – 739	222			480			193			278			271			369			1,813			108			100			208
≥740	1,719			3,498			886			1,447			1,689			1,659			10,898			482			371			853
Total	$	1,952		$	3,992		$	1,085		$	1,739		$	1,979		$	2,051		$	12,798		$	592		$	475		$	1,067
Origination LTV
≤70%	$	1,578		$	3,120		$	771		$	1,290		$	1,669		$	1,453		$	9,881		$	432		$	331		$	763
>70% – ≤90%	374			872			314			449			310			594			2,913			160			139			299
>90% – ≤100%	—			—			—			—			—			4			4			—			5			5
Total	$	1,952		$	3,992		$	1,085		$	1,739		$	1,979		$	2,051		$	12,798		$	592		$	475		$	1,067
Weighted Average Updated FICO
<620	$	4		$	5		$	3		$	5		$	4		$	24		$	45		$	5		$	14		$	19
620 – 679	14			49			23			23			21			54			184			14			21			35
680 – 739	192			385			135			184			177			264			1,337			84			75			159
≥740	1,742			3,553			924			1,527			1,777			1,709			11,232			489			365			854
Total	$	1,952		$	3,992		$	1,085		$	1,739		$	1,979		$	2,051		$	12,798		$	592		$	475		$	1,067
Estimated Current LTV ⁽¹⁾
≤70%	$	1,578		$	3,168		$	884		$	1,646		$	1,956		$	2,026		$	11,258		$	558		$	450		$	1,008
>70% – ≤90%	374			824			199			93			23			22			1,535			34			20			54
>90% – ≤100%	—			—			2			—			—			2			4			—			3			3
>100%	—			—			—			—			—			1			1			—			2			2
Total	$	1,952		$	3,992		$	1,085		$	1,739		$	1,979		$	2,051		$	12,798		$	592		$	475		$	1,067
Percent of Loans on Nonaccrual Status	0.03		%	0.03		%	0.03		%	0.05		%	0.08		%	0.34		%	0.09		%	0.14		%	1.69		%	0.84		%

⁽¹⁾Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.



March 31, 2020	Balance		Weighted Average Updated FICO	Percent of Loans on Nonaccrual Status
Pledged Asset Lines
Weighted-Average LTV ⁽¹⁾
=70%	$	5,467	769	—

⁽¹⁾Represents the LTV for the full line of credit (drawn and undrawn).

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

March 31, 2019 First Mortgages HELOCs
Year of origination
Pre-2015 $ 2,202
$ 1,036
2015 1,007
98
2016 2,539
90
2017 2,319
96
2018 1,941
68
2019 382
6
Total $ 10,390
$ 1,394
Origination FICO

<620 $ 4
$ —
620 – 679 80
7
680 – 739 1,629
267
>740
8,677
1,120
Total $ 10,390
$ 1,394
Origination LTV
<70%
$ 7,817
$ 987
>70% – <90%
2,568
401
>90% – <100%
5
6
Total $ 10,390
$ 1,394



	First Mortgages Amortized Cost Basis by Origination Year
December 31, 2019	2019			2018			2017			2016			pre-2016			Total First Mortgages			Revolving HELOCs amortized cost basis			HELOCs converted to term loans			Total HELOCs
Origination FICO
<620	$	—		$	—		$	—		$	—		$	3		$	3		$	—		$	—		$	—
620 – 679	12			6			14			20			25			77			1			4			5
680 – 739	478			220			304			290			421			1,713			114			105			219
≥740	3,512			1,058			1,593			1,839			1,909			9,911			496			397			893
Total	$	4,002		$	1,284		$	1,911		$	2,149		$	2,358		$	11,704		$	611		$	506		$	1,117
Origination LTV
≤70%	$	3,104		$	906		$	1,427		$	1,812		$	1,679		$	8,928		$	444		$	354		$	798
>70% – ≤90%	898			378			484			337			676			2,773			167			147			314
>90% – ≤100%	—			—			—			—			3			3			—			5			5
Total	$	4,002		$	1,284		$	1,911		$	2,149		$	2,358		$	11,704		$	611		$	506		$	1,117
Weighted Average Updated FICO
<620	$	5		$	4		$	5		$	3		$	25		$	42		$	6		$	15		$	21
620 – 679	45			36			32			26			68			207			18			22			40
680 – 739	474			153			213			199			307			1,346			92			80			172
≥740	3,478			1,091			1,661			1,921			1,958			10,109			495			389			884
Total	$	4,002		$	1,284		$	1,911		$	2,149		$	2,358		$	11,704		$	611		$	506		$	1,117
Estimated Current LTV ⁽¹⁾
≤70%	$	3,125		$	1,018		$	1,790		$	2,119		$	2,330		$	10,382		$	578		$	478		$	1,056
>70% – ≤90%	877			265			121			30			27			1,320			33			23			56
>90% – ≤100%	—			1			—			—			1			2			—			3			3
>100%	—			—			—			—			—			—			—			2			2
Total	$	4,002		$	1,284		$	1,911		$	2,149		$	2,358		$	11,704		$	611		$	506		$	1,117
Percent of Loans on Nonaccrual Status	0.04		%	0.04		%	0.04		%	0.08		%	0.25		%	0.09		%	0.19		%	1.57		%	0.83		%

⁽¹⁾Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.



December 31, 2019	Balance		Weighted Average Updated FICO	Percent of Loans on Nonaccrual Status
Pledged Asset Lines
Weighted-Average LTV⁽¹⁾
=70%	$	5,206	766	—

December 31, 2018 First Mortgages HELOCs
Year of origination
Pre-2015 $ 2,387
$ 1,140
2015 1,050
106
2016 2,606
95
2017 2,366
99
2018 1,975
65
Total $ 10,384
$ 1,505
Origination FICO

<620 $ 5
$ —
620 – 679 83
8
680 – 739 1,626
282
>740
8,670
1,215
Total $ 10,384
$ 1,505
Origination LTV

<70%
$ 7,815
$ 1,064
>70% – <90%
2,564
434
>90% – <100%
5
7
Total $ 10,384
$ 1,505
⁽¹⁾Represents the LTV for the full line of credit (drawn and undrawn).

At March 31, ~~2019,~~2020, First Mortgage loans of ~~$9.4~~$11.4 billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately ~~30%~~25% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately ~~65%~~72% of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates.

At March 31, 2020 and December 31, 2019, Schwab had $46 million of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the condensed consolidated balance sheets.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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

The following table presents HELOCs converted to amortizing loans during each period presented:



Three Months Ended	March 31, 2020		March 31, 2019
HELOCs converted to amortizing loans	$	11	$	25

The following table presents when current outstanding HELOCs will convert to amortizing loans:



March 31, 2020	Balance
Converted to an amortizing loan by period end	$	475
Within 1 year	43
> 1 year – 3 years	83
> 3 years – 5 years	138
> 5 years	328
Total	$	1,067

March 31, 2019 Balance
Converted to an amortizing loan by period end $ 640
Within 1 year 66
> 1 year – 3 years 98
> 3 years – 5 years 173
> 5 years 417
Total $ 1,394

At March 31, ~~2019, $1.1 billion~~2020, $867 million of the HELOC portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At March 31, ~~2019,~~2020, the borrowers on approximately ~~51%~~53% of HELOC loan balances outstanding only paid the minimum amount due.

6. Variable Interest Entities

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s Community Reinvestment ~~Act-related~~Act (CRA)-related investments and most of those are related to Low-Income Housing Tax Credit (LIHTC) investments. As part of CSB’s community reinvestment initiatives, CSB invests in funds that make equity investments in multifamily affordable housing ~~properties. CSB~~properties and receives tax credits and other tax benefits for these investments.

Aggregate assets, liabilities and maximum exposure to loss

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


	March 31, 2019						December 31, 2018						March 31, 2020						December 31, 2019
	Aggregate assets		Aggregate liabilities		Maximum exposure to loss		Aggregate assets		Aggregate liabilities		Maximum exposure to loss		Aggregate assets		Aggregate liabilities		Maximum exposure to loss		Aggregate assets		Aggregate liabilities		Maximum exposure to loss
LIHTC investments ⁽¹⁾	$	406	$	200	$	406	$	338	$	188	$	338	$	513	$	261	$	513	$	516	$	275	$	516
Other CRA investments ⁽²⁾	77		—		124		70		—		124		117		—		152		120		—		154
Total	$	483	$	200	$	530	$	408	$	188	$	462	$	630	$	261	$	665	$	636	$	275	$	670

⁽¹⁾Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets.

⁽²⁾ Other CRA investments are recorded using either the adjusted cost method, equity method, held for investment loans at amortized cost, or as ~~HTM~~AFS securities. Aggregate assets are included in ~~HTM~~AFS securities, bank loans – net, or other assets on the condensed consolidated balance sheets.

Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. During the three months ended March 31, 2019 and year ended December 31, 2018, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide. CSB’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and CSB expects to pay substantially all of these commitments between ~~2019~~2020 and ~~2022.~~2023. During the three months ended March 31, 2020 and year ended

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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

7. Bank Deposits

Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:



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

March 31, 2019 December 31, 2018
Interest-bearing deposits:
Deposits swept from brokerage accounts $ 200,337
$ 212,311
Checking 12,661
12,523
Savings and other 5,577
5,827
Total interest-bearing deposits 218,575
230,661
Non-interest-bearing deposits 879
762
Total bank deposits $ 219,454
$ 231,423

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

8. Borrowings

CSC’s Senior Notes are unsecured ~~obligations and rank equally with the other unsecured senior debt.~~obligations. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. The following table lists long-term debt by instrument outstanding as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019.



	Date of	Principal Amount Outstanding
	Issuance	March 31, 2020			December 31, 2019
Fixed-rate Senior Notes:
4.450% due July 22, 2020	07/22/10	$	700		$	700
3.250% due May 21, 2021	05/22/18	600			600
3.225% due September 1, 2022	08/29/12	256			256
2.650% due January 25, 2023	12/07/17	800			800
3.550% due February 1, 2024	10/31/18	500			500
3.000% due March 10, 2025	03/10/15	375			375
4.200% due March 24, 2025	03/24/20	600			—
3.850% due May 21, 2025	05/22/18	750			750
3.450% due February 13, 2026	11/13/15	350			350
3.200% due March 2, 2027	03/02/17	650			650
3.200% due January 25, 2028	12/07/17	700			700
4.000% due February 1, 2029	10/31/18	600			600
3.250% due May 22, 2029	05/22/19	600			600
4.625% due March 22, 2030	03/24/20	500			—
Floating-rate Senior Notes:
Three-month LIBOR + 0.32% due May 21, 2021	05/22/18	600			600
Total Senior Notes		8,581			7,481
Unamortized discount — net		(14		)	(14		)
Debt issuance costs		(45		)	(37		)
Total long-term debt		$	8,522		$	7,430

Date of Principal Amount Outstanding
Issuance March 31, 2019 December 31, 2018
Fixed-rate Senior Notes:
4.450% due July 22, 2020 07/22/10 $ 700
$ 700
3.250% due May 21, 2021 05/22/18 600
600
3.225% due September 1, 2022 08/29/12 256
256
2.650% due January 25, 2023 12/07/17 800
800
3.550% due February 1, 2024 10/31/18 500
500
3.000% due March 10, 2025 03/10/15 375
375
3.850% due May 21, 2025 05/22/18 750
750
3.450% due February 13, 2026 11/13/15 350
350
3.200% due March 2, 2027 03/02/17 650
650
3.200% due January 25, 2028 12/07/17 700
700
4.000% due February 1, 2029 10/31/18 600
600
Floating-rate Senior Notes:
Three-month LIBOR + 0.32% due May 21, 2021 05/22/18 600
600
Total Senior Notes 6,881
6,881
5.450% Finance lease obligation ⁽¹⁾
06/04/04 —
52
Unamortized discount — net (14 ) (15 )
Debt issuance costs (38 ) (40 )
Total long-term debt $ 6,829
$ 6,878

⁽¹⁾~~The finance lease obligation was extinguished through an assignment agreement during the first quarter of 2019.~~

~~CHARLES SCHWAB CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)~~

~~(Unaudited)~~

Annual maturities on long-term debt outstanding at March 31, ~~2019~~2020 are as follows:



	Maturities
2020	$	700
2021	1,200
2022	256
2023	800
2024	500
Thereafter	5,125
Total maturities	8,581
Unamortized discount — net	(14		)
Debt issuance costs	(45		)
Total long-term debt	$	8,522

Maturities
2019 $ —
2020 700
2021 1,200
2022 256
2023 800
Thereafter 3,925
Total maturities 6,881
Unamortized discount — net (14 )
Debt issuance costs (38 )
Total long-term debt $ 6,829

Short-term borrowings: Our banking subsidiaries maintain secured credit facilities with the FHLB. Amounts available under these facilities are dependent on the amount of our First Mortgages, HELOCs, and the fair value of certain of their investment

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

securities that are pledged as collateral. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the collateral pledged provided a total borrowing capacity of ~~$36.1~~$43.6 billion and ~~$35.5~~$34.2 billion, respectively, of which no0 amounts were outstanding at the end of either period.

As a condition of the FHLB borrowings, we are required to hold FHLB stock, which was recorded in other assets on the condensed consolidated balance sheets. The investment in FHLB was ~~$34~~$35 million at March 31, 2020 and December 31, 2019.

Additionally, our banking subsidiaries have access to funding through the Federal Reserve discount window. Amounts available are dependent upon the fair value of certain investment securities that are pledged as collateral. As of March 31, 2020 and December 31, 2019, the collateral pledged provided total borrowing capacity of $8.2 billion and ~~$32~~$8.5 billion, respectively, of which 0 amounts were outstanding at the end of either period.

During the first quarter of 2020, CSB and CSPB became members of the Federal Reserve. As a condition of our Federal Reserve membership, we are required to hold Federal Reserve stock, which totaled $182 million at ~~December~~March 31, ~~2018.~~2020.

9. ~~Leases~~

The Company has operating leases for corporate offices, branch locations, and server equipment and determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The lease liability may include payments that depend on a rate or index (such as the Consumer Price Index), measured using the rate or index at the commencement date. Payments that vary because of changes in facts or circumstances occurring after the commencement date are considered variable. These payments are not recognized as part of the lease liability and are expensed in the period incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We have lease agreements with lease and non-lease components. For the majority of our leases (real estate leases), the Company has elected the practical expedient to account for the lease and non-lease components as a single lease component. We have not elected the practical expedient for equipment leases and account for lease and non-lease components separately for those classes of leases.

As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include periods covered by options to extend when it is reasonably certain that we will exercise those options. The lease terms may also include periods covered by options to terminate when it is reasonably certain that we will not exercise that option.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company does not have any finance leases and had an immaterial amount of sublease income for all periods presented.

~~CHARLES SCHWAB CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)~~

~~(Unaudited)~~

~~The following table details the amounts and locations of lease assets and liabilities on the condensed consolidated balance sheet:~~

Leases Balance Sheet Classification March 31, 2019
Assets
Operating lease assets Other assets $ 597
Liabilities

Operating lease liabilities Accrued expenses and other liabilities $ 663

~~The components of lease expense are as follows:~~

Three Months Ended
Lease Cost March 31, 2019
Operating lease cost ⁽¹⁾
$ 33
Variable lease cost ⁽²⁾
$ 11

⁽¹⁾~~Includes short-term leases, which are immaterial.~~

⁽²⁾Includes payments that are entirely variable and amounts that represent the difference between payments based on an index or rate that would be reflected in the lease liability and what is actually incurred.

~~The following tables present supplemental lease information as of March 31, 2019:~~



~~Lease Term and Discount Rate~~
~~Weighted-average remaining lease term (years)~~	~~7.33~~
~~Weighted-average discount rate~~	~~3.51~~	%

Maturity of Lease Liabilities
Operating Leases ⁽¹⁾
2019 $ 92
2020 127
2021 104
2022 83
2023 76
After 2023 280
Total lease payments 762
Less: Interest 99
Present value of lease liabilities $ 663

⁽¹⁾Operating lease payments exclude $45 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases will commence between 2019 and 2020 with lease terms of five years to 16 years.

~~CHARLES SCHWAB CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)~~

~~(Unaudited)~~

In accordance with the disclosure requirements for our adoption of ASU 2016-02, the Company is presenting the operating leases commitment table as of December 31, 2018. The following table is unchanged from the disclosure in Note 14 in the 2018 Form 10-K:

Operating
Leases Subleases Net
2019 $ 131
$ 4
$ 127
2020 125
4
121
2021 101
4
97
2022 79
2
77
2023 72
1
71
Thereafter 282
—
282
Total $ 790
$ 15
$ 775

~~10.~~ Commitments and Contingencies

Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Quicken Loans, Inc. (Quicken Loans^®). Pursuant to the Program, Quicken Loans originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. CSB purchased First Mortgages of ~~$411 million~~$2.2 billion and ~~$513~~$411 million during the first quarters of ~~2019~~2020 and ~~2018,~~2019, respectively. CSB purchased HELOCs with commitments of ~~$62~~$107 million and ~~$107~~$62 million during the first quarters of 2020 and 2019, ~~and 2018,~~ respectively.

The Company’s commitments to extend credit on bank lines of credit and to purchase First Mortgages are as follows:



	March 31, 2020		December 31, 2019
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit	$	9,708	$	10,753
Commitments to purchase First Mortgage loans	3,095		1,521
Total	$	12,803	$	12,274

March 31, 2019 December 31, 2018
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit $ 11,424
$ 11,046
Commitments to purchase First Mortgage loans 390
268
Total $ 11,814
$ 11,314

Guarantees and indemnifications: Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We partially satisfy the margin requirements by arranging unsecured standby letter of credit agreements (LOCs), in favor of the Options Clearing Corporation, which are issued by several banks. At March 31, ~~2019,~~2020, the aggregate face amount of these LOCs totaled ~~$225~~$20 million. There were no0 funds drawn under any of these LOCs at March 31, ~~2019.~~2020. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral.

Schwab also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. Schwab’s liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. At March 31, 2020, amounts posted as collateral with such clearing houses and exchanges included $212 million of U.S. Treasury securities, which are included in other assets on the condensed consolidated balance sheet. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no0 liability has been recognized for these guarantees.

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

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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

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

Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement

~~CHARLES SCHWAB CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)~~

~~(Unaudited)~~

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 ~~is a certain matter~~are matters in which there is a reasonable possibility ~~that~~of 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.

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

TD Ameritrade Acquisition Litigation: Since March 10, 2020, six lawsuits have been filed by purported TD Ameritrade stockholders challenging the sufficiency of disclosures in the Form S-4 Registration Statement filed on that date with the SEC in connection with Schwab’s proposed acquisition of TD Ameritrade. All six lawsuits name the members of the TD Ameritrade board of directors as defendants. Two of the lawsuits also name Schwab as a defendant. In addition to ~~vigorously~~costs and fees, the lawsuits seek to enjoin the vote of TD Ameritrade stockholders and the closing of the acquisition; and in the event the transaction is consummated, to set aside the transaction and obtain rescissionary damages. The Company considers the complaints to be without merit and would expect to contest the ~~lawsuit.~~claims in due course.

Complaints filed are as follows: Kent v. TD Ameritrade Holding Corporation et al., a putative class action filed March 18, 2020 in U.S. District Court for the District of Delaware (Schwab entities named); Stein v. TD Ameritrade Holding Corporation et al., filed March 23, 2020 in U.S. District Court for the District of Delaware; Roth v. TD Ameritrade Holding Corporation et al., filed March 30, 2020 in United States District Court for the District of New Jersey; Litwin v. TD Ameritrade Holding Corporation et al., filed April 2, 2020 in U.S. District Court for the District of New Jersey; Bernstein v. TD Ameritrade Holding Corporation et al., a putative class action filed April 6, 2020 in U.S. District Court for the District of New Jersey (CSC named); and Garrison v. TD Ameritrade Holding Corporation et al., filed April 6, 2020 in U.S District Court for the Southern District of New York.

~~11.~~

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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

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

Securities lending: Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was ~~$281~~$73 million and ~~$99~~$719 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. ~~All~~Most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to ~~us and is~~us. Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The following table presents information about our resale agreements and securities lending activity depicting the potential effect of rights of setoff between these recognized assets and recognized ~~liabilities at March 31, 2019 and December 31, 2018:~~liabilities.


							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets									Gross Assets/ Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets			Net Amounts Presented in the Condensed Consolidated Balance Sheets		Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets							Net Amount
	Gross Assets/ Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in the Condensed Consolidated Balance Sheets		Counterparty Offsetting			Collateral				Net Amount		Gross Assets/ Liabilities				Counterparty Offsetting			Collateral							Net Amount
March 31, 2019
March 31, 2020
Assets
Resale agreements ⁽¹⁾	$	6,861	$	—	$	6,861	$	—		$	(6,861	)	⁽²⁾	$	—	$	17,044	$	—		$	17,044	$	—		$	(17,044	)	⁽²⁾	$	—
Securities borrowed ⁽³⁾	287		—		287		(287		)	—				—		78		—			78		(71		)	(6		)		1
Total	$	7,148	$	—	$	7,148	$	(287	)	$	(6,861	)		$	—	$	17,122	$	—		$	17,122	$	(71	)	$	(17,050	)		$	1
Liabilities
Securities loaned ^(4,5)	$	1,443	$	—	$	1,443	$	(287	)	$	(1,058	)		$	98	$	1,335	$	—		$	1,335	$	(71	)	$	(1,106	)		$	158
Total	$	1,443	$	—	$	1,443	$	(287	)	$	(1,058	)		$	98	$	1,335	$	—		$	1,335	$	(71	)	$	(1,106	)		$	158

December 31, 2018
December 31, 2019
Assets
Resale agreements ⁽¹⁾	$	7,195	$	—	$	7,195	$	—		$	(7,195	)	⁽²⁾	$	—	$	9,028	$	—		$	9,028	$	—		$	(9,028	)	⁽²⁾	$	—
Securities borrowed ⁽³⁾	101		—		101		(98		)	(3		)		—		735		—			735		(730		)	(5		)		—
Total	$	7,296	$	—	$	7,296	$	(98	)	$	(7,198	)		$	—	$	9,763	$	—		$	9,763	$	(730	)	$	(9,033	)		$	—
Liabilities
Securities loaned ^(4,5)	$	1,184	$	—	$	1,184	$	(98	)	$	(975	)		$	111	$	1,251	$	—		$	1,251	$	(730	)	$	(445	)		$	76
Total	$	1,184	$	—	$	1,184	$	(98	)	$	(975	)		$	111	$	1,251	$	—		$	1,251	$	(730	)	$	(445	)		$	76

⁽¹⁾ Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets.

⁽²⁾ Actual collateral was greater than or equal to ~~102%~~the value of the related assets. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was ~~$7.0~~$17.2 billion and ~~$7.4~~$9.2 billion, respectively.

⁽³⁾ Included in ~~receivables from brokers, dealers, and clearing organizations~~other assets in the condensed consolidated balance sheets.

⁽⁴⁾ Included in ~~payables to brokers, dealers,~~accrued expenses and ~~clearing organizations~~other liabilities in the condensed consolidated balance sheets. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

⁽⁵⁾ Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities.

Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, ~~and~~as well as the ~~amounts~~fair value of securities that we had ~~pledged:~~pledged under such regulations and from securities borrowed transactions:


		March 31, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Fair value of client securities available to be pledged	Fair value of client securities available to be pledged	$	25,744	$	26,628	Fair value of client securities available to be pledged	$	22,896	$	26,685
Fair value of client securities pledged for:
Fair value of securities pledged for:						Fair value of securities pledged for:
Fulfillment of requirements with the Options Clearing Corporation ⁽¹⁾	Fulfillment of requirements with the Options Clearing Corporation ⁽¹⁾	1,618		2,315		Fulfillment of requirements with the Options Clearing Corporation ⁽¹⁾	$	4,622	$	2,171
Fulfillment of client short sales	Fulfillment of client short sales	1,861		1,292		Fulfillment of client short sales	2,102		2,293
Securities lending to other broker-dealers	Securities lending to other broker-dealers	1,178		974		Securities lending to other broker-dealers	1,277		1,017
Total collateral pledged	Total collateral pledged	$	4,657	$	4,581	Total collateral pledged	$	8,001	$	5,481

Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was ~~$161~~$104 million as of March 31, ~~2019~~2020 and ~~$97~~$142 million as of December 31, ~~2018.~~2019.


⁽¹⁾	~~Client securities~~Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

~~12.~~11. Fair Values of Assets and Liabilities

Assets and liabilities measured at fair value on a recurring basis

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

Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposit; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in material differences in the amounts recorded.

For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Note 2 in the ~~2018~~2019 Form 10-K. ~~We did not transfer any assets or liabilities between Level 1, Level 2, or Level 3 during the three months ended March 31, 2019, or the year ended December 31, 2018. In addition, the~~The Company did not adjust prices received from the primary independent third-party pricing service at March 31, ~~2019~~2020 or December 31, ~~2018.~~2019.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets measured at fair value on a recurring basis. Liabilities recorded at fair value were not material, and therefore are not included in the following tables:


March 31, 2019	Level 1		Level 2		Level 3		Balance at Fair Value
March 31, 2020									Level 1		Level 2		Level 3		Balance at Fair Value
Cash equivalents:
Money market funds	$	650	$	—	$	—	$	650	$	5,152	$	—	$	—	$	5,152
Commercial paper	—		4,265		—		4,265		—		4,057		—		4,057
Total cash equivalents	650		4,265		—		4,915		5,152		4,057		—		9,209
Investments segregated and on deposit for regulatory purposes:
Certificates of deposit	—		1,147		—		1,147		—		1,949		—		1,949
U.S. Government securities	—		3,342		—		3,342		—		12,649		—		12,649
Total investments segregated and on deposit for regulatory purposes	—		4,489		—		4,489		—		14,598		—		14,598
Other securities owned:
Equity and bond mutual funds	422		—		—		422
State and municipal debt obligations	—		39		—		39
Equity, U.S. Government and corporate debt, and other securities	3		44		—		47
Schwab Funds^® money market funds	13		—		—		13
Total other securities owned	438		83		—		521
Available for sale securities:
U.S. agency mortgage-backed securities	—		31,092		—		31,092		—		179,595		—		179,595
U.S. Treasury securities	—		10,275		—		10,275
Asset-backed securities	—		8,439		—		8,439		—		22,481		—		22,481
Corporate debt securities	—		6,532		—		6,532		—		11,222		—		11,222
U.S. Treasury securities									—		3,664		—		3,664
U.S. state and municipal securities									—		1,578		—		1,578
Non-agency commercial mortgage-backed securities									—		1,226		—		1,226
Certificates of deposit	—		3,146		—		3,146		—		998		—		998
U.S. agency notes	—		249		—		249
Commercial paper	—		209		—		209		—		396		—		396
Foreign government agency securities	—		50		—		50		—		51		—		51
Non-agency commercial mortgage-backed securities	—		13		—		13
Other									—		21		—		21
Total available for sale securities	—		60,005		—		60,005		—		221,232		—		221,232
Other assets:
Equity and bond mutual funds									379		—		—		379
U.S. Government securities									—		251		—		251
State and municipal debt obligations									—		41		—		41
Equity, corporate debt, and other securities									3		21		—		24
Total other assets									382		313		—		695
Total	$	1,088	$	68,842	$	—	$	69,930	$	5,534	$	240,200	$	—	$	245,734

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


December 31, 2018	Level 1		Level 2		Level 3		Balance at Fair Value
December 31, 2019									Level 1		Level 2		Level 3		Balance at Fair Value
Cash equivalents:
Money market funds	$	3,429	$	—	$	—	$	3,429	$	5,179	$	—	$	—	$	5,179
Commercial paper	—		4,863		—		4,863		—		2,498		—		2,498
Total cash equivalents	3,429		4,863		—		8,292		5,179		2,498		—		7,677
Investments segregated and on deposit for regulatory purposes:
Certificates of deposit	—		1,396		—		1,396		—		1,351		—		1,351
U.S. Government securities	—		3,275		—		3,275		—		7,276		—		7,276
Total investments segregated and on deposit for regulatory purposes	—		4,671		—		4,671		—		8,627		—		8,627
Other securities owned:
Equity and bond mutual funds	441		—		—		441
State and municipal debt obligations	—		39		—		39
Equity, U.S. Government and corporate debt, and other securities	3		30		—		33
Schwab Funds^® money market funds	26		—		—		26
Total other securities owned	470		69		—		539
Available for sale securities:
U.S. agency mortgage-backed securities	—		25,556		—		25,556		—		46,155		—		46,155
Corporate debt securities									—		5,484		—		5,484
Asset-backed securities									—		4,987		—		4,987
U.S. Treasury securities	—		18,302		—		18,302		—		3,384		—		3,384
Asset-backed securities	—		10,085		—		10,085
Corporate debt securities	—		7,467		—		7,467
Certificates of deposit	—		3,685		—		3,685		—		1,004		—		1,004
U.S. agency notes	—		898		—		898
Commercial paper	—		522		—		522		—		395		—		395
Foreign government agency securities	—		49		—		49
Non-agency commercial mortgage-backed securities	—		14		—		14		—		13		—		13
Total available for sale securities	—		66,578		—		66,578		—		61,422		—		61,422
Other assets:
Equity and bond mutual funds									442		—		—		442
U.S. Government securities									—		202		—		202
State and municipal debt obligations									—		47		—		47
Equity, corporate debt, and other securities									5		22		—		27
Total other assets									447		271		—		718
Total	$	3,899	$	76,181	$	—	$	80,080	$	5,626	$	72,818	$	—	$	78,444

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Fair Value of Other Financial Instruments

The following tables present the fair value hierarchy for other financial instruments:


March 31, 2019	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
March 31, 2020											Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets
Cash and cash equivalents	$	27,643	$	—	$	27,643	$	—	$	27,643	$	59,249	$	59,249	$	—	$	—	$	59,249
Cash and investments segregated and on deposit for regulatory purposes	9,421		—		9,421		—		9,421		19,668		2,637		17,031		—		19,668
Receivables from brokers, dealers, and clearing organizations	616		—		616		—		616
Receivables from brokerage clients — net	20,519		—		20,519		—		20,519		18,998		—		18,998		—		18,998
Held to maturity securities:
U.S. agency mortgage-backed securities	106,532		—		105,922		—		105,922
Asset-backed securities	18,465		—		18,505		—		18,505
Corporate debt securities	4,479		—		4,477		—		4,477
U.S. state and municipal securities	1,313		—		1,382		—		1,382
Non-agency commercial mortgage-backed securities	1,145		—		1,150		—		1,150
U.S. Treasury securities	223		—		221		—		221
Certificates of deposit	200		—		201		—		201
Foreign government agency securities	50		—		49		—		49
Other	13		—		13		—		13
Total held to maturity securities	132,420		—		131,920		—		131,920
Bank loans — net:
First Mortgages	10,376		—		10,283		—		10,283		12,777		—		12,969		—		12,969
HELOCs	1,389		—		1,471		—		1,471		1,063		—		1,054		—		1,054
Pledged asset lines	4,576		—		4,576		—		4,576		5,467		—		5,467		—		5,467
Other	169		—		169		—		169		214		—		214		—		214
Total bank loans — net	16,510		—		16,499		—		16,499		19,521		—		19,704		—		19,704
Other assets	535		—		535		—		535		812		—		812		—		812
Total	$	207,664	$	—	$	207,153	$	—	$	207,153
Liabilities
Bank deposits	$	219,454	$	—	$	219,454	$	—	$	219,454	$	277,477	$	—	$	277,477	$	—	$	277,477
Payables to brokers, dealers, and clearing organizations	1,602		—		1,602		—		1,602
Payables to brokerage clients	29,701		—		29,701		—		29,701		49,251		—		49,251		—		49,251
Accrued expenses and other liabilities	1,330		—		1,330		—		1,330		4,648		—		4,648		—		4,648
Long-term debt	6,829		—		6,959		—		6,959		8,522		—		8,736		—		8,736
Total	$	258,916	$	—	$	259,046	$	—	$	259,046

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)



December 31, 2019	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets
Cash and cash equivalents	$	21,668	$	21,668	$	—	$	—	$	21,668
Cash and investments segregated and on deposit for regulatory purposes	11,807		2,792		9,015		—		11,807
Receivables from brokerage clients — net	21,763		—		21,763		—		21,763
Held to maturity securities:
U.S. agency mortgage-backed securities	109,325		—		110,566		—		110,566
Asset-backed securities	17,806		—		17,771		—		17,771
Corporate debt securities	4,661		—		4,718		—		4,718
U.S. state and municipal securities	1,301		—		1,404		—		1,404
Non-agency commercial mortgage-backed securities	1,119		—		1,141		—		1,141
U.S. Treasury securities	223		—		228		—		228
Certificates of deposit	200		—		200		—		200
Foreign government agency securities	50		—		50		—		50
Other	21		—		21		—		21
Total held to maturity securities	134,706		—		136,099		—		136,099
Bank loans — net:
First Mortgages	11,693		—		11,639		—		11,639
HELOCs	1,113		—		1,153		—		1,153
Pledged asset lines	5,206		—		5,206		—		5,206
Other	200		—		200		—		200
Total bank loans — net	18,212		—		18,198		—		18,198
Other assets	1,014		—		1,014		—		1,014
Liabilities
Bank deposits	$	220,094	$	—	$	220,094	$	—	$	220,094
Payables to brokerage clients	39,220		—		39,220		—		39,220
Accrued expenses and other liabilities	1,882		—		1,882		—		1,882
Long-term debt	7,430		—		7,775		—		7,775

December 31, 2018 Carrying
Amount Level 1 Level 2 Level 3 Balance at
Fair Value
Assets
Cash and cash equivalents $ 19,646
$ —
$ 19,646
$ —
$ 19,646
Cash and investments segregated and on deposit for
regulatory purposes 8,886
—
8,886
—
8,886
Receivables from brokers, dealers, and clearing
organizations 553
—
553
—
553
Receivables from brokerage clients — net 21,641
—
21,641
—
21,641
Held to maturity securities:
U.S. agency mortgage-backed securities 118,064
—
116,093
—
116,093
Asset-backed securities 18,502
—
18,546
—
18,546
Corporate debt securities 4,477
—
4,432
—
4,432
U.S. state and municipal securities 1,327
—
1,348
—
1,348
Non-agency commercial mortgage-backed securities 1,156
—
1,142
—
1,142
U.S. Treasury securities 223
—
217
—
217
Certificates of deposit 200
—
201
—
201
Foreign government agency securities 50
—
49
—
49
Other 10
—
10
—
10
Total held to maturity securities 144,009
—
142,038
—
142,038
Bank loans — net:
First Mortgages 10,370
—
10,193
—
10,193
HELOCs 1,500
—
1,583
—
1,583
Pledged asset lines 4,561
—
4,561
—
4,561
Other 178
—
178
—
178
Total bank loans — net 16,609
—
16,515
—
16,515
Other assets 460
—
460
—
460
Total $ 211,804
$ —
$ 209,739
$ —
$ 209,739
Liabilities
Bank deposits $ 231,423
$ —
$ 231,423
$ —
$ 231,423
Payables to brokers, dealers, and clearing organizations 1,831
—
1,831
—
1,831
Payables to brokerage clients 32,726
—
32,726
—
32,726
Accrued expenses and other liabilities 1,370
—
1,370
—
1,370
Long-term debt 6,878
—
6,827
—
6,827
Total $ 274,228
$ —
$ 274,177
$ —
$ 274,177

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

~~13.~~12. Stockholders’ Equity

On January 30, 2019, CSC publicly announced that its Board of Directors authorized a ~~new Share Repurchase Program~~share repurchase program to repurchase up to $4.0 billion of common stock. The share repurchase authorization does not have an expiration date. There were no0 repurchases of CSC’s common stock under this authorization during the three months ended March 31, 2020 and 2019.

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


			Liquidation Preference Per Share							Dividend Rate in Effect at March 31, 2019		Earliest Redemption Date	Date at Which Dividend Rate Becomes Floating	Floating Annual Rate of Three-Month LIBOR plus:				Liquidation Preference Per Share							Dividend Rate in Effect at March 31, 2020		Earliest Redemption Date	Date at Which Dividend Rate Becomes Floating	Floating Annual Rate of Three-Month LIBOR plus:
	Shares Issued and Outstanding (In thousands) at				Carrying Value at											Shares Issued and Outstanding (in thousands) at				Carrying Value at
	March 31, 2019 ⁽¹⁾	December 31, 2018 ⁽¹⁾			March 31, 2019		December 31, 2018		Issue Date							March 31, 2020 ⁽¹⁾	December 31, 2019 ⁽¹⁾			March 31, 2020		December 31, 2019		Issue Date
Fixed-rate:
Series C	600	600	$	1,000	$	585	$	585	08/03/15	6.000	%	12/01/20	N/A	N/A		600	600	$	1,000	$	585	$	585	08/03/15	6.000	%	12/01/20	N/A	N/A
Series D	750	750	1,000		728		728		03/07/16	5.950	%	06/01/21	N/A	N/A		750	750	1,000		728		728		03/07/16	5.950	%	06/01/21	N/A	N/A
Fixed-to-floating-rate:
Series A	400	400	1,000		397		397		01/26/12	7.000	%	02/01/22		4.820	%	400	400	1,000		397		397		01/26/12	7.000	%	02/01/22	02/01/22	4.820	%
Series E	6	6	100,000		591		591		10/31/16	4.625	%	03/01/22		3.315	%	6	6	100,000		591		591		10/31/16	4.625	%	03/01/22	03/01/22	3.315	%
Series F	5	5	100,000		492		492		10/31/17	5.000	%	12/01/27	12/01/27	2.575	%	5	5	100,000		492		492		10/31/17	5.000	%	12/01/27	12/01/27	2.575	%
Total preferred stock	1,761	1,761			$	2,793	$	2,793								1,761	1,761			$	2,793	$	2,793

⁽¹⁾ Represented by depositary shares, except for Series A.

N/A Not applicable.

Dividends declared on the Company’s preferred stock are as follows:



	Three Months Ended March 31,
	2020				2019
	Total Declared		Per Share Amount		Total Declared		Per Share Amount
Series A	$	—	$	—	$	—	$	—
Series C	9.0		15.00		9.0		15.00
Series D	11.2		14.88		11.2		14.88
Series E	13.9		2,312.50		13.9		2,312.50
Series F	—		—		—		—
Total	$	34.1			$	34.1

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

~~14.~~13. Accumulated Other Comprehensive Income

The components of other comprehensive income (loss) are as follows:


	2019									2018									2020							2019
Three Months Ended March 31,	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax			Before Tax		Tax Effect			Net of Tax		Before Tax			Tax Effect			Net of Tax
Change in net unrealized gain (loss) on available for sale securities:
Net unrealized gain (loss)	$	227		$	(54	)	$	173		$	(108	)	$	26		$	(82	)	$	5,151	$	(1,244	)	$	3,907	$	227		$	(54	)	$	173
Other reclassifications included in other revenue	(1		)	—			(1		)	—			—			—			—		—			—		(1		)	—			(1		)
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale	12			(3		)	9			9			(2		)	7			—		—			—		12			(3		)	9
Other comprehensive income (loss)	$	238		$	(57	)	$	181		$	(99	)	$	24		$	(75	)	$	5,151	$	(1,244	)	$	3,907	$	238		$	(57	)	$	181

AOCI balances are as follows:


	Total AOCI
Balance at December 31, 2017	$	(152	)
Adoption of accounting standards	(33		)
Available for sale securities:
Net unrealized gain (loss)	(82		)
Held to maturity securities:
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale	7
Balance at March 31, 2018	(260		)
				Total AOCI
Balance at December 31, 2018	(252		)	$	(252	)
Available for sale securities:
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity	154			154
Net unrealized gain on securities transferred to available for sale from held to maturity ⁽¹⁾	19			19
Other reclassifications included in other revenue	(1		)	(1		)
Held to maturity securities:
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale	9			9
Balance at March 31, 2019	$	(71	)	$	(71	)

Balance at December 31, 2019				$	88
Available for sale securities:
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity				2,850
Net unrealized gain on securities transferred to available for sale from held to maturity ⁽²⁾				1,057
Balance at March 31, 2020				$	3,995

⁽¹⁾ ~~As part of the adoption of ASU 2017-12, in~~ In the first quarter of 2019, the Company made ~~a one-time~~an election to transfer a portion of its HTM securities to ~~AFS.~~AFS as part of its adoption of ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The transfer resulted in a net of tax increase to AOCI of $19 million.

⁽²⁾On January 1, 2020, the Company transferred all of its investment securities designated as HTM to the AFS category. The transfer resulted in a net of tax increase to AOCI of $1.1 billion. See ~~Notes 2 and~~Note 4 for additional discussion on the 2020 transfer of HTM securities to AFS.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

~~15.~~14. Regulatory Requirements

At March 31, ~~2019,~~2020, CSC and CSB met all of their respective capital requirements. The regulatory capital and ratios for CSC (consolidated) and CSB are as follows:


	Actual ⁽¹⁾				Minimum to be Well Capitalized				Minimum Capital Requirement				Actual ⁽¹⁾				Minimum to be Well Capitalized				Minimum Capital Requirement
March 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio ⁽²⁾
March 31, 2020													Amount		Ratio		Amount		Ratio		Amount		Ratio ⁽²⁾
CSC
Common Equity Tier 1 Risk-Based Capital	$	17,523	19.8	%	N/A				$	3,976	4.5	%	$	18,197	18.4	%	N/A				$	4,457	4.5	%
Tier 1 Risk-Based Capital	20,316		23.0	%	N/A				5,302		6.0	%	20,990		21.2	%	N/A				5,942		6.0	%
Total Risk-Based Capital	20,338		23.0	%	N/A				7,069		8.0	%	21,023		21.2	%	N/A				7,923		8.0	%
Tier 1 Leverage	20,316		7.2	%	N/A				11,263		4.0	%	20,990		6.9	%	N/A				12,137		4.0	%
Supplementary Leverage Ratio ⁽¹⁾	20,316		7.1	%	N/A				8,631		3.0	%
Supplementary Leverage Ratio													20,990		6.8	%	N/A				9,309		3.0	%
CSB
Common Equity Tier 1 Risk-Based Capital	$	15,730	20.7	%	$	4,947	6.5	%	$	3,425	4.5	%	$	15,413	19.7	%	$	5,075	6.5	%	$	3,514	4.5	%
Tier 1 Risk-Based Capital	15,730		20.7	%	6,089		8.0	%	4,567		6.0	%	15,413		19.7	%	6,247		8.0	%	4,685		6.0	%
Total Risk-Based Capital	15,751		20.7	%	7,611		10.0	%	6,089		8.0	%	15,445		19.8	%	7,808		10.0	%	6,247		8.0	%
Tier 1 Leverage	15,730		7.0	%	11,168		5.0	%	8,934		4.0	%	15,413		6.9	%	11,114		5.0	%	8,891		4.0	%
Supplementary Leverage Ratio ⁽¹⁾	15,730		6.9	%	N/A		N/A		6,879		3.0	%
Supplementary Leverage Ratio													15,413		6.7	%	N/A		N/A		6,867		3.0	%

December 31, 2018
December 31, 2019
CSC
Common Equity Tier 1 Risk-Based Capital	$	16,813	17.6	%	N/A				$	4,295	4.5	%	$	17,660	19.5	%	N/A				$	4,073	4.5	%
Tier 1 Risk-Based Capital	19,606		20.5	%	N/A				5,726		6.0	%	20,453		22.6	%	N/A				5,431		6.0	%
Total Risk-Based Capital	19,628		20.6	%	N/A				7,635		8.0	%	20,472		22.6	%	N/A				7,241		8.0	%
Tier 1 Leverage	19,606		7.1	%	N/A				11,058		4.0	%	20,453		7.3	%	N/A				11,189		4.0	%
Supplementary Leverage Ratio													20,453		7.1	%	N/A				8,604		3.0	%
CSB
Common Equity Tier 1 Risk-Based Capital	$	15,832	19.7	%	$	5,233	6.5	%	$	3,623	4.5	%	$	14,819	20.7	%	$	4,649	6.5	%	$	3,218	4.5	%
Tier 1 Risk-Based Capital	15,832		19.7	%	6,441		8.0	%	4,831		6.0	%	14,819		20.7	%	5,722		8.0	%	4,291		6.0	%
Total Risk-Based Capital	15,853		19.7	%	8,051		10.0	%	6,441		8.0	%	14,837		20.7	%	7,152		10.0	%	5,722		8.0	%
Tier 1 Leverage	15,832		7.2	%	11,044		5.0	%	8,836		4.0	%	14,819		7.1	%	10,486		5.0	%	8,389		4.0	%
Supplementary Leverage Ratio													14,819		6.8	%	N/A		N/A		6,497		3.0	%

⁽¹⁾~~Beginning~~In the interagency regulatory capital and liquidity rules adopted in October 2019, Category III banking organizations such as CSC were given the ability to opt-out of the inclusion of AOCI in regulatory capital, and CSC made this opt-out election as of January 1, 2020. Therefore, AOCI is excluded from the amounts and ratios presented as of March 31, 2020. In 2019, CSC and CSB ~~are subject to the “advanced approaches” framework under the Basel III capital rule. As a result, we are now~~were required to include all components of AOCI in regulatory capital and report our supplementary leverage ratio, which is calculated as Tier 1 capital divided by total leverage exposure. Total leverage exposure includes all on-balance sheet assets and certain off-balance sheet exposures, including unused commitments. Prior to 2019, CSC and CSB elected to opt-out of the requirement to include most components of AOCI in Common Equity Tier 1 Capital;capital; the amounts and ratios for December 31, ~~2018~~2019 are presented on this basis.

⁽²⁾Under the Basel III capital rule, CSC and CSB are also required to maintain a capital conservation buffer and ~~beginning in 2019,~~ a countercyclical capital buffer above the regulatory minimum risk-based capital ratios. The capital conservation buffer ~~became 2.5% on January 1, 2019 (1.875% at December 31, 2018). At March 31, 2019, the~~and countercyclical capital buffer ~~was~~were 2.5% and zero ~~percent.~~percent, respectively, for both periods presented. If either buffer falls below the minimum requirement, the Company would be subject to limits on capital distributions and discretionary bonus payments to executive officers. At March 31, ~~2019~~2020, the minimum capital requirement plus capital conservation buffer and countercyclical capital buffer for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital ratios were 7.0%, 8.5%, and 10.5%, respectively.

N/A Not applicable.

Based on its regulatory capital ratios at March 31, ~~2019,~~2020, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since March 31, ~~2019~~2020 that management believes have changed CSB’s capital category.

~~In late 2017, Schwab acquired a federal savings bank charter which is now called Charles Schwab Premier Bank.~~ At March 31, ~~2019,~~2020, the balance ~~sheet~~sheets of CSPB and Charles Schwab ~~Premier~~Trust Bank (Trust Bank) consisted primarily of investment securities, and the entities held total assets of ~~$14.4 billion. Charles Schwab Premier~~$22.4 billion and $10.7 billion, respectively. Based on their regulatory capital ratios, at March 31, 2020, CSPB and Trust Bank ~~is subject to similar~~are considered well capitalized under their respective regulatory ~~guidelines and requirements, and seeks to maintain a Tier 1 Leverage Ratio similar to CSB.~~capital rules.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Net capital and net capital requirements for CS&Co are as follows:



	March 31, 2020		December 31, 2019
Net Capital	$	3,472	$	3,700
Minimum net capital required	0.250		0.250
2% of aggregate debit balances	419		446
Net Capital in excess of required net capital	$	3,053	$	3,254

March 31, 2019 December 31, 2018
Net Capital $ 2,370
$ 2,304
Minimum net capital required 0.250
0.250
2% of aggregate debit balances 411
436
Net Capital in excess of required net capital $ 1,959
$ 1,868

~~In accordance with~~Pursuant to Rule 15c3-3 of the ~~SEC Customer Protection Rule, CS&Co~~Securities Exchange Act of 1934 and other applicable regulations, Schwab had ~~portions of its~~ cash and investments segregated for the exclusive benefit of clients at March 31, ~~2019.~~2020. The SEC Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit. Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the condensed consolidated statements of cash flows.

~~16.~~15. Segment Information

Schwab’s ~~two~~2 reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are ~~allocated~~attributed to the ~~two~~2 segments based on which segment services the client.

Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments.

Financial information for the segments is presented in the following table:


	Investor Services				Advisor Services				Total				Investor Services				Advisor Services				Total
Three Months Ended March 31,	2019		2018		2019		2018		2019		2018		2020		2019		2020		2019		2020		2019
Net Revenues
Net interest revenue	$	1,195	$	957	$	486	$	306	$	1,681	$	1,263	$	1,128	$	1,195	$	444	$	486	$	1,572	$	1,681
Asset management and administration fees	533		593		222		258		755		851		600		533		227		222		827		755
Trading revenue(1)	111		127		74		74		185		201		119		141		69		76		188		217
Other(1)	72		64		30		19		102		83		20		42		10		28		30		70
Total net revenues	1,911		1,741		812		657		2,723		2,398		1,867		1,911		750		812		2,617		2,723
Expenses Excluding Interest	1,062		1,042		397		354		1,459		1,396		1,154		1,062		416		397		1,570		1,459
Income before taxes on income	$	849	$	699	$	415	$	303	$	1,264	$	1,002	$	713	$	849	$	334	$	415	$	1,047	$	1,264

⁽¹⁾ In the first quarter of 2020, order flow revenue was reclassified from other revenue to trading revenue. Prior period amounts have been reclassified to reflect this change.

16. Subsequent Event

THE CHARLES SCHWAB CORPORATION

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures: The management of the Company, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, ~~2019.~~2020. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, ~~2019.~~2020.

Changes in internal control over financial reporting: No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) was identified during the quarter ended March 31, ~~2019,~~2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

THE CHARLES SCHWAB CORPORATION

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings, see Item 1 – Note ~~10.~~9.

Item 1A. Risk Factors

During the first three months of ~~2019,~~2020, there have been no material changes to the risk factors in Part I – Item 1A – Risk Factors in the ~~2018~~2019 Form 10-K except as described below. The risk factor described below updates, and should be read together with, the risk factors disclosed in Part I – Item 1A – Risk Factors, in our 2019 Annual Report on Form 10-K.

The challenging economic environment triggered by the COVID-19 pandemic has impacted and will continue to impact our business, results of operations and financial condition.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On January 30, 2019, CSC publicly announced that its Board of Directors authorized the repurchase of up to $4.0 billion of common stock. The authorization does not have an expiration date. There were no share repurchases under this authorization during the first quarter of ~~2019.~~2020.

THE CHARLES SCHWAB CORPORATION

The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the first quarter of ~~2019~~2020 (in millions, except number of shares, which are in thousands, and per share amounts):


Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Program		Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Program
January:
Share repurchase program	—	$	—	$	—	$	4,000	—	$	—	—	$	1,780
Employee transactions ⁽¹⁾	3	$	41.59	N/A		N/A		7	$	47.96	N/A	N/A
February:
Share repurchase program	—	$	—	$	—	$	4,000	—	$	—	—	$	1,780
Employee transactions ⁽¹⁾	3	$	47.12	N/A		N/A		3	$	46.33	N/A	N/A
March:
Share repurchase program	—	$	—	$	—	$	4,000	—	$	—	—	$	1,780
Employee transactions ⁽¹⁾	209	$	46.76	N/A		N/A		134	$	40.65	N/A	N/A
Total:
Share repurchase program	—	$	—	$	—	$	4,000	—	$	—	—	$	1,780
Employee Transactions ⁽¹⁾	215	$	46.70	N/A		N/A
Employee transactions ⁽¹⁾								144	$	41.12	N/A	N/A

⁽¹⁾ Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. ~~The Company~~CSC may receive shares delivered or attested to pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options granted under employee stock incentive plans, which are commonly referred to as stock swap exercises.

N/A Not applicable.

~~THE CHARLES SCHWAB CORPORATION~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

THE CHARLES SCHWAB CORPORATION

Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:


Exhibit Number	Exhibit Number	Exhibit		Exhibit

3.21				Certificate of Designations of 5.375% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series G, of The Charles Schwab Corporation, filed as Exhibit 3.1 to the Registrant’s Form 8-K dated April 30, 2020, and incorporated herein by reference.

31.1	31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.		Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2	31.2	Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.		Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1	32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)

32.2	32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)

101.INS	101.INS	XBRL Instance Document	(2)	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	(2)

101.SCH	101.SCH	XBRL Taxonomy Extension Schema	(2)	Inline XBRL Taxonomy Extension Schema	(2)

101.CAL	101.CAL	XBRL Taxonomy Extension Calculation	(2)	Inline XBRL Taxonomy Extension Calculation	(2)

101.DEF	101.DEF	XBRL Extension Definition	(2)	Inline XBRL Extension Definition	(2)

101.LAB	101.LAB	XBRL Taxonomy Extension Label	(2)	Inline XBRL Taxonomy Extension Label	(2)

101.PRE	101.PRE	XBRL Taxonomy Extension Presentation	(2)	Inline XBRL Taxonomy Extension Presentation	(2)

(1	)	Furnished as an exhibit to this Quarterly Report on Form 10-Q.
104				Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(2	)	Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 are the following materials formatted in 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.
(1)				Furnished as an exhibit to this Quarterly Report on Form 10-Q.

(2)				Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 are the following materials formatted in Inline XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.

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 8, ~~2019~~2020	/s/ Peter Crawford
		Peter Crawford
		Executive Vice President and Chief Financial Officer

- 5459 -



	Balance at December 31, 2018		Adjustments Due to ASU 2016-02		Balance at January 1, 2019
Assets
Other assets ⁽¹⁾	$	2,046	$	588	$	2,634
Liabilities
Accrued expenses and other liabilities ⁽²⁾	$	2,954	$	588	$	3,542



Leases	Balance Sheet Classification	March 31, 2019
Assets
Operating lease assets	Other assets	$	597
Liabilities
Operating lease liabilities	Accrued expenses and other liabilities	$	663



	Three Months Ended
Lease Cost	March 31, 2019
Operating lease cost ⁽¹⁾	$	33
Variable lease cost ⁽²⁾	$	11



Maturity of Lease Liabilities	Operating Leases ⁽¹⁾
2019	$	92
2020	127
2021	104
2022	83
2023	76
After 2023	280
Total lease payments	762
Less: Interest	99
Present value of lease liabilities	$	663



	Operating Leases		Subleases		Net
2019	$	131	$	4	$	127
2020	125		4		121
2021	101		4		97
2022	79		2		77
2023	72		1		71
Thereafter	282		—		282
Total	$	790	$	15	$	775