SCHWAB CHARLES CORP 10-Q

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. - 24 - 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net Revenues Interest revenue $ 2,153 $ 1,432 $ 6,236 $ 4,626 Interest expense ( 123 ) ( 89 ) ( 348 ) ( 322 ) Net interest revenue 2,030 1,343 5,888 4,304 Asset management and administration fees (1) 1,101 860 3,164 2,488 Trading revenue 964 181 3,135 562 Bank deposit account fees 323 — 1,011 — Other 152 64 614 161 Total net revenues 4,570 2,448 13,812 7,515 Expenses Excluding Interest Compensation and benefits 1,303 840 4,051 2,556 Professional services 250 194 723 574 Occupancy and equipment 246 155 722 449 Advertising and market development 119 66 363 203 Communications 144 73 457 226 Depreciation and amortization 140 97 404 284 Amortization of acquired intangible assets 153 25 461 43 Regulatory fees and assessments 64 36 208 106 Other 140 73 733 250 Total expenses excluding interest 2,559 1,559 8,122 4,691 Income before taxes on income 2,011 889 5,690 2,824 Taxes on income 485 191 1,415 660 Net Income 1,526 698 4,275 2,164 Preferred stock dividends and other 120 83 364 171 Net Income Available to Common Stockholders $ 1,406 $ 615 $ 3,911 $ 1,993 Weighted-Average Common Shares Outstanding: Basic 1,888 1,289 1,885 1,288 Diluted 1,898 1,294 1,895 1,294 Earnings Per Common Shares Outstanding (2) : Basic $ .74 $ .48 $ 2.07 $ 1.55 Diluted $ .74 $ .48 $ 2.06 $ 1.54 (1) Includes fee waivers of $ 83 million and $ 246 million for the third quarter and first nine months of 2021, respectively, and $ 44 million and $ 59 million for the third quarter and first nine months of 2020, respectively. (2) For the three and nine months ended September 30, 2021, the Company had voting and nonvoting common stock outstanding. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class. See Note 16 for additional information. See Notes to Condensed Consolidated Financial Statements. - 25 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Comprehensive Income (In Millions) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income $ 1,526 $ 698 $ 4,275 $ 2,164 Other comprehensive income (loss), before tax: Change in net unrealized gain (loss) on available for sale securities: Net unrealized gain (loss) ( 1,519 ) 97 ( 5,420 ) 7,361 Other reclassifications included in other revenue — ( 3 ) ( 14 ) ( 3 ) Other — — — 1 Other comprehensive income (loss), before tax ( 1,519 ) 94 ( 5,434 ) 7,359 Income tax effect 364 ( 19 ) 1,293 ( 1,761 ) Other comprehensive income (loss), net of tax ( 1,155 ) 75 ( 4,141 ) 5,598 Comprehensive Income (Loss) $ 371 $ 773 $ 134 $ 7,762 See Notes to Condensed Consolidated Financial Statements. - 26 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Balance Sheets (In Millions, Except Per Share and Share Amounts) (Unaudited) September 30, 2021 December 31, 2020 Assets Cash and cash equivalents $ 34,323 $ 40,348 Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $ 13,625 at September 30, 2021 and $ 14,904 at December 31, 2020) 42,300 50,399 Receivables from brokerage clients — net 86,553 64,440 Available for sale securities (amortized cost of $ 375,305 at September 30, 2021 and $ 330,248 at December 31, 2020) 376,968 337,400 Bank loans — net 31,570 23,813 Equipment, office facilities, and property — net 3,164 2,883 Goodwill 11,952 11,952 Acquired intangible assets — net 9,532 9,991 Other assets 11,186 7,783 Total assets $ 607,548 $ 549,009 Liabilities and Stockholders’ Equity Bank deposits $ 395,275 $ 358,022 Payables to brokerage clients 113,052 104,201 Accrued expenses and other liabilities 19,249 17,094 Short-term borrowings 3,000 — Long-term debt 19,530 13,632 Total liabilities 550,106 492,949 Stockholders’ equity: Preferred stock — $ .01 par value per share; aggregate liquidation preference of $ 10,100 and $ 7,850 at September 30, 2021 and December 31, 2020, respectively 9,954 7,733 Common stock — 3 billion shares authorized; $ .01 par value per share; 1,994,895,180 shares issued at September 30, 2021 and December 31, 2020 20 20 Nonvoting common stock — 300 million shares authorized; $ .01 par value per share; 79,293,695 shares issued at September 30, 2021 and December 31, 2020 1 1 Additional paid-in capital 26,755 26,515 Retained earnings 24,880 21,975 Treasury stock, at cost — 185,198,080 shares at September 30, 2021 and 193,577,648 shares at December 31, 2020 ( 5,421 ) ( 5,578 ) Accumulated other comprehensive income (loss) 1,253 5,394 Total stockholders’ equity 57,442 56,060 Total liabilities and stockholders’ equity $ 607,548 $ 549,009 See Notes to Condensed Consolidated Financial Statements. - 27 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Stockholders ’ Equity (In Millions) (Unaudited) Accumulated Other Comprehensive Income (Loss) Preferred Stock Common Stock Nonvoting Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at cost Total Shares Amount Shares Amount Balance at June 30, 2020 $ 5,263 1,488 $ 15 — $ — $ 4,760 $ 20,876 $ ( 5,710 ) $ 5,611 $ 30,815 Net income — — — — — — 698 — — 698 Other comprehensive income (loss), net of tax — — — — — — — — 75 75 Dividends declared on preferred stock — — — — — — ( 79 ) — — ( 79 ) Dividends declared on common stock — $ .18 per share — — — — — — ( 234 ) — — ( 234 ) Stock option exercises and other — — — — — ( 3 ) — 9 — 6 Share-based compensation — — — — — 32 — — — 32 Other — — — — — 8 — 10 — 18 Balance at September 30, 2020 $ 5,263 1,488 $ 15 — $ — $ 4,797 $ 21,261 $ ( 5,691 ) $ 5,686 $ 31,331 Balance at June 30, 2021 $ 9,954 1,995 $ 20 79 $ 1 $ 26,708 $ 23,809 $ ( 5,450 ) $ 2,408 $ 57,450 Net income — — — — — — 1,526 — — 1,526 Other comprehensive income (loss), net of tax — — — — — — — — ( 1,155 ) ( 1,155 ) Dividends declared on preferred stock — — — — — — ( 113 ) — — ( 113 ) Dividends declared on common stock — $ .18 per share — — — — — — ( 342 ) — — ( 342 ) Stock option exercises and other — — — — — ( 13 ) — 31 — 18 Share-based compensation — — — — — 43 — — — 43 Other — — — — — 17 — ( 2 ) — 15 Balance at September 30, 2021 $ 9,954 1,995 $ 20 79 $ 1 $ 26,755 $ 24,880 $ ( 5,421 ) $ 1,253 $ 57,442 Accumulated Other Comprehensive Income (Loss) Preferred Stock Common Stock Nonvoting Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at cost Total Shares Amount Shares Amount Balance at December 31, 2019 $ 2,793 1,488 $ 15 — $ — $ 4,656 $ 19,960 $ ( 5,767 ) $ 88 $ 21,745 Net income — — — — — — 2,164 — — 2,164 Other comprehensive income (loss), net of tax — — — — — — — — 5,598 5,598 Issuance of preferred stock, net 2,470 — — — — — — — — 2,470 Dividends declared on preferred stock — — — — — — ( 160 ) — — ( 160 ) Dividends declared on common stock — $ .54 per share — — — — — — ( 700 ) — — ( 700 ) Stock option exercises and other — — — — — ( 13 ) — 48 — 35 Share-based compensation — — — — — 123 — — — 123 Other — — — — — 31 ( 3 ) 28 — 56 Balance at September 30, 2020 $ 5,263 1,488 $ 15 — $ — $ 4,797 $ 21,261 $ ( 5,691 ) $ 5,686 $ 31,331 Balance at December 31, 2020 $ 7,733 1,995 $ 20 79 $ 1 $ 26,515 $ 21,975 $ ( 5,578 ) $ 5,394 $ 56,060 Net income — — — — — — 4,275 — — 4,275 Other comprehensive income (loss), net of tax — — — — — — — — ( 4,141 ) ( 4,141 ) Issuance of preferred stock, net 2,806 — — — — — — — — 2,806 Redemption of preferred stock ( 585 ) — — — — — ( 15 ) — — ( 600 ) Dividends declared on preferred stock — — — — — — ( 331 ) — — ( 331 ) Dividends declared on common stock — $ .54 per share — — — — — — ( 1,024 ) — — ( 1,024 ) Stock option exercises and other — — — — — ( 5 ) — 167 — 162 Share-based compensation — — — — — 188 — — — 188 Other — — — — — 57 — ( 10 ) — 47 Balance at September 30, 2021 $ 9,954 1,995 $ 20 79 $ 1 $ 26,755 $ 24,880 $ ( 5,421 ) $ 1,253 $ 57,442 See Notes to the Condensed Consolidated Financial Statements . - 28 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Cash Flows (in Millions) (Unaudited) Nine Months Ended September 30, 2021 2020 Cash Flows from Operating Activities Net income $ 4,275 $ 2,164 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Share-based compensation 207 124 Depreciation and amortization 404 284 Amortization of acquired intangible assets 461 43 Provision (benefit) for deferred income taxes ( 61 ) — Premium amortization, net, on available for sale securities 1,784 1,012 Other 246 250 Net change in: Investments segregated and on deposit for regulatory purposes 3,665 ( 14,431 ) Receivables from brokerage clients ( 22,143 ) ( 3,609 ) Other assets ( 2,980 ) ( 556 ) Payables to brokerage clients 8,851 8,314 Accrued expenses and other liabilities 1,770 — Net cash provided by (used for) operating activities ( 3,521 ) ( 6,405 ) Cash Flows from Investing Activities Purchases of available for sale securities ( 130,113 ) ( 146,865 ) Proceeds from sales of available for sale securities 11,339 2,895 Principal payments on available for sale securities 73,536 42,681 Net change in bank loans ( 7,819 ) ( 4,103 ) Cash acquired in acquisitions, net of cash paid — 2,756 Purchases of equipment, office facilities, and property ( 603 ) ( 465 ) Purchases of Federal Home Loan Bank stock — ( 12 ) Purchases of Federal Reserve stock ( 224 ) ( 190 ) Other investing activities ( 86 ) ( 142 ) Net cash provided by (used for) investing activities ( 53,970 ) ( 103,445 ) Cash Flows from Financing Activities Net change in bank deposits 37,253 100,623 Proceeds from secured lines of credit 2,000 — Repayment of secured lines of credit ( 500 ) — Net change in other short-term borrowings 1,500 — Issuance of long-term debt 7,036 1,089 Repayment of long-term debt ( 1,215 ) ( 700 ) Net proceeds from preferred stock offerings 2,806 2,470 Redemption of preferred stock ( 600 ) — Dividends paid ( 1,369 ) ( 874 ) Proceeds from stock options exercised 162 35 Other financing activities ( 41 ) ( 8 ) Net cash provided by (used for) financing activities 47,032 102,635 Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted ( 10,459 ) ( 7,215 ) Cash and Cash Equivalents, including Amounts Restricted at Beginning of Period 70,560 45,577 Cash and Cash Equivalents, including Amounts Restricted at End of Period $ 60,101 $ 38,362 Continued on following page. - 29 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Cash Flows (in Millions) (Unaudited) Continued from previous page. Nine Months Ended September 30, 2021 2020 Supplemental Cash Flow Information Non-cash investing activity: Securities transferred from held to maturity to available for sale, at fair value $ — $ 136,099 Securities purchased during the period but settled after period end $ 1,531 $ — Additions of equipment, office facilities, and property $ 7 $ 76 Other Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 380 $ 361 Income taxes $ 1,615 $ 609 Amounts included in the measurement of lease liabilities $ 175 $ 113 Leased assets obtained in exchange for new operating lease liabilities $ 51 $ 152 Leased assets obtained in exchange for new finance lease liabilities $ 108 $ — September 30, 2021 September 30, 2020 Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (1) Cash and cash equivalents $ 34,323 $ 27,465 Restricted cash and cash equivalents amounts included in cash and investments segregated and on deposit for regulatory purposes 25,778 10,897 Total cash and cash equivalents, including amounts restricted shown in the statement of cash flows $ 60,101 $ 38,362 (1) For more information on the nature of restrictions on restricted cash and cash equivalents, see Note 17. See Notes to Condensed Consolidated Financial Statements. - 30 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 1. Introduction and Basis of Presentation The Charles Schwab Corporation (CSC) is a savings and loan holding company. Incorporated in 1986, CSC engages, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. Principal business subsidiaries of CSC include the following: • Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer; • TD Ameritrade, Inc., an introducing securities broker-dealer; • TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.; • 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 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 2020 Form 10-K. Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade Holding Corporation (TDA Holding) and its consolidated subsidiaries (collectively referred to as “TD Ameritrade” or “TDA”). TD Ameritrade provides securities brokerage services, including trade execution, clearing services, and margin lending, through its broker-dealer subsidiaries; and futures and foreign exchange trade execution services through its futures commission merchant (FCM) and forex dealer member (FDM) subsidiary. Our consolidated financial statements include the results of operations and financial condition of TD Ameritrade beginning on October 6, 2020. See Note 3 for additional information on our acquisition of TD Ameritrade. The significant accounting policies are included in Note 2 in the 2020 Form 10-K. There have been no significant changes to these accounting policies during the first nine months of 2021. 2. New Accounting Standards The Company did not adopt any material new accounting standards during the nine months ended September 30, 2021. In addition, there are no new accounting standards not yet adopted that are material to the Company as of September 30, 2021. - 31 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 3. Business Acquisitions TD Ameritrade On October 6, 2020, Schwab completed its previously announced acquisition of TD Ameritrade for $ 21.8 billion in stock. As a result of the acquisition, TDA Holding became a wholly-owned subsidiary of CSC. In exchange for each share of TD Ameritrade common stock, TD Ameritrade stockholders received 1.0837 shares of CSC common stock, except for TD Bank and its affiliates which received a portion in nonvoting common stock. In connection with the transaction, Schwab issued approximately 586 million common shares to TD Ameritrade stockholders consisting of approximately 509 million shares of common stock and approximately 77 million shares of nonvoting common stock. Subsequently, TD Bank and its affiliates exchanged common stock for nonvoting common stock and held approximately 79 million shares of nonvoting common stock as of September 30, 2021. For further details on the new class of nonvoting common stock, see Note 19 in the 2020 Form 10-K. There have been no adjustments to the provisional purchase price and fair value estimates presented in Note 3 of the 2020 Form 10-K and those amounts are now final. Pro Forma Financial Information (Unaudited) The following table presents unaudited pro forma financial information as if the TD Ameritrade acquisition had occurred on January 1, 2019. The unaudited pro forma results reflect after-tax adjustments for acquisition costs, amortization and depreciation of acquired intangible and tangible assets, the impact of the amended IDA agreement which reduced the service fee on client cash deposits held at the TD Depository Institutions to 15 basis points from the 25 basis points paid by TD Ameritrade under its previous IDA agreement, and other immaterial adjustments for the effects of purchase accounting. Pro forma net income for the three and nine months ended September 30, 2020 excludes $ 13 million and $ 51 million, respectively, of after-tax acquisition costs incurred by Schwab and TD Ameritrade as these costs were included in pro forma net income for the year ended December 31, 2019. The unaudited pro forma results do not reflect potential revenue growth or cost savings that may be realized as a result of the acquisition. The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of future operations or results had the TD Ameritrade acquisition been completed as of January 1, 2019. Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Total net revenues $ 4,107 $ 12,257 Net income 1,224 3,589 USAA-IMCO On May 26, 2020, the Company completed its acquisition of the assets of USAA-IMCO for $ 1.6 billion in cash. The Company finalized the valuation of the assets acquired and liabilities assumed in the acquisition in 2020. For details surrounding the Company’s purchase accounting for USAA-IMCO, see Note 3 of the 2020 Form 10-K. Pro Forma Financial Information (Unaudited) The following table presents unaudited pro forma financial information as if the USAA-IMCO acquisition had occurred on January 1, 2019. The unaudited pro forma results reflect after-tax adjustments for acquisition costs and amortization of acquired intangible assets, and do not reflect potential revenue growth or cost savings that may be realized as a result of the acquisition. Pro forma net income for the nine months ended September 30, 2020 excludes after-tax acquisition costs of $ 39 million. These costs were included in pro forma net income for the year ended December 31, 2019. The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of future operations or results had the USAA-IMCO acquisition been completed as of January 1, 2019. Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Total net revenues $ 2,448 $ 7,618 Net income 613 1,949 - 32 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 4. Revenue Recognition Disaggregated Revenue Disaggregation of Schwab’s revenue by major source is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net interest revenue Interest revenue $ 2,153 $ 1,432 $ 6,236 $ 4,626 Interest expense ( 123 ) ( 89 ) ( 348 ) ( 322 ) Net interest revenue 2,030 1,343 5,888 4,304 Asset management and administration fees Mutual funds, ETFs, and CTFs 503 423 1,454 1,300 Advice solutions 511 373 1,469 999 Other 87 64 241 189 Asset management and administration fees 1,101 860 3,164 2,488 Trading revenue Commissions 466 108 1,559 332 Order flow revenue 482 67 1,538 194 Principal transactions 16 6 38 36 Trading revenue 964 181 3,135 562 Bank deposit account fees 323 — 1,011 — Other 152 64 614 161 Total net revenues $ 4,570 $ 2,448 $ 13,812 $ 7,515 For a summary of revenue provided by our reportable segments, see Note 18. The recognition of revenue is not impacted by the operating segment in which revenue is generated. Contract balances Receivables from contracts with customers within the scope of ASC 606, Revenue From Contracts With Customers (ASC 606) were $ 651 million at September 30, 2021 and $ 579 million at December 31, 2020 and were recorded in other assets on the condensed consolidated balance sheets. Schwab does not have any other significant contract assets or contract liability balances as of September 30, 2021 or December 31, 2020. 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. - 33 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 5. Investment Securities The amortized cost, gross unrealized gains and losses, and fair value of the Company’s AFS investment securities are as follows: September 30, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. agency mortgage-backed securities $ 329,953 $ 4,228 $ 2,867 $ 331,314 Asset-backed securities (1) 17,550 122 44 17,628 Corporate debt securities (2) 12,453 225 79 12,599 U.S. Treasury securities 11,518 14 55 11,477 U.S. state and municipal securities 1,617 87 2 1,702 Non-agency commercial mortgage-backed securities 1,192 31 — 1,223 Certificates of deposit 1,000 — 1 999 Other 22 4 — 26 Total available for sale securities $ 375,305 $ 4,711 $ 3,048 $ 376,968 December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. agency mortgage-backed securities $ 283,911 $ 7,005 $ 563 $ 290,353 Asset-backed securities (1) 18,808 174 84 18,898 Corporate debt securities (2) 12,408 388 — 12,796 U.S. Treasury securities 10,631 25 — 10,656 U.S. state and municipal securities 1,544 153 — 1,697 Foreign government agency securities 1,411 2 — 1,413 Non-agency commercial mortgage-backed securities 1,213 52 — 1,265 Certificates of deposit 300 — — 300 Other 22 — — 22 Total available for sale securities $ 330,248 $ 7,799 $ 647 $ 337,400 (1) Approximately 58 % and 51 % of asset-backed securities held as of September 30, 2021 and December 31, 2020, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately 33 % and 36 % of the asset-backed securities held as of September 30, 2021 and December 31, 2020, respectively. (2) As of September 30, 2021 and December 31, 2020, approximately 33 % and 46 %, respectively of the total AFS in corporate debt securities were issued by institutions in the financial services industry. At September 30, 2021, our banking subsidiaries had pledged securities with a fair value of $ 51.0 billion as collateral to secure borrowing capacity on secured credit facilities with the Federal Home Loan Bank (FHLB) (see Note 9). Our banking subsidiaries also pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a fair value of $ 9.9 billion as collateral for this facility at September 30, 2021. The Company also pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $ 1.3 billion at September 30, 2021. - 34 - THE 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, of AFS investment securities are as follows: Less than 12 months 12 months or longer Total September 30, 2021 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available for sale securities U.S. agency mortgage-backed securities $ 165,770 $ 2,426 $ 18,326 $ 441 $ 184,096 $ 2,867 Corporate debt securities 3,462 76 52 3 3,514 79 Asset-backed securities 2,893 21 2,848 23 5,741 44 U.S. Treasury securities 9,018 55 21 — 9,039 55 U.S. state and municipal securities 96 2 5 — 101 2 Certificates of deposit 499 1 — — 499 1 Total $ 181,738 $ 2,581 $ 21,252 $ 467 $ 202,990 $ 3,048 December 31, 2020 U.S. agency mortgage-backed securities $ 61,706 $ 551 $ 4,774 $ 12 $ 66,480 $ 563 Asset-backed securities 1,398 13 5,822 71 7,220 84 Total $ 63,104 $ 564 $ 10,596 $ 83 $ 73,700 $ 647 At September 30, 2021, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises. For a description of management’s quarterly evaluation of AFS securities in unrealized loss positions see Item 8 – Note 2 in the 2020 Form 10-K. No amounts were recognized as credit loss expense and no securities were written down to fair value through earnings for the nine months ended September 30, 2021 and the year ended December 31, 2020. None of the Company’s AFS securities held as of September 30, 2021 and December 31, 2020 had an allowance for credit losses. The Company had $ 646 million and $ 634 million of accrued interest receivable as of September 30, 2021 and December 31, 2020, respectively, for AFS securities. These amounts are excluded from the amortized cost basis and fair market value of AFS securities and included in other assets on the condensed consolidated balance sheets. There were no write-offs of accrued interest receivable on AFS securities during the nine months ended September 30, 2021, or the year ended December 31, 2020. - 35 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 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 investment securities are as follows: September 30, 2021 Within 1 year After 1 year through 5 years After 5 years through 10 years After 10 years Total U.S. agency mortgage-backed securities $ 3,353 $ 21,031 $ 67,278 $ 239,652 $ 331,314 Asset-backed securities — 5,075 2,912 9,641 17,628 Corporate debt securities 1,621 6,815 4,163 — 12,599 U.S. Treasury securities 4,051 2,576 4,850 — 11,477 U.S. state and municipal securities 23 125 970 584 1,702 Non-agency commercial mortgage-backed securities — — — 1,223 1,223 Certificates of deposit 300 699 — — 999 Other — — — 26 26 Total fair value $ 9,348 $ 36,321 $ 80,173 $ 251,126 $ 376,968 Total amortized cost $ 9,311 $ 35,239 $ 79,456 $ 251,299 $ 375,305 Proceeds and gross realized gains and losses from sales of AFS investment securities are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Proceeds $ 1,697 $ 2,825 $ 11,339 $ 2,895 Gross realized gains 2 4 39 4 Gross realized losses 2 1 25 1 - 36 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 6. Bank Loans and Related Allowance for Credit Losses The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows: September 30, 2021 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 Residential real estate: First Mortgages (1,2) $ 19,226 $ 25 $ 3 $ 36 $ 64 $ 19,290 $ 8 $ 19,282 HELOCs (1,2) 677 — — 11 11 688 2 686 Total residential real estate 19,903 25 3 47 75 19,978 10 19,968 Pledged asset lines 11,393 10 9 — 19 11,412 — 11,412 Other 193 — — — — 193 3 190 Total bank loans $ 31,489 $ 35 $ 12 $ 47 $ 94 $ 31,583 $ 13 $ 31,570 December 31, 2020 Residential real estate: First Mortgages (1,2) $ 14,804 $ 27 $ 1 $ 72 $ 100 $ 14,904 $ 22 $ 14,882 HELOCs (1,2) 823 1 1 17 19 842 5 837 Total residential real estate 15,627 28 2 89 119 15,746 27 15,719 Pledged asset lines 7,901 10 5 — 15 7,916 — 7,916 Other 181 — — — — 181 3 178 Total bank loans $ 23,709 $ 38 $ 7 $ 89 $ 134 $ 23,843 $ 30 $ 23,813 (1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $ 85 million and $ 72 million at September 30, 2021 and December 31, 2020, respectively. (2) At September 30, 2021 and December 31, 2020, 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 no loans accruing interest that were contractually 90 days or more past due at September 30, 2021 or December 31, 2020. At September 30, 2021, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 9). Changes in the allowance for credit losses on bank loans were as follows: September 30, 2021 September 30, 2020 Three Months Ended First Mortgages HELOCs Total residential real estate Other Total First Mortgages HELOCs Total residential real estate Other Total Balance at beginning of period $ 8 $ 2 $ 10 $ 3 $ 13 $ 22 $ 4 $ 26 $ 4 $ 30 Charge-offs — — — ( 1 ) ( 1 ) — — — — — Recoveries — 1 1 — 1 — — — — — Provision for credit losses — ( 1 ) ( 1 ) 1 — ( 1 ) 2 1 ( 1 ) — Balance at end of period $ 8 $ 2 $ 10 $ 3 $ 13 $ 21 $ 6 $ 27 $ 3 $ 30 - 37 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) September 30, 2021 September 30, 2020 Nine Months Ended First Mortgages HELOCs Total residential real estate Other Total First Mortgages HELOCs Total residential real estate Other Total Balance at beginning of period $ 22 $ 5 $ 27 $ 3 $ 30 $ 11 $ 4 $ 15 $ 3 $ 18 Adoption of ASU 2016-13 — — — — — 1 — 1 — 1 Charge-offs — — — ( 1 ) ( 1 ) — — — — — Recoveries — 1 1 — 1 1 — 1 — 1 Provision for credit losses ( 14 ) ( 4 ) ( 18 ) 1 ( 17 ) 8 2 10 — 10 Balance at end of period $ 8 $ 2 $ 10 $ 3 $ 13 $ 21 $ 6 $ 27 $ 3 $ 30 As discussed in Item 8 – Note 2 in our 2020 Form 10-K, PALs are subject to the collateral maintenance practical expedient under ASC 326. All PALs were fully collateralized by securities with fair values in excess of borrowings as of September 30, 2021 and December 31, 2020. Therefore, no allowance for credit losses for PALs as of those dates was required. The economy continued to strengthen throughout 2021, with sectors most adversely affected by the pandemic improving in recent months. However, COVID-19 has continued to affect the pace of the recovery. Management’s macroeconomic outlook reflects continued moderate growth in home prices and lower unemployment anticipated over the near term. This macroeconomic outlook, along with the continued strong credit quality metrics in the bank loans portfolio, result in a lower modeled projection of loss rates compared to December 31, 2020. A summary of bank loan-related nonperforming assets and troubled debt restructurings is as follows: September 30, 2021 December 31, 2020 Nonaccrual loans (1) $ 47 $ 89 Other real estate owned (2) — 1 Total nonperforming assets 47 90 Troubled debt restructurings — 1 Total nonperforming assets and troubled debt restructurings $ 47 $ 91 (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 generally 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. - 38 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The credit quality indicators of the Company’s bank loan portfolio are detailed below: First Mortgages Amortized Cost Basis by Origination Year September 30, 2021 2021 2020 2019 2018 2017 pre-2017 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ — $ 1 $ — $ — $ — $ 1 $ 2 $ — $ — $ — 620 – 679 21 28 5 1 7 21 83 — 3 3 680 – 739 934 611 179 51 112 256 2,143 65 63 128 ≥740 8,820 5,163 1,281 218 430 1,150 17,062 323 234 557 Total $ 9,775 $ 5,803 $ 1,465 $ 270 $ 549 $ 1,428 $ 19,290 $ 388 $ 300 $ 688 Origination LTV ≤70% $ 8,464 $ 4,838 $ 1,161 $ 202 $ 417 $ 1,065 $ 16,147 $ 315 $ 214 $ 529 >70% – ≤90% 1,311 965 304 68 132 360 3,140 73 84 157 >90% – ≤100% — — — — — 3 3 — 2 2 Total $ 9,775 $ 5,803 $ 1,465 $ 270 $ 549 $ 1,428 $ 19,290 $ 388 $ 300 $ 688 Weighted Average Updated FICO <620 $ 4 $ 4 $ 2 $ — $ 3 $ 13 $ 26 $ 2 $ 7 $ 9 620 – 679 76 76 20 7 9 35 223 8 14 22 680 – 739 882 486 145 33 63 171 1,780 53 42 95 ≥740 8,813 5,237 1,298 230 474 1,209 17,261 325 237 562 Total $ 9,775 $ 5,803 $ 1,465 $ 270 $ 549 $ 1,428 $ 19,290 $ 388 $ 300 $ 688 Estimated Current LTV (1) ≤70% $ 8,857 $ 5,727 $ 1,451 $ 268 $ 547 $ 1,426 $ 18,276 $ 387 $ 296 $ 683 >70% – ≤90% 918 76 14 2 2 2 1,014 1 3 4 >90% – ≤100% — — — — — — — — 1 1 >100% — — — — — — — — — — Total $ 9,775 $ 5,803 $ 1,465 $ 270 $ 549 $ 1,428 $ 19,290 $ 388 $ 300 $ 688 Percent of Loans on Nonaccrual Status 0.05 % 0.12 % 0.14 % 0.33 % 0.36 % 1.31 % 0.19 % 0.86 % 2.48 % 1.60 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. September 30, 2021 Balance Weighted Average Updated FICO Percent of Loans on Nonaccrual Status Pledged Asset Lines Weighted-Average LTV (1) =70% $ 11,412 768 — (1) Represents the LTV for the full line of credit (drawn and undrawn). - 39 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) First Mortgages Amortized Cost Basis by Origination Year December 31, 2020 2020 2019 2018 2017 pre-2017 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ 1 $ — $ — $ — $ 2 $ 3 $ — $ — $ — 620 – 679 29 13 3 8 31 84 1 3 4 680 – 739 794 355 105 181 419 1,854 82 80 162 ≥740 7,150 2,452 449 858 2,054 12,963 380 296 676 Total $ 7,974 $ 2,820 $ 557 $ 1,047 $ 2,506 $ 14,904 $ 463 $ 379 $ 842 Origination LTV ≤70% $ 6,653 $ 2,211 $ 396 $ 793 $ 1,935 $ 11,988 $ 351 $ 269 $ 620 >70% – ≤90% 1,321 609 161 254 568 2,913 112 107 219 >90% – ≤100% — — — — 3 3 — 3 3 Total $ 7,974 $ 2,820 $ 557 $ 1,047 $ 2,506 $ 14,904 $ 463 $ 379 $ 842 Weighted Average Updated FICO <620 $ 5 $ 2 $ 1 $ 4 $ 19 $ 31 $ 3 $ 9 $ 12 620 – 679 67 34 16 21 60 198 12 20 32 680 – 739 784 252 66 121 281 1,504 58 55 113 ≥740 7,118 2,532 474 901 2,146 13,171 390 295 685 Total $ 7,974 $ 2,820 $ 557 $ 1,047 $ 2,506 $ 14,904 $ 463 $ 379 $ 842 Estimated Current LTV (1) ≤70% $ 6,999 $ 2,582 $ 533 $ 1,034 $ 2,490 $ 13,638 $ 452 $ 368 $ 820 >70% – ≤90% 975 238 24 13 16 1,266 11 9 20 >90% – ≤100% — — — — — — — 1 1 >100% — — — — — — — 1 1 Total $ 7,974 $ 2,820 $ 557 $ 1,047 $ 2,506 $ 14,904 $ 463 $ 379 $ 842 Percent of Loans on Nonaccrual Status 0.09 % 0.38 % 1.02 % 0.87 % 1.57 % 0.48 % 1.37 % 2.80 % 2.02 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. December 31, 2020 Balance Weighted Average Updated FICO Percent of Loans on Nonaccrual Status Pledged Asset Lines Weighted-Average LTV (1) =70% $ 7,916 770 — (1) Represents the LTV for the full line of credit (drawn and undrawn). At September 30, 2021, First Mortgage loans of $ 15.8 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 27 % of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 87 % 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 September 30, 2021 and December 31, 2020, Schwab had $ 54 million and $ 43 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the condensed consolidated balance sheets. - 40 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 HELOCs converted to amortizing loans $ 5 $ 9 $ 17 $ 25 The following table presents when current outstanding HELOCs will convert to amortizing loans: September 30, 2021 Balance Converted to an amortizing loan by period end $ 300 Within 1 year 15 > 1 year – 3 years 81 > 3 years – 5 years 68 > 5 years 224 Total $ 688 At September 30, 2021, $ 530 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 September 30, 2021, the borrowers on approximately 55 % of HELOC loan balances outstanding only paid the minimum amount due. 7. Variable Interest Entities As of September 30, 2021 and December 31, 2020, all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s Community Reinvestment Act (CRA)-related investments and most of these are related to LIHTC investments. As part of CSB’s community reinvestment initiatives, CSB invests in funds that make equity investments in multifamily affordable housing properties and receives tax credits and other tax benefits for these investments. Aggregate assets, liabilities and maximum exposure to loss The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below: September 30, 2021 December 31, 2020 Aggregate assets Aggregate liabilities Maximum exposure to loss Aggregate assets Aggregate liabilities Maximum exposure to loss LIHTC investments (1) $ 839 $ 495 $ 839 $ 649 $ 344 $ 649 Other CRA investments (2) 133 — 160 118 — 152 Total $ 972 $ 495 $ 999 $ 767 $ 344 $ 801 (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 accounted for as loans at amortized cost, equity method investments, AFS securities, or using the adjusted cost method. Aggregate assets are included in AFS securities, bank loans – net, or other assets on the condensed consolidated balance sheets. Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. CSB’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and CSB expects to pay substantially all of these commitments between 2021 and 2024. During the nine months ended September 30, 2021 and year - 41 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) ended December 31, 2020, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide. 8. Bank Deposits Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows: September 30, 2021 December 31, 2020 Interest-bearing deposits: Deposits swept from brokerage accounts $ 367,219 $ 332,513 Checking 20,142 17,785 Savings and other 6,973 6,739 Total interest-bearing deposits 394,334 357,037 Non-interest-bearing deposits 941 985 Total bank deposits $ 395,275 $ 358,022 9. Borrowings CSC Senior Notes CSC’s Senior Notes are unsecured obligations. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. TDA Holding Senior Notes TDA Holding’s Senior Notes are unsecured obligations. TDA Holding 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. - 42 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table lists long-term debt by instrument outstanding as of September 30, 2021 and December 31, 2020. Date of Issuance Principal Amount Outstanding September 30, 2021 December 31, 2020 CSC Fixed-rate Senior Notes: 3.250 % due May 21, 2021 05/22/18 $ — $ 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 0.750 % due March 18, 2024 03/18/21 1,500 — 3.750 % due April 1, 2024 (1) 09/24/21 350 — 3.000 % due March 10, 2025 03/10/15 375 375 4.200 % due March 24, 2025 03/24/20 600 600 3.625 % due April 1, 2025 (1) 09/24/21 418 — 3.850 % due May 21, 2025 05/22/18 750 750 3.450 % due February 13, 2026 11/13/15 350 350 0.900 % due March 11, 2026 12/11/20 1,250 1,250 1.150 % due May 13, 2026 05/13/21 1,000 — 3.200 % due March 2, 2027 03/02/17 650 650 3.300 % due April 1, 2027 (1) 09/24/21 744 — 3.200 % due January 25, 2028 12/07/17 700 700 2.000 % due March 20, 2028 03/18/21 1,250 — 4.000 % due February 1, 2029 10/31/18 600 600 3.250 % due May 22, 2029 05/22/19 600 600 2.750 % due October 1, 2029 (1) 09/24/21 475 — 4.625 % due March 22, 2030 03/24/20 500 500 1.650 % due March 11, 2031 12/11/20 750 750 2.300 % due May 13, 2031 05/13/21 750 — 1.950 % due December 1, 2031 08/26/21 850 — CSC Floating-rate Senior Notes: Three-month LIBOR + 0.32 % due May 21, 2021 05/22/18 — 600 SOFR + 0.500 % due March 18, 2024 03/18/21 1,250 — SOFR + 0.520 % due May 13, 2026 05/13/21 500 — Total CSC Senior Notes 17,768 9,881 TDA Holding Fixed-rate Senior Notes: 2.950 % due April 1, 2022 03/09/15 750 750 3.750 % due April 1, 2024 (1) 11/01/18 50 400 3.625 % due April 1, 2025 (1) 10/22/14 82 500 3.300 % due April 1, 2027 (1) 04/27/17 56 800 2.750 % due October 1, 2029 (1) 08/16/19 25 500 TDA Holding Floating-rate Senior Notes: Three-month LIBOR + 0.43 % due November 1, 2021 11/01/18 600 600 Total TDA Holding Senior Notes 1,563 3,550 Other financing 101 6 Unamortized premium — net 195 249 Debt issuance costs ( 97 ) ( 54 ) Total long-term debt $ 19,530 $ 13,632 (1) In the third quarter of 2021, we completed an offer to exchange certain senior notes issued by TDA Holding for senior notes issued by CSC. Of the approximately $ 2.2 billion in aggregate principal amount of TDA Holding’s senior notes offered in the exchange, 90 %, or approximately $ 2.0 billion, were tendered and accepted. The new senior notes issued by CSC have the same interest rates and maturity dates as the TDA Holding senior notes. The $ 213 million not exchanged remained outstanding across four series of senior notes issued by TDA Holding. The debt exchange was treated as a debt modification for accounting purposes. - 43 - THE 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 all long-term debt outstanding at September 30, 2021 are as follows: Maturities 2021 $ 608 2022 1,035 2023 829 2024 3,673 2025 2,237 Thereafter 11,050 Total maturities 19,432 Unamortized discount— net 195 Debt issuance costs ( 97 ) Total long-term debt $ 19,530 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 securities that are pledged as collateral. As of September 30, 2021 and December 31, 2020, the collateral pledged provided a total borrowing capacity of $ 63.6 billion and $ 55.1 billion, respectively, of which no 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. Our investment in FHLB stock was $ 29 million at September 30, 2021 and December 31, 2020. 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 September 30, 2021 and December 31, 2020, our collateral pledged provided total borrowing capacity of $ 9.9 billion and $ 7.9 billion, respectively, of which no amounts were outstanding at the end of either period. CSC has the ability to issue commercial paper notes with maturities up to 270 days, and had $ 1.5 billion outstanding at September 30, 2021 and none at December 31, 2020. CSB and Charles Schwab Premier Bank, SSB (CSPB) are members of the Federal Reserve. As a condition of our Federal Reserve membership, we are required to hold Federal Reserve stock, which totaled $ 415 million and $ 191 million at September 30, 2021 and December 31, 2020, respectively. TDAC Lines of Credit and Revolving Credit Facilities TDAC maintains secured uncommitted lines of credit, under which TDAC borrows on either a demand or short-term basis and pledges client margin securities as collateral. There was $ 1.5 billion outstanding under the secured uncommitted lines of credit as of September 30, 2021. There were no borrowings outstanding under the secured uncommitted lines of credit as of December 31, 2020. See Note 12 for additional information. TDAC maintains one senior unsecured committed revolving credit facility as of September 30, 2021 with an aggregate borrowing capacity of $ 600 million which matures in April 2022. Additionally, at December 31, 2020, TDAC maintained an $ 850 million unsecured committed revolving credit facility which matured on April 20, 2021 and was not renewed. There were no borrowings outstanding under the TDAC senior revolving facilities as of September 30, 2021 or December 31, 2020. - 44 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 10. Commitments and Contingencies Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Rocket Mortgage, LLC (Rocket Mortgage ® ), formerly known as Quicken Loans, LLC. Pursuant to the Program, Rocket Mortgage originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Rocket Mortgage. CSB purchased First Mortgages of $ 3.6 billion and $ 1.6 billion during the third quarters of 2021 and 2020, respectively, and $ 10.4 billion and $ 6.5 billion during the first nine months of 2021 and 2020, respectively. CSB purchased HELOCs with commitments of $ 112 million and $ 122 million during the third quarters of 2021 and 2020, respectively, and $ 325 million and $ 362 million during the first nine months of 2021 and 2020, respectively. The Company’s commitments to extend credit on bank lines of credit and to purchase First Mortgages are as follows: September 30, 2021 December 31, 2020 Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit $ 6,559 $ 8,141 Commitments to purchase First Mortgage loans 2,672 1,917 Total $ 9,231 $ 10,058 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 September 30, 2021, the aggregate face amount of these LOCs totaled $ 15 million. There were no funds drawn under any of these LOCs at September 30, 2021. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral. The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the amounts it has posted as collateral. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees. The TD Ameritrade broker-dealer and FCM/FDM subsidiaries’ operations include the execution, settlement, and financing of various client securities, options, futures and foreign exchange transactions. These activities may expose the Company to credit risk and losses in the event the clients are unable to fulfill their contractual obligations. TD Ameritrade is a member of and provides guarantees to securities clearing houses and exchanges under standard membership agreements. TD Ameritrade also engages third-party firms to clear clients’ futures and options on futures transactions and to facilitate clients’ foreign exchange trading, and has agreed to indemnify these firms for any loss that they may incur from the client transactions introduced to them by TD Ameritrade. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees. IDA agreement: The Company’s IDA agreement with the TD Depository Institutions became effective on October 6, 2020. The IDA agreement creates responsibilities of the Company and certain contingent obligations. Pursuant to the IDA agreement, cash held in eligible brokerage client accounts are swept off-balance sheet to money market deposit accounts at the TD Depository Institutions. Schwab provides marketing, recordkeeping and support services to the TD Depository Institutions with respect to the money market deposit accounts for which Schwab receives an aggregate monthly fee, determined by reference to certain yields, less a service fee on client cash deposits held at the TD Depository Institutions, FDIC insurance assessments, and interest on deposits paid to clients. Though unlikely, in the event the sweep arrangement fee computation were to result in a negative amount in any given month, Schwab would be required to pay the TD Depository Institutions. The IDA agreement provides that, as of July 1, 2021, Schwab has the option to migrate up to $ 10 billion of IDA balances every 12 months to Schwab’s balance sheet, subject to certain limitations and adjustments. The Company’s ability to migrate IDA balances to its balance sheet is dependent upon multiple factors including having sufficient capital levels to sustain these incremental deposits and certain binding limitations specified in the IDA agreement, including the requirement that Schwab can only move IDA balances designated as floating-rate obligations. In addition, Schwab also must maintain a minimum $ 50 billion - 45 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) IDA balance through June 2031, and at least 80 % of the IDA balances must be designated as fixed-rate obligations through June 2026. The total ending IDA balance was $ 142.0 billion as of September 30, 2021 and $ 154.1 billion as of December 31, 2020. If IDA balances were to decline below the required IDA balance minimum, Schwab could be required to direct additional sweep cash from its balance sheet to the IDA program. Through September 30, 2021, Schwab had moved $ 10.0 billion of IDA balances to its balance sheet, which included uninsured balances and certain international account balances. Legal contingencies: Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available. Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company. Schwab Intelligent Portfolios ® SEC Investigation : As disclosed on July 1, 2021, the Company has been responding to an enforcement investigation by the SEC arising from a compliance examination and concerning historic disclosures related to the Schwab Intelligent Portfolios digital advisory solution. In connection with a tentative agreement reached with SEC staff to resolve the matter, financial results for the first nine months of 2021 included a liability and related non-deductible charge of approximately $ 200 million. Completion of any settlement is always contingent on a vote of the Commission. The Company continues to cooperate with SEC staff with the goal of fully resolving the matter. TD Ameritrade Acquisition Litigation : As disclosed previously, Schwab and TD Ameritrade have been responding to a lawsuit challenging the acquisition which was filed on May 12, 2020 in the Delaware Court of Chancery (Hawkes v. Bettino et al.) on behalf of a proposed class of TD Ameritrade’s stockholders, excluding, among others, TD Bank. The initial complaint named as defendants each member of the TD Ameritrade board of directors at the time the acquisition was approved, as well as TD Bank and Schwab. On June 11, 2020, plaintiff dismissed a claim that had sought to enjoin voting on or consummation of the acquisition. On February 5, 2021, plaintiff filed an amended complaint naming an officer and certain directors of TD Ameritrade at the time the acquisition was approved, as well as TD Bank, certain TD Bank related entities, and Schwab. The amended complaint asserts separate claims for breach of fiduciary duty by the TD Ameritrade officer, certain members of the TD Ameritrade board and TD Bank, and against Schwab for aiding and abetting such breaches, the allegation being that the amendment of the Insured Deposit Account Agreement TD Bank negotiated directly with Schwab allowed TD Bank to divert merger consideration from TD Ameritrade’s minority public stockholders. Plaintiff seeks to recover monetary damages, costs and attorneys’ fees. Schwab and the other defendants consider the allegations to be entirely without merit and on April 29, 2021, filed motions to dismiss the remaining claims in the lawsuit. 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 - 46 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 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. Defendants consider the allegations to be entirely without merit and have been vigorously contesting the lawsuit. 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. Plaintiffs filed a motion for class certification on April 30, 2021, and in a decision on October 27, 2021, the court denied the motion and held that certification of a class action is inappropriate. Ford Order Routing Litigation : On September 15, 2014, TDA Holding, TD Ameritrade, Inc. and its former CEO, Frederick J. Tomczyk, were sued on behalf of a putative class of TD Ameritrade, Inc. clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices. Plaintiffs seek unspecified damages and injunctive and other relief. Defendants consider the allegations to be entirely without merit and have been vigorously contesting the lawsuit. On September 14, 2018, the District Court granted plaintiffs’ motion for class certification, and defendants petitioned for an immediate appeal of the District Court’s class certification decision. On April 23, 2021, the U.S. Court of Appeals, 8th Circuit, issued a decision reversing the District Court’s certification of a class and remanding the case back to the District Court for further proceedings. Plaintiffs have renewed their motion for class certification, and a motion by defendants to compel the case to arbitration is pending with the District Court. 11. Exit and Other Related Liabilities As a result of the significant growth seen in recent quarters across key client volume metrics, including the number of active brokerage accounts, DATs, and peak daily trades, the Company has increased the scope of technology work related to the integration of TD Ameritrade. We have commenced greater technology build-out to support the expanded volumes of our combined client base. Based on our current integration plans and expanded scope of technology work, the Company expects to complete client conversion within 30 to 36 months from the October 6, 2020 date of acquisition. To achieve our integration objectives, the Company expects to recognize significant additional acquisition and integration-related costs and capital expenditures throughout the integration process. Such acquisition and integration-related costs have included and are expected to continue to include professional fees, such as legal, advisory, and accounting fees, costs for technology enhancements, and compensation and benefits expenses for employees and contractors involved in the integration work. The Company’s acquisition and integration-related spending also includes exit and other related costs, such as severance and other employee termination benefits, retention costs, as well as costs related to facility closures, including accelerated amortization and depreciation or impairments of assets in those locations. Exit and other related costs are a component of the Company’s overall acquisition and integration-related spending, and support the Company’s ability to achieve integration objectives including expected synergies. Our estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs are subject to change based on a number of factors, including the expected duration and complexity of the integration process and the heightened uncertainty of the current economic environment. More specifically, factors that could cause variability in our expected acquisition and integration-related costs include the level of employee attrition, workforce redeployment from eliminated positions into open roles, changes in the levels of client activity, and increased real estate-related exit cost variability due to the effects of the COVID-19 pandemic. Inclusive of costs recognized through September 30, 2021, Schwab currently expects to incur total exit and other related costs for the integration of TD Ameritrade ranging from $ 650 million to $ 1 billion, consisting of employee compensation and benefits, facility exit costs, and certain other costs. During the three and nine months ended September 30, 2021, the Company recognized $ 9 million and $ 99 million of acquisition-related exit costs, respectively. The Company expects the remaining exit and other related costs will be incurred and charged to expense over the next 24 to 36 months; some costs are expected to be incurred after client conversion. In addition to ASC 420 Exit or Disposal Cost Obligations , certain of the costs associated with these activities are accounted for in accordance with ASC 360 Property, Plant and Equipment , ASC 712 Compensation – Nonretirement Post Employment Benefits , ASC 718 Compensation – Stock Compensation , and ASC 842 Leases . - 47 - 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 is a summary of the activity in the Company’s exit and other related liabilities for the three and nine months ended September 30, 2021: Investor Services Employee Compensation and Benefits Advisor Services Employee Compensation and Benefits Total Balance at June 30, 2021 $ 56 $ 15 $ 71 Amounts recognized in expense (1) 6 1 7 Costs paid or otherwise settled ( 15 ) ( 3 ) ( 18 ) Balance at September 30, 2021 (2) $ 47 $ 13 $ 60 Balance at December 31, 2020 $ 86 $ 24 $ 110 Amounts recognized in expense (1) 63 16 79 Costs paid or otherwise settled ( 102 ) ( 27 ) ( 129 ) Balance at September 30, 2021 (2) $ 47 $ 13 $ 60 (1) Amounts recognized in expense for severance pay and other termination benefits, as well as retention costs, are included in compensation and benefits on the condensed consolidated statements of income. The three months ended September 30, 2021 includes a reduction of the liability resulting from changes in estimates of $ 7 million and $ 2 million in Investor Services and Advisor Services, respectively. (2) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets. The following table summarizes the exit and other related costs recognized in expense for the three and nine months ended September 30, 2021: Investor Services Advisor Services Three Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 6 $ — $ 6 $ 1 $ — $ 1 $ 7 Occupancy and equipment — 2 2 — — — 2 Total $ 6 $ 2 $ 8 $ 1 $ — $ 1 $ 9 Investor Services Advisor Services Nine Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 63 $ — $ 63 $ 16 $ — $ 16 $ 79 Occupancy and equipment — 15 15 — 3 3 18 Professional services — 1 1 — — — 1 Other — 1 1 — — — 1 Total $ 63 $ 17 $ 80 $ 16 $ 3 $ 19 $ 99 (1) Costs related to facility closures. These costs, which are primarily comprised of accelerated amortization of right-of-use (ROU) assets, relate to the impact of abandoning leased and other properties. - 48 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table summarizes the cumulative exit and other related costs incurred from October 6, 2020 through September 30, 2021: Investor Services Advisor Services Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 201 $ — $ 201 $ 54 $ — $ 54 $ 255 Occupancy and equipment — 21 21 — 4 4 25 Depreciation and amortization — 2 2 — 1 1 3 Professional services — 1 1 — — — 1 Other — 1 1 — — — 1 Total $ 201 $ 25 $ 226 $ 54 $ 5 $ 59 $ 285 (1) Costs related to facility closures. These costs, which are primarily comprised of accelerated amortization of ROU assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties. 12. Financial Instruments Subject to Off-Balance Sheet Credit Risk Resale agreements: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investment requirement. Schwab’s resale agreements as of September 30, 2021 and December 31, 2020 were 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. In addition, most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. 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 $ 867 million and $ 852 million at September 30, 2021 and December 31, 2020, respectively. Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets. - 49 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table presents information about our resale agreements, securities lending, and other activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities. Gross Assets/ Liabilities Gross Amounts Offset in the Condensed Consolidated Balance Sheets Net Amounts Presented in the Condensed Consolidated Balance Sheets Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Net Amount Counterparty Offsetting Collateral September 30, 2021 Assets Resale agreements (1) $ 13,625 $ — $ 13,625 $ — $ ( 13,625 ) (2) $ — Securities borrowed (3) 900 — 900 ( 459 ) ( 425 ) 16 Total $ 14,525 $ — $ 14,525 $ ( 459 ) $ ( 14,050 ) $ 16 Liabilities Securities loaned (4,5) $ 9,253 $ — $ 9,253 $ ( 459 ) $ ( 8,108 ) $ 686 Secured short-term borrowings (6) 1,500 — 1,500 — ( 1,500 ) — Total $ 10,753 $ — $ 10,753 $ ( 459 ) $ ( 9,608 ) $ 686 December 31, 2020 Assets Resale agreements (1) $ 14,904 $ — $ 14,904 $ — $ ( 14,904 ) (2) $ — Securities borrowed (3) 873 — 873 ( 673 ) ( 195 ) 5 Total $ 15,777 $ — $ 15,777 $ ( 673 ) $ ( 15,099 ) $ 5 Liabilities Securities loaned (4,5) $ 7,549 $ — $ 7,549 $ ( 673 ) $ ( 6,049 ) $ 827 Total $ 7,549 $ — $ 7,549 $ ( 673 ) $ ( 6,049 ) $ 827 (1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets. (2) Actual collateral was greater than or equal to the value of the related assets. At September 30, 2021 and December 31, 2020, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $ 13.9 billion and $ 15.2 billion, respectively. (3) Included in other assets in the condensed consolidated balance sheets. (4) Included in accrued expenses and other liabilities in the condensed consolidated balance sheets. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at September 30, 2021 and December 31, 2020. (5) Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities. (6) Included in short-term borrowings in the condensed consolidated balance sheets. See below for collateral pledged and Note 9 for additional information. Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged under such regulations and from securities borrowed transactions: September 30, 2021 December 31, 2020 Fair value of client securities available to be pledged $ 114,171 $ 84,006 Fair value of securities pledged for: Fulfillment of requirements with the Options Clearing Corporation (1) $ 16,125 $ 10,222 Fulfillment of client short sales 6,174 6,274 Securities lending to other broker-dealers 8,383 6,522 Collateral for short-term borrowings 1,680 — Total collateral pledged to third parties $ 32,362 $ 23,018 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 $ 167 million as of September 30, 2021 and $ 183 million as of December 31, 2020. (1) Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation. - 50 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 13. Fair Values of Assets and Liabilities Assets and liabilities measured at fair value on a recurring basis Schwab’s assets and liabilities measured at fair value on a recurring basis include: certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, and certain other assets. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. Quoted prices for investments in exchange-traded securities represent end-of-day close prices published by exchanges. Quoted prices for money market funds and other mutual funds represent reported net asset values. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices in active markets do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. We generally obtain prices from three independent third-party pricing sources for assets recorded at fair value. Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposit; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in material differences in the amounts recorded. For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2020 Form 10-K. The Company did not adjust prices received from the primary independent third-party pricing service at September 30, 2021 or December 31, 2020. - 51 - 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: September 30, 2021 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 10,346 $ — $ — $ 10,346 U.S. Treasury securities — 1 — 1 Total cash equivalents 10,346 1 — 10,347 Investments segregated and on deposit for regulatory purposes: Certificates of deposit — 350 — 350 U.S. Government securities — 24,347 — 24,347 Total investments segregated and on deposit for regulatory purposes — 24,697 — 24,697 Available for sale securities: U.S. agency mortgage-backed securities — 331,314 — 331,314 Asset-backed securities — 17,628 — 17,628 Corporate debt securities — 12,599 — 12,599 U.S. Treasury securities — 11,477 — 11,477 U.S. state and municipal securities — 1,702 — 1,702 Non-agency commercial mortgage-backed securities — 1,223 — 1,223 Certificates of deposit — 999 — 999 Other — 26 — 26 Total available for sale securities — 376,968 — 376,968 Other assets: Equity and bond mutual funds 114 — — 114 U.S. Government securities — 8 — 8 State and municipal debt obligations — 16 — 16 Equity, corporate debt, and other securities 12 16 — 28 Total other assets 126 40 — 166 Total $ 10,472 $ 401,706 $ — $ 412,178 - 52 - 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, 2020 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 11,159 $ — $ — $ 11,159 Total cash equivalents 11,159 — — 11,159 Investments segregated and on deposit for regulatory purposes: Certificates of deposit — 550 — 550 U.S. Government securities — 30,698 — 30,698 Total investments segregated and on deposit for regulatory purposes — 31,248 — 31,248 Available for sale securities: U.S. agency mortgage-backed securities — 290,353 — 290,353 Asset-backed securities — 18,898 — 18,898 Corporate debt securities — 12,796 — 12,796 U.S. Treasury securities — 10,656 — 10,656 U.S. state and municipal securities — 1,697 — 1,697 Foreign government agency securities — 1,413 — 1,413 Non-agency commercial mortgage-backed securities — 1,265 — 1,265 Certificates of deposit — 300 — 300 Other — 22 — 22 Total available for sale securities — 337,400 — 337,400 Other assets: Equity and bond mutual funds 361 — — 361 U.S. Government securities — 253 — 253 State and municipal debt obligations — 37 — 37 Equity, corporate debt, and other securities 7 29 — 36 Total other assets 368 319 — 687 Total $ 11,527 $ 368,967 $ — $ 380,494 - 53 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Fair Value of Other Financial Instruments The following tables present the fair value hierarchy for other financial instruments: September 30, 2021 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 23,976 $ 23,976 $ — $ — $ 23,976 Cash and investments segregated and on deposit for regulatory purposes 17,595 4,015 13,580 — 17,595 Receivables from brokerage clients — net 86,549 — 86,549 — 86,549 Bank loans — net: First Mortgages 19,282 — 19,340 — 19,340 HELOCs 686 — 707 — 707 Pledged asset lines 11,412 — 11,412 — 11,412 Other 190 — 190 — 190 Total bank loans — net 31,570 — 31,649 — 31,649 Other assets 6,238 — 6,238 — 6,238 Liabilities Bank deposits $ 395,275 $ — $ 395,275 $ — $ 395,275 Payables to brokerage clients 113,052 — 113,052 — 113,052 Accrued expenses and other liabilities 11,796 — 11,796 — 11,796 Short-term borrowings 3,000 — 3,000 — 3,000 Long-term debt 19,429 — 20,285 — 20,285 December 31, 2020 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 29,189 $ 29,189 $ — $ — $ 29,189 Cash and investments segregated and on deposit for regulatory purposes 19,143 4,212 14,931 — 19,143 Receivables from brokerage clients — net 64,436 — 64,436 — 64,436 Bank loans — net: First Mortgages 14,882 — 15,305 — 15,305 HELOCs 837 — 838 — 838 Pledged asset lines 7,916 — 7,916 — 7,916 Other 178 — 178 — 178 Total bank loans — net 23,813 — 24,237 — 24,237 Other assets 2,883 — 2,883 — 2,883 Liabilities Bank deposits $ 358,022 $ — $ 358,022 $ — $ 358,022 Payables to brokerage clients 104,201 — 104,201 — 104,201 Accrued expenses and other liabilities 8,263 — 8,263 — 8,263 Long-term debt 13,626 — 14,829 — 14,829 - 54 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 14. Stockholders’ Equity On June 1, 2021, the Company redeemed all of the 600,000 outstanding shares of its 6.00 % non-cumulative perpetual preferred stock, Series C, and the corresponding 24,000,000 depositary shares, each representing a 1/40th interest in a share of the Series C Preferred Stock. The depositary shares were redeemed at a redemption price of $ 25 per depositary share for a total of $ 600 million. On March 30, 2021, the Company issued and sold 24,000,000 depositary shares, each representing a 1/40th ownership interest in a share of 4.450 % fixed-rate non-cumulative perpetual preferred stock, Series J, $ 0.01 par value, with a liquidation preference of $ 1,000 per share (equivalent of $ 25 per Depositary Share). The net proceeds of the offering were $ 584 million, after deducting the underwriting discount and offering expenses. On March 18, 2021, the Company issued and sold 2,250,000 depositary shares, each representing a 1/100th ownership interest in a share of 4.000 % fixed-rate reset non-cumulative perpetual preferred stock, Series I, $ 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 $ 2.2 billion, after deducting the underwriting discount and offering expenses. On January 30, 2019, CSC publicly announced that its Board of Directors authorized a share repurchase program to repurchase up to $ 4.0 billion of common stock. The share repurchase authorization does not have an expiration date. There were no repurchases of CSC’s common stock under this authorization during the nine months ended September 30, 2021 and 2020. The Company’s preferred stock issued and outstanding is as follows: Liquidation Preference Per Share Dividend Rate in Effect at September 30, 2021 Earliest Redemption Date Date at Which Dividend Rate Resets or Becomes Floating Reset / Floating Rate Margin Over Reset / Floating Rate Shares Issued and Outstanding (in thousands) at Carrying Value at September 30, 2021 (1) December 31, 2020 (1) September 30, 2021 December 31, 2020 Issue Date Fixed-rate: Series C (2) — 600 $ 1,000 $ — $ 585 08/03/15 — — N/A N/A N/A Series D 750 750 1,000 728 728 03/07/16 5.950 % 06/01/21 N/A N/A N/A Series J 600 — 1,000 584 — 03/30/21 4.450 % 06/01/26 N/A N/A N/A Fixed-to-floating-rate/Fixed-rate reset: Series A 400 400 1,000 397 397 01/26/12 7.000 % 02/01/22 02/01/22 3M LIBOR 4.820 % Series E 6 6 100,000 591 591 10/31/16 4.625 % 03/01/22 03/01/22 3M LIBOR 3.315 % Series F 5 5 100,000 492 492 10/31/17 5.000 % 12/01/27 12/01/27 3M LIBOR 2.575 % Series G 25 25 100,000 2,470 2,470 04/30/20 5.375 % 06/01/25 06/01/25 5 -Year Treasury 4.971 % Series H 25 25 100,000 2,470 2,470 12/11/20 4.000 % 12/01/30 12/01/30 10 -Year Treasury 3.079 % Series I (3) 23 — 100,000 2,222 — 03/18/21 4.000 % 06/01/26 06/01/26 5 -Year Treasury 3.168 % Total preferred stock 1,834 1,811 $ 9,954 $ 7,733 (1) Represented by depositary shares, except for Series A. (2) Series C Preferred Stock was redeemed on June 1, 2021. (3) The Series I dividend rate resets on each five-year anniversary beginning on June 1, 2026 based on a five-year treasury rate, representing the average of the yields on actively traded U.S. treasury securities adjusted to constant maturity for five-year maturities. Series I is only redeemable on dividend payment dates on or after the first reset date. N/A Not applicable. - 55 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Dividends declared on the Company’s preferred stock are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Total Declared Per Share Amount Total Declared Per Share Amount Total Declared Per Share Amount Total Declared Per Share Amount Series A $ — $ — $ — $ — $ 14.0 $ 35.00 $ 14.0 $ 35.00 Series C (1) — — 9.0 15.00 18.0 30.00 27.0 45.00 Series D 11.2 14.88 11.2 14.88 33.5 44.64 33.5 44.64 Series E 13.8 2,312.50 13.8 2,312.50 27.7 4,625.00 27.7 4,625.00 Series F — — — — 12.5 2,500.00 12.5 2,500.00 Series G (2) 33.6 1,343.75 45.2 1,806.60 100.8 4,031.25 45.2 1,806.60 Series H (3) 25.0 1,000.00 — — 72.2 2,888.89 — — Series I (4) 22.5 1,000.00 — — 40.7 1,811.11 — — Series J (5) 6.8 11.13 — — 11.3 18.67 — — Total $ 112.9 $ 79.2 $ 330.7 $ 159.9 (1) Series C Preferred Stock was redeemed on June 1, 2021. Prior to redemption, dividends were paid quarterly and the final dividend was paid on June 1, 2021. (2) Series G Preferred Stock was issued on April 30, 2020. Dividends are paid quarterly, and the first dividend was paid on September 1, 2020. (3) Series H Preferred Stock was issued on December 11, 2020. Dividends are paid quarterly, and the first dividend was paid on March 1, 2021. (4) Series I Preferred Stock was issued on March 18, 2021. Dividends are paid quarterly, and the first dividend was paid on June 1, 2021. (5) Series J Preferred Stock was issued on March 30, 2021. Dividends are paid quarterly, and the first dividend was paid on June 1, 2021. - 56 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 15. Accumulated Other Comprehensive Income The components of other comprehensive income (loss) are as follows: 2021 2020 Three Months Ended September 30, Before Tax Tax Effect Net of Tax Before Tax Tax Effect Net of Tax Change in net unrealized gain (loss) on available for sale securities: Net unrealized gain (loss) $ ( 1,519 ) $ 364 $ ( 1,155 ) $ 97 $ ( 20 ) $ 77 Other reclassifications included in other revenue — — — ( 3 ) 1 ( 2 ) Other comprehensive income (loss) $ ( 1,519 ) $ 364 $ ( 1,155 ) $ 94 $ ( 19 ) $ 75 2021 2020 Nine Months Ended September 30, Before Tax Tax Effect Net of Tax Before Tax Tax Effect Net of Tax Change in net unrealized gain (loss) on available for sale securities: Net unrealized gain (loss) $ ( 5,420 ) $ 1,289 $ ( 4,131 ) $ 7,361 $ ( 1,762 ) $ 5,599 Other reclassifications included in other revenue ( 14 ) 4 ( 10 ) ( 3 ) 1 ( 2 ) Other — — — 1 — 1 Other comprehensive income (loss) $ ( 5,434 ) $ 1,293 $ ( 4,141 ) $ 7,359 $ ( 1,761 ) $ 5,598 AOCI balances are as follows: Total AOCI Balance at June 30, 2020 $ 5,611 Available for sale securities: Net unrealized gain (loss), excluding transfers to available for sale from held to maturity 77 Other reclassifications included in other revenue ( 2 ) Balance at September 30, 2020 $ 5,686 Balance at June 30, 2021 $ 2,408 Available for sale securities: Net unrealized gain (loss) ( 1,155 ) Balance at September 30, 2021 $ 1,253 - 57 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Total AOCI Balance at December 31, 2019 $ 88 Available for sale securities: Net unrealized gain (loss), excluding transfers to available for sale from held to maturity 4,542 Net unrealized gain on securities transferred to available for sale from held to maturity (1) 1,057 Other reclassifications included in other revenue ( 2 ) Other 1 Balance at September 30, 2020 $ 5,686 Balance at December 31, 2020 $ 5,394 Available for sale securities: Net unrealized gain (loss) ( 4,131 ) Other reclassifications included in other revenue ( 10 ) Balance at September 30, 2021 $ 1,253 (1) On January 1, 2020, the Company transferred all of its investment securities designated as HTM to the AFS category. The transfer resulted in a net of tax increase to AOCI of $ 1.1 billion. See Note 6 in the 2020 Form 10-K for additional discussion on the 2020 transfer of HTM securities to AFS. - 58 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 16. Earnings Per Common Share For the three and nine months ended September 30, 2021, the Company had voting and nonvoting common stock outstanding. Since the rights of the voting and nonvoting common stock are identical, except with respect to voting, the net income of the Company has been allocated on a proportionate basis to the two classes. Diluted earnings per share is calculated using the treasury stock method for outstanding stock options and non-vested restricted stock units and the if-converted method for nonvoting common stock. For further details surrounding the EPS computation, see Note 25 in the 2020 Form 10-K. EPS under the basic and diluted computations for both common stock and nonvoting common stock are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Common Stock Nonvoting Common Stock (1) Common Stock Nonvoting Common Stock (1) Common Stock Nonvoting Common Stock (1) Common Stock Nonvoting Common Stock (1) Basic earnings per share: Numerator Net income $ 1,462 $ 64 $ 698 N/A $ 4,096 $ 179 $ 2,164 N/A Preferred stock dividends and other (2) ( 115 ) ( 5 ) ( 83 ) N/A ( 349 ) ( 15 ) ( 171 ) N/A Net income available to common stockholders $ 1,347 $ 59 $ 615 N/A $ 3,747 $ 164 $ 1,993 N/A Denominator Weighted-average common shares outstanding — basic 1,809 79 1,289 N/A 1,806 79 1,288 N/A Basic earnings per share $ .74 $ .74 $ .48 N/A $ 2.07 $ 2.07 $ 1.55 N/A Diluted earnings per share: Numerator Net income available to common stockholders $ 1,347 $ 59 $ 615 N/A $ 3,747 $ 164 $ 1,993 N/A Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares 59 — N/A N/A 164 — N/A N/A Allocation of net income available to common stockholders: $ 1,406 $ 59 $ 615 N/A $ 3,911 $ 164 $ 1,993 N/A Denominator Weighted-average common shares outstanding — basic 1,809 79 1,289 N/A 1,806 79 1,288 N/A Conversion of nonvoting shares to voting shares 79 — N/A N/A 79 — N/A N/A Common stock equivalent shares related to stock incentive plans 10 — 5 N/A 10 — 6 N/A Weighted-average common shares outstanding — diluted (3) 1,898 79 1,294 N/A 1,895 79 1,294 N/A Diluted earnings per share $ .74 $ .74 $ .48 N/A $ 2.06 $ 2.06 $ 1.54 N/A (1) Nonvoting common stock was issued in conjunction with the October 6, 2020 acquisition of TD Ameritrade. As such, nonvoting common stock is not applicable for the basic and diluted EPS computations for the three and nine months ended September 30, 2020. (2) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units. (3) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 13 million and 15 million for the three and nine months ended September 30, 2021, respectively, and 19 million and 20 million for the three and nine months ended September 30, 2020, respectively. N/A Not applicable. - 59 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 17. Regulatory Requirements At September 30, 2021, CSC and CSB met all of their respective capital requirements. The regulatory capital and ratios for CSC (consolidated) and CSB are as follows: Actual Minimum to be Well Capitalized Minimum Capital Requirement September 30, 2021 Amount Ratio Amount Ratio Amount Ratio (1) CSC Common Equity Tier 1 Risk-Based Capital $ 26,616 19.6 % N/A $ 6,117 4.5 % Tier 1 Risk-Based Capital 36,570 26.9 % N/A 8,156 6.0 % Total Risk-Based Capital 36,591 26.9 % N/A 10,875 8.0 % Tier 1 Leverage 36,570 6.3 % N/A 23,052 4.0 % Supplementary Leverage Ratio 36,570 6.3 % N/A 17,485 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 26,498 26.1 % $ 6,589 6.5 % $ 4,562 4.5 % Tier 1 Risk-Based Capital 26,498 26.1 % 8,110 8.0 % 6,082 6.0 % Total Risk-Based Capital 26,512 26.2 % 10,137 10.0 % 8,110 8.0 % Tier 1 Leverage 26,498 7.1 % 18,700 5.0 % 14,960 4.0 % Supplementary Leverage Ratio 26,498 7.0 % N/A 11,384 3.0 % December 31, 2020 CSC Common Equity Tier 1 Risk-Based Capital $ 22,916 18.5 % N/A $ 5,575 4.5 % Tier 1 Risk-Based Capital 30,649 24.7 % N/A 7,433 6.0 % Total Risk-Based Capital 30,688 24.8 % N/A 9,910 8.0 % Tier 1 Leverage 30,649 6.3 % N/A 19,396 4.0 % Supplementary Leverage Ratio 30,649 6.2 % N/A 14,744 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 17,526 19.2 % $ 5,919 6.5 % $ 4,098 4.5 % Tier 1 Risk-Based Capital 17,526 19.2 % 7,285 8.0 % 5,464 6.0 % Total Risk-Based Capital 17,558 19.3 % 9,106 10.0 % 7,285 8.0 % Tier 1 Leverage 17,526 5.5 % 15,979 5.0 % 12,783 4.0 % Supplementary Leverage Ratio 17,526 5.4 % N/A 9,763 3.0 % (1) Under the Basel III capital rule, CSC and CSB are also required to maintain a capital conservation buffer and a countercyclical capital buffer above the regulatory minimum risk-based capital ratios. The capital conservation buffer and countercyclical capital buffer were 2.5% and zero percent, respectively, for both periods presented. If either buffer falls below the minimum requirement, the Company would be subject to limits on capital distributions and discretionary bonus payments to executive officers. At September 30, 2021, 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 September 30, 2021, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since September 30, 2021 that management believes have changed CSB’s capital category. At September 30, 2021, the balance sheets of CSPB and Charles Schwab Trust Bank (Trust Bank) consisted primarily of investment securities, and the entities held total assets of $ 35.6 billion and $ 14.7 billion, respectively. Based on their regulatory capital ratios, at September 30, 2021, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules. - 60 - 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, TDAC, and TD Ameritrade, Inc., are as follows: September 30, 2021 December 31, 2020 CS&Co Net capital $ 4,281 $ 3,117 Minimum dollar requirement 1.000 1.000 2% of aggregate debit balances 913 616 Net capital in excess of required net capital $ 3,368 $ 2,501 TDAC Net capital $ 5,299 $ 4,040 Minimum dollar requirement 1.500 1.500 2% of aggregate debit balances 1,007 748 Net capital in excess of required net capital $ 4,292 $ 3,292 TD Ameritrade, Inc. Net capital $ 675 $ 350 Minimum dollar requirement 0.250 0.250 2% of aggregate debit balances — — Net capital in excess of required net capital $ 675 $ 350 Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at September 30, 2021. The SEC’s Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit. 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. 18. Segment Information Schwab’s two reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are attributed to the two segments based on which segment services the client. Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments. - 61 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Financial information for the segments is presented in the following table: Investor Services Advisor Services Total Three Months Ended September 30, 2021 2020 2021 2020 2021 2020 Net Revenues Net interest revenue $ 1,530 $ 948 $ 500 $ 395 $ 2,030 $ 1,343 Asset management and administration fees 805 643 296 217 1,101 860 Trading revenue 873 139 91 42 964 181 Bank deposit account fees 239 — 84 — 323 — Other 114 51 38 13 152 64 Total net revenues 3,561 1,781 1,009 667 4,570 2,448 Expenses Excluding Interest 1,956 1,167 603 392 2,559 1,559 Income before taxes on income $ 1,605 $ 614 $ 406 $ 275 $ 2,011 $ 889 Investor Services Advisor Services Total Nine Months Ended September 30, 2021 2020 2021 2020 2021 2020 Net Revenues Net interest revenue $ 4,462 $ 3,028 $ 1,426 $ 1,276 $ 5,888 $ 4,304 Asset management and administration fees 2,316 1,826 848 662 3,164 2,488 Trading revenue 2,831 396 304 166 3,135 562 Bank deposit account fees 742 — 269 — 1,011 — Other 462 122 152 39 614 161 Total net revenues 10,813 5,372 2,999 2,143 13,812 7,515 Expenses Excluding Interest 6,253 3,489 1,869 1,202 8,122 4,691 Income before taxes on income $ 4,560 $ 1,883 $ 1,130 $ 941 $ 5,690 $ 2,824 - 62 - THE CHARLES SCHWAB CORPORATION