What changed in this filing

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Item 1. Business

2023-02-24 compared with 2022-02-24 · 112 added, 109 removed, 253 unchanged (47% of the section changed)

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Effective January 1, 2021, CSC changed the designation of its corporate headquarters from San Francisco, California to Westlake, Texas.

The Company maintains a nationwide presence across a network of branches and operations centers, and our Westlake location provides a centrally located hub for the Company.

The Company maintains a nationwide presence across a network of branches and operations centers, as well as several international locations, and our Westlake location provides a centrally located hub for the Company.

Business Strategy and Competitive Environment

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Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $60 trillion, which means the Company’s $7.05 trillion in client assets leaves substantial opportunity for growth.

Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and

Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.

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

Within Investor Services, our competition in serving individual investors spans brokerage, wealth management, and asset management firms, as well as banks and trust companies.

In the Advisor Services arena, we compete with institutional custodians, traditional and discount brokers, banks, and trust companies.

Within Investor Services, our competition in serving individual investors spans brokerage, wealth management, and asset management firms, as well as banks, trust companies, financial technology companies, and retirement service providers.

In the Advisor Services arena, we compete with institutional custodians, wirehouses, regional and independent broker-dealers, banks, and trust companies.

Across both segments, our key competitive advantages are:

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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.

TDA provides services to individual retail investors and to RIAs predominantly through the Internet, a national branch network, and relationships with RIAs.

TD Ameritrade’s sources of net revenues primarily consist of trading revenue, bank deposit account fees, net interest revenue, and asset management and administration fees.

TD Ameritrade provides securities brokerage services, including trade execution, clearing services, and margin lending;

and futures and foreign exchange trade execution services.

TD Ameritrade serves individual retail investors and RIAs predominantly through the Internet, a national branch network, and relationships with RIAs.

TD Ameritrade’s sources of net revenues primarily consist of trading revenue, net interest revenue, bank deposit account fees, and asset management and administration fees.

• TDA’s trading revenue includes commissions earned on trades of certain securities and derivatives, as well as order flow revenue.

• Bank deposit account fees are earned through an insured deposit account agreement with TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions), as well as bank deposit account sweep agreements with other third-party depository institutions, whereby uninvested cash held within eligible brokerage client accounts is swept into deposit accounts at the TD Depository Institutions and other third-party depository institutions.

• TDA’s net interest revenue is generated primarily through margin lending, securities lending activity, as well as segregated and operating cash and investments.

Interest-bearing liabilities primarily consist of interest-bearing payables to brokerage clients and long-term debt.

• TDA’s asset management and administration fee revenue includes revenues earned on client assets invested in money market funds, other mutual funds, and certain investment programs.

TDA’s asset management and administration fees also include referral and asset-based program fees on its client assets managed by independent RIAs utilizing TDA’s trading and investing platforms.

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• TDA’s net interest revenue is primarily generated through margin lending, securities lending, and segregated and operating cash and investments.

Interest-bearing liabilities primarily consist of payables to brokerage clients and short-term borrowings.

• Bank deposit account fees are earned primarily through an insured deposit account agreement with TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions) described below.

• TDA’s asset management and administration fees includes revenue earned on client assets invested in money market funds, other mutual funds, and certain investment programs.

Asset management and administration fees also include referral and asset-based program fees on client assets managed by independent RIAs utilizing TDA’s trading and investing platforms.

Integration Overview

The acquisition of TD Ameritrade significantly increases our scale to help support the Company’s ongoing efforts to enhance the client experience, provide deeper resources for individual investors as well as RIAs, and continue to improve our operating efficiency.

The acquisition of TD Ameritrade supports the Company’s ongoing efforts to enhance the client experience, to provide deeper resources for individual investors and RIAs including more robust trading capabilities, and to continue to improve our operating efficiency.

At the time the acquisition closed, TDA had approximately $1.6 trillion in client assets and approximately 14.5 million brokerage accounts.

We are actively combining the respective strengths of Schwab and TD Ameritrade and investing in enhanced client experience capabilities to further our financial success for the benefit of clients, employees, and stockholders.

We expect to transition TDA clients to Schwab within 30 to 36 months from the October 6, 2020 date of acquisition.

The Company has made significant progress in its efforts to reduce overlapping or redundant roles across the two firms and has largely completed the rationalization of CS&Co and TD Ameritrade, Inc.

We continue to combine the respective strengths of Schwab and TD Ameritrade and invest in enhanced client experience capabilities to further our financial success for the benefit of clients, employees, and stockholders.

Based on our current integration plans, the Company expects to complete most client transitions from TD Ameritrade to Schwab across multiple groups over the course of 2023, with the transition of a small client group in the first half of 2024.

The first transition of client accounts was completed in February 2023.

The Company has made significant progress in its efforts to reduce overlapping or redundant roles across the two firms and has largely completed the rationalization of CS&Co and TD Ameritrade,

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branch locations.

These and other integration activities such as preparation for client transitions are expected to continue throughout the integration process.

Integration activities such as preparation for client transitions and selective role reductions are expected to continue through the remaining integration process.

CS&Co, as well as TD Ameritrade, Inc.

and TDAC, will continue to operate as separate broker-dealers to serve their respective clients while integration work continues.

Throughout the integration, the Company plans to generally adopt Schwab platforms and systems, though we’re committed to leveraging material advantages in TD Ameritrade’s platforms when appropriate, as exemplified by our retention of TD Ameritrade’s thinkorswim ® and thinkpipes ® trading platforms, education, and tools into our offerings for retail and RIA clients.

The Company is generally adopting Schwab platforms and systems, though we’re leveraging certain material advantages in TD Ameritrade’s platforms, as exemplified by our retention of TD Ameritrade’s thinkorswim ® and thinkpipes ® trading platforms, education, and tools into our offerings for retail and RIA clients.

We are also retaining TD Ameritrade Institutional’s customizable portfolio rebalancing solution, iRebal ® , as part of our offering for independent advisor clients.

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Schwab provides recordkeeping and support services to the TD Depository Institutions with respect to the deposit accounts for which Schwab receives an aggregate monthly fee.

Under the IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions was reduced, relative to TD Ameritrade’s agreement prior to acquisition, by 40%, from 25 basis points to 15 basis points for the life of the agreement.

Prior to our acquisition, under TDA’s prior insured deposit account agreement with the TD Depository Institutions, TDA had floors in place which enabled it to carve-out up to $20 billion of floating-rate investments from the applicable service fee during specified low-rate environments.

Pursuant to the IDA agreement, the 15 basis point service fee now applies across all designated fixed and floating IDA balances.

See “Part II – Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements” (Item 8) – Note 3 for more information on the TD Ameritrade acquisition.

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During 2020, the Company completed its acquisition of technology and intellectual property of Motif, a financial technology company.

The Motif assets help us build on our existing capabilities and help accelerate our development of thematic and direct index investing for Schwab’s retail investors and RIA clients.

Also during 2020, the Company completed its acquisition of Wasmer, Schroeder & Company, LLC (Wasmer Schroeder), which adds established strategies and new separately managed account offerings to our fixed income lineup.

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The Motif assets are helping us build on our existing capabilities and helped accelerate our development of thematic and direct index investing for Schwab’s retail investors and RIA clients.

Also during 2020, the Company completed its acquisition of Wasmer, Schroeder & Company, LLC (Wasmer Schroeder), which added established strategies and new separately managed account offerings to our fixed income lineup.

Products and Services

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Examples of these offerings include the following:

• Brokerage – an array of full-feature brokerage accounts with equity and fixed income trading, margin lending, options trading, futures and forex trading, and cash management capabilities including third-party certificates of deposit;

• Mutual funds – third-party mutual funds through the Mutual Fund Marketplace ® , including non-transaction fee mutual funds through the Mutual Fund OneSource ® service, which also includes proprietary mutual funds, plus mutual fund trading and clearing services to broker-dealers;

• Mutual funds – third-party mutual funds through the Mutual Fund Marketplace ® , including no-transaction-fee (NTF) mutual funds through the Mutual Fund OneSource ® service, which also includes proprietary mutual funds, plus mutual fund trading and clearing services to broker-dealers;

• Exchange-traded funds (ETFs) – an extensive offering of ETFs, including both proprietary and third-party ETFs;

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• Trust – trust custody services, personal trust reporting services, and administrative trustee services.

THE CHARLES SCHWAB CORPORATION

These investing products and services are made available through two business segments – Investor Services and Advisor Services.

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Investor Services

Charles Schwab initially founded the Company over 40 years ago to provide individual investors with access to the financial markets at a highly competitive cost.

Charles Schwab initially founded the Company nearly 50 years ago to provide individual investors with access to the financial markets at a highly competitive cost.

The Company has expanded offerings over time in response to client needs, aiming to provide a compelling and often disruptive solution in the marketplace.

The Investor Services segment includes the Retail Investor, Stock Plan Services, Retirement Plan Services, Compliance Solutions, Mutual Fund Clearing Services, and Off-Platform Sales business units.

The Investor Services segment includes the following business units:

Retail Investor;

Workplace Financial Services, which includes Stock Plan Services, Retirement Plan Services, and Designated Brokerage Services (formerly included in the Compliance Solutions business unit, a portion of which was sold to a third-party in 2022);

Mutual Fund Clearing Services;

and Off-Platform Sales.

Through the Retail Investor business unit, we offer individual investors access to a broad set of products, tools, education, trading, and advisory solutions.

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Our advisory solutions span a broad range of discretionary and non-discretionary choices, with minimum investments starting as low as $5,000, making it accessible to a broad set of investors.

Our premier advisory solution, Schwab Private Client™, features a personal advice relationship with a designated Private Client Advisor, supported by a team of investment professionals who provide individualized service, a customized investment strategy developed in collaboration with the client, and ongoing guidance and execution.

Our premier advisory solution, Schwab Wealth Advisory™ (formerly known as Schwab Private Client™), features a personal advice relationship with a dedicated Wealth Advisor, supported by a team of investment professionals who provide individualized service, a customized investment strategy developed in collaboration with the client, and ongoing guidance and execution.

We also offer referrals to an independent RIA in the Schwab Advisor Network ® .

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We provide investors access to professional investment management in a diversified account that is invested exclusively in either mutual funds or ETFs through the Schwab Managed Portfolios™ and the Windhaven Investment Management Strategies ® , or equity securities and ETFs through the ThomasPartners Investment Management ® Strategies.

Through our acquisition of Wasmer Schroeder in 2020, more than 20 fixed income strategies and new separately

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managed account offerings have been made available to retail clients beginning in 2021, including two positive impact strategies and a multi-sector income strategy.

Through our acquisition of Wasmer Schroeder in 2020, more than 20 fixed income strategies and separately managed account offerings have been made available to retail clients beginning in 2021, including two positive impact strategies and a multi-sector income strategy.

The positive impact strategies utilize socially responsible investing, or a general investing strategy that considers not only traditional measures of risk and return, but environmental, social, and corporate governance (ESG) factors as well.

We also refer investors who want to utilize a specific third-party money manager to direct a portion of their investment assets to the Schwab Managed Account ™ program.

Schwab Intelligent Portfolios ® , available since 2015, are for clients who are looking to have their assets professionally managed via a fully automated online investment advisory service.

Schwab Intelligent Portfolios ® , available since 2015, is for clients who are looking to have their assets professionally managed via a fully automated online investment advisory service.

Schwab Intelligent Portfolios Premium ® , a hybrid advisory service, offers clients an advisory service which combines unlimited guidance provided by a C ERTIFIED F INANCIAL P LANNER ™ and our robo-advice technology to make financial and investment planning more accessible to investors.

Schwab Intelligent Income ® is a low-cost solution designed to offer a simple, modern way to generate income from existing investment portfolios.

Clients of TD Ameritrade also have access to a suite of programs designed to meet their specific investment advisory needs.

TDA’s Selective Portfolios offers a broader range of goal-oriented portfolios made up of mutual funds and ETFs, through a combination of automated technology and professional insights.

TDA’s Personalized Portfolios offers clients tailored portfolios, supported by a team of investment professionals.

Finally, TDA’s AdvisorDirect ® referral program provides clients with an introduction to an independent RIA that can assist in developing customized investment strategies around their unique goals.

Further, given our belief in the importance of financial planning, we offer a broad set of planning capabilities addressing a variety of planning needs.

Our solutions include simple, free digital retirement calculators, our complimentary digital Schwab Plan ™ available to all Schwab clients, as well as more complex planning solutions that are delivered by a Schwab representative who takes into account a client’s personal and financial goals to build a tailored financial plan.

To meet the specific needs of clients who actively trade, Schwab offers integrated web- and software-based trading platforms, real-time market data, options trading, premium stock and futures research, and multi-channel access, as well as sophisticated account and trade management features, risk management and decision support tools, and dedicated personal support.

For example, clients that trade more actively can use these channels to access highly competitive pricing, expert tools, and extensive service capabilities – including experienced, knowledgeable teams of trading specialists, and integrated product offerings.

TD Ameritrade offers clients the robust thinkorswim ® trading platform designed for the specialized needs of active traders, the Trading Learning Center to help build client knowledge through sequenced courses, the TDA Network, in-house financial network programming, and a trading community platform allowing traders to share ideas.

To meet the specific needs of trading clients, Schwab offers integrated web-, mobile-, and software-based trading platforms, real-time market data, options trading, premium research, and multi-channel access, as well as sophisticated account and trade management features, risk management tools, and dedicated service support.

For example, clients that trade more actively can

THE CHARLES SCHWAB CORPORATION

use these channels to access highly competitive pricing, expert tools, and extensive service capabilities – including experienced, knowledgeable teams of trading specialists, and integrated product offerings.

TD Ameritrade offers clients the robust thinkorswim ® suite of trading platforms designed for the specialized needs of trading clients, content to help clients build knowledge through multiple education options, financial news programming and market insights, in-platform chat functionality that allows trading clients to share ideas, and a full complement of trading products that includes futures and forex.

clients wishing to invest in foreign equities, Schwab offers a suite of global investing capabilities, including online access to certain foreign equity markets with the ability to trade in their local currencies.

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We also offer clients a range of self-service education and support tools, providing quick and efficient access to a broad lineup of information, research, tools, and administrative services, which clients can access according to their needs.

Educational tools include workshops, webcasts, podcasts, interactive courses, and online information about investing, from which Schwab does not earn revenue.

Since 2020, we’ve maintained virtual events to engage with retail and institutional clients amidst an unprecedented climate.

Educational tools include online and in-person workshops, live and on-demand webcasts, podcasts, interactive courses, and online information about investing.

In 2022, we re-launched in-person events to engage with retail and institutional clients after maintaining virtual events during the unprecedented environment seen in 2020 and 2021.

Additionally, we provide various online research and analysis tools that are designed to help clients achieve better investment outcomes.

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Specialized services for executive transactions and reporting, grant acceptance tracking, and other services are offered to employers to meet the needs of administering the reporting and compliance aspects of an equity compensation plan.

Our Retirement Plan Services business unit offers a bundled 401(k) retirement plan product that provides retirement plan sponsors with extensive investment options, trustee or custodial services, and participant-level recordkeeping.

Retirement plan design features, which increase plan efficiency and achieve employer goals, are also offered, such as automatic

THE CHARLES SCHWAB CORPORATION

enrollment, automatic fund mapping at conversion, and automatic contribution increases.

Retirement Plan Services offers a bundled 401(k) retirement plan product that provides retirement plan sponsors with extensive investment options, trustee or custodial services, and participant-level recordkeeping.

Retirement plan design features, which increase plan efficiency and achieve employer goals, are also offered, such as automatic enrollment, automatic fund mapping at conversion, and automatic contribution increases.

In addition to an open architecture investment platform, we offer access to low cost index mutual funds and ETFs.

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Services also include support for Roth 401(k) accounts, profit sharing, defined benefit plans, non-qualified plans, and Schwab Personal Choice Retirement Account ® , a self-directed brokerage offering for retirement plans administered by Retirement Business Services within our Advisor Services segment.

Lastly, the Mutual Fund Clearing Services business unit provides open-end mutual fund trading, settlement, and related transactional services to banks, brokerage firms, and trust companies, and the Off-Platform Sales business unit offers proprietary mutual funds, ETFs, and collective trust funds (CTFs) outside the Company and not on the Schwab platform.

Lastly, Mutual Fund Clearing Services provides open-end mutual fund trading, settlement, and related transactional services to banks, brokerage firms, and trust companies, and Off-Platform Sales offers proprietary mutual funds, ETFs, and collective trust funds (CTFs) outside the Company and not on the Schwab platform.

They are included within the Investor Services segment given their leveraging of the products and services offered to individual investors.

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RIAs who custody client accounts at Schwab may use proprietary software that provides them with up-to-date client account information as well as trading capabilities.

The Advisor Services website is the core platform for RIAs to conduct daily business activities online with Schwab, including viewing and managing client account information and accessing news and market information.

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The website provides account servicing capabilities for RIAs, including account opening, money movement, transfer of assets, trading, checking status, and communicating with our service team.

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In this capacity, we do not charge the RIA or end client a custody fee.

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For RIAs on the TD Ameritrade Institutional platform, TD Ameritrade’s thinkpipes ® trading platform offers a multitude of features, including real-time charting and efficient trading and allocation.

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Schwab’s largest sources of net revenues are net interest revenue, asset management and administration fees, trading revenue, and bank deposit account fees.

These revenue streams are supported by the combination of bank, broker-dealer, and asset management operating subsidiaries, each of which brings specific capabilities that enable us to provide clients with the products and services they are seeking.

These revenue streams are supported by the combination of our bank, broker-dealer, and asset management operating subsidiaries, each of which brings specific capabilities that enable us to provide clients with the products and services they are seeking.

Net interest revenue is the difference between interest generated on interest-earning assets and interest paid on funding sources.

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Schwab’s interest-earning assets are primarily comprised of high-quality fixed income securities, margin loans, and bank loans.

The majority of asset management and administration fees are earned from proprietary money market mutual funds, proprietary and third-party mutual funds and ETFs, and fee-based advisory solutions.

Asset management and administration fees are primarily earned from proprietary money market mutual funds, proprietary and third-party mutual funds and ETFs, and fee-based advisory solutions.

Trading revenue includes commissions earned for executing trades for clients in certain individual equities, options, futures, fixed income securities, and certain third-party mutual funds and ETFs;

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and principal transaction revenue earned primarily from actions to support client trading in fixed income securities.

Beginning in the fourth quarter of 2019, Schwab eliminated online trading commissions for U.S.

and Canadian-listed stocks and ETFs, as well as the base charge on options.

Bank deposit account fees are primarily recognized pursuant to the Company’s IDA agreement, as well as sweep agreements with other third-party depository institutions.

Under these agreements, uninvested cash within eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions and other third-party depository institutions.

Schwab provides recordkeeping and support services to the TD Depository Institutions and other third-party depository institutions for bank deposit account fees.

THE CHARLES SCHWAB CORPORATION

Bank deposit account fees are primarily recognized pursuant to the Company’s IDA agreement with the TD Depository Institutions.

Under this agreement, uninvested cash within eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions.

Schwab provides recordkeeping and support services to the TD Depository Institutions for bank deposit account fees.

As a participant in the securities, banking and financial services industries, Schwab is subject to extensive regulation under both federal and state laws by governmental agencies, supervisory authorities, and self-regulatory organizations (SROs).

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Holding Company and Bank Regulation

CSC is a savings and loan holding company and is regulated, supervised, and examined by the Federal Reserve.

CSC is a savings and loan holding company and is regulated, supervised, and examined by the Board of Governors of the Federal Reserve System (Federal Reserve).

On March 16, 2021, CSC’s declaration electing to be treated as a Financial Holding Company (FHC) was deemed effective by the Federal Reserve.

In addition to the activities that a savings and loan holding company that has not elected to be treated as an FHC is permitted to conduct, the Company may now also engage in activities that are financial in nature or incidental to a financial activity (FHC Activities), including securities underwriting, dealing and making markets in securities, various insurance underwriting activities, and making merchant banking investments in non-financial companies.

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that the FHC and each of its depository institution subsidiaries maintain their status as “well-capitalized” and “well-managed.” If the Federal Reserve finds that an FHC fails to meet these requirements, the FHC and its subsidiaries may not commence any new FHC Activity, either de novo or through an acquisition, without prior Federal Reserve approval.

In addition to the activities that a savings and loan holding company that has not elected to be treated as an FHC is permitted to conduct, the Company may now also engage in activities that are financial in nature or incidental to a financial activity (FHC Activities), including underwriting, dealing and making markets in securities, various insurance underwriting activities, and making merchant banking investments in non-financial companies.

The Federal Reserve has the authority to limit an FHC’s ability to conduct otherwise permissible FHC Activities if the FHC or any of its depository institution subsidiaries ceases to meet the applicable eligibility requirements, including requirements that the FHC and each of its depository institution subsidiaries maintain their status as “well-capitalized” and “well-managed.” If the Federal Reserve finds that an FHC fails to meet these requirements, the FHC and its subsidiaries may not commence any new FHC Activity, either de novo or through an acquisition, without prior Federal Reserve approval.

The Federal Reserve may also impose any additional limitations or conditions on the conduct or activities of the FHC or any of its subsidiaries as it deems appropriate.

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In addition, if any depository institution controlled by an FHC fails to maintain at least a “Satisfactory” rating under the Community Reinvestment Act of 1977 (CRA), the FHC and its subsidiaries are prohibited from engaging in additional FHC Activities.

As a result of our election to be treated as an FHC and the election of our depository institution subsidiaries to be deemed savings associations under the Home Owners’ Loan Act (HOLA), such subsidiaries may be prohibited from making loans or other extensions of credit to any affiliate unless that affiliate engages only in activities permissible under section 4(c) of the Bank Holding Company Act (BHC).

As a result of our election to be treated as an FHC and the election of our depository institution subsidiaries to be deemed savings associations under the Home Owners’ Loan Act (HOLA), a statutory prohibition limits those subsidiaries from making loans or other extensions of credit to any affiliate unless that affiliate engages, directly or indirectly, only in activities permissible under section 4(c) of the Bank Holding Company Act (BHC Act).

CSC’s three depository institution subsidiaries are CSB, CSC’s principal depository institution subsidiary, Charles Schwab Premier Bank, SSB (CSPB), and Trust Bank.

On March 20, 2020, CSB and CSPB converted from federal savings associations headquartered in Henderson, Nevada to Texas-chartered savings banks headquartered in Westlake, Texas.

Trust Bank is a Nevada-chartered savings bank headquartered in Henderson, Nevada.

CSB and CSPB are currently regulated, supervised, and examined by the Federal Reserve, the Texas Department of Savings and Mortgage Lending, the Consumer Financial Protection Bureau (CFPB), and the FDIC.

Trust Bank is currently regulated, supervised and examined by the Nevada Financial Institutions Division, the CFPB, and the FDIC.

Trust Bank is a Nevada-chartered savings bank.

Effective September 30, 2022, Trust Bank relocated its main office to Westlake, Texas and became a member of the Federal Reserve system.

CSB and CSPB are currently regulated, supervised, and examined by the Federal Reserve, the Texas Department of Savings and Mortgage Lending (TDSML), the Consumer Financial Protection Bureau (CFPB), and the Federal Deposit Insurance Corporation (FDIC).

Trust Bank is currently regulated, supervised, and examined by the Federal Reserve, the Nevada Financial Institutions Division, the CFPB, and the FDIC.

CSC, CSB, CSPB, and Trust Bank are also subject to regulation and various requirements and restrictions under state and other federal laws.

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In addition to minimum risk-based capital requirements, banking organizations must hold additional capital, referred to as buffers, to avoid being subject to limits on capital distributions and discretionary bonus payments to executive officers.

In October 2019, the Federal Reserve, OCC, and FDIC jointly adopted a final rule which became effective on December 31, 2019 (interagency regulatory capital and liquidity rules) that revised the regulatory capital and liquidity requirements for large U.S.

banking organizations with $100 billion or more in total consolidated assets.

The rules established four risk-based categories for determining the regulatory capital and liquidity requirements applicable to these institutions based on their total assets, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure.

CSC is subject to the requirements under Category III based on its total consolidated assets of between $250 billion and less than $700 billion and having less than $75 billion in cross-jurisdictional activity.

THE CHARLES SCHWAB CORPORATION

The banking regulators have established four risk-based categories for determining the regulatory capital and liquidity requirements applicable to large U.S.

banking organizations with $100 billion or more in total consolidated assets based on their total assets, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure.

CSC is generally subject to the requirements under Category III based on its total consolidated assets of between $250 billion and less than $700 billion and having less than $75 billion in cross-jurisdictional activity.

If the average of our total consolidated assets for the four most recent calendar quarters is $700 billion or more, or the average of our cross-jurisdictional activity for the four most recent calendar quarters is $75 billion or more, we will move into Category II.

As of December 31, 2022, CSC had total consolidated assets of approximately $552 billion and cross-jurisdictional activity of approximately $29 billion.

Capital requirements for Category III banking organizations include the generally applicable risk-based capital and Tier 1 leverage ratio requirements (the “standardized approach” framework), the minimum 3.0% supplementary leverage ratio, the countercyclical capital buffer, which is currently 0%, and for large bank holding companies, the stress capital buffer.

As discussed below, starting in 2022, CSC, as a large savings and loan holding company will also become subject to the stress capital buffer requirement.

As discussed below, starting in 2022, CSC, as a large savings and loan holding company became subject to the stress capital buffer requirement, which applies to risk-based capital ratios (CET1, Tier 1 Capital, and Total Capital).

Under the revised capital requirements, Category III organizations are not subject to the “advanced approaches” regulatory capital framework and are permitted to opt out of including accumulated other comprehensive income (AOCI) in their regulatory capital calculations.

CSC made this opt out election, and commencing with the first quarter of 2020, now excludes AOCI from its regulatory capital.

CSC made this opt out election, and commencing with the first quarter of 2020, excludes AOCI from its regulatory capital.

Category II organizations are not permitted to opt out of including AOCI in their regulatory capital calculations and have additional requirements for calculating risk-based capital ratios and risk-weighted assets.

As revised by the interagency regulatory capital and liquidity rules, Category III banking organizations with less than

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$75 billion in average weighted short-term wholesale funding and their depository institution subsidiaries with $10 billion or more in total consolidated assets are subject to a reduced liquidity coverage ratio (LCR) rule requiring them to hold high quality liquid assets (HQLA) in an amount equal to at least 85% of their projected net cash outflows over a prospective 30-calendar-day period of acute liquidity stress, calculated on each business day.

As revised by the interagency regulatory capital and liquidity rules, Category III banking organizations with less than $75 billion in average weighted short-term wholesale funding and their depository institution subsidiaries with $10 billion or more in total consolidated assets are subject to a reduced liquidity coverage ratio (LCR) rule requiring them to hold high quality liquid assets (HQLA) in an amount equal to at least 85% of their projected net cash outflows over a prospective 30-calendar-day period of acute liquidity stress, calculated on each business day.

If an institution’s average weighted short-term wholesale funding over the four most recent quarters is $75 billion or more, it will be required to comply with the full LCR rule and hold HQLA in an amount equal to 100% of its projected 30-day net cash outflows and will also be subject to daily (instead of monthly) liquidity reporting.

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As a result of our average weighted short-term wholesale funding exceeding the $75 billion threshold, we became subject to daily reporting of the NSFR to the Federal Reserve on July 1, 2021, and became subject to the full (100%) NSFR on October 1, 2021.

Certain banking organizations with trading assets and trading liabilities above thresholds are subject to the Market Risk Rule and must adjust their risk-based capital ratios to reflect a measure of market risk of their trading activities, perform calculations to measure market risk, including back-testing, and make regular quantitative and qualitative public disclosures.

CSC will become subject to the rule later in 2022.

Certain banking organizations with trading assets and trading liabilities above certain thresholds or greater than a certain percent of total assets are subject to the Market Risk Rule and must adjust their risk-based capital ratios to reflect a measure of market risk of their trading activities, perform calculations to measure market risk, including back-testing, and make regular quantitative and qualitative public disclosures.

CSC recently became subject to the rule and the related Market Risk Rule required disclosures .

CSC began incorporating market risk capital for the period ending December 31, 2022.

While CSC is now required to make adjustments to its risk-weighted assets related to de minimis positions, those adjustments are not expected to significantly impact our risk-based capital ratios nor have a current impact on CSC’s activities.

Capital Stress Testing

In the final enhanced prudential standards rules adopted concurrently in October 2019 with the interagency regulatory capital and liquidity rules, the Federal Reserve revised the capital stress testing regime applicable to savings and loan holding companies and state-chartered member banks.

Under the new Federal Reserve capital stress testing rules, savings and loan holding companies that are Category III banking organizations are required to conduct biennial company-run stress tests in even-numbered years beginning in 2020.

In 2020, CSC conducted company-run stress tests, reported the results of its stress testing to the Federal Reserve, and voluntarily published a summary of its stress test results.

A Category II banking organization is subject to annual company-run stress testing.

In its enhanced prudential standards rules, the Federal Reserve also made Category III savings and loan holding companies subject to an annual supervisory stress testing requirement in which the Federal Reserve conducts its own stress testing analysis to evaluate the ability of a holding company to absorb losses in specified economic and financial conditions over a nine-quarter planning horizon using such analytical techniques as the agency determines are appropriate.

This supervisory stress testing requirement will go into effect for CSC beginning with the 2022 stress testing cycle.

To implement this requirement, the Federal Reserve also expanded the reporting requirements applicable to savings and loan holding companies commencing in the second quarter of 2020.

In its final enhanced prudential standards rules, the Federal Reserve revised the capital stress testing regime applicable to savings and loan holding companies and state member banks.

Under the Federal Reserve capital stress testing rules, savings and loan holding companies that are Category III banking organizations and state member banks with total consolidated assets over $250 billion are required to disclose the results of company-run stress tests in even-numbered years.

In 2022, CSC and CSB

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conducted company-run stress tests, reported the results of their stress testing to the Federal Reserve, and published a summary of their stress test results.

The Federal Reserve also made Category III savings and loan holding companies subject to an annual supervisory stress testing requirement in which the Federal Reserve conducts its own stress testing analysis to evaluate the ability of a holding company to absorb losses in specified economic and financial conditions over a nine-quarter planning horizon using such analytical techniques as the agency determines are appropriate.

This supervisory stress testing requirement went into effect for CSC beginning with the 2022 stress testing cycle.

In January 2021, the Federal Reserve adopted a new rule making savings and loan holding companies with total consolidated assets of $100 billion or more, including CSC, subject to an annual Comprehensive Capital Analysis and Review (CCAR) process, which requires submission of an annual capital plan to the Federal Reserve.

The rule also imposes a stress capital buffer requirement, floored at 2.5 percent of risk-weighted assets, that will replace CSC’s current 2.5 percent capital conservation buffer.

The capital plan requirement became effective for CSC with the 2022 CCAR cycle, and CSC’s initial stress capital buffer requirement will be based on its 2022 CCAR stress testing results.

The rule also imposes a stress capital buffer requirement, floored at 2.5 percent of risk-weighted assets, that replaced CSC’s 2.5 percent capital conservation buffer.

The capital plan requirement became effective for CSC with the 2022 CCAR cycle, and CSC’s initial stress capital buffer requirement was based on its 2022 CCAR stress testing results as described below.

Results of the Federal Reserve’s 2022 Comprehensive Capital Analysis and Review

In June 2022, the Company received the results of the Federal Reserve’s 2022 Comprehensive Capital Analysis and Review.

These results included the Federal Reserve’s estimate of CSC’s minimum capital ratios under the supervisory severely adverse scenario for the nine-quarter horizon beginning December 31, 2021 and ending March 31, 2024.

Based on these results, CSC’s calculated stress capital buffer was below the 2.5% minimum, resulting in a stress capital buffer at the 2.5% floor.

This 2.5% stress capital buffer became applicable on October 1, 2022.

See Item 1 – Note 23 for additional information regarding our capital requirements.

Additional Enhanced Prudential Standards

In addition to the revisions to the capital stress testing regime discussed above, the Federal Reserve’s enhanced prudential standards rules also extended the applicability of certain additional enhanced prudential standards to large savings and loan holding companies, with the specific requirements tailored based on the same four-category framework utilized in the interagency regulatory capital and liquidity rules.

These additional enhanced prudential standards, which have been

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applicable to large U.S.

These additional enhanced prudential standards, which have been applicable to large U.S.

bank holding companies under section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), include:

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The single counterparty credit limits went into effect for CSC on January 1, 2022.

Source of Strength

The Dodd-Frank Act codified the Federal Reserve’s long-held position that a depository institution holding company must serve as a source of financial strength for its subsidiary depository institutions, the so-called “source of strength doctrine.” In effect, the holding company may be compelled to commit resources to support the subsidiary depository institution in the event the subsidiary is in financial distress.

Insured Depository Institution Resolution Plans

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In January 2021, the FDIC announced that it would resume requiring resolution plan submissions for insured depository institutions with total consolidated assets of $100 billion or more and in June 2021, the FDIC announced a modified resolution plan approach for these insured depository institutions which extends the submission frequency to a three-year cycle, streamlines content requirements, and places enhanced emphasis on engagement with firms.

CSB submitted a resolution plan in November 2022.

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As a savings and loan holding company, CSC is not subject to any separate holding company resolution plan requirement.

Consumer Financial Protection

The CFPB has broad rulemaking, supervisory and enforcement authority for a wide range of federal consumer protection laws relating to financial products.

The CFPB has examination and primary enforcement authority over depository institutions with $10 billion or more in consolidated total assets.

Deposit Insurance Assessments

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The deposit insurance assessment base is calculated as average consolidated total assets minus average tangible equity.

FDIC Assessment Rate Increase

In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rates by two basis points, beginning with the first quarterly assessment period of 2023.

The FDIC has stated that this change is intended to raise the FDIC’s DIF reserve ratio to the minimum threshold within the FDIC’s established DIF restoration plan, and will remain in effect until the DIF reserve ratio meets the FDIC’s long-term goal of 2%.

A two basis point increase in the initial base deposit insurance assessment rate may result in an increase, dependent on average asset levels, in regulatory fees and assessments, as well as a corresponding decrease in bank deposit account fee revenue based on IDA balances.

Brokered Deposits

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Under the new framework, funds swept by our broker-dealer subsidiaries to CSB and Schwab’s other depository institution subsidiaries continue to qualify for the primary purpose exception.

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Community Reinvestment Act

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The failure of an institution to receive at least a “satisfactory” rating could inhibit the institution or its holding company from undertaking certain activities, including acquisitions or opening branch offices.

Source of Strength

The Dodd-Frank Act codified the Federal Reserve’s long-held position that a depository institution holding company must serve as a source of financial strength for its subsidiary depository institutions, the so-called “source of strength doctrine.” In effect, the holding company may be compelled to commit resources to support the subsidiary in the event the subsidiary is in financial distress.

Consumer Financial Protection

The CFPB has broad rulemaking, supervisory and enforcement authority for a wide range of federal consumer protection laws relating to financial products.

The CFPB has examination and primary enforcement authority over depository institutions with $10 billion or more in consolidated total assets.

CSC and its subsidiaries are subject to the Volcker Rule, which generally prohibits proprietary trading or acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with hedge funds and private equity funds, subject to certain exemptions, in each case as the applicable terms are defined in the Volcker Rule and the implementing regulations.

Broker-Dealer, FCM, FDM, and Investment Advisor Regulation

Broker-Dealer, Futures Commission Merchant (FCM), Forex Dealer Member (FDM), and Investment Advisor Regulation

Our principal broker-dealer subsidiaries, CS&Co, TD Ameritrade, Inc., and TDAC, are each registered as a broker-dealer with the U.S.

Securities and Exchange Commission (SEC or Commission), the fifty states, the District of Columbia, the U.S.

Virgin Islands, and the Commonwealth of Puerto Rico.

CS&Co, TD Ameritrade, Inc., CSIM, and certain of our other subsidiaries are registered as investment advisors with the SEC.

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Islands, and the Commonwealth of Puerto Rico.

CS&Co, CSIM, and certain of our other subsidiaries are registered as investment advisors with the SEC.

Charles Schwab Futures and Forex LLC (CSFF, formerly known as TD Ameritrade Futures & Forex, LLC) is registered as an FCM and FDM with the Commodity Futures Trading Commission (CFTC).

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In addition to net capital requirements, as a self-clearing broker-dealer, CS&Co, and as a clearing broker-dealer, TDAC, are subject to cash deposit and collateral requirements with clearing houses, such as the Depository Trust & Clearing Corporation and Options Clearing Corporation, which may fluctuate significantly from time to time based upon the nature and size of clients’ trading activity and market volatility.

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As a result of our operations in countries outside the U.S., we are also subject to rules and regulations issued by certain foreign authorities, including the Financial Conduct Authority (FCA) in the United Kingdom, the Securities and Futures Commission (SFC) in Hong Kong, and the Monetary Authority of Singapore (MAS) in Singapore.

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The package encompasses an array of compensation components in addition to base pay including performance-based incentive pay, equity awards, recognition awards, and a range of health and wellness benefits.

We also offer benefits and resources designed to help our employees achieve their financial goals, including a 401(k) plan, an employee stock purchase plan, financial planning consultations, and disability and life insurance options.

In addition, Schwab offers programs to help with employee career growth including development and leadership programs as well as reimbursement for qualified business-related education and training.

We also offer benefits and resources designed to help our employees achieve their financial goals, including a 401(k) plan, an employee stock purchase plan, financial planning

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consultations, and disability and life insurance options.

In addition, Schwab offers programs to help with employee career growth including mentorship, development, and leadership programs as well as reimbursement for qualified business-related education and training.

We also encourage and empower employees to volunteer in the communities where we live and work, offering paid time off for every employee to volunteer in his or her community.

As we move through the COVID-19 pandemic, we’ve created a Workplace Flexibility Program (WFP) to provide managers and employees with greater flexibility with remote work options.

The WFP is designed to balance the importance our employees place on workplace flexibility with the benefit of in-person interactions to train and learn from one another, build human connections, and maintain Schwab’s culture as we serve our clients.

With COVID-19 restrictions now eased, Schwab completed its return-to-office plan which entails various in-office and remote work options.

The Company’s flexible work arrangements are designed to balance the importance our employees place on workplace flexibility with the benefits of in-person interactions to train and learn from one another, build human connections, and maintain Schwab’s culture as we serve our clients.

We know that through workplace diversity, we gain a wider range of perspectives and experiences, which supports our strategy and helps us better serve our clients.

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We recruit from underrepresented communities through targeted campus recruiting, scholarship programs, and partnerships with professional organizations.

We also offer coaching programs for college students from underrepresented communities to help develop career skills and learn about internship and career opportunities at Schwab.

For Schwab employees, we support a number of Employee Resource Groups (ERGs) which are employee-driven and provide support, leadership development opportunities, and connection to our diverse marketplace.

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annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

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addition, the website also includes the Dodd-Frank Act stress test results, our regulatory capital disclosures based on Basel III, and our quarterly average LCR.

In addition, the website also includes the Dodd-Frank Act stress test results, our regulatory capital disclosures based on Basel III, and our quarterly average LCR.

All such filings are available free of charge either on our website or by request via email ( investor.relations@schwab.com ), or mail (Charles Schwab Investor Relations at 211 Main Street, San Francisco, CA 94105).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business