Regulatory Requirements

12 Months Ended

Dec. 31, 2020

CSC is a savings and loan holding company and is subject to examination, supervision, and regulation by the Federal Reserve. During 2020, CSB, CSC’s primary depository institution subsidiary, converted to a Texas-chartered state savings bank and became a member of the Federal Reserve system. CSB is subject to examination, supervision, and regulation by the Federal Reserve, the TDSML, the FDIC as its deposit insurer, and the CFPB. CSC is required to serve as a source of strength for CSB.

CSB is subject to various requirements and restrictions under federal and state laws, including regulatory capital requirements and requirements that restrict and govern the terms of affiliate transactions, such as extensions of credit to, or asset purchases from CSC or its other subsidiaries by CSB. In addition, CSB is required to provide notice to and may be required to obtain approval of the Federal Reserve and the TDSML to declare dividends to CSC. The federal banking agencies have broad powers to enforce these regulations, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver. Under the prompt corrective action provisions of the Federal Deposit Insurance Act, CSB could be subject to restrictive actions if it were to fall within one of the lowest three of five capital categories. CSC and CSB are required to maintain minimum capital levels as specified in federal banking regulations. Failure to meet the minimum levels could result in certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on CSC and CSB. At December 31, 2020, both CSC and CSB met all of their respective capital requirements.

The regulatory capital and ratios for CSC (consolidated) and CSB are as follows:


	Actual (1)				Minimum to be Well Capitalized				Minimum Capital Requirement
December 31, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio (2)
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		N/A		9,763		3.0	%

December 31, 2019
CSC
Common Equity Tier 1 Risk-Based Capital	$	17,660	19.5	%	N/A				$	4,073	4.5	%
Tier 1 Risk-Based Capital	20,453		22.6	%	N/A				5,431		6.0	%
Total Risk-Based Capital	20,472		22.6	%	N/A				7,241		8.0	%
Tier 1 Leverage	20,453		7.3	%	N/A				11,189		4.0	%
Supplementary Leverage Ratio	20,453		7.1	%	N/A				8,604		3.0	%
CSB
Common Equity Tier 1 Risk-Based Capital	$	14,819	20.7	%	$	4,649	6.5	%	$	3,218	4.5	%
Tier 1 Risk-Based Capital	14,819		20.7	%	5,722		8.0	%	4,291		6.0	%
Total Risk-Based Capital	14,837		20.7	%	7,152		10.0	%	5,722		8.0	%
Tier 1 Leverage	14,819		7.1	%	10,486		5.0	%	8,389		4.0	%
Supplementary Leverage Ratio	14,819		6.8	%	N/A		N/A		6,497		3.0	%

(1) In the interagency regulatory capital and liquidity rules adopted in October 2019, Category III banking organizations such as CSC were given the ability to opt-out of the inclusion of AOCI in regulatory capital, and CSC made this opt-out election as of January 1, 2020. Therefore, AOCI is excluded from the amounts and ratios presented as of December 31, 2020. In 2019, CSC and CSB were required to include all components of AOCI in regulatory capital; the amounts and ratios for December 31, 2019 are presented on this basis.

(2) Under the Basel III capital rule, CSC and CSB are also required to maintain a capital conservation buffer and a countercyclical capital buffer above the regulatory minimum risk-based capital ratios. The capital conservation buffer and countercyclical 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 December 31, 2020, the minimum capital requirement plus capital conservation buffer and countercyclical capital buffer for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital ratios were 7.0%, 8.5%, and 10.5%, respectively.

N/A Not applicable.

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

Effective March 26, 2020, the Federal Reserve eliminated a requirement that depository institutions maintain reserve balances at the Federal Reserve based on deposits considered to be transaction accounts. CSB’s average required reserve pursuant to this regulation was $1.5 billion in 2019. In 2018, the Company established Charles Schwab Trust Bank (Trust Bank) as a Nevada state-chartered savings bank to provide certain trust and custody services. At December 31, 2020, the balance sheets of CSPB and Trust Bank consisted primarily of investment securities, and the entities held total assets of $31.6 billion and $12.5 billion, respectively. Based on their regulatory capital ratios, at December 31, 2020, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules.

During 2020, CS&Co registered as an FCM with the CFTC, and subsequently, Charles Schwab Futures, Inc., a wholly-owned subsidiary of CSC, transferred its futures business and all of its assets and liabilities to CS&Co. This transfer was accounted for as a common control transaction and did not have an impact on the consolidated financial statements.

As a securities broker-dealer, CS&Co is subject to the SEC’s Uniform Net Capital Rule, and as an FCM, CS&Co is also subject to net capital requirements under CFTC Regulation 1.17 under the Commodity Exchange Act. CS&Co computes net capital under the alternative method permitted by the Uniform Net Capital Rule, which requires the maintenance of minimum net capital, as defined, of the greater of 2% of aggregate debit balances arising from client transactions or a minimum dollar requirement, which is based on the type of business conducted by CS&Co. CFTC Regulation 1.17 requires maintenance of adjusted net capital equal to or in excess of the greater of (1) $1.0 million; (2) its futures risk-based capital requirement, equal to 8% of the total risk margin requirement for all futures positions carried by the FCM in client and nonclient accounts; (3) the amount of adjusted net capital required by a registered futures association of which it is a member; or (4) for securities brokers and dealers, the amount of net capital required by the Uniform Net Capital Rule.

Certain subsidiaries of TDA Holding are subject to regulatory capital requirements, including TDAC and TD Ameritrade, Inc. TDAC and TD Ameritrade, Inc. are subject to the SEC’s Uniform Net Capital Rule and compute net capital under the alternative method. TDAC is required to maintain net capital of the greater of $1.5 million, which is based on the type of business conducted by the broker-dealer, or 2% of aggregate debit balances arising from client transactions. TD Ameritrade, Inc. is required to maintain minimum net capital, as defined, as the greater of 2% of aggregate debit balances arising from client transactions or a minimum dollar requirement of $250,000, which is based on the type of business conducted by the broker-dealer.

Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans if such payment would result in a net capital amount of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.

Net capital and net capital requirements for CS&Co, TDAC, and TD Ameritrade, Inc., are as follows:


December 31,	2020		2019
CS&Co
Net capital	$	3,117	$	3,700
Minimum dollar requirement	1.000		0.250
2% of aggregate debit balances	616		446
Net capital in excess of required net capital	$	2,501	$	3,254
TDAC
Net capital	$	4,040	N/A
Minimum dollar requirement	1.500		N/A
2% of aggregate debit balances	748		N/A
Net capital in excess of required net capital	$	3,292	N/A
TD Ameritrade, Inc.
Net capital	$	350	N/A
Minimum dollar requirement	0.250		N/A
2% of aggregate debit balances	—		N/A
Net capital in excess of required net capital	$	350	N/A

N/A Not applicable. Net capital amounts and requirements are not presented for TDAC and TD Ameritrade, Inc. prior to the acquisition of TD Ameritrade.

Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at December 31, 2020. The SEC’s Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit, whereas cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2020 for CS&Co totaled $39.2 billion and for TDAC totaled $14.5 billion. As of January 5, 2021, CS&Co had deposited $4.8 billion of cash and qualified securities into its segregated reserve

accounts. As of January 4, 2021, TDAC had withdrawn $164 million of cash and qualified securities from its segregated reserve accounts. Cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2019 for CS&Co totaled $23.0 billion. Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the consolidated statements of cash flows.