Basel III Regulatory Capital Disclosures
September 30, 2020
Table of Contents
Introduction | 1 |
Overview | 1 |
Current Regulatory Environment and Other Developments | 1 |
Disclosure Matrix | 3 |
Components of Capital | 10 |
Capital Adequacy - Standardized Risk-Weighted Assets | 10 |
Capital Adequacy - Capital Ratios | 11 |
Credit Risk | 11 |
Securitizations | 13 |
Equities not Subject to the Market Risk Capital Rule | 15 |
Supplementary Leverage Ratio | 15 |
INTRODUCTION
The Charles Schwab Corporation (CSC) is a savings and loan holding company engaged, through its subsidiaries (collectively referred to as Schwab or the Company), 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), a securities broker-dealer;
- Charles Schwab Bank, SSB (Schwab Bank), Schwab's principal banking entity; and
- Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab's proprietary mutual funds (Schwab Funds®), and Schwab's exchange-traded funds (Schwab ETFsTM).
Schwab provides financial services to individuals and institutional clients through two segments - Investor Services and Advisor Services.
The basis of consolidation that CSC uses for regulatory reporting is consistent with the basis used for reporting under generally accepted accounting principles in the U.S. (U.S. GAAP) as established by the Financial Accounting Standards Board.
OVERVIEW
This document, and certain of Schwab's public filings, present the regulatory capital disclosures in compliance with Basel III as set forth in 12 C.F.R. §217.63 - Disclosures by institutions regulated by the Federal Reserve Board ("Federal Reserve") and 12 C.F.R. § 217.173 (c) (collectively referred to as the Rules). Schwab's Annual Report on 2019 Form 10-K for the fiscal year ended December 31, 2019 (2019 Form 10-K) filed with the Securities and Exchange Commission (SEC) and its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 (Form 10-Q) filed with the SEC contain management's discussion of the overall corporate risk profile of Schwab and related management strategies. These Basel III Regulatory Capital Disclosures should be read in conjunction with the 2019 Form 10-K, the Form 10-Q, the Consolidated Financial Statements for Bank Holding Companies dated September 30, 2020 (FR Y-9C), the Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework dated September 30, 2020 (FFIEC 101) and the Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices for the period ended September 30, 2020 (FFIEC 031). Schwab's Disclosure Matrix (see pages 3-9) specifies where the disclosures required by the Rules are located.
CURRENT REGULATORY ENVIRONMENT AND OTHER DEVELOPMENTS
In October 2019, the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation 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.
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, and the countercyclical capital buffer which is currently 0%. Category III organizations are no longer subject to the "advanced approaches" regulatory capital framework and are permitted to opt out of including 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.
Effective March 20, 2020, Schwab Bank and Charles Schwab Premier Bank, SSB (CSPB) converted to Texas-chartered state savings banks. Schwab Bank and CSPB became members of the Federal Reserve System and are subject to regulation, supervision and examination by the Federal Reserve and the Texas Department of Savings and Mortgage Lending.
1
Following are links to the referenced public filings:
Filing | Link to Filing |
2019 Form 10-K | https://www.sec.gov/Archives/edgar/data/316709/000031670920000012/schw- |
12312019x10k.htm | |
September 30, 2020 Form 10-Q | https://www.sec.gov/ix?doc=/Archives/edgar/data/316709/000031670920000054 |
/schw-20200930.htm | |
Consolidated Financial Statements for | https://www.ffiec.gov/npw/Institution/Profile/1026632?dt=20180725 |
Bank Holding Companies - FR Y-9C | Note search terms below: |
dated September 30, 2020 | Report = Consolidated Financial Statements for BHCs (FR Y-9C) |
Report Date = 9/30/2020 | |
Regulatory Capital Reporting for | https://www.ffiec.gov/npw/Institution/Profile/1026632?dt=20180725 |
Institutions Subject to the Advanced | Note search terms below: |
Capital Adequacy Framework - FFIEC | Report = Regulatory Capital Reporting for Institutions Subject to the Advanced |
101 dated September 30, 2020 | Capital Adequacy Framework (FFIEC 101) |
Report Date = 9/30/2020 | |
Consolidated Reports of Condition and | https://cdr.ffiec.gov/public/ManageFacsimiles.aspx |
Income for a Bank with Domestic and | Note search terms below: |
Foreign Offices - FFIEC 031 for the | Report = Call |
quarter ended September 30, 2020 | Report Date = 9/30/2020 |
Institution Name = Charles Schwab Bank, SSB | |
Consolidated Reports of Condition and | https://cdr.ffiec.gov/public/ManageFacsimiles.aspx |
Income for a Bank with Domestic and | Note search terms below: |
Foreign Offices - FFIEC 031 for the | Report = Call |
quarter ended September 30, 2020 | Report Date = 9/30/2020 |
Institution Name = Charles Schwab Premier Bank, SSB | |
Consolidated Reports of Condition and | https://cdr.ffiec.gov/public/ManageFacsimiles.aspx |
Income for a Bank with Domestic and | Note search terms below: |
Foreign Offices - FFIEC 031 for the | Report = Call |
quarter ended September 30, 2020 | Report Date = 9/30/2020 |
Institution Name = Charles Schwab Trust Bank |
2
DISCLOSURE MATRIX
Disclosure | Source Reference - | ||||
Table | Disclosure Requirement | Disclosure Location | Page | if applicable | |
Scope of Application (Table 1) | |||||
Qualitative: | The name of the top corporate entity in the group to which | Basel III Regulatory Capital Disclosures: | |||
(a) | subpart D of this part applies. | Introduction | Pg. 1 | ||
(b) | A brief description of the differences in the basis for | Basel III Regulatory Capital Disclosures: | |||
consolidating entities for accounting and regulatory purposes, | Introduction | Pg. 1 | |||
with a description of those entities: | |||||
(1) | That are fully consolidated; | ||||
(2) | That are deconsolidated and deducted from total capital; | ||||
(3) | For which the total capital requirement is deducted; and | ||||
(4) | That are neither consolidated nor deducted (for example, | ||||
where the investment in the entity is assigned a risk | |||||
weight in accordance with this subpart). | |||||
(c) | Any restrictions, or other major impediments, on transfer of | Form 10-Q | Form 10-Q | ||
funds or total capital within the group. | MD&A - Capital Management | Pg. 22-23 | |||
Note 15 - Regulatory Requirements | Pg. 67-68 | ||||
(d) | The aggregate amount of surplus capital of insurance | Not applicable. The Company does not have | |||
subsidiaries included in the total capital of the consolidated | any insurance subsidiaries. | ||||
group. | |||||
(e) | The aggregate amount by which actual total capital is less | Not applicable. The Company does not have | |||
than the minimum total capital requirement in all subsidiaries, | any subsidiaries with total capital requirements | ||||
with total capital requirements and the name(s) of the | where total capital is less than the minimum | ||||
subsidiaries with such deficiencies. | requirement. | ||||
Capital Structure (Table 2) | |||||
Qualitative: | Summary information on the terms and conditions of the main | Form 10-Q | Form 10-Q | ||
(a) | features of all regulatory capital instruments. | MD&A - Capital Management | Pg. 22-23 | ||
Consolidated Balance Sheets | Pg. 30 | ||||
Note 13 - Stockholders' Equity | Pg. 64 | ||||
Quantitative: | The amount of common equity tier 1 capital, with separate | FR Y-9C | FR Y-9C | ||
(b) | disclosure of: | Schedule HC-R - Regulatory Capital | Pg. 50-52 | ||
(1) | Common stock and related surplus; | FFIEC 031 | FFIEC 031 | ||
(2) | Retained earnings; | Schedule RC-R - Regulatory Capital | Pg. 58-59 | ||
(3) | Common equity minority interest; | ||||
(4) | Accumulated other comprehensive income (AOCI); and | ||||
(5) | Regulatory adjustments and deductions made to | ||||
common equity tier 1 capital. | |||||
(c) | The amount of tier 1 capital, with separate disclosure of: | Basel III Regulatory Capital Disclosures: | |||
(1) | Additional tier 1 capital elements, including additional | Components of Capital | Pg. 10 | ||
tier 1 capital instruments and tier 1 minority interest not | FR Y-9C | FR Y-9C | |||
included in common equity tier 1 capital; and | Schedule HC-R - Regulatory Capital | Pg. 50-52 | |||
(2) | Regulatory adjustments and deductions made to tier 1 | FFIEC 031 | FFIEC 031 | ||
capital. | Schedule RC-R - Regulatory Capital | Pg. 58-59 | |||
(d) | The amount of total capital, with separate disclosure of: | Basel III Regulatory Capital Disclosures: | |||
(1) | Tier 2 capital elements, including tier 2 capital | Components of Capital | Pg. 10 | ||
instruments and total capital minority interest not | FR Y-9C | FR Y-9C | |||
included in tier 1 capital; and | Schedule HC-R - Regulatory Capital | Pg. 53 | |||
(2) | Regulatory adjustments and deductions made to total | FFIEC 031 | FFIEC 031 | ||
capital. | Schedule RC-R - Regulatory Capital | Pg. 60 | |||
3
Disclosure | Source Reference - | ||||
Table | Disclosure Requirement | Disclosure Location | Page | if applicable | |
Capital Adequacy (Table 3) | |||||
Qualitative: | A summary discussion of the Board-regulated institution's | Form 10-Q | Form 10-Q | ||
(a) | approach to assessing the adequacy of its capital to support | MD&A - Capital Management | Pg. 22-23 | ||
current and future activities. | |||||
Quantitative: | Risk-weighted assets for: | Basel III Regulatory Capital Disclosures: | |||
(b) | (1) | Exposures to sovereign entities; | Capital Adequacy | Pg. 10 | |
(2) | Exposures to certain supranational entities and MDBs; | ||||
(3) | Exposures to depository institutions, foreign banks, and | ||||
credit unions; | |||||
(4) | Exposures to PSEs; | ||||
(5) | Corporate exposures; | ||||
(6) | Residential mortgage exposures; | ||||
(7) | Statutory multifamily mortgages and pre-sold | ||||
construction loans; | |||||
(8) | HVCRE loans; | ||||
(9) | Past due loans; | ||||
(10) | Other assets; | ||||
(11) | Cleared transactions; | ||||
(12) | Default fund contributions; | ||||
(13) | Unsettled transactions; | ||||
(14) | Securitization exposures; and | ||||
(15) | Equity exposures. | ||||
(c) | Standardized market risk-weighted assets as calculated under | Not applicable. CSC is not subject to the | |||
subpart F of this part. | Market Risk Capital Rule. | ||||
(d) | Common equity tier 1, tier 1 and total risk-based capital | Basel III Regulatory Capital Disclosures: | |||
ratios: | Capital Adequacy | Pg. 11 | |||
(1) | For the top consolidated group; and | FR Y-9C | FR Y-9C | ||
(2) | For each depository institution subsidiary. | Schedule HC-R - Regulatory Capital | Pg. 54 | ||
FFIEC 031* | FFIEC 031* | ||||
Schedule RC-R Part I - Regulatory Capital | Pg. 61 | ||||
(e) | Total standardized risk-weighted assets. | Basel III Regulatory Capital Disclosures: | |||
Capital Adequacy | Pg. 10 | ||||
FR Y-9C | FR Y-9C | ||||
Schedule HC-R - Regulatory Capital | Pg. 54, 66 | ||||
FFIEC 031 | FFIEC 031 | ||||
Schedule RC-R Part I & II- Regulatory Capital | Pg. 60, 71 | ||||
Capital Conservation Buffer (Table 4) | |||||
Quantitative: | At least quarterly, the Board-regulated institution must | FR Y-9C | FR Y-9C | ||
(a) | calculate and publicly disclose the capital conservation buffer | Schedule HC-R - Regulatory Capital | Pg. 54 | ||
as described under § 217.11. | FFIEC 031 | FFIEC 031 | |||
Schedule RC-R Part I - Regulatory Capital | Pg. 61 | ||||
(b) | At least quarterly, the Board-regulated institution must | FR Y-9C | FR Y-9C | ||
calculate and publicly disclose the eligible retained income of | Schedule HC-R - Regulatory Capital | Pg. 54 | |||
the Board-regulated institution, as described under § 217.11. | FFIEC 031 | FFIEC 031 | |||
Schedule RC-R Part I - Regulatory Capital | Pg. 61 | ||||
(c) | At least quarterly, the Board-regulated institution must | Basel III Regulatory Capital Disclosures: | |||
calculate and publicly disclose any limitations it has on | Capital Adequacy | Pg. 11 | |||
distributions and discretionary bonus payments resulting from | |||||
the capital conservation buffer framework described under | FFIEC 031 | FFIEC 031 | |||
§ 217.11, including the maximum payout amount for the | |||||
Schedule RC-R Part I - Regulatory Capital | Pg. 61 | ||||
quarter. | |||||
- The FFIEC 031 report for this disclosure requirement is applicable for all CSC-owned depository subsidiaries: Charles Schwab Bank, SSB, Charles Schwab Premier Bank, SSB and Charles Schwab Trust Bank.
4
Disclosure | Source Reference - | ||||
Table | Disclosure Requirement | Disclosure Location | Page | if applicable | |
Credit Risk: General Disclosures (Table 5) | |||||
Qualitative: | The general qualitative disclosure requirement with respect to | Form 10-Q | Form 10-Q | ||
(a) | credit risk (excluding counterparty credit risk disclosed in | MD&A - Risk Management | Pg. 18-21 | ||
accordance with Table 6), including the: | Note 2 - Summary of Significant Accounting | Pg. 34-39 | |||
(1) | Policy for determining past due or delinquency status; | Policies | |||
(2) | Policy for placing loans on nonaccrual; | ||||
(3) | Policy for returning loans to accrual status; | ||||
(4) | Definition of and policy for identifying impaired loans | ||||
(for financial accounting purposes); | |||||
(5) | Description of the methodology that the Board-regulated | ||||
institution uses to estimate its allowance for loan and | |||||
lease losses, including statistical methods used where | |||||
applicable; | |||||
(6) | Policy for charging-off uncollectible amounts; and | ||||
(7) | Discussion of the Board-regulated institution's credit | ||||
risk management policy. | |||||
Quantitative: | Total credit risk exposures and average credit risk exposures, | Basel III Regulatory Capital Disclosures: | |||
(b) | after accounting offsets in accordance with GAAP, without | Credit Risk | Pg. 11-12 | ||
taking into account the effects of credit risk mitigation | |||||
techniques (for example, collateral and netting not permitted | Form 10-Q | Form 10-Q | |||
under GAAP), over the period categorized by major types of | |||||
MD&A - Risk Management | Pg. 18-21 | ||||
credit exposure. For example, Board-regulated institutions | |||||
Note 5 - Investment Securities | Pg. 45-47 | ||||
could use categories similar to that used for financial | |||||
Note 6 - Bank Loans and Related Allowance | Pg. 48-52 | ||||
statement purposes. Such categories might include, for | |||||
for Credit Losses | |||||
instance | |||||
Note 10 - Commitments and Contingencies | Pg. 56-57 | ||||
(1) | Loans, off-balance sheet commitments, and other non- | ||||
derivative off-balance sheet exposures; | Note 11 - Financial Instruments Subject to Off- | Pg. 58-59 | |||
(2) | Debt securities; and | Balance Sheet Credit Risk | |||
(3) | OTC derivatives. | ||||
(c) | Geographic distribution of exposures, categorized in | Basel III Regulatory Capital Disclosures: | |||
significant areas by major types of credit exposure. | Credit Risk, Credit Exposure By Geographic | Pg. 11-13 | |||
Concentrations | |||||
(d) | Industry or counterparty type distribution of exposures, | Basel III Regulatory Capital Disclosures: | |||
categorized by major types of credit exposure | Credit Risk | Pg. 11-12 | |||
(e) | By major industry or counterparty type: | Form 10-Q | Form 10-Q | ||
(1) | Amount of impaired loans for which there was a related | Note 6 - Bank Loans and Related Allowance | Pg. 48-52 | ||
allowance under GAAP; | for Credit Losses | ||||
(2) | Amount of impaired loans for which there was no | ||||
related allowance under GAAP; | |||||
(3) | Amount of loans past due 90 days and on nonaccrual; | ||||
(4) | Amount of loans past due 90 days and still accruing; | ||||
(5) | The balance in the allowance for loan and lease losses at | ||||
the end of each period, disaggregated on the basis of the | |||||
Board-regulated institution's impairment method. To | |||||
disaggregate the information required on the basis of | |||||
impairment methodology, an entity shall separately | |||||
disclose the amounts based on the requirements in | |||||
GAAP; and | |||||
(6) | Charge-offs during the period. | ||||
5
Disclosure | Source Reference - | |||
Table | Disclosure Requirement | Disclosure Location | Page | if applicable |
Credit Risk: General Disclosures (Table 5) - continued | ||||
(f) | Amount of impaired loans and, if available, the amount of | Basel III Regulatory Capital Disclosures: | ||
past due loans categorized by significant geographic areas | Credit Exposure By Geographic Concentrations | Pg. 12-13 | ||
including, if practical, the amounts of allowances related to | Form 10-Q | Form 10-Q | ||
each geographical area, further categorized as required by | Note 6 - Bank Loans and Related Allowance | Pg. 48-52 | ||
GAAP. | ||||
for Credit Losses | ||||
FR Y-9C | FR Y-9C | |||
Schedule HC-N - Past Due and Nonaccrual | Pg. 41-46 | |||
Loans, Leases, and Other Assets | ||||
(g) | Reconciliation of changes in ALLL. | Form 10-Q | Form 10-Q | |
Note 6 - Bank Loans and Related Allowance | Pg. 48-52 | |||
for Credit Losses | ||||
FR Y-9C | FR Y-9C | |||
Schedule HI-B - Charge-Offs and Recoveries | Pg. 10 | |||
on Loans and Leases and Changes in Allowance | ||||
for Loan and Lease Losses | ||||
FFIEC 031 | FFIEC 031 | |||
Schedule RI-B Part II. Changes in Allowance | ||||
Pg. 13 | ||||
for Loan and Lease Losses | ||||
(h) | Remaining contractual maturity delineation (for example, one | Basel III Regulatory Capital Disclosures: | ||
year or less) of the whole portfolio, categorized by credit | Credit Risk | Pg. 11-12 | ||
exposure. | FFIEC 031 | |||
FFIEC 031 | ||||
Schedule RC-C - Loans and Financing | ||||
Receivables | Pg. 25 | |||
General Disclosure for Counterparty Credit Risk-Related Exposures (Table 6) | ||||
Qualitative: | The general qualitative disclosure requirement with respect to | Form 10-Q | Form 10-Q | |
(a) | OTC derivatives, eligible margin loans, and repo-style | Note 11 - Financial Instruments Subject to Off- | Pg. 58-59 | |
transactions, including a discussion of: | Balance Sheet Credit Risk | |||
(1) The methodology used to assign credit limits for | ||||
counterparty credit exposures; | 2019 Form 10-K | 2019 Form 10-K | ||
(2) Policies for securing collateral, valuing and managing | MD&A - Risk Management | Pg. 41-50 | ||
collateral, and establishing credit reserves; | Note 2 - Summary of Significant Accounting | Pg. 64-73 | ||
(3) The primary types of collateral taken; and | ||||
Policies | ||||
(4) The impact of the amount of collateral the Board- | ||||
regulated institution would have to provide given a | (4) Not applicable. CSC does not have any | |||
deterioration in the Board-regulated institution's own | ||||
contingent payment obligations that would | ||||
creditworthiness. | ||||
result from a ratings downgrade. | ||||
Quantitative: | Gross positive fair value of contracts, collateral held | Form 10-Q | Form 10-Q | |
(b) | (including type, for example, cash, government securities), | Note 11 - Financial Instruments Subject to Off- | Pg. 58-59 | |
and net unsecured credit exposure. | Balance Sheet Credit Risk | |||
A Board-regulated institution must disclose the notional value | ||||
of credit derivative hedges purchased for counterparty credit | Not applicable. CSC does not hold credit | |||
risk protection and the distribution of current credit exposure | derivatives. | |||
by exposure type. | ||||
(c) | Notional amount of purchased and sold credit derivatives, | Not applicable. The Company does not transact | ||
segregated between use for the Board-regulated institution's | in credit derivatives. | |||
own credit portfolio and in its intermediation activities, | ||||
including the distribution of the credit derivative products | ||||
used, categorized further by protection bought and sold | ||||
within each product group. | ||||
Credit Risk | Mitigation (Table 7) | |||
Qualitative: | The general qualitative disclosure requirement with respect to | Form 10-Q | Form 10-Q | |
(a) | credit risk mitigation, including: | Note 5 - Investment Securities | Pg. 39-41 | |
(1) Policies and processes for collateral valuation and | Note 6 - Bank Loans and Related Allowance | Pg. 48-52 | ||
management; | for Credit Losses | |||
(2) A description of the main types of collateral taken by | Note 11 - Financial Instruments Subject to Off- | Pg. 58-59 | ||
the Board-regulated institution; | Balance Sheet Credit Risk | |||
(3) The main types of guarantors/credit derivative | Note 12 - Fair Values of Assets and Liabilities | Pg. 60-63 | ||
counterparties and their creditworthiness; and | ||||
(4) Information about (market or credit) risk concentrations | 2019 Form 10-K | 2019 Form 10-K | ||
with respect to credit risk mitigation. | MD&A - Risk Management | Pg. 41-50 | ||
Note 2 - Summary of Significant Accounting | Pg. 64-73 | |||
Policies | ||||
6
Disclosure | Source Reference - | ||||
Table | Disclosure Requirement | Disclosure Location | Page | if applicable | |
Credit Risk Mitigation (Table 7) - continued | |||||
Quantitative: | For each separately disclosed credit risk portfolio, the total | Form 10-Q | Form 10-Q | ||
(b) | exposure that is covered by eligible financial collateral, and | Note 11 - Financial Instruments Subject to Off- | Pg. 58-59 | ||
after the application of haircuts. | Balance Sheet Credit Risk | ||||
(c) | For each separately disclosed portfolio, the total exposure that | Not applicable. CSC does not hold credit | |||
is covered by guarantees/credit derivatives and the risk- | derivatives. | ||||
weighted asset amount associated with that exposure. | |||||
Securitization (Table 8) | |||||
Qualitative: | The general qualitative disclosure requirement with respect to | Basel III Regulatory Capital Disclosures: | |||
(a) | a securitization (including synthetic securitizations), including | Securitizations | Pg. 13-14 | ||
a discussion of: | |||||
(1) | The Board-regulated institution's objectives for | ||||
securitizing assets, including the extent to which these | |||||
activities transfer credit risk of the underlying exposures | |||||
away from Board-regulated institution to other entities | |||||
and including the type of risks assumed and retained | |||||
with resecuritization activity; | |||||
(2) | The nature of the risks (e.g. liquidity risk) inherent in | ||||
the securitized assets; | |||||
(3) | The roles played by the Board-regulated institution in | ||||
the securitization process and an indication of the extent | |||||
of the Board-regulated institution's involvement in each | |||||
of them; | |||||
(4) | The processes in place to monitor changes in the credit | ||||
and market risk of securitization exposures including | |||||
how those processes differ for resecuritization | |||||
exposures; | |||||
(5) | The Board-regulated institution's policy for mitigating | ||||
the credit risk retained through securitization and | |||||
resecuritization exposures; and | |||||
(6) | The risk-based capital approaches that the Board- | ||||
regulated institution follows for its securitization | |||||
exposures including the type of securitization exposure | |||||
to which each approach applies. | |||||
(b) | A list of: | Not applicable. CSC does not securitize assets. | |||
(1) | The type of securitization SPEs that the Board-regulated | ||||
institution, as sponsor, uses to securitize third-party | |||||
exposures. The Board-regulated institution must indicate | |||||
whether it has exposure to these SPEs, either on- or off- | |||||
balance sheet; and | |||||
(2) | Affiliated entities: | ||||
(i) That the Board-regulated institution manages or | |||||
advises; and | |||||
(ii) That invest either in the securitization exposures | |||||
that the Board-regulated institution has securitized | |||||
or in securitization SPEs that the Board-regulated | |||||
institution sponsors. | |||||
(c) | Summary of the Board-regulated institution's accounting | Not applicable. CSC does not securitize assets. | |||
policies for securitization activities, including: | |||||
(1) | Whether the transactions are treated as sales or | ||||
financings; | |||||
(2) | Recognition of gain-on-sale; | ||||
(3) | Methods and key assumptions applied in valuing | ||||
retained or purchased interests; | |||||
(4) | Changes in methods and key assumptions from the | ||||
previous period for valuing retained interests and impact | |||||
of the changes; | |||||
(5) | Treatment of synthetic securitizations; | ||||
(6) | How exposures intended to be securitized are valued | ||||
and whether they are recorded under subpart D of this | |||||
part; and | |||||
(7) | Policies for recognizing liabilities on the balance sheet | ||||
for arrangements that could require the Board-regulated | |||||
institution to provide financial support for securitized | |||||
assets. | |||||
7
Disclosure | Source Reference - | |||
Table | Disclosure Requirement | Disclosure Location | Page | if applicable |
Securitization (Table 8) - continued | ||||
(d) | An explanation of significant changes to any quantitative | Not applicable. CSC does not securitize assets. | ||
information since the last reporting period. | ||||
Quantitative: | The total outstanding exposures securitized by the Board- | Not applicable. CSC does not securitize assets. | ||
(e) | regulated institution in securitizations that meet the | |||
operational criteria provided in § 217.41 (categorized into | ||||
traditional and synthetic securitizations), by exposure type, | ||||
separately for securitizations of third-party exposures for | ||||
which the bank acts only as sponsor. | ||||
(f) | For exposures securitized by Board-regulated institution in | Not applicable. CSC does not securitize assets. | ||
securitizations that meet the operational criteria in § 217.41: | ||||
(1) Amount of securitized assets that are impaired/past due | ||||
categorized by exposure type; and | ||||
(2) Losses recognized by Board-regulated institution during | ||||
the current period categorized by exposure type. | ||||
(g) | The total amount of outstanding exposures intended to be | Not applicable. CSC does not securitize assets. | ||
securitized categorized by exposure type. | ||||
(h) | Aggregate amount of: | Basel III Regulatory Capital Disclosures: | ||
(1) On-balance sheet securitization exposures retained or | Securitizations | Pg. 13-14 | ||
purchased categorized by exposure type; and | ||||
(2) Off-balance sheet securitization exposures categorized | FR Y-9C | FR Y-9C | ||
by exposure type. | Schedule HC-R - Regulatory Capital | Pg. 61 | ||
FFIEC 031 | FFIEC 031 | |||
Schedule RC-R Part II - Regulatory Capital | Pg. 66 | |||
(i) | (1) Aggregate amount of securitization exposures retained | Basel III Regulatory Capital Disclosures: | ||
or purchased and the associated capital requirements for | Securitizations | Pg. 14 | ||
these exposures, categorized between securitization and | ||||
resecuritization exposures, further categorized into a | ||||
meaningful number of risk weight bands and by risk- | ||||
based capital approach (e.g., SSFA); and | ||||
(2) Exposures that have been deducted entirely from tier 1 | ||||
capital, CEIOs deducted from total capital (as described | ||||
in § 217.42(a) (1), and other exposures deducted from | ||||
total capital should be disclosed separately by exposure | ||||
type. | ||||
(j) | Summary of current year's securitization activity, including | Not applicable. CSC does not securitize assets. | ||
the amount of exposures securitized (by exposure type), and | ||||
recognized gain or loss on sale by exposure type. | ||||
(k) | Aggregate amount of resecuritization exposures retained or | Not applicable. CSC does not have any | ||
purchased categorized according to: | resecuritization exposures. | |||
(1) Exposures to which credit risk mitigation is applied and | ||||
those not applied; and | ||||
(2) Exposures to guarantors categorized according to | ||||
guarantor creditworthiness categories or guarantor | ||||
name. | ||||
Equities Not | Subject to Subpart F of This Part (Table 9) | |||
Qualitative: | The general qualitative disclosure requirement with respect to | Basel III Regulatory Capital Disclosures: | ||
(a) | equity risk for equities not subject to subpart F of this part, | Equity Securities Not Subject to the Market | Pg. 15 | |
including: | Risk Capital Rule | |||
(1) Differentiation between holdings on which capital gains | ||||
are expected and those taken under other objectives | ||||
including for relationship and strategic reasons; and | ||||
(2) Discussion of important policies covering the valuation | ||||
of and accounting for equity holdings not subject to | ||||
subpart F of this part. This includes the accounting | ||||
techniques and valuation methodologies used, including | ||||
key assumptions and practices affecting valuation as | ||||
well as significant changes in these practices. | ||||
Quantitative: | Value disclosed on the balance sheet of investments, as well | Basel III Regulatory Capital Disclosures: | ||
(b) | as the fair value of those investments; for securities that are | Equity Securities Not Subject to the Market | Pg. 15 | |
publicly traded, a comparison to publicly-quoted share values | Risk Capital Rule | |||
where the share price is materially different from fair value. |
8
Disclosure | Source Reference - | |||
Table | Disclosure Requirement | Disclosure Location | Page | if applicable |
Equities Not Subject to Subpart F of This Part (Table 9) - continued | ||||
(c) | The types and nature of investments, including the amount | Basel III Regulatory Capital Disclosures: | ||
that is: | Equity Securities Not Subject to the Market | Pg. 15 | ||
(1) Publicly traded; and | Risk Capital Rule | |||
(2) Non-publicly traded. | ||||
(d) | The cumulative realized gains (losses) arising from sales and | Not applicable. There were not any sales or | ||
liquidations in the reporting period. | liquidations in the reporting period. | |||
(e) | (1) Total unrealized gains (losses). | Not applicable. There are not any unrealized | ||
(2) Total latent revaluation gains (losses). | gains (losses) in the reporting period. | |||
(3) Any amounts of the above included in tier 1 or tier 2 | ||||
capital. | ||||
(f) | Capital requirements categorized by appropriate equity | Basel III Regulatory Capital Disclosures: | ||
groupings, consistent with the Board-regulated institution's | Equity Securities Not Subject to the Market | Pg. 15 | ||
methodology, as well as the aggregate amounts and the type | Risk Capital Rule | |||
of equity investments subject to any supervisory transition | ||||
regarding regulatory capital requirements. | ||||
Interest Rate Risk for Non-Trading Activities (Table 10) | ||||
Qualitative: | The general qualitative disclosure requirement, including the | Form 10-Q | Form 10-Q | |
(a) | nature of interest rate risk for non-trading activities and key | MD&A - Risk Management | Pg. 18-21 | |
assumptions, including assumptions regarding loan | Note 6 - Bank Loans and Related Allowance | Pg. 48-52 | ||
prepayments and behavior of non-maturity deposits, and | for Credit Losses | |||
frequency of measurement of interest rate risk for non-trading | ||||
activities. | ||||
Quantitative: | The increase (decline) in earnings or economic value (or | Form 10-Q | Form 10-Q | |
(b) | relevant measure used by management) for upward and | MD&A - Risk Management | Pg. 18-21 | |
downward rate shocks according to management's method for | ||||
measuring interest rate risk for non-trading activities, | ||||
categorized by currency (as appropriate). | ||||
Supplementary Leverage Ratio (Table 13 to § 217.173) | ||||
Quantitative: | Summary comparison of accounting assets and total leverage | Basel III Regulatory Capital Disclosures: | ||
(1) | exposure. | Supplementary Leverage Ratio | Pg. 15 | |
Quantitative: | Supplementary leverage ratio. | Basel III Regulatory Capital Disclosures: | ||
(2) | Supplementary Leverage Ratio | Pg. 15-16 |
9
COMPONENTS OF CAPITAL
A reconciliation of total stockholders' equity to CET1 capital, additional Tier 1 capital, Tier 2 capital, and Total capital is as follows(1):
(Dollars in Millions, Unaudited) | At September 30, 2020 | |
Total stockholders' equity (2) | $ | 31,331 |
Less: | 5,263 | |
Preferred Stock | ||
CET1 capital before regulatory adjustments | 26,068 | |
Less: | 1,694 | |
Goodwill, net of associated deferred tax liabilities | ||
Other intangible assets, net of associated deferred tax liabilities | 1,234 | |
Deferred tax assets, net of valuation allowances and deferred tax liabilities | 16 | |
Accumulated other comprehensive income (AOCI) | 5,686 | |
CET1 capital | 17,438 | |
Additional Tier 1 Capital Preferred stock | 5,263 | |
Tier 1 capital | 22,701 | |
Allowance for credit losses | 34 | |
Tier 2 capital | 34 | |
Total capital | $ | 22,735 |
- Total capital was calculated using the standardized approach framework to exclude all components of AOCI. See Current Regulatory Environment and Other Developments for information on recently issued rules that will impact Schwab's regulatory capital requirements.
- Refer to the Consolidated Balance Sheets on page 30 of the September 30, 2020 Form 10-Q for the components of stockholders' equity.
CAPITAL ADEQUACY
STANDARDIZED RISK-WEIGHTED ASSETS (RWA)
The following table provides the Company's distribution of RWA by exposure categories prescribed by the applicable regulations. For a distribution of the Company's RWA by balance sheet categories, see Schedule HC-R of the FR Y-9C for the period ended September 30, 2020.
The following details the Company's RWA under the standardized approach.
(Dollars in Millions, Unaudited) | At September 30, 2020 | |
RWA by applicable Basel III exposure category: | ||
Exposures to sovereign and government-sponsored entities(1) | $ | 46,504 |
Exposures to depository institutions, foreign banks, and credit unions | 939 | |
Exposures to public sector entities | 671 | |
Corporate exposures | 16,522 | |
Residential mortgage exposures | 8,039 | |
Past due loans | 43 | |
Other assets | 17,233 | |
Securitization exposures | 12,853 | |
Equity exposures | 1,026 |
RWA for balance sheet asset categories | 103,830 | |
Off-balance sheet items(2) | 5,534 | |
Total risk-weighted assets under standardized approach | $ | 109,364 |
- Portions of the exposures to sovereign entities are directly and unconditionally guaranteed by, the U.S. Government, its agencies and the Federal Reserve, and thus receive 0% risk.
- Off-Balancesheet exposures are stated at their credit equivalent amount and include off balance sheet commitments related to unused commitments on our loan products and CRA Investments, purchase commitments and OTC and Centrally Cleared derivate exposures.
10
CAPITAL RATIOS
The following details CSC's and Schwab Bank's capital ratios(1).
At September 30, 2020 | |||||||||||
Actual | Minimum to be Well Capitalized | Minimum Required | |||||||||
(Dollars in Millions, Unaudited) | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||
CSC | |||||||||||
Common Equity Tier 1 Risk-Based Capital | $ | 17,438 | 15.9% | N/A | $ | 4,921 | 4.5% | ||||
Tier 1 Risk-Based Capital | 22,701 | 20.8% | N/A | 6,562 | 6.0% | ||||||
Total Risk-Based Capital | 22,735 | 20.8% | N/A | 8,749 | 8.0% | ||||||
Schwab Bank | |||||||||||
Common Equity Tier 1 Risk-Based Capital | $ | 16,648 | 19.1% | $ | 5,656 | 6.5% | $ | 3,916 | 4.5% | ||
Tier 1 Risk-Based Capital | 16,648 | 19.1% | 6,962 | 8.0% | 5,221 | 6.0% | |||||
Total Risk-Based Capital | 16,680 | 19.2% | 8,702 | 10.0% | 6,962 | 8.0% |
N/A - Not applicable
(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. See Current Regulatory Environment and Other Developments for information on recently issued rules that will impact Schwab's regulatory capital requirements.
Under the Basel III capital rule (the Capital Rule), banking organizations are also required to maintain a capital conservation buffer and, beginning in 2019, a countercyclical capital buffer above the regulatory minimum risk-based capital ratios. The capital conservation buffer is 2.5%. At September 30, 2020, the countercyclical capital buffer was zero percent. If either buffer falls below the minimum requirement, the banking organization would be subject to limits on capital distributions and discretionary bonus payments to executive officers. For September 30, 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 was 7.0%, 8.5%, and 10.5%, respectively. At September 30, 2020, both CSC's and Schwab Bank's capital levels exceeded the fully implemented capital conservation buffer requirement.
CREDIT RISK
Credit risk refers to the potential for loss due to a borrower, counterparty, or issuer failing to perform its contractual obligations. A foreign country is defined as any country other than the United States.
The following tables present certain of the Company's on- and off-balance sheet positions for which the Company is subject to credit risk exposure. These amounts do not include the effects of certain credit risk mitigation techniques (i.e. collateral and netting not permitted under U.S. GAAP), and amounts related to items that are deducted from regulatory capital.
The following tables are presented on a U.S. GAAP basis and reflect amounts by product type, region (as determined by the legal domicile of the counterparty), remaining contractual maturity and counterparty type.
MAJOR CREDIT RISK EXPOSURES BY GEOGRAPHIC REGION
At September 30, 2020 | |||||||||||
Europe, Middle | Asia and | ||||||||||
$ in millions | Americas | East and Africa | Oceania | Total | |||||||
Product Type | |||||||||||
Cash and investments segregated(1) | $ | 41,435 | $ | 1,484 | $ | 414 | $ | 43,333 | |||
Investment securities(2) | 301,459 | 2,099 | 200 | 303,758 | |||||||
Securities purchased under agreement to resell | 8,318 | 5,393 | - | 13,711 | |||||||
Loans(3) | 45,204 | 136 | 551 | 45,891 | |||||||
Equity Exposures(4) | 1,064 | - | - | 1,064 | |||||||
Total on-balance sheet | $ | 397,480 | $ | 9,112 | $ | 1,165 | $ | 407,757 | |||
Commitments(5) | $ | 11,049 | $ | - | $ | - | $ | 11,049 | |||
Total off-balance sheet | $ | 11,049 | $ | - | $ | - | $ | 11,049 | |||
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MAJOR CREDIT EXPOSURES BY REMAINING CONTRACTUAL MATURITY
At September 30, 2020 | |||||||||||
Years to Maturity | |||||||||||
$ in millions | Less than 1 | 1-5 | Over 5 | Total | |||||||
Product Type | |||||||||||
Cash and investments segregated(1) | $ | 43,333 | $ | - | $ | - | $ | 43,333 | |||
Investment securities(2) | 13,894 | 36,929 | 252,935 | 303,758 | |||||||
Securities purchased under agreement to resell | 13,711 | - | - | 13,711 | |||||||
Loans(3) | 27,974 | 2,635 | 15,282 | 45,891 | |||||||
Equity Exposures(4) | 441 | 34 | 589 | 1,064 | |||||||
Total on-balance sheet | $ | 99,353 | $ | 39,598 | $ | 268,806 | $ | 407,757 | |||
Commitments(5) | $ | 3,667 | $ | 6,226 | $ | 1,156 | $ | 11,049 | |||
Total off-balance sheet | $ | 3,667 | $ | 6,226 | $ | 1,156 | $ | 11,049 | |||
MAJOR CREDIT EXPOSURES BY COUNTERPARTY TYPE
At September 30, 2020 | ||||||||||||||
Wholesale | ||||||||||||||
Corporate | ||||||||||||||
$ in millions | Bank | Public | and Other | Household | Total | |||||||||
Product Type | ||||||||||||||
Cash and investments segregated(1) | $ | 4,187 | $ | 35,131 | $ | 4,015 | $ | - | $ | 43,333 | ||||
Investment securities(2) | 1,197 | 10,802 | 291,759 | - | 303,758 | |||||||||
Securities purchased under agreement to resell | 5,393 | - | 8,318 | - | 13,711 | |||||||||
Loans(3) | - | - | 5,850 | 40,041 | 45,891 | |||||||||
Equity Exposures(4) | - | 47 | 1,017 | - | 1,064 | |||||||||
Total on-balance sheet | $ | 10,777 | $ | 45,980 | $ | 310,959 | $ | 40,041 | $ | 407,757 | ||||
Commitments(5) | $ | - | $ | - | $ | 1,724 | $ | 9,325 | $ | 11,049 | ||||
Total off-balance sheet | $ | - | $ | - | $ | 1,724 | $ | 9,325 | $ | 11,049 | ||||
- Amounts include cash and cash equivalents, cash and investments segregated for regulatory purposes. This amount does not include the amounts related to resale agreements.
- Amounts include available for sale securities and held to maturity securities.
- Amounts include bank loans and margin loans, and includes unamortized premiums and discounts as well as direct origination costs.
- Amounts include the equities not subject to the market risk capital rule included in the table on page 15.
- Amounts represent commitments to extend credit to banking clients, purchase mortgage loans, and commitments to fund Community Reinvestment Act (CRA) investments.
CREDIT EXPOSURE BY GEOGRAPHIC CONCENTRATIONS
The Company reports its loans into two different Loans Held for Investment (LHFI) portfolios: 1) the Mortgage Lending Portfolio and 2) the Securities-Based Lending Portfolio.
Mortgage Lending Portfolio
The bank loan portfolio includes First Mortgages, HELOCs, and other loans. The credit risk exposure related to loans is actively managed through individual loan and portfolio reviews. The Company records an allowance for credit losses through a charge to earnings based on our estimate of current expected credit losses for the existing portfolio. We review the allowance for credit losses quarterly, taking into consideration current economic conditions, reasonable and supportable forecasts, the composition of the existing loan portfolio, past loss experience, and any other risks inherent in the portfolio to ensure that the allowance for credit losses is maintained at an appropriate level.
The Company's residential loan underwriting guidelines include maximum LTV ratios, cash out limits, and minimum Fair Isaac Corporation (FICO) credit scores. The specific guidelines are dependent on the individual characteristics of a loan (for example, whether the property is a primary or secondary residence, whether the loan is for investment property, whether the loan is for an initial purchase of a home or refinance of an existing home, and whether the loan size is conforming or jumbo).
The Company does not originate or purchase residential loans that allow for negative amortization and does not originate or 12
purchase subprime loans (generally defined as extensions of credit to borrowers with a FICO score of less than 620 at origination), unless the borrower has compensating credit factors.
The loans are placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless the loans are well- secured and in the process of collection), or when the full timely collection of interest or principal becomes uncertain, including loans to borrowers who have filed for bankruptcy. When a loan is placed on nonaccrual status, the accrued interest receivable is written off by reversing interest income and the loan is accounted for on the cash or cost recovery method until qualifying for return to accrual status. Generally, a nonaccrual loan may be returned to accrual status when all delinquent interest and principal is repaid and the borrower demonstrates a sustained period of performance, or when the loan is both well- secured and in the process of collection and collectability is no longer doubtful. Loans on nonaccrual status are considered nonperforming assets.
Securities-Based Lending Portfolio
Collateral arrangements relating to margin loans and Pledged Asset Lines (PALs) include provisions that require additional collateral in the event of market fluctuations. Additionally, for margin loans and PALs, collateral arrangements require that the fair value of such collateral sufficiently exceeds the credit exposure in order to maintain a fully secured position. Collateral market value is monitored on a daily basis and a borrower's credit line may be reduced or collateral may be liquidated if the collateral is in danger of falling below specified levels.
The following table provides additional information on the geographic concentration of the combined mortgage and securities lending portfolio at September 30, 2020.
At September 30, 2020 | ||||||||||||||
Mortgage and Securities Lending Portfolio | ||||||||||||||
Nonaccrual | ||||||||||||||
($ in millions) | Current or 30- | Unfunded | ||||||||||||
LHFI (1) | 89 Days | Past Due 90+ | Total | Commitments | ||||||||||
Americas | $ | 45,204 | $ | 9 | $ | 33 | $ | 42 | $ | 11,022 | ||||
Europe, Middle East and Africa | 136 | - | - | - | - | |||||||||
Asia and Oceania | 551 | - | - | - | - | |||||||||
Grand Total | $ | 45,891 | $ | 9 | $ | 33 | $ | 42 | $ | 11,022 | ||||
- LHFI consists of the unpaid principal balance and includes unamortized premiums and discounts as well as direct origination costs. The portfolio does not currently have any loans 90 days past due that are still accruing.
SECURITIZATIONS
The disclosures in this section refer to securitizations held in the Company's investment portfolio, and the regulatory capital related to these exposures calculated according to the Capital Rule. The Capital Rule defines securitization exposures as on- balance sheet and off-balance sheet credit exposures that result from traditional securitizations, synthetic securitizations, or resecuritizations. Traditional and synthetic securitizations arise when:
- The credit risk of one or more underlying exposures is transferred to one or more third parties, and the underlying exposures is separated into at least two tranches reflecting different levels of seniority,
- performance of the exposure depends upon the performance of the underlying assets, and
- substantially all of the underlying assets are considered financial.
The difference between traditional and synthetic securitizations is that unlike traditional securitizations, synthetic securitizations transfer credit risk through the use of credit derivatives or guarantees. Resecuritizations are exposures that directly or indirectly reference a securitization exposure. Participants in securitization markets are typically originators, investors, or sponsors. The Company's securitization-related activity includes investing in products created by third parties, and the Company does not sponsor or originate securitizations. Securitization exposures held in the Company's investment portfolio include traditional agency and non-agencyasset-backed securities and mortgage-backed securities. Residential mortgage-backed securities (MBS) issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), or guaranteed by the Government National Mortgage Association (GNMA), usually do not include credit tranching. Since the existence of credit tranches is a factor in determining whether an exposure qualifies for securitization treatment, agency pass-through residential MBS usually do not meet the Capital Rule's definition of securitization exposures. The Company utilizes the gross-up approach to determine risk-weighted assets for its securitization exposures. This approach considers the Company's seniority in the securitization structure and risk factors inherent in the
13
underlying assets. The Company has a relatively low overall risk appetite, and generally invests in senior tranches, which do not require grossing-up.
The Company does not have any synthetic securitization exposure and does not act as a sponsor or guarantor; therefore, the following tables relate to the Company as an investor.
Securitizations by exposure type: | At September 30, 2020 | |||||||||||
Risk-weighted | ||||||||||||
(Dollars in Millions, Unaudited) | Carrying Value | Asset Value | ||||||||||
Mortgage-backed securities: | 1,269 | 1,217 | ||||||||||
Non-agency - Commercial | $ | $ | ||||||||||
Asset-backed securities: | 1,544 | 1,491 | ||||||||||
Auto | ||||||||||||
Credit Card | 7,191 | 7,113 | ||||||||||
Student loan | 9,464 | 1,922 | ||||||||||
Dealer floorplan | 544 | 530 | ||||||||||
Mobile | 279 | 275 | ||||||||||
Equipment | 306 | 305 | ||||||||||
Total securitizations | $ | 20,597 | $ | 12,853 | ||||||||
Securitizations by capital requirement and risk-weight bands: | ||||||||||||
At September 30, 2020 | ||||||||||||
Carrying Value | Risk-Weighted | Capital Impact | ||||||||||
(Dollars in Millions, Unaudited) | Asset | of RWA (1) | ||||||||||
Not subject to risk-weighting(2) | $ | 52 | $ | - | $ | - | ||||||
20% | 9,614 | 1,922 | 154 | |||||||||
100% | 10,931 | 10,931 | 874 | |||||||||
Total Securitizations | $ | 20,597 | $ | 12,853 | $ | 1,028 | ||||||
- The capital impact of RWA is calculated by multiplying risk-weighted assets by the minimum total risk-based capital ratio of 8%.
- Comprised of unrealized gain (loss) on securitizations. As a result of CSC making the AOCI opt-out election as of January 1, 2020, unrealized gain (loss) on securities is not risk weighted.
14
EQUITIES NOT SUBJECT TO THE MARKET RISK CAPITAL RULE
The Company has total equity exposures of approximately $1.026 billion at September 30, 2020. This includes trading assets totaling $354 million held for operational customer accommodation purposes and investments made relating to the Company's deferred compensation plan. These are recorded at fair value. Other individual investments are related to the Company's low- income tax credit (LIHTC) investments of $583 million, investment in Federal Home Loan Bank of San Francisco (FHLB) stock totaling $47 million, and community reinvestment activities totaling $67 million. The LIHTC investments are accounted for using the proportional amortization method.
Equity exposures by type and risk weight: | ||||||||
At September 30, 2020 | ||||||||
Non-Publicly | ||||||||
Traded | Publicly Traded | Risk-Weighted | Capital | |||||
(Dollars in Millions, Unaudited) | Exposures (1) | Exposures (1) | Asset Amount | Requirements (2) | ||||
Simple Risk Weight Approach: (3) | ||||||||
20% risk weight: | ||||||||
Federal Home Loan Bank (FHLB) stock | $ | 47 | $ | - | $ | 9 | $ | 1 |
100% risk weight: | ||||||||
Low-income housing tax credit (LIHTC) investments | 583 | - | 583 | 47 | ||||
Community Reinvestment Activities (CRA) | 67 | - | 67 | 5 | ||||
Marketable equity securities | - | 2 | 2 | 0 | ||||
Other investments | 13 | - | 13 | 1 | ||||
Other Risk-Weighting Approaches: (4) | ||||||||
100% risk weight: | ||||||||
Mutual funds | - | 352 | 352 | 28 | ||||
Total | $ | 710 | $ | 354 | $ | 1,026 | $ | 82 |
- For non-publicly traded exposures, with the exception of LIHTC investments, the amount is valued using either the adjusted cost method or the equity method. The LIHTC Investments are valued using the proportional amortization method. For publicly traded exposures, the amount represents fair value measured using the market approach.
- Calculated by multiplying the risk-weighted asset by the total risk-based capital ratio of 8%, which represents the minimum to be adequately capitalized.
- The Company applies the simple risk-weight approach to equity exposures that are not mutual funds.
- The Company applies the simple modified look-through approach to equity exposures that are mutual funds.
SUPPLEMENTARY LEVERAGE RATIO
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. Additionally, CSC is subject to the supplementary leverage ratio (SLR), which is calculated as Tier 1 capital divided by the total leverage exposure (see update in Current Regulatory Environment and Other Developments section). The total leverage exposure includes all on-balance sheet assets and certain off-balance sheet exposures, including unused commitments. The Company is required to maintain a supplementary leverage ratio of 3.0%. At September 30, 2020, the Company's SLR of 5.6% exceeded the minimum requirement.
The following table presents the Company's consolidated total assets under GAAP and the supplementary leverage exposure.
Summary comparison of accounting assets and total leverage exposure: | ||
(Dollars in Millions, Unaudited) | At September 30, 2020 | |
Total Leverage Exposure: | ||
Total consolidated assets as reported in published financial statements | $ | 419,355 |
Adjustment for derivative transactions | 258 | |
Adjustment for repo-style transactions | - | |
Adjustment for off-balance sheet exposures | 6,268 | |
Other adjustments | ||
Adjustments for deductions from tier 1 capital | 2,944 | |
Adjustment for frequency calculations | 14,642 | |
$ | ||
Total Leverage Exposure | 408,295 |
15
The following table presents the detailed components of the Company's SLR computation, under U.S. Basel III fully phased-in rules.
Supplementary leverage ratio: | At September 30, 2020 | ||
(Dollars in Millions, Unaudited) | |||
On-balance sheet exposures | |||
1 | On-balance sheet exposures (excluding on-balance sheet assets for repo-style transactions and derivative | ||
2 | exposures, but including cash collateral received in derivative transactions) | $ | 391,555 |
LESS: Asset amounts deducted in determining Tier 1 capital | 2,944 | ||
3 Total on-balance sheet exposures (excluding on-balance sheet assets for repo-style transactions and
derivative exposures, but including cash collateral received in derivative transactions) (sum of row 1 | $ | 388,611 | |
and 2) | |||
Derivative exposures | |||
4 | Replacement cost for derivative exposures (that is, net of cash variation margin). | $ | 215 |
5 | Add-on amounts for potential future exposure (PFE) associated with all derivatives transactions | 258 | |
6 | Gross-up for cash collateral posted if deducted from the on-balance sheet assets, except for cash variation | ||
margin | - | ||
7 | LESS: Deductions of receivable assets for cash variation margin posted in derivative transactions, if included | ||
in on-balance sheet assets. | - | ||
8 | LESS: Exempted CCP leg of client-cleared trade exposures | - | |
9 | Adjusted effective notional amount of written credit derivatives | - | |
10 | LESS: Effective notional principal offsets and PFE adjustments for sold credit protection | - | |
11 | Total derivative exposures (sum of rows 4 to 10) | $ | 473 |
Repo-style transactions | |||
12 | On-balance sheet assets for repo-style transactions, except include the gross value of receivables for reverse | ||
repurchase transactions. Exclude from this item the value of securities received in a security-for-security | |||
repo-style transaction where the securities lender has not sold or re-hypothecated the securities received. | |||
Include in this item the value of securities that qualified for sales treatment that must be reversed. | $ | 12,943 |
13 LESS: Reduction of the gross value of receivables in reverse repurchase transactions by cash payables in
repurchase transactions under netting agreements | - | ||
14 | Counterparty credit risk for all repo-style transactions | - | |
15 | Exposure for repo-style transactions where a banking organization acts as an agent | - | |
16 | Total repo-style transaction exposures (sum of rows 12 to 15) | $ | 12,943 |
Other off-balance sheet exposures | |||
17 | Off-balance sheet exposure at gross notional amount | $ | 10,860 |
18 | LESS: Adjustments for conversion to credit equivalent amounts | 4,592 | |
19 | Off-balance sheet items (sum of rows 17 and 18) | $ | 6,268 |
Capital and total exposures | |||
20 | Tier 1 capital | $ | 22,701 |
21 | Total exposures (sum of rows 3, 11, 16 and 19) | $ | 408,295 |
Supplementary leverage ratio | |||
22 | Supplementary Leverage Ratio | 5.6% |
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The Charles Schwab Corporation published this content on 14 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 November 2020 10:00:00 UTC