| Item 1.01 |
Entry Into a Material Definitive Agreement. |
Second Amended and Restated Insured Deposit Account Agreement
On May 4, 2023, The Charles Schwab Corporation (“CSC”), its broker-dealer subsidiaries and Charles Schwab Trust Bank (collectively “Schwab”) executed a Second Amended and Restated Insured Deposit Account Agreement (the “2023 IDA”) with TD USA Bank, N.A., and TD Bank, N.A. (the “TD Depository Institutions”), which replaces and supersedes the Amended and Restated Insured Deposit Account Agreement dated November 24, 2019 (as amended) (the “2019 IDA” and together with the 2023 IDA, the “IDAs”).
Pursuant to the 2023 IDA and consistent with the 2019 IDA, cash held in 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 with respect to the deposit accounts for which Schwab receives an aggregate monthly fee, which remains unchanged. New terms reflected in the 2023 IDA include the following:
Term: The 2023 IDA extends the agreement to sweep funds to the TD Depository Institutions by three years as compared to the 2019 IDA, to July 1, 2034, subject, as with the 2019 IDA, to automatic renewal for a five-year term if not terminated by either Schwab or the TD Depository Institutions two years prior to the expiration date.
Deposit Balances: The 2023 IDA requires that Schwab sweep funds necessary to maintain a minimum (“Floor”) and maximum (“Cap”) amount of funds on deposit at the TD Depository Institutions (“deposit balances”) as follows:
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Through September 10, 2025, withdrawals in deposit balances by Schwab are generally permitted only to the extent of withdrawals initiated by Schwab customers, with limited exceptions, except to the extent necessary for Schwab to maintain balances below the applicable Cap. During this period the applicable Floor is the amount of then-outstanding unmatured Fixed Rate Obligation Amounts (“FROA balances”) and the Cap is $30 billion above that amount. |
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After September 10, 2025, withdrawals of deposit balances are permitted at Schwab’s discretion, subject to an obligation to maintain deposit balances above a Floor of $60 billion, with a Cap of $90 billion. |
FROA Balances: During the term of the agreement, Schwab may terminate up to an aggregate of $5 billion of FROA balances prior to the applicable maturity dates of such fixed-rate instruments, subject to FROA Permitted Termination Payments (as defined in the 2023 IDA) and to certain limitations. Under the 2023 IDA, deposit balances are no longer subject to a restriction under the 2019 IDA that at least 80 percent of deposit balances be designated as FROAs. Designation of deposit balances for investment in fixed or floating rate instruments is at Schwab’s sole discretion.
The foregoing summary of the 2023 IDA is qualified by reference to the full text of the 2023 IDA, which is filed as Exhibit 10.1 hereto and incorporated herein by reference.
The TD Depository Institutions are subsidiaries of the Toronto-Dominion Bank (“TD Bank”), which owns greater than five percent of CSC’s common stock. Additional information on the relationship between CSC and TD Bank is included under “Transactions with Related Persons” beginning on page 75 of our definitive proxy statement filed with the Securities and Exchange Commission on March 31, 2023 and is incorporated herein by reference.
