What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-08 · 265 added, 433 removed, 416 unchanged (63% of the section changed)

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The Charles Schwab Corporation (CSC) is a savings and loan holding company.

Incorporated in 1986, CSC engages, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.

CSC engages, 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:

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Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services.

The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees.

The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.

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.

The TD Ameritrade acquisition is further described in Note 3 of the notes to the condensed consolidated financial statements below.

Our consolidated financial statements include the results of operations and financial condition of TD Ameritrade beginning on October 6, 2020.

The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees.

The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.

Schwab was founded on the belief that all Americans deserve access to a better investing experience.

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We believe that following this strategy is the best way to maximize our market valuation and stockholder returns over time.

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 $70 trillion, which means the Company’s $7.61 trillion in total client assets leaves substantial opportunity for growth.

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 $70 trillion, which means the Company’s $7.86 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 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.

This Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (2021 Form 10-K).

On our website, https://www.aboutschwab.com , we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC or Commission):

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)

THE CHARLES SCHWAB CORPORATION

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(Tabular Amounts in Millions, Except Ratios, or as Noted)

This Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (2020 Form 10-K).

On our website, https://www.aboutschwab.com , we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC or Commission):

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.

or 15(d) of the Securities Exchange Act of 1934.

In addition, the website also includes the Dodd-Frank stress test results, our regulatory capital disclosures based on Basel III, and our average liquidity coverage ratio (LCR).

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In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934.

Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “expand,” “aim,” “maintain,” “continue,” and other similar expressions.

In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

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our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I – Item 2);

• Expected benefits from the TD Ameritrade acquisition;

scope of technology work related to the integration;

expected timing for the client conversion;

cost estimates and timing related to the TD Ameritrade integration, including acquisition and integration-related costs and capital expenditures, cost synergies, and exit and other related costs (see Overview, Business Acquisitions in Part I, Item 1, Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 3, and Exit and Other Related Liabilities in Item 1 – Note 11);

• Capital management;

sources of liquidity and capital;

Tier 1 Leverage Ratio operating objective (see Overview, Liquidity Risk, and Capital Management);

• Expected timing for the TD Ameritrade client conversions;

cost estimates and timing related to the TD Ameritrade integration, including acquisition and integration-related costs and capital expenditures, cost synergies, and exit and other related costs (see Overview, Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);

• Net interest revenue;

money market fund fee waivers (see Results of Operations);

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• The phase-out of the use of LIBOR (see Risk Management);

• Sources of liquidity and capital;

capital management;

Tier 1 Leverage Ratio operating objective (see Liquidity Risk and Capital Management);

• The migration of Insured Deposit Account (IDA) agreement balances to our balance sheet (see Capital Management and Commitments and Contingencies in Item 1 – Note 9);

• The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Item 1 – Note 2);

• The likelihood of indemnification and guarantee payment obligations and clients failing to fulfill contractual obligations (see Commitments and Contingencies in Item 1 – Note 9);

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Important factors that may cause actual results to differ include, but are not limited to:

• General market conditions, including equity valuations, trading activity, the level of interest rates – which can impact money market fund fee waivers, and credit spreads;

• General market conditions, including equity valuations, trading activity, and the level of interest rates;

• Our ability to attract and retain clients, develop trusted relationships, and grow client assets;

• Client use of our advice solutions and other products and services;

• Client use of our advisory and lending solutions and other products and services;

• The level of client assets, including cash balances;

• Competitive pressure on pricing, including deposit rates;

• Client sensitivity to interest rates;

• Client sensitivity to rates;

• Regulatory guidance;

• Capital and liquidity needs and management;

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

• Our ability to manage expenses;

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• Our ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance our infrastructure, in a timely and successful manner;

• Our ability to monetize client assets in a win-win manner;

• Our ability to monetize client assets;

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

• The scope and duration of the COVID-19 pandemic and actions taken by governmental authorities to contain the spread of the virus and the economic impact;

• Our ability to support client activity levels;

• The risk that expected cost synergies and other benefits from the TD Ameritrade acquisition may not be fully realized or may take longer to realize than expected;

• The risk that expected cost synergies and other benefits from the TD Ameritrade acquisition may not be fully realized or may take longer to realize than expected and that integration-related expenses may be higher than expected;

• The timing and scope of integration-related and other technology projects;

• Real estate and workforce decisions;

• Re al estate and workforce decisions;

• Migrations of bank deposit account balances (BDA balances);

• Balance sheet positioning relative to changes in interest rates;

• Prepayment levels for mortgage-backed securities;

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Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance.

Results for the third quarter and first nine months of 2021 and 2020 are:

Results for the first quarter of 2022 and 2021 are as follows:

Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2021 2020 2021 2020

March 31, Percent

Client Metrics

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$ 120.5 $ 133.8 (10) %

Core net new client assets (in billions) $ 139.0 $ 42.7 N/M $ 396.0 $ 162.5 144 %

Core net new client assets (in billions) $ 120.5 $ 148.2 (19) %

Client assets (in billions, at quarter end) $ 7,862.1 $ 7,069.1 11 %

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New brokerage accounts (in thousands) 1,202 3,153 (62) %

1,178 592 99 % 5,988 2,853 110 %

Active brokerage accounts (in thousands, at quarter end) 33,577 31,902 5 %

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Earnings per common share — diluted $ .67 $ .73 (8) %

$ .74 $ .48 54 % $ 2.06 $ 1.54 34 %

Net revenue growth from prior year (1) % 80 %

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Adjusted diluted EPS $ .77 $ .84

$ .84 $ .51 $ 2.39 $ 1.66

Return on tangible common equity 26 % 24 %

(1) The first nine months of 2021 includes an outflow of $14.4 billion from a mutual fund clearing services client.

The third quarter and first nine months of 2020 include inflows of $8.5 billion related to the acquisition of Wasmer, Schroeder & Company, LLC.

The first nine months of 2020 also includes $79.9 billion related to the acquisition of the assets of USAA’s Investment Management Company (USAA-IMCO) and an inflow of $10.9 billion from a mutual fund clearing services client.

(2) The first nine months of 2020 include 1.1 million new brokerage accounts related to the acquisition of assets from USAA-IMCO.

(3) In connection with the acquisition of TD Ameritrade, Schwab issued approximately 586 million common shares to TD Ameritrade stockholders, increasing our weighted average common shares outstanding for the third quarter and first nine months of 2021 relative to the same periods in 2020.

(1) The first quarter of 2021 includes an outflow of $14.4 billion from a mutual fund clearing services client.

(2) See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

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See Non-GAAP Financial Measures.

N/M Not meaningful.

Percentage changes greater than 200% are presented as not meaningful

Throughout the first nine months of 2021, Schwab continued to drive business momentum while supporting investors through an uneven economic recovery.

While positive sentiment largely persisted during the first nine months of 2021, a variety of factors in the macroeconomic landscape, such as the pace of economic growth and the potential path of inflation, affected investor sentiment in the third quarter, as the S&P 500 ® ended September essentially flat versus June 30 and up 15% for the year.

Clients opened 1.2 million new brokerage accounts during the third quarter, bringing year-to-date new brokerage accounts to 6.0 million.

Client engagement remained strong throughout the first nine months of 2021, softening modestly from the second quarter to the third quarter as daily average trades (DATs) of 5.5 million in the third quarter represented a decrease of

Schwab’s business momentum remained strong during the first quarter of 2022, as we supported clients through a challenging macroeconomic environment that included continued progress against the COVID-19 pandemic, rising inflation, geopolitical turmoil driven by the Russian invasion of Ukraine, the Federal Reserve initiating its first tightening cycle since late 2015, and volatile equity markets that remained below year-end 2021 levels for much of the quarter.

Against this backdrop, client engagement remained strong during the first quarter of 2022, though client trading activity and new brokerage account openings were substantially lower than the extraordinary levels seen in the first quarter of 2021.

Clients’ daily average trades (DATs) totaled 6.6 million in the first quarter of 2022, decreasing 22% from 8.4 million seen in the first quarter of the prior year.

Clients opened 1.2 million new brokerage accounts in the first quarter of 2022, and core net new assets totaled $120.5 billion, which represents a 6% annualized organic growth rate.

We ended the first quarter of 2022 with 33.6 million active brokerage accounts and $7.86 trillion in total client assets, up 5% and 11%, respectively, over year-earlier levels.

THE CHARLES SCHWAB CORPORATION

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(Tabular Amounts in Millions, Except Ratios, or as Noted)

8% from the second quarter of 2021.

Third quarter core net new assets of $139.0 billion brought the year-to-date 2021 total to $396.0 billion, representing an 8% annualized organic growth rate.

Total client assets ended the third quarter of 2021 at $7.61 trillion, up 1% from June 30, 2021 and up 14% from December 31, 2020.

Schwab’s dedicated employees are critical to the Company’s success, including helping to advance key strategic initiatives such as the TD Ameritrade integration.

During the third quarter of 2021, we implemented a special 5% pay increase effective at the end of the quarter for nearly all of our more than thirty thousand employees, and introduced a hybrid workplace program designed to provide flexibility as we seek to continue to attract and retain talent in a competitive landscape.

Schwab’s strong financial performance in the third quarter and first nine months of 2021 reflects consistent execution of our strategy.

Net income for the third quarter and first nine months totaled $1.5 billion and $4.3 billion, respectively, increasing 119% and 98% from the same periods in 2020.

The Company’s diluted earnings per common share (EPS) totaled $.74 and $2.06 in the third quarter and first nine months of 2021, respectively, increasing 54% and 34% from the comparable periods in 2020.

Adjusted diluted EPS (1) , which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, amounted to $.84 and $2.39 for the third quarter and first nine months of 2021, up 65% and 44%, respectively, from the same periods in 2020.

Our financial results in the third quarter and first nine months of 2021 were significantly impacted by our acquisition of TD Ameritrade, as detailed further in Results of Operations.

Total net revenues were $4.6 billion and $13.8 billion in the third quarter and first nine months of 2021, representing growth of 87% and 84%, respectively, from the same periods in the prior year.

Net interest revenue was $2.0 billion and $5.9 billion in the third quarter and first nine months of 2021, respectively, rising 51% and 37% from the comparable periods in 2020.

Net interest revenue grew 4% versus the second quarter of 2021 due largely to growth in interest-earning assets, including strength in lending activity and rising investment portfolio balances, partially offset by a decline in securities lending revenue and a lower average yield on outstanding margin loans.

Asset management and administration fees totaled $1.1 billion and $3.2 billion in the third quarter and first nine months of 2021, respectively, growing 28% and 27%, respectively, from the comparable periods in 2020.

These increases were due primarily to the inclusion of TD Ameritrade as well as rising balances in advice solutions and both proprietary and third-party mutual fund and ETFs, partially offset by lower revenue on money market funds.

Rising balances in both proprietary and third-party mutual funds and ETFs and advice solutions in the third quarter of 2021 contributed to 5% sequential growth in asset management and administration fees from the second quarter.

Trading revenue was $964 million in the third quarter and $3.1 billion in the first nine months of 2021, respectively, up from $181 million and $562 million in the comparable periods of the prior year.

This growth was due to the inclusion of TD Ameritrade in the first nine months of 2021, the overall strong trading environment, and mix of trades.

Trading revenue in the third quarter was 1% higher than the second quarter of 2021, as a higher proportion of options trades helped increase revenue per trade, offsetting the impact of an 8% decrease in DATs.

Bank deposit account fees totaled $323 million and $1.0 billion during the third quarter and first nine months of 2021, respectively, as bank deposit account balances (BDA balances) ended the third quarter at $153.3 billion, down 6% from year-end 2020 due primarily to migrations to Schwab’s balance sheet.

Total expenses excluding interest were $2.6 billion and $8.1 billion during the third quarter and first nine months of 2021, respectively, rising 64% and 73% from the comparable periods in 2020.

These increases were primarily due to the inclusion of TD Ameritrade’s results and higher compensation and benefits expense driven by additional headcount to support our expanding client base.

During the third quarter and first nine months of 2021, acquisition and integration-related costs totaled $104 million and $367 million, respectively, and amortization of acquired intangible assets was $153 million and $461 million, respectively.

Exclusive of these items, adjusted total expenses (1) were $2.3 billion and $7.3 billion for the third quarter and first nine months of 2021, up 54% and 63%, respectively, from the same periods in 2020.

Total expenses excluding interest decreased 9% in the third quarter of 2021 from the second quarter of the year while adjusted total expenses decreased 8%;

both changes were driven primarily by lower other expenses due to the second quarter’s charge for a regulatory matter (see Item 1 – Note 10).

Return on average common stockholders’ equity was 12% and 11% for the third quarter and first nine months of 2021, respectively, compared with 10% and 12% from the same periods in 2020.

Return on tangible common equity (1) (ROTCE) was 23% and 21% for the third quarter and first nine months of the year, respectively, up from 12% and 14% for the comparable periods in 2020, rising primarily as a result of higher net income.

Schwab’s first quarter 2022 financial results reflected the Company’s ongoing success with clients while contending with the effects of a challenging environment.

First quarter 2022 net income totaled $1.4 billion, down 6% from the first quarter of 2021, and the Company produced diluted earnings per common share (EPS) of $.67, down 8% from the first quarter of 2021.

Adjusted diluted EPS (1) , which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, was $.77, a decrease of 8% from the first quarter of 2021.

Total net revenues were $4.7 billion in the first quarter of 2022, down 1% from the first quarter of 2021, with growth in net interest revenue and asset management and administration fees largely offsetting the effects of decreases in other revenue streams.

Net interest revenue totaled $2.2 billion in the first quarter of 2022, increasing 14% over the first quarter of 2021 primarily due to growth in interest-earning assets and some improvement in short-term interest rates.

Asset management and administration fees totaled $1.1 billion, increasing 5% from the first quarter of 2021 as a result of growth in advice solutions balances and proprietary mutual funds and ETFs, as well as lower money market fund fee waivers.

Growth in net interest revenue and asset management and administration fees was somewhat muted by equity market weakness and volatility, which affected margin loan balances and securities lending activity as well as client asset valuations.

Trading revenue was $963 million in the first quarter of 2022, down 21% from the first quarter of 2021.

Client trading activity remained strong as DATs increased 8% from the fourth quarter of 2021, though volume was down significantly from the extraordinary levels seen in the first quarter of 2021.

Bank deposit account fee revenues totaled $294 million in the first quarter of 2022, down 16% from the first quarter of 2021.

Bank deposit account balances (BDA balances) totaled $154.8 billion at March 31, 2022, down 6% from March 31, 2021 and down 2% from year-end 2021, reflecting migrations to Schwab’s balance sheet in 2021 and the first quarter of 2022 partially offset by growth in client cash balances.

Total expenses excluding interest increased 3% from the first quarter of 2021 to $2.8 billion in the first quarter of 2022, which included $96 million of acquisition and integration-related costs and $154 million of amortization of acquired intangible assets.

Exclusive of these items, adjusted total expenses (1) were $2.6 billion in the first quarter of 2022, increasing 4% from the first quarter of 2021.

These increases in expenses reflect higher compensation and benefits expense as we invest in our people and our ability to support current and ongoing growth in our client base.

Return on average common stockholders’ equity remained consistent year-over-year at 12%, while return on tangible common equity (1) increased to 26% in the first quarter of 2022 from 24% in the year-earlier period due to lower stockholders’ equity.

The decrease in stockholders’ equity was due to a decrease in AOCI as higher market interest rates resulted in larger unrealized losses on our available for sale (AFS) portfolio.

The Company’s priority for capital management remains centered on maintaining flexibility for supporting ongoing growth.

Total balance sheet assets increased 2% from year-end 2021, primarily as a result of the migration of $12.7 billion of Insured Deposit Account (IDA) balances onto our balance sheet during the first quarter of the year.

To support our capital position for this growth in assets in the first quarter of 2022, we issued $750 million in preferred stock.

During the first quarter we also issued $3.0 billion in senior notes primarily for ongoing liquidity purposes.

At the end of the first quarter of 2022, Schwab’s Tier 1 Leverage Ratio was 6.1%, down slightly from year-end 2021.

(1) Adjusted diluted EPS, adjusted total expenses, and return on tangible common equity are non-GAAP financial measures.

Please see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

Throughout the first nine months of 2021, the Company continued its consistent approach to balance sheet management, supporting growth and liquidity.

Total balance sheet assets rose to $607.5 billion as of September 30, 2021, increasing 6% from the end of the second quarter and 11% from December 31, 2020, as the Company saw continued organic growth in client cash balances, as well as initial BDA balance migrations.

In addition to issuances of debt and preferred stock earlier in 2021, during the third quarter the Company issued $850 million in long-term senior notes and also completed a tender offer to exchange $2.0 billion of TDA Holding senior notes for an equivalent amount of CSC senior notes.

At the end of the third quarter, Schwab’s Tier 1 Leverage Ratio was 6.3%, down slightly from 6.4% at June 30, 2021.

Though significantly heightened client activity levels during the first quarter of 2021 impacted our service quality at times, we have taken multiple steps to better deliver the service experience our clients deserve and rely on, including enhancing online self-service capabilities, streamlining our call-routing processes, and increasing hiring.

Our efforts have been yielding results, with significant improvement in client service levels by the end of the first quarter of 2021, and our service levels continued to improve in the second and third quarters as client activity moderated.

Integration of TD Ameritrade

As a result of the significant growth seen in recent quarters across key client volume metrics, including the number of active brokerage accounts, DATs, and peak daily trades, the Company has increased the scope of technology work related to the integration.

In the first nine months of 2021, we commenced greater technology build-out to support the expanded volumes of our combined client base.

Based on our current integration plans and expanded scope of technology work, the Company continues to expect to complete client conversion within 30 to 36 months from the October 6, 2020 acquisition, and we expect to incur total acquisition and integration-related costs and capital expenditures of between $2.0 billion and $2.2 billion.

Integration work continued during the first quarter of 2022.

Based on our current integration plans and expanded scope of technology work, the Company continues to expect to complete client conversions across multiple groups within approximately 30 to 36 months from the October 6, 2020 acquisition date, ending in the fourth quarter of 2023.

We continue to expect to incur total acquisition and integration-related costs and capital expenditures of between $2.0 billion and $2.2 billion.

The Company’s estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change based on a number of factors, including the expected duration and complexity of the integration process and the continued uncertainty of the current economic environment.

More specifically, factors that could cause variability in our expected acquisition and integration-related costs include the level of employee attrition, workforce redeployment from eliminated positions into open roles, changes in the levels of client activity, as well as increased real estate-related exit cost variability due to effects of the COVID-19 pandemic.

Over the course of the integration, we continue to expect to realize annualized cost synergies of between $1.8 billion and

$2.0 billion, and, through the third quarter of 2021, we have achieved approximately 40% of this amount on an annualized run-rate basis.

Estimated timing and amounts of synergy realization are subject to change as we progress in the integration.

Refer to Item 7 – Overview in our 2020 Form 10-K and Item 1 – Note 11 for additional information regarding our integration of TD Ameritrade.

Current Regulatory Environment and Other Developments

Liquidity Coverage Ratio

As a result of our average weighted short-term wholesale funding for the past four quarters exceeding $75 billion, we became subject to daily reporting of our liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) to the Federal Reserve on July 1, 2021, and became subject to the full (100%) LCR and NSFR (up from 85%) on October 1, 2021.

Financial Holding Company Election

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.

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

THE CHARLES SCHWAB CORPORATION

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(Tabular Amounts in Millions, Except Ratios, or as Noted)

impose any additional limitations or conditions on the conduct or activities of the FHC or any of its subsidiaries as it deems appropriate.

If the FHC still fails to satisfy the applicable eligibility requirements 180 days after the Federal Reserve’s finding, the agency may require divestiture of all of the FHC’s depository institution subsidiaries or, alternatively, the FHC may elect to cease all of its FHC Activities.

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

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $96 million and $119 million for the first quarters of 2022 and 2021, respectively.

Over the course of the integration, we continue to expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through March 31, 2022, we have achieved over half of this amount on an annualized run-rate basis.

Estimated timing and amounts of synergy realization are subject to change as we progress in the integration.

Refer to Part II – Item 7 – Overview in our 2021 Form 10-K and Item 1 – Note 10 for additional information regarding our integration of TD Ameritrade.

RESULTS OF OPERATIONS

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The following tables present a comparison of revenue by category:

Three Months Ended September 30, Percent

Three Months Ended March 31, Percent

Change Amount % of

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Trading revenue

Commissions N/M 466 10 % 108 4 %

Order flow revenue N/M 482 11 % 67 3 %

Commissions (21) % 484 10 % 614 13 %

Order flow revenue (20) % 470 10 % 591 13 %

Principal transactions (18) % 9 — 11 —

Trading revenue N/M 964 21 % 181 7 %

Bank deposit account fees N/M 323 7 % — —

Other 138 % 152 4 % 64 3 %

Total net revenues 87 % $ 4,570 100 % $ 2,448 100 %

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

Nine Months Ended September 30, Percent

Change Amount % of

Revenues Amount % of

Net interest revenue

Interest revenue 35 % $ 6,236 45 % $ 4,626 61 %

Interest expense 8 % (348) (2) % (322) (4) %

Net interest revenue 37 % 5,888 43 % 4,304 57 %

Asset management and administration fees

Mutual funds, ETFs, and CTFs 12 % 1,454 11 % 1,300 17 %

Advice solutions 47 % 1,469 11 % 999 13 %

Other 28 % 241 1 % 189 3 %

Asset management and administration fees 27 % 3,164 23 % 2,488 33 %

Trading revenue (21) % 963 20 % 1,216 26 %

Commissions N/M 1,559 11 % 332 4 %

Order flow revenue N/M 1,538 11 % 194 3 %

Principal transactions 6 % 38 1 % 36 1 %

Trading revenue N/M 3,135 23 % 562 8 %

Bank deposit account fees N/M 1,011 7 % — —

Other N/M 614 4 % 161 2 %

Bank deposit account fees (16) % 294 6 % 351 7 %

Other (26) % 164 4 % 221 4 %

Total net revenues (1) % $ 4,672 100 % $ 4,715 100 %

N/M Not meaningful.

Percentage changes greater than 200% are presented as not meaningful.

Net Interest Revenue

Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans.

economic recovery continued in the first nine months of 2021, interest rates remained historically low.

Short-term rates remained near zero throughout the first nine months of 2021;

longer-term interest rates began to rise early in the year, and remained largely unchanged in the third quarter.

In addition, elevated levels of prepayments on mortgage-backed securities, though moderating slightly in the third quarter, persisted throughout the period and resulted in accelerated reinvestment of the available for sale (AFS) portfolio.

Moreover, Schwab saw significant growth in new client brokerage accounts and net new client assets throughout the first nine months of 2021, driving growth in Schwab’s interest-earning assets.

At the same time, client engagement in the equity markets increased and clients were net buyers of equity securities and other investment products, resulting in outflows of client cash and partially offsetting the growth in interest-earning assets.

Interest rates largely remained historically low for much of the first quarter of 2022.

Short-term rates remained near zero until the Federal Reserve increased the federal funds target overnight rate by 25 basis points near the end of the quarter, while long-term interest rates steadily increased during the quarter.

Schwab continued to see strength in net new client assets and consistent client cash allocation levels throughout the first three months of 2022, which, along with transfers of BDA balances to the Company’s balance sheet (see Bank Deposit Account Fees), drove growth in Schwab’s interest-earning assets.

Partially offsetting this growth, equity market volatility and softening investor sentiment during the first quarter of 2022 reduced demand for margin loans, which declined 7% from year-end 2021.

In addition, over recent quarters, the Company has increased its cash holdings and reduced the duration of incremental investment securities purchases to provide flexibility to support potential changes in client cash allocations associated with expected higher short-term interest rates.

These steps also help keep Schwab positioned to benefit if rates increase further.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

(Tabular Amounts in Millions, Except Ratios, or as Noted)

The following tables present net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:

Three Months Ended September 30, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

The following table presents net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:

Three Months Ended March 31, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

Interest-earning assets

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284,526 947 1.33 % 338,245 1,091 1.29 %

Bank loans 30,235 161 2.12 % 21,668 134 2.46 %

Total interest-earning assets 554,661 1,992 1.42 % 384,833 1,384 1.43 %

Securities lending revenue (2)

Other interest revenue (2)

Total interest-earning assets (3)

$ 554,661 $ 2,153 1.54 % $ 384,833 $ 1,432 1.47 %

Funding sources

Bank deposits $ 384,561 $ 14 0.01 % $ 310,685 $ 12 0.02 %

Payables to brokerage clients 92,498 3 0.01 % 40,169 1 0.01 %

Short-term borrowings (4)

3,485 3 0.34 % 5 — 0.12 %

Long-term debt 19,030 99 2.10 % 7,992 69 3.46 %

Total interest-bearing liabilities 499,574 119 0.09 % 358,851 82 0.09 %

Non-interest-bearing funding sources (3)

55,087 25,982

Securities lending expense (2)

Other interest expense (2)

Total funding sources (3)

$ 554,661 $ 123 0.09 % $ 384,833 $ 89 0.09 %

Net interest revenue $ 2,030 1.45 % $ 1,343 1.38 %

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

Nine Months Ended September 30, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

Interest-earning assets

Cash and cash equivalents $ 39,848 $ 27 0.09 % $ 40,410 $ 112 0.37 %

Cash and investments segregated 43,914 19 0.06 % 30,162 128 0.56 %

Receivables from brokerage clients 74,831 1,800 3.17 % 19,442 404 2.73 %

Available for sale securities (1)

Held to maturity securities (1,2)

103,416 378 1.46 % — — —

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Total interest-earning assets $ 632,376 $ 2,319 1.47 % $ 517,506 $ 2,015 1.56 %

$ 534,406 $ 6,236 1.55 % $ 346,466 $ 4,626 1.77 %

Funding sources

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Total funding sources $ 632,376 $ 136 0.09 % $ 517,506 $ 104 0.08 %

$ 534,406 $ 348 0.09 % $ 346,466 $ 322 0.13 %

Net interest revenue $ 2,183 1.38 % $ 1,911 1.48 %

(1) Amounts have been calculated based on amortized cost.

(2) Beginning in the fourth quarter of 2020, securities lending revenue has been reclassified from broker-related receivables and other revenue.

Securities lending expense has been reclassified from other expense.

Prior period amounts have been reclassified to reflect this change.

(3) Beginning in the fourth quarter of 2020, broker-related receivables were removed from total interest earning assets and netted against non-interest-bearing funding sources, resulting in an immaterial reduction to total interest-earning assets and total funding sources.

Prior period amounts have been reclassified to reflect this change.

Interest revenue on investment securities is presented net of related premium amortization.

(2) In January 2022, the Company transferred a portion of its investment securities designated as available for sale to the held to maturity category, as described in Item 1 – Note 4.

(3) Interest revenue or expense was less than $500 thousand in the period or periods presented.

Net interest revenue increased $687 million, or 51%, and $1.6 billion or 37% in the third quarter and first nine months of 2021 compared to the same periods in 2020.

These increases were due largely to significant growth in margin loans and securities lending revenue, driven significantly by our acquisition of TD Ameritrade.

The increases in net interest revenue were also supported by overall growth in interest-earning assets, including growth in investment portfolio balances and bank loans, partially offset by lower average yields.

Accelerated premium amortization stemming from the elevated prepayment of mortgage-related debt securities in the AFS portfolio partially offset the growth in net interest revenue.

TD Ameritrade contributed $534 million and $1.6 billion of net interest revenue during the third quarter and first nine months of 2021, respectively.

Average interest-earning assets for the third quarter and first nine months of 2021 were higher by 44% and 54%, respectively, compared to the same periods in 2020.

This increase resulted from higher bank deposits and payables to brokerage clients, due to heightened client cash balances driven by the low interest rate environment and strong net new client cash inflows, as well as our 2020 acquisitions of TD Ameritrade and USAA-IMCO.

Our net interest margin increased to 1.45% during the third quarter of 2021 from 1.38% during the same period in 2020, and decreased for the first nine months of 2021 to 1.46% from 1.64% in the year-to-date period in 2020.

The improvement in the quarter-to-date net interest margin was due primarily to increased margin utilization and securities lending revenue, which comprised 39% and 40% of net interest revenue for the three and nine months ended September 30, 2021, respectively, growing from 12% of net interest revenue for both comparable periods in 2020.

Lower yields received on interest-earning assets, in part due to purchases of investment securities in 2020 and 2021 at rates below the average yield on the AFS portfolio, more than offset the benefit of growth in margin utilization and securities lending for the year-to-date period, resulting in an overall decrease in net interest margin for the first nine months of 2021 relative to the same period in 2020.

Net interest revenue increased $272 million, or 14%, in the first quarter 2022 compared to the same period in 2021.

This increase was due to overall growth in interest-earning assets, as well as higher average yields on investment securities as a result of some improvement in market interest rates and lower premium amortization.

Net premium amortization of investment securities decreased to $486 million in the first quarter of 2022 from $624 million in the first quarter of 2021.

These positive effects were partially offset by lower securities lending revenue and lower average yields in margin and bank lending.

Average interest-earning assets for the first quarter of 2022 were higher by 22% compared to the same period in 2021.

This increase was primarily due to growth in bank deposits and payables to brokerage clients, which resulted from strong net new client asset inflows and transfers of BDA balances to our balance sheet in the second half of 2021 and the first quarter of 2022.

Net interest margin decreased to 1.38% during the first quarter of 2022 from 1.48% during the same period in 2021.

This decrease was primarily driven by lower securities lending revenue resulting from lower market demand, as well as lower yields received on margin and bank lending which were consistent with yields seen in the fourth quarter of 2021.

Partially offsetting these decreases, yields on investment securities improved as a result of higher market interest rates.

New issuances of long-term debt since the first quarter of 2021 have been at lower interest rates, thereby increasing interest expense but lowering the average rate, and helping the average yield on funding sources during the first quarter of 2022 to remain relatively consistent with the first quarter of 2021.

THE CHARLES SCHWAB CORPORATION

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Asset Management and Administration Fees

The following tables present asset management and administration fees, average client assets, and average fee yields:

Three Months Ended September 30, 2021 2020

Assets Revenue Average

Schwab money market funds before fee waivers $ 149,508 $ 112 0.30 % $ 199,822 $ 153 0.30 %

Fee waivers (83) (44)

Schwab money market funds $ 149,508 29 0.08 % $ 199,822 109 0.22 %

Schwab equity and bond funds, ETFs, and CTFs 441,344 99 0.09 % 306,899 75 0.10 %

Mutual Fund OneSource ® and other non-transaction fee funds

234,582 188 0.32 % 197,809 154 0.31 %

Other third-party mutual funds and ETFs (1)

918,363 187 0.08 % 469,822 85 0.07 %

Total mutual funds, ETFs, and CTFs (2)

$ 1,743,797 503 0.11 % $ 1,174,352 423 0.14 %

Advice solutions (2)

Fee-based $ 463,827 511 0.44 % $ 307,983 373 0.48 %

Non-fee-based 90,649 — — 73,850 — —

Total advice solutions $ 554,476 511 0.37 % $ 381,833 373 0.39 %

Other balance-based fees (3)

632,806 68 0.04 % 443,929 51 0.05 %

Total asset management and administration fees $ 1,101 $ 860

Nine Months Ended September 30, Average

The following table presents asset management and administration fees, average client assets, and average fee yields:

Three Months Ended March 31, 2022 2021

Assets Revenue Average

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Other third-party mutual funds and ETFs 872,212 179 0.08 % 849,409 168 0.08 %

888,003 533 0.08% 446,007 235 0.07%

Total mutual funds, ETFs, and CTFs (1)

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Total asset management and administration fees $ 1,068 $ 1,016

(1) Beginning in the fourth quarter of 2020, includes third-party money funds related to the acquisition of TD Ameritrade.

(1) Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above.

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(3) Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

Asset management and administration fees increased by $241 million, or 28%, and $676 million, or 27% in the third quarter and first nine months of 2021, respectively, compared to the same periods in 2020.

These increases were due to the acquisition of TD Ameritrade, as well as additional growth in advice solutions, including managed account assets from USAA, growth in net new client assets and overall strength in the equity markets during the first nine months of 2021.

These increases were partially offset by the effect of money market fund fee waivers due to lower portfolio yields as well as lower money market fund balances.

TD Ameritrade contributed $152 million and $440 million of asset management and administration fees in the third quarter and first nine months of 2021, respectively.

The amount of fee waivers in coming quarters is dependent on a variety of factors, including the level of short-term interest rates and client preferences across our money market fund line-up.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

The following tables present a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, exchange-traded funds (ETFs), and collective trust funds (CTFs), and Mutual Fund OneSource ® and other non-transaction fee (NTF) funds.

These funds generated 29% of the asset management and administration fees earned in both the third quarter and first nine months of 2021, compared to 39% and 43% of the asset management and administration fees earned in the third quarter and first nine months of 2020, respectively:

Market Funds Schwab Equity and

Bond Funds, ETFs, and CTFs Mutual Fund OneSource ®

and Other NTF funds

Three Months Ended September 30, 2021 2020 2021 2020 2021 2020

Balance at beginning of period $ 151,943 $ 211,558 $ 411,091 $ 273,346 $ 240,181 $ 192,999

Net inflows (outflows) (4,203) (21,280) 11,067 3,564 (3,347) (2,504)

Net market gains (losses) and other 8 34 (3,187) 17,539 (2,085) 13,098

Balance at end of period $ 147,748 $ 190,312 $ 418,971 $ 294,449 $ 234,749 $ 203,593

Asset management and administration fees increased by $52 million, or 5%, in the first quarter of 2022 compared to the same period in 2021.

This increase was due to growth in advice solutions and proprietary mutual funds and ETFs, as well as lower money market fund fee waivers due to improved portfolio yields during the first three months of 2022.

These increases were partially offset by lower balances in money market funds and Mutual Fund OneSource ® , as well as equity market weakness and volatility during the first quarter of 2022, which negatively impacted client asset valuations.

The Company anticipates that money market fund fee waivers will be substantially eliminated following an additional increase to the federal funds target rate of 25 basis points beyond the increase in March.

The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, exchange-traded funds (ETFs), and collective trust funds (CTFs), and Mutual Fund OneSource ® and other non-transaction fee (NTF) funds.

These funds generated 29% and 30% of the asset management and administration fees earned in the first quarter of 2022 and 2021, respectively:

Market Funds Schwab Equity and

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and Other NTF funds

Nine Months Ended September 30, 2021 2020 2021 2020 2021 2020

Three Months Ended March 31, 2022 2021 2022 2021 2022 2021

Balance at beginning of period $ 146,509 $ 176,089 $ 454,864 $ 341,689 $ 234,940 $ 223,857

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Trading Revenue

Trading revenue includes commissions, order flow revenue, and principal transaction revenues.

Commissions and order flow revenue are primarily affected by volume and mix of client trades executed.

Principal transaction revenue is recognized primarily as a result of accommodating clients’ fixed income trading activity, and includes adjustments to the fair value of securities positions held to facilitate such client trading activity.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

The following table presents trading revenue and related information:

Three Months Ended September 30, Percent

Change Nine Months Ended

September 30, Percent

2021 2020 2021 2020

Trading revenue $ 964 $ 181 N/M $ 3,135 $ 562 N/M

Clients’ daily average trades (DATs) (in thousands) 5,549 1,460 N/M 6,644 1,539 N/M

Three Months Ended March 31, Percent

Trading revenue $ 963 $ 1,216 (21) %

Clients’ daily average trades (DATs) (in thousands) 6,578 8,414 (22) %

Number of trading days 62.0 61.0 2 %

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(1) Revenue per trade is calculated as trading revenue divided by DATs multiplied by the number of trading days.

N/M Not meaningful.

Percentage changes greater than 200% are presented as not meaningful.

Trading revenue increased $783 million and $2.6 billion in the third quarter and first nine months of 2021, respectively, compared to the same periods in 2020, primarily due to the acquisition of TD Ameritrade and heightened client engagement, which together drove significantly higher DATs throughout the first nine months of 2021.

This increased trading activity and a higher percentage of options trades drove significant growth in commissions and order flow revenue.

Overall, TD Ameritrade contributed $743 million and $2.5 billion of trading revenue in the third quarter and first nine months of 2021, respectively.

Trading revenue decreased $253 million in the first quarter of 2022 compared to the same period in 2021, primarily due to lower client trading activity during the first quarter of 2022 relative to the extraordinary trading volume experienced during the first quarter of 2021.

This decreased trading activity in the first quarter of 2022 resulted in lower commissions and order flow revenue, which declined 21% and 20%, respectively, relative to the first quarter of 2021.

Bank Deposit Account Fees

Beginning in the fourth quarter of 2020, the Company began earning bank deposit account fee revenue pursuant to the Insured Deposit Account agreement (IDA agreement) with TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions) and arrangements with other third-party banks.

Bank deposit account fees are primarily affected by average BDA balances and floating- and fixed-rate reference yields.

Fees earned under the IDA agreement are affected by changes in interest rates and the composition of balances designated as fixed- and floating-rate.

Bank deposit account fees totaled $323 million and $1.0 billion during the third quarter and first nine months of 2021, respectively.

During the third quarter and first nine months ended September 30, 2021, the total average BDA balance was approximately $151.5 billion and $159.8 billion, respectively, of which approximately 80% was designated as fixed-rate

The Company earns bank deposit account fee revenue pursuant to the Insured Deposit Account agreement (IDA agreement) with TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions) and arrangements with other third-party banks.

The following table presents bank deposit account fee revenue, average BDA balances, average net yield, and average balances earning floating- and fixed-rate yields:

Three Months Ended March 31, Percent Change

Bank deposit account fees $ 294 $ 351 (16) %

Average BDA balances $ 155,809 $ 166,750 (7) %

Average net yield 0.75 % 0.84 %

Percentage of average BDA balances designated as:

Fixed-rate balances 77 % 79 %

Floating-rate balances 23 % 21 %

Bank deposit account fees decreased $57 million, or 16%, in the first quarter of 2022 compared with the first quarter of 2021.

This decrease was primarily due to lower average BDA balances and lower average net yield.

The Company transferred $10.6 billion and $12.7 billion of BDA balances to its balance sheet during the second half of 2021 and first quarter of 2022, respectively.

The transfer of these balances to our balance sheet was the primary driver of the decrease in average BDA balances in the first quarter of 2022 compared with the first quarter of 2021.

Transfers of BDA balances to Schwab’s balance sheet result in lower balances upon which bank deposit account fee revenue is earned but provide a source of funding to invest in interest-earning assets to increase net interest revenue.

See also Capital Management and Item 1 – Note 9 for discussion of the IDA agreement and the potential to move IDA balances to Schwab’s balance sheet.

Other Revenue

Other revenue includes exchange processing fees, certain service fees, software fees, non-recurring gains, and the provision for credit losses on bank loans.

Other revenue decreased $57 million in the first quarter of 2022 compared to the same period in 2021 primarily due to an increase in the provision for credit losses on bank loans and lower exchange processing fees.

The provision for credit losses on bank loans increased as a result of higher loan loss factors driven primarily by higher forecasted interest rates during the first quarter of 2022 and growth of the loan portfolio.

Exchange processing fees decreased as a result of lower average SEC fee rates and lower trading volume.

THE CHARLES SCHWAB CORPORATION

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(Tabular Amounts in Millions, Except Ratios, or as Noted)

obligation amounts and approximately 20% as floating-rate obligation amounts.

In the first nine months of 2021, the Company transferred $10.5 billion of BDA balances to its balance sheet from the TD Depository Institutions and other third-party banks.

Other Revenue

Other revenue includes exchange processing fees, certain service fees, software fees, and non-recurring gains.

Other revenue increased $88 million and $453 million in the third quarter and first nine months of 2021, respectively, compared to the same periods in 2020 primarily due to the acquisition of TD Ameritrade as well as higher service fees resulting from higher trade volume and growth in our customer base during the first nine months of 2021.

Total Expenses Excluding Interest

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Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2021 2020 2021 2020

March 31, Percent

Compensation and benefits

8 unchanged sentences

Depreciation and amortization 150 129 16 %

Amortization of acquired intangible assets 153 25 N/M 461 43 N/M

Amortization of acquired intangible assets 154 154 —

Regulatory fees and assessments 68 78 (13) %

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Average 33.9 32.1 6 %

N/M Not meaningful.

Percentage changes greater than 200% are presented as not meaningful.

Expenses excluding interest increased by 64% and 73% in the third quarter and first nine months of 2021, respectively, compared to the same periods in 2020.

In the third quarter and first nine months of 2021, total expenses excluding interest included $735 million and $2.5 billion, respectively, from TD Ameritrade.

Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased 54% and 63% in the third quarter and first nine months of 2021, respectively, compared to the same periods in 2020.

Expenses excluding interest increased by $78 million, or 3%, in the first quarter of 2022 compared to the same period in 2021.

Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased 4% in the first quarter of 2022 compared to the same period in 2021.

See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

Total compensation and benefits increased in the third quarter and first nine months of 2021, compared to the same periods in 2020, primarily due to an overall increase in employee headcount, driven primarily by our acquisition of TD Ameritrade.

The increase was also due to additional headcount to support our expanding client base and service levels amidst heightened client engagement, as well as annual merit increases and higher bonus accrual.

Compensation and benefits in the third quarter and first nine months of 2021 included $58 million and $227 million, respectively, of acquisition and integration-related costs, up from $13 million and $34 million in the third quarter and first nine months of 2020, respectively.

Professional services expense increased in the third quarter and first nine month of 2021 compared to the same periods in 2020, primarily due to the inclusion of TDA’s results of operations and overall growth in the business.

Total compensation and benefits increased in the first quarter of 2022 compared to the same period in 2021, primarily due to growth in employee headcount to support our expanding client base, annual merit increases, as well as a 5% employee salary increase and other targeted compensation adjustments that went into effect in late 2021.

Compensation and benefits in the first quarter of 2022 included $56 million of acquisition and integration-related costs, down from $72 million in the first quarter of 2021.

Professional services expense increased in the first quarter of 2022 compared to the same period in 2021, primarily due to increased utilization of technology-related and other professional services to support overall growth of the business and enhancement to technological infrastructure to support our expanding client base, as well as the integration of TD Ameritrade.

Professional services included acquisition and integration-related costs of $31 million and $27 million in the first quarter of 2022 and 2021, respectively.

Occupancy and equipment expense increased in the first quarter of 2022 compared to the same period in 2021, primarily due to an increase in software maintenance and licensing as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade.

Occupancy and equipment included $4 million and $16 million of acquisition and integration-related costs in the first quarter of 2022 and 2021, respectively.

Advertising and market development expense decreased in the first quarter of 2022 compared to the same period in 2021, primarily due to decreases in spending for marketing communications for TD Ameritrade.

Communications expense decreased slightly in the first quarter of 2022 compared to the same period in 2021, primarily due to lower news and quotation services expenses, driven by lower trade volumes, as well as lower telecommunications spending.

THE CHARLES SCHWAB CORPORATION

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(Tabular Amounts in Millions, Except Ratios, or as Noted)

Occupancy and equipment expense increased in the third quarter and first nine months of 2021 compared to the same periods in 2020, primarily due to the inclusion of TDA’s results of operations and costs related to the integration of TD Ameritrade, as well as an increase in technology equipment costs associated with higher customer trade volumes and overall growth in the business.

Advertising and market development expense increased in the third quarter and first nine months of 2021 compared to the same periods in 2020, primarily due to the inclusion of TDA’s results of operations.

Communications expense increased in the third quarter and first nine months of 2021 compared to the same periods in 2020, primarily due to the inclusion of TDA’s results of operations, as well as higher communications expenses due to higher customer trade volumes and overall growth of the business.

Depreciation and amortization expenses grew in the third quarter and first nine months of 2021 compared to the same periods in 2020, primarily resulting from growth in fixed assets due to the TDA acquisition, higher amortization of purchased and internally developed software, higher depreciation of hardware, and higher depreciation of buildings related to expansion of our campuses in the U.S.

Amortization of acquired intangible assets increased in 2021 as a result of acquisitions completed in 2020.

Regulatory fees and assessments increased in the third quarter and first nine months of 2021 compared to the same periods in 2020, primarily as a result of the inclusion of TDA’s results of operations and overall growth in the business, including higher FDIC assessments due to asset growth.

Other expense increased in the third quarter and first nine months of 2021 compared to the same periods in 2020, primarily due to the inclusion of TDA’s results of operations and a charge of approximately $200 million for a regulatory matter in the first nine months of 2021 (see Item 1 – Note 10).

Capital expenditures were $176 million and $610 million in the third quarter and first nine months of 2021, respectively, compared with $122 million and $541 million in the third quarter and first nine months of 2020, respectively.

The increases in capital expenditures from the prior year were primarily due to higher hardware and capitalized software costs, partially offset by lower building expansion in 2021 relative to the first nine months of 2020.

In consideration of revenue growth and timing of capital expenditures through the first nine months of the year, we anticipate capital expenditures for full-year 2021 to be approximately 5-6% of total net revenues.

Depreciation and amortization expense increased in the first quarter of 2022 compared to the same period in 2021, primarily as a result of higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2021 and the first quarter of 2022 to support the TDA integration and enhance our technological infrastructure to support growth of the business.

Regulatory fees and assessments decreased in the first quarter of 2022 compared to the same period in 2021, primarily as a result of lower client trading activity, partially offset by higher FDIC assessments and other regulatory assessments due to asset growth and overall growth of the business.

Other expense decreased in the first quarter of 2022 compared to the same period in 2021, primarily due to lower exchange processing fees, brokerage clearing fees, and lower charges for trade errors and bad debt expense.

These decreases were due to lower client trading volume and, for exchange processing fees, lower average SEC fee rates.

Capital expenditures were $209 million in both the first quarter of 2022 and 2021, with spending in both periods primarily related to TDA integration and to enhance our technological infrastructure to support greater capacity for our expanding client base.

We continue to anticipate capital expenditures for full-year 2022 will be approximately 4-5% of total net revenues.

Taxes on Income

Taxes on income were $485 million and $191 million for the third quarters of 2021 and 2020, respectively, resulting in effective income tax rates on income before taxes of 24.1% and 21.5%, respectively.

Taxes on income were $1.4 billion and $660 million for the first nine months of 2021 and 2020, respectively, resulting in effective income tax rates on income before taxes of 24.9% and 23.4%, respectively.

The increase in the effective tax rate in the third quarter of 2021 compared to the same period in 2020 was primarily related to non-recurring federal tax benefits recognized during the third quarter of 2020 including settlement of the IRS examination for tax years 2011-2014, as well as the tax impact of a non-deductible regulatory matter charge in 2021 (see Item 1 – Note 10).

Partially offsetting the increases in the effective tax rate from these items was an increase in equity compensation tax benefits during the third quarter of 2021.

The increase in the effective tax rate in the first nine months of 2021 compared to the same period in 2020 was primarily due to the factors noted above, as well as increased state tax expense due to uncertain tax position accruals during the first nine months of 2021.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

Taxes on income were $437 million and $476 million for the first quarters of 2022 and 2021, respectively, resulting in effective income tax rates on income before taxes of 23.8% and 24.3%, respectively.

The decrease in the effective tax rate in the first quarter of 2022 compared to the same period in 2021 was primarily due to the impact of blended state tax rate changes on the Company’s deferred taxes and a decrease in state tax expense due to uncertain tax position accruals during the first quarter of 2022.

Segment Information

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Investor Services Advisor Services Total

Three Months Ended September 30, Percent Change 2021 2020 Percent Change 2021 2020 Percent Change 2021 2020

Three Months Ended March 31, Percent Change 2022 2021 Percent Change 2022 2021 Percent Change 2022 2021

Net interest revenue 8 % $ 1,574 $ 1,454 33 % $ 609 $ 457 14 % $ 2,183 $ 1,911

Asset management and administration fees 5 % 781 742 5 % 287 274 5 % 1,068 1,016

Trading revenue N/M 873 139 117 % 91 42 N/M 964 181

Bank deposit account fees N/M 239 — N/M 84 — N/M 323 —

Trading revenue (23) % 844 1,097 — 119 119 (21) % 963 1,216

Bank deposit account fees (21) % 200 254 (3) % 94 97 (16) % 294 351

Other (29) % 127 178 (14) % 37 43 (26) % 164 221

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Net New Client Assets (in billions) (1)

N/M $ 57.9 $ 18.9 151 % $ 81.1 $ 32.3 171 % $ 139.0 $ 51.2

Investor Services Advisor Services Total

Nine Months Ended September 30, Percent Change 2021 2020 Percent Change 2021 2020 Percent Change 2021 2020

Net interest revenue 47 % $ 4,462 $ 3,028 12 % $ 1,426 $ 1,276 37 % $ 5,888 $ 4,304

Asset management and administration fees 27 % 2,316 1,826 28 % 848 662 27 % 3,164 2,488

Trading revenue N/M 2,831 396 83 % 304 166 N/M 3,135 562

Bank deposit account fees N/M 742 — N/M 269 — N/M 1,011 —

Other N/M 462 122 N/M 152 39 N/M 614 161

Total net revenues 101 % 10,813 5,372 40 % 2,999 2,143 84 % 13,812 7,515

Expenses Excluding Interest 79 % 6,253 3,489 55 % 1,869 1,202 73 % 8,122 4,691

Income before taxes on income 142 % $ 4,560 $ 1,883 20 % $ 1,130 $ 941 101 % $ 5,690 $ 2,824

Net New Client Assets (in billions) (1)

(16) % $ 54.6 $ 65.1 (4) % $ 65.9 $ 68.7 (10) % $ 120.5 $ 133.8

(1) In the first nine months of 2021, Investor Services includes an outflow of $14.4 billion from a mutual fund clearing services client.

In the third quarter and the first nine months of 2020, Advisor Services includes an inflow of $8.5 billion related to the acquisition of Wasmer, Schroeder & Company, LLC.

Also for the first nine months of 2020, Investor Services includes inflows of $79.9 billion related to the acquisition of assets of USAA-IMCO and $10.9 billion from a mutual fund clearing services client.

N/M Not meaningful.

Percentage changes greater than 200% are presented as not meaningful.

(1) In the first quarter of 2021, Investor Services includes an outflow of $14.4 billion from a mutual fund clearing services client.

Segment Net Revenues

Investor Services and Advisor Services total net revenues increased by 100% and 51%, respectively, in the third quarter and 101% and 40%, respectively, for the first nine months of 2021 compared to the same periods in 2020.

Both segments saw growth in all revenue line items, primarily due to our October 6, 2020 acquisition of TD Ameritrade.

Net interest revenue increased for both segments due to significant growth in margin loans and securities lending revenue, as well as overall growth in interest-earning assets, partially offset by lower average yields.

Growth in asset management and administration fees in Investor Services was supported by growth in advice solutions, and asset management and administration fees grew in both segments as a result of overall strength in the equity markets, partially offset by money market fund fee waivers and lower money market fund balances.

The increases in trading revenue for both segments were supported by heightened client trading activity.

Bank deposit account fee revenue was earned at both segments during the first nine months of 2021, following the TDA acquisition.

Increases in other revenue for both segments were primarily due to the TD Ameritrade acquisition.

Investor Services total net revenues decreased by 5% in the first quarter of 2022 compared to the same quarter in 2021, while Advisor Services total net revenues increased by 16% in the first quarter of 2022 compared to the same quarter in 2021.

Net interest revenue increased for both segments due to overall growth in interest-earning assets and higher average yields on investment securities, partially offset by lower securities lending revenue in Investor Services and lower average yields on margin and bank lending in both segments.

Asset management and administration fees increased in Investor Services primarily due to growth in advice solutions, while both segments benefited from growth in proprietary mutual funds and ETFs, and lower money market fund fee waivers.

Trading revenue decreased for Investor Services primarily as a result of reduced client trading activity, while Advisor Services trading revenue remained consistent in the first quarter of 2022 compared to the same quarter in 2021.

Bank deposit account fee revenue decreased for Investor Services, and to a lesser degree Advisor Services, primarily as a result of migrating BDA balances to Schwab’s balance sheet during the second half of 2021 and the first quarter of 2022, and

THE CHARLES SCHWAB CORPORATION

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(Tabular Amounts in Millions, Except Ratios, or as Noted)

lower average net yield.

Declines in other revenue for both segments were primarily due to an increase in the provision for credit losses on bank loans and lower exchange processing fees in the first quarter of 2022 compared to the same quarter in 2021.

Segment Expenses Excluding Interest

Investor Services and Advisor Services total expenses excluding interest increased by 68% and 54%, respectively, in the third quarter and 79% and 55%, respectively, for the first nine months of 2021, compared to the same periods in 2020, primarily due to the inclusion of TD Ameritrade’s results of operations and, for Investor Services, a charge of approximately $200 million for a regulatory matter in the first nine months of 2021 (see Item 1 – Note 10).

In addition, both segments saw higher compensation and benefits expenses due to additional increases in headcount to support our expanding client base and service levels amidst heightened client engagement, as well as annual merit increases and higher bonus accrual.

For Investor Services, total expenses excluding interest also increased for the year-to-date period as a result of our hiring former USAA employees in connection with the 2020 acquisition of assets of USAA-IMCO.

Investor Services and Advisor Services total expenses excluding interest increased by 1% and 9%, respectively, in the first quarter of 2022 compared to the same period in 2021.

These increases were primarily a result of higher compensation and benefits expenses in both segments due to additional increases in headcount to support our expanding client base, annual merit increases, as well as a 5% employee salary increase and other targeted compensation adjustments that went into effect in late 2021.

In addition, both segments saw higher occupancy and equipment expenses in the first quarter of 2022 compared to the same period in 2021, primarily due to an increase in software maintenance and licensing as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade.

These increases were partially offset by decreases of other expenses in both segments, primarily due to lower exchange processing fees, brokerage clearing fees, and lower charges for trade errors and bad debt expense.

These decreases were due to lower client trading volume and, for exchange processing fees, lower average SEC fee rates.

RISK MANAGEMENT

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The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational impact.

As part of our integration of TD Ameritrade, the Company continues to align TD Ameritrade’s risk management practices with Schwab’s risk appetite.

Our integration work includes evaluating new or changed risks impacting the combined company, and may involve modifications to our existing risk management processes.

As part of our on-going integration of TD Ameritrade, the Company has aligned TD Ameritrade’s risk management practices with Schwab’s risk appetite.

Our integration work included evaluating new or changed risks impacting the combined company, and taking action through various means.

Though integration work continues, the Company’s operations, inclusive of TD Ameritrade, remain consistent with our Enterprise Risk Management (ERM) framework.

For a discussion of our risk management programs, see Item 7 – Risk Management in the 2020 Form 10-K.

For a discussion of our risk management programs, see Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2021 Form 10-K.

Interest Rate Risk Simulations

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As we actively manage the consolidated balance sheet and interest rate exposure, in all likelihood we would take steps to manage additional interest rate exposure that could result from changes in the interest rate environment.

The following table shows the simulated change to net interest revenue over the next 12 months beginning September 30, 2021 and December 31, 2020 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

September 30, 2021 December 31, 2020

Increase of 100 basis points 13.6 % 14.2 %

Decrease of 100 basis points (4.0) % (4.3) %

THE CHARLES SCHWAB CORPORATION

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(Tabular Amounts in Millions, Except Ratios, or as Noted)

Net interest revenue sensitivities as of September 30, 2021 remained relatively consistent with December 31, 2020, due to the continued low interest rate environment.

The following table shows the simulated change to net interest revenue over the next 12 months beginning March 31, 2022 and December 31, 2021 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

March 31, 2022 December 31, 2021

Increase of 100 basis points 12.0 % 14.1 %

Decrease of 100 basis points (8.0) % (4.5) %

The Company’s simulated increase of 100 basis points in market interest rates had a lower impact on net interest revenue as of March 31, 2022 compared to December 31, 2021 primarily due to an increase in the Company’s projected repricing of client deposit rates across higher market interest rate scenarios and decreased sensitivity to prepayments on the Company’s mortgage-backed investment securities.

This was partially offset as a result of higher cash and segregated cash and investments balances at March 31, 2022 relative to year-end.

A simulated decrease of 100 basis points in market interest rates had a larger impact on net interest revenue as of March 31, 2022 compared to December 31, 2021 primarily as a result of holding a higher allocation of floating-rate assets.

Higher short-term interest rates would positively impact net interest revenue as yields on interest-earning assets are expected to rise faster than the cost of funding sources.

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Consistent with the presentation on the consolidated statement of income, the sensitivity of bank deposit account fee revenue to interest rate changes is assessed separately from the net interest revenue simulation described above.

As of September 30, 2021, simulated changes in bank deposit account fee revenue from gradual 100 basis point changes in market interest rates relative to prevailing market rates did not have a significant impact on the Company’s total net revenues.

As of March 31, 2022 and December 31, 2021, simulated changes in bank deposit account fee revenue from gradual 100 basis point changes in market interest rates relative to prevailing market rates did not have a significant impact on the Company’s total net revenues.

Economic Value of Equity Simulation

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Phase-out of LIBOR

The Company has established a team to address the phasing-out of LIBOR.

As part of our efforts, we have assessed our LIBOR exposures, the largest of which are certain investment securities and loans.

In purchasing new investment securities, we ensure that appropriate fall-back language is in the security’s prospectus in the event that LIBOR is unavailable or deemed unreliable, and we have sold certain securities lacking appropriate fall-back language.

We are updating loan agreements to ensure new LIBOR-based loans adequately provide for an alternative to LIBOR.

Furthermore, we plan to phase-out the use of LIBOR as a reference rate in our new lending products before the end of December 2021, per guidance from the Federal Reserve Board.

The Company has made significant progress to prepare for the phasing-out of LIBOR, as described in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2021 Form 10-K, and additional transition efforts to prepare for the phasing-out of LIBOR are ongoing.

On March 15, 2022, President Biden signed the Consolidated Appropriations Act of 2022 into law, which includes the Adjustable Interest Rate (LIBOR) Act, containing legislation related to the transition away from LIBOR.

This legislation is intended to establish a uniform process for replacing LIBOR in existing contracts and securities that continue after the cessation of LIBOR and do not contain clearly defined or practicable fallback provisions.

The Company believes this legislation helps provide clarity for the transition of our legacy LIBOR contracts, including investment securities, loans, and preferred stock, to alternative reference rates in an orderly manner.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

Liquidity Risk

Liquidity risk is the potential that Schwab will be unable to sell assets or meet cash flow obligations when they come due without incurring unacceptable losses.

We have established liquidity policies to support the successful execution of business strategies, while ensuring ongoing and sufficient liquidity to meet operational needs and satisfy applicable regulatory requirements under both normal and stressed conditions.

We employ a variety of methodologies to monitor and manage liquidity, which are described below and in greater detail in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk in our 2021 10-K.

Funding Sources

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Treasury securities.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

In addition to internal sources of liquidity, Schwab has access to external funding.

The following table describes external debt facilities available at September 30, 2021:

The following table describes external debt facilities available at March 31, 2022:

Description Borrower Outstanding Available

Federal Home Loan Bank secured credit facility (1)

Banking subsidiaries $ — $ 63,612

Federal Reserve discount window (2)

Banking subsidiaries — 9,886

Federal Home Loan Bank secured credit facilities Banking subsidiaries $ — $ 68,208

Federal Reserve discount window Banking subsidiaries — 10,309

Uncommitted, unsecured lines of credit with various external banks CSC, CS&Co — 1,522

Unsecured commercial paper (3)

Committed, unsecured credit facility with various external banks TDAC — 600

Unsecured commercial paper CSC 2,386 2,614

Committed, unsecured credit facility with various external banks (1)

Secured uncommitted lines of credit with various external banks (2)

(1) Amounts available are dependent on the amount of First Mortgages, HELOCs, and the fair value of certain investment securities that are pledged as collateral.

(2) Amounts available are dependent on the fair value of certain investment securities that are pledged as collateral.

(3) In October 2021, the Company increased the amount of commercial paper available to issue from $1.5 billion to $5.0 billion.

(1) This facility matured on April 21, 2022 and was not renewed.

(2) Secured borrowing capacity is made available based on TDAC’s ability to provide acceptable collateral to the lenders as determined by the credit agreements.

CSC’s ratings for Commercial Paper Notes are P1 by Moody’s Investor Service (Moody’s), A1 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at September 30, 2021 and December 31, 2020.

Our banking subsidiaries may also engage with external banks in repurchase agreements collateralized by investments securities as another source of short-term liquidity.

CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities.

See Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk in the 2021 Form 10-K for additional information on these and other borrowing facilities.

To support growth in margin loan balances at our broker-dealer subsidiaries while meeting our LCR requirements, the Company may issue commercial paper or draw on secured lines of credit, in addition to capital markets issuances.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

Liquidity Coverage Ratio

For the nine months ended September 30, 2021, Schwab was subject to a reduced LCR rule requiring the Company to hold high quality liquid assets (HQLA) in an amount equal to at least 85% of the Company’s projected net cash outflows over a prospective 30-calendar-day period of acute liquidity stress, calculated on each business day.

The Company was in compliance with the reduced LCR rule at September 30, 2021.

On October 1, 2021, Schwab became subject to the full (100%) LCR.

See Overview – Current Regulatory Environment and Other Developments and Part I – Item 1 – Regulation in the 2020 Form 10-K for additional information.

The table below presents information about our average daily LCR:

Schwab is subject to the full LCR rule, which requires the Company to hold high quality liquid assets (HQLA) in an amount equal to at least 100% of the Company’s projected net cash outflows over a prospective 30-calendar-day period of acute liquidity stress, calculated on each business day.

See Part I – Item 1 – Business – Regulation in the 2021 Form 10-K for additional information.

The Company was in compliance with the LCR rule at March 31, 2022, and the table below presents information about our average daily LCR:

Average for the

Three Months Ended

September 30, 2021

Total eligible high quality liquid assets $ 92,745

March 31, 2022

Total eligible HQLA $ 129,040

Net cash outflows $ 115,861

The following are details of the Senior Notes:

September 30, 2021 Par

The Company had short-term borrowings outstanding of $4.2 billion and $4.9 billion as of March 31, 2022 and December 31, 2021, respectively.

Long-term debt is primarily comprised of Senior Notes and totaled $21.9 billion and $18.9 billion at March 31, 2022 and December 31, 2021, respectively.

The following table provides information about our Senior Notes outstanding at March 31, 2022:

March 31, 2022 Par

Outstanding Maturity Weighted Average

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TDA Holding Senior Notes $ 963 2022 - 2029 3.06% A2 A —

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

New Debt Issuances

The below debt issuances in 2021 were senior unsecured obligations.

The below debt issuances in the first quarter of 2022 were senior unsecured obligations.

Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes.

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Issuance Date Issuance Amount Maturity Date Interest Rate

03/18/2021 $ 1,250 03/18/2024 SOFR + 0.500%

03/18/2021 $ 1,500 03/18/2024 0.750%

03/18/2021 $ 1,250 03/20/2028 2.000%

05/13/2021 $ 500 05/13/2026 SOFR + 0.520%

05/13/2021 $ 1,000 05/13/2026 1.150%

05/13/2021 $ 750 05/13/2031 2.300%

08/26/2021 $ 850 12/01/2031 1.950%

In addition, during the third quarter of 2021, we completed a debt exchange offer related to certain senior notes issued by TDA Holding for an equivalent amount of senior notes issued by CSC.

For further discussion of the exchange, see Item 1 – Note 9.

March 3, 2022 $ 500 03/03/2027 SOFR (1) + 1.050%

March 3, 2022 $ 1,500 03/03/2027 2.450%

March 3, 2022 $ 1,000 03/03/2032 2.900%

(1) Secured Overnight Financing Rate

Equity Issuances

CSC’s preferred stock issued and net proceeds for 2021 are as follows:

CSC’s preferred stock issued and net proceeds for the first quarter of 2022 are as follows:

Date Issued and Sold Net Proceeds

Series I March 18, 2021 $ 2,222

Series J March 30, 2021 $ 584

On June 1, 2021, the Company redeemed all of the outstanding shares of its 6.00% Non-Cumulative Perpetual Preferred Stock, Series C, and the corresponding depositary shares.

The redemption was funded with the net proceeds from the Series J preferred stock offering.

For further discussion of CSC’s long-term debt and information on the equity offerings, see Item 1 – Notes 9 and 14.

Series K March 4, 2022 $ 740

For further discussion, see Item 1 – Note 8 for the Company’s outstanding debt and borrowing facilities and Item 1 – Note 13 for equity outstanding balances, issuances, and redemptions.

Schwab additionally enters into guarantees and other similar arrangements in the ordinary course of business.

For information on these arrangements, see Item 1 – Notes 5, 6, 8, 9, and 11.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

CAPITAL MANAGEMENT

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To ensure that Schwab has sufficient capital to absorb unanticipated losses or declines in asset values, we have adopted a policy to remain well capitalized even in stressed scenarios.

As a result of significant inflows of client cash in 2020, our Tier 1 Leverage Ratio declined below our long-term operating objective for consolidated CSC of 6.75%-7.00%, ending 2020 at 6.3%.

The Company’s issuances of preferred stock and strength in earnings in the first nine months of 2021 helped maintain our Tier 1 Leverage Ratio, as we ended the third quarter at 6.3%.

Though still below our long-term operating objective, this ratio is well above the regulatory minimum.

The pace of return to our long-term operating objective over time depends on a number of factors including the overall size of the Company’s balance sheet, earnings, and capital issuance and deployment.

We continue to manage our capital position in accordance with our policy and strategy described above and in further detail in our 2020 Form 10-K.

Regulatory Capital Requirements

CSC and our banking subsidiaries are subject to various capital requirements set by regulatory agencies as discussed in further detail in the 2020 Form 10-K and in Item 1 – Note 17.

As of September 30, 2021, CSC and our banking subsidiaries are considered well capitalized.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

The following table details CSC’s consolidated and CSB’s capital ratios as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

CSC and certain subsidiaries including our banking and broker-dealer subsidiaries are subject to various capital requirements set by regulatory agencies as discussed in further detail in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Management of the 2021 Form 10-K and in Item 1 – Note 16.

As of March 31, 2022, CSC and our banking subsidiaries are considered well capitalized, and CS&Co, TDAC, and TD Ameritrade, Inc.

were in compliance with their respective net capital requirements.

The following table details CSC’s consolidated and CSB’s capital ratios as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

CSC CSB CSC CSB

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AOCI adjustment (1)

(11,045) (9,674) (1,109) (1,004)

Common Equity Tier 1 Capital $ 29,119 $ 30,672 $ 27,967 $ 28,014

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Supplementary Leverage Ratio 6.1 % 7.0 % 6.2 % 7.0 %

CSB is also subject to regulatory requirements that restrict and govern the terms of affiliate transactions.

In addition, CSB is required to provide notice to, and may be required to obtain approval from, the Federal Reserve and the Texas Department of Savings and Mortgage Lending (TDSML) to declare dividends to CSC.

As broker-dealers, CS&Co, TDAC, and TD Ameritrade, Inc.

are subject to regulatory requirements of the Uniform Net Capital Rule, which is intended to ensure the general financial soundness and liquidity of broker-dealers.

At September 30, 2021, CS&Co, TDAC, and TD Ameritrade, Inc.

were in compliance with their respective net capital requirements.

In addition to the capital requirements above, Schwab’s subsidiaries are subject to other regulatory requirements intended to ensure financial soundness and liquidity.

See Item 1 – Note 17 for additional information on the components of stockholders’ equity and information on the capital requirements of significant subsidiaries.

(1) Changes in market interest rates can result in unrealized gains or losses on AFS securities, which are included in AOCI.

As a Category III banking organization, CSC has elected to exclude AOCI from regulatory capital.

The Company’s issuance of preferred stock and quarterly earnings in the first quarter of 2022 helped to largely maintain our Tier 1 Leverage Ratio, as bank deposits and payables to brokerage clients grew by a total of $21.7 billion, or 4%, during the quarter.

We ended the first quarter of 2022 with a consolidated Tier 1 Leverage Ratio of 6.1%, down slightly from 6.2% at year-end 2021.

CSB’s Tier 1 Leverage Ratio remained consistent with year-end 2021, ending the first quarter of 2022 at 7.1%.

Though our Tier 1 Leverage Ratio is below our long-term operating objective for consolidated CSC, this ratio is well above the regulatory minimum.

We continue to manage our capital position in accordance with our policy and strategy described in further detail in our 2021 Form 10-K.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

IDA Agreement

Through September 30, 2021, Schwab had moved $10.0 billion of IDA balances to its balance sheet, which included uninsured balances and certain international account balances.

Certain brokerage client deposits are swept off-balance sheet to the TD Depository Institutions pursuant to the IDA agreement.

During the first quarter of 2022, Schwab moved $12.7 billion of IDA balances to its balance sheet.

The Company’s overall capital management strategy includes supporting migration of IDA balances in future periods as available pursuant to the terms of the IDA agreement.

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See Item 1 – Note 9 for further information on the IDA agreement.

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

Cash dividends paid and per share amounts for the first nine months of 2021 and 2020 are as follows:

Nine Months Ended September 30, Cash Paid Per Share

Cash dividends paid and per share amounts for the first three months of 2022 and 2021 are as follows:

Three Months Ended March 31, Cash Paid Per Share

Amount Cash Paid Per Share

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Series C Preferred Stock (2)

18 30.00 27 45.00

Series D Preferred Stock (3)

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Series F Preferred Stock (5)

13 2,500.00 13 2,500.00

Series G Preferred Stock (3)

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Series H Preferred Stock (6)

72 2,888.89 N/A N/A

25 1,000.00 22 888.89

Series I Preferred Stock (7)

41 1,811.11 N/A N/A

23 1,000.00 — —

Series J Preferred Stock (8)

11 18.67 N/A N/A

(1) Dividends paid semi-annually until February 1, 2022 and quarterly thereafter.

Series K Preferred Stock (9)

(1) Dividends were paid semi-annually until February 1, 2022 and are paid quarterly thereafter.

(2) Series C Preferred Stock was redeemed on June 1, 2021.

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(3) Dividends paid quarterly.

(4) Dividends paid semi-annually until March 1, 2022 and quarterly thereafter.

(4) Dividends were paid semi-annually until March 1, 2022 and are paid quarterly thereafter.

(5) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter.

(6) Series G Preferred Stock was issued on April 30, 2020.

Dividends are paid quarterly, and the first dividend was paid on September 1, 2020.

(6) Series H Preferred Stock was issued on December 11, 2020.

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Dividends are paid quarterly, and the first dividend was paid on June 1, 2021.

(9) Series K Preferred Stock was issued on March 4, 2022.

Dividends are paid quarterly, and the first dividend will be paid on June 1, 2022.

N/A Not applicable.

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The authorization does not have an expiration date.

There were no repurchases of CSC’s common stock under this authorization during the first nine months of 2021 or 2020.

As of September 30, 2021, $1.8 billion remained on our existing authorization.

There were no repurchases of CSC’s common stock under this authorization during the first three months of 2022 or 2021.

As of March 31, 2022, $1.8 billion remained on the authorization.

Foreign Exposure

At September 30, 2021, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries.

At September 30, 2021, the fair value of these holdings totaled $12.8 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.8 billion, the United Kingdom at $3.7 billion, and Sweden at $755 million.

At December 31, 2020, the fair value of these holdings totaled $10.1 billion, with the top three exposures being to issuers and counterparties domiciled in France at $6.7 billion, Germany at $1.2 billion, and Canada at $880 million.

In addition, Schwab had outstanding margin loans to foreign residents of $3.3 billion and $2.2 billion at September 30, 2021 and December 31, 2020, respectively.

Off-Balance Sheet Arrangements

Schwab enters into various off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of our clients.

These arrangements include firm commitments to extend credit.

Additionally, Schwab enters into guarantees and other similar arrangements in the ordinary course of business.

For information on each of these arrangements, see Item 1 – Notes 6, 7, 9, 10, and 12.

Concurrent with the closing of the acquisition of TD Ameritrade effective October 6, 2020, the IDA agreement with the TD Depository Institutions became effective.

Pursuant to the IDA agreement, certain brokerage client deposits are swept off-balance sheet to the TD Depository Institutions.

The Company also maintains agreements pursuant to which TD Ameritrade client brokerage cash deposits are swept to other third-party depository institutions.

See Item 1 – Note 10 for additional information on the IDA agreement.

At March 31, 2022, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments.

At March 31, 2022, the fair value of these holdings totaled $18.6 billion, with the top three exposures being to issuers and counterparties domiciled in the United Kingdom at $6.4 billion, France at $5.4 billion, and Canada at $1.8 billion.

At December 31, 2021, the fair value of these holdings totaled $12.5 billion, with the top three exposures being to issuers and counterparties domiciled in the United Kingdom at $5.2 billion, France at $3.9 billion, and Sweden at $754 million.

In addition, Schwab had outstanding margin loans to foreign residents of $3.8 billion and $3.3 billion at March 31, 2022 and December 31, 2021, respectively.

THE CHARLES SCHWAB CORPORATION

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Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2021 Form 10-K.

There have been no changes to critical accounting estimates during the first nine months of 2021.

There have been no changes to critical accounting estimates during the first three months of 2022.

NON-GAAP FINANCIAL MEASURES

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We believe return on tangible common equity may be useful to investors as a supplemental measure to facilitate assessing capital efficiency and returns relative to the composition of Schwab’s balance sheet.

Beginning in 2021, the Company also uses adjusted diluted EPS and return on tangible common equity as components of performance criteria for employee bonus and certain executive management incentive compensation arrangements.

The Company also uses adjusted diluted EPS and return on tangible common equity as components of performance criteria for employee bonus and certain executive management incentive compensation arrangements.

The Compensation Committee of CSC’s Board of Directors maintains discretion in evaluating performance against these criteria.

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The following tables present reconciliations of GAAP measures to non-GAAP measures:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Total expenses excluding interest (GAAP) $ 2,833 $ 2,755

Acquisition and integration-related costs (1)

(104) (42) (367) (160)

Amortization of acquired intangible assets (154) (154)

Adjusted total expenses (non-GAAP) $ 2,583 $ 2,482

(1) Acquisition and integration-related costs for the three and nine months ended September 30, 2021 primarily consist of $58 million and $227 million of compensation and benefits, $35 million and $99 million of professional services, and $7 million and $30 million of occupancy and equipment.

Acquisition and integration-related costs for the three and nine months ended September 30, 2020 primarily consist of $29 million and $98 million of professional services and $13 million and $34 million of compensation and benefits.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS

(1) Acquisition and integration-related costs for the three months ended March 31, 2022 primarily consist of $56 million of compensation and benefits, $31 million of professional services, and $4 million of occupancy and equipment.

Acquisition and integration-related costs for the three months ended March 31, 2021 primarily consist of $72 million of compensation and benefits, $27 million of professional services, and $16 million of occupancy and equipment.

Three Months Ended March 31,

Amount Diluted EPS Amount Diluted EPS

Net income available to common stockholders (GAAP),

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(1) The income tax effects of the non-GAAP adjustments are determined using an effective tax rate reflecting the exclusion of non-deductible acquisition costs and are used to present the acquisition and integration-related costs and amortization of acquired intangible assets on an after-tax basis.

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Return on average common stockholders’ equity (GAAP) 12 % 12 %

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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-Q

Item 2. Management’s Discussion and Analysis