What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-08 · 410 added, 397 removed, 457 unchanged (64% of the section changed)

43 unchanged sentences

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);

• Investments to support growth in our client base (see Overview);

• Tier 1 Leverage Ratio operating objective (see Overview and Capital Management);

• Expected timing for the TD Ameritrade client conversions;

• Business momentum;

investments to support growth in our client base;

capital return (see Overview);

• Expected timing for the TD Ameritrade client transitions;

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 and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);

• The expected impact of proposed and final rules (see Current Regulatory Environment and other Developments);

• Rates paid on client-related liabilities;

• The expected impact of proposed rules (see Current Regulatory and Other Developments);

• The adjustment of rates paid on client-related liabilities;

the use and balances of supplemental funding;

net interest revenue (see Results of Operations);

• Capital expenditures (see Results of Operations);

• Management of interest rate risk;

the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity, and liability and asset duration (see Risk Management);

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

1 unchanged sentence

• 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 potential migration of insured deposit account balances (IDA balances) to our balance sheet;

expectations about capital requirements, including accumulated other comprehensive income (AOCI);

plans regarding capital and dividends (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);

11 unchanged sentences

• Client sensitivity to rates;

• Regulatory guidance and adverse impacts from new legislation or rulemaking;

• Regulatory guidance and adverse impacts from new or changed legislation, rulemaking, or regulatory expectations;

• Capital and liquidity needs and management;

• Our ability to manage expenses;

• Our ability to attract and retain talent;

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

• Our ability to attract and retain talent;

• 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;

9 unchanged sentences

• Interest-earning asset mix and growth;

• Our ability to access and use supplemental funding sources;

• Prepayment levels for mortgage-backed securities;

7 unchanged sentences

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 2022 and 2021 are as follows:

Results for the first quarter of 2023 and 2022 are as follows:

Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2022 2021 2022 2021

March 31, Percent

Client Metrics

29 unchanged sentences

Return on tangible common equity 83 % 26 %

(1) The first nine months of 2022 include an outflow of $20.8 billion from a mutual fund clearing services client.

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

(1) The first quarter of 2023 includes inflows of $19.0 billion from off-platform certificates of deposit (CDs) issued by CSB.

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

1 unchanged sentence

See Non-GAAP Financial Measures.

During the first nine months of 2022, our clients faced a challenging macroeconomic environment that included rising inflation, the Federal Reserve’s corresponding aggressive monetary tightening policy, Russia’s continued war in Ukraine, and increasing challenges across other global economies.

Equity markets declined substantially throughout the first nine months of 2022, with the S&P 500 extending year-to-date losses to 25% through September 30.

Against this backdrop, clients’ daily average trades (DATs) in the third quarter remained consistent with the prior year quarter at 5.5 million, while declining 8% to 6.1 million on a year-to-date basis as investor sentiment softened, particularly compared with the extraordinary client trading levels seen in early 2021.

New brokerage accounts were also down from the prior year, as clients opened 897 thousand and 3.1 million new brokerage accounts in the third quarter and first nine months of 2022, respectively.

Active brokerage accounts were 33.9 million at September 30, 2022, increasing 4% year-over-year.

Core net new assets were $114.6 billion in the third quarter and brought the year-to-date 2022 total to $299.3 billion.

We ended the third quarter of 2022 with total client assets of $6.64 trillion, down 13% from September 30, 2021, and down 18% from year-end 2021, as declines in market valuations of approximately $1.4 trillion over the past 12 months outweighed our continued asset gathering.

The first quarter of 2023 presented a mixed macroeconomic background for our clients.

While equity markets increased from year-end 2022 levels, investor sentiment remained bearish, especially following the onset of the banking industry turmoil in early March.

Fixed income markets also reflected growing fears of an economic downturn as the 10-year U.S.

Treasury yield declined approximately 50 basis points from its intra-quarter peak to end March just under 3.50%.

The Federal Reserve continued its monetary tightening cycle, increasing the Federal Funds rate twice for a total of 50 basis points in the first quarter of 2023.

Throughout this environment, Schwab remained a trusted partner to investors.

Core net new assets totaled $131.7 billion in the first quarter of 2023, representing an annualized organic growth rate of over 7%, and total client assets were $7.58 trillion at March 31, 2023, up 8% from year-end 2022.

Clients’ daily average trades (DATs) were 5.9 million in the first quarter of 2023, down 10% from the prior year amid softer investor sentiment.

Clients opened 1.0 million new brokerage accounts in the first quarter of 2023, bringing active brokerage accounts to 34.1 million at quarter-end, up 2% year-over-year.

Schwab’s financial results in the first quarter of 2023 reflected the Company’s sustained business momentum and the benefits of rising interest rates, partially offset by clients’ asset allocation decisions.

Net income totaled $1.6 billion in the first quarter of 2023, rising 14% from the first quarter of 2022, and the Company produced diluted earnings per common share (EPS) of $.83,

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Schwab’s financial results in the third quarter and first nine months of 2022 reflected the strength of our business and significant benefits from higher market interest rates.

Net income totaled $2.0 billion and $5.2 billion in the third quarter and first nine months of 2022, respectively, increasing 32% and 22% from the comparable periods in 2021.

Diluted earnings per common share (EPS) was $.99 and $2.53 in the third quarter and first nine months of 2022, respectively, rising 34% and 23% from the same periods in the prior year.

Adjusted diluted EPS (1) , which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, was $1.10 and $2.83 in the third quarter and first nine months of 2022, respectively, up 31% and 18% from the comparable periods in 2021.

Total net revenues were $5.5 billion and $15.3 billion in the third quarter and first nine months of 2022, respectively, rising 20% and 11% from the comparable periods in 2021.

Net interest revenue increased to $2.9 billion and $7.7 billion for the third quarter and first nine months of 2022, representing growth of 44% and 30% over the prior year periods primarily as a result of significantly higher market rates.

Asset management and administration fees of $1.0 billion and $3.2 billion in the third quarter and first nine months of 2022, respectively, were down 5% from the third quarter of 2021 and largely flat with the first nine months of 2021, as significant declines in equity market valuations offset the benefit of lower money market fund fee waivers.

Trading revenue totaled $930 million and $2.8 billion in the third quarter and first nine months of 2022, respectively, down 4% and 11% from the same periods in 2021, due primarily to changes in the mix of client trading activity, and, for the year-to-date period, lower DATs in 2022 relative to the extraordinary client trading volume seen early in 2021.

Bank deposit account fee revenue was $413 million and $1.1 billion in the third quarter and first nine months of 2022, respectively, increasing 28% and 5% from the same periods in 2021, as higher average net yields more than offset lower average BDA balances.

BDA balances totaled $139.6 billion at September 30, 2022, down 9% from September 30, 2021 and down 12% from year-end 2021.

Total expenses excluding interest amounted to $2.8 billion and $8.5 billion in the third quarter and first nine months of 2022, respectively, increasing 10% and 4% from the same periods in 2021.

Adjusted total expenses (1) were $2.6 billion and

$7.7 billion for the third quarter and first nine months of 2022, respectively, increasing 12% and 6% from the same periods in 2021.

The increases in total expenses excluding interest and total adjusted expenses reflected higher compensation and benefits expense and higher occupancy and equipment expense, as we continued to invest in our people and technology to support ongoing growth in our client base.

The year-to-date increases were partially offset by lower other expense, which included a charge of approximately $200 million in the second quarter of 2021 (see Item 1 – Note 9).

Return on average common stockholders’ equity increased to 25% and 18% for the third quarter and first nine months of 2022, respectively, compared with 12% and 11% in the comparable periods in 2021.

Return on tangible common equity (1) (ROTCE) was 74% and 42% in the third quarter and first nine months of 2022, respectively, compared with 23% and 21% in the same periods in the prior year.

up 24% from the first quarter of 2022.

Adjusted diluted EPS (1) , which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, was $.93, increasing 21% from the first quarter of 2022.

Total net revenues rose 10% year-over-year to $5.1 billion in the first quarter of 2023.

Net interest revenue increased to $2.8 billion, up 27% from the first quarter of 2022 as higher yields on interest-earning assets more than offset higher funding costs and lower average interest-earning assets.

Asset management and administration fees totaled $1.1 billion in the first quarter of 2023, rising 5% year-over-year as growth in money market funds and the elimination of fee waivers more than offset lower average client asset balances due to declines in equity markets relative to the first quarter of 2022.

Trading revenue was $892 million in the first quarter of 2023, decreasing 7% year-over-year due primarily to lower trading volume and changes in mix of client trading activity.

Bank deposit account fee revenue was $151 million in the first quarter of 2023, down 49% due in part to $97 million in one-time breakage fees relating to ending our arrangements with certain third-party banks (see Results of Operations – Bank Deposit Account Fees).

BDA balances totaled $106.5 billion at March 31, 2023, down 16% from year-end 2022 due primarily to client cash allocation decisions.

Total expenses excluding interest were $3.0 billion in the first quarter of 2023, increasing 6% from the first quarter of 2022.

Adjusted total expenses (1) were $2.8 billion, increasing 7% from the first quarter of 2022.

These increases reflected higher compensation and benefits expense, higher occupancy and equipment expense, and higher depreciation and amortization expense, as we continued to invest in our people and technology to support ongoing growth in our client base.

Acquisition and integration-related costs and amortization of acquired intangible assets were $98 million and $135 million, respectively, in the first quarter of 2023, up 2% and down 12%, respectively, from the first quarter of 2022.

Amortization of acquired intangible assets decreased as certain assets from the TDA acquisition were fully amortized by the beginning of the fourth quarter of 2022.

Return on average common stockholders’ equity increased to 23% in the first quarter of 2023 compared with 12% in the first quarter of 2022.

Return on tangible common equity (1) (ROTCE) was 83% in the first quarter of 2023 compared with 26% in the first quarter of 2022.

The increases in both return on average common stockholders’ equity and ROTCE were due primarily to lower stockholders’ equity and higher net income.

Stockholders’ equity declined in the first nine months of 2022 due to a significant decrease in accumulated other comprehensive income (AOCI), as higher market interest rates resulted in larger unrealized losses on our available for sale (AFS) portfolio.

The Company continued its diligent approach to balance sheet management amid a rapidly evolving macroeconomic environment in the first nine months of 2022, maintaining appropriate capital and liquidity to support client activity and returning excess capital to stockholders.

Total balance sheet assets of $577.6 billion at September 30, 2022 were down 9% in the third quarter and down 13% from year-end 2021, primarily due to decreases in bank deposits and payables to brokerage clients as a result of client cash allocation decisions and unrealized losses on AFS securities, both primarily resulting from higher market interest rates.

During the third quarter, the Board of Directors approved a 10% increase in our common dividend and a $15 billion share repurchase authorization;

repurchases under this new authorization totaled $1.5 billion in the third quarter.

As announced in September, the Company redeemed its $400 million Series A Preferred Stock effective November 1, 2022, and we announced in October the redemption of our $600 million Series E Preferred Stock, effective December 1, 2022.

In addition, during the third quarter, we lowered our operating objective for the Company’s consolidated Tier 1 Leverage Ratio by 25 basis points to 6.50%-6.75%.

The Company’s Tier 1 Leverage Ratio was 6.8% at September 30, 2022, slightly above our new operating objective.

Stockholders’ equity was lower in the first quarter of 2023 due to a year-over-year decrease in AOCI, as higher market interest rates resulted in larger unrealized losses on our available for sale (AFS) portfolio in the first quarter of 2023 compared with the first quarter of 2022.

The Company continued its diligent approach to balance sheet management in the first quarter of 2023 to maintain capital and liquidity required to support Schwab’s long-term growth.

Total balance sheet assets decreased 3% from year-end 2022 to March 31, 2023.

With further increases in market interest rates in the first quarter of 2023 as the Federal Reserve continued its monetary tightening cycle, clients allocated more assets to higher yielding cash and fixed income alternatives.

To facilitate these client cash movements and help build available cash, the Company utilized additional temporary funding sources including Federal Home Loan Bank (FHLB) borrowings and issuances of brokered CDs during the first quarter of 2023.

During the first quarter of 2023, we increased our quarterly common dividend by 14% to $.25 per share, and returned capital via common and preferred stock repurchases, which totaled $2.8 billion and $467 million, respectively, during the first quarter of 2023.

Inclusive of these actions, the Company’s Tier 1 Leverage Ratio finished the first quarter of 2023 at 7.1%.

The Company suspended its active share repurchase program during the first quarter of 2023 in light of anticipated changes to regulatory expectations and capital requirements, though opportunistic capital return remains an important component of our ‘through the cycle’ financial formula.

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

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

Integration of TD Ameritrade

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”).

Integration work continued during the first three months of 2023, including the completion of the first client transition group in February 2023.

The Company expects to complete most remaining client transitions from TD Ameritrade to Schwab across multiple groups over the course of 2023, with the transition of a small client group in the first half of 2024.

We expect to incur total acquisition and integration-related costs and capital expenditures of between $2.4 billion and $2.5 billion.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Integration of TD Ameritrade

Integration work continued during the first nine months of 2022.

Based on our current integration plans and expanded scope of technology work, the Company now expects to complete most client conversions across multiple groups over the course of 2023, with certain client groups to be completed in early 2024.

We now expect to incur total acquisition and integration-related costs and capital expenditures of between $2.4 billion and $2.5 billion, which reflects increased costs resulting from incremental complexity in conversion work, due in part to the replacement of certain vendor resources following Russia’s invasion of Ukraine, as well as overall inflationary pressures.

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 economic environment.

More specifically, factors that could cause variability in our expected acquisition and integration-related costs include the level of employee attrition and availability of third-party labor, workforce redeployment from eliminated positions into open roles, changes in the levels of client activity, as well as changes in the scope and cost of technology and real estate-related exit cost variability due to effects of changes in remote working trends.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $101 million and $291 million for the third quarter and first nine months of 2022, respectively, and $104 million and $367 million for the third quarter and first nine months of 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 September 30, 2022, we have achieved over half of this amount on an annualized run-rate basis.

The Company expects to realize the vast majority of the remaining estimated cost synergies by the end of 2024.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $98 million and $96 million for the first quarters of 2023 and 2022, respectively.

Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through March 31, 2023, we have achieved approximately 75% of this amount on an annualized run-rate basis.

The Company expects to realize the vast majority of the remaining estimated cost synergies by the end of 2024, with anticipated full year synergy realization beginning in 2025.

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.

Current Regulatory Environment and Other Developments

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

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

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

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

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

See Item 1 – Note 16 for additional information regarding our capital requirements.

Inflation Reduction Act of 2022:

Excise Tax on Share Repurchases

In August 2022, the Inflation Reduction Act of 2022 (Inflation Reduction Act) was enacted into law.

Among many other items, the Inflation Reduction Act imposes a nondeductible 1% excise tax on a publicly traded corporation on the fair market value of certain stock that it repurchases, net of issuances, effective for repurchases after December 31, 2022.

The Company believes share repurchases made under its current repurchase authorization beginning in 2023 will become subject to this tax.

We expect to recognize the tax as a direct and incremental cost associated with these transactions.

For repurchases of common stock, we expect the tax will be recorded as part of the cost basis of the treasury stock repurchased, resulting in no income statement impact.

Federal Deposit Insurance Corporation (FDIC) Assessment Rate Increase

In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023.

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

A 2 basis point increase in the initial base deposit insurance assessment rate will result in a corresponding increase in regulatory fees and assessments, as well as a corresponding decrease in bank deposit account fee revenue based on IDA balances.

Refer to Part II – Item 7 – Overview in our 2022 Form 10-K, Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 1 – Note 10 for additional information regarding our integration of TD Ameritrade.

Subsequent Events

On May 4, 2023, the Company executed a Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement) with TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions) that replaces and supersedes the previous amended and restated insured deposit account agreement dated November 24, 2019 that became effective October 6, 2020, as amended (the 2019 IDA agreement, and together with the 2023 IDA agreement, the IDA agreements).

In accordance with the IDA agreements, cash held in eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions.

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

Under the 2023 IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions remains at 15 basis points, as it was in the 2019 IDA agreement.

As the 2023 IDA agreement was entered into on May 4, 2023, the results included in this Quarterly Report on Form 10-Q are pursuant to the 2019 IDA agreement.

Disclosures regarding the Company’s future obligations reflect the terms of the 2023 IDA agreement.

See Capital Management and Commitments and Contingencies in Item 1 – Note 9 for additional information on the IDA agreements.

Current Regulatory and Other Developments

In December 2022, the SEC proposed a set of four related equity market structure rules that would make significant changes to how national market system (NMS) stock orders are priced, executed and reported.

The four proposed rules are described below.

• The “Order Competition Rule” would require that, before most individual investors’ orders could be executed internally by a trading center (like wholesaler market makers), those orders must first be exposed to a qualifying order-by-order auction in which both market makers and institutional investors can participate.

• “Regulation Best Execution” would establish an SEC-level best execution standard (in addition to the existing FINRA and MSRB best execution rules) for broker-dealers and require them to establish, maintain, and enforce written policies and procedures addressing how the broker-dealer will comply with the best execution standard and make routing or execution decisions for customer orders.

Regulation Best Execution would apply not only to equities, but to all securities.

• Amendments to Rule 605 of Regulation NMS requiring enhanced disclosures of order execution quality for large brokers that handle retail orders.

• A rule to (i) amend minimum pricing increments (or tick sizes) that would apply to both the quoting and trading of NMS stocks, (ii) reduce the exchange access fee caps, and (iii) require transparency of odd-lots.

The comment periods for the proposed rules ended on March 31, 2023 and the impact to Schwab cannot be assessed until the final rules are released.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

In November 2022, the SEC proposed a rule that would require substantial changes to the liquidity risk management programs for open-end mutual funds other than money market funds (funds) and require them to implement “swing pricing” and impose a “hard close” on the acceptance of purchase and redemption orders.

Swing pricing would require funds to adjust the fund’s current net asset value (NAV) per share by a “swing factor” if the fund has either (i) net redemptions (no threshold) or (ii) net purchases that exceed a specified threshold (2% of the fund’s net assets).

To implement the swing pricing requirements, the proposed rule also would require that a fund, its transfer agent, or a registered clearing agency receive purchase and redemption orders prior to the time the fund has established for determining the NAV, typically market close, in order to receive a given day’s NAV (a “hard close”).

Current practices permit fund orders received by a financial intermediary prior to the fund cut-off time to be transmitted to the fund after the fund cut-off time and for the order to receive that day’s NAV.

Under the proposed rule, orders received by the fund, its transfer agent or registered clearing agency after the fund cut-off time would receive the next day’s NAV.

The comment period for the proposed rule ended on February 14, 2023 and the impact to Schwab cannot be assessed until the final rule is released.

In May 2022, the federal banking agencies issued a joint notice of proposed rulemaking that would substantially revise how an insured depository institution’s Community Reinvestment Act (CRA) performance is evaluated.

The proposed rule includes revisions relating to the delineation of assessment areas, the overall evaluation framework and performance standards and metrics, the definition of community development activities and data collection and reporting.

The comment period for the proposed rule ended on August 5, 2022 and the impact to Schwab cannot be assessed until the final rule is released.

RESULTS OF OPERATIONS

Total Net Revenues

The following tables present a comparison of revenue by category:

Three Months Ended September 30, Percent

The following table presents a comparison of revenue by category:

Three Months Ended March 31, Percent

Change Amount % of

18 unchanged sentences

Total net revenues 10 % $ 5,116 100 % $ 4,672 100 %

Nine Months Ended September 30, Percent

Change Amount % of

Revenues Amount % of

Net interest revenue

Interest revenue 34 % $ 8,386 55 % $ 6,236 45 %

Interest expense 111 % (733) (5) % (348) (2) %

Net interest revenue 30 % 7,653 50 % 5,888 43 %

Asset management and administration fees

Mutual funds, ETFs, and CTFs 5 % 1,524 10 % 1,454 11 %

Advice solutions (4) % 1,409 9 % 1,469 11 %

Other (3) % 234 2 % 241 1 %

Asset management and administration fees — 3,167 21 % 3,164 23 %

Trading revenue

Commissions (13) % 1,362 9 % 1,559 11 %

Order flow revenue (13) % 1,332 9 % 1,538 11 %

Principal transactions 121 % 84 — 38 1 %

Trading revenue (11) % 2,778 18 % 3,135 23 %

Bank deposit account fees 5 % 1,059 7 % 1,011 7 %

Other (1) % 608 4 % 614 4 %

Total net revenues 11 % $ 15,265 100 % $ 13,812 100 %

N/M Not meaningful.

Percent 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.

Schwab establishes the rates paid on client-

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Net Interest Revenue

Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates.

Interest expense on long-term debt, short-term borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate debt.

Interest rates increased significantly from year-end 2021 through September 30, 2022.

Short-term rates were near zero until the Federal Reserve began its aggressive tightening cycle in response to rising inflation beginning in March 2022, ultimately increasing the federal funds target overnight rate five times between March and September for a total increase of 300 basis points, while long-term interest rates increased throughout the first nine months of the year.

Schwab continued to see strength in net new client assets during the first nine 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 average interest-earning assets in the third quarter and first nine months of 2022 relative to the same periods in 2021.

Partially offsetting this growth, we experienced significant seasonal tax outflows in the second quarter, and, due to the rapid increases to the federal funds overnight rate, changes in client cash allocations increased in the third quarter which resulted in a total decrease in bank deposits and payables to brokerage clients of 9% during the third quarter and 11% since year-end 2021.

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

These steps also help keep Schwab positioned to benefit from interest rate increases.

related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates.

Interest expense on long-term debt, FHLB borrowings, other short-term borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities.

See also Risk Management – Interest Rate Risk Simulations.

Interest rates increased significantly beginning late in the first quarter of 2022 through the first quarter of 2023.

Short-term rates were near zero until the Federal Reserve began its aggressive tightening cycle in March 2022 in response to rising inflation, ultimately increasing the federal funds target overnight rate nine times between March 2022 and March 2023 for a total increase of 475 basis points.

Long-term interest rates increased throughout 2022 and the first three months of 2023, though at a slower pace, leading to an inverted yield curve.

Schwab’s average interest-earning assets in the first quarter of 2023 were lower compared with the first quarter of 2022 due primarily to client cash allocation movement to higher yielding investment solutions beginning in the second quarter of 2022 through the first quarter of 2023, which resulted primarily from the rapid increases to the federal funds overnight rate.

These changes in client cash allocations reduced average balances of bank deposits and payables to brokerage clients.

To support this client cash allocation activity, the Company utilized temporary supplemental funding in the fourth quarter of 2022 and first quarter of 2023, including drawing upon FHLB secured lending facilities and issuing brokered CDs.

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 September 30, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

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

Interest-earning assets

14 unchanged sentences

Payables to brokerage clients 77,169 75 0.39 % 105,929 2 0.01 %

Short-term borrowings 708 4 1.95 % 3,485 3 0.34 %

Long-term debt 21,024 131 2.49 % 19,030 99 2.10 %

Total interest-bearing liabilities 538,666 417 0.31 % 499,574 119 0.09 %

Non-interest-bearing funding sources

48,286 55,087

Securities lending expense

Other interest expense

Total funding sources $ 586,952 $ 431 0.29 % $ 554,661 $ 123 0.09 %

Net interest revenue $ 2,926 1.97 % $ 2,030 1.45 %

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 $ 63,598 $ 461 0.95 % $ 39,848 $ 27 0.09 %

Cash and investments segregated 50,891 308 0.80 % 43,914 19 0.06 %

Receivables from brokerage clients 78,630 2,244 3.76 % 74,831 1,800 3.17 %

Available for sale securities (1,2)

Other short-term borrowings (2)

6,917 86 5.05 % 4,717 4 0.33 %

Held to maturity securities (1,2)

Federal Home Loan Bank borrowings (2,3)

24,458 304 5.05 % — — —

Bank loans 38,238 717 2.50 % 27,336 448 2.18 %

Total interest-earning assets 614,144 7,988 1.73 % 534,406 5,675 1.41 %

Securities lending revenue 383 557

Other interest revenue 15 4

Total interest-earning assets $ 614,144 $ 8,386 1.81 % $ 534,406 $ 6,236 1.55 %

Funding sources

Bank deposits $ 440,801 $ 285 0.09 % $ 371,974 $ 40 0.01 %

Payables to brokerage clients 101,472 47 0.06 % 89,087 7 0.01 %

Short-term borrowings 2,656 12 0.60 % 2,617 6 0.32 %

Long-term debt 20,290 139 2.74 % 19,864 108 2.18 %

8 unchanged sentences

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.

Net interest revenue increased $896 million, or 44%, and $1.8 billion, or 30%, in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

These increases were due primarily to higher average yields on substantially all interest-earning assets as a result of higher market interest rates.

Net premium amortization of investment securities decreased to $295 million and $1.2 billion in the third quarter and first nine months of 2022, respectively, from $560 million and $1.8 billion in the third quarter and first nine months of 2021, respectively.

These benefits were partially offset by higher rates paid on bank deposits, payables to brokerage clients, and long-term debt, as well as lower balances of margin loans and lower securities lending revenue due to decreased market demand.

Average interest-earning assets for the third quarter and first nine months of 2022 were higher by 6% and 15%, respectively, compared to the same periods in 2021.

These increases were primarily due to growth in bank deposits and payables to brokerage clients, which resulted from net new client asset inflows as well as transfers of BDA balances to our balance sheet in the third quarter of 2021 and the first nine months of 2022.

These year-over-year increases were partially offset by client cash allocation decisions in response to higher short-term market interest rates in the second and third quarters of 2022, as clients moved certain cash balances out of bank deposits and payables to brokerage clients.

Net interest margin increased to 1.97% and 1.65% during the third quarter and first nine months of 2022, respectively, from 1.45% and 1.46% during the same periods in 2021.

These increases were primarily driven by improved yields on substantially all interest-earning assets as a result of higher market interest rates partially offset by higher rates paid on our funding sources driven primarily by bank deposits, payables to brokerage clients, and recent debt issuances and floating-rate long-term debt balances.

(2) Beginning in the first quarter of 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings.

Prior period amounts have been reclassified to reflect this change.

(3) Average balance and interest expense was less than $500 thousand in the prior period.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Net interest revenue increased $587 million, or 27%, in the first quarter of 2023 compared to the same period in 2022.

This increase was due primarily to higher average yields on interest-earning assets as a result of higher market interest rates.

With the increases in market interest rates, net premium amortization of investment securities decreased to $185 million in the first quarter of 2023 from $486 million in the first quarter of 2022.

These benefits were partially offset by higher rates paid on funding sources, increased usage of FHLB borrowings, other short-term borrowings, and brokered CDs to support client cash allocations in the rising rate environment, and lower balances of interest-earning assets.

Average interest-earning assets for the first quarter of 2023 were lower by 20% compared to the same period in 2022.

This decrease was primarily due to lower bank deposits and payables to brokerage clients as a result of changes in client cash allocations due to higher market interest rates.

Net interest margin increased to 2.19% during the first quarter of 2023 from 1.38% during the same period in 2022.

Higher market interest rates improved yields on interest-earning assets, which more than offset the higher rates paid across interest-bearing funding sources.

The Company’s higher average balances in the first quarter of 2023 of FHLB borrowings, other short-term borrowings, and brokered CDs resulted in higher funding costs.

The Company expects to continue using these temporary funding sources to support clients’ cash allocation movement, with balances of supplemental funding sources expected to peak in 2023 and then decrease in 2024, with a limited portion remaining outstanding in early 2025.

The usage of these higher-cost funding sources is expected to reduce net interest revenue in coming quarters.

See also Risk Management – Liquidity Risk, Item 1 – Note 7 Bank Deposits, and Item 1 – Note 8 Borrowings for additional information on these and other funding sources.

Asset Management and Administration Fees

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

Three Months Ended September 30, 2022 2021

Three Months Ended March 31, 2023 2022

Assets Revenue Average

4 unchanged sentences

Schwab equity and bond funds, ETFs, and CTFs 450,581 91 0.08 % 456,326 97 0.09 %

Mutual Fund OneSource ® and other non-transaction fee funds

Mutual Fund OneSource ® and other no-transaction-fee (NTF) funds (1)

222,437 148 0.27 % 212,641 165 0.31 %

Other third-party mutual funds and ETFs (1)

Total mutual funds, ETFs, and CTFs (1)

676,344 133 0.08 % 872,212 179 0.08 %

Advice solutions (1)

Fee-based $ 431,276 452 0.42 % $ 463,827 511 0.44 %

Non-fee-based 85,567 — — 90,649 — —

Total advice solutions $ 516,843 452 0.35 % $ 554,476 511 0.37 %

Other balance-based fees (2)

537,809 58 0.04 % 632,806 68 0.04 %

Total asset management and administration fees $ 1,047 $ 1,101

Nine Months Ended September 30, 2022 2021

Assets Revenue Average

Schwab money market funds before fee waivers $ 158,525 $ 340 0.29 % $ 158,749 $ 348 0.29 %

Fee waivers (57) (246)

Schwab money market funds $ 158,525 283 0.24 % $ 158,749 102 0.09 %

Schwab equity and bond funds, ETFs, and CTFs 436,928 278 0.09 % 411,312 279 0.09 %

Mutual Fund OneSource ® and other non-transaction fee funds

196,032 453 0.31 % 228,643 540 0.32 %

Other third-party mutual funds and ETFs 805,204 510 0.08 % 888,003 533 0.08 %

Total mutual funds, ETFs, and CTFs (2)

7 unchanged sentences

Total asset management and administration fees $ 1,118 $ 1,068

(1) The first quarter of 2022 includes transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and other NTF funds.

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

1 unchanged sentence

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

Asset management and administration fees declined by $54 million, or 5%, in the third quarter of 2022 and were essentially flat in the first nine months of 2022, compared to the same periods in 2021.

The decrease in the third quarter of 2022 was a result of lower balances in Mutual Fund OneSource ® and other third-party mutual funds, as well as advice solutions, relative to the same period in 2021.

Balances declined primarily due to equity market weakness during the first nine months of 2022, which negatively impacted client asset valuations.

These decreases were partially offset during the third quarter, and fully offset in the year-to-date period, by lower money market fund fee waivers, which were eliminated during the second quarter of 2022 as a result of the Federal Reserve’s increases to the federal funds target overnight rate.

Asset management and administration fees increased by $50 million, or 5%, in the first quarter of 2023 compared to the same period in 2022.

The increase in the first quarter of 2023 was primarily a result of higher balances in Schwab money market funds and the elimination of fee waivers on those funds .

Money market fund balances increased as clients shifted their cash allocations to higher yielding investment solutions, and money market fund fee waivers were eliminated during 2022 as a result of the Federal Reserve’s increases to the federal funds target overnight rate.

These increases were partially offset by lower balances in other third-party mutual funds and advice solutions, primarily due to equity market weakness, which negatively impacted client asset valuations since the first quarter of 2022.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

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 34% and 32% of the asset management and administration fees earned in the third quarter and first nine months of 2022, respectively, compared with 29% of the asset management and administration fees earned in both the third quarter and first nine months of 2021:

Market Funds Schwab Equity and

Bond Funds, ETFs, and CTFs Mutual Fund OneSource ®

and Other NTF funds

Three Months Ended September 30, 2022 2021 2022 2021 2022 2021

Balance at beginning of period $ 159,231 $ 151,943 $ 387,211 $ 411,091 $ 196,578 $ 240,181

Net inflows (outflows) 51,111 (4,203) 10,805 11,067 (9,600) (3,347)

Net market gains (losses) and other 737 8 (24,272) (3,187) (5,480) (2,085)

Balance at end of period $ 211,079 $ 147,748 $ 373,744 $ 418,971 $ 181,498 $ 234,749

The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource ® and other NTF funds.

These funds generated 40% and 29% of the asset management and administration fees earned in the first quarter of 2023 and 2022, respectively:

Market Funds Schwab Equity and

1 unchanged sentence

and Other NTF funds

Nine Months Ended September 30, 2022 2021 2022 2021 2022 2021

Three Months Ended March 31, 2023 2022 2023 2022 2023 2022

Balance at beginning of period $ 278,926 $ 146,509 $ 412,942 $ 454,864 $ 235,738 $ 234,940

1 unchanged sentence

Net market gains (losses) and other (1)

3,860 16 20,433 (20,048) 13,153 9,081

Balance at end of period $ 357,822 $ 143,105 $ 443,719 $ 444,277 $ 244,262 $ 235,465

(1) Includes $14.2 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and Other NTF Funds in 2022.

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.

Commission revenue is affected by volume and mix of trades executed.

Order flow revenue is comprised of payments received from trade execution venues to which our broker-dealer subsidiaries send equity and option orders.

Order flow revenue is affected by volume and mix of client trades, as well as pricing received from trade execution venues.

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 following table presents trading revenue and related information:

Principal transactions revenue also includes unrealized gains and losses on cash and investments segregated for regulatory purposes.

The following tables present trading revenue, trade details, and related information:

Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2022 2021 2022 2021

Trading revenue $ 930 $ 964 (4) % $ 2,778 $ 3,135 (11) %

DATs (in thousands) 5,523 5,549 — 6,103 6,644 (8) %

March 31, Percent

Commissions $ 422 $ 484 (13) %

Order flow revenue

Options 281 317 (11) %

Equities 133 153 (13) %

Total order flow revenue 414 470 (12) %

Principal transactions 56 9 N/M

Total trading revenue $ 892 $ 963 (7) %

N/M Not meaningful.

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

Three Months Ended

March 31, Percent

Clients' daily average trades (DATs) (in thousands) 5,895 6,578 (10) %

Product as a percentage of DATs

Equities 49 % 52 %

Derivatives 23 % 23 %

ETFs 21 % 19 %

Mutual funds 5 % 5 %

Fixed Income 2 % 1 %

Number of trading days 62.0 62.0 —

2 unchanged sentences

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

Trading revenue decreased $34 million and $357 million in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decrease in the third quarter of 2022 compared to the third quarter of 2021 was primarily due to changes in the mix of client trading activity toward more ETFs and fewer single stocks, and toward more index options and futures and fewer single stock options, resulting in lower commissions and order flow revenue, which decreased 7% and 10%, respectively, from the third quarter of 2021.

The decrease in the first nine months of 2022 compared to the same period in 2021 was 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, as well as changes in the mix of client trading activity.

These factors drove lower commissions and order flow revenue, which each decreased 13% from the first nine months of 2021.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Trading revenue decreased $71 million in the first quarter of 2023 compared to the same period in 2022, primarily due to a decrease in commissions revenue resulting from lower client trading activity as well as changes in the mix of activity toward more ETFs and fewer single stocks.

Additionally, order flow revenue decreased due to a shift in the mix of client trading activity toward more lower-dollar equity trades and index options and futures and fewer single stocks.

Partially offsetting these decreases, principal transactions revenue increased as a result of higher volume in fixed income trading and higher market interest rates.

Bank Deposit Account Fees

The Company earns bank deposit account fee revenue pursuant to the 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:

The Company earns bank deposit account fee revenue from the TD Depository Institutions.

These fees are affected by changes in interest rates and the composition of balances designated as fixed- and floating-rate obligation amounts.

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

Three Months Ended

September 30, Percent Change Nine Months Ended

September 30, Percent Change

2022 2021 2022 2021

March 31, Percent Change

Bank deposit account fees $ 151 $ 294 (49) %

4 unchanged sentences

Floating-rate balances 8 % 23 %

Bank deposit account fees increased $90 million, or 28%, and $48 million, or 5%, in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

These increases were primarily due to higher market interest rates, which helped to increase the average net yield in the third quarter and first nine months of 2022.

The Company transferred $20.1 billion and $10.5 billion of BDA balances to its balance sheet during the first nine months of 2022 and 2021, respectively.

The transfer of these balances to our balance sheet, as well as client cash allocation decisions in response to higher short-term market interest rates in the second and third quarters of 2022, led to the decrease in average BDA balances in the first nine months of 2022 compared with the first nine months 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.

In January 2023, the Company ended its arrangements with other third-party banks to simplify bank sweep operations ahead of the first TD Ameritrade client transition group in February 2023.

In addition, the FDIC implemented a 2-basis-point increase to the initial base deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023.

This increase in the FDIC’s deposit insurance assessment results in a decrease to bank deposit account fee revenue, dependent on BDA balance levels.

Bank deposit account fees decreased $143 million, or 49%, in the first quarter of 2023 compared to the same period in 2022, primarily due to breakage fees of $97 million incurred as a result of ending the other third-party bank arrangements, the decrease in average floating-rate BDA balances, and an increase in the amount paid to clients due to higher interest rates.

These factors contributed to the decrease in average net yield in the first quarter of 2023 compared to the same period in 2022.

The decrease in average BDA balances in the first quarter of 2023 compared with the first quarter of 2022 was primarily due to client cash allocation decisions in response to rising short-term market interest rates throughout 2022 and into the first quarter of 2023.

The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of March 31, 2023 were 98% and 2%, respectively.

See also Capital Management and Item 1 – Note 9 for discussion of the IDA agreements 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 increased $32 million in the third quarter of 2022 compared to the same period in 2021, primarily due to higher exchange processing fees, partially offset by a higher provision for credit losses on bank loans and losses on sales of AFS securities.

Exchange processing fees increased as a result of an SEC fee rate increase which became effective in the second quarter of 2022, and the provision for credit losses on bank loans increased as a result of higher loan loss factors driven primarily by higher forecasted interest rates and growth of the loan portfolio.

Other revenue decreased $6 million in the first nine months of 2022 compared to the same period in 2021, primarily due to the higher provision for credit losses, certain lower service fees due to lower trading volume, and lower net gains on sales of AFS securities, partially offset by higher exchange processing fees.

In addition, other revenue in the first nine months of 2022 included a gain of $46 million on the sale of Schwab Compliance Technologies, Inc.

and certain investments.

Other revenue includes exchange processing fees, certain service fees, other gains and losses from the sale of assets, and the provision for credit losses on bank loans.

Other revenue increased $21 million in the first quarter of 2023 compared to the same period in 2022, primarily due to higher exchange processing fees and lower provision for credit losses on bank loans.

Exchange processing fees increased as a result of higher average SEC fee rates.

The provision for credit losses on bank loans was lower in the first quarter of 2023 compared with the first quarter of 2022, as during the first quarter of 2023, loan loss factors and the total balance of first lien residential real estate mortgage loans (First Mortgages) remained consistent with year-end 2022.

The Company’s provision for credit losses on bank loans in the first quarter of 2022 reflected increased loan loss factors driven primarily by higher forecasted interest rates at the start of the Federal Reserve’s monetary tightening, as well as growth in the loan portfolio.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Effective February 27, 2023, the SEC decreased its exchange processing fee rates by approximately 65% from the rate in effect since May 2022.

This change will result in lower exchange processing fees per security transaction in other revenue and a corresponding decrease in other expense for the remainder of the year, resulting in no impact to net income.

Total Expenses Excluding Interest

1 unchanged sentence

Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2022 2021 2022 2021

March 31, Percent

Compensation and benefits

18 unchanged sentences

Average 35.6 33.9 5 %

Expenses excluding interest increased by $264 million and $353 million in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased 12% and 6% in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Expenses excluding interest increased by $173 million or 6% in the first quarter of 2023, compared to the same period in 2022.

Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased 7% in the first quarter of 2023, compared to the same period in 2022.

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 2022 compared to the same periods 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 included acquisition and integration-related costs of $57 million and $58 million in the third quarter of 2022 and 2021, respectively, and $166 million and $227 million in the first nine months of 2022 and 2021, respectively.

Professional services expense increased in the third quarter and first nine months of 2022 compared to the same periods 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 $36 million and $35 million in the third quarter of 2022 and 2021, respectively, and $102 million and $99 million in the first nine months of 2022 and 2021, respectively.

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

Occupancy and equipment included acquisition and integration-related costs of $6 million and $7 million in the third quarter of 2022 and 2021, respectively, and $14 million and $30 million in the first nine months of 2022 and 2021, respectively.

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

Total compensation and benefits increased in the first quarter of 2023 compared to the same period in 2022, primarily due to growth in employee headcount to support our expanding client base and TDA client account transitions, as well as annual merit increases.

These increases were partially offset by lower incentive compensation.

Compensation and benefits included acquisition and integration-related costs of $58 million and $56 million in the first quarter of 2023 and 2022, respectively.

Professional services expense increased in the first quarter of 2023 compared to the same period in 2022, 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 TDA integration and client account transitions.

Professional services included acquisition and integration-related costs of $33 million and $31 million in the first quarter of 2023 and 2022, respectively.

Occupancy and equipment expense increased in the first quarter of 2023 compared to the same period in 2022, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade.

Occupancy and equipment included acquisition and integration-related costs of $4 million in both the first quarter of 2023 and 2022.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Communications expense decreased in the third quarter and first nine months of 2022 compared to the same periods in 2021, primarily due to lower client trading activity.

Depreciation and amortization expense increased in the third quarter and first nine months of 2022 compared to the same periods 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 third quarter and first nine months of 2022 to support the TDA integration and enhance our technological infrastructure to support growth of the business.

Regulatory fees and assessments in the third quarter of 2022 were largely consistent with the third quarter of 2021, and decreased in the first nine months of the year from the first nine months of 2021.

The year-to-date decrease in 2022 primarily resulted from 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 increased in the third quarter of 2022 while decreasing in the first nine months of 2022 compared to the same periods in 2021.

The increase in the third quarter of 2022 was primarily due to higher exchange processing fees as a result of fee rate increases beginning in the second quarter of 2022, while the decrease in the first nine months of 2022 was primarily due to the recognition in the second quarter of 2021 of approximately $200 million for a now-settled regulatory matter (see Item 1 – Note 9).

Capital expenditures were $193 million and $176 million in the third quarter of 2022 and 2021, respectively, and $741 million and $610 million for the first nine months of 2022 and 2021, respectively.

The increases in capital expenditures from the prior year were primarily related to continued work on the TDA integration and enhancement of our technological infrastructure to support greater capacity for our expanding client base.

Advertising and market development expense decreased in the first quarter of 2023 compared to the same period in 2022, primarily due to lower media advertising spending as well as decreases in spending for marketing communications for TD Ameritrade.

Depreciation and amortization expense increased in the first quarter of 2023 compared to the same period in 2022, primarily as a result of higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2022 and the first quarter of 2023 to support the TDA integration and enhance our technological infrastructure to support growth of the business.

Amortization of acquired intangible assets decreased in the first quarter of 2023 compared to the same period in 2022, as certain assets from the TDA acquisition were fully amortized by the beginning of the fourth quarter of 2022.

Regulatory fees and assessments increased in the first quarter of 2023 compared to the same period in 2022, primarily as a result of a 2-basis-point increase to the FDIC deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023, and other regulatory assessments due to growth in employee headcount and overall growth of the business.

Other expense increased in the first quarter of 2023 compared to the same period in 2022, primarily as a result of higher exchange processing fees, partially offset by lower other clearing charges.

Exchange processing fees increased due to higher SEC fee rates in effect during the first quarter of 2023 compared to those in effect during the first quarter of 2022.

Effective February 27, 2023, the SEC decreased its exchange processing fee rates by approximately 65% from the rate in effect since May 2022.

This change will result in lower exchange processing fees per security transaction in other expense and a corresponding decrease in other revenue for the remainder of the year, resulting in no impact to net income.

Capital expenditures were $187 million and $209 million in the first quarter of 2023 and 2022, respectively.

Capital expenditures decreased when compared to heightened integration-related spend in 2022 in preparation for TDA client account transitions.

These decreases were partially offset by higher purchased software to enhance our technological infrastructure to support greater capacity for our expanding client base.

We continue to anticipate capital expenditures for full-year 2023 will be approximately 3-4% of total net revenues.

Taxes on Income

Taxes on income were $657 million and $485 million for the third quarters of 2022 and 2021, respectively, resulting in effective income tax rates on income before taxes of 24.5% and 24.1%, respectively.

Taxes on income were $1.6 billion and $1.4 billion for the first nine months of 2022 and 2021, respectively, resulting in effective income tax rates on income before taxes of 23.2% and 24.9%, respectively.

The increase in the effective tax rate in the third quarter of 2022 compared to the same period in 2021 was primarily related to increased 2022 state tax expense.

The decrease in the effective tax rate in the first nine months of 2022 compared to the same period in 2021 was primarily related to the reversal of tax reserves in 2022 due to the resolution of certain state matters and tax benefits recognized on the portion of the regulatory matter charge that was determined upon settlement to be deductible.

Taxes on income were $507 million and $437 million for the first quarters of 2023 and 2022, respectively, resulting in effective income tax rates on income before taxes of 24.0% and 23.8%, respectively.

The increase in the effective tax rate in the first quarter of 2023 compared to the same period in 2022 was primarily related to increased state tax expense and a decrease in equity compensation deduction benefits in 2023.

Partially offsetting the increases in the effective tax rate from these items was the reversal of tax reserves due to the resolution of certain state tax matters during the first quarter of 2023.

Segment Information

1 unchanged sentence

Investor Services Advisor Services Total

Three Months Ended September 30, Percent Change 2022 2021 Percent Change 2022 2021 Percent Change 2022 2021

Three Months Ended March 31, Percent Change 2023 2022 Percent Change 2023 2022 Percent Change 2023 2022

Net interest revenue 29 % $ 2,033 $ 1,574 21 % $ 737 $ 609 27 % $ 2,770 $ 2,183

7 unchanged sentences

Net New Client Assets (in billions) (1)

45 % $ 79.4 $ 54.6 8 % $ 71.3 $ 65.9 25 % $ 150.7 $ 120.5

(1) In the first quarter of 2023, Investor Services includes inflows of $19.0 billion from off-platform CDs issued by CSB.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Investor Services Advisor Services Total

Nine Months Ended September 30, Percent Change 2022 2021 Percent Change 2022 2021 Percent Change 2022 2021

Net interest revenue 24 % $ 5,551 $ 4,462 47 % $ 2,102 $ 1,426 30 % $ 7,653 $ 5,888

Asset management and administration fees (1) % 2,299 2,316 2 % 868 848 — 3,167 3,164

Trading revenue (15) % 2,407 2,831 22 % 371 304 (11) % 2,778 3,135

Bank deposit account fees (7) % 690 742 37 % 369 269 5 % 1,059 1,011

Other 1 % 465 462 (6) % 143 152 (1) % 608 614

Total net revenues 6 % 11,412 10,813 28 % 3,853 2,999 11 % 15,265 13,812

Expenses Excluding Interest 2 % 6,359 6,253 13 % 2,116 1,869 4 % 8,475 8,122

Income before taxes on income 11 % $ 5,053 $ 4,560 54 % $ 1,737 $ 1,130 19 % $ 6,790 $ 5,690

Net New Client Assets (in billions) (1)

(29) % $ 118.5 $ 167.5 (25) % $ 160.0 $ 214.1 (27) % $ 278.5 $ 381.6

(1) In the first nine months of 2022, Investor Services includes an outflow of $20.8 billion from a mutual fund clearing services client.

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

Segment Net Revenues

Investor Services total net revenues increased by 15% and 6% in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021, while Advisor Services total net revenues increased by 38% and 28% in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Investor Services growth was primarily driven by increases in net interest revenue as described above, partially offset by decreases in trading revenue due to changes in the mix of client trading activity, resulting in lower commissions and order flow revenue.

Advisor Services growth was primarily driven by increases in net interest revenue as described above, as well as increases in trading revenue primarily due to market volatility and bank deposit account fees primarily due to a rising interest rate environment.

Asset management and administration fees were essentially flat for Advisor Services for both periods, while declining slightly for Investor Services as equity market weakness during the first nine months of 2022 weighed on client asset valuations, partially offset by the elimination of money market fund fee waivers.

Other revenues increased for Investor Services in the third quarter of 2022 from the same period in 2021 due to higher exchange processing fees, partially offset by an increased provision for credit losses on bank loans and losses on sales of AFS securities.

Investor Services and Advisor Services total net revenues increased by 10% and 9%, respectively, in the first quarter of 2023 compared to the same quarter in 2022.

Investor Services and Advisor Services growth was primarily driven by increases in net interest revenue as described above.

Asset management and administration fees increased for both segments, primarily as a result of higher money market fund balances and the elimination of money market fund fee waivers since the first quarter of 2022.

Other revenue increased for Investor Services due to higher exchange processing fees and a lower provision for credit losses on bank loans.

Both segments saw a decrease in bank deposit account fees in the first quarter of 2023 due to several factors including breakage fees incurred as a result of ending certain third-party bank arrangements, lower average BDA balances, and higher yields paid to clients.

Trading revenue also decreased for both segments due primarily to lower client trading activity and changes in client trading mix, resulting in lower commissions and order flow revenue.

Segment Expenses Excluding Interest

Investor Services total expenses excluding interest increased by 8% and 2% in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021, while Advisor Services total expenses excluding interest increased by 17% and 13% in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Both segments saw higher compensation and benefits expenses due to 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.

Investor Services total expenses excluding interest increased by 5% in the first quarter of 2023 compared to the same quarter in 2022, while Advisor Services total expenses excluding interest increased by 10% in the first quarter of 2023 compared to the same quarter in 2022.

Both segments saw higher compensation and benefits expenses due to increases in headcount to support our expanding client base and TDA client account transitions, and annual merit increases, partially offset by lower incentive compensation.

Occupancy and equipment expenses increased in both segments, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade.

In addition, depreciation and amortization increased for both segments primarily due to higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2021 and the first nine months of 2022 to enhance our technological infrastructure to support growth of the business.

For Investor Services, these increases in the first nine months of 2022 compared to the same period in 2021 were partially offset by lower other expenses due to a charge of approximately $200 million in the second quarter of 2021 for a now-settled regulatory matter (see Item 1 – Note 9).

In addition, increases in both segments were partially offset by decreases in advertising and market development expense due to reduced spending for marketing communications for TD Ameritrade.

Depreciation and amortization increased for both segments primarily due to higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2022 and the first quarter of 2023 to enhance our technological infrastructure to support growth of the business.

Regulatory fees and assessments increased in both segments in the first quarter of 2023 compared to the same quarter in 2022, primarily due to the FDIC deposit insurance assessment rate increase described above.

Both segments also saw higher other expenses, primarily as a result of increased exchange processing fees.

These increases were partially offset by lower amortization of acquired intangible assets as certain assets from the TDA acquisition became fully amortized in 2022.

RISK MANAGEMENT

1 unchanged sentence

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 ongoing 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,

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)

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 Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2022 Form 10-K.

Market risk is the potential for changes in earnings or the value of financial instruments held by Schwab as a result of fluctuations in interest rates, equity prices, or market conditions.

Schwab is exposed to market risk primarily from changes in interest rates within our interest-earning assets relative to changes in the costs of funding sources that finance these assets.

To manage interest rate risk, we have established policies and procedures, which include setting limits on net interest revenue risk and economic value of equity (EVE) risk.

To remain within these limits, we manage the maturity, repricing, and cash flow characteristics of the investment portfolios.

Management monitors established guidelines to stay within the Company’s risk appetite.

In 2023, the Company began to utilize interest rate swap derivative instruments to assist with managing interest rate risk.

For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 1 – Note 11.

Interest Rate Risk Simulations

2 unchanged sentences

The simulations include all balance sheet interest rate-sensitive assets and liabilities.

Key assumptions include the projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans.

Key assumptions include the projection of interest rate scenarios with rate floors, rates and balances of non-maturity

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)

client cash held on the balance sheet, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans.

Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may reprice at different times or by different amounts, and the spread between short- and long-term interest rates.

2 unchanged sentences

Because we establish the rates paid on certain brokerage client cash balances and bank deposits and the rates charged on certain margin and bank loans, and control the composition of our investment securities, we have some ability to manage our net interest spread, depending on competitive factors and market conditions.

When we have liquidity needs that exceed our primary sources of funding, the Company has needed to utilize higher cost funding sources, which can reduce net interest margin and net interest revenue.

Net interest revenue sensitivity analysis assumes the asset and liability structure of the consolidated balance sheet would not be changed as a result of the simulated changes in interest rates.

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, 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:

September 30, 2022 December 31, 2021

While this approach is useful to isolate the impact of changes in interest rates on a statically-sized asset and liability structure, it does not capture changes to client cash allocations.

We conduct simulations on EVE to capture the impact of client cash allocation changes on our balance sheet.

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

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

If the cost of funding sources is greater than the increased revenue from repricing assets, however, net interest margin can be reduced.

A decline in short-term interest rates could negatively impact the yield on the Company’s investment and loan portfolios to a greater degree than any offsetting reduction in interest expense from funding sources, compressing net interest margin.

The following table shows simulated changes to net interest revenue over the next 12 months beginning March 31, 2023 and December 31, 2022 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

March 31, 2023 December 31, 2022

Increase of 200 basis points 9.7 % 7.3 %

Increase of 100 basis points 5.0 % 3.6 %

Increase of 50 basis points 2.5 % 1.7 %

Decrease of 50 basis points (2.7) % (1.5) %

The Company’s simulated increase of 100 basis points in market interest rates had a lower impact on net interest revenue as of September 30, 2022 compared to December 31, 2021 primarily due to increased sensitivity to the Company’s higher projected client deposit rates and decreased sensitivity to the Company’s mortgage-backed investment securities.

A simulated decrease of 100 basis points in market interest rates had a slightly larger impact on net interest revenue as of September 30, 2022 compared to December 31, 2021 primarily due to increased sensitivity from a higher allocation to cash and short-term investments.

This increased sensitivity was partially offset by higher starting client deposit rates which, relative to the December 31, 2021 simulation, provide greater responsiveness to lower simulated interest rates.

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.

A decline in interest rates could negatively impact the yield on the Company’s investment and loan portfolio to a greater degree than any offsetting reduction in interest expense from funding sources, compressing net interest margin.

In addition to measuring the effect of a gradual 100 basis point parallel increase or decrease in current interest rates, we regularly simulate the effects of larger parallel- and non-parallel shifts in interest rates on net interest revenue.

Decrease of 100 basis points (4.4) % (3.2) %

Decrease of 200 basis points (7.9) % (6.7) %

The Company’s simulated incremental increases in market interest rates had a larger impact on net interest revenue as of March 31, 2023 compared to December 31, 2022 primarily due to higher cash balances, which was partially offset by an increased allocation to FHLB borrowings and other short-term borrowings across the Company’s banking subsidiaries.

Simulated incremental decreases in market interest rates had a larger impact on net interest revenue as of March 31, 2023 compared to December 31, 2022 primarily due to higher cash balances, while increased allocation to shorter-term liabilities contributed to lower interest expense in a lower rate environment.

In addition to measuring the effect of gradual parallel increases or decreases in current interest rates, we regularly simulate the effects of non-parallel shifts and instantaneous shifts of interest rates on net interest revenue.

Bank Deposit Account Fees Simulation

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 March 31, 2023 and December 31, 2022, simulated changes in bank deposit account fee revenue from gradual changes in market interest rates relative to prevailing market rates, under the interest rate scenarios described above for net interest revenue, did not have a significant impact on the Company’s total net revenues.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Bank Deposit Account Fees Simulation

As of September 30, 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

Management also uses economic value of equity (EVE) simulations to measure interest rate risk.

Management also uses EVE simulations to measure interest rate risk.

EVE sensitivity measures the long-term impact of interest rate changes on the net present value of assets and liabilities.

1 unchanged sentence

This analysis is highly dependent upon asset and liability assumptions based on historical behaviors as well as our expectations of the economic environment.

Key assumptions in our EVE calculation include projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, term structure models of interest rates, non-maturity deposit behavior, and pricing assumptions.

Key assumptions in our EVE calculation include projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, term structure models of interest rates, behavior of non-maturity client cash held on the balance sheet, and pricing assumptions.

Our net interest revenue, bank deposit account fee revenue, and EVE simulations reflect the assumption of non-negative investment yields.

Effective Duration

Effective duration measures price sensitivity relative to a change in prevailing interest rates, taking account of amortizing cash flows and prepayment optionality for mortgage-related securities and loans.

Duration is measured in years and commonly interpreted as the average timing of principal and interest cash flows.

We seek to manage the Company’s asset duration in relation to management’s estimate of the Company’s liability duration.

The Company’s liability duration is impacted by the composition of funding sources, and typically decreases in periods of rising market interest rates and increases in periods of declining market interest rates.

The estimated effective duration for the Company’s total AFS and held to maturity (HTM) investment securities portfolio was approximately 4.0 years and 4.6 years as of March 31, 2023 and 2022, respectively.

AFS and HTM securities comprised approximately 58% and 55% of the Company’s consolidated total assets as of March 31, 2023 and 2022, respectively.

The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both March 31, 2023 and 2022.

The Company’s estimated effective duration of consolidated total assets was approximately 2.6 years at March 31, 2023 and approximately 2.7 years at March 31, 2022.

Phase-out of LIBOR

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 2022 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.

On July 19, 2022, the Federal Reserve Board released a proposal that provides default rules for certain contracts that use LIBOR, which would implement the LIBOR Act with replacement rates based on the Secured Overnight Financing Rate (SOFR).

The Company believes the LIBOR Act and the Federal Reserve Board’s proposed regulation help 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.

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.

Due to its role as a source of financial strength, CSC’s liquidity needs are primarily driven by the liquidity and capital needs of:

CS&Co, TD Ameritrade, Inc., and TDAC, our principal broker-dealer subsidiaries;

the capital needs of the banking subsidiaries;

principal and interest due on corporate debt;

dividend payments on CSC’s preferred stock;

and returns of capital to common stockholders.

The liquidity needs of our broker-dealer subsidiaries are primarily driven by client activity including trading and margin lending activities and capital expenditures.

The capital needs of the banking subsidiaries are primarily driven by client deposit levels and other borrowings.

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.

We seek to maintain client confidence in the balance sheet and the safety of client assets by maintaining liquidity and diversity of funding sources to allow the Company to meet its obligations.

To this end, we have established limits and contingency funding plans to support liquidity levels during both business as usual and stressed conditions.

We employ a variety of metrics to monitor and manage liquidity.

We conduct regular liquidity stress testing to develop a view of liquidity risk exposures and to ensure our ability to maintain sufficient liquidity during market-related or company-specific liquidity stress events.

Liquidity sources are also tested periodically and results are reported to the Financial Risk Oversight Committee.

A number of early warning indicators are monitored to help identify emerging liquidity stresses in the market or within the organization and are reviewed with management periodically.

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)

Funding Sources

1 unchanged sentence

These funds are used to purchase investment securities and extend loans to clients.

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, repurchase agreements, and cash provided by external financing.

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, FHLB borrowings, issuance of CDs, cash provided by securities issuances by CSC in the capital markets, and other facilities described below.

To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments.

1 unchanged sentence

Treasury securities.

Our clients’ bank deposits and cash balances in brokerage accounts primarily originate from our 34.1 million active brokerage accounts.

More than 80% of our bank deposits qualified for FDIC insurance as of March 31, 2023.

Our clients’ allocation of cash held on our balance sheet is sensitive to interest rate levels, with clients typically increasing their utilization of investment cash solutions such as purchased money market funds and certain fixed income products when those yields are higher than those of cash sweep features.

Schwab’s need for borrowings from external debt facilities arises primarily from timing differences between cash flow requirements, including in the event the outflow of client cash from the balance sheet is greater than cash flows from operations and investment securities and bank loans;

payments on interest-earning investments;

movements of cash to meet regulatory brokerage client cash segregation requirements;

and general corporate purposes.

We maintain policies and procedures necessary to access funding, and test borrowing procedures on a periodic basis.

Rollover risk is the risk that we will not be able to refinance or payoff borrowings as they mature.

We manage rollover risk on borrowings, taking into account expected principal paydowns on our investment and loan portfolios along with expected deposit flows.

The following table describes external debt facilities available at March 31, 2023:

Description Borrower Outstanding Available Maturity of Amounts Outstanding Weighted-Average Interest Rate on Amounts Outstanding

FHLB secured credit facilities Banking subsidiaries $ 45,600 $ 35,501 (1)

April 2023 - August 2024 5.16%

Federal Reserve discount window Banking subsidiaries — 9,398 (1)

Federal Reserve Bank Term Funding Program Banking subsidiaries — 42,655 (1)

Repurchase agreements Banking subsidiaries 6,822 — (2)

August 2023 - January 2024 5.00%

Uncommitted, unsecured lines of credit with

various external banks CSC, CS&Co — 1,607 N/A —

Unsecured commercial paper CSC 250 4,750 April 2023 4.74%

Secured uncommitted lines of credit with various

external banks TDAC — — (3)

(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of March 31, 2023.

Incremental borrowing capacity may be made available by pledging additional assets, subject to applicable facility terms.

See below and Note 8 for additional information.

(2) Secured borrowing capacity is made available based on the banking subsidiaries’ ability to provide collateral deemed acceptable by each respective counterparty.

See Note 12 for additional information.

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

N/A Not applicable.

Available borrowing capacity from the FHLB and Federal Reserve facilities maintained by our banking subsidiaries is dependent on the value of assets pledged and the terms of the borrowing arrangements.

As of March 31, 2023, the Company had additional investment securities with a par value of approximately $188 billion or a fair value of approximately $173 billion available to be pledged to obtain additional capacity.

These securities could be used to provide additional borrowing capacity of up to $188 billion, dependent on the facility utilized.

Additional details regarding availability and use of these facilities is described below.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

(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, 2022:

Description Borrower Outstanding Available

Federal Home Loan Bank (FHLB) secured credit facilities (1)

Banking subsidiaries $ — $ 82,561

Federal Reserve discount window Banking subsidiaries — 8,823

Uncommitted, unsecured lines of credit with various external banks CSC, CS&Co — 1,532

Unsecured commercial paper CSC 500 4,500

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

(1) CSC’s banking subsidiaries must each maintain positive tangible capital, as defined by the FHLB, in order to draw upon these credit facilities.

Tangible capital pursuant to the FHLB’s requirements for our banking subsidiaries is common equity less goodwill and intangible assets.

(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.

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

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, 2022 and December 31, 2021.

Amounts available under secured credit facilities with the FHLB are dependent on the value of our First Mortgages, home equity lines of credit (HELOCs), and the fair value of certain of our investment securities that are pledged as collateral.

These credit facilities are also available as backup financing in the event the outflow of client cash from the banking subsidiaries’ respective balance sheets is greater than maturities and paydowns on investment securities and bank loans.

CSC’s banking subsidiaries must each maintain positive tangible capital, as defined by the Federal Housing Finance Agency, in order to place new draws upon these credit facilities, and the Company manages capital with consideration of minimum tangible capital ratios at our banking subsidiaries.

Tangible capital pursuant to the requirements of the FHLB borrowing facilities for our banking subsidiaries is common equity less goodwill and intangible assets.

Our banking subsidiaries also have access to short-term secured funding through the Federal Reserve discount window.

Amounts available under the Federal Reserve discount window are dependent on the fair value of certain investment securities that are pledged as collateral.

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

Our banking subsidiaries are also counterparties to the standing repo facility with the Federal Reserve Bank of New York.

On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program, offering loans of up to one year in length to eligible financial institutions with U.S.

Treasury securities, agency debt, mortgage-backed securities, and other qualifying assets pledged as collateral.

Borrowing capacity available under this program is dependent upon the par value of the investment securities that are pledged as collateral.

The Company is eligible to obtain advances under this program.

This facility was not used during the first quarter of 2023.

CSC’s ratings for Commercial Paper Notes were 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 March 31, 2023 and December 31, 2022.

Subsequent to March 31, 2023, Standard & Poor’s downgraded its rating from A1 to A2 for CSC’s Commercial Paper Notes and affirmed its outlook remained stable.

Also subsequent to March 31, 2023, Moody’s affirmed its rating of P1 for CSC and changed its outlook from positive to stable.

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

As a result of rapidly increasing short-term interest rates in the second and third quarters of 2022, the Company saw an increase in the pace at which clients moved certain cash balances out of our sweep features and into higher yielding alternatives.

As these outflows have continued, they have outpaced excess cash on hand and cash generated by maturities and paydowns on our investment and loan portfolios.

In October 2022, our banking subsidiaries began to draw upon the FHLB secured credit facilities to provide temporary supplemental funding.

As of October 31, 2022, $9.0 billion was outstanding under these facilities, including both fixed- and floating-rate advances.

The current average interest rate on these advances was 4.25%, with the earliest maturity occurring in June 2023.

The Company expects to use temporary supplemental funding, including FHLB advances, until the Company’s primary sources of liquidity are again greater than any outflows associated with client cash allocation decisions.

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.

CS&Co maintains uncommitted, unsecured bank credit lines with a group of banks as a source of short-term liquidity, which can also be accessed by CSC.

TDAC maintains secured uncommitted lines of credit, under which TDAC borrows on either a demand or short-term basis and pledges client margin securities as collateral.

In the fourth quarter of 2022 and first quarter of 2023, CSB issued brokered CDs as a supplemental funding source.

The following table provides information about CDs issued by CSB and outstanding as of March 31, 2023:

Amount Outstanding Maturity Weighted-Average Interest Rate

Brokered CDs $ 30,745 July 2023 - March 2025 4.96%

Cash Flow Activity

As a result of rapidly increasing short-term interest rates beginning in 2022, the Company saw an increase in the pace at which clients moved certain cash balances out of our sweep features and into higher yielding alternatives.

As a result of these outflows, our banking subsidiaries have supplemented excess cash on hand and cash generated by maturities and paydowns on our investment securities portfolios with fixed- and floating-rate FHLB advances, repurchase agreements, and issuances of brokered CDs.

The Company expects to use these types of temporary supplemental funding until the Company’s primary sources of liquidity are again greater than any outflows associated with client cash allocation decisions.

During the first quarter of 2023, the Company’s cash and cash equivalents, excluding amounts restricted, increased by $9.0 billion to $49.2 billion as of March 31, 2023.

This increase was driven by net cash provided by investing and operating activities, partially offset by net cash used for financing activities.

Bank deposits decreased by a total of $41.0 billion during the first quarter of 2023;

this was driven by a decrease of $63.7 billion in deposits swept from brokerage accounts due primarily to clients’ cash allocation decisions described above, partially offset by a net increase in brokered CDs of $24.7 billion.

Offsetting the decrease in bank deposits, investing cash flows from our AFS and HTM securities totaled $12.0 billion in the first quarter of 2023, and the Company increased its FHLB borrowings and other short-term borrowings by a total of $35.6 billion.

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)

Subsequent to March 31, 2023, the Company’s banking subsidiaries had drawn an additional $3.0 billion of FHLB advances.

The current average interest on these advances was 4.96%, with the earliest maturity occurring in May 2024.

Our banking subsidiaries also borrowed an additional $1.0 billion under repurchase agreements with external financial institutions subsequent to March 31, 2023.

The current average interest rate on these repurchase borrowings was 5.05% with the earliest maturity occurring in April 2024.

The Company also issued $6.8 billion of brokered CDs subsequent to March 31, 2023 at a weighted average interest rate of 4.97%, with the earliest maturity occurring in April 2024.

Liquidity Coverage Ratio

1 unchanged sentence

See Part I – Item 1 – Business – Regulation in the 2022 Form 10-K for additional information.

The Company was in compliance with the LCR rule at September 30, 2022, and the table below presents information about our average daily LCR:

Average for the

Three Months Ended

September 30, 2022

The Company was in compliance with the LCR rule at March 31, 2023, and the table below presents information about our average daily LCR:

Average for the Three Months Ended

March 31, 2023 December 31, 2022

Total eligible HQLA $ 80,128 $ 93,986

Net cash outflows $ 62,163 $ 76,754

The Company had short-term borrowings outstanding of $500 million and $4.9 billion as of September 30, 2022 and December 31, 2021, respectively.

Long-term debt is primarily comprised of Senior Notes and totaled $20.8 billion and $18.9 billion at September 30, 2022 and December 31, 2021, respectively.

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 provides information about our Senior Notes outstanding at September 30, 2022:

September 30, 2022 Par

LCR 129 % 123 %

Long-Term Borrowings

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $20.0 billion and $20.8 billion at March 31, 2023 and December 31, 2022, respectively.

The following table provides information about our Senior Notes outstanding at March 31, 2023:

March 31, 2023 Par

Outstanding Maturity Weighted Average

3 unchanged sentences

TDA Holding Senior Notes $ 213 2024 - 2029 3.47% A2 A —

New Debt Issuances

The below debt issuances in the first nine months 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.

Additional details are as follows:

Issuance Date Issuance Amount Maturity Date Interest Rate

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

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

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

Equity Issuances and Redemptions

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

Date Issued and Sold Net Proceeds

Series K March 4, 2022 $ 740

On November 1, 2022, the Company redeemed all of the outstanding shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A.

The Company notified stockholders of its redemption on September 22, 2022, upon which it met the definition of a mandatorily redeemable financial instrument and the criteria for liability classification in accordance with Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity .

The Series A preferred stock fair value of $400 million is included in accrued expenses and other liabilities on the condensed consolidated balance sheet as of September 30, 2022.

In addition, on October 20, 2022, the Company announced it will redeem on December 1, 2022 all of the outstanding shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, and the corresponding depositary shares.

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.

Subsequent to March 31, 2023, Standard & Poor’s downgraded CSC’s and TDA Holding’s long-term issuer credit and senior unsecured debt ratings from A to A-, and affirmed its outlook remained stable.

Also subsequent to March 31, 2023, Moody’s affirmed its rating of A2 for CSC and TDA Holding and changed its outlook from positive to stable.

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 12.

Additional information regarding our sources and uses of liquidity and management of liquidity risk is included in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk in our 2022 Form 10-K.

See also Item 1 – Condensed Consolidated Statements of Cash Flows, Item 1 – Note 7 for the Company’s bank deposits, Item 1 – Note 8 for the Company’s debt and borrowing facilities, and Item 1 – Note 14 for equity outstanding balances and activity.

CAPITAL MANAGEMENT

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including anticipated balance sheet growth inclusive of migration of IDA balances (see further discussion below), providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries.

Schwab’s primary sources of capital are funds generated by the operations of subsidiaries and securities issuances by CSC in the capital markets.

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.

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including balance sheet growth over time, management of the IDA agreements inclusive of potential migration of IDA balances (see further discussion below), providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries.

Schwab also seeks to return excess capital to stockholders.

We may return excess capital through such activities as

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

dividends, repurchases of common shares, preferred stock redemptions, and repurchases of our preferred stock represented by depositary shares.

Schwab’s primary sources of capital are funds generated by the operations of subsidiaries and securities issuances by CSC in the capital markets.

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.

Regulatory Capital Requirements

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 2022 Form 10-K and in Item 1 – Note 17.

As of September 30, 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 September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

As of March 31, 2023, CSC and our banking subsidiaries are considered well capitalized, and CS&Co, TDAC, and TD Ameritrade, Inc.

are in compliance with their respective net capital requirements.

The following table details the capital ratios for CSC consolidated and CSB:

March 31, 2023 December 31, 2022

CSC CSB CSC CSB

19 unchanged sentences

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

In the third quarter of 2022, the Company lowered its operating objective for the consolidated Tier 1 Leverage Ratio down 25 basis points from 6.75% - 7.00% to 6.50% - 6.75%.

Capital operating objectives and limits for our subsidiaries remain unchanged.

The Company’s consolidated Tier 1 Leverage Ratio increased to 6.8% at September 30, 2022 from 6.2% at year-end 2021.

This increase resulted from strength in earnings in the first nine months of 2022, our March 2022 issuance of preferred stock net of the announced redemption of Series A, and a decrease of $63.7 billion, or 11%, in total bank deposits and payables to brokerage clients due to seasonal tax outflows and client cash allocation decisions resulting from the rising interest rate environment.

CSB’s Tier 1 Leverage Ratio also increased from year-end 2021, ending the third quarter of 2022 at 7.6%.

The Company’s consolidated Tier 1 Leverage Ratio decreased slightly to 7.1% at March 31, 2023 from 7.2% at year-end 2022.

This decrease was primarily due to repurchases of $2.8 billion of common stock and $467 million of preferred stock, higher common stock dividends, and a decrease of $51 billion, or 11%, in total bank deposits and payables to brokerage clients due to client cash allocation decisions resulting from the rising interest rate environment.

These factors were largely offset by first quarter 2023 net income.

CSB’s Tier 1 Leverage Ratio increased from year-end 2022, ending the first quarter of 2023 at 7.7%.

The Company suspended repurchase activity during the first quarter of 2023.

In light of anticipated changes to regulatory expectations and capital requirements that could require Schwab and other firms to include AOCI in regulatory capital, the Company currently plans to accrete and retain capital and does not plan to resume repurchases until there is more regulatory clarity.

IDA Agreement

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

During the first nine months of 2022, Schwab moved $14.6 billion of IDA balances to its balance sheet.

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

During the first quarter of 2023, Schwab did not move 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 2023 IDA agreement.

The Company’s ability to migrate these balances to its balance sheet is dependent upon multiple factors including having sufficient capital levels to sustain these incremental deposits and the availability of IDA balances designated as floating-rate obligations.

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

The Company’s ability to migrate these balances to its balance sheet is dependent upon multiple factors

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

On July 27, 2022, the Board of Directors of CSC declared a two cent, or 10%, increase in the quarterly cash dividend to $.22 per common share.

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

Nine Months Ended September 30, Cash Paid Per Share

including having sufficient capital levels to sustain these incremental deposits.

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

On January 26, 2023, the Board of Directors of CSC declared a three cent, or 14%, increase in the quarterly cash dividend to $.25 per common share.

Cash dividends paid and per share amounts, exclusive of amounts related to preferred stock repurchases, for the first three months of 2023 and 2022 are as follows:

Three Months Ended March 31, Cash Paid Per Share

Amount Cash Paid Per Share

1 unchanged sentence

Preferred Stock:

25 63.30 28 70.00

33 44.64 33 44.64

27 4,544.37 28 4,625.00

N/A N/A 14 35.00

11 14.88 11 14.88

N/A N/A 14 2,312.50

33 1,343.75 34 1,343.75

3 unchanged sentences

9 1,250.00 N/A N/A

(1) Subsequent to September 30, 2022, Series A was redeemed on November 1, 2022.

(1) Series A was redeemed on November 1, 2022.

Prior to redemption, dividends were paid semi-annually until February 1, 2022 and quarterly thereafter.

The final dividend was paid on November 1, 2022.

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

Prior to redemption, dividends were paid quarterly and the final dividend was paid on June 1, 2021.

(2) Dividends paid quarterly.

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

Subsequent to September 30, 2022, the Company announced the redemption of Series E effective December 1, 2022.

(3) Series E was redeemed on December 1, 2022.

Prior to redemption, dividends were paid semi-annually until March 1, 2022 and quarterly thereafter.

The final dividend was paid on December 1, 2022.

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

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

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

(7) Series I was issued on March 18, 2021.

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

(8) Series J was issued on March 30, 2021.

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

(5) Series K was issued on March 4, 2022.

2 unchanged sentences

Share Repurchases

On July 27, 2022, CSC publicly announced that its Board of Directors terminated the existing share repurchase authorization of up to $4.0 billion of common stock and replaced it with a new authorization to repurchase up to $15.0 billion of common stock.

On July 27, 2022, CSC publicly announced that its Board of Directors approved a new authorization to repurchase up to $15.0 billion of common stock, replacing the previous and now terminated share repurchase authorization of up to $4.0 billion of common stock.

The new share repurchase authorization does not have an expiration date.

On August 1, 2022, CSC purchased, directly from an affiliate of TD Bank, 15 million shares of nonvoting common stock for a total of $1.0 billion, or approximately $66.53 per share.

The shares of nonvoting common stock automatically converted into common stock and were purchased under CSC’s new share repurchase authorization.

The purchase price paid by CSC was equal to the lowest price per share that the affiliate of TD Bank received in a contemporaneous share sale facilitated by a third-party market maker, which resulted in a purchase price lower than the closing price on August 1, 2022.

CSC repurchased an additional $500 million of common stock under the new authorization during the three months ended September 30, 2022.

There were no repurchases of CSC’s common stock under the terminated authorization during the three and nine months ended September 30, 2022 and 2021.

As of September 30, 2022, $13.5 billion remained on the new authorization.

Foreign Exposure

At September 30, 2022, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments.

At September 30, 2022, the fair value of these holdings totaled $18.0 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.8 billion, the United Kingdom at $4.7 billion, and Canada at $1.7 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

CSC repurchased 37 million shares of its common stock for $2.8 billion during the three months ended March 31, 2023.

As of March 31, 2023, approximately $8.7 billion remained on the new authorization.

There were no repurchases of CSC’s common stock under the terminated authorization during the three months ended March 31, 2022.

The Company repurchased 11,620 depositary shares representing interests in Series F preferred stock for $11 million, 42,036 depositary shares representing interests in Series G preferred stock for $42 million, 273,251 depositary shares representing interests in Series H preferred stock for $235 million, and 194,567 depositary shares representing interests in Series I preferred stock for $179 million on the open market during the three months ended March 31, 2023.

The repurchase prices are inclusive of $3 million of dividends accrued by the stockholders as of the repurchase date.

Beginning in 2023, share repurchases, net of issuances, are subject to a nondeductible 1% excise tax which was recognized as a direct and incremental cost associated with these transactions.

For repurchases of common stock, the tax is recorded as part of the cost basis of the treasury stock repurchased, resulting in no impact to the condensed consolidated statement of income.

For repurchases of preferred stock, the tax impact is included within preferred stock dividends and other on the condensed consolidated statement of income.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Sweden at $754 million.

In addition, Schwab had outstanding margin loans to foreign residents of $3.2 billion and $3.3 billion at September 30, 2022 and December 31, 2021, respectively.

Foreign Exposure

At March 31, 2023, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments.

At March 31, 2023, the fair value of these holdings totaled $11.2 billion, with the top three exposures being to issuers and counterparties domiciled in France at $3.1 billion, the United Kingdom at $1.8 billion, and Canada at $1.7 billion.

At December 31, 2022, the fair value of these holdings totaled $16.4 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.1 billion, the United Kingdom at $4.8 billion, and Canada at $1.7 billion.

In addition, Schwab had outstanding margin loans to foreign residents of $2.5 billion at both March 31, 2023 and December 31, 2022.

CRITICAL ACCOUNTING ESTIMATES

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 2022 Form 10-K.

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

There have been no changes to critical accounting estimates during the first three months of 2023.

NON-GAAP FINANCIAL MEASURES

23 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Total expenses excluding interest (GAAP) $ 3,006 $ 2,833

Acquisition and integration-related costs (1)

(101) (104) (291) (367)

Amortization of acquired intangible assets (135) (154)

Adjusted total expenses (non-GAAP) $ 2,773 $ 2,583

(1) Acquisition and integration-related costs for the three and nine months ended September 30, 2022 primarily consist of $57 million and $166 million of compensation and benefits, $36 million and $102 million of professional services, and $6 million and $14 million of occupancy and equipment.

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.

(1) Acquisition and integration-related costs for the three months ended March 31, 2023 primarily consist of $58 million of compensation and benefits, $33 million of professional services, and $4 million of occupancy and equipment.

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.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

Amount Diluted EPS Amount Diluted EPS

Net income available to common stockholders (GAAP),

8 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Return on average common stockholders’ equity (GAAP) 23 % 12 %

11 unchanged sentences

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