SCHWAB CHARLES CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2. - 24 - Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Income (In Millions, Except Per Share Amounts) (Unaudited) Three Months Ended March 31, 2023 2022 Net Revenues Interest revenue $ 4,016 $ 2,319 Interest expense ( 1,246 ) ( 136 ) Net interest revenue 2,770 2,183 Asset management and administration fees (1) 1,118 1,068 Trading revenue 892 963 Bank deposit account fees 151 294 Other 185 164 Total net revenues 5,116 4,672 Expenses Excluding Interest Compensation and benefits 1,638 1,546 Professional services 258 244 Occupancy and equipment 299 269 Advertising and market development 88 102 Communications 146 144 Depreciation and amortization 177 150 Amortization of acquired intangible assets 135 154 Regulatory fees and assessments 83 68 Other 182 156 Total expenses excluding interest 3,006 2,833 Income before taxes on income 2,110 1,839 Taxes on income 507 437 Net Income 1,603 1,402 Preferred stock dividends and other 70 124 Net Income Available to Common Stockholders $ 1,533 $ 1,278 Weighted-Average Common Shares Outstanding: Basic 1,834 1,894 Diluted 1,842 1,905 Earnings Per Common Shares Outstanding (2) : Basic $ .84 $ .67 Diluted $ .83 $ .67 (1) No fee waivers were recognized for the three months ended March 31, 2023. Includes fee waivers of $ 54 million for the three months ended March 31, 2022. (2) The Company has voting and nonvoting common stock outstanding. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class. See Note 16 for additional information. See Notes to Condensed Consolidated Financial Statements. - 25 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Comprehensive Income (In Millions) (Unaudited) Three Months Ended March 31, 2023 2022 Net income $ 1,603 $ 1,402 Other comprehensive income (loss), before tax: Change in net unrealized gain (loss) on available for sale securities: Net unrealized gain (loss) excluding transfers to held to maturity 1,849 ( 13,135 ) Reclassification of net unrealized loss transferred to held to maturity — 2,429 Other reclassifications included in other revenue 9 ( 12 ) Change in net unrealized gain (loss) on held to maturity securities: Reclassification of net unrealized loss transferred from available for sale — ( 2,429 ) Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 609 92 Other ( 8 ) — Other comprehensive income (loss), before tax 2,459 ( 13,055 ) Income tax effect ( 528 ) 3,119 Other comprehensive income (loss), net of tax 1,931 ( 9,936 ) Comprehensive Income (Loss) $ 3,534 $ ( 8,534 ) See Notes to Condensed Consolidated Financial Statements. - 26 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Balance Sheets (1) (In Millions, Except Per Share and Share Amounts) (Unaudited) March 31, 2023 December 31, 2022 Assets Cash and cash equivalents $ 49,162 $ 40,195 Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $ 4,920 and $ 12,159 at March 31, 2023 and December 31, 2022, respectively) 31,037 42,983 Receivables from brokerage clients — net 63,187 66,591 Available for sale securities (amortized cost of $ 151,767 at March 31, 2023 and $ 160,162 at December 31, 2022; including assets pledged of $ 279 and $ 41 , respectively) 141,334 147,871 Held to maturity securities (including assets pledged of $ 6,821 at March 31, 2023 and $ 4,522 at December 31, 2022) 169,911 173,074 Bank loans — net 39,964 40,505 Equipment, office facilities, and property — net 3,716 3,714 Goodwill 11,951 11,951 Acquired intangible assets — net 8,659 8,789 Other assets 16,631 16,099 Total assets $ 535,552 $ 551,772 Liabilities and Stockholders’ Equity Bank deposits $ 325,745 $ 366,724 Payables to brokerage clients 87,553 97,438 Accrued expenses and other liabilities 13,220 13,124 Other short-term borrowings 7,071 4,650 Federal Home Loan Bank borrowings 45,600 12,400 Long-term debt 20,016 20,828 Total liabilities 499,205 515,164 Stockholders’ equity: Preferred stock — $ .01 par value per share; aggregate liquidation preference of $ 9,502 and $ 9,850 at March 31, 2023 and December 31, 2022, respectively 9,191 9,706 Common stock — 3 billion shares authorized; $ .01 par value per share; 2,023,295,180 shares issued at March 31, 2023 and December 31, 2022 20 20 Nonvoting common stock — 300 million shares authorized; $ .01 par value per share; 50,893,695 shares issued at March 31, 2023 and December 31, 2022 1 1 Additional paid-in capital 27,136 27,075 Retained earnings 32,144 31,066 Treasury stock, at cost — 255,459,169 and 221,033,042 shares at March 31, 2023 and December 31, 2022, respectively ( 11,455 ) ( 8,639 ) Accumulated other comprehensive income (loss) ( 20,690 ) ( 22,621 ) Total stockholders’ equity 36,347 36,608 Total liabilities and stockholders’ equity $ 535,552 $ 551,772 (1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information. See Notes to Condensed Consolidated Financial Statements. - 27 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Stockholders ’ Equity (In Millions) (Unaudited) Accumulated Other Comprehensive Income (Loss) Preferred Stock Common Stock Nonvoting Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at cost Total Shares Amount Shares Amount Balance at December 31, 2021 $ 9,954 1,995 $ 20 79 $ 1 $ 26,741 $ 25,992 $ ( 5,338 ) $ ( 1,109 ) $ 56,261 Net income — — — — — — 1,402 — — 1,402 Other comprehensive income (loss), net of tax — — — — — — — — ( 9,936 ) ( 9,936 ) Issuance of preferred stock, net 740 — — — — — — — — 740 Dividends declared on preferred stock — — — — — — ( 118 ) — — ( 118 ) Dividends declared on common stock — $ .20 per share — — — — — — ( 381 ) — — ( 381 ) Stock option exercises and other — — — — — ( 51 ) — 81 — 30 Share-based compensation — — — — — 112 — — — 112 Other — — — — — 24 — ( 36 ) — ( 12 ) Balance at March 31, 2022 $ 10,694 1,995 $ 20 79 $ 1 $ 26,826 $ 26,895 $ ( 5,293 ) $ ( 11,045 ) $ 48,098 Balance at December 31, 2022 $ 9,706 2,023 $ 20 51 $ 1 $ 27,075 $ 31,066 $ ( 8,639 ) $ ( 22,621 ) $ 36,608 Net income — — — — — — 1,603 — — 1,603 Other comprehensive income (loss), net of tax — — — — — — — — 1,931 1,931 Redemption and repurchase of preferred stock, inclusive of tax ( 515 ) — — — — — 44 — — ( 471 ) Dividends declared on preferred stock — — — — — — ( 105 ) — — ( 105 ) Dividends declared on common stock — $ .25 per share — — — — — — ( 464 ) — — ( 464 ) Repurchase of common stock, inclusive of tax — — — — — — — ( 2,869 ) — ( 2,869 ) Stock option exercises and other — — — — — ( 92 ) — 111 — 19 Share-based compensation — — — — — 129 — — — 129 Other — — — — — 24 — ( 58 ) — ( 34 ) Balance at March 31, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,136 $ 32,144 $ ( 11,455 ) $ ( 20,690 ) $ 36,347 See Notes to the Condensed Consolidated Financial Statements . - 28 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Cash Flows (1) (in Millions) (Unaudited) Three Months Ended March 31, 2023 2022 Cash Flows from Operating Activities Net income $ 1,603 $ 1,402 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Share-based compensation 134 144 Depreciation and amortization 177 150 Amortization of acquired intangible assets 135 154 Provision (benefit) for deferred income taxes 3 ( 19 ) Premium amortization, net, on available for sale and held to maturity securities 185 486 Other 132 98 Net change in: Investments segregated and on deposit for regulatory purposes 13,690 ( 4,628 ) Receivables from brokerage clients 3,395 6,487 Other assets 212 ( 59 ) Payables to brokerage clients ( 9,885 ) ( 364 ) Accrued expenses and other liabilities ( 4 ) ( 798 ) Net cash provided by (used for) operating activities 9,777 3,053 Cash Flows from Investing Activities Purchases of available for sale securities — ( 30,710 ) Proceeds from sales of available for sale securities 1,051 9,521 Principal payments on available for sale securities 7,312 16,892 Principal payments on held to maturity securities 3,613 3,505 Net change in bank loans 521 ( 2,493 ) Purchases of equipment, office facilities, and property ( 159 ) ( 296 ) Purchases of FHLB stock ( 1,439 ) — Proceeds from sales of FHLB stock 82 — Purchases of Federal Reserve stock — ( 27 ) Proceeds from sales of Federal Reserve stock 98 — Other investing activities ( 50 ) ( 34 ) Net cash provided by (used for) investing activities 11,029 ( 3,642 ) Cash Flows from Financing Activities Net change in bank deposits ( 40,979 ) 22,049 Proceeds from FHLB borrowings 36,200 3 Repayments of FHLB borrowings ( 3,000 ) ( 3 ) Proceeds from other short-term borrowings 3,657 2,467 Repayments of other short-term borrowings ( 1,241 ) ( 3,090 ) Issuances of long-term debt — 2,971 Repayments of long-term debt ( 808 ) ( 7 ) Net proceeds from preferred stock offerings — 740 Redemption and repurchase of preferred stock ( 467 ) — Dividends paid ( 568 ) ( 509 ) Proceeds from stock options exercised 19 30 Repurchases of common stock and nonvoting common stock ( 2,842 ) — Other financing activities ( 67 ) ( 42 ) Net cash provided by (used for) financing activities ( 10,096 ) 24,609 Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted 10,710 24,020 Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year 58,720 93,338 Cash and Cash Equivalents, including Amounts Restricted at End of Period $ 69,430 $ 117,358 Continued on following page. - 29 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Cash Flows (1) (in Millions) (Unaudited) Continued from previous page. Three Months Ended March 31, 2023 2022 Supplemental Cash Flow Information Non-cash investing activity: Securities transferred from available for sale to held to maturity, at fair value $ — $ 108,805 Securities purchased during the period but settled after period end $ — $ 15 Changes in accrued equipment, office facilities, and property purchases $ 28 $ ( 87 ) Other Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 923 $ 153 Income taxes $ 40 $ 50 Amounts included in the measurement of lease liabilities $ 63 $ 53 Leased assets obtained in exchange for new operating lease liabilities $ 12 $ 140 Leased assets obtained in exchange for new finance lease liabilities $ — $ 5 March 31, 2023 March 31, 2022 Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2) Cash and cash equivalents $ 49,162 $ 91,126 Restricted cash and cash equivalents amounts included in cash and investments segregated and on deposit for regulatory purposes 20,268 26,232 Total cash and cash equivalents, including amounts restricted shown in the statement of cash flows $ 69,430 $ 117,358 (1) Certain prior period amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information. (2) For more information on the nature of restrictions on restricted cash and cash equivalents, see Note 17. See Notes to Condensed Consolidated Financial Statements. - 30 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 1. Introduction and Basis of Presentation The Charles Schwab Corporation (CSC) is a savings and loan holding company. CSC engages, through its subsidiaries (collectively referred to as Schwab or the Company), in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. Principal business subsidiaries of CSC include the following: • Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer; • TD Ameritrade, Inc., an introducing securities broker-dealer; • TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.; • Charles Schwab Bank, SSB (CSB), our principal banking entity; and • Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds ® ) and for Schwab’s exchange-traded funds (Schwab ETFs ™ ). Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries. These unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements and in the related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. While management makes its best judgment, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in Schwab’s 2022 Form 10-K. Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation. Beginning in 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings in the condensed consolidated balance sheets. Prior period amounts have been reclassified to reflect these changes. Corresponding presentation changes have been made to the condensed consolidated statements of cash flows and related notes. The significant accounting policies are included in Note 2 in the 2022 Form 10-K. There have been no significant changes to these accounting policies during the first three months of 2023, except as described in Note 2 below. 2. Summary of Significant Accounting Policies and New Accounting Standards Derivative Instruments and Hedging Activities As discussed further in Note 11, beginning in 2023, the Company utilizes derivative instruments as part of its interest rate risk management. The Company records all derivatives on the balance sheet at fair value. Accounting for the changes in the fair values of derivatives depends on the nature of the hedging relationship, and whether we qualify for and elect to apply hedge accounting. Hedge accounting generally matches the timing of gain or loss recognition on the derivatives with the recognition of the changes in the fair values or cash flows attributable to the risk being hedged of the hedged asset or liability in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge, respectively . Schwab’s policy is to designate all eligible derivatives in hedge accounting relationships. To qualify for hedge accounting, among other requirements, a derivative must be highly effective at reducing exposure to the hedged risk. The assessment of effectiveness is done at inception and on an ongoing basis for hedging relationships and, depending on certain criteria, may be qualitative or quantitative. Schwab applies the “shortcut method” of hedge accounting for a portion of its fair value hedges, which assumes perfect effectiveness. Alternatively, when quantitative effectiveness assessments are required, the Company uses regression analysis, which is the method employed for the rest of our hedging relationships. - 31 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) For derivatives the Company has designated and that qualify as fair value hedges of interest rate risk, the gain or loss on the derivatives and the changes in fair values of the hedged assets attributable to benchmark interest rates (basis adjustments) are both recorded in interest revenue on the condensed consolidated statement of income. If the hedging relationship is terminated, the basis adjustment remaining on the hedged asset continues to be reported as part of the amortized cost of that asset and is amortized to interest revenue over the remaining life of the asset as a yield adjustment using the effective interest method. The Company does not amortize basis adjustments prior to termination of the hedging relationship. Certain fair value hedges may be designated under the portfolio layer method (PLM) of hedge accounting, which allows the Company to hedge the interest rate risk of prepayable and non-prepayable financial assets by designating a stated amount of a closed portfolio that is expected to be outstanding for the designated hedge period (a hedged layer) as the hedged item. A PLM hedging relationship may include multiple hedged layers. If at any point during the hedge period the aggregate amount of the hedged layers exceeds the amount of the closed portfolio (i.e., a breach of the hedged layer(s) has occurred), the PLM hedge must be fully or partially terminated to cure the breach. Basis adjustments for active PLM hedges are maintained at the closed portfolio level and are only allocated to individual assets remaining in the closed portfolio when the hedge is terminated, except for the portion of the basis adjustment related to the breach of the hedged layer(s), if any, which is recognized in interest revenue immediately. Allocated PLM basis adjustments are reported as part of the amortized cost of the assets and are amortized to interest revenue over the assets’ respective remaining lives as a yield adjustment using the effective interest method. For derivatives the Company has designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivatives is recorded in AOCI and subsequently reclassified into interest revenue or interest expense, depending on where the hedged cash flows are recognized, on the condensed consolidated statement of income in the same period during which the hedged transactions affect earnings. Amounts reported in AOCI for cash flow hedges of AFS investment securities or other recognized financial assets are reclassified into interest revenue as interest payments on the securities or financial assets are accrued or received. If the hedging relationship is terminated and transactions that were hedged are no longer probable of occurring, the gain or loss on the derivative(s) recorded in AOCI prior to termination is reclassified into interest revenue immediately. Otherwise, the derivative gain or loss in AOCI will continue to be reclassified into interest revenue or interest expense in the periods during which the transactions that were hedged affect earnings. Cash flows associated with derivative instruments are reflected as cash flows from operating activities in the statement of cash flows consistent with the treatment and nature of the items being hedged. Adoption of New Accounting Standards Standard Description Date of Adoption Effects on the Financial Statements or Other Significant Matters Accounting Standards Update (ASU) 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” Troubled Debt Restructurings (TDRs) Eliminates the accounting guidance for TDRs. Rather than applying the specific guidance for TDRs, creditors will apply the recognition and measurement guidance for loan refinancings and restructurings to determine whether a modification results in a new loan or a continuation of an existing loan. The guidance requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Vintage Disclosures Requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. Adoption provides for prospective application, with an option to apply the modified retrospective transition method for the change in recognition and measurement of TDRs. January 1, 2023 The Company adopted this guidance on January 1, 2023 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s financial statements. New Accounting Standards Not Yet Adopted There are currently no new accounting standards not yet adopted that are material to the Company. - 32 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 3. Revenue Recognition Disaggregated Revenue Disaggregation of Schwab’s revenue by major source is as follows: Three Months Ended March 31, 2023 2022 Net interest revenue Cash and cash equivalents $ 413 $ 34 Cash and investments segregated 432 15 Receivables from brokerage clients 1,084 626 Available for sale securities 825 947 Held to maturity securities 746 378 Bank loans 391 187 Securities lending revenue 112 129 Other interest revenue 13 3 Interest revenue 4,016 2,319 Bank deposits ( 618 ) ( 16 ) Payables to brokerage clients ( 75 ) ( 2 ) Other short-term borrowings (1) ( 86 ) ( 4 ) Federal Home Loan Bank borrowings (1) ( 304 ) — Long-term debt ( 139 ) ( 108 ) Securities lending expense ( 22 ) ( 7 ) Other interest expense ( 2 ) 1 Interest expense ( 1,246 ) ( 136 ) Net interest revenue 2,770 2,183 Asset management and administration fees Mutual funds, ETFs, and CTFs 585 489 Advice solutions 453 496 Other 80 83 Asset management and administration fees 1,118 1,068 Trading revenue Commissions 422 484 Order flow revenue 414 470 Principal transactions 56 9 Trading revenue 892 963 Bank deposit account fees 151 294 Other 185 164 Total net revenues $ 5,116 $ 4,672 (1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information. For a summary of revenue provided by our reportable segments, see Note 18. The recognition of revenue is not impacted by the operating segment in which revenue is generated. Contract balances Substantially all receivables from contracts with customers within the scope of Accounting Standards Codification (ASC) 606 Revenue From Contracts With Customers (ASC 606), are included in other assets on the condensed consolidated balance sheets, and totaled $ 616 million and $ 560 million at March 31, 2023 and December 31, 2022, respectively. Schwab did not have any other significant contract assets or contract liability balances as of March 31, 2023 or December 31, 2022. Unsatisfied performance obligations We do not have any unsatisfied performance obligations other than those that are subject to an elective practical expedient under ASC 606. The practical expedient applies to and is elected for contracts where we recognize revenue at the amount to which we have the right to invoice for services performed. - 33 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 4. Investment Securities The amortized cost, gross unrealized gains and losses, and fair value of the Company’s AFS and HTM investment securities are as follows: March 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale securities U.S. agency mortgage-backed securities $ 82,774 $ 1 $ 7,228 $ 75,547 U.S. Treasury securities 39,316 — 1,454 37,862 Asset-backed securities (1) 12,375 — 536 11,839 Corporate debt securities (2) 13,615 — 1,076 12,539 Certificates of deposit 1,445 — 7 1,438 Foreign government agency securities 1,033 — 51 982 U.S. state and municipal securities 646 — 58 588 Non-agency commercial mortgage-backed securities 341 — 20 321 Other 222 — 4 218 Total available for sale securities (3) $ 151,767 $ 1 $ 10,434 $ 141,334 Held to maturity securities U.S. agency mortgage-backed securities $ 169,911 $ 2,525 $ 13,570 $ 158,866 Total held to maturity securities $ 169,911 $ 2,525 $ 13,570 $ 158,866 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale securities U.S. agency mortgage-backed securities $ 85,994 $ — $ 8,306 $ 77,688 U.S. Treasury securities 41,879 — 1,877 40,002 Asset-backed securities (1) 13,672 — 649 13,023 Corporate debt securities (2) 13,830 — 1,275 12,555 Certificates of deposit 2,245 — 14 2,231 Foreign government agency securities 1,033 — 64 969 U.S. state and municipal securities 713 — 75 638 Non-agency commercial mortgage-backed securities 473 — 23 450 Other 323 — 8 315 Total available for sale securities (3) $ 160,162 $ — $ 12,291 $ 147,871 Held to maturity securities U.S. agency mortgage-backed securities $ 173,074 $ 1,442 $ 15,580 $ 158,936 Total held to maturity securities $ 173,074 $ 1,442 $ 15,580 $ 158,936 (1) Approximately 59 % and 57 % of asset-backed securities held as of March 31, 2023 and December 31, 2022, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately 18 % of the asset-backed securities held at both March 31, 2023 and December 31, 2022. (2) As of March 31, 2023 and December 31, 2022, approximately 36 % and 37 %, respectively, of the total AFS in corporate debt securities were issued by institutions in the financial services industry. (3) Included in cash and cash equivalents on the condensed consolidated balance sheets, but excluded from this table is $ 48 million of AFS commercial paper as of December 31, 2022 ( none as of March 31, 2023). These holdings have maturities of three months or less and an aggregate market value equal to amortized cost. During 2022, the Company transferred a total of $ 188.6 billion of U.S. agency mortgage-backed securities with a total net pretax unrealized loss at the times of transfer of $ 18.2 billion from the AFS category to the HTM category. The transfer of these securities to the HTM category reduces the Company’s exposure to fluctuations in AOCI that can result from unrealized losses on AFS securities due to changes in market interest rates. The unrealized loss at the time of transfer is amortized over the remaining life of the security, offsetting the amortization of the security’s premium or discount, and resulting in no impact to - 34 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) net income. As of March 31, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 12.8 billion net of tax effect ($ 16.9 billion pretax). At March 31, 2023, our banking subsidiaries had pledged investment securities with a value of $ 62.7 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 8). Our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a fair value of $ 9.4 billion as collateral for this facility at March 31, 2023. Beginning in 2023, our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve through the Bank Term Funding Program, and had pledged securities with a par value of $ 42.7 billion as collateral for this facility at March 31, 2023. The Company also pledges investment securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $ 1.7 billion at March 31, 2023. At March 31, 2023, our banking subsidiaries had pledged HTM and AFS securities as collateral under repurchase agreements with external financial institutions. HTM securities pledged were U.S. agency mortgage-backed securities with an aggregate amortized cost of $ 6.8 billion, and AFS securities pledged were U.S. Treasury securities with an aggregate fair value of $ 279 million. Securities pledged as collateral under these repurchase agreements may be sold, repledged, or otherwise used by the counterparties. See Notes 8 and 12 for additional information on these repurchase agreements. At March 31, 2023, our banking subsidiaries had pledged AFS securities with an aggregate fair value of $ 85 million as initial margin on interest rate swaps (see Note 11). All of Schwab’s interest rate swaps are cleared through central counterparty (CCP) clearing houses which require the Company to post initial margin as collateral against potential losses. - 35 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, of AFS investment securities are as follows: Less than 12 months 12 months or longer Total March 31, 2023 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available for sale securities U.S. agency mortgage-backed securities $ 10,049 $ 273 $ 65,268 $ 6,955 $ 75,317 $ 7,228 U.S. Treasury securities 13,096 77 24,765 1,377 37,861 1,454 Asset-backed securities 1,272 17 10,551 519 11,823 536 Corporate debt securities 1,170 29 11,369 1,047 12,539 1,076 Certificates of deposit 843 2 595 5 1,438 7 Foreign government agency securities — — 982 51 982 51 U.S. state and municipal securities 56 1 525 57 581 58 Non-agency commercial mortgage-backed securities 227 3 94 17 321 20 Other 20 2 198 2 218 4 Total $ 26,733 $ 404 $ 114,347 $ 10,030 $ 141,080 $ 10,434 December 31, 2022 Available for sale securities U.S. agency mortgage-backed securities $ 34,938 $ 2,025 $ 42,558 $ 6,281 $ 77,496 $ 8,306 U.S. Treasury securities 27,063 716 12,519 1,161 39,582 1,877 Asset-backed securities 6,717 217 6,299 432 13,016 649 Corporate debt securities 8,552 542 3,998 733 12,550 1,275 Certificates of deposit 2,033 10 196 4 2,229 14 Foreign government agency securities 756 50 214 14 970 64 U.S. state and municipal securities 482 31 157 44 639 75 Non-agency commercial mortgage-backed securities 443 23 — — 443 23 Other 315 8 — — 315 8 Total $ 81,299 $ 3,622 $ 65,941 $ 8,669 $ 147,240 $ 12,291 At March 31, 2023, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises. For a description of management’s quarterly evaluation of AFS securities in unrealized loss positions see Item 8 – Note 2 in the 2022 Form 10-K. No amounts were recognized as credit loss expense and no securities were written down to fair value through earnings for the three months ended March 31, 2023 and the year ended December 31, 2022. None of the Company’s AFS securities held as of March 31, 2023 and December 31, 2022 had an allowance for credit losses. All HTM securities as of March 31, 2023 and December 31, 2022 were U.S. agency mortgage-backed securities and therefore had no allowance for credit losses because expected nonpayment of the amortized cost basis is zero. The Company had $ 621 million and $ 685 million of accrued interest for AFS and HTM securities as of March 31, 2023 and December 31, 2022, respectively. These amounts are excluded from the amortized cost basis and fair market value of AFS and HTM securities and included in other assets on the condensed consolidated balance sheets. There were no writeoffs of accrued interest receivable on AFS and HTM securities during the three months ended March 31, 2023, or for the year ended December 31, 2022. - 36 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) In the table below, mortgage-backed securities and other asset-backed securities have been allocated to maturity groupings based on final contractual maturities. As borrowers may have the right to call or prepay certain obligations underlying our investment securities, actual maturities may differ from the scheduled contractual maturities presented below. As of March 31, 2023, the estimated effective duration, which reflects anticipated future payments, of our total AFS and HTM investment securities portfolio is approximately 4.0 years. The estimated effective duration of our AFS investment securities portfolio is approximately 2.4 years as of March 31, 2023. The maturities of AFS and HTM investment securities are as follows: March 31, 2023 Within 1 year After 1 year through 5 years After 5 years through 10 years After 10 years Total Available for sale securities U.S. agency mortgage-backed securities $ 1,010 $ 14,534 $ 14,281 $ 45,722 $ 75,547 U.S. Treasury securities 20,865 16,437 560 — 37,862 Asset-backed securities 2 3,388 1,717 6,732 11,839 Corporate debt securities 1,331 8,592 2,616 — 12,539 Certificates of deposit 1,438 — — — 1,438 Foreign government agency securities 200 782 — — 982 U.S. state and municipal securities 6 38 409 135 588 Non-agency commercial mortgage-backed securities — — — 321 321 Other 198 — — 20 218 Total fair value $ 25,050 $ 43,771 $ 19,583 $ 52,930 $ 141,334 Total amortized cost $ 25,321 $ 46,299 $ 21,769 $ 58,378 $ 151,767 Held to maturity securities U.S. agency mortgage-backed securities $ 417 $ 6,194 $ 39,741 $ 112,514 $ 158,866 Total fair value $ 417 $ 6,194 $ 39,741 $ 112,514 $ 158,866 Total amortized cost $ 425 $ 6,601 $ 42,146 $ 120,739 $ 169,911 Proceeds and gross realized gains and losses from sales of AFS investment securities are as follows: Three Months Ended March 31, 2023 2022 Proceeds $ 1,051 $ 9,521 Gross realized gains — 115 Gross realized losses 9 103 - 37 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 5. Bank Loans and Related Allowance for Credit Losses The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows: March 31, 2023 Current 30-59 days past due 60-89 days past due > 90 days past due and other nonaccrual loans (3) Total past due and other nonaccrual loans Total loans Allowance for credit losses Total bank loans – net Residential real estate: First Mortgages (1,2) $ 25,435 $ 23 $ — $ 13 $ 36 $ 25,471 $ 67 $ 25,404 HELOCs (1,2) 552 1 — 5 6 558 4 554 Total residential real estate 25,987 24 — 18 42 26,029 71 25,958 Pledged asset lines 13,798 3 — — 3 13,801 — 13,801 Other 208 — — — — 208 3 205 Total bank loans $ 39,993 $ 27 $ — $ 18 $ 45 $ 40,038 $ 74 $ 39,964 December 31, 2022 Residential real estate: First Mortgages (1,2) $ 25,157 $ 25 $ 2 $ 14 $ 41 $ 25,198 $ 66 $ 25,132 HELOCs (1,2) 590 2 — 5 7 597 4 593 Total residential real estate 25,747 27 2 19 48 25,795 70 25,725 Pledged asset lines 14,584 4 — 4 8 14,592 — 14,592 Other 191 — — — — 191 3 188 Total bank loans $ 40,522 $ 31 $ 2 $ 23 $ 56 $ 40,578 $ 73 $ 40,505 (1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $ 99 million and $ 98 million at March 31, 2023 and December 31, 2022, respectively. (2) At March 31, 2023 and December 31, 2022, 43 % of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole. (3) There were no loans accruing interest that were contractually 90 days or more past due at March 31, 2023 or December 31, 2022. At March 31, 2023, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8). Changes in the allowance for credit losses on bank loans were as follows: Three Months Ended March 31, 2023 First Mortgages HELOCs Total residential real estate Pledged asset lines Other Total Balance at beginning of period $ 66 $ 4 $ 70 $ — $ 3 $ 73 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses 1 — 1 — — 1 Balance at end of period $ 67 $ 4 $ 71 $ — $ 3 $ 74 March 31, 2022 Balance at beginning of period $ 13 $ 2 $ 15 $ — $ 3 $ 18 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses 10 — 10 — — 10 Balance at end of period $ 23 $ 2 $ 25 $ — $ 3 $ 28 - 38 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Consistent with Schwab’s loan charge off policy for pledged asset lines (PALs) as disclosed in Item 8 – Note 2 of the 2022 Form 10-K, the Company charges off any unsecured balances no later than 90-days past due. PALs are also subject to the collateral maintenance practical expedient under ASC 326 Financial Instruments — Credit Losses . All PALs were fully collateralized by securities with fair values in excess of borrowings as of March 31, 2023 and December 31, 2022. Therefore, no allowance for credit losses for PALs as of those dates was required. The U.S. economy continues to be challenged by elevated inflation, tightening monetary policy, and geopolitical unrest. Management’s macroeconomic outlook reflects a near term increase in unemployment coupled with home price depreciation, which combined with rising mortgage rates, have softened demand and reduced borrower affordability. Despite these changes to the macroeconomic outlook, projections of loss rates have remained relatively stable at March 31, 2023, compared to December 31, 2022, due to strong credit quality characteristics of the Company’s bank loans portfolio. A summary of bank loan-related nonperforming assets is as follows: March 31, 2023 December 31, 2022 Nonaccrual loans (1) $ 18 $ 23 Other real estate owned (2) — 2 Total nonperforming assets $ 18 $ 25 (1) Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02. (2) Included in other assets on the condensed consolidated balance sheets. Credit Quality In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following: • Year of origination; • Borrower FICO scores at origination (Origination FICO); • Updated borrower FICO scores (Updated FICO); • Loan-to-value (LTV) ratios at origination (Origination LTV); and • Estimated Current LTV ratios (Estimated Current LTV). Borrowers’ FICO scores are provided by an independent third-party credit reporting service and generally updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index. - 39 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The credit quality indicators of the Company’s bank loan portfolio are detailed below: First Mortgages Amortized Cost Basis by Origination Year March 31, 2023 2023 2022 2021 2020 2019 pre-2019 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ — $ 3 $ 1 $ 1 $ — $ 1 $ 6 $ — $ — $ — 620 – 679 — 28 31 20 2 14 95 — 2 2 680 – 739 75 819 1,211 419 112 227 2,863 58 44 102 ≥740 604 5,517 10,896 3,761 798 931 22,507 297 157 454 Total $ 679 $ 6,367 $ 12,139 $ 4,201 $ 912 $ 1,173 $ 25,471 $ 355 $ 203 $ 558 Origination LTV ≤70% $ 474 $ 4,712 $ 10,507 $ 3,492 $ 736 $ 868 $ 20,789 $ 311 $ 143 $ 454 >70% – ≤90% 205 1,655 1,632 709 176 303 4,680 44 59 103 >90% – ≤100% — — — — — 2 2 — 1 1 Total $ 679 $ 6,367 $ 12,139 $ 4,201 $ 912 $ 1,173 $ 25,471 $ 355 $ 203 $ 558 Updated FICO <620 $ — $ 10 $ 16 $ 7 $ 2 $ 11 $ 46 $ 1 $ 5 $ 6 620 – 679 5 90 115 32 12 37 291 6 10 16 680 – 739 70 613 952 329 74 142 2,180 49 30 79 ≥740 604 5,654 11,056 3,833 824 983 22,954 299 158 457 Total $ 679 $ 6,367 $ 12,139 $ 4,201 $ 912 $ 1,173 $ 25,471 $ 355 $ 203 $ 558 Estimated Current LTV (1) ≤70% $ 474 $ 4,417 $ 11,460 $ 4,181 $ 911 $ 1,170 $ 22,613 $ 351 $ 202 $ 553 >70% – ≤90% 205 1,896 679 20 1 3 2,804 4 1 5 >90% – ≤100% — 50 — — — — 50 — — — >100% — 4 — — — — 4 — — — Total $ 679 $ 6,367 $ 12,139 $ 4,201 $ 912 $ 1,173 $ 25,471 $ 355 $ 203 $ 558 Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — Percent of Loans on Nonaccrual Status 0.02 % 0.03 % 0.02 % 0.05 % 0.03 % 0.53 % 0.05 % 0.30 % 1.89 % 0.90 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. - 40 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) First Mortgages Amortized Cost Basis by Origination Year December 31, 2022 2022 2021 2020 2019 pre-2019 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ 3 $ 1 $ — $ — $ 1 $ 5 $ — $ — $ — 620 – 679 28 31 21 2 15 97 — 2 2 680 – 739 820 1,224 430 116 243 2,833 59 47 106 ≥740 5,593 11,037 3,819 811 1,003 22,263 323 166 489 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Origination LTV ≤70% $ 4,771 $ 10,641 $ 3,549 $ 749 $ 940 $ 20,650 $ 332 $ 153 $ 485 >70% – ≤90% 1,673 1,652 721 180 320 4,546 50 61 111 >90% – ≤100% — — — — 2 2 — 1 1 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Updated FICO <620 $ 11 $ 12 $ 7 $ 2 $ 13 $ 45 $ 2 $ 5 $ 7 620 – 679 87 127 42 10 43 309 6 10 16 680 – 739 711 1,079 378 89 161 2,418 52 35 87 ≥740 5,635 11,075 3,843 828 1,045 22,426 322 165 487 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Estimated Current LTV (1) ≤70% $ 4,574 $ 11,751 $ 4,255 $ 928 $ 1,257 $ 22,765 $ 380 $ 214 $ 594 >70% – ≤90% 1,845 542 15 1 5 2,408 2 1 3 >90% – ≤100% 25 — — — — 25 — — — >100% — — — — — — — — — Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Percent of Loans on Nonaccrual Status 0.02 % 0.03 % 0.09 % 0.02 % 0.43 % 0.06 % 0.34 % 1.90 % 0.84 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. At March 31, 2023, First Mortgage loans of $ 20.8 billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 28 % of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 93 % of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates. At March 31, 2023 and December 31, 2022, Schwab had $ 139 million and $ 134 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the condensed consolidated balance sheets. The HELOC product has a 30 -year loan term with an initial draw period of ten years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a 20 -year amortizing loan. The interest rate during the initial draw period and the 20 -year amortizing period is a floating rate based on the prime rate plus a margin. - 41 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table presents HELOCs converted to amortizing loans during each period presented: Three Months Ended March 31, 2023 2022 HELOCs converted to amortizing loans $ 7 $ 2 The following table presents when current outstanding HELOCs will convert to amortizing loans: March 31, 2023 Balance Converted to an amortizing loan by period end $ 203 Within 1 year 29 > 1 year – 3 years 45 > 3 years – 5 years 57 > 5 years 224 Total $ 558 At March 31, 2023, $ 435 million of the HELOC portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At March 31, 2023, the borrowers on approximately 57 % of HELOC loan balances outstanding only paid the minimum amount due. 6. Variable Interest Entities As of March 31, 2023 and December 31, 2022, substantially all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s CRA-related investments and most of these are related to Low-Income Housing Tax Credit (LIHTC) investments. As part of CSB’s community reinvestment initiatives, CSB invests in funds that make equity investments in multifamily affordable housing properties and receives tax credits and other tax benefits for these investments. Aggregate assets, liabilities, and maximum exposure to loss The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below: March 31, 2023 December 31, 2022 Aggregate assets Aggregate liabilities Maximum exposure to loss Aggregate assets Aggregate liabilities Maximum exposure to loss LIHTC investments (1) $ 1,092 $ 614 $ 1,092 $ 1,094 $ 619 $ 1,094 Other investments (2) 181 — 216 167 — 215 Total $ 1,273 $ 614 $ 1,308 $ 1,261 $ 619 $ 1,309 (1) Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets. (2) Other investments include non-LIHTC CRA investments that are accounted for as loans at amortized cost, equity method investments, AFS securities, or using the adjusted cost method. Aggregate assets are included in AFS securities, bank loans – net, or other assets on the condensed consolidated balance sheets. Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. Schwab’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and Schwab expects to pay substantially all of these commitments between 2023 and 2026. During the three months ended March 31, 2023 and year ended December 31, 2022, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide. - 42 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 7. Bank Deposits Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows: March 31, 2023 December 31, 2022 Interest-bearing deposits: Deposits swept from brokerage accounts $ 270,049 $ 333,754 Time certificates of deposit (1) 30,745 6,047 Checking 18,218 19,719 Savings and other 5,625 6,098 Total interest-bearing deposits 324,637 365,618 Non-interest-bearing deposits 1,108 1,106 Total bank deposits $ 325,745 $ 366,724 (1) Time certificates of deposit consist of brokered CDs. As of March 31, 2023, uninsured time CDs totaled $ 338 million. As of December 31, 2022, there were no time deposits that were in excess of FDIC insurance limits or otherwise uninsured. Annual maturities on time certificates of deposit outstanding at March 31, 2023 are as follows: Balance 2023 $ 9,776 2024 20,354 2025 615 Total $ 30,745 Subsequent to March 31, 2023, the Company issued an additional $ 6.8 billion of brokered CDs. 8. Borrowings CSC Senior Notes CSC’s Senior Notes are unsecured obligations. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. TDA Holding Senior Notes TDA Holding’s Senior Notes are unsecured obligations. TDA Holding may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes. - 43 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table lists long-term debt by instrument outstanding as of March 31, 2023 and December 31, 2022: Date of Issuance Principal Amount Outstanding March 31, 2023 December 31, 2022 CSC Fixed-rate Senior Notes: 2.650 % due January 25, 2023 12/07/17 $ — $ 800 3.550 % due February 1, 2024 10/31/18 500 500 0.750 % due March 18, 2024 03/18/21 1,500 1,500 3.750 % due April 1, 2024 09/24/21 350 350 3.000 % due March 10, 2025 03/10/15 375 375 4.200 % due March 24, 2025 03/24/20 600 600 3.625 % due April 1, 2025 09/24/21 418 418 3.850 % due May 21, 2025 05/22/18 750 750 3.450 % due February 13, 2026 11/13/15 350 350 0.900 % due March 11, 2026 12/11/20 1,250 1,250 1.150 % due May 13, 2026 05/13/21 1,000 1,000 3.200 % due March 2, 2027 03/02/17 650 650 2.450 % due March 3, 2027 03/03/22 1,500 1,500 3.300 % due April 1, 2027 09/24/21 744 744 3.200 % due January 25, 2028 12/07/17 700 700 2.000 % due March 20, 2028 03/18/21 1,250 1,250 4.000 % due February 1, 2029 10/31/18 600 600 3.250 % due May 22, 2029 05/22/19 600 600 2.750 % due October 1, 2029 09/24/21 475 475 4.625 % due March 22, 2030 03/24/20 500 500 1.650 % due March 11, 2031 12/11/20 750 750 2.300 % due May 13, 2031 05/13/21 750 750 1.950 % due December 1, 2031 08/26/21 850 850 2.900 % due March 3, 2032 03/03/22 1,000 1,000 CSC Floating-rate Senior Notes: SOFR + 0.500 % due March 18, 2024 03/18/21 1,250 1,250 SOFR + 0.520 % due May 13, 2026 05/13/21 500 500 SOFR + 1.050 % due March 3, 2027 03/03/22 500 500 Total CSC Senior Notes 19,712 20,512 TDA Holding Fixed-rate Senior Notes: 3.750 % due April 1, 2024 11/01/18 50 50 3.625 % due April 1, 2025 10/22/14 82 82 3.300 % due April 1, 2027 04/27/17 56 56 2.750 % due October 1, 2029 08/16/19 25 25 Total TDA Holding Senior Notes 213 213 Finance lease liabilities 60 68 Unamortized premium — net 119 129 Debt issuance costs ( 88 ) ( 94 ) Total long-term debt $ 20,016 $ 20,828 - 44 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Annual maturities on all long-term debt outstanding at March 31, 2023 are as follows: Maturities 2023 $ 23 2024 3,675 2025 2,237 2026 3,100 2027 3,450 Thereafter 7,500 Total maturities 19,985 Unamortized premium — net 119 Debt issuance costs ( 88 ) Total long-term debt $ 20,016 FHLB borrowings: Our banking subsidiaries maintain secured credit facilities with the FHLB. Amounts available under these facilities are dependent on the amount of bank loans and the fair value of certain investment securities that are pledged as collateral. There was $ 45.6 billion and $ 12.4 billion outstanding under these facilities as of March 31, 2023 and December 31, 2022, respectively, and these borrowings had a weighted-average interest rate of 5.16 % and 4.88 %, respectively. As of March 31, 2023 and December 31, 2022, the collateral pledged provided additional borrowing capacity of $ 35.5 billion and $ 68.6 billion, respectively. Other short-term borrowings: Total other short-term borrowings outstanding at March 31, 2023 and December 31, 2022 were $ 7.1 billion and $ 4.7 billion, respectively, and had a weighted-average interest rate of 4.99 % and 4.97 %, respectively. Additional information regarding our other short-term borrowings facilities is described below. CSC has the ability to issue up to $ 5.0 billion of commercial paper notes with maturities of up to 270 days. CSC had $ 250 million outstanding at both March 31, 2023 and December 31, 2022. CSC and CS&Co also have access to uncommitted lines of credit with external banks with total borrowing capacity of $ 1.6 billion; no amounts were outstanding as of March 31, 2023 or December 31, 2022. Our banking subsidiaries have access to funding through the Federal Reserve discount window. Amounts available are dependent upon the fair value of certain investment securities that are pledged as collateral. As of March 31, 2023 and December 31, 2022, our collateral pledged provided total borrowing capacity of $ 9.4 billion and $ 7.8 billion, respectively, of which no amounts were outstanding at the end of either period. Beginning in the first quarter of 2023, our banking subsidiaries now have access to funding through the Federal Reserve Bank Term Funding Program. Amounts available are dependent upon the par value of certain investment securities that are pledged as collateral. As of March 31, 2023, our collateral pledged provided total borrowing capacity of $ 42.7 billion. There were no borrowings outstanding at March 31, 2023. Our banking subsidiaries may engage with external financial institutions in repurchase agreements collateralized by investment securities as another source of short-term liquidity. The Company had $ 6.8 billion and $ 4.4 billion outstanding pursuant to such repurchase agreements at March 31, 2023 and December 31, 2022, respectively. Repurchase agreements outstanding at March 31, 2023 mature between August 2023 and January 2024. TDAC maintains senior uncommitted lines of credit, under which TDAC borrows on either a demand or short-term basis and pledges client margin securities as collateral. There was no balance outstanding at March 31, 2023 or December 31, 2022. Annual maturities on FHLB borrowings and other short-term borrowings outstanding at March 31, 2023 are as follows: 2023 2024 Total FHLB borrowings $ 31,800 $ 13,800 $ 45,600 Other short-term borrowings 6,875 196 7,071 Total $ 38,675 $ 13,996 $ 52,671 - 45 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Subsequent to March 31, 2023, the Company’s banking subsidiaries had drawn an additional $ 3.0 billion of FHLB advances and borrowed an additional $ 1.0 billion under repurchase agreements with external financial institutions. 9. Commitments and Contingencies Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Rocket Mortgage, LLC (Rocket Mortgage ® ). Pursuant to the Program, Rocket Mortgage originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Rocket Mortgage. CSB purchased First Mortgages of $ 723 million and $ 2.7 billion during the first quarters of 2023 and 2022, respectively. CSB purchased HELOCs with commitments of $ 43 million and $ 90 million during the first quarters of 2023 and 2022, respectively. The Company’s commitments to extend credit on lines of credit and to purchase First Mortgages are as follows: March 31, 2023 December 31, 2022 Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit $ 4,041 $ 4,533 Commitments to purchase First Mortgage loans 579 492 Total $ 4,620 $ 5,025 Guarantees and indemnifications: Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We satisfy the margin requirements of these transactions through the pledging of certain client securities. For additional information on these pledged securities refer to Note 12. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral. The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the amounts it has posted as collateral. The Company also engages third-party firms to clear clients’ futures and options on futures transactions and to facilitate clients’ foreign exchange trading, and has agreed to indemnify these firms for any losses that they may incur from the client transactions introduced to them by the Company. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees. IDA agreement: The 2019 IDA agreement with the TD Depository Institutions became effective on October 6, 2020 and created responsibilities of the Company and certain contingent obligations. On May 4, 2023, the 2019 IDA agreement was replaced and superseded by the 2023 IDA agreement, which specifies responsibilities, including certain contingent obligations, of the Company going forward. Pursuant to the IDA agreements, uninvested cash within 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. The Company’s ability to migrate these balances to its balance sheet is dependent on multiple factors including having sufficient capital levels to sustain these incremental deposits and certain binding limitations specified in the 2023 IDA agreement, and, prior to May 4, 2023, the 2019 IDA agreement. The 2019 IDA agreement provided that, as of July 1, 2021, Schwab had the option to migrate up to $ 10 billion of IDA balances every 12 months to Schwab’s balance sheet, subject to certain limitations and adjustments. The Company migrated balances to the balance sheet in 2021 and 2022, subject to the terms of the 2019 IDA agreement. During the first quarter of 2023, Schwab did not move IDA balances to its balance sheet. The 2023 IDA agreement extends the agreement term to sweep balances to the TD Depository Institutions through July 1, 2034, and requires that Schwab maintain minimum and maximum IDA balances as follows: • Through September 10, 2025, withdrawals of IDA balances by Schwab are generally permitted only to the extent of withdrawals initiated by Schwab customers, with limited exceptions, except to the extent necessary for Schwab to maintain balances below the applicable maximum. During this period, Schwab must maintain minimum balances - 46 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) above the total of then-outstanding unmatured fixed-rate obligation amounts, with a maximum of $ 30 billion above this total amount. • After September 10, 2025, withdrawals of IDA balances are permitted at Schwab’s discretion, subject to an obligation to maintain IDA balances above a minimum of $ 60 billion, with a maximum of $ 90 billion. The 2023 IDA agreement eliminates the requirement of the 2019 IDA agreement that at least 80 % of the IDA balances be designated as fixed-rate obligation amounts. Designation of deposit balances for investment in fixed- or floating-rate instruments under the 2023 IDA agreement is now at Schwab’s sole discretion with certain limitations on the amount of fixed-rate obligation amounts. Pursuant to the 2023 IDA agreement, Schwab has the option to buy down up to $ 5 billion of fixed-rate obligation amounts by paying a market-based fee during the agreement term, subject to certain limits. If IDA balances decline below the required IDA balance minimum as described above, Schwab would be required to make a nonperformance payment to the TD Depository Institutions pursuant to the terms of the 2023 IDA agreement. As of March 31, 2023, the total ending IDA balance was $ 106.5 billion, of which $ 104.3 billion was fixed-rate obligation amounts and $ 2.2 billion was floating-rate obligation amounts. As of December 31, 2022, the total ending IDA balance was $ 122.6 billion, of which $ 108.5 billion was fixed-rate obligation amounts and $ 14.1 billion was floating-rate obligation amounts. Legal contingencies: Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available. Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company. Corrente Antitrust Litigation : On June 6, 2022, CSC was sued in the U.S. District Court for the Eastern District of Texas on behalf of a putative class of customers who purchased or sold securities through CS&Co or TD Ameritrade, Inc. from October 26, 2020 to the present. The lawsuit alleges that CSC’s acquisition of TD Ameritrade violated Section 7 of the Clayton Act because it has resulted in an anticompetitive market for the execution of retail customer orders. Plaintiffs seek unspecified damages, as well as injunctive and other relief. A motion by the Company to dismiss the lawsuit was denied by the court on February 24, 2023, and discovery is proceeding. The Company considers the claims to be without merit and is vigorously contesting the lawsuit. Crago Order Routing Litigation : On July 13, 2016, a securities class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of a putative class of customers executing equity orders through CS&Co. The lawsuit names CS&Co and CSC as defendants and alleges that an agreement under which CS&Co routed orders to UBS Securities LLC between July 13, 2011 and December 31, 2014 violated CS&Co’s duty to seek best execution. Plaintiffs seek unspecified - 47 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) damages, interest, injunctive and equitable relief, and attorneys’ fees and costs. Defendants consider the allegations to be entirely without merit and have been vigorously contesting the lawsuit. After a first amended complaint was dismissed with leave to amend, plaintiffs filed a second amended complaint on August 14, 2017. Defendants again moved to dismiss, and in a decision issued December 5, 2017, the court denied the motion. Plaintiffs filed a motion for class certification on April 30, 2021, and in a decision on October 27, 2021, the court denied the motion and held that certification of a class action is inappropriate. Plaintiffs sought review of the order denying class certification by the U.S. Court of Appeals, 9th Circuit, which was denied. On September 23, 2022, plaintiffs filed a renewed motion for class certification and defendants moved to compel plaintiffs’ case to arbitration. On February 2, 2023, the court granted defendants’ motion, stayed the case pending the outcome of arbitration, and denied plaintiffs’ renewed motion for class certification as moot. Ford Order Routing Litigation : On September 15, 2014, TDA Holding, TD Ameritrade, Inc. and its former CEO, Frederick J. Tomczyk, were sued in the U.S. District Court for the District of Nebraska on behalf of a putative class of TD Ameritrade, Inc. clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices. Plaintiffs seek unspecified damages and injunctive and other relief. Defendants consider the allegations to be entirely without merit and have been vigorously contesting the lawsuit. On September 14, 2018, the District Court granted plaintiffs’ motion for class certification, and defendants petitioned for an immediate appeal of the District Court’s class certification decision. On April 23, 2021, the U.S. Court of Appeals, 8th Circuit, issued a decision reversing the District Court’s certification of a class and remanding the case back to the District Court for further proceedings. Plaintiff renewed his motion for class certification, which the District Court granted on September 20, 2022. Defendants are appealing the District Court’s ruling before the U.S. Court of Appeals, 8th Circuit. 10. Exit and Other Related Liabilities The Company completed its acquisition of TD Ameritrade effective October 6, 2020 and integration work continued during the first three months of 2023, including 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. The Company expects to continue to incur significant acquisition and integration-related costs and integration-related capital expenditures throughout the remaining integration process. Such costs have included, and are expected to continue to include, professional fees, such as legal, advisory, and accounting fees, compensation and benefits expenses for employees and contractors involved in the integration work, and costs for technology enhancements. The Company has also incurred exit and other related costs to attain anticipated synergies, which are primarily comprised of employee compensation and benefits such as severance pay, other termination benefits, and retention costs, as well as costs related to facility closures, such as accelerated amortization and depreciation or impairments of assets in those locations. Exit and other related costs are a component of the Company’s overall acquisition and integration-related spending, and support the Company’s ability to achieve integration objectives including expected synergies. Our 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 the effects of changes in remote working trends. Inclusive of costs recognized through March 31, 2023, Schwab currently expects to incur total exit and other related costs for the integration of TD Ameritrade ranging from $ 500 million to $ 700 million, consisting of employee compensation and benefits, facility exit costs, and certain other costs. During the three months ended March 31, 2023 and 2022, the Company recognized $ 10 million and $ 12 million of acquisition-related exit costs, respectively. The Company expects that remaining exit and other related costs will be incurred and charged to expense over the next 21 months, with some costs expected to be incurred after client transition to decommission duplicative platforms and complete integration work. In addition to ASC 420 Exit or Disposal Cost Obligations , certain of the costs associated with these activities are accounted for in accordance with ASC 360 Property, Plant and Equipment , ASC 712 Compensation — Nonretirement Post Employment Benefits , ASC 718 Compensation — Stock Compensation , and ASC 842 Leases . - 48 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following is a summary of the activity in the Company’s exit and other related liabilities as of March 31, 2023 and activity for the three months ended March 31, 2023: Investor Services Employee Compensation and Benefits Advisor Services Employee Compensation and Benefits Total Balance at December 31, 2022 (1) $ 36 $ 10 $ 46 Amounts recognized in expense (2) 8 2 10 Costs paid or otherwise settled ( 2 ) — ( 2 ) Balance at March 31, 2023 (1) $ 42 $ 12 $ 54 (1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets. (2) Amounts recognized in expense for severance pay and other termination benefits, as well as retention costs, are included in compensation and benefits on the condensed consolidated statements of income. The following table summarizes the exit and other related costs recognized in expense for the three months ended March 31, 2023: Investor Services Advisor Services Three Months Ended March 31 Employee Compensation and Benefits Facility Exit Costs Investor Services Total Employee Compensation and Benefits Facility Exit Costs Advisor Services Total Total Compensation and benefits $ 8 $ — $ 8 $ 2 $ — $ 2 $ 10 Total $ 8 $ — $ 8 $ 2 $ — $ 2 $ 10 The following table summarizes the exit and other related costs recognized in expense for the three months ended March 31, 2022: Investor Services Advisor Services Three Months Ended March 31 Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 8 $ — $ 8 $ 2 $ — $ 2 $ 10 Occupancy and equipment — 1 1 — 1 1 2 Total $ 8 $ 1 $ 9 $ 2 $ 1 $ 3 $ 12 (1) Costs related to facility closures. These costs, which are comprised of accelerated amortization of right-of-use (ROU) assets, relate to the impact of abandoning leased properties. The following table summarizes the exit and other related costs incurred from October 6, 2020 through March 31, 2023: Investor Services Advisor Services Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 231 $ — $ 231 $ 63 $ — $ 63 $ 294 Occupancy and equipment — 31 31 — 7 7 38 Depreciation and amortization — 2 2 — 1 1 3 Professional services — 1 1 — — — 1 Other — 2 2 — — — 2 Total $ 231 $ 36 $ 267 $ 63 $ 8 $ 71 $ 338 (1) Costs related to facility closures. These costs, which are primarily comprised of accelerated amortization of ROU assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties. - 49 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 11. Derivative Instruments and Hedging Activities Risk Management Objective of Using Derivatives Beginning in 2023, the Company utilizes derivative instruments to manage interest rate risk exposures that arise from business activities related to changes in fair values or the receipt of future known and uncertain cash amounts due to changes in interest rates. The Company uses derivative instruments to manage changes in the fair values of, as well as changes in the amounts and/or timing of known or expected cash receipts related to, our AFS investment portfolio. For a description of how the Company accounts for derivative instruments, see Note 2. For additional information on the basis of presentation for derivative instruments on the Company’s condensed consolidated balance sheets and related offsetting considerations, see Note 12. Fair Value Hedges of Interest Rate Risk The Company is exposed to changes in the fair value of its fixed-rate AFS securities due to changes in benchmark interest rates. The Company uses cleared interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Cleared interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a CCP in exchange for the Company receiving floating-rate payments over the life of the agreements without the exchange of the underlying notional amount. The Company had outstanding interest rate swaps with aggregate notional amounts of $ 3.9 billion at March 31, 2023 that were designated as fair value hedges of interest rate risk. Fair Values of Derivative Instruments The table below presents the gross fair values of the Company’s interest rate swaps designated as hedging instruments on the condensed consolidated balance sheet: March 31, 2023 Assets Liabilities Interest rate swaps (1,2) $ — $ 1 (1) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheet. (2) Includes a $ 5 million and $ 7 million reduction of derivative assets and derivative liabilities, respectively, related to variation margin settlements on derivatives cleared through CCPs. Settlements on derivative positions cleared through CCPs are reflected as reductions to the associated derivative asset and liability balances. Effects of Fair Value Hedge Accounting The following amounts were recorded in AFS securities on the condensed consolidated balance sheet related to fair value hedges: March 31, 2023 Carrying amount of hedged AFS securities (1) $ 3,988 Cumulative fair value hedging adjustment included in the carrying amount of hedged AFS securities (1) 4 (1) Excludes the carrying amount and fair value hedging adjustment of AFS securities for which hedge accounting has been discontinued. The cumulative amount of fair value hedging adjustments remaining for these securities is an unrealized loss of less than $ 500 thousand, which is recorded in AFS securities on the condensed consolidated balance sheet. The table below presents the effect of the Company’s interest rate swaps designated as fair value hedges on the condensed consolidated statement of income: Three Months Ended March 31, 2023 Gain (loss) on fair value hedging relationships recognized in interest revenue: Hedged items $ 4 Derivatives designated as hedging instruments ( 4 ) - 50 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 12. Financial Instruments Subject to Off-Balance Sheet Credit Risk Interest rate swaps: Beginning in 2023, Schwab uses interest rate swaps to manage certain interest rate risk exposures. Schwab’s interest rate swaps are cleared through CCPs which require the Company to post initial margin as collateral against potential losses. Schwab pledges investment securities as collateral in order to meet the CCP’s initial margin requirements. Initial margin is posted through futures commission merchants (FCM) which serve as the intermediary between CCPs and Schwab. Our interest rate swaps are subject to enforceable master netting arrangements allowing a right of setoff within each FCM-CCP relationship; however, we do not net these positions. Therefore, interest rate swaps are presented gross in the condensed consolidated balance sheets. See Note 11 for additional information on the Company’s interest rate swaps. Resale agreements: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investments requirement. Schwab’s resale agreements as of March 31, 2023 and December 31, 2022 were not subject to master netting arrangements. Securities lending: Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. In addition, most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $ 1.1 billion and $ 685 million at March 31, 2023 and December 31, 2022, respectively. Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets. Repurchase agreements: Schwab enters into collateralized repurchase agreements with external financial institutions in which the Company’s banking subsidiaries sell securities and agree to repurchase these securities on a specified future date at a stated repurchase price. These repurchase agreements are collateralized by investment securities with a fair value equal to or in excess of the secured borrowing liability. Decreases in security prices posted as collateral for repurchase agreements may require Schwab to transfer cash or additional securities deemed acceptable by the counterparty. To mitigate this risk, Schwab monitors the fair value of underlying securities pledged as collateral compared to the related liability. Our collateralized repurchase agreements with each external financial institution are considered to be enforceable master netting arrangements. However, we do not net these arrangements. As such, the secured short-term borrowings associated with these collateralized repurchase agreements are presented gross in the condensed consolidated balance sheets. - 51 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table presents information about our interest rate swaps, resale agreements, securities lending, and other activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities. Gross Assets/ Liabilities Gross Amounts Offset in the Condensed Consolidated Balance Sheets Net Amounts Presented in the Condensed Consolidated Balance Sheets Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Net Amount Counterparty Offsetting Collateral March 31, 2023 Assets Resale agreements (1) $ 4,920 $ — $ 4,920 $ — $ ( 4,920 ) (2) $ — Securities borrowed (3) 1,098 — 1,098 ( 674 ) ( 424 ) — Total $ 6,018 $ — $ 6,018 $ ( 674 ) $ ( 5,344 ) $ — Liabilities Interest rate swaps (4) $ 1 $ — $ 1 $ — $ ( 1 ) (5) $ — Repurchase agreements (6) 6,822 — 6,822 — ( 6,822 ) — Securities loaned (7) 4,166 — 4,166 ( 674 ) ( 2,998 ) 494 Total $ 10,989 $ — $ 10,989 $ ( 674 ) $ ( 9,821 ) $ 494 December 31, 2022 Assets Resale agreements (1) $ 12,159 $ — $ 12,159 $ — $ ( 12,159 ) (2) $ — Securities borrowed (3) 705 — 705 ( 331 ) ( 366 ) 8 Total $ 12,864 $ — $ 12,864 $ ( 331 ) $ ( 12,525 ) $ 8 Liabilities Repurchase agreements (6) $ 4,402 $ — $ 4,402 $ — $ ( 4,402 ) $ — Securities loaned (7) 4,200 — 4,200 ( 331 ) ( 3,313 ) 556 Total $ 8,602 $ — $ 8,602 $ ( 331 ) $ ( 7,715 ) $ 556 (1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets. (2) Actual collateral was greater than or equal to the value of the related assets. At March 31, 2023 and December 31, 2022, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $ 5.0 billion and $ 12.3 billion, respectively. (3) Included in other assets on the condensed consolidated balance sheets. (4) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. Derivative asset and liability positions are inclusive of variation margin settlements cleared through CCPs which are reflected as reductions to the associated derivative asset and liability balances. See Note 11 for additional information. (5) Actual collateral was greater than or equal to the value of the related liabilities. At March 31, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $ 85 million. See Notes 4 and 11 for additional information. (6) Included in other short-term borrowings in the condensed consolidated balance sheets. Actual collateral was greater than or equal to the value of the related liabilities. At March 31, 2023 and December 31, 2022, the fair value of collateral pledged in connection with repurchase agreements was $ 7.3 billion and $ 4.6 billion, respectively. See Note 8 for additional information. (7) Included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at March 31, 2023 and December 31, 2022. - 52 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged to third parties under such regulations and from securities borrowed transactions: March 31, 2023 December 31, 2022 Fair value of client securities available to be pledged $ 83,771 $ 86,775 Fair value of securities pledged for: Fulfillment of requirements with the Options Clearing Corporation (1) $ 13,023 $ 11,717 Fulfillment of client short sales 6,589 4,750 Securities lending to other broker-dealers 3,486 3,472 Total collateral pledged to third parties $ 23,098 $ 19,939 Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $ 178 million and $ 160 million at March 31, 2023 and December 31, 2022, respectively. (1) Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation. 13. Fair Values of Assets and Liabilities Assets and liabilities measured at fair value on a recurring basis Schwab’s assets and liabilities measured at fair value on a recurring basis include: certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, certain other assets, interest rate swaps and certain accrued expenses and other liabilities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. Quoted prices for investments in exchange-traded securities represent end-of-day close prices published by exchanges. Quoted prices for money market funds and other mutual funds represent reported net asset values. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices in active markets do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets, and we generally obtain prices from three independent third-party pricing sources for such assets recorded at fair value. Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposits; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in material differences in the amounts recorded. Liabilities measured at fair value on a recurring basis include interest rate swaps and repurchase liabilities related to client-held fractional shares of equities, ETFs, and other securities, which are included in other assets on the condensed consolidated balance sheets. The Company has elected the fair value option pursuant to ASC 825 Financial Instruments for the repurchase liabilities to match the measurement and accounting of the related client-held fractional shares. The fair values of the repurchase liabilities are based on quoted market prices or other observable market data consistent with the related client-held fractional shares. Unrealized gains and losses on client-held fractional shares offset the unrealized gains and losses on the corresponding repurchase liabilities, resulting in no impact to the condensed consolidated statements of income. The Company’s liabilities to repurchase client-held fractional shares do not have credit risk, and, as a result, the Company has not recognized any gains or losses in the condensed consolidated statements of income or comprehensive income attributable to instrument-specific credit risk for these repurchase liabilities. The repurchase liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. The fair values of interest rate swaps are based on market observable interest rate yield curves. Fair value measurements are priced considering the coupon rate of the fixed leg of the contract and the variable coupon rate on the floating leg of the contract. - 53 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Valuation is based on both spot and forward rates on the swap yield curve. The Company validates its valuations with counterparty quotations from CCPs. See Note 11 for additional information on the Company’s interest rate swaps. For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2022 Form 10-K. The Company did not adjust prices received from the primary independent third-party pricing service at March 31, 2023 or December 31, 2022. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis: March 31, 2023 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 15,027 $ — $ — $ 15,027 Total cash equivalents 15,027 — — 15,027 Investments segregated and on deposit for regulatory purposes: U.S. Government securities — 19,519 — 19,519 Certificates of deposit — 1,100 — 1,100 Total investments segregated and on deposit for regulatory purposes — 20,619 — 20,619 Available for sale securities: U.S. agency mortgage-backed securities — 75,547 — 75,547 U.S. Treasury securities — 37,862 — 37,862 Asset-backed securities — 11,839 — 11,839 Corporate debt securities — 12,539 — 12,539 Certificates of deposit — 1,438 — 1,438 Foreign government agency securities — 982 — 982 U.S. state and municipal securities — 588 — 588 Non-agency commercial mortgage-backed securities — 321 — 321 Other — 218 — 218 Total available for sale securities — 141,334 — 141,334 Other assets: Other securities owned at fair value: Equity, corporate debt, and other securities 809 64 — 873 Mutual funds and ETFs 650 — — 650 State and municipal debt obligations — 19 — 19 U.S. Government securities — 2 — 2 Total other securities owned at fair value 1,459 85 — 1,544 Total other assets 1,459 85 — 1,544 Total assets $ 16,486 $ 162,038 $ — $ 178,524 Accrued expenses and other liabilities: Interest rate swaps $ — $ 1 $ — $ 1 Other 1,318 45 — 1,363 Total accrued expenses and other liabilities 1,318 46 — 1,364 Total liabilities $ 1,318 $ 46 $ — $ 1,364 - 54 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) December 31, 2022 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 14,007 $ — $ — $ 14,007 Commercial paper — 48 — 48 Total cash equivalents 14,007 48 — 14,055 Investments segregated and on deposit for regulatory purposes: U.S. Government securities — 23,645 — 23,645 Certificates of deposit — 1,000 — 1,000 Total investments segregated and on deposit for regulatory purposes — 24,645 — 24,645 Available for sale securities: U.S. agency mortgage-backed securities — 77,688 — 77,688 U.S. Treasury securities — 40,002 — 40,002 Asset-backed securities — 13,023 — 13,023 Corporate debt securities — 12,555 — 12,555 Certificates of deposit — 2,231 — 2,231 Foreign government agency securities — 969 — 969 U.S. state and municipal securities — 638 — 638 Non-agency commercial mortgage-backed securities — 450 — 450 Other — 315 — 315 Total available for sale securities — 147,871 — 147,871 Other assets: Other securities owned at fair value: Equity, corporate debt, and other securities 755 55 — 810 Mutual funds and ETFs 596 — — 596 State and municipal debt obligations — 25 — 25 U.S. Government securities — 1 — 1 Total other securities owned at fair value 1,351 81 — 1,432 Total other assets 1,351 81 — 1,432 Total assets $ 15,358 $ 172,645 $ — $ 188,003 Accrued expenses and other liabilities $ 1,218 $ 43 $ — $ 1,261 Total liabilities $ 1,218 $ 43 $ — $ 1,261 - 55 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Fair Value of Other Financial Instruments The following tables present the fair value hierarchy for other financial instruments: March 31, 2023 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 34,135 $ 34,135 $ — $ — $ 34,135 Cash and investments segregated and on deposit for regulatory purposes 10,369 5,459 4,910 — 10,369 Receivables from brokerage clients — net 63,174 — 63,174 — 63,174 Held to maturity securities: U.S. agency mortgage-backed securities 169,911 — 158,866 — 158,866 Total held to maturity securities 169,911 — 158,866 — 158,866 Bank loans — net: First Mortgages 25,404 — 22,519 — 22,519 HELOCs 554 — 607 — 607 Pledged asset lines 13,801 — 13,801 — 13,801 Other 205 — 205 — 205 Total bank loans — net 39,964 — 37,132 — 37,132 Other assets 5,048 — 5,048 — 5,048 Liabilities Bank deposits $ 325,745 $ — $ 325,745 $ — $ 325,745 Payables to brokerage clients 87,553 — 87,553 — 87,553 Accrued expenses and other liabilities 5,760 — 5,760 — 5,760 Other short-term borrowings 7,071 — 7,071 — 7,071 Federal Home Loan Bank borrowings 45,600 — 45,600 — 45,600 Long-term debt 19,956 — 18,035 — 18,035 - 56 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) December 31, 2022 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 26,140 $ 26,140 $ — $ — $ 26,140 Cash and investments segregated and on deposit for regulatory purposes 18,288 6,156 12,132 — 18,288 Receivables from brokerage clients — net 66,573 — 66,573 — 66,573 Held to maturity securities: U.S. agency mortgage-backed securities 173,074 — 158,936 — 158,936 Total held to maturity securities 173,074 — 158,936 — 158,936 Bank loans — net: First Mortgages 25,132 — 22,201 — 22,201 HELOCs 593 — 657 — 657 Pledged asset lines 14,592 — 14,592 — 14,592 Other 188 — 188 — 188 Total bank loans — net 40,505 — 37,638 — 37,638 Other assets 3,788 — 3,788 — 3,788 Liabilities Bank deposits $ 366,724 $ — $ 366,724 $ — $ 366,724 Payables to brokerage clients 97,438 — 97,438 — 97,438 Accrued expenses and other liabilities 5,584 — 5,584 — 5,584 Other short-term borrowings 4,650 — 4,650 — 4,650 Federal Home Loan Bank borrowings 12,400 — 12,400 — 12,400 Long-term debt 20,760 — 19,108 — 19,108 - 57 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 14. Stockholders’ Equity On July 27, 2022, CSC publicly announced that its Board of Directors approved a new share repurchase 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. 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 excise tax which was recognized as a direct and incremental cost associated with these transactions. The Company’s preferred stock issued and outstanding is as follows: Liquidation Preference Per Share Dividend Rate in Effect at March 31, 2023 Earliest Redemption Date Date at Which Dividend Rate Resets or Becomes Floating Reset / Floating Rate Margin Over Reset / Floating Rate Shares Issued and Outstanding (in ones) at Carrying Value at March 31, 2023 (1,2) December 31, 2022 (1) March 31, 2023 December 31, 2022 Issue Date Fixed-rate: Series D 750,000 750,000 $ 1,000 $ 728 $ 728 03/07/16 5.950 % 06/01/21 N/A N/A N/A Series J 600,000 600,000 1,000 584 584 03/30/21 4.450 % 06/01/26 N/A N/A N/A Fixed-to-floating-rate/Fixed-rate reset: Series F 4,958 5,000 100,000 481 492 10/31/17 5.000 % 12/01/27 12/01/27 3M LIBOR 2.575 % Series G (3) 24,730 25,000 100,000 2,428 2,470 04/30/20 5.375 % 06/01/25 06/01/25 5 -Year Treasury 4.971 % Series H (4) 23,336 25,000 100,000 2,200 2,470 12/11/20 4.000 % 12/01/30 12/01/30 10 -Year Treasury 3.079 % Series I (3) 20,997 22,500 100,000 2,030 2,222 03/18/21 4.000 % 06/01/26 06/01/26 5 -Year Treasury 3.168 % Series K (3) 7,500 7,500 100,000 740 740 03/04/22 5.000 % 06/01/27 06/01/27 5 -Year Treasury 3.256 % Total preferred stock 1,431,521 1,435,000 $ 9,191 $ 9,706 (1) Represented by depositary shares. (2) Includes depositary shares repurchased and in-process of transfer with the Company’s transfer agent. As of March 31, 2023, the Company had 7,500 depositary shares of Series F, 15,000 depositary shares of Series G, 106,829 depositary shares of Series H, and 44,228 depositary shares of Series I repurchased and in-process of transfer. These depositary shares were transferred on April 4, 2023. (3) The dividend rate for Series G, Series I, and Series K resets on each five-year anniversary from the first reset date. (4) The dividend rate for Series H resets on each ten-year anniversary from the first reset date. N/A Not applicable. - 58 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Dividends declared on the Company’s preferred stock are as follows: Three Months Ended March 31, 2023 2022 Total Declared (1) Per Share Amount Total Declared Per Share Amount Series A (2) N/A N/A $ 5.0 $ 12.70 Series D (3) $ 11.2 $ 14.88 11.2 14.88 Series E (4) N/A N/A 13.9 2,312.50 Series F (5) — — — — Series G (3) 33.2 1,343.75 33.6 1,343.75 Series H (3) 23.7 1,000.00 25.0 1,000.00 Series I (3) 21.3 1,000.00 22.5 1,000.00 Series J (3) 6.7 11.13 6.7 11.13 Series K (6) 9.3 1,250.00 N/A N/A Total $ 105.4 $ 117.9 (1) Excludes $ 3 million of dividends declared on Series G, H and I, and accrued by stockholders as of the repurchase date. Such dividends are part of the consideration paid upon repurchase of the depositary shares. (2) 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. (3) Dividends paid quarterly. (4) 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. (5) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter. (6) Series K was issued on March 4, 2022. Dividends are paid quarterly, and the first dividend was paid on June 1, 2022. N/A Not applicable. 15. Accumulated Other Comprehensive Income AOCI represents cumulative gains and losses that are not reflected in earnings. AOCI balances and the components of other comprehensive income (loss) are as follows: Total AOCI Balance at December 31, 2021 $ ( 1,109 ) Available for sale securities: Net unrealized gain (loss), excluding transfers to held to maturity, net of tax expense (benefit) of $( 3,137 ) ( 9,998 ) Net unrealized loss on securities transferred to held to maturity, net of tax benefit of $ 579 1,850 Other reclassifications included in other revenue, net of tax expense (benefit) of $( 3 ) ( 9 ) Held to maturity securities: Net unrealized loss on securities transferred from available for sale, net of tax benefit of $ 579 ( 1,850 ) Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 21 71 Balance at March 31, 2022 $ ( 11,045 ) Balance at December 31, 2022 $ ( 22,621 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $ 421 1,428 Other reclassifications included in other revenue, net of tax expense (benefit) of $ 2 7 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 107 502 Other, net of tax expense (benefit) of $( 2 ) ( 6 ) Balance at March 31, 2023 $ ( 20,690 ) In 2022, the Company transferred a portion of its AFS securities to the HTM category. As of March 31, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 12.8 billion net of tax effect ($ 16.9 billion pretax). See Note 4 for additional discussion on the 2022 transfers of AFS securities to HTM. - 59 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 16. Earnings Per Common Share For the three months ended March 31, 2023 and 2022, the Company had voting and nonvoting common stock outstanding. Since the rights of the voting and nonvoting common stock are identical, except with respect to voting, the net income of the Company has been allocated on a proportionate basis to the two classes. Diluted earnings per share is calculated using the treasury stock method for outstanding stock options and non-vested restricted stock units and the if-converted method for nonvoting common stock. The if-converted method assumes conversion of all nonvoting common stock to common stock. For further details surrounding the EPS computation, see Note 25 in the 2022 Form 10-K. EPS under the basic and diluted computations for both common stock and nonvoting common stock are as follows: Three Months Ended March 31, 2023 2022 Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Basic earnings per share: Numerator Net income $ 1,559 $ 44 $ 1,344 $ 58 Preferred stock dividends and other (1) ( 68 ) ( 2 ) ( 119 ) ( 5 ) Net income available to common stockholders $ 1,491 $ 42 $ 1,225 $ 53 Denominator Weighted-average common shares outstanding — basic 1,783 51 1,815 79 Basic earnings per share $ .84 $ .84 $ .67 $ .67 Diluted earnings per share: Numerator Net income available to common stockholders $ 1,491 $ 42 $ 1,225 $ 53 Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares 42 — 53 — Allocation of net income available to common stockholders: $ 1,533 $ 42 $ 1,278 $ 53 Denominator Weighted-average common shares outstanding — basic 1,783 51 1,815 79 Conversion of nonvoting shares to voting shares 51 — 79 — Common stock equivalent shares related to stock incentive plans 8 — 11 — Weighted-average common shares outstanding — diluted (2) 1,842 51 1,905 79 Diluted earnings per share $ .83 $ .83 $ .67 $ .67 (1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units. (2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 16 million and 14 million for the three months ended March 31, 2023 and 2022, respectively. - 60 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 17. Regulatory Requirements At March 31, 2023, CSC and its banking subsidiaries met all of their respective capital requirements. Regulatory capital and ratios for CSC (consolidated) and CSB are as follows: Actual Minimum to be Well Capitalized Minimum Capital Requirement March 31, 2023 Amount Ratio Amount Ratio Amount Ratio (1) CSC Common Equity Tier 1 Risk-Based Capital $ 29,026 21.4 % N/A $ 6,114 4.5 % Tier 1 Risk-Based Capital 38,217 28.1 % N/A 8,152 6.0 % Total Risk-Based Capital 38,299 28.2 % N/A 10,869 8.0 % Tier 1 Leverage 38,217 7.1 % N/A 21,606 4.0 % Supplementary Leverage Ratio 38,217 7.0 % N/A 16,328 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 27,694 28.7 % $ 6,266 6.5 % $ 4,338 4.5 % Tier 1 Risk-Based Capital 27,694 28.7 % 7,712 8.0 % 5,784 6.0 % Total Risk-Based Capital 27,769 28.8 % 9,640 10.0 % 7,712 8.0 % Tier 1 Leverage 27,694 7.7 % 18,080 5.0 % 14,464 4.0 % Supplementary Leverage Ratio 27,694 7.6 % N/A 10,937 3.0 % December 31, 2022 CSC Common Equity Tier 1 Risk-Based Capital $ 30,590 21.9 % N/A $ 6,285 4.5 % Tier 1 Risk-Based Capital 40,296 28.9 % N/A 8,379 6.0 % Total Risk-Based Capital 40,376 28.9 % N/A 11,173 8.0 % Tier 1 Leverage 40,296 7.2 % N/A 22,512 4.0 % Supplementary Leverage Ratio 40,296 7.1 % N/A 17,004 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 27,296 27.4 % $ 6,476 6.5 % $ 4,483 4.5 % Tier 1 Risk-Based Capital 27,296 27.4 % 7,970 8.0 % 5,978 6.0 % Total Risk-Based Capital 27,370 27.5 % 9,963 10.0 % 7,970 8.0 % Tier 1 Leverage 27,296 7.3 % 18,640 5.0 % 14,912 4.0 % Supplementary Leverage Ratio 27,296 7.3 % N/A 11,275 3.0 % (1) Under risk-based capital rules, CSC and CSB are also required to maintain additional capital buffers above the regulatory minimum risk-based capital ratios. As of March 31, 2023, CSC was subject to a stress capital buffer of 2.5%. In addition, CSB is required to maintain a capital conservation buffer of 2.5%. CSC and CSB are also required to maintain a countercyclical capital buffer above the regulatory minimum risk-based capital ratios, which was zero for both periods presented. If a buffer falls below the minimum requirement, CSC and CSB would be subject to increasingly strict limits on capital distributions and discretionary bonus payments to executive officers. At March 31, 2023, the minimum capital ratio requirements for both CSC and CSB, inclusive of their respective buffers, were 7.0%, 8.5%, and 10.5% for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital, respectively. N/A Not applicable. Based on its regulatory capital ratios at March 31, 2023, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since March 31, 2023 that management believes have changed CSB’s capital category. At March 31, 2023, the balance sheets of Charles Schwab Premier Bank, SSB (CSPB) and Charles Schwab Trust Bank (Trust Bank) consisted primarily of investment securities, and the entities held total assets of $ 32.1 billion and $ 11.8 billion, respectively. Based on their regulatory capital ratios, at March 31, 2023, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules. - 61 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Net capital and net capital requirements for CS&Co, TDAC, and TD Ameritrade, Inc., are as follows: March 31, 2023 December 31, 2022 CS&Co Net capital $ 5,422 $ 5,386 Minimum dollar requirement 0.250 0.250 2% of aggregate debit balances 773 778 Net capital in excess of required net capital $ 4,649 $ 4,608 TDAC Net capital $ 4,670 $ 5,291 Minimum dollar requirement 1.500 1.500 2% of aggregate debit balances 627 626 Net capital in excess of required net capital $ 4,043 $ 4,665 TD Ameritrade, Inc. Net capital $ 792 $ 806 Minimum dollar requirement 0.250 0.250 2% of aggregate debit balances — — Net capital in excess of required net capital $ 792 $ 806 Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at March 31, 2023. The SEC’s Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit. Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the condensed consolidated statements of cash flows. 18. Segment Information Schwab’s two reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are attributed to the two segments based on which segment services the client. Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments. Financial information for the segments is presented in the following table: Investor Services Advisor Services Total Three Months Ended March 31, 2023 2022 2023 2022 2023 2022 Net Revenues Net interest revenue $ 2,033 $ 1,574 $ 737 $ 609 $ 2,770 $ 2,183 Asset management and administration fees 805 781 313 287 1,118 1,068 Trading revenue 775 844 117 119 892 963 Bank deposit account fees 99 200 52 94 151 294 Other 151 127 34 37 185 164 Total net revenues 3,863 3,526 1,253 1,146 5,116 4,672 Expenses Excluding Interest 2,233 2,131 773 702 3,006 2,833 Income before taxes on income $ 1,630 $ 1,395 $ 480 $ 444 $ 2,110 $ 1,839 - 62 - THE CHARLES SCHWAB CORPORATION