What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-08 · 464 added, 267 removed, 600 unchanged (55% of the section changed)

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

annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a)

annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

In addition, we post to the website the Dodd-Frank stress test results, our

THE CHARLES SCHWAB CORPORATION

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

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

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

regulatory capital disclosures based on Basel III, our average liquidity coverage ratio (LCR), and our average net stable funding ratio (NSFR).

The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with them.

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

• Business momentum;

investments to support growth in our client base;

capital return (see Overview);

• Investments to support growth in the business;

business momentum (see Overview);

• Expected timing for the TD Ameritrade client transitions;

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

• Our planning to take actions to streamline our operations and expectation to realize at least $500 million of incremental run-rate cost savings and the timing and amount of associated exit and related costs that we will incur (see Overview, Results of Operations, and Exit and Other Related Liabilities in Item 1 – Note 10);

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

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

the use and balances of supplemental funding;

outstanding balances and the use of supplemental funding;

net interest revenue (see Results of Operations);

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

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

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

plans regarding capital and dividends (see Capital Management and Commitments and Contingencies in Item 1 – Note 9);

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• Competitive pressure on pricing, including deposit rates;

THE CHARLES SCHWAB CORPORATION

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

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

• Client sensitivity to rates;

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• Our ability to manage expenses;

THE CHARLES SCHWAB CORPORATION

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

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

• Our ability to attract and retain talent;

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• Re al estate and workforce decisions;

• Our ability to timely and successfully streamline our operations and realize expected run-rate cost savings;

• Client cash allocations;

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• Prepayment levels for mortgage-backed securities;

• LIBOR trends;

• Adverse developments in litigation or regulatory matters and any related charges;

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

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

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

Three Months Ended

March 31, Percent

June 30, Percent

Change Six Months Ended

June 30, Percent

2023 2022 2023 2022

Client Metrics

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Client cash as a percentage of client assets (at quarter end) (2)

10.5 % 12.8 %

Company Financial Information and Metrics

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Earnings per common share — diluted $ .64 $ .87 (26) % $ 1.48 $ 1.54 (4) %

Net revenue growth from prior year 10 % (1) %

Net revenue change from prior year (9) % 13 % — 6 %

Pre-tax profit margin 36.3 % 44.6 % 38.9 % 42.1 %

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Return on tangible common equity 62 % 45 % 71 % 32 %

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

(1) The second quarter and first six months of 2023 include inflows of $7.8 billion and $26.8 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB and includes an inflow of $12.0 billion from a mutual fund clearing services client.

The second quarter and first six months of 2022 include an outflow of $20.8 billion from a mutual fund clearing services client.

(2) Client cash as a percentage of client assets excludes brokered CDs issued by CSB.

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

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See Non-GAAP Financial Measures.

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

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

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

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

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

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

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

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

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

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

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

Schwab saw sustained strong client engagement and momentum during the second quarter and first six months of 2023 through an evolving macroeconomic environment.

Under its monetary tightening policy, the Federal Reserve raised the Federal Funds rate twice in the first quarter and once in the second quarter for a total of 75 basis points.

Investor sentiment was bearish throughout the first quarter, especially following the onset of banking industry turmoil in early March, but turned positive by the end of the second quarter, and Schwab’s clients were net buyers of equities in June.

Equity markets continued to rise from year-end 2022 levels in the second quarter, with the S&P 500 ® increasing 8% and 16% during the second quarter and first six months of 2023, respectively.

Core net new assets totaled $52.2 billion in the second quarter of 2023, bringing year-to-date asset gathering to $183.9 billion, representing an annualized organic growth rate of over 5%.

Total client assets were $8.02 trillion at June 30, 2023, up 14% from year-end 2022, supported by sustained asset gathering as well as market value gains.

Trading volume was lower throughout the first half of 2023 relative to the same period in 2022.

Clients’ daily average trades (DATs) were 5.3 million and 5.6 million in the second quarter and first half of 2023, respectively, down 15% and 13% from the respective prior periods.

THE CHARLES SCHWAB CORPORATION

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

up 24% from the first quarter of 2022.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Clients opened 960 thousand and 2.0 million new brokerage accounts in the second quarter and first six months of 2023, respectively, bringing active brokerage accounts to 34.4 million at quarter-end, up 1% year-over-year.

Schwab’s financial performance in the second quarter and first six months of 2023 reflected effects of significantly increased interest rates and improvement in equity market valuations.

Net income totaled $1.3 billion and $2.9 billion in the second quarter and first six months of 2023, respectively, down 28% and 9% from the same periods in 2022.

The Company produced diluted earnings per share (EPS) of $.64 and $1.48 in the second quarter and first six months of 2023, respectively, down 26% and 4% from the comparable periods in the prior year.

Adjusted diluted EPS (1) , which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, was $.75 and $1.68 in the second quarter and first six months of 2023, respectively, down 23% and 3% from the comparable 2022 periods.

Total net revenues were $4.7 billion in the second quarter of 2023, down 9% from the prior year, which brought the year-to-date total to $9.8 billion, up slightly from the first half of 2022.

Net interest revenue was $2.3 billion and $5.1 billion in the second quarter and first six months of 2023, respectively, down 10% and up 7% from the comparable periods in 2022, as the benefits of significantly higher interest rates were more than offset in the second quarter by increased utilization of supplemental funding to facilitate client cash allocation decisions and lower interest-earning assets.

Asset management and administration fees totaled $1.2 billion and $2.3 billion in the second quarter and first six months of 2023, respectively, rising 12% and 8% from the comparable periods in 2022 due to growth in money market funds, partially offset by lower balances in other third-party mutual funds and ETFs.

Trading revenue was $803 million and $1.7 billion in the second quarter and first six months of 2023, respectively, down 9% and 8% from the comparable periods in 2022 due primarily to lower trading volume and change in mix of client trading activity.

Bank deposit account fee revenue was $175 million and $326 million in the second quarter and first six months of 2023, respectively, down 50% from both comparable periods in the prior year due to lower average BDA balances and lower net yields, as well as $97 million in one-time breakage fees related to ending our arrangements with certain third-party banks in the first quarter of 2023.

BDA balances totaled $102.7 billion at June 30, 2023, down 19% from year-end 2022 due primarily to client cash allocation decisions.

During the second quarter of 2023, the Company executed a Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement) (see Results of Operations – Bank Deposit Account Fees).

Total expenses excluding interest were $3.0 billion and $6.0 billion in the second quarter and first six months of 2023, respectively, increasing 5% and 6% from the same periods in 2022.

Adjusted total expenses (1) were $2.7 billion and $5.5 billion in the second quarter and first six months of 2023, respectively, also higher by 5% and 6% from the comparable prior-year periods.

These increases reflected higher expenses for compensation and benefits, depreciation and amortization, and occupancy and equipment, due largely to investments in people and technology to support growth in the business and TD Ameritrade integration.

Acquisition and integration-related costs were $130 million and $228 million during the second quarter and first six months of 2023, respectively, up 38% and 20% from the same periods in 2022 due primarily to real estate exit costs incurred in the second quarter of 2023.

Amortization of acquired intangible assets was $134 million and $269 million in the second quarter and first six months of 2023, respectively, down 13% from both comparable periods in 2022 as certain assets from the TD Ameritrade acquisition were fully amortized at the beginning of the fourth quarter of 2022.

Return on average common stockholders’ equity was 17% and 20% for the second quarter and first six months of 2023, respectively, down from 19% and up from 15% from the same periods in 2022.

Return on tangible common equity (1) (ROTCE) was 62% and 71% for the second quarter and first six months of 2023, respectively, up from 45% and 32% in the same periods in 2022.

These changes reflected lower stockholders’ equity and lower net income in 2023 compared with 2022.

Stockholders’ equity was lower in the first six months of 2023 due to a year-over-year decrease in average AOCI driven by unrealized losses on our available for sale (AFS) portfolio and securities transferred from AFS to held to maturity (HTM) in 2022 (see Item 1 – Note 4).

The Company continued its diligent approach to balance sheet management throughout the first six months of 2023 to maintain capital and liquidity levels to sustain ongoing business momentum.

Total balance sheet assets decreased 7% from year-end 2022 to June 30, 2023.

Amid higher market interest rates in the first half of 2023, clients allocated assets to higher yielding cash and fixed income alternatives, and to facilitate these client cash movements and help build available cash, the Company utilized additional temporary funding sources including Federal Home Loan Bank (FHLB) borrowings and issuances of brokered CDs.

Amounts outstanding under FHLB borrowings, other short-term borrowings, and brokered CDs increased by a total of

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

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

Integration of TD Ameritrade

Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade Holding Corporation (TDA Holding) and its consolidated subsidiaries (collectively referred to as “TD Ameritrade” or “TDA”).

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

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

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

THE CHARLES SCHWAB CORPORATION

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$6.8 billion from March 31 to June 30, 2023, though the outstanding balance of these temporary funding sources declined $6.9 billion from an intra-quarter peak in May to quarter-end, as the pace of client cash reallocations declined significantly during the second quarter.

In addition, in May, the Company issued $2.5 billion in long-term debt which provided incremental liquidity to support growth and helped bolster our capital ratios at our banking subsidiaries.

Concurrently, driven by a combination of the Company’s first-half net income and a smaller balance sheet, our consolidated Tier 1 Leverage Ratio increased to 7.5% as of June 30, 2023.

Integration of TD Ameritrade

Integration work continued during the first six months of 2023, including the completion of client transition groups in February and May 2023.

With the completion of the May transition group, which included more than five million client accounts, the Company has now transitioned approximately one-third of its TD Ameritrade client accounts to the Schwab platform.

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

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

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

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

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

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

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $130 million and $228 million for the second quarter and first six months of 2023, respectively, and $94 million and $190 million for the second quarter and first six months of 2022, respectively.

Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through June 30, 2023, we have achieved approximately 75% of this amount on an annualized run-rate basis.

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

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

Subsequent Events

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

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

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

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

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

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

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

In addition to cost synergies directly related to the integration of TD Ameritrade, the Company is planning incremental actions to streamline its operations to prepare for post-integration.

Schwab is currently assessing its real estate footprint, and plans to close or downsize certain corporate offices.

In addition, the Company plans to streamline its operational design, including through position eliminations.

Through these actions, the Company expects to realize at least $500 million of incremental run-rate cost savings in addition to integration synergies.

Refer to Results of Operations – Total Expenses Excluding Interest for additional information.

Current Regulatory and Other Developments

In July 2023, the Board of Governors of the Federal Reserve System, in collaboration with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC), issued a notice of proposed rulemaking for amendments to the regulatory capital rule.

Among other things, the proposed rule would require us to include AOCI in regulatory capital and to calculate our risk-weighted assets using a revised risk-based approach, a component of which is based on operational risk , phased in over a three-year transition period beginning July 1, 2025 and ending July 1, 2028.

The comment period for the proposed rule ends on November 30, 2023.

In May 2023, the FDIC issued a notice of proposed rulemaking that would impose a special assessment to recover losses incurred by the Deposit Insurance Fund to protect uninsured depositors due to the March 2023 closures of two banks.

Based on the proposed rule, the Company estimates its total special assessment would be approximately $160 million, which would be

THE CHARLES SCHWAB CORPORATION

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

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

paid over eight quarters beginning in the first quarter of 2024.

Any special assessment will be recognized fully in earnings upon enactment of a final rule.

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

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

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

THE CHARLES SCHWAB CORPORATION

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

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

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

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

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

THE CHARLES SCHWAB CORPORATION

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

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

RESULTS OF OPERATIONS

Total Net Revenues

The following table presents a comparison of revenue by category:

Three Months Ended March 31, Percent

The following tables present a comparison of revenue by category:

Three Months Ended June 30, Percent

Change Amount % of

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Total net revenues (9) % $ 4,656 100 % $ 5,093 100 %

Six Months Ended June 30, Percent

Change Amount % of

Revenues Amount % of

Net interest revenue

Interest revenue 61 % $ 8,120 83 % $ 5,029 51 %

Interest expense N/M (3,060) (31) % (302) (3) %

Net interest revenue 7 % 5,060 52 % 4,727 48 %

Asset management and administration fees

Mutual funds, ETFs, and CTFs 21 % 1,215 13 % 1,004 10 %

Advice solutions (4) % 917 9 % 957 10 %

Other — 159 2 % 159 2 %

Asset management and administration fees 8 % 2,291 24 % 2,120 22 %

Trading revenue

Commissions (12) % 816 8 % 927 9 %

Order flow revenue (13) % 779 8 % 900 9 %

Principal transactions N/M 100 1 % 21 1 %

Trading revenue (8) % 1,695 17 % 1,848 19 %

Bank deposit account fees (50) % 326 3 % 646 7 %

Other (6) % 400 4 % 424 4 %

Total net revenues — $ 9,772 100 % $ 9,765 100 %

N/M Not meaningful.

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

Net Interest Revenue

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

Schwab establishes the rates paid on client-

THE CHARLES SCHWAB CORPORATION

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

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

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

Net Interest Revenue

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

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

See also Risk Management – Interest Rate Risk Simulations.

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

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

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

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

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

Short-term rates were near zero until the Federal Reserve began its aggressive tightening cycle in March 2022 in response to rising inflation, ultimately increasing the federal funds target overnight rate ten times between March 2022 and May 2023 for a total increase of 500 basis points.

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

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

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

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

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

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

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

The average daily pace of client cash allocation out of sweep products into higher yielding investment solutions decreased significantly in the second quarter of 2023, and in June, the Company was able to accommodate these client cash movements without accessing additional FHLB borrowings or issuing additional brokered CDs.

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

Three Months Ended June 30, 2023 Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

Interest-earning assets

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Net interest revenue $ 2,290 1.87 % $ 2,544 1.62 %

THE CHARLES SCHWAB CORPORATION

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

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

Six Months Ended June 30, Average

Balance Interest

Expense Average

Balance Interest

Expense Average

Interest-earning assets

Cash and cash equivalents $ 40,891 $ 960 4.67 % $ 68,920 $ 167 0.48 %

Cash and investments segregated 33,699 756 4.46 % 51,570 94 0.36 %

Receivables from brokerage clients 60,626 2,251 7.39 % 81,618 1,332 3.24 %

Available for sale securities (1)

150,382 1,616 2.15 % 285,927 2,035 1.42 %

Held to maturity securities (1)

169,184 1,466 1.73 % 102,580 717 1.40 %

Bank loans 40,185 801 4.00 % 37,351 417 2.24 %

Total interest-earning assets 494,967 7,850 3.16 % 627,966 4,762 1.51 %

Securities lending revenue 236 259

Other interest revenue 34 8

Total interest-earning assets $ 494,967 $ 8,120 3.27 % $ 627,966 $ 5,029 1.60 %

Funding sources

Bank deposits $ 327,739 $ 1,481 0.91 % $ 451,306 $ 44 0.02 %

Payables to brokerage clients 70,997 139 0.40 % 103,846 6 0.01 %

Other short-term borrowings (2)

7,272 183 5.06 % 3,646 8 0.46 %

Federal Home Loan Bank borrowings (2,3)

35,697 910 5.07 % — — —

Long-term debt 20,766 296 2.85 % 20,495 232 2.26 %

Total interest-bearing liabilities 462,471 3,009 1.31 % 579,293 290 0.10 %

Non-interest-bearing funding sources 32,496 48,673

Securities lending expense 50 15

Other interest expense 1 (3)

Total funding sources $ 494,967 $ 3,060 1.24 % $ 627,966 $ 302 0.10 %

Net interest revenue $ 5,060 2.03 % $ 4,727 1.50 %

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

2 unchanged sentences

Prior period amounts have been reclassified to reflect this change.

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

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

Net interest revenue decreased $254 million, or 10%, in the second quarter of 2023 compared to the second quarter of 2022, primarily due to utilization of higher cost funding sources including FHLB borrowings, other short-term borrowings, and brokered CDs to support client cash allocations in the rising rate environment, and lower average interest-earning assets, which more than offset the benefits of higher average yields on interest-earning assets.

Net interest revenue in the first six months of 2023 increased $333 million, or 7%, compared to the same period in 2022, primarily due to higher average yields on interest-earning assets, partially offset by utilization of higher cost funding sources and lower average interest-earning assets.

With the increases in market interest rates during the first half of 2023, net premium amortization of investment securities decreased to $207 million and $392 million in the second quarter and first six months of 2023, respectively, from $382 million and $868 million in the second quarter and first six months of 2022, respectively.

Average interest-earning assets for the second quarter and first six months of 2023 were lower by 22% and 21%, respectively, compared to the same periods in 2022.

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

Net interest margin increased to 1.87% and 2.03% during the second quarter and first six months of 2023, respectively, from 1.62% and 1.50% during the same periods in 2022.

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

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

The Company currently expects its outstanding balances of supplemental funding sources to decrease between now and the end of 2024, with a limited portion remaining outstanding in early 2025.

Additional higher cost supplemental funding may be necessary if client cash allocation movements increase, which

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

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

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

could reduce net interest revenue.

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

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

Three Months Ended March 31, 2023 2022

Three Months Ended June 30, 2023 2022

Assets Revenue Average

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Other third-party mutual funds and ETFs 681,486 133 0.08 % 795,727 171 0.09 %

Total mutual funds, ETFs, and CTFs (1)

$ 1,751,670 630 0.14 % $ 1,565,918 515 0.13 %

Advice solutions (1)

Fee-based $ 455,859 464 0.41 % $ 440,336 461 0.42 %

Non-fee-based 95,427 — — 86,684 — —

Total advice solutions $ 551,286 464 0.34 % $ 527,020 461 0.35 %

Other balance-based fees (2)

594,528 63 0.04 % 566,712 61 0.04 %

Total asset management and administration fees $ 1,173 $ 1,052

Six Months Ended June 30, Average

Assets Revenue Average

Schwab money market funds before fee waivers $ 346,145 $ 465 0.27% $ 145,371 $ 208 0.29%

Fee waivers — (57)

Schwab money market funds 346,145 465 0.27% 145,371 151 0.21%

Schwab equity and bond funds, ETFs, and CTFs 457,830 185 0.08% 444,036 189 0.09%

Mutual Fund OneSource ® and other NTF funds (4)

225,822 299 0.27% 202,538 314 0.31%

Other third-party mutual funds and ETFs (4)

678,915 266 0.08% 833,969 350 0.08%

Total mutual funds, ETFs, and CTFs (1)

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Total asset management and administration fees $ 2,291 $ 2,120

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

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

1 unchanged sentence

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

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

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

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

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

(4) The first six months of 2022 include transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and other NTF funds.

Asset management and administration fees increased by $121 million, or 12%, and $171 million, or 8%, in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022.

These increases were primarily a result of higher balances in Schwab money market funds and, for the first six months of 2023 , the elimination of fee waivers on those funds .

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

These increases were partially offset by lower balances in other third-party mutual funds and ETFs.

THE CHARLES SCHWAB CORPORATION

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

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

These funds generated 42% and 41% of the asset management and administration fees earned in the second quarter and first six months of 2023, respectively, compared with 33% and 31% in the second quarter and first six months of 2022, respectively:

Market Funds Schwab Equity and

1 unchanged sentence

and Other NTF funds

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

Three Months Ended June 30, 2023 2022 2023 2022 2023 2022

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

1 unchanged sentence

Net market gains (losses) and other 4,258 114 19,813 (62,750) 17,024 (28,680)

Balance at end of period $ 392,887 $ 159,231 $ 465,847 $ 387,211 $ 254,636 $ 196,578

Market Funds Schwab Equity and

Bond Funds, ETFs, and CTFs Mutual Fund OneSource ®

and Other NTF funds

Six Months Ended June 30, 2023 2022 2023 2022 2023 2022

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

Net inflows (outflows) 105,843 12,592 12,659 15,145 (11,279) (18,763)

Net market gains (losses) and other (1)

8,118 130 40,246 (82,798) 30,177 (19,599)

2 unchanged sentences

Trading Revenue

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

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

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

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

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

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

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

1 unchanged sentence

Three Months Ended

March 31, Percent

June 30, Percent

Change Six Months Ended

June 30, Percent

2023 2022 2023 2022

Commissions $ 394 $ 443 (11) % $ 816 $ 927 (12) %

3 unchanged sentences

Total order flow revenue 365 430 (15) % 779 900 (13) %

Principal transactions 56 9 N/M

Principal transactions 44 12 N/M 100 21 N/M

Total trading revenue $ 803 $ 885 (9) % $ 1,695 $ 1,848 (8) %

1 unchanged sentence

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

THE CHARLES SCHWAB CORPORATION

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

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

Three Months Ended

March 31, Percent

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

June 30, Percent

Change Six Months Ended

June 30, Percent

2023 2022 2023 2022

DATs (in thousands) 5,272 6,227 (15) % 5,584 6,403 (13) %

Product as a percentage of DATs

8 unchanged sentences

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

THE CHARLES SCHWAB CORPORATION

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

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

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

Trading revenue decreased $82 million and $153 million in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022.

This change is primarily due to a decrease in commissions and order flow revenue resulting from lower client trading activity.

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

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Bank Deposit Account Fees

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

The Company earns bank deposit account fee revenue from TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions).

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

On May 4, 2023, the Company executed the 2023 IDA agreement with the TD Depository Institutions that replaced and superseded the previous agreement dated November 24, 2019, as amended (the 2019 IDA agreement).

In accordance with the 2023 IDA agreement, cash held in eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions, consistent with the 2019 IDA agreement.

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

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

See Item 1 – Note 9 for additional discussion of the 2023 IDA agreement.

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

Three Months Ended

March 31, Percent Change

Three Months Ended June 30, Percent Change Six Months Ended

June 30, Percent Change

2023 2022 2023 2022

Bank deposit account fees $ 175 $ 352 (50) % $ 326 $ 646 (50) %

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

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

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

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

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

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

THE CHARLES SCHWAB CORPORATION

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

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

Bank deposit account fees decreased $177 million, or 50%, and $320 million, or 50%, in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022.

The decreases were primarily due to breakage fees of $97 million incurred during the first quarter of 2023 as a result of ending the other third-party bank arrangements, the decrease in average floating-rate BDA balances, and an increase in the amount paid to clients due to higher interest rates.

These factors also contributed to the decrease in average net yield in the second quarter and first six months of 2023 compared to the same periods in 2022.

The decreases in average BDA balances in the second quarter and first six months of 2023 compared to the same periods in 2022 were primarily due to client cash allocation decisions in response to rising short-term market interest rates throughout 2022 and through the second quarter of 2023.

The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of June 30, 2023 were 94% and 6%, respectively.

Other Revenue

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

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

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

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

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

Other revenue decreased $45 million and $24 million in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022, due to the impact of changes to exchange processing fees and net losses on sales of AFS securities, partially offset by lower provision for credit losses on bank loans and certain service fees.

Exchange processing fees decreased in the second quarter of 2023 compared to the second quarter of 2022 as a result of an SEC fee rate decrease which became effective February 27, 2023, and decreased the fee rate by approximately 65% from the rate in effect since May 2022.

Exchange processing fees were higher during the first six months of 2023 compared to the same period in 2022, due to a higher average SEC fee rate in effect during the first quarter of 2023.

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

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

In addition, other revenue in the second quarter and first six months of 2022 included gains of $37 million and $46 million, respectively, on the sale of Schwab Compliance Technologies, Inc.

and certain investments.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

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

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

Total Expenses Excluding Interest

1 unchanged sentence

Three Months Ended

March 31, Percent

June 30, Percent

Change Six Months Ended

June 30, Percent

2023 2022 2023 2022

Compensation and benefits

18 unchanged sentences

Average 36.2 34.5 5 % 35.9 34.2 5 %

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

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

Expenses excluding interest increased by $146 million, or 5%, and $319 million, or 6%, in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022.

Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased 5% and 6% in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022.

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

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

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

These increases were partially offset by lower incentive compensation.

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

Professional services expense increased in the first quarter of 2023 compared to the same period in 2022, primarily due to increased utilization of technology-related and other professional services to support overall growth of the business and enhancement to technological infrastructure to support our expanding client base, as well as the TDA integration and client account transitions.

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

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

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

Compensation and benefits included acquisition and integration-related costs of $48 million and $53 million in the second quarter of 2023 and 2022, respectively, and $106 million and $109 million in the first six months of 2023 and 2022, respectively.

Professional services expense increased in the second quarter and first six months of 2023 compared to the same periods in 2022, primarily due to increased utilization of professional services to support overall growth of the business and enhancement to technological infrastructure to support our expanding client base, as well as the TDA integration and client account transitions.

Professional services included acquisition and integration-related costs of $41 million and $35 million in the second quarter of 2023 and 2022, respectively, and $74 million and $66 million in the first six months of 2023 and 2022, respectively.

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

Occupancy and equipment included acquisition and integration-related costs of $10 million and $4 million in the second quarter of 2023 and 2022, respectively, and $14 million and $8 million in the first six months of 2023 and 2022, respectively.

Advertising and market development expense decreased in the second quarter and first six months of 2023, compared to the same periods in 2022.

These decreases were primarily due to lower client promotional spending for TD Ameritrade.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

Communications expense increased in the second quarter and first six months of 2023, compared to the same periods in 2022.

These increases were primarily a result of client communications related to TDA account transitions completed during the second quarter.

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

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

Regulatory fees and assessments increased in the second quarter and first six months of 2023 compared to the same periods in 2022, primarily as a result of a 2-basis-point increase to the FDIC deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023.

Other expense decreased in the second quarter of 2023 and increased in the first six months of 2023, compared to the same periods in 2022.

The decrease in the second quarter was primarily due to lower exchange processing fees, partially offset by impairment of leased assets related to facility closures.

The increase in other expense in the first six months of 2023 was primarily a result of impairment of leased assets related to facility closures and higher exchange processing fees.

Exchange processing fees were higher during the first six months of 2023 compared to the same period in 2022, due to a higher average SEC fee rate in effect during the first quarter of 2023.

Other expense included acquisition and integration-related costs of $20 million and $22 million in the second quarter and first six months of 2023, respectively.

Capital expenditures were $168 million and $339 million in the second quarter of 2023 and 2022, respectively, and $355 million and $548 million for the first six months of 2023 and 2022, respectively.

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

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

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

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

With significant progress now made in the integration of TD Ameritrade, the Company is planning incremental actions to streamline its operations to prepare for post-integration.

Schwab is currently assessing its real estate footprint, and plans to close or downsize certain corporate offices.

In addition, the Company plans to reduce its operating costs primarily through lower headcount and professional services.

The Company is still evaluating both its real estate locations and its organizational headcount, though Schwab expects to realize at least $500 million of total annual run-rate cost savings to be achieved through these actions.

In order to achieve these cost savings, the Company will incur exit and related costs, which could be significant, primarily related to employee compensation and benefits and facility exit costs.

The Company anticipates most costs related to position eliminations will be incurred in the second half of 2023, and costs related to real estate will be incurred in 2023 and 2024;

however, amounts related to these planned actions are not yet estimable.

Taxes on Income

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

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

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

Taxes on income were $397 million and $481 million for the second quarter of 2023 and 2022, respectively, resulting in effective tax rates of 23.5% and 21.2%, respectively.

Taxes on income were $904 million and $918 million for the first six months of 2023 and 2022, respectively, resulting in effective tax rates of 23.8% and 22.3%, respectively.

The increase in the effective tax rates in the second quarter and first six months of 2023 compared to the same periods in 2022 was primarily related to a decrease in reserve releases in 2023, tax benefits recognized on the portion of a regulatory matter charge that was determined upon settlement to be deductible in the second quarter of 2022, and increased 2023 state tax expense.

THE CHARLES SCHWAB CORPORATION

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

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

Segment Information

1 unchanged sentence

Investor Services Advisor Services Total

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

Three Months Ended June 30, Percent Change 2023 2022 Percent Change 2023 2022 Percent Change 2023 2022

Net interest revenue (7) % $ 1,705 $ 1,834 (18) % $ 585 $ 710 (10) % $ 2,290 $ 2,544

7 unchanged sentences

Net New Client Assets (in billions) (1)

N/M $ 36.0 $ 8.8 4 % $ 36.0 $ 34.6 66 % $ 72.0 $ 43.4

Investor Services Advisor Services Total

Six Months Ended June 30, Percent Change 2023 2022 Percent Change 2023 2022 Percent Change 2023 2022

Net interest revenue 10 % $ 3,738 $ 3,408 — $ 1,322 $ 1,319 7 % $ 5,060 $ 4,727

Asset management and administration fees 7 % 1,646 1,544 12 % 645 576 8 % 2,291 2,120

Trading revenue (8) % 1,476 1,607 (9) % 219 241 (8) % 1,695 1,848

Bank deposit account fees (44) % 239 427 (60) % 87 219 (50) % 326 646

Other (2) % 307 314 (15) % 93 110 (6) % 400 424

Total net revenues 1 % 7,406 7,300 (4) % 2,366 2,465 — 9,772 9,765

Expenses Excluding Interest 4 % 4,424 4,242 10 % 1,547 1,410 6 % 5,971 5,652

Income before taxes on income (2) % $ 2,982 $ 3,058 (22) % $ 819 $ 1,055 (8) % $ 3,801 $ 4,113

Net New Client Assets (in billions) (1)

82 % $ 115.4 $ 63.4 7 % $ 107.3 $ 100.5 36 % $ 222.7 $ 163.9

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

(1) In the second quarter and first six months of 2023, Investor Services includes inflows of $7.8 billion and $26.8 billion, respectively, from off-platform brokered CDs issued by CSB.

Also, in the second quarter and first six months of 2023, Investor Services includes an inflow of $12.0 billion from a mutual fund clearing services client.

In the second quarter and first six months of 2022, Investor Services includes an outflow of $20.8 billion from a mutual fund clearing services client.

N/M Not meaningful.

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

Segment Net Revenues

Investor Services total net revenues decreased by 6% and increased by 1% in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022, while Advisor Services total net revenues decreased by 16% and 4%, in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022.

Decreases in Investor Services and Advisor Services revenues for the second quarter were primarily driven by decreases in net interest revenue due to higher cost funding sources and certain lower average interest-earning asset balances, as described above.

For the six-month period, the increase in Investor Services revenues was primarily driven by higher net interest revenue due to higher yields on interest-earning assets as described above, while Advisor Services net interest revenue was flat.

Both segments saw a decrease in bank deposit account fees in the second quarter and first six months of 2023 due to lower average BDA balances and higher yields paid to clients, as well as, for the six-month period, breakage fees incurred as a result of ending certain third-party bank arrangements.

Trading revenue decreased in the second quarter and first six months of 2023 for both segments primarily due to lower client trading activity and changes in client trading mix, resulting in lower commissions and order flow revenue.

Other revenue also decreased in the second quarter and first six months of 2023 for both segments primarily due to gains on the sale of certain investments in 2022 and net losses on sales of AFS securities in 2023.

These decreases were partially offset by increased asset management and administration fees in both segments in the second quarter and first six months of 2023, primarily as a result of higher money market fund balances and, for the six-month period, the elimination of money market fund fee waivers during 2022.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Segment Net Revenues

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

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

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

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

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

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

Segment Expenses Excluding Interest

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

Investor Services total expenses excluding interest increased by 4% in the second quarter and first six months of 2023 compared to the same periods in 2022, while Advisor Services total expenses excluding interest increased by 9% and 10% in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022.

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

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

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

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

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

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

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

Both segments saw higher communications expenses due to client communications related to TDA account transitions and overall growth of the business.

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

In Investor Services, these increases were partially offset by lower amortization of acquired intangible assets as certain assets from the TDA acquisition became fully amortized in 2022.

RISK MANAGEMENT

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

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

THE CHARLES SCHWAB CORPORATION

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

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

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

Key assumptions include the projection of interest rate scenarios with rate floors, rates and balances of non-maturity client cash held on the balance sheet, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans.

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

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These assets are sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment.

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

THE CHARLES SCHWAB CORPORATION

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

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

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

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

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

March 31, 2023 December 31, 2022

The following table shows simulated changes to net interest revenue over the next 12 months beginning June 30, 2023 and December 31, 2022 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

June 30, 2023 December 31, 2022

Increase of 200 basis points 9.1 % 7.3 %

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Decrease of 200 basis points (7.0) % (6.7) %

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

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

The Company’s simulated incremental increases in market interest rates had a larger impact on net interest revenue as of June 30, 2023 compared to December 31, 2022 primarily due to higher cash and margin loan balances, which was partially offset by an increased allocation to FHLB borrowings and other short-term borrowings across the Company’s banking subsidiaries.

Simulated incremental decreases in market interest rates had a larger impact on net interest revenue as of June 30, 2023 compared to December 31, 2022 primarily due to higher cash and margin loan balances, while increased allocation to shorter-term liabilities contributed to lower interest expense in a lower rate environment.

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

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

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

THE CHARLES SCHWAB CORPORATION

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

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

As of June 30, 2023 and December 31, 2022, simulated changes in bank deposit account fee revenue from gradual changes in market interest rates relative to prevailing market rates, under the interest rate scenarios described above for net interest revenue, did not have a significant impact on the Company’s total net revenues.

Economic Value of Equity Simulation

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

THE CHARLES SCHWAB CORPORATION

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

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

Effective Duration

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

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

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

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

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

The estimated effective duration of our AFS investment securities portfolio was approximately 2.4 years and 3.4 years as of June 30, 2023 and 2022, respectively.

The estimated effective duration for the Company’s total AFS and HTM investment securities portfolio was approximately 4.0 years and 4.1 years as of June 30, 2023 and 2022, respectively.

AFS and HTM securities comprised approximately 57% of the Company’s consolidated total assets as of both June 30, 2023 and 2022.

The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both June 30, 2023 and 2022.

The Company’s estimated effective duration of consolidated total assets was approximately 2.5 years at June 30, 2023 and 2022.

Phase-out of LIBOR

The Company has made significant progress to prepare for the phasing-out of LIBOR, as described in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2022 Form 10-K, and additional transition efforts to prepare for the phasing-out of LIBOR are ongoing.

Effective June 30, 2023, publication of the London Interbank Offered Rate (LIBOR) ceased.

While we completed all LIBOR transition work that could be done prior to June 30, 2023, we will continue to monitor and manage the LIBOR substitution for certain investment securities that we hold and the portfolio of legacy loans that we have for which scheduled interest rate resets or related interest rate transitions will occur in future periods.

We will also monitor our financial models and systems that previously referenced LIBOR.

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

Liquidity Risk

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the capital needs of the banking subsidiaries;

principal and interest due on corporate debt;

dividend payments on CSC’s preferred stock;

and returns of capital to common stockholders.

principal and interest due on corporate debt, and dividend payments on CSC’s preferred and common stock.

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

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

THE CHARLES SCHWAB CORPORATION

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

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

Funding Sources

2 unchanged sentences

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

THE CHARLES SCHWAB CORPORATION

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

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

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

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Treasury securities.

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

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

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

Our clients’ bank deposits and brokerage cash balances primarily originate from our 34.4 million active brokerage accounts.

More than 80% of our bank deposits qualified for FDIC insurance as of June 30, 2023.

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

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

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

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

The following table describes external debt facilities available at June 30, 2023:

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

FHLB secured credit facilities Banking subsidiaries $ 41,000 $ 38,288 (1)

April 2023 - August 2024 5.16%

July 2023 - September 2024 5.14%

Federal Reserve discount window Banking subsidiaries — 8,802 (1)

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Repurchase agreements Banking subsidiaries 7,831 — (2)

August 2023 - January 2024 5.00%

August 2023 - April 2024 5.01%

Uncommitted, unsecured lines of credit with

various external banks CSC, CS&Co — 1,767 N/A —

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

Unsecured commercial paper CSC — 5,000 N/A —

Secured uncommitted line of credit with external bank CS&Co — — (3)

Secured uncommitted lines of credit with various

external banks TDAC — — (4)

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

(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of June 30, 2023.

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

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See Note 12 for additional information.

(3) In the second quarter of 2023, CS&Co entered into a secured, uncommitted line of credit agreement with an external bank.

Secured borrowing capacity is made available based on CS&Co’s ability to provide acceptable collateral to lender as determined by the credit agreement.

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

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

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

As of June 30, 2023, the Company had additional investment securities with a par value of approximately $172 billion or a fair value of approximately $156 billion available to be pledged to obtain additional capacity.

These securities could be used to provide additional borrowing capacity of up to $172 billion, dependent on the facility utilized.

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

THE CHARLES SCHWAB CORPORATION

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

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

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

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

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

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

Our banking subsidiaries may also engage with external financial institutions in repurchase

THE CHARLES SCHWAB CORPORATION

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

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

agreements collateralized by investment securities as another source of short-term liquidity.

In addition, our banking subsidiaries are counterparties to the standing repo facility with the Federal Reserve Bank of New York;

other than de minimis tests performed to satisfy the Federal Reserve Bank of New York’s testing requirements, this facility was not used during the first six months of 2023 and there were no amounts outstanding at June 30, 2023.

Beginning in the second quarter of 2023, CSC maintains a standing bilateral repurchase agreement with an external bank.

Other than a de minimis test, this facility was not used during the second quarter of 2023 and there were no amounts outstanding under this facility at June 30, 2023.

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

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The Company is eligible to obtain advances under this program.

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

CSC’s ratings for Commercial Paper Notes were P1 by Moody’s Investor Service (Moody’s), A1 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at March 31, 2023 and December 31, 2022.

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

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

This facility was not used during the first six months of 2023.

CSC’s ratings for Commercial Paper Notes were P1 by Moody’s Investor Service (Moody’s), A2 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at June 30, 2023.

During the second quarter of 2023, Standard & Poor’s downgraded its rating of CSC’s Commercial Paper Notes from A1 to A2, and Moody’s changed its outlook from positive to stable.

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

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

Beginning in the second quarter of 2023, CS&Co also maintains a secured, uncommitted line of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral.

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

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

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

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

The following table provides information about brokered CDs issued by CSB and outstanding as of June 30, 2023:

Amount Outstanding Maturity Weighted-Average Interest Rate

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

Brokered CDs $ 41,368 July 2023 - April 2025 4.97%

Cash Flow Activity

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

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

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

During the second quarter of 2023, the pace of client cash allocations out of our sweep features decreased significantly, and in June, the Company was able to cover these client cash movements without drawing upon additional FHLB borrowings or issuing additional brokered CDs.

In the second quarter of 2023, the Company’s FHLB borrowings and other short-term borrowings decreased by $3.8 billion as a result of FHLB maturities during the period.

Bank deposits also decreased during the second quarter of 2023 by $21.3 billion, resulting from a decrease of $29.5 billion in deposits swept from brokerage accounts due to ongoing changes in client cash allocations and a slight increase in client equities purchases, which was partially offset by a net increase in brokered CDs of $10.6 billion.

During the first six months of 2023, the Company’s cash and cash equivalents, excluding amounts restricted, increased by $7.5 billion to $47.7 billion as of June 30, 2023.

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

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

Bank deposits decreased by a total of $62.3 billion during the first six months of 2023;

this was driven by a decrease of $93.2 billion in deposits swept from brokerage accounts due primarily to clients’ cash allocation decisions described above, partially offset by a net increase in brokered CDs of $35.3 billion.

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

Offsetting the decrease in bank deposits, investing cash flows from our AFS and HTM securities totaled $30.8 billion in the first six months of 2023, and the Company increased its FHLB borrowings and other short-term borrowings by a total of $31.8 billion.

THE CHARLES SCHWAB CORPORATION

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

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

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

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

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

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

Liquidity Coverage Ratio

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

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

The Company was in compliance with the LCR rule at June 30, 2023, and the table below presents information about our average daily LCR:

Average for the Three Months Ended

March 31, 2023 December 31, 2022

June 30, 2023 March 31, 2023

Total eligible HQLA $ 65,738 $ 80,128

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

Net Stable Funding Ratio

Schwab is subject to disclosure requirements under the NSFR rule, which requires the semi-annual public disclosure of its NSFR levels beginning in the second quarter of 2023.

The NSFR rule stipulates that the Company’s available stable funding (ASF) must be at least 100% of the Company’s required stable funding (RSF).

ASF is calculated by assessing the stability of the Company’s funding sources and RSF is calculated by evaluating the characteristics of the Company’s assets, derivatives, and off-balance-sheet exposures.

The Company was in compliance with the NSFR rule at June 30, 2023, and the table below presents information about our average NSFR:

Average for the Three Months Ended

June 30, 2023 March 31, 2023

ASF $ 200,512 $ 202,504

RSF 166,428 163,622

NSFR 120 % 124 %

Long-Term Borrowings

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

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

March 31, 2023 Par

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $22.5 billion and $20.8 billion at June 30, 2023 and December 31, 2022, respectively.

The following table provides information about our Senior Notes outstanding at June 30, 2023:

June 30, 2023 Par

Outstanding Maturity Weighted Average

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

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

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

During the second quarter of 2023, Standard and Poor’s downgraded CSC’s and TDA Holding’s long-term issuer credit and senior unsecured debt ratings from A to A- and affirmed its outlook remained stable.

Moody’s also affirmed its rating of A2 for CSC and TDA Holding and changed its outlook from positive to stable.

THE CHARLES SCHWAB CORPORATION

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

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

New Debt Issuances

The below debt issuances in the first six months of 2023 were senior unsecured obligations.

Additional details are as follows:

Issuance Date Issuance Amount Maturity Date Interest Rate

May 19, 2023 $ 1,200 05/19/2029 5.643% (1)

May 19, 2023 1,300 05/19/2034 5.853% (1)

(1) Interest rates presented are those in effect at June 30, 2023.

For additional information regarding future interest rates on fixed-to-floating rate Senior Notes, see Item 1 – Note 8.

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

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CAPITAL MANAGEMENT

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

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including balance sheet growth over time, management of the 2023 IDA agreement inclusive of potential migration of IDA balances (see further discussion below), providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries.

Schwab also seeks to return excess capital to stockholders.

We may return excess capital through such activities as

THE CHARLES SCHWAB CORPORATION

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

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

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

We may return excess capital through such activities as dividends, repurchases of common shares, preferred stock redemptions, and repurchases of our preferred stock represented by depositary shares.

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

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CSC and certain subsidiaries including our banking and broker-dealer subsidiaries are subject to various capital requirements set by regulatory agencies as discussed in further detail in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Management of the 2022 Form 10-K and in Item 1 – Note 17.

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

As of June 30, 2023, CSC and our banking subsidiaries are considered well capitalized, and CS&Co, TDAC, and TD Ameritrade, Inc.

are in compliance with their respective net capital requirements.

THE CHARLES SCHWAB CORPORATION

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

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

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

CSC CSB CSC CSB

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Risk-Weighted Assets 132,791 94,278 139,657 99,631

Average Assets with regulatory adjustments 520,602 356,406 562,803 372,802

Total Leverage Exposure 524,576 359,257 566,809 375,846

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

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

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

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

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

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

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

The Company’s consolidated Tier 1 Leverage Ratio increased to 7.5% at June 30, 2023 from 7.1% at March 31, 2023 and 7.2% at year-end 2022.

This increase during the second quarter was primarily due to net income during the quarter and a decrease in the Company’s total assets.

Total balance sheet assets decreased $24.0 billion, or 4%, during the second quarter of 2023 due primarily to a decrease of $24.1 billion, or 6%, in total bank deposits and payables to brokerage clients due to client cash allocation decisions resulting from the rising interest rate environment.

CSB’s Tier 1 Leverage Ratio increased from year-end 2022, ending the second quarter of 2023 at 8.9% primarily as a result of capital contributions from CSC enabled by the Company’s issuance of $2.5 billion of long-term debt in May 2023.

The Board of Governors of the Federal Reserve System recently issued a notice of proposed changes to the regulatory capital rules that would require us to include AOCI in regulatory capital, phased in over a three-year transition period beginning July 1, 2025 (see Current Regulatory and Other Developments).

As of June 30, 2023, our adjusted Tier 1 Leverage Ratio, which reflects the inclusion of AOCI in the ratio, was 3.7% for CSC consolidated and 4.0% for CSB (see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results).

The Company is continuing to accrete and retain capital while it continues to evaluate the impacts of the proposal.

The Company currently anticipates meeting the proposed capital requirements organically well ahead of the transition period provided within the proposal.

IDA Agreement

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

During the first quarter of 2023, Schwab did not move IDA balances to its balance sheet.

Certain brokerage client deposits are swept off-balance sheet to the TD Depository Institutions pursuant to the 2023 IDA agreement.

During the first six months of 2023, Schwab did not move IDA balances to its balance sheet.

The Company’s overall capital management strategy includes supporting migration of IDA balances in future periods as available pursuant to the terms of the 2023 IDA agreement.

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

The Company’s ability to migrate these balances to its balance sheet is dependent upon multiple factors including having sufficient capital levels to sustain these incremental deposits.

See Item 1 – Note 9 for further information on the 2023 IDA agreement.

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

THE CHARLES SCHWAB CORPORATION

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

including having sufficient capital levels to sustain these incremental deposits.

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

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

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

Three Months Ended March 31, Cash Paid Per Share

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

Six Months Ended June 30, Cash Paid Per Share

Amount Cash Paid Per Share

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42 2,000.00 45 2,000.00

9 1,250.00 N/A N/A

13 22.26 13 22.26

19 2,500.00 9 1,208.33

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

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Share Repurchases

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

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.

There were no repurchases of CSC’s common stock during the three months ended June 30, 2023.

CSC repurchased 37 million shares of its common stock for $2.8 billion during the six months ended June 30, 2023.

As of June 30, 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 six months ended June 30, 2022.

There were no repurchases of CSC’s preferred stock during the three months ended June 30, 2023 .

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

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

Foreign Exposure

At June 30, 2023, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments.

At June 30, 2023, the fair value of these holdings totaled $10.5 billion, with the top three exposures being to issuers and counterparties domiciled in France at $2.9 billion, the United Kingdom at $2.4 billion, and Canada at $1.7 billion.

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

THE CHARLES SCHWAB CORPORATION

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

Foreign Exposure

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

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

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

Canada at $1.7 billion.

In addition, Schwab had outstanding margin loans to foreign residents of $2.7 billion and $2.5 billion at June 30, 2023 and December 31, 2022, respectively.

CRITICAL ACCOUNTING ESTIMATES

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2022 Form 10-K.

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

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

NON-GAAP FINANCIAL MEASURES

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

Adjusted Tier 1 Leverage Ratio Adjusted Tier 1 Leverage Ratio represents the Tier 1 Leverage Ratio as prescribed by bank regulatory guidance for the consolidated company and for CSB, adjusted to reflect the inclusion of AOCI in the ratio.

Inclusion of the impacts of AOCI in the Company’s Tier 1 Leverage Ratio provides additional information regarding the Company’s current capital position.

We believe Adjusted Tier 1 Leverage Ratio may be useful to investors as a supplemental measure of the Company’s capital levels.

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

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

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Total expenses excluding interest (GAAP) $ 2,965 $ 2,819 $ 5,971 $ 5,652

Acquisition and integration-related costs (1)

(130) (94) (228) (190)

Amortization of acquired intangible assets (134) (154) (269) (308)

Adjusted total expenses (non-GAAP) $ 2,701 $ 2,571 $ 5,474 $ 5,154

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

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

Three Months Ended

Amount Diluted EPS Amount Diluted EPS

(1) Acquisition and integration-related costs for the three and six months ended June 30, 2023 primarily consist of $48 million and $106 million of compensation and benefits, $41 million and $74 million of professional services, $10 million and $14 million of occupancy and equipment, and $20 million and $22 million of other.

Acquisition and integration-related costs for the three and six months ended June 30, 2022 primarily consist of $53 million and $109 million of compensation and benefits, $35 million and $66 million of professional services, and $4 million and $8 million of occupancy and equipment.

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

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

Net income available to common stockholders (GAAP),

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

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Return on average common stockholders’ equity (GAAP) 17 % 19 % 20 % 15 %

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(1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).

THE CHARLES SCHWAB CORPORATION

June 30, 2023

Tier 1 Leverage Ratio (GAAP)

Tier 1 Capital

$ 39,190 $ 31,556

AOCI adjustment (20,729) (18,052)

Adjusted Tier 1 Capital 18,461 13,504

Average assets with regulatory adjustments

520,602 356,406

AOCI adjustment (20,397) (17,707)

Adjusted average assets with regulatory adjustments $ 500,205 $ 338,699

Adjusted Tier 1 Leverage Ratio (non-GAAP)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis