What changed in this filing

/stocks — the workspaceLOADING

Item 3. Quantitative and Qualitative Disclosures About Market Risk

2023-11-08 compared with 2023-08-08 · 274 added, 217 removed, 1414 unchanged (26% of the section changed)

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

30 unchanged sentences

Diluted $ .56 $ .99 $ 2.03 $ 2.53

(1) No fee waivers were recognized for the three and six months ended June 30, 2023.

Includes fee waivers of $ 3 million and $ 57 million for the three and six months ended June 30, 2022, respectively.

(1) No fee waivers were recognized for the three and nine months ended September 30, 2023, or for the three months ended September 30, 2022.

Includes fee waivers of $ 57 million for the nine months ended September 30, 2022.

(2) The Company has voting and nonvoting common stock outstanding.

6 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

18 unchanged sentences

(In Millions, Except Per Share and Share Amounts)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 33,251 $ 40,195

Cash and investments segregated and on deposit for regulatory purposes (including resale

agreements of $ 5,405 and $ 12,159 at June 30, 2023 and December 31, 2022,

agreements of $ 3,010 and $ 12,159 at September 30, 2023 and December 31, 2022,

respectively)

1 unchanged sentence

Receivables from brokerage clients — net 69,062 66,591

Available for sale securities (amortized cost of $ 136,874 at June 30, 2023 and

Available for sale securities (amortized cost of $ 122,072 at September 30, 2023 and

$ 160,162 at December 31, 2022;

1 unchanged sentence

110,272 147,871

Held to maturity securities (including assets pledged of $ 8,365 at June 30, 2023

Held to maturity securities (including assets pledged of $ 5,346 at September 30, 2023

and $ 4,522 at December 31, 2022)

17 unchanged sentences

aggregate liquidation preference of $ 9,329

and $ 9,850 at June 30, 2023 and December 31, 2022, respectively

and $ 9,850 at September 30, 2023 and December 31, 2022, respectively

Common stock — 3 billion shares authorized;

$ .01 par value per share;

2,023,295,180 shares issued at June 30, 2023 and December 31, 2022

2,023,295,180 shares issued at September 30, 2023 and December 31, 2022

Nonvoting common stock — 300 million shares authorized;

$ .01 par value per share;

50,893,695 shares issued at June 30, 2023 and December 31, 2022

50,893,695 shares issued at September 30, 2023 and December 31, 2022

Additional paid-in capital 27,293 27,075

Retained earnings 33,429 31,066

Treasury stock, at cost — 253,803,819 and 221,033,042 shares at June 30, 2023

Treasury stock, at cost — 252,889,055 and 221,033,042 shares at September 30, 2023

and December 31, 2022, respectively

14 unchanged sentences

Shares Amount Shares Amount

Balance at March 31, 2022 $ 10,694 1,995 $ 20 79 $ 1 $ 26,826 $ 26,895 $ ( 5,293 ) $ ( 11,045 ) $ 48,098

Balance at June 30, 2022 $ 10,694 1,995 $ 20 79 $ 1 $ 26,918 $ 28,174 $ ( 5,272 ) $ ( 16,022 ) $ 44,513

Net income — — — — — — 2,020 — — 2,020

Other comprehensive income (loss), net of tax — — — — — — — — ( 7,130 ) ( 7,130 )

Call of preferred stock ( 397 ) — — — — — ( 3 ) — — ( 400 )

Dividends declared on preferred stock — — — — — — ( 123 ) — — ( 123 )

1 unchanged sentence

— — — — — — ( 417 ) — — ( 417 )

Repurchase of common stock — — — — — — — ( 500 ) — ( 500 )

Repurchase of nonvoting common stock — 15 — ( 15 ) — — — ( 1,000 ) — ( 1,000 )

Conversion of nonvoting common stock to common stock — 13 — ( 13 ) — — — — — —

Stock option exercises and other — — — — — ( 12 ) — 21 — 9

1 unchanged sentence

Other — — — — — 19 — — — 19

Balance at September 30, 2022 $ 10,297 2,023 $ 20 51 $ 1 $ 26,975 $ 29,651 $ ( 6,751 ) $ ( 23,152 ) $ 37,041

Balance at June 30, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,220 $ 32,865 $ ( 11,420 ) $ ( 20,730 ) $ 37,147

Balance at March 31, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,136 $ 32,144 $ ( 11,455 ) $ ( 20,690 ) $ 36,347

Net income — — — — — — 1,125 — — 1,125

6 unchanged sentences

Other — — — — — 22 — 4 — 26

Balance at June 30, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,220 $ 32,865 $ ( 11,420 ) $ ( 20,730 ) $ 37,147

Balance at September 30, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,293 $ 33,429 $ ( 11,398 ) $ ( 20,752 ) $ 37,784

Continued on following page.

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Stockholders ’ Equity

(In Millions)

Continued from previous page.

Accumulated Other Comprehensive Income (Loss)

7 unchanged sentences

Issuance of preferred stock, net 740 — — — — — — — — 740

Call of preferred stock ( 397 ) — — — — — ( 3 ) — — ( 400 )

Dividends declared on preferred stock — — — — — — ( 374 ) — — ( 374 )

1 unchanged sentence

— — — — — — ( 1,179 ) — — ( 1,179 )

Repurchase of common stock — — — — — — — ( 500 ) — ( 500 )

Repurchase of nonvoting common stock — 15 — ( 15 ) — — — ( 1,000 ) — ( 1,000 )

Conversion of nonvoting common stock to common stock — 13 — ( 13 ) — — — — — —

Stock option exercises and other — — — — — ( 68 ) — 110 — 42

1 unchanged sentence

Other — — — — — 87 — ( 23 ) — 64

Balance at June 30, 2022 $ 10,694 1,995 $ 20 79 $ 1 $ 26,918 $ 28,174 $ ( 5,272 ) $ ( 16,022 ) $ 44,513

Balance at September 30, 2022 $ 10,297 2,023 $ 20 51 $ 1 $ 26,975 $ 29,651 $ ( 6,751 ) $ ( 23,152 ) $ 37,041

Balance at December 31, 2022 $ 9,706 2,023 $ 20 51 $ 1 $ 27,075 $ 31,066 $ ( 8,639 ) $ ( 22,621 ) $ 36,608

9 unchanged sentences

Other — — — — — 86 — ( 33 ) — 53

Balance at June 30, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,220 $ 32,865 $ ( 11,420 ) $ ( 20,730 ) $ 37,147

Balance at September 30, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,293 $ 33,429 $ ( 11,398 ) $ ( 20,752 ) $ 37,784

See Notes to the Condensed Consolidated Financial Statements .

2 unchanged sentences

(in Millions)

Six Months Ended

Nine Months Ended

September 30,

Cash Flows from Operating Activities

50 unchanged sentences

Continued from previous page.

Six Months Ended

Nine Months Ended

September 30,

Supplemental Cash Flow Information

1 unchanged sentence

Securities transferred from available for sale to held to maturity, at fair value $ — $ 108,805

Securities matured during the period but settled after period end $ 415 $ —

Changes in accrued equipment, office facilities, and property purchases $ ( 32 ) $ ( 28 )

Non-cash financing activity:

Common stock repurchased during the period but settled after period end $ — $ 45

Call of preferred stock $ — $ 400

Other Supplemental Cash Flow Information:

5 unchanged sentences

Leased assets obtained in exchange for new finance lease liabilities $ — $ 5

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2)

35 unchanged sentences

The significant accounting policies are included in Item 8 – Note 2 in the 2022 Form 10-K.

There have been no significant changes to these accounting policies during the first six months of 2023, except as described in Note 2 below.

There have been no significant changes to these accounting policies during the first nine months of 2023, except as described in Note 2 below.

Summary of Significant Accounting Policies and New Accounting Standards

2 unchanged sentences

The Company records all derivatives on the balance sheet at fair value.

Accounting for the changes in the fair values of derivatives depends on the nature of the hedging relationship, and whether we qualify for and elect to apply hedge accounting.

Accounting for the changes in the fair values of derivatives depends on whether we qualify for and elect to apply hedge accounting and the type of hedging accounting relationship applied.

Hedge accounting generally matches the timing of gain or loss recognition on the derivatives with the recognition of the changes in the fair values or cash flows attributable to the risk being hedged of the hedged asset or liability in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge, respectively .

13 unchanged sentences

A PLM hedging relationship may include multiple hedged layers.

If at any point during the hedge period the aggregate amount of the hedged layers exceeds the amount of the closed portfolio (i.e., a breach of the hedged layer(s) has occurred), the PLM hedge must be fully or partially terminated to cure the breach.

Basis adjustments for active PLM hedges are maintained at the closed portfolio level and are only allocated to individual assets remaining in the closed portfolio when the hedge is terminated, except for the portion of the basis adjustment related to the breach of the hedged layer(s), if any, which is recognized in interest revenue immediately.

If at any point during the hedge period the aggregate amount of the hedged layers exceeds the amount of the closed portfolio (i.e., a breach of the hedged layer(s) has occurred) or is expected to exceed the amount of the closed portfolio at a future date during the hedge period (i.e., a breach of the hedged layer is anticipated), the PLM hedge must be fully or partially terminated to cure the breach or anticipated breach.

Basis adjustments for active PLM hedges are maintained at the closed portfolio level and are only allocated to individual assets remaining in the closed portfolio when the hedge is terminated, except for the portion of the basis adjustment related to the breach of the hedged layer(s) that has occurred, if any, which is recognized in interest revenue immediately.

Allocated PLM basis adjustments are reported as part of the amortized cost of the assets and are amortized to interest revenue over the assets’ respective remaining lives as a yield adjustment using the effective interest method.

For derivatives the Company has designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivatives is recorded in AOCI and subsequently reclassified into interest revenue or interest expense, depending on where the hedged cash flows are recognized, on the condensed consolidated statement of income in the same period during which the hedged transactions affect earnings.

Amounts reported in AOCI for cash flow hedges of AFS investment securities or other recognized financial assets are reclassified into interest revenue as interest payments on the securities or financial assets are accrued or received.

If the hedging relationship is terminated and transactions that were hedged are no longer probable of occurring, the gain or loss on the derivative(s) recorded in AOCI prior to termination is reclassified into interest revenue immediately.

Amounts reported in AOCI for cash flow hedges of recognized financial assets and liabilities are reclassified into interest revenue or interest expense as interest payments are accrued or made.

Otherwise, the derivative gain or loss in AOCI will continue to be reclassified into interest revenue or interest expense in the periods during which the transactions that were hedged affect earnings.

20 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

38 unchanged sentences

Contract balances:

Substantially all receivables from contracts with customers within the scope of Accounting Standards Codification (ASC) 606 Revenue From Contracts With Customers (ASC 606), are included in other assets on the condensed consolidated balance sheets, and totaled $ 634 million and $ 560 million at June 30, 2023 and December 31, 2022, respectively.

Substantially all receivables from contracts with customers within the scope of Accounting Standards Codification (ASC) 606 Revenue From Contracts With Customers (ASC 606), are included in other assets on the condensed consolidated balance sheets, and totaled $ 563 million and $ 560 million at September 30, 2023 and December 31, 2022, respectively.

Schwab did not have any other significant contract assets as of December 31, 2022.

At June 30, 2023, the Company also had net contract assets of $ 111 million related to the buy down of fixed-rate obligation amounts pursuant to the 2023 IDA agreement.

At September 30, 2023, the Company also had net contract assets of $ 221 million related to the buy down of fixed-rate obligation amounts pursuant to the 2023 IDA agreement.

This balance is included in other assets on the condensed consolidated balance sheet, and is amortized on a straight-line basis over the remaining contract term as a reduction to bank deposit account fee revenue.

For additional discussion of the 2023 IDA agreement, see Note 9.

Schwab did not have any significant contract liability balances as of June 30, 2023 or December 31, 2022.

Schwab did not have any significant contract liability balances as of September 30, 2023 or December 31, 2022.

Unsatisfied performance obligations:

6 unchanged sentences

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s AFS and HTM investment securities are as follows:

June 30, 2023 Amortized

September 30, 2023 Amortized

Available for sale securities

35 unchanged sentences

Total held to maturity securities $ 173,074 $ 1,442 $ 15,580 $ 158,936

(1) Approximately 61 % and 57 % of asset-backed securities held as of June 30, 2023 and December 31, 2022, respectively, were Federal Family Education Loan Program Asset-Backed Securities.

Asset-backed securities collateralized by credit card receivables represented approximately 19 % and 18 % of the asset-backed securities held as of June 30, 2023 and December 31, 2022, respectively.

(2) As of both June 30, 2023 and December 31, 2022, approximately 37 % of the total AFS in corporate debt securities were issued by institutions in the financial services industry.

(1) Approximately 61 % and 57 % of asset-backed securities held as of September 30, 2023 and December 31, 2022, respectively, were Federal Family Education Loan Program Asset-Backed Securities.

Asset-backed securities collateralized by credit card receivables represented approximately 22 % and 18 % of the asset-backed securities held as of September 30, 2023 and December 31, 2022, respectively.

(2) As of both September 30, 2023 and December 31, 2022, approximately 37 % of the total AFS in corporate debt securities were issued by institutions in the financial services industry.

(3) Beginning in 2023, this represents the amount of PLM basis adjustments related to AFS securities hedged in a closed portfolio.

These amounts are not allocated to individual securities, however the amounts impact the unrealized gains or losses for the individual securities being hedged.

See Note 2 for more information on PLM hedge accounting.

(4) Included in cash and cash equivalents on the condensed consolidated balance sheets, but excluded from this table is $ 48 million of AFS commercial paper as of December 31, 2022 ( none as of June 30, 2023).

See Notes 2 and 11 for more information on PLM hedge accounting.

These holdings have maturities of three months or less and an aggregate market value equal to amortized cost.

During 2022, the Company transferred a total of $ 188.6 billion of U.S.

agency mortgage-backed securities with a total net pretax unrealized loss at the times of transfer of $ 18.2 billion from the AFS category to the HTM category.

agency mortgage-backed securities with a total net pre-tax unrealized loss at the times of transfer of $ 18.2 billion from the AFS category to the HTM category.

The transfer of these securities to the HTM category reduces the Company’s exposure to fluctuations in AOCI that can result from unrealized losses on AFS securities due to changes in market interest rates.

The unrealized loss at the time of transfer is amortized over the remaining life of the security, offsetting the amortization of the security’s premium or discount, and resulting in no impact to

The unrealized loss at the time of transfer is amortized over the remaining life of the security, offsetting the amortization of the security’s premium or discount, and resulting in no impact to net income.

As of September 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 11.8 billion net of tax effect ($ 15.6 billion pre-tax).

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

As of June 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 12.3 billion net of tax effect ($ 16.3 billion pretax).

At June 30, 2023, our banking subsidiaries had pledged investment securities with a value of $ 61.4 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 8).

Our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a fair value of $ 8.8 billion as collateral for this facility at June 30, 2023.

Beginning in 2023, our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve through the Bank Term Funding Program, and had pledged securities with a par value of $ 41.6 billion as collateral for this facility at June 30, 2023.

At September 30, 2023, our banking subsidiaries had pledged investment securities with a value of $ 68.2 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 8).

Our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a fair value of $ 7.2 billion as collateral for this facility at September 30, 2023.

Beginning in 2023, our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve through the Bank Term Funding Program, and had pledged securities with a par value of $ 40.2 billion as collateral for this facility at September 30, 2023.

The Company also pledges investment securities issued by federal agencies to secure certain trust deposits.

The fair value of these pledged securities was $ 1.6 billion at June 30, 2023.

At June 30, 2023, our banking subsidiaries had pledged HTM and AFS securities as collateral under repurchase agreements with external financial institutions.

The fair value of these pledged securities was $ 1.5 billion at September 30, 2023.

At September 30, 2023, our banking subsidiaries had pledged HTM and AFS securities as collateral under repurchase agreements with external financial institutions.

HTM securities pledged were U.S.

agency mortgage-backed securities with an aggregate amortized cost of $ 5.3 billion, and AFS securities pledged were U.S.

agency mortgage-backed securities with an aggregate fair value of $ 28 million.

agency mortgage-backed securities with an aggregate fair value of $ 1.8 billion.

Securities pledged as collateral under these repurchase agreements may be sold, repledged, or otherwise used by the counterparties.

See Notes 8 and 12 for additional information on these repurchase agreements.

At June 30, 2023, our banking subsidiaries had pledged AFS securities with an aggregate fair value of $ 178 million as initial margin on interest rate swaps (see Note 11).

At September 30, 2023, our banking subsidiaries had pledged AFS securities with an aggregate fair value of $ 180 million as initial margin on interest rate swaps (see Note 11).

All of Schwab’s interest rate swaps are cleared through central counterparty (CCP) clearing houses which require the Company to post initial margin as collateral against potential losses.

1 unchanged sentence

Less than 12 months 12 months or longer Total

June 30, 2023 Fair

September 30, 2023 Fair

Value Unrealized

24 unchanged sentences

Total $ 81,299 $ 3,622 $ 65,941 $ 8,669 $ 147,240 $ 12,291

(1) For purposes of this table, unrealized losses on AFS securities excludes the PLM fair value hedge basis adjustments of $ 26 million at June 30, 2023.

At June 30, 2023, substantially all rated securities in the investment portfolios were investment grade.

(1) For purposes of this table, unrealized losses on AFS securities excludes the PLM fair value hedge basis adjustments of $ 57 million at September 30, 2023.

At September 30, 2023, substantially all rated securities in the investment portfolios were investment grade.

agency mortgage-backed securities do not have explicit credit ratings;

however, management considers these to be of the highest credit quality

however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S.

government or U.S.

government-sponsored enterprises.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

and rating given the guarantee of principal and interest by the U.S.

government or U.S.

government-sponsored enterprises.

For a description of management’s quarterly evaluation of AFS securities in unrealized loss positions, see Item 8 – Note 2 in the 2022 Form 10-K.

No amounts were recognized as credit loss expense and no securities were written down to fair value through earnings for the six months ended June 30, 2023 and the year ended December 31, 2022.

None of the Company’s AFS securities held as of June 30, 2023 and December 31, 2022 had an allowance for credit losses.

All HTM securities as of June 30, 2023 and December 31, 2022 were U.S.

No amounts were recognized as credit loss expense and no securities were written down to fair value through earnings for the nine months ended September 30, 2023 and the year ended December 31, 2022.

None of the Company’s AFS securities held as of September 30, 2023 and December 31, 2022 had an allowance for credit losses.

All HTM securities as of September 30, 2023 and December 31, 2022 were U.S.

agency mortgage-backed securities and therefore had no allowance for credit losses because expected nonpayment of the amortized cost basis is zero.

The Company had $ 607 million and $ 685 million of accrued interest for AFS and HTM securities as of June 30, 2023 and December 31, 2022, respectively.

The Company had $ 566 million and $ 685 million of accrued interest for AFS and HTM securities as of September 30, 2023 and December 31, 2022, respectively.

These amounts are excluded from the amortized cost basis and fair market value of AFS and HTM securities and included in other assets on the condensed consolidated balance sheets.

There were no writeoffs of accrued interest receivable on AFS and HTM securities during the six months ended June 30, 2023, or for the year ended December 31, 2022.

There were no writeoffs of accrued interest receivable on AFS and HTM securities during the nine months ended September 30, 2023, or for the year ended December 31, 2022.

In the table below, mortgage-backed securities and other asset-backed securities have been allocated to maturity groupings based on final contractual maturities.

As borrowers may have the right to call or prepay certain obligations underlying our investment securities, actual maturities may differ from the scheduled contractual maturities presented below.

As of June 30, 2023, the estimated effective duration, which reflects anticipated future payments, of our total AFS and HTM investment securities portfolio is approximately 4.0 years.

The estimated effective duration of our AFS investment securities portfolio is approximately 2.4 years as of June 30, 2023.

As of September 30, 2023, the estimated effective duration, which reflects anticipated future payments, of our total AFS and HTM investment securities portfolio is approximately 4.0 years.

The estimated effective duration of our AFS investment securities portfolio is approximately 2.5 years as of September 30, 2023.

Including the impact of the Company’s use of derivative instruments to manage changes in the fair values of our AFS investment portfolio, the effective duration of our total AFS and HTM investments securities as of September 30, 2023 is approximately 3.9 years and for our AFS investment securities is approximately 2.2 years (see Note 11).

The maturities of AFS and HTM investment securities are as follows:

June 30, 2023 Within

September 30, 2023 Within

1 year After 1 year

19 unchanged sentences

Total amortized cost $ 749 $ 7,343 $ 41,217 $ 113,143 $ 162,452

(1) For purposes of this table, the amortized cost of AFS securities excludes the PLM fair value hedge basis adjustments of $ 26 million at June 30, 2023.

(1) For purposes of this table, the amortized cost of AFS securities excludes the PLM fair value hedge basis adjustments of $ 57 million at September 30, 2023.

Proceeds and gross realized gains and losses from sales of AFS investment securities are as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows:

June 30, 2023 Current 30-59 days

September 30, 2023 Current 30-59 days

past due 60-89 days

22 unchanged sentences

Total bank loans $ 40,522 $ 31 $ 2 $ 23 $ 56 $ 40,578 $ 73 $ 40,505

(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $ 99 million and $ 98 million at June 30, 2023 and December 31, 2022, respectively.

(2) At both June 30, 2023 and December 31, 2022, 43 % of the First Mortgage and HELOC portfolios were concentrated in California.

(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $ 100 million and $ 98 million at September 30, 2023 and December 31, 2022, respectively.

(2) At both September 30, 2023 and December 31, 2022, 43 % of the First Mortgage and HELOC portfolios were concentrated in California.

These loans have performed in a manner consistent with the portfolio as a whole.

(3) There were no loans accruing interest that were contractually 90 days or more past due at June 30, 2023 or December 31, 2022.

At June 30, 2023, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8).

(3) There were no loans accruing interest that were contractually 90 days or more past due at September 30, 2023 or December 31, 2022.

At September 30, 2023, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8).

Changes in the allowance for credit losses on bank loans were as follows:

Three Months Ended

June 30, 2023 First Mortgages HELOCs Total residential real estate Pledged asset lines Other Total

September 30, 2023 First Mortgages HELOCs Total residential real estate Pledged asset lines Other Total

Balance at beginning of period $ 68 $ 3 $ 71 $ — $ 4 $ 75

3 unchanged sentences

Balance at end of period $ 47 $ 2 $ 49 $ — $ 5 $ 54

June 30, 2022

September 30, 2022

Balance at beginning of period $ 31 $ 3 $ 34 $ — $ 3 $ 37

6 unchanged sentences

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

Six Months Ended

June 30, 2023 First Mortgages HELOCs Total residential real estate Pledged asset lines Other Total

Nine Months Ended

September 30, 2023 First Mortgages HELOCs Total residential real estate Pledged asset lines Other Total

Balance at beginning of period $ 66 $ 4 $ 70 $ — $ 3 $ 73

3 unchanged sentences

Balance at end of period $ 47 $ 2 $ 49 $ — $ 5 $ 54

June 30, 2022

September 30, 2022

Balance at beginning of period $ 13 $ 2 $ 15 $ — $ 3 $ 18

5 unchanged sentences

PALs are also subject to the collateral maintenance practical expedient under ASC 326 Financial Instruments — Credit Losses .

All PALs were fully collateralized by securities with fair values in excess of borrowings as of June 30, 2023 and December 31, 2022.

All PALs were fully collateralized by securities with fair values in excess of borrowings as of September 30, 2023 and December 31, 2022.

Therefore, no allowance for credit losses for PALs as of those dates was required.

economy continues to be challenged by elevated inflation, tightening monetary policy, and geopolitical unrest.

Although some of the headwinds show signs of moderation, management’s macroeconomic outlook reflects a near term increase in unemployment coupled with home price depreciation, which combined with rising Treasury yields and mortgage rates, have softened demand and reduced borrower affordability.

This macroeconomic outlook, combined with continued strong credit quality metrics in the Company’s bank loans portfolio, resulted in relatively stable projections of loss rates at June 30, 2023, as compared to December 31, 2022.

Despite these challenges, management’s macroeconomic outlook reflects a near term continuation of higher interest rates with only a slight increase in unemployment and modest home price depreciation.

While higher mortgage rates are softening demand and reducing borrower affordability, constrained housing supply will keep home prices relatively stable.

Furthermore, credit quality metrics in the Company’s bank loans portfolio have improved in recent years and remain very strong.

As a result of these factors, we decreased projected loss rates at September 30, 2023, as compared to December 31, 2022.

A summary of bank loan-related nonperforming assets is as follows:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Nonaccrual loans (1)

18 unchanged sentences

First Mortgages Amortized Cost Basis by Origination Year

June 30, 2023 2023 2022 2021 2020 2019 pre-2019 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs

September 30, 2023 2023 2022 2021 2020 2019 pre-2019 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs

Origination FICO

54 unchanged sentences

(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.

At June 30, 2023, First Mortgage loans of $ 21.1 billion had adjustable interest rates.

At September 30, 2023, First Mortgage loans of $ 21.4 billion had adjustable interest rates.

Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter.

2 unchanged sentences

Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates.

At June 30, 2023 and December 31, 2022, Schwab had $ 144 million and $ 134 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the condensed consolidated balance sheets.

At September 30, 2023 and December 31, 2022, Schwab had $ 152 million and $ 134 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the condensed consolidated balance sheets.

The HELOC product has a 30 -year loan term with an initial draw period of ten years from the date of origination.

5 unchanged sentences

The following table presents when current outstanding HELOCs will convert to amortizing loans:

June 30, 2023 Balance

September 30, 2023 Balance

Converted to an amortizing loan by period end (1)

3 unchanged sentences

> 5 years 204

(1) Includes $ 5 million and $ 11 million of HELOCs converted to amortizing loans during the three and six months ended June 30, 2023, respectively.

At June 30, 2023, $ 404 million of the HELOC portfolio was secured by second liens on the associated properties.

(1) Includes $ 6 million and $ 15 million of HELOCs converted to amortizing loans during the three and nine months ended September 30, 2023, respectively.

At September 30, 2023, $ 389 million of the HELOC portfolio was secured by second liens on the associated properties.

Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default.

In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property.

At June 30, 2023, the borrowers on approximately 57 % of HELOC loan balances outstanding only paid the minimum amount due.

At September 30, 2023, the borrowers on approximately 59 % of HELOC loan balances outstanding only paid the minimum amount due.

Variable Interest Entities

As of June 30, 2023 and December 31, 2022, substantially all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s CRA-related investments and most of these are related to Low-Income Housing Tax Credit (LIHTC) investments.

As of September 30, 2023 and December 31, 2022, substantially all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s CRA-related investments and most of these are related to Low-Income Housing Tax Credit (LIHTC) investments.

As part of CSB’s community reinvestment initiatives, CSB invests in funds that make equity investments in multifamily affordable housing properties and receives tax credits and other tax benefits for these investments.

1 unchanged sentence

The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

assets Aggregate

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Schwab’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and Schwab expects to pay substantially all of these commitments between 2023 and 2026.

During the six months ended June 30, 2023 and year ended December 31, 2022, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide.

During the nine months ended September 30, 2023 and year ended December 31, 2022, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide.

THE CHARLES SCHWAB CORPORATION

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Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Interest-bearing deposits:

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(1) Time certificates of deposit consist of brokered CDs.

As of June 30, 2023, uninsured time CDs totaled $ 178 million.

As of December 31, 2022, there were no time deposits that were in excess of FDIC insurance limits or otherwise uninsured.

Annual maturities on time certificates of deposit outstanding at June 30, 2023 are as follows:

As of September 30, 2023 and December 31, 2022, there were no time deposits that were in excess of FDIC insurance limits or otherwise uninsured.

Annual maturities on time certificates of deposit outstanding at September 30, 2023 are as follows:

Total $ 45,418

11 unchanged sentences

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

The following table lists long-term debt by instrument outstanding as of June 30, 2023 and December 31, 2022:

The following table lists long-term debt by instrument outstanding as of September 30, 2023 and December 31, 2022:

Date of Issuance Principal Amount Outstanding

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

CSC Fixed-rate Senior Notes:

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03/03/22 1,000 1,000

5.875 % due August 24, 2026

08/24/23 1,000 —

CSC Floating-rate Senior Notes:

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05/19/23 1,300 —

6.136 % due August 24, 2034 (3)

08/24/23 1,350 —

Total CSC Senior Notes 24,562 20,512

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On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.500 %, payable quarterly.

(3) The 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 6.136 %, payable semi-annually, until the interest reset date on August 24, 2033.

On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.010 %, payable quarterly.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Annual maturities on all long-term debt outstanding at June 30, 2023 are as follows:

Annual maturities on all long-term debt outstanding at September 30, 2023 are as follows:

Thereafter 11,350

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Amounts available under these facilities are dependent on the amount of bank loans and the fair value of certain investment securities that are pledged as collateral.

There was $ 41.0 billion and $ 12.4 billion outstanding under these facilities as of June 30, 2023 and December 31, 2022, respectively, and these borrowings had a weighted-average interest rate of 5.14 % and 4.88 %, respectively.

As of June 30, 2023 and December 31, 2022, the collateral pledged provided additional borrowing capacity of $ 38.3 billion and $ 68.6 billion, respectively.

There was $ 31.8 billion and $ 12.4 billion outstanding under these facilities as of September 30, 2023 and December 31, 2022, respectively, and these borrowings had a weighted-average interest rate of 5.17 % and 4.88 %, respectively.

As of September 30, 2023 and December 31, 2022, the collateral pledged provided additional borrowing capacity of $ 55.6 billion and $ 68.6 billion, respectively.

Other short-term borrowings:

Total other short-term borrowings outstanding at June 30, 2023 and December 31, 2022 were $ 7.8 billion and $ 4.7 billion, respectively, and had a weighted-average interest rate of 5.01 % and 4.97 %, respectively.

Total other short-term borrowings outstanding at September 30, 2023 and December 31, 2022 were $ 7.6 billion and $ 4.7 billion, respectively, and had a weighted-average interest rate of 5.39 % and 4.97 %, respectively.

Additional information regarding our other short-term borrowings facilities is described below.

CSC has the ability to issue up to $ 5.0 billion of commercial paper notes with maturities of up to 270 days.

There were no commercial paper notes outstanding at June 30, 2023 and CSC had $ 250 million outstanding at December 31, 2022.

CSC had $ 85 million and $ 250 million outstanding at September 30, 2023 and December 31, 2022, respectively.

CSC and CS&Co also have access to uncommitted lines of credit with external banks with total borrowing capacity of $ 1.8 billion;

no amounts were outstanding as of June 30, 2023 or December 31, 2022.

Beginning in the second quarter of 2023, CS&Co 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.

There was no balance outstanding at June 30, 2023.

no amounts were outstanding as of September 30, 2023 or December 31, 2022.

CS&Co also maintains secured, uncommitted lines of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral, based on the terms of the agreements, under which there was $ 950 million outstanding at September 30, 2023.

Our banking subsidiaries have access to funding through the Federal Reserve discount window.

Amounts available are dependent upon the fair value of certain investment securities that are pledged as collateral.

As of June 30, 2023 and December 31, 2022, our collateral pledged provided total borrowing capacity of $ 8.8 billion and $ 7.8 billion, respectively, of which no amounts were outstanding at the end of either period.

Beginning in 2023, our banking subsidiaries now have access to funding through the Federal Reserve Bank Term Funding Program.

As of September 30, 2023 and December 31, 2022, our collateral pledged provided total borrowing capacity of $ 7.2 billion and $ 7.8 billion, respectively, of which no amounts were outstanding at the end of either period.

Beginning in 2023, our banking subsidiaries have access to funding through the Federal Reserve Bank Term Funding Program.

Amounts available are dependent upon the par value of certain investment securities that are pledged as collateral.

As of June 30, 2023, our collateral pledged provided total borrowing capacity of $ 41.6 billion.

There were no borrowings outstanding at June 30, 2023.

As of September 30, 2023, our collateral pledged provided total borrowing capacity of $ 40.2 billion.

There were no borrowings outstanding at September 30, 2023.

The Company may engage with external financial institutions in repurchase agreements collateralized by investment securities as another source of short-term liquidity.

The Company had $ 7.8 billion and $ 4.4 billion outstanding pursuant to such repurchase agreements at June 30, 2023 and December 31, 2022, respectively.

Repurchase agreements outstanding at June 30, 2023 mature between August 2023 and April 2024.

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

There was no balance outstanding at June 30, 2023 or December 31, 2022.

Annual maturities on FHLB borrowings and other short-term borrowings outstanding at June 30, 2023 are as follows:

The Company had $ 6.5 billion and $ 4.4 billion outstanding pursuant to such repurchase agreements at September 30, 2023 and December 31, 2022, respectively.

Repurchase agreements outstanding at September 30, 2023 mature between October 2023 and July 2024.

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.

There was no balance outstanding at September 30, 2023 or December 31, 2022.

Annual maturities on FHLB borrowings and other short-term borrowings outstanding at September 30, 2023 are as follows:

2023 2024 Total

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Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Rocket Mortgage.

CSB purchased First Mortgages of $ 854 million and $ 2.0 billion during the second quarters of 2023 and 2022, respectively, and $ 1.6 billion and $ 4.7 billion during the first six months of 2023 and 2022, respectively.

CSB purchased HELOCs with commitments of $ 52 million and $ 70 million during the second quarters of 2023 and 2022, respectively, and $ 95 million and $ 160 million during the first six months of 2023 and 2022, respectively.

CSB purchased First Mortgages of $ 765 million and $ 1.3 billion during the third quarters of 2023 and 2022, respectively, and $ 2.4 billion and $ 6.0 billion during the first nine months of 2023 and 2022, respectively.

CSB purchased HELOCs with commitments of $ 49 million and $ 92 million during the third quarters of 2023 and 2022, respectively, and $ 144 million and $ 252 million during the first nine months of 2023 and 2022, respectively.

The Company’s commitments to extend credit on lines of credit and to purchase First Mortgages are as follows:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit $ 3,247 $ 4,533

21 unchanged sentences

The Company migrated balances to the balance sheet in 2021 and 2022, subject to the terms of the 2019 IDA agreement.

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

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

The 2023 IDA agreement extends the agreement term to sweep balances to the TD Depository Institutions through July 1, 2034, and requires that Schwab maintain minimum and maximum IDA balances as follows:

9 unchanged sentences

If IDA balances decline below the required IDA balance minimum as described above, Schwab would be required to make a nonperformance payment to the TD Depository Institutions pursuant to the terms of the 2023 IDA agreement.

In May 2023, Schwab opted to buy down $ 2.4 billion of fixed-rate obligation amounts, incurring a market-based fee of $ 112 million, which was capitalized as a contract asset and included in other assets on the condensed consolidated balance sheet.

For additional information on the contract asset, see Note 3.

As of June 30, 2023, the total ending IDA balance was $ 102.7 billion, of which $ 96.4 billion was fixed-rate obligation amounts and $ 6.3 billion was floating-rate obligation amounts.

In May and August 2023, Schwab opted to buy down $ 2.4 billion and $ 2.1 billion of fixed-rate obligation amounts, respectively, incurring market-based fees of $ 112 million and $ 115 million, respectively, which were capitalized as contract assets and included in other assets on the condensed consolidated balance sheet.

For additional information on these contract assets, see Note 3.

As of September 30, 2023, the total ending IDA balance was $ 99.6 billion, of which $ 88.7 billion was fixed-rate obligation amounts and $ 10.9 billion was floating-rate obligation amounts.

As of December 31, 2022, the total ending IDA balance was $ 122.6 billion, of which $ 108.5 billion was fixed-rate obligation amounts and $ 14.1 billion was floating-rate obligation amounts.

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Plaintiffs seek unspecified damages, interest, injunctive and equitable relief, and attorneys’ fees and costs.

Defendants consider the allegations to be entirely without merit and have been vigorously contesting the lawsuit.

After a first amended complaint was dismissed with

Defendants consider the allegations to be

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

leave to amend, plaintiffs filed a second amended complaint on August 14, 2017.

without merit and have been vigorously contesting the lawsuit.

After a first amended complaint was dismissed with leave to amend, plaintiffs filed a second amended complaint on August 14, 2017.

Defendants again moved to dismiss, and in a decision issued December 5, 2017, the court denied the motion.

11 unchanged sentences

Plaintiffs seek unspecified damages and injunctive and other relief.

Defendants consider the allegations to be entirely without merit and have been vigorously contesting the lawsuit.

Defendants consider the allegations to be without merit and have been vigorously contesting the lawsuit.

On September 14, 2018, the District Court granted plaintiffs’ motion for class certification, and defendants petitioned for an immediate appeal of the District Court’s class certification decision.

6 unchanged sentences

Integration of TD Ameritrade

The Company completed its acquisition of TD Ameritrade effective October 6, 2020 and integration work continued during the first six months of 2023, including the completion of client transition groups in February and May 2023.

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.

The Company completed its acquisition of TD Ameritrade effective October 6, 2020 and integration work continued during the first nine months of 2023, including the completion of three client transition groups.

The Company completed its fourth conversion of 2023 in November and expects to complete the remaining client transitions from TD Ameritrade to Schwab in a final transition group in the first half of 2024.

The Company expects to continue to incur significant acquisition and integration-related costs and integration-related capital expenditures throughout the remaining integration process.

2 unchanged sentences

Exit and other related costs are a component of the Company’s overall acquisition and integration-related spending, and support the Company’s ability to achieve integration objectives including expected synergies.

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

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

Inclusive of costs recognized through June 30, 2023, Schwab currently expects to incur total exit and other related costs for the integration of TD Ameritrade ranging from $ 500 million to $ 700 million, consisting of employee compensation and benefits, facility exit costs, and certain other costs.

During the three months ended June 30, 2023 and 2022, the Company recognized $ 30 million and $ 8 million of acquisition-related exit costs, respectively.

During the six months ended June 30, 2023 and 2022, the Company recognized $ 40 million and $ 20 million of acquisition-related exit costs, respectively.

Our estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change based on a number of factors, including the duration and complexity of the remaining 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, changes in the scope and cost of technology, the timeline to wind-down the TD Ameritrade broker-dealers, and real estate-related exit cost variability.

Many of these factors may continue to cause variability in our expected acquisition and integration-related costs through the remainder of the integration process.

Inclusive of costs recognized through September 30, 2023, Schwab currently expects to incur total exit and other related costs for the integration of TD Ameritrade ranging from $ 500 million to $ 700 million, consisting of employee compensation and benefits, facility exit costs, and certain other costs.

During the three months ended September 30, 2023 and 2022, the Company recognized $ 16 million and $ 9 million of acquisition-related exit costs, respectively.

During the nine months ended September 30, 2023 and 2022, the Company recognized $ 56 million and $ 29 million of acquisition-related exit costs, respectively.

The Company expects that remaining exit and other related costs will be incurred and charged to expense over the next 15 months, with some costs expected to be incurred after client transition to decommission duplicative platforms and complete integration work.

In addition to ASC 420 Exit or Disposal Cost Obligations , certain of the costs associated with these activities are accounted for in accordance with ASC 360 Property, Plant and Equipment , ASC 712 Compensation — Nonretirement Post Employment Benefits , ASC 718 Compensation — Stock Compensation , and ASC 842 Leases .

In addition to ASC 420 Exit or Disposal Cost Obligations (ASC 420), certain of the costs associated with these activities are accounted for in accordance with ASC 360 Property, Plant and Equipment (ASC 360), ASC 712

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

The following is a summary of the activity in the Company’s exit and other related liabilities as of June 30, 2023 and activity for the six months ended June 30, 2023:

Compensation — Nonretirement Post Employment Benefits (ASC 712), ASC 718 Compensation — Stock Compensation (ASC 718), and ASC 842 Leases (ASC 842).

The following is a summary of the TD Ameritrade integration activity in the Company’s exit and other related liabilities as of September 30, 2023 and activity for the nine months ended September 30, 2023:

Investor Services

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Costs paid or otherwise settled ( 10 ) ( 2 ) ( 12 )

Balance at June 30, 2023 (1)

Balance at September 30, 2023 (1)

$ 46 $ 11 $ 57

1 unchanged sentence

(2) Amounts recognized in expense for severance pay and other termination benefits, as well as retention costs, are included in compensation and benefits on the condensed consolidated statements of income.

The following table summarizes the exit and other related costs recognized in expense for the three and six months ended June 30, 2023:

The following table summarizes the TD Ameritrade integration exit and other related costs recognized in expense for the three and nine months ended September 30, 2023:

Investor Services Advisor Services

Three Months Ended June 30, Employee Compensation and Benefits Facility Exit Costs (1)

Three Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1)

Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1)

5 unchanged sentences

Investor Services Advisor Services

Six Months Ended June 30, Employee Compensation and Benefits Facility Exit Costs (1)

Nine Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1)

Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1)

6 unchanged sentences

These costs, which are comprised of impairment and accelerated amortization of right-of-use (ROU) assets, relate to the impact of abandoning leased properties.

The following table summarizes the exit and other related costs recognized in expense for the three and six months ended June 30, 2022:

The following table summarizes the TD Ameritrade integration exit and other related costs recognized in expense for the three and nine months ended September 30, 2022:

Investor Services Advisor Services

Three Months Ended June 30, Employee Compensation and Benefits Facility Exit Costs (1)

Three Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1)

Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1)

4 unchanged sentences

Investor Services Advisor Services

Six Months Ended June 30, Employee Compensation and Benefits Facility Exit Costs (1)

Nine Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1)

Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1)

4 unchanged sentences

(1) Costs related to facility closures.

These costs, which are comprised of accelerated amortization of right-of-use (ROU) assets, relate to the impact of abandoning leased properties.

These costs, which are comprised of accelerated amortization of ROU assets, relate to the impact of abandoning leased properties.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

The following table summarizes the exit and other related costs incurred from October 6, 2020 through June 30, 2023:

The following table summarizes the TD Ameritrade integration exit and other related costs incurred from October 6, 2020 through September 30, 2023:

Investor Services Advisor Services

10 unchanged sentences

These costs, which are primarily comprised of impairment and accelerated amortization of ROU assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties.

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 streamline its operational design, including through position eliminations.

Through these actions, the Company expects to realize incremental run-rate cost savings in addition to integration synergies.

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 is still evaluating both its real estate locations and its organizational headcount and associated exit and related costs are not yet estimable.

With significant progress now made in the integration of TD Ameritrade, the Company has begun to take incremental actions to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint.

In order to achieve anticipated cost savings through these actions, the Company expects to incur exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $ 400 million to $ 500 million inclusive of costs recognized through September 30, 2023.

During the three and nine months ended September 30, 2023, the Company recognized $ 279 million of restructuring-related exit costs.

The Company anticipates the remaining costs related to position eliminations will be incurred in the fourth quarter of 2023, and costs related to real estate will be incurred in the fourth quarter of 2023 and during 2024.

In addition to ASC 420, certain of the costs associated with these activities are accounted for in accordance with ASC 360, ASC 712, ASC 718, and ASC 842.

The following is a summary of the restructuring activity in the Company’s exit and other related liabilities as of September 30, 2023 and activity for the nine months ended September 30, 2023:

Investor Services

Employee Compensation and Benefits Advisor Services

Employee Compensation and Benefits Total

Balance at December 31, 2022 (1)

Amounts recognized in expense (2)

Costs paid or otherwise settled — — —

Balance at September 30, 2023 (1)

$ 202 $ 74 $ 276

(1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets.

(2) Amounts recognized in expense for severance pay and other termination benefits are included in compensation and benefits on the condensed consolidated statements of income.

The following table summarizes the restructuring exit and other related costs recognized in expense for the three and nine months ended September 30, 2023, which represents cumulative costs incurred to date:

Investor Services Advisor Services

Employee Compensation and Benefits Facility Exit Costs (1)

Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1)

Advisor Services Total Total

Compensation and benefits $ 202 $ — $ 202 $ 74 $ — $ 74 $ 276

Occupancy and equipment — 1 1 — 1 1 2

Other — 1 1 — — — 1

Total $ 202 $ 2 $ 204 $ 74 $ 1 $ 75 $ 279

(1) Costs related to facility closures.

These costs, which are primarily comprised of accelerated amortization of ROU assets, relate to the impact of abandoning leased properties.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

Derivative Instruments and Hedging Activities

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Cleared interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a CCP in exchange for the Company receiving floating-rate payments over the life of the agreements without the exchange of the underlying notional amount.

The Company had outstanding interest rate swaps with aggregate notional amounts of $ 8.9 billion at June 30, 2023 that were designated as fair value hedges of interest rate risk.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

The Company had outstanding interest rate swaps with aggregate notional amounts of $ 8.9 billion at September 30, 2023 that were designated as fair value hedges of interest rate risk.

Fair Values of Derivative Instruments

The table below presents the gross fair values of the Company’s interest rate swaps designated as hedging instruments on the condensed consolidated balance sheet:

June 30, 2023

September 30, 2023

Assets Liabilities

5 unchanged sentences

The following amounts were recorded in AFS securities on the condensed consolidated balance sheet related to fair value hedges:

June 30, 2023

Carrying amount of hedged AFS securities (1,2)

Cumulative fair value hedging adjustment included in the carrying amount of hedged AFS securities (1,2)

September 30, 2023

Amortized cost of hedged AFS securities (1,2)

Cumulative fair value hedging adjustment included in the amortized cost of hedged AFS securities (1,2)

(1) Includes the amortized cost basis of closed portfolios of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period.

The amortized cost basis of the closed portfolios used in these hedging relationships is $ 1.6 billion and the notional amount of the designated hedged items is $ 1.6 billion.

The cumulative basis adjustments associated with these hedges is an unrealized loss of $ 26 million.

(2) Excludes the carrying amount and fair value hedging adjustment of AFS securities for which hedge accounting has been discontinued.

The cumulative amount of fair value hedging adjustments remaining for these securities is an unrealized loss of less than $ 500 thousand, which is recorded in AFS securities on the condensed consolidated balance sheet.

The amortized cost basis of the closed portfolios used in these hedging relationships is $ 2.1 billion, of which $ 1.6 billion is designated in a portfolio layer hedging relationship.

The cumulative basis adjustments associated with these hedging relationships are a reduction of the amortized cost basis of the closed portfolios of $ 57 million.

(2) Excludes the amortized cost and fair value hedging adjustment of AFS securities for which hedge accounting has been discontinued.

The cumulative amount of fair value hedging adjustments remaining for these securities is a reduction of the amortized cost basis of less than $ 500 thousand, which is recorded in AFS securities on the condensed consolidated balance sheet and amortized to interest revenue as a yield adjustment over the lives of the securities.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

The table below presents the effect of the Company’s interest rate swaps designated as fair value hedges on the condensed consolidated statement of income:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Gain (loss) on fair value hedging relationships recognized in interest revenue:

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For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investments requirement.

Schwab’s resale agreements as of June 30, 2023 and December 31, 2022 were not subject to master netting arrangements.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

Schwab’s resale agreements as of September 30, 2023 and December 31, 2022 were not subject to master netting arrangements.

Securities lending:

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We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities.

The fair value of these borrowed securities was $ 1.3 billion and $ 685 million at June 30, 2023 and December 31, 2022, respectively.

The fair value of these borrowed securities was $ 853 million and $ 685 million at September 30, 2023 and December 31, 2022, respectively.

Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers;

21 unchanged sentences

Offsetting Collateral

June 30, 2023

Interest rate swaps (1,3)

$ 1 $ — $ 1 $ — $ — (5)

September 30, 2023

Resale agreements (1)

2 unchanged sentences

892 — 892 ( 646 ) ( 244 ) 2

Interest rate swaps (4)

3 — 3 — — (5)

Total $ 3,905 $ — $ 3,905 $ ( 646 ) $ ( 3,254 ) $ 5

3 unchanged sentences

5,878 — 5,878 ( 646 ) ( 4,721 ) 511

Secured short-term borrowings (8)

950 — 950 — ( 950 ) —

Total $ 13,343 $ — $ 13,343 $ ( 646 ) $ ( 12,186 ) $ 511

12 unchanged sentences

(2) Actual collateral was greater than or equal to the value of the related assets.

At June 30, 2023 and December 31, 2022, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $ 5.5 billion and $ 12.3 billion, respectively.

At September 30, 2023 and December 31, 2022, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $ 3.1 billion and $ 12.3 billion, respectively.

(3) Included in other assets on the condensed consolidated balance sheets.

(4) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets.

1 unchanged sentence

See Note 11 for additional information.

(4) Included in other assets on the condensed consolidated balance sheets.

(5) At June 30, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $ 178 million.

(5) At September 30, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $ 180 million.

See Notes 4 and 11 for additional information.

1 unchanged sentence

Actual collateral was greater than or equal to the value of the related liabilities.

At June 30, 2023 and December 31, 2022, the fair value of collateral pledged in connection with repurchase agreements was $ 8.4 billion and $ 4.6 billion, respectively.

At September 30, 2023 and December 31, 2022, the fair value of collateral pledged in connection with repurchase agreements was $ 7.0 billion and $ 4.6 billion, respectively.

See Note 8 for additional information.

1 unchanged sentence

Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities.

The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at June 30, 2023 and December 31, 2022.

The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at September 30, 2023 and December 31, 2022.

(8) Included in other short-term borrowings in the condensed consolidated balance sheets.

See below for collateral pledged and Note 8 for additional information.

Margin lending:

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The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged to third parties under such regulations and from securities borrowed transactions:

June 30, 2023 December 31, 2022

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

September 30, 2023 December 31, 2022

Fair value of client securities available to be pledged $ 90,299 $ 86,775

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Securities lending to other broker-dealers 5,190 3,472

Collateral for secured short-term borrowings 1,066 —

Total collateral pledged to third parties $ 26,705 $ 19,939

Excludes amounts available and pledged for securities lending from fully-paid client securities.

The fair value of fully-paid client securities available and pledged was $ 195 million and $ 160 million at June 30, 2023 and December 31, 2022, respectively.

The fair value of fully-paid client securities available and pledged was $ 140 million and $ 160 million at September 30, 2023 and December 31, 2022, respectively.

(1) Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

Fair Values of Assets and Liabilities

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See Note 11 for additional information on the Company’s interest rate swaps.

For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2022 Form 10-K.

The Company did not adjust prices received from the primary independent third-party pricing service at June 30, 2023 or December 31, 2022.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2022 Form 10-K.

The Company did not adjust prices received from the primary independent third-party pricing service at September 30, 2023 or December 31, 2022.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:

June 30, 2023 Level 1 Level 2 Level 3 Balance at

September 30, 2023 Level 1 Level 2 Level 3 Balance at

Cash equivalents:

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The following tables present the fair value hierarchy for other financial instruments:

June 30, 2023 Carrying

September 30, 2023 Carrying

Amount Level 1 Level 2 Level 3 Balance at

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

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 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 six months ended June 30, 2023 .

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

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

As of September 30, 2023, approximately $ 8.7 billion remained on the new authorization.

There were no repurchases of CSC’s preferred stock during the three months ended September 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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The Company’s preferred stock issued and outstanding is as follows:

Liquidation Preference Per Share Dividend Rate in Effect at June 30, 2023 Earliest Redemption Date Date at Which Dividend Rate Resets or Becomes Floating Reset / Floating Rate Margin Over Reset / Floating Rate

Liquidation Preference Per Share Dividend Rate in Effect at September 30, 2023 Earliest Redemption Date Date at Which Dividend Rate Resets or Becomes Floating Reset / Floating Rate Margin Over Reset / Floating Rate

Shares Issued and Outstanding (in ones) at Carrying Value at

June 30, 2023 (1)

September 30, 2023 (1)

December 31, 2022 (1)

June 30, 2023 December 31, 2022 Issue Date

September 30, 2023 December 31, 2022 Issue Date

Series D 750,000 750,000 $ 1,000 $ 728 $ 728 03/07/16 5.950 % 06/01/21 N/A N/A N/A

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Dividends declared on the Company’s preferred stock are as follows:

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

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

2023 2022 2023 2022

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(1) Excludes $ 3 million of dividends declared on Series G, H and I, and accrued by stockholders as of the repurchase date.

Such dividends are part of the consideration paid upon repurchase of the depositary shares during the six months ended June 30, 2023.

Such dividends are part of the consideration paid upon repurchase of the depositary shares during the nine months ended September 30, 2023.

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

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N/A Not applicable.

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

Accumulated Other Comprehensive Income

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AOCI balances and the components of other comprehensive income (loss) are as follows:

Balance at March 31, 2022 $ ( 11,045 )

Balance at June 30, 2022 $ ( 16,022 )

Available for sale securities:

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Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 18

Balance at September 30, 2022 $ ( 23,152 )

Balance at June 30, 2023 $ ( 20,730 )

Balance at March 31, 2023 $ ( 20,690 )

Available for sale securities:

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Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 147

Balance at June 30, 2023 $ ( 20,730 )

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

Balance at September 30, 2023 $ ( 20,752 )

Balance at December 31, 2021 $ ( 1,109 )

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Net unrealized loss on securities transferred to held to maturity, net of tax benefit of $ 579

Other reclassifications included in other revenue, net of tax expense (benefit) of $( 4 )

Other reclassifications included in other revenue (1)

Held to maturity securities:

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Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 67

Balance at June 30, 2022 $ ( 16,022 )

Balance at September 30, 2022 $ ( 23,152 )

Balance at December 31, 2022 $ ( 22,621 )

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Other, net of tax expense (benefit) of $( 2 )

Balance at June 30, 2023 $ ( 20,730 )

Balance at September 30, 2023 $ ( 20,752 )

(1) Tax expense (benefit) was less than $ 1 million.

In 2022, the Company transferred a portion of its AFS securities to the HTM category.

As of June 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 12.3 billion net of tax effect ($ 16.3 billion pretax).

As of September 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 11.8 billion net of tax effect ($ 15.6 billion pre-tax).

See Note 4 for additional discussion on the 2022 transfers of AFS securities to HTM.

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Earnings Per Common Share

For the three and six months ended June 30, 2023 and 2022, the Company had voting and nonvoting common stock outstanding.

For the three and nine months ended September 30, 2023 and 2022, the Company had voting and nonvoting common stock outstanding.

Since the rights of the voting and nonvoting common stock are identical, except with respect to voting, the net income of the Company has been allocated on a proportionate basis to the two classes.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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(1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.

(2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 15 million and 18 million for the three and six months ended June 30, 2023, respectively, and 13 million and 14 million for the three and six months ended June 30, 2022, respectively.

(2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 15 million and 18 million for the three and nine months ended September 30, 2023, respectively, and 13 million and 15 million for the three and nine months ended September 30, 2022, respectively.

THE CHARLES SCHWAB CORPORATION

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Regulatory Requirements

At June 30, 2023, CSC and its banking subsidiaries met all of their respective capital requirements.

At September 30, 2023, CSC and its banking subsidiaries met all of their respective capital requirements.

Regulatory capital and ratios for CSC (consolidated) and CSB are as follows:

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Well Capitalized Minimum Capital Requirement

June 30, 2023 Amount Ratio Amount Ratio Amount Ratio (1)

September 30, 2023 Amount Ratio Amount Ratio Amount Ratio (1)

Common Equity Tier 1 Risk-Based Capital $ 30,781 23.8 % N/A $ 5,829 4.5 %

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(1) Under risk-based capital rules, CSC and CSB are also required to maintain additional capital buffers above the regulatory minimum risk-based capital ratios.

As of June 30, 2023, CSC was subject to a stress capital buffer of 2.5%.

As of September 30, 2023, CSC was subject to a stress capital buffer of 2.5%.

In addition, CSB is required to maintain a capital conservation buffer of 2.5%.

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If a buffer falls below the minimum requirement, CSC and CSB would be subject to increasingly strict limits on capital distributions and discretionary bonus payments to executive officers.

At June 30, 2023, the minimum capital ratio requirements for both CSC and CSB, inclusive of their respective buffers, were 7.0%, 8.5%, and 10.5% for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital, respectively.

At September 30, 2023, the minimum capital ratio requirements for both CSC and CSB, inclusive of their respective buffers, were 7.0%, 8.5%, and 10.5% for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital, respectively.

N/A Not applicable.

Based on its regulatory capital ratios at June 30, 2023, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules.

There are no conditions or events since June 30, 2023 that management believes have changed CSB’s capital category.

At June 30, 2023, the balance sheets of Charles Schwab Premier Bank, SSB (CSPB) and Charles Schwab Trust Bank (Trust Bank) consisted primarily of investment securities, and the entities held total assets of $ 29.9 billion and $ 11.8 billion, respectively.

Based on their regulatory capital ratios, at June 30, 2023, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules.

Based on its regulatory capital ratios at September 30, 2023, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules.

There are no conditions or events since September 30, 2023 that management believes have changed CSB’s capital category.

At September 30, 2023, the balance sheets of Charles Schwab Premier Bank, SSB (CSPB) and Charles Schwab Trust Bank (Trust Bank) consisted primarily of investment securities, and the entities held total assets of $ 27.6 billion and $ 11.4 billion, respectively.

Based on their regulatory capital ratios, at September 30, 2023, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules.

THE CHARLES SCHWAB CORPORATION

2 unchanged sentences

Net capital and net capital requirements for CS&Co, TDAC, and TD Ameritrade, Inc., are as follows:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Net capital $ 5,290 $ 5,386

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Net capital in excess of required net capital $ 671 $ 806

Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at June 30, 2023.

Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at September 30, 2023.

The SEC’s Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts.

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Investor Services Advisor Services Total

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

Three Months Ended September 30, 2023 2022 2023 2022 2023 2022

Net interest revenue $ 1,710 $ 2,143 $ 527 $ 783 $ 2,237 $ 2,926

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Investor Services Advisor Services Total

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

Nine Months Ended September 30, 2023 2022 2023 2022 2023 2022

Net interest revenue $ 5,448 $ 5,551 $ 1,849 $ 2,102 $ 7,297 $ 7,653

8 unchanged sentences

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

What changed 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk