SCHWAB CHARLES CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2. - 29 - Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Income (In Millions, Except Per Share Amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net Revenues Interest revenue $ 4,028 $ 3,357 $ 12,148 $ 8,386 Interest expense ( 1,791 ) ( 431 ) ( 4,851 ) ( 733 ) Net interest revenue 2,237 2,926 7,297 7,653 Asset management and administration fees (1) 1,224 1,047 3,515 3,167 Trading revenue 768 930 2,463 2,778 Bank deposit account fees 205 413 531 1,059 Other 172 184 572 608 Total net revenues 4,606 5,500 14,378 15,265 Expenses Excluding Interest Compensation and benefits 1,770 1,476 4,906 4,448 Professional services 275 264 805 766 Occupancy and equipment 305 292 923 855 Advertising and market development 102 89 293 296 Communications 151 131 485 444 Depreciation and amortization 198 167 566 476 Amortization of acquired intangible assets 135 152 404 460 Regulatory fees and assessments 114 65 277 200 Other 173 187 535 530 Total expenses excluding interest 3,223 2,823 9,194 8,475 Income before taxes on income 1,383 2,677 5,184 6,790 Taxes on income 258 657 1,162 1,575 Net Income 1,125 2,020 4,022 5,215 Preferred stock dividends and other 108 136 299 401 Net Income Available to Common Stockholders $ 1,017 $ 1,884 $ 3,723 $ 4,814 Weighted-Average Common Shares Outstanding: Basic 1,821 1,887 1,825 1,892 Diluted 1,827 1,895 1,832 1,901 Earnings Per Common Shares Outstanding (2) : Basic $ .56 $ 1.00 $ 2.04 $ 2.54 Diluted $ .56 $ .99 $ 2.03 $ 2.53 (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. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class. See Note 16 for additional information. See Notes to Condensed Consolidated Financial Statements. - 30 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Comprehensive Income (In Millions) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 1,125 $ 2,020 $ 4,022 $ 5,215 Other comprehensive income (loss), before tax: Change in net unrealized gain (loss) on available for sale securities: Net unrealized gain (loss) excluding transfers to held to maturity ( 720 ) ( 9,493 ) 446 ( 29,299 ) Reclassification of net unrealized loss transferred to held to maturity — — — 2,429 Other reclassifications included in other revenue 24 16 44 ( 1 ) Change in net unrealized gain (loss) on held to maturity securities: Reclassification of net unrealized loss transferred from available for sale — — — ( 2,429 ) Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 645 83 1,896 297 Other — — ( 9 ) — Other comprehensive income (loss), before tax ( 51 ) ( 9,394 ) 2,377 ( 29,003 ) Income tax effect 29 2,264 ( 508 ) 6,960 Other comprehensive income (loss), net of tax ( 22 ) ( 7,130 ) 1,869 ( 22,043 ) Comprehensive Income (Loss) $ 1,103 $ ( 5,110 ) $ 5,891 $ ( 16,828 ) See Notes to Condensed Consolidated Financial Statements. - 31 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Balance Sheets (1) (In Millions, Except Per Share and Share Amounts) (Unaudited) September 30, 2023 December 31, 2022 Assets Cash and cash equivalents $ 33,251 $ 40,195 Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $ 3,010 and $ 12,159 at September 30, 2023 and December 31, 2022, respectively) 18,576 42,983 Receivables from brokerage clients — net 69,062 66,591 Available for sale securities (amortized cost of $ 122,072 at September 30, 2023 and $ 160,162 at December 31, 2022; including assets pledged of $ 1,773 and $ 41 , respectively) 110,272 147,871 Held to maturity securities (including assets pledged of $ 5,346 at September 30, 2023 and $ 4,522 at December 31, 2022) 162,452 173,074 Bank loans — net 40,327 40,505 Equipment, office facilities, and property — net 3,730 3,714 Goodwill 11,951 11,951 Acquired intangible assets — net 8,390 8,789 Other assets 17,193 16,099 Total assets $ 475,204 $ 551,772 Liabilities and Stockholders’ Equity Bank deposits $ 284,408 $ 366,724 Payables to brokerage clients 72,818 97,438 Accrued expenses and other liabilities 16,041 13,124 Other short-term borrowings 7,550 4,650 Federal Home Loan Bank borrowings 31,800 12,400 Long-term debt 24,803 20,828 Total liabilities 437,420 515,164 Stockholders’ equity: Preferred stock — $ .01 par value per share; aggregate liquidation preference of $ 9,329 and $ 9,850 at September 30, 2023 and December 31, 2022, respectively 9,191 9,706 Common stock — 3 billion shares authorized; $ .01 par value per share; 2,023,295,180 shares issued at September 30, 2023 and December 31, 2022 20 20 Nonvoting common stock — 300 million shares authorized; $ .01 par value per share; 50,893,695 shares issued at September 30, 2023 and December 31, 2022 1 1 Additional paid-in capital 27,293 27,075 Retained earnings 33,429 31,066 Treasury stock, at cost — 252,889,055 and 221,033,042 shares at September 30, 2023 and December 31, 2022, respectively ( 11,398 ) ( 8,639 ) Accumulated other comprehensive income (loss) ( 20,752 ) ( 22,621 ) Total stockholders’ equity 37,784 36,608 Total liabilities and stockholders’ equity $ 475,204 $ 551,772 (1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information. See Notes to Condensed Consolidated Financial Statements. - 32 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Stockholders ’ Equity (In Millions) (Unaudited) Accumulated Other Comprehensive Income (Loss) Preferred Stock Common Stock Nonvoting Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at cost Total Shares Amount Shares Amount Balance at 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 ) Dividends declared on common stock — $ .22 per share — — — — — — ( 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 Share-based compensation — — — — — 50 — — — 50 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 Net income — — — — — — 1,125 — — 1,125 Other comprehensive income (loss), net of tax — — — — — — — — ( 22 ) ( 22 ) Dividends declared on preferred stock — — — — — — ( 103 ) — — ( 103 ) Dividends declared on common stock — $ .25 per share — — — — — — ( 458 ) — — ( 458 ) Stock option exercises and other — — — — — ( 9 ) — 18 — 9 Share-based compensation — — — — — 60 — — — 60 Other — — — — — 22 — 4 — 26 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. - 33 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Stockholders ’ Equity (In Millions) (Unaudited) Continued from previous page. Accumulated Other Comprehensive Income (Loss) Preferred Stock Common Stock Nonvoting Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at cost Total Shares Amount Shares Amount Balance at December 31, 2021 $ 9,954 1,995 $ 20 79 $ 1 $ 26,741 $ 25,992 $ ( 5,338 ) $ ( 1,109 ) $ 56,261 Net income — — — — — — 5,215 — — 5,215 Other comprehensive income (loss), net of tax — — — — — — — — ( 22,043 ) ( 22,043 ) Issuance of preferred stock, net 740 — — — — — — — — 740 Call of preferred stock ( 397 ) — — — — — ( 3 ) — — ( 400 ) Dividends declared on preferred stock — — — — — — ( 374 ) — — ( 374 ) Dividends declared on common stock — $ .62 per share — — — — — — ( 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 Share-based compensation — — — — — 215 — — — 215 Other — — — — — 87 — ( 23 ) — 64 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 Net income — — — — — — 4,022 — — 4,022 Other comprehensive income (loss), net of tax — — — — — — — — 1,869 1,869 Redemption and repurchase of preferred stock, inclusive of tax ( 515 ) — — — — — 44 — — ( 471 ) Dividends declared on preferred stock — — — — — — ( 324 ) — — ( 324 ) Dividends declared on common stock — $ .75 per share — — — — — — ( 1,379 ) — — ( 1,379 ) Repurchase of common stock, inclusive of tax — — — — — — — ( 2,869 ) — ( 2,869 ) Stock option exercises and other — — — — — ( 110 ) — 143 — 33 Share-based compensation — — — — — 242 — — — 242 Other — — — — — 86 — ( 33 ) — 53 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 . - 34 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Cash Flows (1) (in Millions) (Unaudited) Nine Months Ended September 30, 2023 2022 Cash Flows from Operating Activities Net income $ 4,022 $ 5,215 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Share-based compensation 260 281 Depreciation and amortization 566 476 Amortization of acquired intangible assets 404 460 Provision (benefit) for deferred income taxes 5 ( 57 ) Premium amortization, net, on available for sale and held to maturity securities 614 1,163 Other 391 339 Net change in: Investments segregated and on deposit for regulatory purposes 17,539 ( 1,774 ) Receivables from brokerage clients ( 2,502 ) 16,683 Other assets 202 655 Payables to brokerage clients ( 24,620 ) ( 15,659 ) Accrued expenses and other liabilities 2,669 ( 3,618 ) Net cash provided by (used for) operating activities ( 450 ) 4,164 Cash Flows from Investing Activities Purchases of available for sale securities ( 775 ) ( 49,897 ) Proceeds from sales of available for sale securities 6,385 24,019 Principal payments on available for sale securities 31,593 40,503 Principal payments on held to maturity securities 12,030 12,433 Net change in bank loans 194 ( 5,653 ) Purchases of equipment, office facilities, and property ( 637 ) ( 769 ) Purchases of FHLB stock ( 1,652 ) — Proceeds from sales of FHLB stock 876 — Purchases of Federal Reserve stock ( 212 ) ( 85 ) Proceeds from sales of Federal Reserve stock 98 16 Other investing activities ( 171 ) ( 59 ) Net cash provided by (used for) investing activities 47,729 20,508 Cash Flows from Financing Activities Net change in bank deposits ( 82,316 ) ( 48,063 ) Proceeds from FHLB borrowings 41,800 4 Repayments of FHLB borrowings ( 22,400 ) ( 4 ) Proceeds from other short-term borrowings 14,190 14,999 Repayments of other short-term borrowings ( 11,296 ) ( 19,357 ) Issuances of long-term debt 4,809 2,971 Repayments of long-term debt ( 823 ) ( 1,029 ) Net proceeds from preferred stock offerings — 740 Redemption and repurchase of preferred stock ( 467 ) — Dividends paid ( 1,703 ) ( 1,559 ) Proceeds from stock options exercised 33 42 Repurchases of common stock and nonvoting common stock ( 2,842 ) ( 1,455 ) Other financing activities ( 77 ) ( 53 ) Net cash provided by (used for) financing activities ( 61,092 ) ( 52,764 ) Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted ( 13,813 ) ( 28,092 ) Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year 58,720 93,338 Cash and Cash Equivalents, including Amounts Restricted at End of Period $ 44,907 $ 65,246 Continued on following page. - 35 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Cash Flows (1) (in Millions) (Unaudited) Continued from previous page. Nine Months Ended September 30, 2023 2022 Supplemental Cash Flow Information Non-cash investing activity: Securities transferred from available for sale to held to maturity, at fair value $ — $ 108,805 Securities 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: Cash paid during the period for: Interest $ 3,851 $ 722 Income taxes $ 1,243 $ 1,436 Amounts included in the measurement of lease liabilities $ 190 $ 162 Leased assets obtained in exchange for new operating lease liabilities $ 88 $ 226 Leased assets obtained in exchange for new finance lease liabilities $ — $ 5 September 30, 2023 September 30, 2022 Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2) Cash and cash equivalents $ 33,251 $ 46,486 Restricted cash and cash equivalents amounts included in cash and investments segregated and on deposit for regulatory purposes 11,656 18,760 Total cash and cash equivalents, including amounts restricted shown in the statement of cash flows $ 44,907 $ 65,246 (1) Certain prior period amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information. (2) For more information on the nature of restrictions on restricted cash and cash equivalents, see Note 17. See Notes to Condensed Consolidated Financial Statements. - 36 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 1. Introduction and Basis of Presentation The Charles Schwab Corporation (CSC) is a savings and loan holding company. CSC engages, through its subsidiaries (collectively referred to as Schwab or the Company), in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. Principal business subsidiaries of CSC include the following: • Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer; • TD Ameritrade, Inc., an introducing securities broker-dealer; • TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.; • Charles Schwab Bank, SSB (CSB), our principal banking entity; and • Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds ® ) and for Schwab’s exchange-traded funds (Schwab ETFs ™ ). Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries. These unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements and in the related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. While management makes its best judgment, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in Schwab’s 2022 Form 10-K. Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation. Beginning in 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings in the condensed consolidated balance sheets. Prior period amounts have been reclassified to reflect these changes. Corresponding presentation changes have been made to the condensed consolidated statements of cash flows and related notes. The significant accounting policies are included in Item 8 – Note 2 in the 2022 Form 10-K. There have been no significant changes to these accounting policies during the first nine months of 2023, except as described in Note 2 below. 2. Summary of Significant Accounting Policies and New Accounting Standards Derivative Instruments and Hedging Activities As discussed further in Note 11, beginning in 2023, the Company utilizes derivative instruments as part of its interest rate risk management. The Company records all derivatives on the balance sheet at fair value. Accounting for the changes in the fair values of derivatives depends on 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 . Schwab’s policy is to designate all eligible derivatives in hedge accounting relationships. To qualify for hedge accounting, among other requirements, a derivative must be highly effective at reducing exposure to the hedged risk. The assessment of effectiveness is done at inception and on an ongoing basis for hedging relationships and, depending on certain criteria, may be qualitative or quantitative. Schwab applies the “shortcut method” of hedge accounting for a portion of its fair value hedges, which assumes perfect effectiveness. Alternatively, when quantitative effectiveness assessments are required, the Company uses regression analysis, which is the method employed for the rest of our hedging relationships. For derivatives the Company has designated and that qualify as fair value hedges of interest rate risk, the gain or loss on the derivatives and the changes in fair values of the hedged assets attributable to benchmark interest rates (basis adjustments) are - 37 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) both recorded in interest revenue on the condensed consolidated statement of income. If the hedging relationship is terminated, the basis adjustment remaining on the hedged asset continues to be reported as part of the amortized cost of that asset and is amortized to interest revenue over the remaining life of the asset as a yield adjustment using the effective interest method. The Company does not amortize basis adjustments prior to termination of the hedging relationship. Certain fair value hedges may be designated under the portfolio layer method (PLM) of hedge accounting, which allows the Company to hedge the interest rate risk of prepayable and non-prepayable financial assets by designating a stated amount of a closed portfolio that is expected to be outstanding for the designated hedge period (a hedged layer) as the hedged item. A PLM hedging relationship may include multiple hedged layers. If at any point during the hedge period the aggregate amount of the hedged layers exceeds the amount of the closed portfolio (i.e., a breach of the hedged layer(s) has occurred) 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 recognized financial assets and liabilities are reclassified into interest revenue or interest expense as interest payments are accrued or made. 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 or interest expense immediately. Otherwise, the derivative gain or loss in AOCI will continue to be reclassified into interest revenue or interest expense in the periods during which the transactions that were hedged affect earnings. Cash flows associated with derivative instruments are reflected as cash flows from operating activities in the statement of cash flows consistent with the treatment and nature of the items being hedged. Adoption of New Accounting Standards Standard Description Date of Adoption Effects on the Financial Statements or Other Significant Matters Accounting Standards Update (ASU) 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” Troubled Debt Restructurings (TDRs) Eliminates the accounting guidance for TDRs. Rather than applying the specific guidance for TDRs, creditors will apply the recognition and measurement guidance for loan refinancings and restructurings to determine whether a modification results in a new loan or a continuation of an existing loan. The guidance requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Vintage Disclosures Requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. Adoption provides for prospective application, with an option to apply the modified retrospective transition method for the change in recognition and measurement of TDRs. January 1, 2023 The Company adopted this guidance on January 1, 2023 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s financial statements. New Accounting Standards Not Yet Adopted There are currently no new accounting standards not yet adopted that are material to the Company. - 38 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 3. Revenue Recognition Disaggregation of Schwab’s revenue by major source is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net interest revenue Cash and cash equivalents $ 459 $ 294 $ 1,419 $ 461 Cash and investments segregated 285 214 1,041 308 Receivables from brokerage clients 1,282 912 3,533 2,244 Available for sale securities 724 1,161 2,340 3,196 Held to maturity securities 706 345 2,172 1,062 Bank loans 426 300 1,227 717 Securities lending revenue 105 124 341 383 Other interest revenue 41 7 75 15 Interest revenue 4,028 3,357 12,148 8,386 Bank deposits ( 911 ) ( 241 ) ( 2,392 ) ( 285 ) Payables to brokerage clients ( 66 ) ( 41 ) ( 205 ) ( 47 ) Other short-term borrowings (1) ( 97 ) ( 4 ) ( 280 ) ( 12 ) Federal Home Loan Bank borrowings (1) ( 477 ) — ( 1,387 ) — Long-term debt ( 193 ) ( 131 ) ( 489 ) ( 363 ) Securities lending expense ( 46 ) ( 13 ) ( 96 ) ( 28 ) Other interest expense ( 1 ) ( 1 ) ( 2 ) 2 Interest expense ( 1,791 ) ( 431 ) ( 4,851 ) ( 733 ) Net interest revenue 2,237 2,926 7,297 7,653 Asset management and administration fees Mutual funds, ETFs, and CTFs 666 520 1,881 1,524 Advice solutions 476 452 1,393 1,409 Other 82 75 241 234 Asset management and administration fees 1,224 1,047 3,515 3,167 Trading revenue Commissions 394 435 1,210 1,362 Order flow revenue 325 432 1,104 1,332 Principal transactions 49 63 149 84 Trading revenue 768 930 2,463 2,778 Bank deposit account fees 205 413 531 1,059 Other 172 184 572 608 Total net revenues $ 4,606 $ 5,500 $ 14,378 $ 15,265 Note: For a summary of revenue provided by our reportable segments, see Note 18. The recognition of revenue is not impacted by the operating segment in which revenue is generated. (1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information. 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 $ 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 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 September 30, 2023 or December 31, 2022. Unsatisfied performance obligations: We do not have any unsatisfied performance obligations other than those that are subject to an elective practical expedient under ASC 606. The practical expedient applies to and is elected for contracts where we recognize revenue at the amount to which we have the right to invoice for services performed. - 39 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 4. Investment Securities The amortized cost, gross unrealized gains and losses, and fair value of the Company’s AFS and HTM investment securities are as follows: September 30, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale securities U.S. agency mortgage-backed securities $ 73,518 $ — $ 8,657 $ 64,861 U.S. Treasury securities 23,139 — 1,351 21,788 Asset-backed securities (1) 10,111 — 487 9,624 Corporate debt securities (2) 13,361 — 1,207 12,154 Certificates of deposit 100 — 1 99 Foreign government agency securities 1,034 — 49 985 U.S. state and municipal securities 636 — 81 555 Non-agency commercial mortgage-backed securities 208 — 20 188 Other 22 — 4 18 Unallocated portfolio layer method fair value basis adjustments (3) ( 57 ) — ( 57 ) — Total available for sale securities (4) $ 122,072 $ — $ 11,800 $ 110,272 Held to maturity securities U.S. agency mortgage-backed securities $ 162,452 $ — $ 19,449 $ 143,003 Total held to maturity securities $ 162,452 $ — $ 19,449 $ 143,003 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale securities U.S. agency mortgage-backed securities $ 85,994 $ — $ 8,306 $ 77,688 U.S. Treasury securities 41,879 — 1,877 40,002 Asset-backed securities (1) 13,672 — 649 13,023 Corporate debt securities (2) 13,830 — 1,275 12,555 Certificates of deposit 2,245 — 14 2,231 Foreign government agency securities 1,033 — 64 969 U.S. state and municipal securities 713 — 75 638 Non-agency commercial mortgage-backed securities 473 — 23 450 Other 323 — 8 315 Total available for sale securities (4) $ 160,162 $ — $ 12,291 $ 147,871 Held to maturity securities U.S. agency mortgage-backed securities $ 173,074 $ 1,442 $ 15,580 $ 158,936 Total held to maturity securities $ 173,074 $ 1,442 $ 15,580 $ 158,936 (1) Approximately 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. See Notes 2 and 11 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 September 30, 2023). These holdings have maturities of three months or less and an aggregate market value equal to amortized cost. During 2022, the Company transferred a total of $ 188.6 billion of U.S. agency mortgage-backed securities with a total net 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 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). - 40 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 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 $ 1.5 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 $ 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 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. Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, of AFS investment securities are as follows: Less than 12 months 12 months or longer Total September 30, 2023 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available for sale securities U.S. agency mortgage-backed securities $ 97 $ 1 $ 64,763 $ 8,656 $ 64,860 $ 8,657 U.S. Treasury securities 1,493 2 20,295 1,349 21,788 1,351 Asset-backed securities 32 — 9,580 487 9,612 487 Corporate debt securities — — 12,155 1,207 12,155 1,207 Certificates of deposit — — 99 1 99 1 Foreign government agency securities — — 985 49 985 49 U.S. state and municipal securities — — 555 81 555 81 Non-agency commercial mortgage-backed securities — — 188 20 188 20 Other — — 18 4 18 4 Total (1) $ 1,622 $ 3 $ 108,638 $ 11,854 $ 110,260 $ 11,857 December 31, 2022 Available for sale securities U.S. agency mortgage-backed securities $ 34,938 $ 2,025 $ 42,558 $ 6,281 $ 77,496 $ 8,306 U.S. Treasury securities 27,063 716 12,519 1,161 39,582 1,877 Asset-backed securities 6,717 217 6,299 432 13,016 649 Corporate debt securities 8,552 542 3,998 733 12,550 1,275 Certificates of deposit 2,033 10 196 4 2,229 14 Foreign government agency securities 756 50 214 14 970 64 U.S. state and municipal securities 482 31 157 44 639 75 Non-agency commercial mortgage-backed securities 443 23 — — 443 23 Other 315 8 — — 315 8 Total $ 81,299 $ 3,622 $ 65,941 $ 8,669 $ 147,240 $ 12,291 (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. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises. - 41 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 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 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 $ 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 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 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: September 30, 2023 Within 1 year After 1 year through 5 years After 5 years through 10 years After 10 years Total Available for sale securities U.S. agency mortgage-backed securities $ 494 $ 12,620 $ 11,503 $ 40,244 $ 64,861 U.S. Treasury securities 8,649 13,139 — — 21,788 Asset-backed securities — 2,755 1,209 5,660 9,624 Corporate debt securities 2,160 8,514 1,480 — 12,154 Certificates of deposit 99 — — — 99 Foreign government agency securities 488 497 — — 985 U.S. state and municipal securities — 46 387 122 555 Non-agency commercial mortgage-backed securities — — — 188 188 Other — — — 18 18 Total fair value $ 11,890 $ 37,571 $ 14,579 $ 46,232 $ 110,272 Total amortized cost (1) $ 12,128 $ 40,565 $ 16,667 $ 52,769 $ 122,129 Held to maturity securities U.S. agency mortgage-backed securities $ 724 $ 6,780 $ 36,652 $ 98,847 $ 143,003 Total fair value $ 724 $ 6,780 $ 36,652 $ 98,847 $ 143,003 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 $ 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Proceeds $ 3,485 $ 10,549 $ 6,385 $ 24,019 Gross realized gains 1 16 1 156 Gross realized losses 25 32 45 155 - 42 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 5. Bank Loans and Related Allowance for Credit Losses The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows: September 30, 2023 Current 30-59 days past due 60-89 days past due > 90 days past due and other nonaccrual loans (3) Total past due and other nonaccrual loans Total loans Allowance for credit losses Total bank loans – net Residential real estate: First Mortgages (1,2) $ 26,022 $ 25 $ 1 $ 8 $ 34 $ 26,056 $ 47 $ 26,009 HELOCs (1,2) 487 1 — 5 6 493 2 491 Total residential real estate 26,509 26 1 13 40 26,549 49 26,500 Pledged asset lines 13,525 10 2 1 13 13,538 — 13,538 Other 294 — — — — 294 5 289 Total bank loans $ 40,328 $ 36 $ 3 $ 14 $ 53 $ 40,381 $ 54 $ 40,327 December 31, 2022 Residential real estate: First Mortgages (1,2) $ 25,157 $ 25 $ 2 $ 14 $ 41 $ 25,198 $ 66 $ 25,132 HELOCs (1,2) 590 2 — 5 7 597 4 593 Total residential real estate 25,747 27 2 19 48 25,795 70 25,725 Pledged asset lines 14,584 4 — 4 8 14,592 — 14,592 Other 191 — — — — 191 3 188 Total bank loans $ 40,522 $ 31 $ 2 $ 23 $ 56 $ 40,578 $ 73 $ 40,505 (1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $ 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 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 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 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses ( 21 ) ( 1 ) ( 22 ) — 1 ( 21 ) Balance at end of period $ 47 $ 2 $ 49 $ — $ 5 $ 54 September 30, 2022 Balance at beginning of period $ 31 $ 3 $ 34 $ — $ 3 $ 37 Charge-offs — — — ( 4 ) — ( 4 ) Recoveries — 1 1 — — 1 Provision for credit losses 11 — 11 4 — 15 Balance at end of period $ 42 $ 4 $ 46 $ — $ 3 $ 49 - 43 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 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 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses ( 19 ) ( 2 ) ( 21 ) — 2 ( 19 ) Balance at end of period $ 47 $ 2 $ 49 $ — $ 5 $ 54 September 30, 2022 Balance at beginning of period $ 13 $ 2 $ 15 $ — $ 3 $ 18 Charge-offs — — — ( 4 ) — ( 4 ) Recoveries — 1 1 — — 1 Provision for credit losses 29 1 30 4 — 34 Balance at end of period $ 42 $ 4 $ 46 $ — $ 3 $ 49 Consistent with Schwab’s loan charge-off policy for pledged asset lines (PALs) as disclosed in Item 8 – Note 2 of the 2022 Form 10-K, the Company charges off any unsecured balances no later than 90-days past due. PALs are also subject to the collateral maintenance practical expedient under ASC 326 Financial Instruments — Credit Losses . All PALs were fully collateralized by securities with fair values in excess of borrowings as of September 30, 2023 and December 31, 2022. Therefore, no allowance for credit losses for PALs as of those dates was required. The U.S. economy continues to be challenged by elevated inflation, tightening monetary policy, and geopolitical unrest. 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: September 30, 2023 December 31, 2022 Nonaccrual loans (1) $ 14 $ 23 Other real estate owned (2) — 2 Total nonperforming assets $ 14 $ 25 (1) Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02. (2) Included in other assets on the condensed consolidated balance sheets. Credit Quality In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following: • Year of origination; • Borrower FICO scores at origination (Origination FICO); • Updated borrower FICO scores (Updated FICO); • Loan-to-value (LTV) ratios at origination (Origination LTV); and • Estimated Current LTV ratios (Estimated Current LTV). Borrowers’ FICO scores are provided by an independent third-party credit reporting service and generally updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index. - 44 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The credit quality indicators of the Company’s bank loan portfolio are detailed below: First Mortgages Amortized Cost Basis by Origination Year 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 <620 $ — $ 3 $ 1 $ — $ — $ 1 $ 5 $ — $ — $ — 620 – 679 3 27 30 20 2 13 95 — 1 1 680 – 739 243 795 1,177 400 108 206 2,929 53 39 92 ≥740 1,951 5,336 10,563 3,618 760 799 23,027 264 136 400 Total $ 2,197 $ 6,161 $ 11,771 $ 4,038 $ 870 $ 1,019 $ 26,056 $ 317 $ 176 $ 493 Origination LTV ≤70% $ 1,481 $ 4,561 $ 10,197 $ 3,357 $ 703 $ 759 $ 21,058 $ 282 $ 123 $ 405 >70% – ≤90% 716 1,600 1,574 681 167 258 4,996 35 52 87 >90% – ≤100% — — — — — 2 2 — 1 1 Total $ 2,197 $ 6,161 $ 11,771 $ 4,038 $ 870 $ 1,019 $ 26,056 $ 317 $ 176 $ 493 Updated FICO <620 $ 4 $ 10 $ 11 $ 6 $ 2 $ 12 $ 45 $ 2 $ 5 $ 7 620 – 679 26 68 91 30 11 35 261 6 8 14 680 – 739 259 585 961 329 62 118 2,314 45 30 75 ≥740 1,908 5,498 10,708 3,673 795 854 23,436 264 133 397 Total $ 2,197 $ 6,161 $ 11,771 $ 4,038 $ 870 $ 1,019 $ 26,056 $ 317 $ 176 $ 493 Estimated Current LTV (1) ≤70% $ 1,517 $ 4,858 $ 11,511 $ 4,026 $ 868 $ 1,018 $ 23,798 $ 315 $ 175 $ 490 >70% – ≤90% 680 1,283 257 12 2 1 2,235 2 1 3 >90% – ≤100% — 19 3 — — — 22 — — — >100% — 1 — — — — 1 — — — Total $ 2,197 $ 6,161 $ 11,771 $ 4,038 $ 870 $ 1,019 $ 26,056 $ 317 $ 176 $ 493 Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — Percent of Loans on Nonaccrual Status 0.01 % 0.03 % 0.02 % 0.01 % 0.01 % 0.33 % 0.03 % 0.28 % 2.03 % 1.01 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. - 45 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) First Mortgages Amortized Cost Basis by Origination Year December 31, 2022 2022 2021 2020 2019 pre-2019 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ 3 $ 1 $ — $ — $ 1 $ 5 $ — $ — $ — 620 – 679 28 31 21 2 15 97 — 2 2 680 – 739 820 1,224 430 116 243 2,833 59 47 106 ≥740 5,593 11,037 3,819 811 1,003 22,263 323 166 489 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Origination LTV ≤70% $ 4,771 $ 10,641 $ 3,549 $ 749 $ 940 $ 20,650 $ 332 $ 153 $ 485 >70% – ≤90% 1,673 1,652 721 180 320 4,546 50 61 111 >90% – ≤100% — — — — 2 2 — 1 1 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Updated FICO <620 $ 11 $ 12 $ 7 $ 2 $ 13 $ 45 $ 2 $ 5 $ 7 620 – 679 87 127 42 10 43 309 6 10 16 680 – 739 711 1,079 378 89 161 2,418 52 35 87 ≥740 5,635 11,075 3,843 828 1,045 22,426 322 165 487 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Estimated Current LTV (1) ≤70% $ 4,574 $ 11,751 $ 4,255 $ 928 $ 1,257 $ 22,765 $ 380 $ 214 $ 594 >70% – ≤90% 1,845 542 15 1 5 2,408 2 1 3 >90% – ≤100% 25 — — — — 25 — — — >100% — — — — — — — — — Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Percent of Loans on Nonaccrual Status 0.02 % 0.03 % 0.09 % 0.02 % 0.43 % 0.06 % 0.34 % 1.90 % 0.84 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. At 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. Approximately 27 % of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 88 % of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates. At 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. After the initial draw period, the balance outstanding at such time is converted to a 20 -year amortizing loan. The interest rate during the initial draw period and the 20 -year amortizing period is a floating rate based on the prime rate plus a margin. - 46 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table presents when current outstanding HELOCs will convert to amortizing loans: September 30, 2023 Balance Converted to an amortizing loan by period end (1) $ 176 Within 1 year 23 > 1 year – 3 years 39 > 3 years – 5 years 51 > 5 years 204 Total $ 493 (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 September 30, 2023, the borrowers on approximately 59 % of HELOC loan balances outstanding only paid the minimum amount due. 6. Variable Interest Entities 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. Aggregate assets, liabilities, and maximum exposure to loss The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below: September 30, 2023 December 31, 2022 Aggregate assets Aggregate liabilities Maximum exposure to loss Aggregate assets Aggregate liabilities Maximum exposure to loss LIHTC investments (1) $ 1,306 $ 744 $ 1,306 $ 1,094 $ 619 $ 1,094 Other investments (2) 176 — 218 167 — 215 Total $ 1,482 $ 744 $ 1,524 $ 1,261 $ 619 $ 1,309 (1) Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets. (2) Other investments include non-LIHTC CRA investments that are accounted for as loans at amortized cost, equity method investments, AFS securities, or using the adjusted cost method. Aggregate assets are included in AFS securities, bank loans – net, or other assets on the condensed consolidated balance sheets. Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. Schwab’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and Schwab expects to pay substantially all of these commitments between 2023 and 2026. During the 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. - 47 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 7. Bank Deposits Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows: September 30, 2023 December 31, 2022 Interest-bearing deposits: Deposits swept from brokerage accounts $ 217,517 $ 333,754 Time certificates of deposit (1) 45,418 6,047 Checking 15,560 19,719 Savings and other 4,672 6,098 Total interest-bearing deposits 283,167 365,618 Non-interest-bearing deposits 1,241 1,106 Total bank deposits $ 284,408 $ 366,724 (1) Time certificates of deposit consist of brokered CDs. 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: Balance 2023 $ 5,358 2024 38,422 2025 1,638 Total $ 45,418 8. Borrowings CSC Senior Notes CSC’s Senior Notes are unsecured obligations. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. Interest for the fixed-to-floating rate Senior Notes is payable semi-annually during the fixed rate period of the notes and quarterly during the floating rate period of the notes. TDA Holding Senior Notes TDA Holding’s Senior Notes are unsecured obligations. TDA Holding may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes. - 48 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table lists long-term debt by instrument outstanding as of September 30, 2023 and December 31, 2022: Date of Issuance Principal Amount Outstanding September 30, 2023 December 31, 2022 CSC Fixed-rate Senior Notes: 2.650 % due January 25, 2023 12/07/17 $ — $ 800 3.550 % due February 1, 2024 10/31/18 500 500 0.750 % due March 18, 2024 03/18/21 1,500 1,500 3.750 % due April 1, 2024 09/24/21 350 350 3.000 % due March 10, 2025 03/10/15 375 375 4.200 % due March 24, 2025 03/24/20 600 600 3.625 % due April 1, 2025 09/24/21 418 418 3.850 % due May 21, 2025 05/22/18 750 750 3.450 % due February 13, 2026 11/13/15 350 350 0.900 % due March 11, 2026 12/11/20 1,250 1,250 1.150 % due May 13, 2026 05/13/21 1,000 1,000 3.200 % due March 2, 2027 03/02/17 650 650 2.450 % due March 3, 2027 03/03/22 1,500 1,500 3.300 % due April 1, 2027 09/24/21 744 744 3.200 % due January 25, 2028 12/07/17 700 700 2.000 % due March 20, 2028 03/18/21 1,250 1,250 4.000 % due February 1, 2029 10/31/18 600 600 3.250 % due May 22, 2029 05/22/19 600 600 2.750 % due October 1, 2029 09/24/21 475 475 4.625 % due March 22, 2030 03/24/20 500 500 1.650 % due March 11, 2031 12/11/20 750 750 2.300 % due May 13, 2031 05/13/21 750 750 1.950 % due December 1, 2031 08/26/21 850 850 2.900 % due March 3, 2032 03/03/22 1,000 1,000 5.875 % due August 24, 2026 08/24/23 1,000 — CSC Floating-rate Senior Notes: SOFR + 0.500 % due March 18, 2024 03/18/21 1,250 1,250 SOFR + 0.520 % due May 13, 2026 05/13/21 500 500 SOFR + 1.050 % due March 3, 2027 03/03/22 500 500 CSC Fixed-to-Floating rate Senior Notes: 5.643 % due May 19, 2029 (1) 05/19/23 1,200 — 5.853 % due May 19, 2034 (2) 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 TDA Holding Fixed-rate Senior Notes: 3.750 % due April 1, 2024 11/01/18 50 50 3.625 % due April 1, 2025 10/22/14 82 82 3.300 % due April 1, 2027 04/27/17 56 56 2.750 % due October 1, 2029 08/16/19 25 25 Total TDA Holding Senior Notes 213 213 Finance lease liabilities 45 68 Unamortized premium — net 98 129 Debt issuance costs ( 115 ) ( 94 ) Total long-term debt $ 24,803 $ 20,828 (1) The 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.643 %, payable semi-annually, until the interest reset date on May 19, 2028. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.210 %, payable quarterly. (2) The 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.853 %, payable semi-annually, until the interest reset date on May 19, 2033. 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. - 49 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Annual maturities on all long-term debt outstanding at September 30, 2023 are as follows: Maturities 2023 $ 8 2024 3,675 2025 2,237 2026 4,100 2027 3,450 Thereafter 11,350 Total maturities 24,820 Unamortized premium — net 98 Debt issuance costs ( 115 ) Total long-term debt $ 24,803 FHLB borrowings: Our banking subsidiaries maintain secured credit facilities with the FHLB. Amounts available under these facilities are dependent on the amount of bank loans and the fair value of certain investment securities that are pledged as collateral. There was $ 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 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. 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 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 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 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 $ 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 FHLB borrowings $ 12,400 $ 19,400 $ 31,800 Other short-term borrowings 3,148 4,402 7,550 Total $ 15,548 $ 23,802 $ 39,350 - 50 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 9. Commitments and Contingencies Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Rocket Mortgage, LLC (Rocket Mortgage ® ). Pursuant to the Program, Rocket Mortgage originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Rocket Mortgage. CSB purchased First Mortgages of $ 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: September 30, 2023 December 31, 2022 Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit $ 3,247 $ 4,533 Commitments to purchase First Mortgage loans 379 492 Total $ 3,626 $ 5,025 Guarantees and indemnifications: Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We satisfy the margin requirements of these transactions through the pledging of certain client securities. For additional information on these pledged securities, refer to Note 12. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral. The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the amounts it has posted as collateral. The Company also engages third-party firms to clear clients’ futures and options on futures transactions and to facilitate clients’ foreign exchange trading, and has agreed to indemnify these firms for any losses that they may incur from the client transactions introduced to them by the Company. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees. IDA agreement: The 2019 IDA agreement with the TD Depository Institutions became effective on October 6, 2020 and created responsibilities of the Company and certain contingent obligations. On May 4, 2023, the 2019 IDA agreement was replaced and superseded by the 2023 IDA agreement, which specifies responsibilities, including certain contingent obligations, of the Company going forward. Pursuant to the 2023 IDA agreement, uninvested cash within eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions. Schwab provides recordkeeping and support services to the TD Depository Institutions with respect to the deposit accounts for which Schwab receives an aggregate monthly fee. The Company’s ability to migrate these balances to its balance sheet is dependent on multiple factors including having sufficient capital levels to sustain these incremental deposits and certain binding limitations specified in the 2023 IDA agreement, and, prior to May 4, 2023, the 2019 IDA agreement. The 2019 IDA agreement provided that, as of July 1, 2021, Schwab had the option to migrate up to $ 10 billion of IDA balances every 12 months to Schwab’s balance sheet, subject to certain limitations and adjustments. The Company migrated balances to the balance sheet in 2021 and 2022, subject to the terms of the 2019 IDA agreement. During the first 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: • Through September 10, 2025, Schwab must maintain minimum balances above the total of then-outstanding unmatured fixed-rate obligation amounts, with a maximum of $ 30 billion above this total amount. During this period, withdrawals of IDA balances by Schwab are generally permitted only to the extent of withdrawals initiated by Schwab customers, with limited exceptions, except to the extent necessary for Schwab to maintain balances below the applicable maximum. • After September 10, 2025, withdrawals of IDA balances are permitted at Schwab’s discretion, subject to an obligation to maintain IDA balances above a minimum of $ 60 billion, with a maximum of $ 90 billion. - 51 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The 2023 IDA agreement eliminates the requirement of the 2019 IDA agreement that at least 80 % of the IDA balances be designated as fixed-rate obligation amounts. Designation of deposit balances for investment in fixed- or floating-rate instruments under the 2023 IDA agreement is now at Schwab’s sole discretion with certain limitations on the amount of fixed-rate obligation amounts. Pursuant to the 2023 IDA agreement, Schwab has the option to buy down up to $ 5 billion of fixed-rate obligation amounts by paying a market-based fee during the agreement term, subject to certain limits. If IDA balances decline below the required IDA balance minimum as described above, Schwab would be required to make a nonperformance payment to the TD Depository Institutions pursuant to the terms of the 2023 IDA agreement. 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. Legal contingencies: Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available. Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company. Corrente Antitrust Litigation : On June 6, 2022, CSC was sued in the U.S. District Court for the Eastern District of Texas on behalf of a putative class of customers who purchased or sold securities through CS&Co or TD Ameritrade, Inc. from October 26, 2020 to the present. The lawsuit alleges that CSC’s acquisition of TD Ameritrade violated Section 7 of the Clayton Act because it has resulted in an anticompetitive market for the execution of retail customer orders. Plaintiffs seek unspecified damages, as well as injunctive and other relief. A motion by the Company to dismiss the lawsuit was denied by the court on February 24, 2023, and discovery is proceeding. The Company considers the claims to be without merit and is vigorously contesting the lawsuit. Crago Order Routing Litigation : On July 13, 2016, a securities class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of a putative class of customers executing equity orders through CS&Co. The lawsuit names CS&Co and CSC as defendants and alleges that an agreement under which CS&Co routed orders to UBS Securities LLC between July 13, 2011 and December 31, 2014 violated CS&Co’s duty to seek best execution. Plaintiffs seek unspecified damages, interest, injunctive and equitable relief, and attorneys’ fees and costs. Defendants consider the allegations to be - 52 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) without merit and have been vigorously contesting the lawsuit. After a first amended complaint was dismissed with leave to amend, plaintiffs filed a second amended complaint on August 14, 2017. Defendants again moved to dismiss, and in a decision issued December 5, 2017, the court denied the motion. Plaintiffs filed a motion for class certification on April 30, 2021, and in a decision on October 27, 2021, the court denied the motion and held that certification of a class action is inappropriate. Plaintiffs sought review of the order denying class certification by the U.S. Court of Appeals, 9th Circuit, which was denied. On September 23, 2022, plaintiffs filed a renewed motion for class certification and defendants moved to compel plaintiffs’ case to arbitration. On February 2, 2023, the court granted defendants’ motion, stayed the case pending the outcome of arbitration, and denied plaintiffs’ renewed motion for class certification as moot. Ford Order Routing Litigation : On September 15, 2014, TDA Holding, TD Ameritrade, Inc. and its former CEO, Frederick J. Tomczyk, were sued in the U.S. District Court for the District of Nebraska on behalf of a putative class of TD Ameritrade, Inc. clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices. Plaintiffs seek unspecified damages and injunctive and other relief. Defendants consider the allegations to be without merit and have been vigorously contesting the lawsuit. On September 14, 2018, the District Court granted plaintiffs’ motion for class certification, and defendants petitioned for an immediate appeal of the District Court’s class certification decision. On April 23, 2021, the U.S. Court of Appeals, 8th Circuit, issued a decision reversing the District Court’s certification of a class and remanding the case back to the District Court for further proceedings. Plaintiff renewed his motion for class certification, which the District Court granted on September 20, 2022. Defendants are appealing the District Court’s ruling before the U.S. Court of Appeals, 8th Circuit. 10. Exit and Other Related Liabilities Integration of TD Ameritrade 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. Such costs have included, and are expected to continue to include, professional fees, such as legal, advisory, and accounting fees, compensation and benefits expenses for employees and contractors involved in the integration work, and costs for technology enhancements. The Company has also incurred exit and other related costs to attain anticipated synergies, which are primarily comprised of employee compensation and benefits such as severance pay, other termination benefits, and retention costs, as well as costs related to facility closures, such as accelerated amortization and depreciation or impairments of assets in those locations. Exit and other related costs are a component of the Company’s overall acquisition and integration-related spending, and support the Company’s ability to achieve integration objectives including expected synergies. Our estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change based on a number of factors, including the 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 (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 - 53 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 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 Employee Compensation and Benefits Advisor Services Employee Compensation and Benefits Total Balance at December 31, 2022 (1) $ 36 $ 10 $ 46 Amounts recognized in expense (2) 20 3 23 Costs paid or otherwise settled ( 10 ) ( 2 ) ( 12 ) Balance at September 30, 2023 (1) $ 46 $ 11 $ 57 (1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets. (2) Amounts recognized in expense for severance pay and other termination benefits, as well as retention costs, are included in compensation and benefits on the condensed consolidated statements of income. The following table summarizes the 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 September 30, 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 $ 9 $ — $ 9 $ — $ — $ — $ 9 Occupancy and equipment — 3 3 — — — 3 Other — 4 4 — — — 4 Total $ 9 $ 7 $ 16 $ — $ — $ — $ 16 Investor Services Advisor Services Nine Months Ended September 30, 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 $ 20 $ — $ 20 $ 3 $ — $ 3 $ 23 Occupancy and equipment — 6 6 — 2 2 8 Other — 18 18 — 7 7 25 Total $ 20 $ 24 $ 44 $ 3 $ 9 $ 12 $ 56 (1) Costs related to facility closures. 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 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 September 30, 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 $ 5 $ — $ 5 $ 1 $ — $ 1 $ 6 Occupancy and equipment — 2 2 — 1 1 3 Total $ 5 $ 2 $ 7 $ 1 $ 1 $ 2 $ 9 Investor Services Advisor Services Nine Months Ended September 30, 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 $ 18 $ — $ 18 $ 5 $ — $ 5 $ 23 Occupancy and equipment — 4 4 — 2 2 6 Total $ 18 $ 4 $ 22 $ 5 $ 2 $ 7 $ 29 (1) Costs related to facility closures. These costs, which are comprised of accelerated amortization of ROU assets, relate to the impact of abandoning leased properties. - 54 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table summarizes the TD Ameritrade integration exit and other related costs incurred from October 6, 2020 through September 30, 2023: Investor Services Advisor Services Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 243 $ — $ 243 $ 64 $ — $ 64 $ 307 Occupancy and equipment — 37 37 — 9 9 46 Depreciation and amortization — 2 2 — 1 1 3 Professional services — 1 1 — — — 1 Other — 20 20 — 7 7 27 Total $ 243 $ 60 $ 303 $ 64 $ 17 $ 81 $ 384 (1) Costs related to facility closures. 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. Other 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) 202 74 276 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. - 55 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 11. Derivative Instruments and Hedging Activities Risk Management Objective of Using Derivatives Beginning in 2023, the Company utilizes derivative instruments to manage interest rate risk exposures that arise from business activities related to changes in fair values or the receipt of future known and uncertain cash amounts due to changes in interest rates. The Company uses derivative instruments to manage changes in the fair values of, as well as changes in the amounts and/or timing of known or expected cash receipts related to, our AFS investment portfolio. For a description of how the Company accounts for derivative instruments, see Note 2. For additional information on the basis of presentation for derivative instruments on the Company’s condensed consolidated balance sheets and related offsetting considerations, see Note 12. Fair Value Hedges of Interest Rate Risk The Company is exposed to changes in the fair value of its fixed-rate AFS securities due to changes in benchmark interest rates. The Company uses cleared interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Cleared interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a CCP in exchange for the Company receiving floating-rate payments over the life of the agreements without the exchange of the underlying notional amount. The Company had outstanding interest rate swaps with aggregate notional amounts of $ 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: September 30, 2023 Assets Liabilities Interest rate swaps (1,2) $ 3 $ — (1) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheet. (2) Includes a $ 301 million reduction of derivative assets related to variation margin settlements on derivatives cleared through CCPs. Settlements on derivative positions cleared through CCPs are reflected as reductions to the associated derivative asset and liability balances. Effects of Fair Value Hedge Accounting The following amounts were recorded in AFS securities on the condensed consolidated balance sheet related to fair value hedges: September 30, 2023 Amortized cost of hedged AFS securities (1,2) $ 8,589 Cumulative fair value hedging adjustment included in the amortized cost of hedged AFS securities (1,2) ( 304 ) (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 $ 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. - 56 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 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 September 30, Nine Months Ended September 30, 2023 2023 Gain (loss) on fair value hedging relationships recognized in interest revenue: Hedged items $ ( 182 ) $ ( 304 ) Derivatives designated as hedging instruments 182 304 12. Financial Instruments Subject to Off-Balance Sheet Credit Risk Interest rate swaps: Beginning in 2023, Schwab uses interest rate swaps to manage certain interest rate risk exposures. Schwab’s interest rate swaps are cleared through CCPs which require the Company to post initial margin as collateral against potential losses. Schwab pledges investment securities as collateral in order to meet the CCP’s initial margin requirements. Initial margin is posted through futures commission merchants (FCM) which serve as the intermediary between CCPs and Schwab. Our interest rate swaps are subject to enforceable master netting arrangements allowing a right of setoff within each FCM-CCP relationship; however, we do not net these positions. Therefore, interest rate swaps are presented gross in the condensed consolidated balance sheets. See Note 11 for additional information on the Company’s interest rate swaps. Resale agreements: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investments requirement. Schwab’s resale agreements as of September 30, 2023 and December 31, 2022 were not subject to master netting arrangements. Securities lending: Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. In addition, most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $ 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; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets. Repurchase agreements: Schwab enters into collateralized repurchase agreements with external financial institutions in which the Company sells securities and agrees to repurchase these securities on a specified future date at a stated repurchase price. These repurchase agreements are collateralized by investment securities with a fair value equal to or in excess of the secured borrowing liability. Decreases in security prices posted as collateral for repurchase agreements may require Schwab to transfer cash or additional securities deemed acceptable by the counterparty. To mitigate this risk, Schwab monitors the fair value of underlying securities pledged as collateral compared to the related liability. Our collateralized repurchase agreements with each external financial institution are considered to be enforceable master netting arrangements. However, we do not net these arrangements. As such, the secured short-term borrowings associated with these collateralized repurchase agreements are presented gross in the condensed consolidated balance sheets. - 57 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table presents information about our interest rate swaps, resale agreements, securities lending, and other activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities. Gross Assets/ Liabilities Gross Amounts Offset in the Condensed Consolidated Balance Sheets Net Amounts Presented in the Condensed Consolidated Balance Sheets Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Net Amount Counterparty Offsetting Collateral September 30, 2023 Assets Resale agreements (1) $ 3,010 $ — $ 3,010 $ — $ ( 3,010 ) (2) $ — Securities borrowed (3) 892 — 892 ( 646 ) ( 244 ) 2 Interest rate swaps (4) 3 — 3 — — (5) 3 Total $ 3,905 $ — $ 3,905 $ ( 646 ) $ ( 3,254 ) $ 5 Liabilities Repurchase agreements (6) $ 6,515 $ — $ 6,515 $ — $ ( 6,515 ) $ — Securities loaned (7) 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 December 31, 2022 Assets Resale agreements (1) $ 12,159 $ — $ 12,159 $ — $ ( 12,159 ) (2) $ — Securities borrowed (3) 705 — 705 ( 331 ) ( 366 ) 8 Total $ 12,864 $ — $ 12,864 $ ( 331 ) $ ( 12,525 ) $ 8 Liabilities Repurchase agreements (6) $ 4,402 $ — $ 4,402 $ — $ ( 4,402 ) $ — Securities loaned (7) 4,200 — 4,200 ( 331 ) ( 3,313 ) 556 Total $ 8,602 $ — $ 8,602 $ ( 331 ) $ ( 7,715 ) $ 556 (1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets. (2) Actual collateral was greater than or equal to the value of the related assets. At 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. Derivative asset and liability positions are inclusive of variation margin settlements cleared through CCPs which are reflected as reductions to the associated derivative asset and liability balances. See Note 11 for additional information. (5) 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. (6) Included in other short-term borrowings in the condensed consolidated balance sheets. Actual collateral was greater than or equal to the value of the related liabilities. At 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. (7) Included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at 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: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged to third parties under such regulations and from securities borrowed transactions: - 58 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) September 30, 2023 December 31, 2022 Fair value of client securities available to be pledged $ 90,299 $ 86,775 Fair value of securities pledged for: Fulfillment of requirements with the Options Clearing Corporation (1) $ 15,086 $ 11,717 Fulfillment of client short sales 5,363 4,750 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 Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $ 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. 13. Fair Values of Assets and Liabilities Assets and liabilities measured at fair value on a recurring basis Schwab’s assets and liabilities measured at fair value on a recurring basis include: certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, certain other assets, interest rate swaps and certain accrued expenses and other liabilities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. Quoted prices for investments in exchange-traded securities represent end-of-day close prices published by exchanges. Quoted prices for money market funds and other mutual funds represent reported net asset values. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices in active markets do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets, and we generally obtain prices from three independent third-party pricing sources for such assets recorded at fair value. Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposits; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in material differences in the amounts recorded. Liabilities measured at fair value on a recurring basis include interest rate swaps and repurchase liabilities related to client-held fractional shares of equities, ETFs, and other securities, which are included in other assets on the condensed consolidated balance sheets. The Company has elected the fair value option pursuant to ASC 825 Financial Instruments for the repurchase liabilities to match the measurement and accounting of the related client-held fractional shares. The fair values of the repurchase liabilities are based on quoted market prices or other observable market data consistent with the related client-held fractional shares. Unrealized gains and losses on client-held fractional shares offset the unrealized gains and losses on the corresponding repurchase liabilities, resulting in no impact to the condensed consolidated statements of income. The Company’s liabilities to repurchase client-held fractional shares do not have credit risk, and, as a result, the Company has not recognized any gains or losses in the condensed consolidated statements of income or comprehensive income attributable to instrument-specific credit risk for these repurchase liabilities. The repurchase liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. The fair values of interest rate swaps are based on market observable interest rate yield curves. Fair value measurements are priced considering the coupon rate of the fixed leg of the contract and the variable coupon rate on the floating leg of the contract. Valuation is based on both spot and forward rates on the swap yield curve. The Company validates its valuations with counterparty quotations from CCPs. See Note 11 for additional information on the Company’s interest rate swaps. - 59 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 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: September 30, 2023 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 12,744 $ — $ — $ 12,744 Total cash equivalents 12,744 — — 12,744 Investments segregated and on deposit for regulatory purposes: U.S. Government securities — 11,368 — 11,368 Certificates of deposit — 950 — 950 Total investments segregated and on deposit for regulatory purposes — 12,318 — 12,318 Available for sale securities: U.S. agency mortgage-backed securities — 64,861 — 64,861 U.S. Treasury securities — 21,788 — 21,788 Asset-backed securities — 9,624 — 9,624 Corporate debt securities — 12,154 — 12,154 Certificates of deposit — 99 — 99 Foreign government agency securities — 985 — 985 U.S. state and municipal securities — 555 — 555 Non-agency commercial mortgage-backed securities — 188 — 188 Other — 18 — 18 Total available for sale securities — 110,272 — 110,272 Other assets: Other securities owned at fair value: Equity, corporate debt, and other securities 877 59 — 936 Mutual funds and ETFs 677 — — 677 State and municipal debt obligations — 11 — 11 U.S. Government securities — 2 — 2 Total other securities owned at fair value 1,554 72 — 1,626 Interest rate swaps — 3 — 3 Total other assets 1,554 75 — 1,629 Total assets $ 14,298 $ 122,665 $ — $ 136,963 Accrued expenses and other liabilities: Other $ 1,396 $ 37 $ — $ 1,433 Total accrued expenses and other liabilities 1,396 37 — 1,433 Total liabilities $ 1,396 $ 37 $ — $ 1,433 - 60 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) December 31, 2022 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 14,007 $ — $ — $ 14,007 Commercial paper — 48 — 48 Total cash equivalents 14,007 48 — 14,055 Investments segregated and on deposit for regulatory purposes: U.S. Government securities — 23,645 — 23,645 Certificates of deposit — 1,000 — 1,000 Total investments segregated and on deposit for regulatory purposes — 24,645 — 24,645 Available for sale securities: U.S. agency mortgage-backed securities — 77,688 — 77,688 U.S. Treasury securities — 40,002 — 40,002 Asset-backed securities — 13,023 — 13,023 Corporate debt securities — 12,555 — 12,555 Certificates of deposit — 2,231 — 2,231 Foreign government agency securities — 969 — 969 U.S. state and municipal securities — 638 — 638 Non-agency commercial mortgage-backed securities — 450 — 450 Other — 315 — 315 Total available for sale securities — 147,871 — 147,871 Other assets: Other securities owned at fair value: Equity, corporate debt, and other securities 755 55 — 810 Mutual funds and ETFs 596 — — 596 State and municipal debt obligations — 25 — 25 U.S. Government securities — 1 — 1 Total other securities owned at fair value 1,351 81 — 1,432 Total other assets 1,351 81 — 1,432 Total assets $ 15,358 $ 172,645 $ — $ 188,003 Accrued expenses and other liabilities: Other $ 1,218 $ 43 $ — $ 1,261 Total accrued expenses and other liabilities 1,218 43 — 1,261 Total liabilities $ 1,218 $ 43 $ — $ 1,261 - 61 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Fair Value of Other Financial Instruments The following tables present the fair value hierarchy for other financial instruments: September 30, 2023 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 20,507 $ 20,507 $ — $ — $ 20,507 Cash and investments segregated and on deposit for regulatory purposes 6,201 3,201 3,000 — 6,201 Receivables from brokerage clients — net 69,034 — 69,034 — 69,034 Held to maturity securities: U.S. agency mortgage-backed securities 162,452 — 143,003 — 143,003 Total held to maturity securities 162,452 — 143,003 — 143,003 Bank loans — net: First Mortgages 26,009 — 22,420 — 22,420 HELOCs 491 — 545 — 545 Pledged asset lines 13,538 — 13,538 — 13,538 Other 289 — 289 — 289 Total bank loans — net 40,327 — 36,792 — 36,792 Other assets 5,105 — 5,105 — 5,105 Liabilities Bank deposits $ 284,408 $ — $ 284,408 $ — $ 284,408 Payables to brokerage clients 72,818 — 72,818 — 72,818 Accrued expenses and other liabilities 7,061 — 7,061 — 7,061 Other short-term borrowings 7,550 — 7,550 — 7,550 Federal Home Loan Bank borrowings 31,800 — 31,800 — 31,800 Long-term debt 24,758 — 22,632 — 22,632 December 31, 2022 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 26,140 $ 26,140 $ — $ — $ 26,140 Cash and investments segregated and on deposit for regulatory purposes 18,288 6,156 12,132 — 18,288 Receivables from brokerage clients — net 66,573 — 66,573 — 66,573 Held to maturity securities: U.S. agency mortgage-backed securities 173,074 — 158,936 — 158,936 Total held to maturity securities 173,074 — 158,936 — 158,936 Bank loans — net: First Mortgages 25,132 — 22,201 — 22,201 HELOCs 593 — 657 — 657 Pledged asset lines 14,592 — 14,592 — 14,592 Other 188 — 188 — 188 Total bank loans — net 40,505 — 37,638 — 37,638 Other assets 3,788 — 3,788 — 3,788 Liabilities Bank deposits $ 366,724 $ — $ 366,724 $ — $ 366,724 Payables to brokerage clients 97,438 — 97,438 — 97,438 Accrued expenses and other liabilities 5,584 — 5,584 — 5,584 Other short-term borrowings 4,650 — 4,650 — 4,650 Federal Home Loan Bank borrowings 12,400 — 12,400 — 12,400 Long-term debt 20,760 — 19,108 — 19,108 - 62 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 14. Stockholders’ Equity On July 27, 2022, CSC publicly announced that its Board of Directors approved a new share repurchase authorization to repurchase up to $ 15.0 billion of common stock, replacing the previous and now terminated share repurchase authorization of up to $ 4.0 billion of common stock. The new share repurchase authorization does not have an expiration date. 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 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 nine months ended September 30, 2023 . The repurchase prices are inclusive of $ 3 million of dividends accrued by the stockholders as of the repurchase date. Beginning in 2023, share repurchases, net of issuances, are subject to a nondeductible excise tax which was recognized as a direct and incremental cost associated with these transactions. The Company’s preferred stock issued and outstanding is as follows: Liquidation Preference Per Share Dividend Rate in Effect at 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 September 30, 2023 (1) December 31, 2022 (1) September 30, 2023 December 31, 2022 Issue Date Fixed-rate: Series D 750,000 750,000 $ 1,000 $ 728 $ 728 03/07/16 5.950 % 06/01/21 N/A N/A N/A Series J 600,000 600,000 1,000 584 584 03/30/21 4.450 % 06/01/26 N/A N/A N/A Fixed-to-floating rate/Fixed-rate reset: Series F 4,884 5,000 100,000 481 492 10/31/17 5.000 % 12/01/27 12/01/27 3 M LIBOR (4) 2.575 % Series G (2) 24,580 25,000 100,000 2,428 2,470 04/30/20 5.375 % 06/01/25 06/01/25 5 -Year Treasury 4.971 % Series H (3) 22,267 25,000 100,000 2,200 2,470 12/11/20 4.000 % 12/01/30 12/01/30 10 -Year Treasury 3.079 % Series I (2) 20,554 22,500 100,000 2,030 2,222 03/18/21 4.000 % 06/01/26 06/01/26 5 -Year Treasury 3.168 % Series K (2) 7,500 7,500 100,000 740 740 03/04/22 5.000 % 06/01/27 06/01/27 5 -Year Treasury 3.256 % Total preferred stock 1,429,785 1,435,000 $ 9,191 $ 9,706 (1) Represented by depositary shares. (2) The dividend rate for Series G, Series I, and Series K resets on each five-year anniversary from the first reset date. (3) The dividend rate for Series H resets on each ten-year anniversary from the first reset date. (4) The reset/floating rate for Series F will be determined by the calculation agent prior to the commencement of the floating rate period using what the calculation agent determines to be the industry-accepted substitute or successor base rate to LIBOR. N/A Not applicable. - 63 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Dividends declared on the Company’s preferred stock are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Total Declared Per Share Amount Total Declared Per Share Amount Total Declared (1) Per Share Amount Total Declared Per Share Amount Series A (2) N/A N/A $ 7.7 $ 19.43 N/A N/A $ 18.9 $ 47.73 Series D (3) $ 11.2 $ 14.88 11.2 14.88 $ 33.5 $ 44.64 33.5 44.64 Series E (4) N/A N/A 7.4 1,251.05 N/A N/A 27.2 4,544.37 Series F (5) — — — — 12.2 2,500.00 12.5 2,500.00 Series G (3) 33.0 1,343.75 33.6 1,343.75 99.3 4,031.25 100.8 4,031.25 Series H (3) 22.2 1,000.00 25.0 1,000.00 68.2 3,000.00 75.0 3,000.00 Series I (3) 20.6 1,000.00 22.5 1,000.00 62.5 3,000.00 67.5 3,000.00 Series J (3) 6.7 11.13 6.7 11.13 20.1 33.39 20.1 33.39 Series K (6) 9.3 1,250.00 9.3 1,250.00 28.1 3,750.00 18.4 2,458.33 Total $ 103.0 $ 123.4 $ 323.9 $ 373.9 (1) Excludes $ 3 million of dividends declared on Series G, H and I, and accrued by stockholders as of the repurchase date. Such dividends are part of the consideration paid upon repurchase of the depositary shares during the nine months ended September 30, 2023. (2) Series A was redeemed on November 1, 2022. Prior to redemption, dividends were paid semi-annually until February 1, 2022 and quarterly thereafter. The final dividend was paid on November 1, 2022. (3) Dividends paid quarterly. (4) Series E was redeemed on December 1, 2022. Prior to redemption, dividends were paid semi-annually until March 1, 2022 and quarterly thereafter. The final dividend was paid on December 1, 2022. (5) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter. (6) Series K was issued on March 4, 2022. Dividends are paid quarterly, and the first dividend was paid on June 1, 2022. N/A Not applicable. - 64 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 15. Accumulated Other Comprehensive Income AOCI represents cumulative gains and losses that are not reflected in earnings. AOCI balances and the components of other comprehensive income (loss) are as follows: Total AOCI Balance at June 30, 2022 $ ( 16,022 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $( 2,286 ) ( 7,207 ) Other reclassifications included in other revenue, net of tax expense (benefit) of $ 4 12 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 18 65 Balance at September 30, 2022 $ ( 23,152 ) Balance at June 30, 2023 $ ( 20,730 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $( 182 ) ( 538 ) Other reclassifications included in other revenue, net of tax expense (benefit) of $ 6 18 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 147 498 Balance at September 30, 2023 $ ( 20,752 ) Total AOCI Balance at December 31, 2021 $ ( 1,109 ) Available for sale securities: Net unrealized gain (loss), excluding transfers to held to maturity, net of tax expense (benefit) of $( 7,027 ) ( 22,272 ) Net unrealized loss on securities transferred to held to maturity, net of tax benefit of $ 579 1,850 Other reclassifications included in other revenue (1) ( 1 ) Held to maturity securities: Net unrealized loss on securities transferred from available for sale, net of tax benefit of $ 579 ( 1,850 ) Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 67 230 Balance at September 30, 2022 $ ( 23,152 ) Balance at December 31, 2022 $ ( 22,621 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $ 79 367 Other reclassifications included in other revenue, net of tax expense (benefit) of $ 11 33 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 420 1,476 Other, net of tax expense (benefit) of $( 2 ) ( 7 ) 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 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. - 65 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 16. Earnings Per Common Share For the three 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. Diluted earnings per share is calculated using the treasury stock method for outstanding stock options and non-vested restricted stock units and the if-converted method for nonvoting common stock. The if-converted method assumes conversion of all nonvoting common stock to common stock. For further details surrounding the EPS computation, see Item 8 – Note 25 in the 2022 Form 10-K. EPS under the basic and diluted computations for both common stock and nonvoting common stock are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Basic earnings per share: Numerator Net income $ 1,094 $ 31 $ 1,956 $ 64 $ 3,910 $ 112 $ 5,014 $ 201 Preferred stock dividends and other (1) ( 105 ) ( 3 ) ( 132 ) ( 4 ) ( 291 ) ( 8 ) ( 385 ) ( 16 ) Net income available to common stockholders $ 989 $ 28 $ 1,824 $ 60 $ 3,619 $ 104 $ 4,629 $ 185 Denominator Weighted-average common shares outstanding — basic 1,770 51 1,827 60 1,774 51 1,819 73 Basic earnings per share $ .56 $ .56 $ 1.00 $ 1.00 $ 2.04 $ 2.04 $ 2.54 $ 2.54 Diluted earnings per share: Numerator Net income available to common stockholders $ 989 $ 28 $ 1,824 $ 60 $ 3,619 $ 104 $ 4,629 $ 185 Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares 28 — 60 — 104 — 185 — Allocation of net income available to common stockholders: $ 1,017 $ 28 $ 1,884 $ 60 $ 3,723 $ 104 $ 4,814 $ 185 Denominator Weighted-average common shares outstanding — basic 1,770 51 1,827 60 1,774 51 1,819 73 Conversion of nonvoting shares to voting shares 51 — 60 — 51 — 73 — Common stock equivalent shares related to stock incentive plans 6 — 8 — 7 — 9 — Weighted-average common shares outstanding — diluted (2) 1,827 51 1,895 60 1,832 51 1,901 73 Diluted earnings per share $ .56 $ .56 $ .99 $ .99 $ 2.03 $ 2.03 $ 2.53 $ 2.53 (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 nine months ended September 30, 2023, respectively, and 13 million and 15 million for the three and nine months ended September 30, 2022, respectively. - 66 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 17. Regulatory Requirements At 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: Actual Minimum to be Well Capitalized Minimum Capital Requirement September 30, 2023 Amount Ratio Amount Ratio Amount Ratio (1) CSC Common Equity Tier 1 Risk-Based Capital $ 30,781 23.8 % N/A $ 5,829 4.5 % Tier 1 Risk-Based Capital 39,972 30.9 % N/A 7,773 6.0 % Total Risk-Based Capital 40,032 30.9 % N/A 10,364 8.0 % Tier 1 Leverage 39,972 8.2 % N/A 19,545 4.0 % Supplementary Leverage Ratio 39,972 8.1 % N/A 14,769 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 31,765 34.7 % $ 5,946 6.5 % $ 4,117 4.5 % Tier 1 Risk-Based Capital 31,765 34.7 % 7,318 8.0 % 5,489 6.0 % Total Risk-Based Capital 31,820 34.8 % 9,148 10.0 % 7,318 8.0 % Tier 1 Leverage 31,765 9.6 % 16,545 5.0 % 13,236 4.0 % Supplementary Leverage Ratio 31,765 9.5 % N/A 10,002 3.0 % December 31, 2022 CSC Common Equity Tier 1 Risk-Based Capital $ 30,590 21.9 % N/A $ 6,285 4.5 % Tier 1 Risk-Based Capital 40,296 28.9 % N/A 8,379 6.0 % Total Risk-Based Capital 40,376 28.9 % N/A 11,173 8.0 % Tier 1 Leverage 40,296 7.2 % N/A 22,512 4.0 % Supplementary Leverage Ratio 40,296 7.1 % N/A 17,004 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 27,296 27.4 % $ 6,476 6.5 % $ 4,483 4.5 % Tier 1 Risk-Based Capital 27,296 27.4 % 7,970 8.0 % 5,978 6.0 % Total Risk-Based Capital 27,370 27.5 % 9,963 10.0 % 7,970 8.0 % Tier 1 Leverage 27,296 7.3 % 18,640 5.0 % 14,912 4.0 % Supplementary Leverage Ratio 27,296 7.3 % N/A 11,275 3.0 % (1) Under risk-based capital rules, CSC and CSB are also required to maintain additional capital buffers above the regulatory minimum risk-based capital ratios. As of 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%. CSC and CSB are also required to maintain a countercyclical capital buffer above the regulatory minimum risk-based capital ratios, which was zero for both periods presented. If a buffer falls below the minimum requirement, CSC and CSB would be subject to increasingly strict limits on capital distributions and discretionary bonus payments to executive officers. At 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 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. - 67 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Net capital and net capital requirements for CS&Co, TDAC, and TD Ameritrade, Inc., are as follows: September 30, 2023 December 31, 2022 CS&Co Net capital $ 5,290 $ 5,386 Minimum dollar requirement 0.250 0.250 2% of aggregate debit balances 997 778 Net capital in excess of required net capital $ 4,293 $ 4,608 TDAC Net capital $ 4,201 $ 5,291 Minimum dollar requirement 1.500 1.500 2% of aggregate debit balances 501 626 Net capital in excess of required net capital $ 3,700 $ 4,665 TD Ameritrade, Inc. Net capital $ 671 $ 806 Minimum dollar requirement 0.250 0.250 2% of aggregate debit balances — — 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 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. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit. Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the condensed consolidated statements of cash flows. 18. Segment Information Schwab’s two reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are attributed to the two segments based on which segment services the client. Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments. Financial information for the segments is presented in the following table: Investor Services Advisor Services Total Three Months Ended September 30, 2023 2022 2023 2022 2023 2022 Net Revenues Net interest revenue $ 1,710 $ 2,143 $ 527 $ 783 $ 2,237 $ 2,926 Asset management and administration fees 877 755 347 292 1,224 1,047 Trading revenue 672 800 96 130 768 930 Bank deposit account fees 157 263 48 150 205 413 Other 144 151 28 33 172 184 Total net revenues 3,560 4,112 1,046 1,388 4,606 5,500 Expenses Excluding Interest 2,356 2,117 867 706 3,223 2,823 Income before taxes on income $ 1,204 $ 1,995 $ 179 $ 682 $ 1,383 $ 2,677 - 68 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Investor Services Advisor Services Total Nine Months Ended September 30, 2023 2022 2023 2022 2023 2022 Net Revenues Net interest revenue $ 5,448 $ 5,551 $ 1,849 $ 2,102 $ 7,297 $ 7,653 Asset management and administration fees 2,523 2,299 992 868 3,515 3,167 Trading revenue 2,148 2,407 315 371 2,463 2,778 Bank deposit account fees 396 690 135 369 531 1,059 Other 451 465 121 143 572 608 Total net revenues 10,966 11,412 3,412 3,853 14,378 15,265 Expenses Excluding Interest 6,780 6,359 2,414 2,116 9,194 8,475 Income before taxes on income $ 4,186 $ 5,053 $ 998 $ 1,737 $ 5,184 $ 6,790 - 69 - THE CHARLES SCHWAB CORPORATION