What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 614 added, 498 removed, 862 unchanged (56% of the section changed)

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our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value;

maintaining our market position;

and the impact from adjustments related to the Market Risk Rule (see Business Strategy and Competitive Environment, Products and Services and Regulation in Part I, Item 1);

• Expected benefits from the TD Ameritrade and other completed acquisitions;

and expected timing for the TD Ameritrade client transitions (see Business and Asset Acquisitions in Part I, Item 1;

Overview – Business and Asset Acquisitions in Part II, Item 7;

Business Acquisitions in Part II, Item 8 – Note 3;

and maintaining our competitive position (see Business Strategy and Competitive Environment, and Products and Services in Part I – Item 1);

• The impact from adjustments related to the Market Risk Rule (see Regulation in Part I – Item 1);

• Expected benefits from the TD Ameritrade acquisition;

expected timing for the TD Ameritrade client transitions;

deal-related asset attrition;

and cost estimates and timing, including acquisition and integration-related costs, capital expenditures, cost synergies, and exit and other related costs (see Business Acquisition in Part I – Item 1;

Overview –Integration of TD Ameritrade in Part II – Item 7;

and Exit and Other Related Liabilities in Part II – Item 8 – Note 15);

• The impact of legal proceedings and regulatory matters (see Legal Proceedings in Part I, Item 3;

and Commitments and Contingencies in Part II, Item 8 – Note 15);

• Investments to support growth in our client base (see Overview in Part II, Item 7);

• Cost estimates and timing related to the TD Ameritrade integration, including acquisition and integration-related costs and capital expenditures, cost synergies, and exit and other related costs (see Overview – Business and Asset Acquisitions in Part II, Item 7;

Results of Operations – Total Expenses Excluding Interest;

• Actions to streamline our operations and our expectation of incremental run-rate cost savings and the timing and amount of associated exit and related costs (see Overview – Other in Part II – Item 7;

and Exit and Other Related Liabilities in Part II – Item 8 – Note 15);

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

• The outcome and impact of legal proceedings and regulatory matters (see Legal Proceedings in Part I – Item 3;

and Commitments and Contingencies in Part II – Item 8 – Note 14);

• Anticipated expenses and investments to support business growth and growth in our client base (see Overview and Results of Operations – Total Expenses Excluding Interest in Part II – Item 7);

• The expected impact of proposed and final rules (see Regulation in Part I – Item 1;

and Current Regulatory and Other Developments in Part II – Item 7);

• Net interest revenue;

and the adjustment of rates paid on client-related liabilities (see Results of Operations – Net Interest Revenue in Part II, Item 7);

the adjustment of rates paid on client-related liabilities;

and outstanding balances and the use of supplemental funding (see Results of Operations – Net Interest Revenue in Part II – Item 7);

• Capital expenditures (see Results of Operations – Total Expenses Excluding Interest in Part II – Item 7);

• The phase-out of the use of LIBOR (see Risk Management – Expected Phase-out of LIBOR in Part II, Item 7);

• Sources and uses of liquidity, capital, and level of dividends;

• Impact from the phase-out of LIBOR (see Risk Management – Phase-out of LIBOR in Part II – Item 7);

• Management of interest rate risk;

the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity, and liability and asset duration (see Risk Management in Part II – Item 7);

• Sources and uses of liquidity and capital;

and Tier 1 Leverage Ratio operating objective (see Liquidity Risk, Capital Management, Regulatory Capital Requirements, and Dividends in Part II – Item 7);

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the return of capital to stockholders;

and the migration of IDA balances to our balance sheet (see Capital Management – Regulatory Capital Requirements in Part II, Item 7;

the migration of IDA balances to our balance sheet;

expectations about capital requirements, including AOCI, and meeting those requirements;

and plans regarding capital and dividends (see Capital Management – Regulatory Capital Requirements in Part II – Item 7;

and Commitments and Contingencies in Part II – Item 8 – Note 14);

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Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K or, in the case of documents incorporated by reference, as of the date of those documents.

Important factors that may cause actual results to differ include, but are not limited to:

• General market conditions, including equity valuations and the level of interest rates;

• The level and mix of client trading activity;

• Our ability to attract and retain clients, develop trusted relationships, and grow client assets;

• Client use of our advisory and lending solutions and other products and services;

THE CHARLES SCHWAB CORPORATION

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

Important factors that may cause actual results to differ include, but are not limited to:

• General market conditions, including the level of interest rates and equity market valuations;

• Our ability to attract and retain clients, develop trusted relationships, and grow client assets;

• Client use of our advisory and lending solutions and other products and services;

• The level of client assets, including cash balances;

• Client sensitivity to deposit rates;

• Competitive pressure on pricing, including deposit rates;

• Client sensitivity to rates;

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

• The level and mix of client trading activity, including daily average trades, margin balances, and balance sheet cash;

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

• Capital and liquidity needs and management;

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• Interest earning asset mix and growth;

• Our ability to access and use supplemental funding sources;

• Prepayment levels for mortgage-backed securities;

• LIBOR trends;

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

• Potential breaches of contractual terms for which we have indemnification and guarantee obligations.

• Client activity, including daily average trades;

margin balances;

and balance sheet cash.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in Risk Factors in Part I – Item 1A.

THE CHARLES SCHWAB CORPORATION

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

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

GLOSSARY OF TERMS

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Accumulated Other Comprehensive Income (AOCI):

A component of stockholders’ equity which primarily includes unrealized gains and losses on available for sale (AFS) securities.

A component of stockholders’ equity which primarily includes unrealized gains and losses on AFS securities and securities transferred from the AFS category to the held to maturity (HTM) category.

Asset-backed securities:

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Bank deposit account balances (BDA balances):

Clients’ uninvested cash balances held off-balance sheet in deposit accounts at unconsolidated third-party financial institutions, pursuant to the IDA agreement and agreements with other third-party financial institutions.

Average BDA balances represent the daily average balance for the reporting period.

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One basis point equals 1/100 th of 1%, or 0.01%.

THE CHARLES SCHWAB CORPORATION

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

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

Client assets:

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Client cash as a percentage of client assets:

Calculated as the value, at the end of the reporting period, of all money market fund balances, bank deposits, Schwab One ® balances, BDA balances, and certain cash equivalents divided by client assets.

Calculated as the value, at the end of the reporting period, of all money market fund balances, bank deposits excluding brokered CDs issued by CSB, Schwab One ® balances, BDA balances, and certain cash equivalents divided by client assets.

Common Equity Tier 1 (CET1) Capital:

The sum of common stock and related surplus net of treasury stock, retained earnings, AOCI, and qualifying minority interests, less applicable regulatory adjustments and deductions.

As a Category III banking organization, CSC has elected to exclude AOCI from CET1 Capital.

Common Equity Tier 1 Risk-Based Capital Ratio:

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Core net new client assets:

Net new client assets before significant one-time inflows or outflows, such as acquisitions/divestitures or extraordinary flows (generally greater than $10 billion) relating to a specific client.

Net new client assets before significant one-time inflows or outflows, such as acquisitions/divestitures or extraordinary flows (generally greater than $10 billion) relating to a specific client, and activity from off-platform brokered CDs issued by CSB.

These flows may span multiple reporting periods.

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full-time, part-time, and temporary employees and persons employed on a contract basis.

THE CHARLES SCHWAB CORPORATION

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

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

High Quality Liquid Assets (HQLA):

HQLA is defined by the Federal Reserve, but includes assets that are actively traded and readily convertible to cash in times of stress.

Insured Deposit Account (IDA) Agreement:

The IDA agreement with the TD Depository Institutions.

Interest-bearing liabilities:

Primarily includes bank deposits, payables to brokerage clients, short-term borrowings, and long-term debt on which Schwab pays interest.

Primarily includes bank deposits, payables to brokerage clients, Federal Home Loan Bank borrowings, other short-term borrowings, and long-term debt on which Schwab pays interest.

Interest-earning assets:

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Calculated as the principal amount of a loan divided by the value of the collateral securing the loan.

THE CHARLES SCHWAB CORPORATION

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

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

Margin loans:

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End-of-period Tier 1 Capital divided by adjusted average total consolidated assets for the period.

THE CHARLES SCHWAB CORPORATION

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

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

Trading days:

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federal banking agencies:

Refers to the Federal Reserve, the OCC, the FDIC, and the CFPB.

Refers to the Federal Reserve, the Office of the Comptroller of the Currency, the FDIC, and the CFPB.

Uniform Net Capital Rule:

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Total expenses excluding interest as a percentage of average client assets is a measure of operating efficiency.

Our consolidated financial statements include the results of operations and financial condition of TD Ameritrade beginning on October 6, 2020, as discussed below.

Results for the years ended December 31, 2023, 2022, and 2021 are as follows:

Growth Rate 1-Year 2021-2022 2022 2021 2020

Percent Change 2022-2023 2023 2022 2021

Client Metrics

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

10.5 % 12.2 % 10.9 %

Company Financial Information and Metrics

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Return on tangible common equity 54 % 42 % 22 %

(1) 2023 includes net inflows of $32.5 billion from off-platform brokered CDs issued by CSB and $12.0 billion from a mutual fund clearing services client and outflows of $13.0 billion from an international relationship.

2022 includes outflows of $20.8 billion from certain mutual fund clearing services clients.

2021 includes outflows of $42.0 billion from certain mutual fund clearing services clients.

2020 includes inflows of $1.6 trillion related to the acquisition of TD Ameritrade, $79.9 billion related to the acquisition of the assets of USAA-IMCO, $8.5 billion related to the acquisition of Wasmer Schroeder, and $10.9 billion from a mutual fund clearing services client.

(2) 2020 includes 14.5 million new brokerage accounts related to the acquisition of TD Ameritrade and 1.1 million new brokerage accounts related to the acquisition of assets from USAA-IMCO.

(2) Beginning in 2023, client cash as a percentage of client assets excludes brokered CDs issued by CSB.

Prior periods have been recast to reflect this change.

(3) Beginning in 2023, adjustments made to GAAP financial measures also include restructuring costs.

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

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See Non-GAAP Financial Measures.

2023 Compared to 2022

Through an uneven environment in 2023, with shifting views on the trajectory of the U.S.

economy, persistent geopolitical unrest, and turmoil beginning early in the year within the banking sector, our “no trade-offs” value proposition continued to

THE CHARLES SCHWAB CORPORATION

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

resonate with investors.

The Federal Reserve raised the Federal Funds rate four times in the first three quarters of 2023 for a total of 100 basis points before holding rates unchanged since July.

Although equity markets were volatile during 2023,

ultimate returns were strong with the S&P 500 ® rising 24% and the NASDAQ Composite ® increasing 43%.

Investor sentiment was also volatile throughout 2023;

strongly bearish in the first quarter before recovering in the second, then declining again in the third quarter.

Investor sentiment recovered significantly in the fourth quarter to end the year with a solid bullish viewpoint.

Despite this mixed sentiment, our clients remained engaged with the markets and with Schwab.

Clients entrusted us with $305.7 billion in core net new assets in 2023.

Total client assets reached $8.52 trillion as of December 31, 2023, rising 21% from year-end 2022 as a result of asset gathering and market gains, partially offset by some expected deal-related attrition from clients originating at TD Ameritrade.

Trading volume declined somewhat from the prior year, as DATs were 5.4 million in 2023, down 9% from 2022.

Clients opened 3.8 million new brokerage accounts, bringing active brokerage accounts to 34.8 million at year-end, up 3% year-over-year.

Clients sought to take advantage of higher market interest rates in 2023, and we saw significant client cash reallocation from our sweep products into higher-yielding alternatives offered by Schwab.

While bank sweep deposits and payables to brokerage clients decreased by a total of $126.1 billion during 2023, client assets invested in Schwab’s proprietary money market funds and fixed income securities increased by a total of $383.8 billion.

Schwab’s financial performance during 2023 reflected the challenges of navigating a market environment shaped by the Federal Reserve’s interest rate tightening policy and the follow-on effects stemming from the regional banking crisis beginning in March.

Schwab’s net income totaled $5.1 billion in 2023 and diluted EPS was $2.54, down 29% and 27%, respectively, from the prior year.

Adjusted diluted EPS (1) was $3.13 in 2023, down 20% from $3.90 in 2022.

Total net revenues were $18.8 billion in 2023, down 9% from the prior year as client cash realignment activity impacted our net interest revenue.

Net interest revenue was $9.4 billion in 2023, down 12% from the prior year, as the benefits of rising rates were more than offset by increased utilization of higher-cost supplemental funding and lower interest-earning assets.

Asset management and administration fees totaled $4.8 billion in 2023, rising 13% from 2022, primarily as a result of growth in money market funds, as well as improvement in equity markets and growth in our other proprietary fund products, partially offset by lower balances of certain third-party funds.

Trading revenue was $3.2 billion in 2023, down 12% from 2022, due primarily to mix of client trading activity and overall lower trading volume.

Bank deposit account fee revenue was $705 million in 2023, down 50% from the prior year due to lower average BDA balances and lower net yields, as well as $97 million in one-time breakage fees related to ending our arrangements with certain third-party banks in the first quarter of 2023.

BDA balances totaled $97.5 billion at December 31, 2023, down 23% from year-end 2022 due primarily to client cash allocation decisions.

Total expenses excluding interest were $12.5 billion in 2023, increasing 10% from 2022.

This increase was due primarily to restructuring charges incurred in the second half of 2023, higher regulatory fees and assessments due primarily to an increase in FDIC assessments including the recognition of a $172 million special assessment in the fourth quarter, as well as higher expenses for compensation and benefits and depreciation and amortization, due primarily to growth in average headcount and investment in technology to support growth in our client base and the TD Ameritrade integration.

Adjusted total expenses (1) were $11.0 billion in 2023, higher by 6% from 2022.

Acquisition and integration-related costs were $401 million in 2023, up 2% from 2022, and amortization of acquired intangibles was $534 million, down 10% from 2022 as certain assets from the TD Ameritrade acquisition were fully amortized beginning in the fourth quarter of 2022.

Beginning in the third quarter of 2023, adjusted total expenses (1) also excludes restructuring costs, which totaled $495 million in 2023, related to efforts to achieve run-rate cost savings in preparation for post-integration of TD Ameritrade.

Return on average common stockholders’ equity was 16% for 2023, down from 18% in 2022.

Return on tangible common equity (1) (ROTCE) was 54% in 2023, up from 42% in 2022.

These changes primarily reflected lower average stockholders’ equity and lower net income in 2023.

Average stockholders’ equity was lower in 2023 due to a year-over-year decrease in average AOCI driven by unrealized losses on our AFS investment securities portfolio and securities transferred from AFS to HTM in 2022 (see Item 8 – Note 5).

Throughout 2023, the Company continued its diligent approach to balance sheet management and sought to prioritize flexibility.

During 2023, we issued $6.2 billion in senior notes to prepare for upcoming maturities as well as provide additional liquidity during the larger TD Ameritrade conversion weekends.

Total balance sheet assets decreased 11% from year-end 2022 to $493.2 billion at December 31, 2023, due primarily to client cash realignment amid the higher interest rate environment.

To assist in facilitating these client cash movements from sweep products to high-yielding cash and fixed income alternatives, the

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

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

THE CHARLES SCHWAB CORPORATION

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

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

Company utilized supplemental funding sources, including FHLB borrowings and issuances of brokered CDs.

As realignment activity significantly decreased in the second half of the year, by year-end, we reduced the total outstanding balance of such supplemental sources by approximately 18% from the peak balances reached in May 2023.

Driven by a combination of the Company’s net income and also a smaller balance sheet in 2023, our consolidated Tier 1 Leverage Ratio increased to 8.5% as of year-end.

2022 Compared to 2021

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Net income totaled $7.2 billion in 2022 and diluted EPS was $3.50, representing year-over-year growth of 23% and 24%, respectively.

Adjusted diluted EPS (1) , which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, was $3.90 in 2022, up from $3.25 in 2021.

Adjusted diluted EPS (1) was $3.90 in 2022, up from $3.25 in 2021.

Total net revenues rose 12% year-over-year to $20.8 billion in 2022.

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

These increases were partially offset by lower other expense, which included a charge of approximately $200 million in 2021 (see Item 8 – Note 15).

These increases were partially offset by lower other expense, which included a charge of approximately $200 million in 2021 for a regulatory matter settled in 2022.

Acquisition and integration-related costs and amortization of acquired intangibles were $392 million and $596 million, respectively, in 2022, compared with $468 million and $615 million, respectively, in 2021.

Return on average common stockholders’ equity grew to 18% in 2022 from 11% in 2021, while return on tangible common equity (1) (ROTCE) increased to 42% in 2022 compared with 22% in 2021.

Return on average common stockholders’ equity grew to 18% in 2022 from 11% in 2021, while ROTCE (1) increased to 42% in 2022 compared with 22% in 2021.

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

Stockholders’ equity declined in 2022 primarily due to a significant decrease in AOCI, as higher market interest rates resulted in larger unrealized losses on our AFS investment securities portfolio.

In January and November 2022, the Company transferred $108.8 billion and $79.8 billion, respectively, of investment securities from the AFS category to the held to maturity (HTM) category (see Capital Management and Item 8 – Note 6).

The Company continued its diligent approach to balance sheet management in 2022, maintaining appropriate capital and liquidity to support client activity and returning excess capital to stockholders.

As market rates rose from near-zero levels at the beginning of the year, clients allocated a growing portion of their assets to higher yielding cash and fixed income alternatives.

Total balance sheet assets decreased 17% year-over-year to $551.8 billion at December 31, 2022 as a result of these client cash allocation decisions and unrealized losses on AFS securities, both resulting primarily from higher market interest rates.

To facilitate these client cash movements, we took steps to enhance our liquidity by limiting new portfolio investments to help build available cash and utilizing short-term funding sources including FHLB advances and retail certificates of deposit.

In January and November 2022, the Company transferred $108.8 billion and $79.8 billion, respectively, of investment securities from the AFS category to the HTM category (see Capital Management and Item 8 – Note 5).

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

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

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

THE CHARLES SCHWAB CORPORATION

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

The Company continued its diligent approach to balance sheet management in 2022, maintaining appropriate capital and liquidity to support client activity and returning excess capital to stockholders.

As market rates rose from near-zero levels at the

beginning of the year, clients allocated a growing portion of their assets to higher-yielding cash and fixed income alternatives.

To facilitate these client cash movements, we took steps to enhance our liquidity by limiting new portfolio investments to help build available cash and utilizing supplemental funding sources including FHLB advances and brokered CDs.

We increased our common stock dividend by 22% during 2022, and implemented a $15 billion share repurchase authorization in July.

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The Company issued $750 million in preferred stock in the first quarter of 2022, and redeemed a total of $1.0 billion of preferred stock during the second half of the year.

Inclusive of these actions, the Company’s Tier 1 Leverage Ratio finished the year at 7.2%, above our operating objective of 6.50%-6.75%.

2021 Compared to 2020

Schwab delivered strong growth and financial performance in 2021, consistently executing on our “Through Clients’ Eyes” strategy throughout a fluctuating macroeconomic environment.

Early in 2021 we saw strengthened investor optimism, fueled by an advancing economic recovery and signs of improvement in the COVID-19 pandemic.

As the year progressed, debates increased over the pace of economic growth, the path of inflation, and the ultimate impact of multiple global market disruptions.

After major equity indices rose throughout the first half of 2021, they were essentially flat during the summer months before ending the year at near-record levels.

While short-term interest rates remained near zero throughout 2021, longer-term rates began to rise initially, then eased and rose again as the 10-year Treasury yield finally ended 2021 at 1.52%, up 59 basis points from year-end 2020.

Investors were actively engaged with the markets throughout 2021, including extraordinary trading volume in the first quarter, and client activity throughout the remainder of the year also generally exceeded the fourth quarter of 2020 when we included TD Ameritrade in our results for the first time.

Asset gathering was strong throughout 2021, as core net new assets totaled $558.2 billion, representing an 8% annual organic growth rate from year-end 2020.

We ended 2021 with $8.14 trillion in client assets and 33.2 million brokerage accounts, representing increases of 22% and 12%, respectively, from December 31, 2020.

Even as we worked to support heightened levels of client activity during 2021, the Company continued to drive progress across our key strategic priorities of scale and efficiency, win-win monetization, and segmentation.

We also made significant progress in 2021 on our integration of TD Ameritrade.

Schwab produced strong financial performance during 2021, reflecting consistent execution of our strategy, strong client engagement, and a generally supportive macroeconomic backdrop.

Net income totaled $5.9 billion during 2021, increasing 77% from 2020, while diluted EPS amounted to $2.83, increasing 33% from the prior year.

Adjusted diluted EPS (1) amounted to $3.25, increasing 33% from 2020.

Comparisons of our financial results in 2021 with those of 2020 were significantly impacted by the first full-year inclusion of TD Ameritrade in 2021.

Total net revenues increased 58% from 2020 to reach $18.5 billion in 2021, supported by growth across all of our major revenue streams.

Net interest revenue totaled $8.0 billion in 2021, increasing 31% from 2020 primarily due to the inclusion of TD Ameritrade as well as significant growth in interest-earning assets, including rising investment portfolio balances and increased utilization of our range of lending products, partially offset by lower average yields.

Asset management and administration fees grew 23% over the prior year to reach $4.3 billion due to the inclusion of TD Ameritrade as well as rising balances in advice solutions and both proprietary and third-party mutual funds and ETFs, partially offset by lower revenue on money market funds.

Trading revenue was $4.2 billion in 2021, nearly three times the prior year total of $1.4 billion, as the full-year inclusion of TD Ameritrade and the overall strong trading environment drove a significant increase in DATs.

Trading revenue was also helped in 2021 by a higher proportion of derivatives trades, which contributed to higher revenue per trade.

A full year of bank deposit account fees totaled $1.3 billion in 2021.

BDA balances totaled $158.6 billion at December 31, 2021, down 3% from the year-end 2020 balance of $163.5 billion, reflecting migrations to Schwab’s balance sheet during 2021.

Total expenses excluding interest were $10.8 billion in 2021, increasing 46% from 2020 due to the full-year inclusion of TD Ameritrade’s results as well as higher compensation and benefits expense, which was driven by additional headcount to support our expanding client base and a higher bonus accrual, as well as merit increases and a 5% employee salary increase we implemented at the end of the third quarter of 2021.

During 2021, acquisition and integration-related costs were $468 million, increasing from $442 million in 2020, and amortization of acquired intangible assets totaled $615 million, rising from $190 million in 2020.

Exclusive of these items, adjusted total expenses (1) were $9.7 billion in 2021, increasing 44% from 2020.

Return on average common stockholders’ equity was 11% in 2021, growing from 9% in 2020, and ROTCE (1) was 22% in 2021, up from 15% in 2020.

The increases in both return on average common stockholders’ equity and ROTCE were primarily a result of significantly higher net income in 2021.

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

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

THE CHARLES SCHWAB CORPORATION

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

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

The Company continued its consistent approach to balance sheet management in 2021, supporting overall growth and liquidity.

Total balance sheet assets rose to $667.3 billion at December 31, 2021, increasing 22% from year-end 2020, driven primarily by client asset flows, as well as $10.6 billion in BDA balance migrations.

We also added a net $10.2 billion to outstanding short-term borrowings and long-term debt for liquidity management purposes, and increased preferred stock by a net $2.3 billion to help support continued business growth.

The Company’s Tier 1 Leverage Ratio was 6.2% at year-end 2021.

Though significantly heightened client activity levels during the first quarter of 2021 impacted our service quality at times, we took multiple actions to better deliver the service experience our clients deserve and rely on, including enhancing online self-service capabilities, streamlining our call-routing processes, and increasing hiring.

Our efforts began yielding results early in 2021, with significant improvement in client service levels by the end of the first quarter of 2021, and our service levels continued to be improved throughout the remainder of 2021 as client activity moderated.

Business and Asset Acquisitions

TD Ameritrade

Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade.

TD Ameritrade provides securities brokerage services, including trade execution, clearing services, and margin lending;

and futures and foreign exchange trade execution services.

The Company revalued and recorded TD Ameritrade’s assets and liabilities at their estimated fair value as of the date of acquisition.

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.

As a result of the significant growth seen beginning in late 2020 and early 2021 across key client volume metrics, including the number of active brokerage accounts, DATs, and peak daily trades, the Company determined in 2021 to increase the scope of technology work related to the integration, and commenced greater technology build-out to support the expanded volumes of our combined client base.

Based on our current integration plans, the Company expects to complete most client transitions from TD Ameritrade to Schwab across multiple groups over the course of 2023, with the transition of a small client group in the first half of 2024.

The first transition of client accounts was completed in February 2023.

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

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

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

Inclusive of these actions, the Company’s Tier 1 Leverage Ratio finished the year at 7.2%.

Integration of TD Ameritrade

The Company has made significant progress in its integration of TD Ameritrade.

Over the course of 2023, the Company transitioned approximately $1.6 trillion in client assets across more than 15 million client accounts, including 7,000 RIAs, from TD Ameritrade to the Schwab platform across four transition groups.

The Company has now completed the transition of RIAs and approximately 90% of all TD Ameritrade client accounts.

In connection with the completed 2023 transitions, we have experienced some deal-related attrition of client assets from retail accounts and RIAs, which have been below our initial estimates when we announced the acquisition.

The Company expects to complete the remaining client transitions from TD Ameritrade to Schwab in a final transition group in May 2024.

The Company continues to expect total acquisition and integration-related costs and capital expenditures will be between $2.4 billion and $2.5 billion.

The Company’s estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change based on certain 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 as we prepare for the last transition group and remaining integration work include the level of employee attrition, the complexity to wind-down the operations of the TD Ameritrade broker-dealers and related technology, and real estate-related exit cost variability.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $401 million, $392 million, and $468 million in 2023, 2022, and 2021, respectively, and the Company expects to incur acquisition and integration-related costs of approximately $200 million in 2024.

Over the course of the integration, we continue to expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through December 31, 2022, we have achieved over 65% of this amount on an annualized run-rate basis.

Over the course of the integration, we continue to expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through December 31, 2023, we have achieved approximately 80% of this amount on an annualized run-rate basis.

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

Estimated timing and amounts of synergy realization are subject to change as we progress in the integration.

See also Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 8 – Notes 3 and 16.

The estimated timing and amounts of synergy realization remain subject to change as we progress through the remaining stages of the integration.

See also Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 8 – Note 15.

In addition to cost synergies directly related to the integration of TD Ameritrade, the Company has taken incremental actions to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint.

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

In order to achieve these cost savings, the Company expects to incur total exit and related costs, primarily related to employee compensation and benefits and facility exit costs of approximately $500 million, inclusive of costs recognized through December 31, 2023 of $495 million.

The Company anticipates the remaining costs, primarily related to real estate, will be incurred during 2024.

Refer to Results of Operations – Total Expenses Excluding Interest and Item 8 – Note 15 for additional information.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

CURRENT REGULATORY ENVIRONMENT AND OTHER DEVELOPMENTS

CURRENT REGULATORY AND OTHER DEVELOPMENTS

In November 2023, the FDIC approved a final special assessment to recover losses incurred by the DIF to protect uninsured depositors due to the March 2023 closures of two banks.

The pre-tax impact of the final rule was $172 million.

This special assessment is tax deductible and was recognized fully in earnings in the fourth quarter of 2023.

The special assessment will be paid over eight quarters beginning in the first quarter of 2024, subject to potential extension and a potential one-time final special assessment for any shortfall in the DIF.

In October 2023, following previous attempts to expand fiduciary regulation for broker-dealers, the U.S.

Department of Labor released another proposed rule to significantly broaden the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974.

Among other requirements, the rule would subject broker-dealers who provide non-discretionary investment advice to retirement plans and accounts to a “best interest” standard.

The rule could significantly impact the products, services, and support that firms can make available to retirement investors, and the Company continues to evaluate such impacts and the related implementation and operational issues, pending final adoption.

In October 2023, the U.S.

federal banking agencies issued a final rule that makes extensive revisions to the regulations implementing the CRA.

These revisions include the delineation of assessment areas, the overall evaluation framework and performance standards and metrics, the definition of community development activities and data collection and reporting, and requires significant new lending by banks to low-and-moderate income communities.

The new rule generally becomes effective on January 1, 2026, with its additional data collection and reporting requirements effective January 1, 2027.

The Company has begun to prepare for complying with the requirements included in the new rule by the applicable effective dates.

We do not expect the new rule will have a material impact on the Company’s business, financial condition, or results of operations.

In August 2023, the U.S.

federal banking agencies issued a proposed rulemaking on long-term debt requirements for certain large banking organizations.

Among other things, the proposed rule would require CSC to maintain outstanding minimum levels of eligible long-term debt, as defined by the proposed rule, issued externally.

The proposed rule would also require our banking subsidiaries to maintain outstanding minimum levels of eligible long-term debt, which our banking subsidiaries would be required to issue internally to CSC.

The proposed rule would be phased-in over a three-year transition period.

The comment period for the proposed rule ended on January 16, 2024 and the rule proposal is subject to further modification.

The proposed rule could have a significant impact on the amount of debt that CSC and our banking subsidiaries are required to maintain.

In July 2023, the U.S.

federal banking agencies issued a notice of proposed rulemaking with amendments to the regulatory capital rules.

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

The comment period for the proposed rules ended on January 16, 2024.

The impact of the proposal would be significant to Schwab, as the proposed rules could increase regulatory capital requirements for consolidated CSC and our banking subsidiaries.

In anticipation of the rules being adopted, the Company’s capital management for consolidated CSC and our banking subsidiaries now incorporates measures that are inclusive of AOCI.

See Capital Management for additional information.

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

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

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

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

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

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

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

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

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

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

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

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

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

The comment periods for the proposed rules ended on March 31, 2023.

While the impacts to Schwab of the proposed rules cannot be fully assessed until final rules are released, as proposed, the rules would have a significant impact to numerous aspects of critical equity market structure and the execution of orders for retail investors.

Among other impacts, certain of the proposed rules would likely result in increased transaction costs for retail investors which could affect client investment and trading decisions, and would require substantial operational changes for financial intermediaries including the Company.

Swing pricing would require funds that are not exchange-traded funds or money market funds to adjust the fund’s current net asset value (NAV) per share by a “swing factor” if the fund has either (i) net redemptions (no threshold) or (ii) net purchases that exceed a specified threshold (2% of the fund’s net assets).

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

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

The comment period for the proposed rule ended on February 14, 2023.

While the impacts to Schwab of the proposed rule cannot be fully assessed until the final rule is released, we believe the proposed rule could impact investor interest in mutual funds, which could lead to changes in investor behavior.

In addition, implementation of the proposed rule would require that financial intermediaries, including the Company, modify order entry systems and operational workflow to comply with the requirements.

RESULTS OF OPERATIONS

Total Net Revenues

Total net revenues of $20.8 billion and $18.5 billion for the years ended December 31, 2022 and 2021, respectively, represented growth of 12% and 58% from the prior periods.

The following table presents a comparison of revenue by category:

Year Ended December 31, 2023 2022 2021

Percent Change

2022-2023 Amount % of

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Asset management and administration fees

Mutual funds, ETFs, and collective trust funds

(CTFs) 5 % 2,055 10 % 1,961 11 % 1,770 15 %

Mutual funds, ETFs, and collective trust funds (CTFs)

25 % 2,563 13 % 2,055 10 % 1,961 11 %

Advice solutions 1 % 1,868 10 % 1,854 9 % 1,993 11 %

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Order flow revenue (19) % 1,404 7 % 1,738 8 % 2,053 11 %

Principal transactions N/M 148 1 % 49 — 56 —

Principal transactions 52 % 225 1 % 148 1 % 49 —

Trading revenue

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Fees earned and expenses incurred on securities lending and borrowing activities are conducted by our broker-dealer subsidiaries using assets held in client brokerage accounts.

Schwab’s interest-bearing liabilities are comprised of bank deposits, which include brokered certificates of deposit beginning in the fourth quarter of 2022;

Schwab’s interest-bearing liabilities are comprised of bank deposits, which include brokered

THE CHARLES SCHWAB CORPORATION

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

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

CDs issued by CSB;

payables to brokerage clients;

short-term borrowings (e.g., FHLB advances, commercial paper, secured borrowings by our broker-dealer subsidiaries, or repurchase agreements);

FHLB borrowings, other short-term borrowings (e.g., commercial paper, repurchase agreements, other secured borrowings);

and long-term debt.

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As Schwab builds its client base, we attract new client sweep cash, which is a primary driver of funding balance sheet growth.

We do not use short-term, wholesale borrowings to support our long-term investment activity, but may use such funding for short-term liquidity purposes or to provide temporary funding.

We do not use short-term, wholesale borrowings to support our long-term investment activity, but may use such funding for short-term liquidity purposes or to provide temporary funding as we have in 2022 and 2023.

Non-interest-bearing funding sources include stockholders’ equity, certain client cash balances, and other miscellaneous liabilities.

The Company’s investment strategy is designed to produce an increase in net interest revenue when interest rates rise while attempting to moderate the decrease in net interest revenue when interest rates fall.

In order to keep interest-rate sensitivity within established limits, management actively monitors and adjusts interest-rate sensitivity through changes in the balance sheet, primarily by adjusting the composition of our banking subsidiaries’ investment portfolios.

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

Schwab establishes the rates paid on client-

THE CHARLES SCHWAB CORPORATION

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

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

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

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

See also Risk Management – Interest Rate Risk Simulations.

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

Short-term rates were near zero until the Federal Reserve began its aggressive tightening cycle in March 2022 in response to rising inflation, ultimately increasing the federal funds target overnight rate seven times between March and December for a total increase of 425 basis points.

Long-term interest rates increased throughout 2022, though at a less rapid pace, leading to an inverted yield curve.

Schwab continued to see strength in net new client assets during 2022, which, along with transfers of BDA balances to the Company’s balance sheet (see Bank Deposit Account Fees), drove growth in Schwab’s average interest-earning assets in 2022 relative to 2021.

Partially offsetting this growth, we experienced significant seasonal tax outflows in the second quarter, and, due to the rapid increases to the federal funds overnight rate, changes in client cash allocations increased in the second half of 2022 which resulted in a total decrease in bank deposits and payables to brokerage clients of 18% since year-end 2021.

During 2022, the Company increased its cash holdings and reduced the duration of incremental investment securities purchases, which has provided flexibility to support such changes in client cash allocations associated with higher short-term interest rates.

During 2021, interest rates remained historically low.

Short-term rates remained near zero throughout 2021;

longer-term interest rates began to rise early in the year, then remained largely unchanged before rising again in the fourth quarter.

Elevated levels of prepayments on mortgage-backed securities persisted throughout the continued low interest rate environment in 2021 and resulted in accelerated reinvestment of the AFS portfolio;

purchases of AFS securities totaled $171.7 billion in 2021.

Schwab saw consistent strength in new client brokerage accounts and net new client assets throughout 2021, driving growth in Schwab’s interest-earning assets.

At the same time, client engagement in the equity markets increased and clients were net buyers of equity securities and other investment products, resulting in outflows of client cash and partially offsetting the growth in interest-earning assets in 2021 relative to 2020.

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

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

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

See also Risk Management – Market Risk.

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

Short-term rates were near zero until the Federal Reserve began an aggressive tightening cycle in March 2022 in response to rising inflation, ultimately increasing the federal funds target overnight rate eleven times between March 2022 and July 2023 for a total increase of 525 basis points and maintaining the upper bound of the target overnight rate at 5.50% through year-end 2023.

Long-term rates increased throughout 2022 and 2023, generally at a slower pace, thus leading to an inverted yield curve.

Schwab’s average interest-earning assets in 2023 were lower compared with 2022, primarily due to clients’ reallocation of cash from sweep products to higher-yielding investment solutions in the second half of 2022 and during 2023, which resulted primarily from the rapid increases to the federal funds overnight rate.

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

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

The average pace of client cash allocation out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second quarter of 2023, and, apart from an increase in August following the Federal Reserve’s July rate increase, continued to decline during the second half of 2023.

In the fourth quarter of 2023, the Company saw bank deposits and payables to brokerage clients increase by a total of $17.5 billion, or 5%, due in part to typical seasonal cash inflows near year-end.

Schwab saw strength in net new client assets during 2022, which, along with transfers of BDA balances to the Company’s balance sheet (see Bank Deposit Account Fees), drove growth in Schwab’s average interest-earning assets in 2022 relative to 2021.

Partially offsetting this growth, we experienced significant seasonal tax outflows in the second quarter of 2022, and, due to the rapid increases to the federal funds overnight rate, changes in client cash allocations increased in the second half of 2022 which resulted in a total decrease in bank deposits and payables to brokerage clients of 18% since year-end 2021.

During 2022, the Company increased its cash holdings and reduced the duration of incremental investment securities purchases to provide flexibility to help support such changes in client cash allocations associated with higher short-term interest rates.

THE CHARLES SCHWAB CORPORATION

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Bank deposits (3)

$ 306,505 $ 3,363 1.10 % $ 424,168 $ 723 0.17 % $ 381,549 $ 54 0.01 %

Payables to brokerage clients 66,842 271 0.41 % 97,825 123 0.13 % 91,667 9 0.01 %

Short-term borrowings (3)

Other short-term borrowings (5)

7,144 375 5.25 % 2,719 48 1.75 % 3,040 9 0.30 %

Federal Home Loan Bank borrowings (4,5)

34,821 1,810 5.14 % 2,274 106 4.59 % — — —

Long-term debt 22,636 715 3.16 % 20,714 498 2.40 % 17,704 384 2.17 %

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Interest revenue on investment securities is presented net of related premium amortization.

(2) In January 2022 and November 2022, the Company transferred a portion of its investment securities designated as AFS to the HTM category, as described in Item 8 – Note 6.

(3) Interest revenue or expense was less than $500 thousand in the period or periods presented.

(2) During 2022, the Company transferred a portion of its investment securities designated as AFS to the HTM category, as described in Item 8 – Note 5.

(3) Average balance includes $36.0 billion and $437 million of brokered CDs in 2023 and 2022, respectively.

(4) Average balance and interest revenue/expense was less than $500 thousand in the period or periods presented.

(5) Beginning in 2023, FHLB borrowings are presented separately from other short-term borrowings.

Prior period amounts have been reclassified to reflect this change.

Net interest revenue decreased $1.3 billion, or 12%, in 2023 from 2022 primarily due to increased utilization of higher-cost supplemental funding sources to support client cash allocations in the rising rate environment, and lower average interest-earning assets, which more than offset the benefits of higher average yields on interest-earning assets.

Net premium amortization of investment securities decreased to $830 million in 2023 from $1.4 billion in 2022 as a result of increases in market interest rates and a smaller investment securities portfolio.

Average interest-earning assets for 2023 were lower by 21% compared to 2022, which was primarily due to lower bank deposits and payables to brokerage clients as a result of clients allocating cash out of sweep products into higher-yielding investment solutions due to higher market interest rates.

Net interest margin increased to 1.98% in 2023, from 1.78% in 2022, as higher market interest rates improved yields on interest-earning assets, which more than offset the higher rates paid across interest-bearing funding sources.

The Company’s higher average balances in 2023 relative to 2022 of FHLB borrowings, repurchase agreements, and brokered CDs resulted in higher funding costs.

The Company prioritizes repayment of the outstanding balances of its supplemental funding sources, and during the second half of 2023, the total outstanding balance of these funding sources decreased by $17.5 billion.

Our use and the financial impacts of such supplemental funding is dependent on several factors, including the volume and pace of clients’ cash allocation activity, which is driven primarily by changes in market interest rates, as well as asset gathering.

While client cash realignment activity has slowed significantly since the second quarter of 2023, continued uncertainty remains, including in regard to the path of market interest rates and client behavior, which will significantly impact our utilization of supplemental funding sources.

The impacts to net interest revenue of using supplemental funding sources also depend on the type of funding source used and levels of interest rates.

The Company currently expects its outstanding balances of supplemental funding sources to decrease over time.

Certain amounts outstanding at December 31, 2023 will require rollover into new borrowings, the amount and costs of which will depend on the above noted factors.

See also Risk Management –

THE CHARLES SCHWAB CORPORATION

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

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

Liquidity Risk, Item 8 – Note 11 Bank Deposits, and Item 8 – Note 12 Borrowings for additional information on these and other funding sources.

Net interest revenue increased $2.7 billion, or 33%, in 2022 from 2021 primarily due to higher average yields on interest-earning assets as a result of higher market interest rates.

Net premium amortization of investment securities decreased to $1.4 billion from $2.3 billion in 2021.

These benefits were partially offset by higher rates paid on funding sources, higher average short-term borrowings and long-term debt outstanding, and lower balances of margin loans and lower securities lending revenue due to decreased market demand.

Net premium amortization of investment securities decreased to $1.4 billion in 2022 from $2.3 billion in 2021.

These benefits were partially offset by higher rates paid on funding sources, higher average FHLB borrowings and long-term debt outstanding, and lower balances of margin loans and lower securities lending revenue due to decreased market demand.

Average interest-earning assets for 2022 were higher by 8%, compared to 2021.

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

Net interest revenue increased $1.9 billion, or 31%, in 2021 from 2020, primarily due to the inclusion of TD Ameritrade as well as significant growth in overall interest-earning assets, including higher investment portfolio balances and margin lending, as well as growth in securities lending revenue and bank loans, partially offset by lower average yields.

Accelerated premium amortization stemming from elevated prepayments of mortgage-related debt securities in the AFS portfolio continued in 2021 and partially offset the growth in net interest revenue.

Net premium amortization of investment securities totaled $2.3 billion in

THE CHARLES SCHWAB CORPORATION

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

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

2021 and $1.6 billion in 2020.

TD Ameritrade contributed total net interest revenue of $1.9 billion during the year ended December 31, 2021 and $443 million in 2020 from October 6, through December 31, 2020.

Average interest-earning assets for 2021 were higher by 46%, compared to 2020.

This increase was largely due to higher bank deposits and payables to brokerage clients, which resulted from strong net new client asset inflows, continued heightened client cash allocations driven by the low interest rate environment in 2021, BDA balance migrations, and the inclusion of TD Ameritrade for all of 2021.

Our net interest margin declined to 1.45% in 2021, from 1.62% in 2020.

This decrease was driven primarily by lower overall yields received on interest-earning assets, in part due to purchases of investment securities in 2020 and 2021 at rates below the average yield on the AFS portfolio.

This more than offset the benefit of increased securities lending revenue and higher margin utilization in 2021, which comprised 39% of net interest revenue during 2021, growing from 19% of net interest revenue in 2020.

Asset Management and Administration Fees

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Schwab equity and bond funds, ETFs, and CTFs 471,832 382 0.08 % 433,005 364 0.08 % 423,999 380 0.09 %

Mutual Fund OneSource ® and other

no-transaction-fee funds (1)

Mutual Fund OneSource ® and other NTF funds (1)

249,131 657 0.26 % 202,015 602 0.30 % 229,342 724 0.32 %

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Total asset management and administration fees $ 4,756 $ 4,216 $ 4,274

(1) In 2022, includes transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and other NTF funds.

(2) Beginning in the fourth quarter of 2020, includes third-party money funds related to the acquisition of TD Ameritrade.

(1) In 2022 and 2023, includes transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and other NTF funds.

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

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

Asset management and administration fees increased by $540 million, or 13%, in 2023 from 2022, primarily as a result of higher balances in Schwab money market funds and the elimination of fee waivers on those funds as well as higher average client asset balances due to stronger equity markets.

Money market fund balances increased in 2023 as clients shifted their cash allocations to higher-yielding investment solutions, and money market fund fee waivers were eliminated during 2022, both due primarily to the Federal Reserve’s increases to the federal funds target overnight rate.

The increases in asset management and administration fees in 2023 were also due to growth in Schwab equity and bond funds, ETFs, and CTFs, partially offset by lower balances of certain third-party mutual funds and ETFs.

Asset management and administration fees declined by $58 million, or 1%, in 2022 from 2021, due to lower balances in Mutual Fund OneSource ® and other third-party mutual funds, as well as advice solutions, relative to 2021.

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These decreases offset the benefit of lower money market fund fee waivers, which were eliminated during the second quarter of 2022 as a result of the Federal Reserve’s increases to the federal funds target overnight rate.

Asset management and administration fees increased by $799 million, or 23%, in 2021 from 2020, due to the acquisition of TD Ameritrade, as well as additional growth in advice solutions and proprietary and third-party mutual funds and ETFs, which were due in part to strength in net new client assets and equity markets in 2021.

These increases were partially offset by the effect of money market fund fee waivers due to lower portfolio yields as well as lower money market fund balances.

Asset management and administration fees attributable to TD Ameritrade were $598 million in 2021 and $131 million from October 6, through December 31, 2020.

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

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Balance at end of period $ 476,409 $ 278,926 $ 146,509 $ 506,149 $ 412,942 $ 454,864 $ 306,222 $ 235,738 $ 234,940

(1) Includes $77.7 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and Other NTF Funds in 2022.

THE CHARLES SCHWAB CORPORATION

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

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

(1) Includes $39.8 billion and $77.7 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and Other NTF Funds in 2023 and 2022, respectively.

Trading Revenue

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

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

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

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

THE CHARLES SCHWAB CORPORATION

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

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

held to facilitate such client trading activity.

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

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

Year Ended December 31, Growth Rate

Year Ended December 31, Percent Change

2022-2023 2023 2022 2021

4 unchanged sentences

Total order flow revenue (19) % 1,404 1,738 2,053

Principal transactions N/M 148 49 56

Principal transactions 52 % 225 148 49

Total trading revenue (12) % $ 3,230 $ 3,673 $ 4,152

N/M Not meaningful.

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

Year Ended December 31, Growth Rate

Year Ended December 31, Percent Change 2022-2023

2023 2022 2021

Clients’ daily average trades (DATs) (in thousands) (9) % 5,925 6,507 2,603

DATs (in thousands) (9) % 5,394 5,925 6,507

Product as a percentage of DATs

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

Trading revenue decreased $443 million, or 12%, in 2023 compared to 2022, primarily due to lower options order flow revenue from changes in the mix of client trading activity and narrower quoted spreads in the options market, and lower equity order flow revenue reflecting a shift toward more low-price securities and lower equity trading activity overall.

Additionally, commissions decreased as a result of lower client trading activity and fewer trading days.

Partially offsetting the decrease in 2023 compared to 2022, principal transactions revenue increased as a result of higher volume in clients’ fixed income trading and higher market interest rates.

Trading revenue decreased $479 million, or 12%, in 2022 compared to 2021, primarily due to lower client trading activity in 2022 relative to 2021, driven by the extraordinary trading volume experienced during the first quarter of 2021, as well as changes in the mix of client trading activity toward more ETFs and fewer single stocks, and toward more index options and futures and fewer single stock options.

1 unchanged sentence

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

Trading revenue increased $2.7 billion, or 193%, in 2021 compared to 2020, primarily due to the acquisition of TD Ameritrade and heightened client engagement, which drove significantly higher DATs throughout 2021.

This increased trading activity and a higher percentage of derivatives trades drove significant growth in commissions and order flow revenue.

Overall, TD Ameritrade contributed $3.3 billion of trading revenue during the year ended December 31, 2021, compared with $667 million of trading revenue from October 6, 2020 through December 31, 2020.

Bank Deposit Account Fees

The Company earns bank deposit account fee revenue pursuant to the IDA agreement with the TD Depository Institutions and arrangements with other third-party banks.

Bank deposit account fees are primarily affected by average BDA balances and the fixed- and floating-rate reference yields.

Fees earned under the IDA agreement are affected by changes in interest rates and the composition of balances designated as fixed- and floating-rate.

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

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

THE CHARLES SCHWAB CORPORATION

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

December 31, Percent Change

Year Ended December 31, Percent Change

2022-2023 2023 2022 2021

Bank deposit account fees (50) % $ 705 $ 1,409 $ 1,315

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Floating-rate balances 8 % 21 % 21 %

In connection with our acquisition of TD Ameritrade, the Company began earning bank deposit account fee revenue beginning in the fourth quarter of 2020.

Bank deposit account fees totaled $355 million from October 6, 2020 through December 31, 2020.

During the same period, the total average BDA balance was $161.3 billion, of which 79% was designated as fixed-rate obligation amounts and 21% as floating-rate obligation amounts.

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

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

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

Bank deposit account fees decreased $704 million, or 50%, in 2023 compared to 2022.

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

These factors also contributed to the decrease in average net yield in 2023 compared to 2022.

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

The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of December 31, 2023 were 86% and 14%, respectively.

Bank deposit account fees increased $94 million, or 7%, in 2022 compared to 2021.

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The percentages of BDA balances designated as fixed-rate and floating-rate obligations as of December 31, 2022 were 87% and 13%, respectively.

Subsequent to December 31, 2022, the Company ended its arrangements with the other third-party banks to simplify bank sweep operations ahead of the first TD Ameritrade client transition group in February 2023.

As a result of ending these arrangements, the Company incurred breakage fees of $97 million in January 2023, recognized as a reduction to bank deposit account fee revenue.

The BDA balances previously held at these other third-party banks were moved to the TD Depository Institutions.

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

This increase in the FDIC’s deposit insurance assessment will result in a decrease to bank deposit account fees revenue in 2023, which will be dependent on BDA balance levels.

See Item 1 – Regulation for additional information.

Transfers of BDA balances to Schwab’s balance sheet result in lower balances upon which bank deposit account fee revenue is earned but provide a source of funding to invest in interest-earning assets to increase net interest revenue.

See also Capital Management and Item 8 – Note 15 for discussion of the IDA agreement and the potential to move IDA balances to Schwab’s balance sheet.

Other Revenue

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

Other revenue increased $33 million, or 4%, in 2022 compared to 2021 primarily due to higher exchange processing fees, partially offset by a higher provision for credit losses on bank loans, certain lower service fees due to lower trading volume, and net losses on sales of AFS securities in 2022.

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

Other revenue decreased $63 million, or 8%, in 2023 compared to 2022 primarily due to lower exchange processing fees, net losses on sales of AFS securities, and certain lower service fees, partially offset by lower provision for credit losses on bank loans.

Exchange processing fees decreased primarily due to a decrease in the SEC fee rate which became effective in the first quarter of 2023 and lower year-to-date options volume.

The provision for credit losses on bank loans was lower as loan loss factors decreased while the total balance of First Mortgages increased slightly compared to year-end 2022.

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

In addition, other revenue in 2022 included $46 million in gains on the sale of Schwab Compliance Technologies, Inc.

and certain investments.

Other revenue increased $417 million, or 126%, in 2021 compared to 2020 primarily due to the full-year inclusion of TD Ameritrade’s results in 2021.

Other revenue attributable to TD Ameritrade totaled $462 million and $110 million in 2021 and 2020, respectively.

Other revenue increased $33 million, or 4%, in 2022 compared to 2021 primarily due to these gains and higher exchange processing fees, partially offset by a higher provision for credit losses on bank loans, certain lower service fees due to lower trading volume, and net losses on sales of AFS securities in 2022.

Exchange processing fees had increased in 2022 as a result of an SEC fee rate increase which became effective in the second quarter of 2022.

THE CHARLES SCHWAB CORPORATION

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

Subsequent to year-end 2022, the SEC announced it would decrease its fee rates effective February 27, 2023 by approximately 65% from the rate in effect since May 2022.

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

Total Expenses Excluding Interest

The following table shows a comparison of total expenses excluding interest:

Growth Rate 2021-2022 2022 2021 2020

Percent Change 2022-2023 2023 2022 2021

Compensation and benefits

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Average 2 % 35.4 34.7 32.5

Total expenses excluding interest increased $567 million, or 5%, in 2022 from 2021, and $3.4 billion, or 46%, in 2021 from 2020.

Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased $662 million, or 7%, in 2022 from 2021 and $3.0 billion, or 44%, in 2021 from 2020.

Total expenses excluding interest increased $1.1 billion, or 10%, in 2023 from 2022, and $567 million, or 5%, in 2022 from 2021.

Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased $643 million, or 6%, in 2023 from 2022 and $662 million, or 7%, in 2022 from 2021.

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

Total compensation and benefits increased in 2022 from 2021 due to growth in employee headcount to support our expanding client base, annual merit increases, as well as a 5% employee salary increase and other targeted compensation adjustments that went into effect in late 2021.

The 2021 increase reflected TDA’s full-year contribution of $1.2 billion of compensation and benefits expense compared with $453 million in 2020.

The increase in 2021 was also due to additional headcount to support our expanding client base and service levels amidst heightened client engagement, a higher bonus accrual, annual merit increases, as well as a 5% employee salary increase and other targeted compensation adjustments that went into effect in late 2021.

The Company began incurring restructuring costs in the third quarter of 2023 in connection with actions to streamline its operations to prepare for post-integration of TD Ameritrade (see below and Overview – Other for additional information).

The Company currently anticipates total expenses excluding interest in full-year 2024 will be generally consistent with full-year 2023 levels, except in regard to acquisition and integration-related costs and restructuring costs.

See Overview for additional information regarding these costs, and below for discussion of current and prior year results.

Total compensation and benefits increased in 2023 from 2022 due to restructuring costs recognized during the second half of 2023 related to position eliminations, higher average employee headcount to support TDA client account transitions, and annual merit increases, partially offset by lower incentive compensation.

The 2022 increase was a result of growth in employee headcount to support our expanding client base, annual merit increases, as well as a 5% employee salary increase and other targeted compensation adjustments that went into effect in late 2021.

Compensation and benefits included acquisition and integration-related costs of $187 million, $220 million, and $283 million in 2023, 2022, and 2021, respectively.

In support of upcoming TDA client account transitions, we anticipate hiring additional headcount in 2023 to temporarily expand our client service capacity, which will result in higher compensation and benefits expense in 2023.

Professional services expense increased in 2022 from 2021, primarily due to increased utilization of technology-related and other professional services to support overall growth of the business and enhancement to technological infrastructure to support our expanding client base, as well as the integration of TD Ameritrade.

The increase in 2021 from 2020 was primarily due to the inclusion of TDA’s results of operations and overall growth in the business.

Compensation and benefits also included restructuring costs of $292 million in 2023.

Professional services expense slightly increased in 2023 from 2022, primarily due to increased utilization of professional services to support overall growth of the business.

The increase in 2022 from 2021 was primarily due to increased utilization of technology-related and other professional services to support overall growth of the business and enhancement to technological infrastructure to support our expanding client base, as well as the integration of TD Ameritrade.

Professional services included acquisition and integration-related costs of $135 million, $140 million, and $132 million in 2023, 2022, and 2021, respectively.

In support of

Occupancy and equipment expense increased in 2023 from 2022, and in 2022 from 2021, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade.

Occupancy and equipment included acquisition and integration-related costs of $28 million, $21 million, and $39 million in 2023, 2022, and 2021, respectively.

Occupancy and equipment also included restructuring costs of $17 million in 2023.

THE CHARLES SCHWAB CORPORATION

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

upcoming TDA client account transitions, we anticipate additional integration-related professional services costs in 2023, which will result in higher professional services expense in 2023.

Occupancy and equipment expense increased in 2022 from 2021, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade.

The increase in 2021 from 2020 was primarily due to the inclusion of TDA’s results of operations, costs related to the integration of TD Ameritrade, and overall growth in the business.

Occupancy and equipment included acquisition and integration-related costs of $21 million and $39 million in 2022 and 2021, respectively.

Advertising and market development expense decreased in 2022 from 2021, primarily as a result of decreases in spending for marketing communications for TD Ameritrade.

The increase in 2021 from 2020 was primarily due the inclusion of TDA’s results of operations.

Advertising and market development expense decreased in 2023 from 2022, primarily as a result of lower advertising costs and lower client promotional spending for TD Ameritrade.

The decrease in 2022 from 2021 was also primarily due to lower spending for marketing communications for TD Ameritrade.

Communications expense increased in 2023 compared to 2022, primarily as a result of client communications related to TDA account transitions completed during 2023.

Communications expense was flat in 2022 compared to 2021.

The increase in 2021 from 2020 was primarily due to the inclusion of TDA’s results of operations, as well as higher communications expense due to higher customer trade volumes and overall growth of the business.

Depreciation and amortization expense increased in 2022 from 2021, primarily as a result of higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2021 and 2022 to support the TDA integration and enhance our technological infrastructure to support growth of the business.

The growth in depreciation and amortization in 2021 from 2020 was primarily due to growth in fixed assets from the TDA acquisition, and also reflected higher amortization of purchased and internally developed software and higher depreciation of hardware, as well as higher depreciation of buildings.

Capital expenditures in 2022 and anticipated for 2023 as described below are expected to result in higher depreciation and amortization expense in 2023.

Amortization of acquired intangible assets decreased slightly in 2022 from 2021, as certain assets from the TDA acquisition were fully amortized by the beginning of the fourth quarter of 2022.

The increase in 2021 from 2020 was a result of our 2020 acquisitions.

Regulatory fees and assessments decreased in 2022 from 2021, primarily as a result of lower client trading activity, partially offset by higher FDIC assessments and other regulatory assessments due to year-over-year average asset growth and overall growth of the business.

The increase in 2021 from 2020 was primarily due to the inclusion of TDA’s results of operations and overall growth in the business, including higher FDIC assessments due to asset growth.

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

Dependent on average asset levels, this increase in the FDIC’s deposit insurance assessment may result in an increase in regulatory fees and assessments in 2023.

See Item 1 – Regulation for additional information.

Other expense decreased in 2022 from 2021, primarily due to the recognition of a charge of approximately $200 million for a now-settled regulatory matter in 2021 (see Item 8 – Note 15), partially offset by higher exchange processing fees as a result of fee rate increases beginning in the second quarter of 2022 and also higher clearing charges.

The increase in 2021 from 2020 was primarily due to inclusion of TDA’s results of operations and the charge of the regulatory matter, partially offset by lower clearing charges and exchange fees.

Subsequent to year-end 2022, the SEC announced it would decrease its fee rates effective February 27, 2023 by approximately 65% from the rate in effect since May 2022.

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

Depreciation and amortization expense increased in 2023 from 2022, and in 2022 from 2021, primarily as a result of higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures to support the TDA integration and enhance our technological infrastructure to support growth of the business.

Amortization of acquired intangible assets decreased in 2023 from 2022, and in 2022 from 2021, as certain assets from the TDA acquisition were fully amortized by the beginning of the fourth quarter of 2022.

Regulatory fees and assessments increased in 2023 from 2022, primarily as a result of an FDIC special assessment of $172 million recorded during the fourth quarter of 2023 and higher FDIC deposit insurance assessments during 2023, reflecting greater use of brokered CDs and a 2-basis point increase to the FDIC deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023.

These increases were partially offset by a lower assessment base.

See Current Regulatory and Other Developments for discussion of the FDIC special assessment.

The decrease in 2022 from 2021 was primarily due to lower client trading activity, partially offset by higher FDIC assessments and other regulatory assessments due to year-over-year average asset growth and overall growth of the business.

Other expense increased in 2023 from 2022, primarily due to impairment charges in 2023 related to closing certain leased corporate offices for restructuring and TDA integration.

The decrease in 2022 from 2021 was primarily due to the recognition of a charge of approximately $200 million in 2021 for a regulatory matter settled in 2022, partially offset by higher exchange processing fees as a result of fee rate increases beginning in the second quarter of 2022 and also higher clearing charges.

Other expense included acquisition and integration-related costs of $27 million and restructuring costs of $181 million in 2023.

Capital expenditures primarily include capitalized software costs, information technology and telecommunications equipment, and buildings.

Total capital expenditures were $804 million, $952 million, and $1,041 million in 2023, 2022, and 2021, respectively.

Capital expenditures decreased 16% in 2023 compared to 2022, as lower capitalized information technology equipment and buildings more than offset an increase in capitalized software costs.

We continued to invest in our technological infrastructure in 2023 to support the TDA integration as well as greater capacity for our expanding client base.

Capital expenditures decreased in 2022 compared to 2021, as higher capitalized software costs were offset by lower building expansion and capitalized information technology equipment.

Extensive work continued in 2022 on the integration of TDA and enhancement of our technological infrastructure to support greater capacity for our expanding client base.

Capital expenditures increased in 2021 compared to 2020 primarily due to higher information technology and telecommunications equipment and higher capitalized software costs reflecting investments made to support our TDA integration efforts and an expanding client base, partially offset by lower building expansion.

Capitalized software costs totaled $614 million, $559 million, and $453 million in 2022, 2021, and 2020, respectively.

Investments in information technology and telecommunications equipment were $280 million, $340 million, and $60 million in 2022, 2021, and 2020, respectively.

Investments in buildings were $22 million, $102 million, and $173 million in 2022, 2021, and 2020, respectively.

THE CHARLES SCHWAB CORPORATION

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

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

Capital expenditures were 5% of total net revenues in 2022, within our estimated range for the year.

In 2023, we will continue to invest to support the TDA integration and greater capacity for our expanding client base, and we anticipate capital expenditures in 2023 will be approximately 3-4% of total net revenues.

Our longer term expectation for capital expenditures remains in the range of 3-5% of total net revenues.

Capital expenditures were 4.3% of total net revenues in 2023, slightly above our estimated range for the year.

As we complete the TDA client transitions and the rest of the integration in 2024, we anticipate capital expenditures for the year to be within our longer term expectation of 3-5% of total net revenues.

Taxes on Income

Schwab’s effective income tax rate on income before taxes was 20.6% in 2023, 23.5% in 2022, and 24.1% in 2021.

The decrease in the effective tax rate in 2022 from 2021 was primarily related to the reversal of tax reserves in 2022 due to the resolution of certain state tax matters and tax benefits recognized on the portion of the 2021 regulatory matter charge (see Item 8 – Note 15) that was determined upon final settlement to be deductible.

The decrease in the effective tax rate in 2023 from 2022 was primarily related to a decrease in state tax expense and the recognition of certain tax credits in 2023, partially offset by an increase in non-deductible FDIC deposit insurance assessments and a decrease in equity compensation tax deduction benefits.

The decrease in the effective tax rate in 2022 from 2021 was primarily related to reversal of tax reserves in 2022 due to the resolution of certain state tax matters and tax benefits recognized on the portion of the 2021 charge for a regulatory matter settled in 2022 that was determined upon final settlement to be deductible.

Partially offsetting the decreases in the effective tax rate from these items was a decrease in equity compensation tax deduction benefits, higher state income tax rates, and an increase in non-deductible compensation in 2022.

The increase in the effective tax rate in 2021 from 2020 was primarily related to non-recurring federal tax benefits recognized in 2020, including settlement of the IRS examination for tax years 2011-2014, the tax impact of the 2021 regulatory matter charge, and additional income tax expense from the filing of 2020 tax returns during 2021.

Partially offsetting the increases in the effective tax rate from these items was an increase in equity compensation tax deduction benefits during 2021.

Segment Information

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Net revenues in both segments are generated from the underlying client assets and trading activity;

differences in the composition of net revenues between the segments are based on the composition of client assets, client trading frequency, and pricing unique to each.

While both segments leverage the scale and efficiency of our platforms, segment expenses reflect the dynamics of serving millions of clients in Investor Services versus the thousands of RIAs on the Advisor Services platform.

The Company integrated its business and asset acquisitions during 2020 into its two existing reportable segments.

Revenues and expenses from our acquisition of USAA-IMCO are allocated to Investor Services only;

revenues and expenses from TD Ameritrade and our other 2020 acquisitions are attributed to both Investor Services and Advisor Services based on which segment services the client.

See Item 8 – Note 3 for more information regarding business acquisitions.

differences in the composition of net revenues between the segments are based on

THE CHARLES SCHWAB CORPORATION

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

the composition of client assets, client trading frequency, and pricing unique to each.

Financial information for our segments is presented in the following table:

Investor Services Advisor Services Total

2021-2022 2022 2021 2020 Growth Rate

Percent Change

2022-2023 2023 2022 2021 Percent Change

2022-2023 2023 2022 2021

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(8)% $ 169.0 $ 182.8 $200.9 (25)% $ 168.2 $ 224.1 $ 315.3 (17)% $ 337.2 $ 406.9 $ 516.2

(1) In 2023, Investor Services includes net inflows of $32.5 billion from off-platform brokered CDs issued by CSB, inflows of $12.0 billion from a mutual fund clearing services client, and outflows of $5.8 billion from an international relationship.

In 2022 and 2021, Investor Services includes outflows of $20.8 billion and $42.0 billion, respectively, from mutual fund clearing services clients.

In 2020, Investor Services includes inflows of $10.9 billion from mutual fund clearing services clients.

(2) In 2020, Investor Services includes inflows of $890.7 billion related to the acquisition of TD Ameritrade and $79.9 billion related to the acquisition of assets of USAA-IMCO.

(3) In 2020, Advisor Services includes inflows of $680.6 billion related to the acquisition of TD Ameritrade and $8.5 billion related to the acquisition of Wasmer Schroeder.

In 2023, Advisor Services includes outflows of $7.2 billion from an international relationship.

Segment Net Revenues

Investor Services and Advisor Services total net revenues decreased by 7% and 15%, respectively, in 2023 compared to 2022.

Net interest revenue decreased for both segments due to higher-cost funding sources and lower average interest-earning asset balances, as described above.

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

Trading revenue decreased for both segments, primarily as a result of lower order flow revenue and commissions, due to lower client trading activity and pricing, partially offset by higher fixed income trading activity.

Other revenue decreased for both segments primarily due to lower exchange processing fees, net losses on sales of AFS securities, and gains on the sale of certain investments in 2022, partially offset by lower provision for credit losses on bank loans.

These decreases were partially offset by higher asset management and administration fees in both segments, primarily as a result of higher money market fund balances and the elimination of money market fund fee waivers during 2022 and growth in Schwab proprietary fund products, partially offset by lower balances in certain third-party funds.

Investor Services and Advisor Services total net revenues increased by 8% and 28%, respectively, in 2022 compared to 2021.

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Other revenues increased for Investor Services in 2022 from 2021 due to higher exchange processing fees, partially offset by a higher provision for credit losses on bank loans, certain lower service fees, and lower net gains on sales of AFS securities.

Investor Services and Advisor Services total net revenues increased by 68% and 32%, respectively, in 2021 compared to 2020.

Both segments experienced growth in all revenue line items, primarily due to the full-year inclusion of TD Ameritrade’s results in 2021.

In addition, net interest revenue increased for Advisor Services due to growth in interest-earning assets, partially offset by lower average yields.

Growth in asset management and administration fees in Investor Services was supported by growth in advice solutions, and asset management and administration fees increased in both segments due to rising balances in proprietary and third-party mutual funds and ETFs, partially offset by money market fund fee waivers and lower money market fund balances.

The increase in trading revenue for Investor Services was supported by heightened client trading activity.

Bank deposit account fee revenue was earned at both segments for the full year in 2021 compared to only the fourth quarter of 2020, following the October 6, 2020 TD Ameritrade acquisition.

Segment Expenses Excluding Interest

Investor Services and Advisor Services total expenses excluding interest increased by 8% and 13%, respectively, in 2023 compared to 2022.

Both segments saw higher compensation and benefits expenses due to increases in headcount to support our expanding client base, annual merit increases, as well as a 5% employee salary increase and other targeted compensation adjustments that went into effect in late 2021.

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

In addition, depreciation and amortization increased for both segments primarily

Both segments saw higher compensation and benefits expenses due to restructuring costs recognized in the

THE CHARLES SCHWAB CORPORATION

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

due to higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2021 and 2022 to enhance our technological infrastructure to support growth of the business.

For Investor Services, these increases were partially offset by lower other expenses due to a charge of approximately $200 million in 2021 for a now-settled regulatory matter (see Item 8 – Note 15), partially offset by higher exchange fees and clearing charges, and lower advertising and market development expense due to reduced spending for marketing communications for TD Ameritrade.

Investor Services and Advisor Services total expenses excluding interest increased by 50% and 35%, respectively, in 2021 compared to 2020, primarily due to the inclusion of a full year of TD Ameritrade’s results of operations.

In addition, both segments saw higher compensation and benefits expenses due to additional headcount increases to support our expanding client base and service levels amidst heightened client engagement, higher bonus accrual, as well as annual merit increases and a 5% employee salary increase that went into effect late in the third quarter of 2021.

For Investor Services, total expenses excluding interest also increased due to a charge of approximately $200 million in 2021 for a regulatory matter (see Item 8 – Note 15).

second half of 2023, higher average headcount to support TDA client account transitions, and annual merit increases, partially offset by lower incentive compensation.

Regulatory fees and assessments increased in both segments, primarily due to an FDIC special assessment recorded during the fourth quarter of 2023 and higher FDIC deposit insurance assessments as described above.

Other expenses were also higher for both segments, primarily driven by impairment of certain leased corporate offices related to restructuring and TDA integration.

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

Investor Services and Advisor Services total expenses excluding interest increased by 3% and 14%, respectively, in 2022 compared to 2021.

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

For Investor Services, these increases were partially offset by lower other expenses due to a charge of approximately $200 million in 2021 for a regulatory matter settled in 2022, partially offset by higher exchange fees and clearing charges, and lower advertising and market development expense due to reduced spending for marketing communications for TD Ameritrade.

RISK MANAGEMENT

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The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational impact.

Despite our efforts to identify areas of risk and implement risk management policies and procedures, there can be no assurance that Schwab will not suffer unexpected losses due to these risks.

Our risk management process is comprised of risk identification and assessment, risk response, risk measurement and monitoring, and risk reporting and escalation.

we use periodic risk and control self-assessments, control testing programs, and internal audit reviews to evaluate the effectiveness of these internal controls.

The activities and governance that comprise the risk management process are described below.

As part of our ongoing integration of TD Ameritrade, the Company has aligned TD Ameritrade’s risk management practices with Schwab’s risk appetite.

Our integration work included evaluating new or changed risks impacting the combined company, and taking action through various means.

Though integration work continues, the Company’s operations, inclusive of TD Ameritrade, remain consistent with our Enterprise Risk Management (ERM) framework.

The Board of Directors has approved an ERM framework that incorporates our purpose, vision, and values, which form the bedrock of our corporate culture and set the tone for the organization.

We use periodic risk and control self-assessments, control testing programs, and our internal audit department performs evaluations of our risk management processes and controls.

A fundamental commitment to strong and effective risk management is core to Schwab’s business strategy.

Risk management is an integrated and foundational part of our culture and a duty of every employee.

The Board of Directors has approved an Enterprise Risk Management (ERM) Framework that incorporates our purpose, vision, and values, which form the bedrock of our corporate culture and set the tone for the organization.

We designed the ERM Framework to enable a comprehensive approach to managing risks encountered by Schwab in its business activities.

The framework incorporates key concepts commensurate with the size, risk profile, complexity, and continuing growth of the Company.

Risk appetite, which is defined as the amount of risk the Company is willing to accept in pursuit of its corporate strategy, is developed by executive management and approved by the Board of Directors.

The ERM Framework incorporates key concepts commensurate with the size, risk profile, complexity, and continuing growth of the Company.

While all personnel are responsible for risk management, the Company’s risk appetite, which is defined as the amount of risk the Company is willing to accept in pursuit of its corporate strategy, is developed by executive management and approved by the Board of Directors.

The Company’s “Through Clients’ Eyes” strategy guides our actions and behaviors at Schwab, and informs our corporate culture, our risk appetite, and approach to risk management.

Schwab is committed to the highest standards of ethical conduct and compliance with applicable laws, rules, and regulations, and our Code of Business Conduct and Ethics outlines the ethical conduct that we must demonstrate to deliver our strategy while retaining the trust of our stakeholders.

As part of our integration of TD Ameritrade, the Company has aligned TD Ameritrade’s risk management practices with Schwab’s risk appetite.

Our integration work included evaluating new or changed risks impacting the combined company and taking action through various means.

Though integration work continues, the Company’s operations, inclusive of TD Ameritrade, remain consistent with our ERM Framework.

Risk Governance

Senior management takes an active role in the risk management process and has developed policies and procedures under which specific business and control units are responsible for identifying, measuring, and controlling risks.

Schwab maintains an integrated risk governance structure that directs Company-wide execution of the risk management process.

The risk governance structure includes the Board of Directors, designated committees of the Board, and management risk committees.

THE CHARLES SCHWAB CORPORATION

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

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

CSC’s Board of Directors sets the tone and culture of effective risk management.

The Board has a Risk Committee that assists the Board in setting the type and level of risks that the Company is willing to take and supports the independence and stature of independent risk management.

The Board Risk Committee also assists the Board in overseeing and holding senior management accountable for implementing the Board’s approved risk tolerance, maintaining the Company’s risk management and control program, and managing the Company’s activities in a safe and sound manner, and in compliance with applicable laws and regulations.

The Board Risk Committee also approves risk appetite statements and related key risk appetite metrics, key risk policies, and reviews reports relating to risk issues from functional areas of corporate risk management, legal, and internal audit.

The Audit Committee of the Board of Directors assists the Board in fulfilling its oversight responsibilities by reviewing the integrity of the Company’s financial statements and financial reporting processes, the qualifications and independence of the independent auditors and performance of the Company’s internal audit function and independent auditors, compliance with legal and regulatory requirements, processes to assess and manage risk exposures, and other matters as directed by the Board.

The Compensation Committee of the Board of Directors assists the Board in oversight of compensation of the Company’s directors, executive officers, and other senior officers.

The Board Nominating and Corporate Governance Committee assists the Board in its oversight responsibilities regarding Board composition, performance, and developing corporate governance principles, policies and procedures.

The Global Risk Committee, which is comprised of senior executives from each major business and control function, is responsible for the oversight of risk management.

This includes identifying emerging risks, assessing risk management practices and the control environment, reinforcing business accountability for risk management, supervisory controls and regulatory compliance, supporting resource prioritization across the organization, and escalating significant issues to the Board of Directors.

The Chief Risk Officer regularly reports activities of the Global Risk Committee to the Risk Committee of the Board of Directors.

We have established risk metrics and reporting that enable measurement of the impact of strategy execution against risk appetite.

The risk metrics, with risk limits and tolerance levels, are established for key risk categories by the Global Risk Committee and its functional risk sub-committees.

The Chief Risk Officer regularly reports activities of the Global Risk Committee to the Risk Committee of the Board of Directors.

The Board Risk Committee in turn assists the Board of Directors in fulfilling its oversight responsibilities with respect

THE CHARLES SCHWAB CORPORATION

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

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

to our risk management program, including approving risk appetite statements and related key risk appetite metrics and reviewing reports relating to risk issues from functional areas of corporate risk management, legal, and internal audit.

Functional risk sub-committees focusing on specific areas of risk report to the Global Risk Committee.

These sub-committees include the:

• Operational Risk Oversight Committee – provides oversight of and approves operational risk management policies, risk tolerance levels, and operational risk governance processes, and includes sub-committees covering Information Security, Technology, Fraud, Third-Party Risk, Data, and Model Governance;

• Compliance Risk Committee – provides oversight of compliance risk management programs (inclusive of Anti-Money Laundering/Sanctions, Conduct, Fiduciary, and Privacy), policies, and risk tolerance levels providing an aggregate view of compliance risk exposure and employee conduct, including subcommittees covering Fiduciary and Conflicts of Interest Risk;

• Operational Risk Oversight Committee – provides oversight of and approves operational risk management policies, risk tolerance levels, and operational risk governance processes, and includes sub-committees covering Information Security and Cybersecurity, Technology, Fraud, Third-Party Risk, Data Integrity, and Model Governance;

• Compliance Risk Committee – provides oversight of compliance risk management (inclusive of compliance programs for Schwab’s regulated entities, Anti-Money Laundering/Sanctions, Conduct, Fiduciary, Conflicts of Interest, and Privacy), policies, and risk tolerance levels providing an aggregate view of compliance risk exposure and employee conduct, including subcommittees covering Fiduciary and Conflicts of Interest Risk;

• Financial Risk Oversight Committee – provides oversight of and approves credit, market, liquidity, and capital risk policies, limits, and exposures and includes the Liquidity and Capital Subcommittee;

• New Products and Services Risk Oversight Committee – provides oversight of, and approves corporate policy and procedures relating to, the risk governance of new products and services.

Senior management has also created an Incentive Compensation Risk Oversight Committee, which establishes policy and reviews and approves the Annual Risk Assessment of incentive compensation plans, and reports directly to the Compensation Committee of the Board of Directors.

• New Products and Services Risk Oversight Committee – provides oversight of, and approves new products, including the policy, program, and process designed to oversee new products and services risks prior to and post launch.

Senior management has also created an Incentive Compensation Risk Oversight Committee to provide oversight of incentive compensation risks and achieve sound incentive compensation risk management practices;

it reports directly to the Compensation Committee of the Board of Directors.

The Company’s finance, internal audit, legal, and corporate risk management departments assist management and the various risk committees in evaluating, testing, and monitoring risk management.

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The Disclosure Committee reports on this evaluation to the CEO and CFO prior to their certification required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002.

THE CHARLES SCHWAB CORPORATION

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

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

Operational Risk

Operational risk arises due to potential inadequacies or failures related to internal processes, people, and systems, or from external events or relationships impacting the Company and/or any of its key business partners and vendors.

While operational risk is inherent in all business activities, we rely on a system of internal controls and risk management practices designed to keep operational risk and operational losses within the Company’s risk appetite.

We have specific policies and procedures to identify and manage operational risk, and use control testing programs, and internal audit reviews to evaluate the effectiveness of these internal controls.

While operational risk is inherent in all business activities, the Company has established a system of internal controls and risk management practices designed to keep operational risk and operational losses within the Company’s risk appetite.

We have specific policies and procedures to identify and manage operational risk, and perform periodic testing to evaluate the effectiveness of relevant internal controls.

Where appropriate, we manage the impact of operational loss and litigation expense through the purchase of insurance.

The insurance program is specifically designed to address our key operational risks and to maintain compliance with local laws and regulation.

The insurance program is specifically designed to address our key operational risks and to maintain compliance with local laws and regulations.

Schwab’s operations are highly dependent on the integrity and resilience of our critical business functions and technology systems.

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To minimize business interruptions and ensure the capacity to continue operations during an incident regardless of duration, Schwab maintains a backup and recovery infrastructure which includes facilities for backup and communications, a geographically dispersed workforce, and routine testing of business continuity and disaster recovery plans and a well-established incident management program.

Information Security risk is the risk of unauthorized access, use, disclosure, disruption, modification, recording or destruction of the firm’s information or systems.

We have designed and implemented an information security program that knits together complementary tools, controls and technologies to protect systems, client accounts and data.

We continuously monitor the systems and work collaboratively with government agencies, law enforcement and other financial institutions to address potential threats.

We use advanced monitoring systems to identify suspicious activity and deter unauthorized access by internal or external actors.

We also maintain policies and procedures, which apply to employees, contractors, and third parties, regarding the standard of care expected with all data, whether the data is internal company information, employee information, or non-

THE CHARLES SCHWAB CORPORATION

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

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

public client information.

This includes limiting the number of employees who have access to clients’ personal information and internal authentication measures enforced to protect against the unauthorized use of employee credentials.

All employees who handle sensitive information are trained in privacy and security.

Schwab’s conduct and cybersecurity teams monitor activity looking for suspicious behavior.

These capabilities allow us to identify and quickly act on attempted intrusions.

Please see Part I – Item 1C.

Cybersecurity for additional information regarding Information Security risk, including cybersecurity risk management.

Fraud risk arises from attempted or actual theft of financial assets or other property of any client or the Company.

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Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports.

Models are owned by several business units throughout the organization, and are used for a variety of purposes.

Model use includes, but is not limited to, calculating capital requirements for hypothetical stressful environments, estimating interest and credit risk for loans and other balance sheet assets, and providing guidance in the management of client portfolios.

We have established a policy that aligns with regulatory guidance to describe the roles and responsibilities of all key stakeholders in model development, management, and use.

All models are registered in a centralized database and classified into different risk ratings depending on their potential financial, reputational, or regulatory impact to the Company.

The model risk rating determines the scope of model governance activities.

Model uses at Schwab include, but are not limited to, calculating capital requirements for hypothetical stressful environments, estimating interest and credit risk for loans and other balance sheet assets, identifying and preventing fraud and other financial crimes, and providing guidance in the management of client portfolios.

Schwab has established a policy that aligns with regulatory guidance to describe the roles and responsibilities of all key stakeholders in model development, management, and use.

Schwab registers models in a centralized database, performs risk assessment of models based on their potential financial, reputational, or regulatory impact to the Company.

The model risk rating determines the scope of model governance activities such as independent model validations, model annual reviews, and model performance monitoring.

Compliance Risk

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These procedures address issues such as conduct and ethics, sales and trading practices, marketing and communications, extension of credit, client funds and securities, books and records, anti-money laundering, privacy, and employment policies.

THE CHARLES SCHWAB CORPORATION

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

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

Privacy risk is the risk of unauthorized collection, use, storage, or sharing of personal information, including data incidents and other mismanagement of personal information.

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We manage this risk through policies, procedures, a system of internal controls, including personnel monitoring and surveillance.

Conduct-related matters are escalated through appropriate channels by the Corporate Responsibility Officer.

THE CHARLES SCHWAB CORPORATION

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

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

Conduct-related matters are escalated through appropriate channels by the Company’s Corporate Responsibility Officer.

Fiduciary risk is the potential for financial or reputational loss through breach of fiduciary duties to a client.

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All are factors in the determination of an appropriate allowance for credit losses.

THE CHARLES SCHWAB CORPORATION

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

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

Our residential loan underwriting guidelines include maximum LTV ratios, cash out limits, and minimum Fair Isaac Corporation (FICO) credit scores.

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Additionally, for margin loans, PALs, options and futures positions, and securities lending agreements, collateral arrangements require that the fair value of such collateral sufficiently exceeds the credit exposure in order to maintain a fully secured position.

THE CHARLES SCHWAB CORPORATION

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

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

Other Counterparty Exposures

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

We may also utilize derivative instruments such as interest rate swaps to assist with managing interest rate risk.

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

In 2023, the Company began to utilize interest rate swap derivative instruments to assist with managing interest rate risk, the effects of which are incorporated into the Company’s net interest revenue and EVE analyses.

For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 8 – Note 16.

Our measurement of interest rate risk involves assumptions that are inherently uncertain and, as a result, cannot precisely estimate the impact of changes in interest rates on net interest revenue, bank deposit account fees, or EVE.

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Our market risk related to financial instruments held for trading is not material.

Interest Rate Risk Simulations

Net Interest Revenue Simulation

For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates.

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

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

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

THE CHARLES SCHWAB CORPORATION

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

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

liabilities, and include derivative instruments.

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

We use independent third-party models to simulate net interest revenue sensitivity and related analyses.

Fixed income analytical vendors provide term structure models, prepayment speed models for mortgage-backed securities and mortgage loans, and cash flow projections based on interest income, contractual maturities, and prepayments.

Consistent with our policies related to the management of interest rate risk, the Company’s net interest revenue sensitivity analysis primarily involves gradual parallel increases/decreases in interest rates over a twelve-month period, though we also regularly simulate the effects of non-parallel shifts and instantaneous shifts of interest rates on net interest revenue.

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

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

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

Higher prevailing short-term interest rates generally improve yields on shorter duration interest-earning assets.

During periods of rapidly rising interest rates, clients tend to reallocate cash out of sweep products into higher-yielding, off-balance sheet, fixed income securities and money market funds within Schwab’s product offerings.

This can result in lower interest-earning assets and/or may require replacement funding with higher funding costs, which therefore tend to constrain net interest revenue when interest rates are moving rapidly higher.

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

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

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

THE CHARLES SCHWAB CORPORATION

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

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

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

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

The following table shows the simulated change to net interest revenue over the next 12 months beginning December 31, 2022 and 2021 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

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

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

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

As part of the Company’s ongoing evaluation of its modeling, in the fourth quarter of 2023, the Company updated deposit beta assumptions in a declining market interest rate environment for its net interest revenue simulation model.

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

December 31, 2023 (1)

Increase of 200 basis points

Increase of 100 basis points 5.8% 3.6%

Increase of 50 basis points

Decrease of 50 basis points

The Company’s simulated increase of 100 basis points in market interest rates had a lower impact on net interest revenue at year-end 2022 compared with year-end 2021 primarily due to an increased sensitivity to the Company’s higher projected client deposit rates, lower special reserve and margin loan balances at the Company’s broker-dealer subsidiaries, and reduced cash and adjustable-rate balances across the Company’s banking entities.

A simulated decrease of 100 basis points in market interest rates had a lower impact on net interest revenue at year-end 2022 compared to the prior year-end primarily due to higher starting client deposit rates which, relative to the December 31, 2021 simulation, provide greater responsiveness to lower simulated interest rates.

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

Bank Deposit Account Fees Simulation

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

As of December 31, 2022 and 2021, simulated changes in bank deposit account fee revenue from gradual 100 basis point changes in market interest rates relative to prevailing market rates did not have a significant impact on the Company’s total net revenues.

Decrease of 100 basis points (0.2)% (3.2)%

Decrease of 200 basis points

(4.2)% (6.7)%

(1) Reflects the impact of the assumption updates implemented in the fourth quarter of 2023.

The prior period has not been recast.

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

In the absence of the assumption updates, simulated decreases of 50, 100, and 200 basis points as of December 31, 2023 would have reduced net interest revenue by 1.7%, 3.8%, and 8.3%, respectively.

Simulated incremental decreases in market interest rates had a lesser impact on net interest revenue as of December 31, 2023 compared to December 31, 2022 due primarily to the change in assumptions for deposit betas, which, along with a lower rate environment, drove greater expense

THE CHARLES SCHWAB CORPORATION

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

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

savings across non-maturity deposits and an increased allocation to shorter-term liabilities, partially offset by higher concentrations of margin loan and cash balances.

Effective Duration

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

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

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

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

The Company’s estimated effective duration of consolidated total assets was approximately 2.4 years at December 31, 2023 (inclusive of the impact of derivative instruments) and 2.6 years at December 31, 2022.

The estimated effective duration of our AFS investment securities portfolio was approximately 2.5 years (2.2 years inclusive of the impact of derivative instruments) as of December 31, 2023 and 2.4 years as of December 31, 2022.

The estimated effective duration for the Company’s total AFS and HTM investment securities portfolio was approximately 4.0 years as of both December 31, 2023 and 2022 (3.9 years inclusive of the impact of derivative instruments on AFS securities as of December 31, 2023).

AFS and HTM securities comprised approximately 54% and 58% of the Company’s consolidated total assets as of December 31, 2023 and 2022, respectively.

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

Economic Value of Equity Simulation

Management also uses EVE simulations to measure interest rate risk.

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

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

While EVE does not have a direct accounting relationship, the measure aims to capture a theoretical value of assets and liabilities under a variety of interest rate environments.

EVE is calculated by subjecting the balance sheet to hypothetical instantaneous shifts in the level of interest rates.

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

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

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

This analysis is highly dependent upon asset and liability assumptions based on historical behaviors.

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

We use both proprietary and independent third-party models to simulate EVE sensitivity and related analyses.

We develop and maintain client credits and deposits run-off models internally based on historical experience and prevailing client cash realignment behaviors.

We rely on third-party models for term structure modeling, prepayment speed modeling for mortgage-backed securities and mortgage loans, and cash flow projections based on interest income, contractual maturities, and prepayments.

As interest rates rose throughout 2023, EVE sensitivity generally trended higher due to a shortening of liability duration.

While the Company’s asset duration remained largely stable during the period of rising interest rates, liability duration shortened significantly and is now shorter than asset duration.

Bank Deposit Account Fees Simulation

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

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

Phase-out of LIBOR

The Company continues to prepare for the phasing-out of LIBOR with efforts coordinated by its firm-wide transition team.

The LIBOR transition team is overseen by executive leadership and has organized its work to address both client-impacting and non-client-impacting workstreams.

From a client perspective, the Company has established pages on the client-facing websites for CS&Co and TD Ameritrade, Inc.

to provide information for our clients to help them understand how they may be impacted by LIBOR’s discontinuation.

In addition, we maintain internal informational resources for our client-facing employees’ awareness regarding LIBOR’s phase-out.

The Company’s largest exposures to LIBOR are certain investment securities and loans.

In purchasing new investment securities, we ensure that appropriate fallback language is in place in the event that LIBOR becomes unavailable or is deemed unreliable, and we have sold certain securities lacking appropriate fallback language.

Additionally, in accordance with regulatory feedback, we are limiting our purchases of LIBOR-based securities, and we ensure that any new purchases of LIBOR-based securities were issued prior to January 1, 2022.

As of December 31, 2022, substantially all of the Company’s remaining investment securities with exposure to LIBOR provide for appropriate fallback in the event LIBOR is no longer available.

Consistent with guidance from the Alternative Reference Rate Committee, a group of private-market participants jointly

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

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

Certain of the Company’s technology systems and financial models have historically utilized LIBOR.

We’ve transitioned our financial models and systems to alternative reference rates, and we continue to monitor

THE CHARLES SCHWAB CORPORATION

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

convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from LIBOR, beginning in 2022, the Company no longer uses LIBOR as a reference rate in new loans, and the Company’s portfolio of legacy loans have fallback language if LIBOR is no longer available.

Certain of the Company’s technology systems and financial models have historically utilized LIBOR, and we have now substantially transitioned our financial models and systems to alternative reference rates.

our financial models and systems that previously referenced LIBOR.

In addition, we have transitioned the Company’s IDA agreement and certain intercompany lending agreements that previously were tied to LIBOR to other appropriate reference rates.

On March 15, 2022, President Biden signed the Consolidated Appropriations Act of 2022 into law, which includes the Adjustable Interest Rate (LIBOR) Act, containing legislation related to the transition away from LIBOR.

This legislation is intended to establish a uniform process for replacing LIBOR in existing contracts and securities that continue after the cessation of LIBOR and do not contain clearly defined or practicable fallback provisions.

On December 16, 2022, the Federal Reserve Board adopted the final rule that implements the LIBOR Act.

The final rule provides default rules for certain contracts that use LIBOR, which would implement the LIBOR Act with replacement rates based on SOFR.

The Company believes the LIBOR Act and the Federal Reserve Board’s final regulation help provide clarity for the transition of our legacy LIBOR contracts, including investment securities and loans to alternative reference rates in an orderly manner.

Additional transition efforts to prepare for the phasing-out of LIBOR are ongoing.

In 2022, Schwab redeemed Series A and Series E preferred stock;

both of which referenced LIBOR for dividend payments.

In addition, operational work is underway to transition our legacy loan portfolio, in accordance with regulatory guidance, to alternate reference rates by the first rate reset after LIBOR’s cessation.

The Company’s investment securities that previously referenced LIBOR have transitioned to applicable alternative benchmark indices.

The Company’s work to transition from LIBOR is now substantially complete, and we do not expect the phase-out of LIBOR will have a material impact to the Company going forward.

Liquidity Risk

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the capital needs of the banking subsidiaries;

principal and interest due on corporate debt;

dividend payments on CSC’s preferred stock;

and returns of capital to common stockholders.

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

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

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

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

We have established liquidity policies to support the successful execution of business strategies, while ensuring ongoing and sufficient liquidity to meet operational needs and satisfy applicable regulatory requirements under both normal and stressed conditions.

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

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

Primary Funding Sources

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

Funding Sources

Schwab’s primary source of funds is cash generated by client activity which includes bank deposits and cash balances in client brokerage accounts.

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

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

THE CHARLES SCHWAB CORPORATION

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

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

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

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

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Treasury securities.

Additional Funding Sources

In addition to internal sources of liquidity, Schwab has access to external funding.

The need for short-term borrowings from external debt facilities arises primarily from timing differences between cash flow requirements, scheduled liquidation of interest-earning investments, movements of cash to meet regulatory brokerage client cash segregation requirements, and general corporate purposes.

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

Our clients’ bank deposits and brokerage cash balances primarily originate from our 34.8 million active brokerage accounts.

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

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

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

payments on interest-earning investments;

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

and general corporate purposes.

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

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

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

THE CHARLES SCHWAB CORPORATION

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

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

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

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

Federal Home Loan Bank (FHLB) secured credit facilities Banking subsidiaries $ 12,400 $ 68,562 June 2023 - November 2023 4.88%

Federal Reserve discount window Banking subsidiaries — 7,783 N/A —

Repurchase agreements Banking subsidiaries 4,402 — (1)

August 2023 - September 2023 4.99%

FHLB secured credit facilities

Banking subsidiaries $ 26,400 $ 63,102 (1)

January 2024 - November 2024 5.34%

Federal Reserve discount window Banking subsidiaries — 6,248 (1)

Federal Reserve Bank Term Funding Program Banking subsidiaries — 39,170 (1)

Repurchase agreements Banking subsidiaries, CSC

January 2024 -

July 2024 5.53%

Uncommitted, unsecured lines of credit with various external banks CSC, CS&Co — 1,767 N/A —

Unsecured commercial paper CSC 250 4,750 March 2023 4.67%

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

Secured uncommitted lines of credit with various external banks CS&Co 950 — (3)

January 2024 - February 2024 5.70%

Secured uncommitted lines of credit with various external banks TDAC 700 — (3)

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

January 2024 - February 2024 5.72%

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

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

See below and Item 8 – Note 12 for additional information.

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

See Item 8 – Note 17 for additional information.

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

Our banking subsidiaries maintain secured credit facilities with the FHLB.

Amounts available under these facilities are dependent on the value of our First Mortgages, HELOCs, and the fair value of certain of our investment securities that are pledged as collateral.

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

N/A Not applicable.

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

As of December 31, 2023, the Company had additional investment securities with a par value of approximately $142 billion or a fair value of approximately $131 billion available to be pledged to obtain additional capacity.

These securities could be used to provide additional borrowing capacity of up to $142 billion as of December 31, 2023, dependent on the facility utilized.

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

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

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

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

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

CSC has a commercial paper program of which proceeds are used for general corporate purposes.

The maturities of the Commercial Paper Notes may vary, but are not to exceed 270 days from the date of issue.

CSC’s ratings for these short-term borrowings were P1 by Moody’s, A1 by Standard & Poor’s, and F1 by Fitch at December 31, 2022 and 2021.

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

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

other than de minimis tests performed to satisfy the Federal Reserve Bank of New York’s testing requirements, this facility was not used during 2023 and there were no amounts outstanding at December 31, 2023.

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

Other than de minimis tests, this facility was not used during 2023 and there were no amounts outstanding under this facility at December 31, 2023.

On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program, offering loans through March 11, 2024 of up to one year in length to eligible financial institutions with U.S.

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

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

The Company is eligible to obtain advances under this program.

This facility was not used during 2023.

CSC’s ratings for Commercial Paper Notes were P1 by Moody’s Investor Service (Moody’s), A2 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at December 31, 2023.

During the second quarter of 2023,

THE CHARLES SCHWAB CORPORATION

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

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

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

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

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.

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.

The following table provides information about retail brokered certificates of deposit issued at CSB in the fourth quarter of 2022 and outstanding as of December 31, 2022:

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

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

Amount Outstanding Maturity Weighted-Average Interest Rate

Retail brokered certificates of deposit $ 6,047 September 2023 - December 2023 4.75%

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

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

In the fourth quarter of 2022, our banking subsidiaries began to raise temporary supplemental term funding via a variety of sources, including both fixed- and floating-rate FHLB advances, repurchase agreements, and the issuance of retail brokered certificates of deposit.

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

Subsequent to December 31, 2022, the Company’s banking entities had drawn an additional $13.0 billion of FHLB advances.

The current average interest rate on these advances was 5.12%, with the earliest maturity occurring in June 2023.

Our banking subsidiaries also borrowed an additional $3.4 billion under repurchase agreements with external financial institutions subsequent to December 31, 2022.

The current average interest rate on these repurchase borrowings was 4.91% with the earliest maturity occurring in March 2023.

The Company also issued $9.4 billion of retail brokered certificates of deposit subsequent to December 31, 2022 at a weighted average interest rate of 4.71%, with the earliest maturity occurring in July 2023.

Brokered CDs $ 48,297 January 2024 - April 2025 5.15%

Cash Flow Activity

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

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

The average pace of client cash allocations out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second quarter of 2023, and, apart from an increase in August following the Federal Reserve’s July rate increase, continued to decline during the second half of 2023.

See also Results of Operations – Net Interest Revenue.

In the fourth quarter of 2023, the Company’s FHLB borrowings and total other short-term borrowings decreased by $6.4 billion as a result of repayments during the period.

Bank deposits increased during the fourth quarter of 2023 by $5.5 billion, resulting from an increase of $2.8 billion in deposits swept from brokerage accounts due to the slowed pace of client cash realignment decisions and seasonal cash inflows near year-end, as well as an increase of $2.9 billion in brokered CDs.

Cash and cash equivalents increased $3.1 billion from year-end 2022 to $43.3 billion at December 31, 2023;

cash and cash equivalents, including amounts restricted, increased $15.8 billion to $74.5 billion as of year-end 2023.

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

Bank deposits decreased $76.8 billion in 2023, resulting primarily from a decrease of $113.5 billion in deposits swept from brokerage accounts due to client cash allocation decisions, partially offset by a net increase in brokered CDs of $42.3 billion.

Offsetting the decrease in bank deposits, investing cash flows from our AFS and HTM securities totaled $58.9 billion in 2023, cash flows from operating activities totaled $19.6 billion, and the Company increased FHLB borrowings and other short-term borrowings by a total of $15.9 billion in 2023.

In 2022, cash and cash equivalents decreased $22.8 billion to end the year at $40.2 billion.

Cash and cash equivalents, including amounts restricted, decreased $34.6 billion during 2022 to $58.7 billion at December 31, 2022.

This decrease was driven primarily by net cash used for financing activities, partially offset by net cash provided by investing activities.

Bank deposits decreased $77.1 billion in 2022, primarily due to a decrease of $78.5 billion in deposits swept from brokerage accounts due to client cash allocation decisions, partially offset by the issuance of $6.0 billion of brokered CDs.

In 2022, FHLB borrowings and other short-term borrowings increased $12.2 billion, and investing cash flows from AFS and HTM securities were $39.4 billion.

THE CHARLES SCHWAB CORPORATION

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

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

Liquidity Coverage Ratio

Schwab is subject to the full LCR rule, which requires the Company to hold HQLA in an amount equal to at least 100% of the Company’s projected net cash outflows over a prospective 30-calendar-day period of acute liquidity stress, calculated on each business day.

See Item 1 – Regulation for additional information.

See Part I – Item 1 – Regulation for additional information.

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

Average for the

Three Months Ended December 31, 2022

Average for the Three Months Ended

December 31, 2023 September 30, 2023

Total eligible HQLA $ 58,056 $ 60,781

Net cash outflows 44,793 51,351

LCR 130 % 119 %

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

Net Stable Funding Ratio

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

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

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

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

Average for the Three Months Ended

December 31, 2023 September 30, 2023

ASF $ 197,756 $ 202,775

RSF 157,560 161,270

NSFR 126 % 126 %

Long-Term Borrowings

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $26.1 billion and $20.8 billion at December 31, 2023 and 2022, respectively.

The following table provides information about our Senior Notes outstanding as of December 31, 2022:

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

Par Outstanding Maturity Weighted-Average

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

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

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

THE CHARLES SCHWAB CORPORATION

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

All long-term debt issuances in 2022, 2021, and 2020 were senior unsecured obligations.

Additional details of these debt issuances are as follows:

New Debt Issuances

The below debt issuances in 2023, 2022, and 2021 were senior unsecured obligations.

Additional details are as follows:

Issuance Date Issuance Amount Maturity Date Interest Rate Interest Payable

March 24, 2020 $ 600 3/24/2025 4.200% Semi-annually

March 24, 2020 $ 500 3/22/2030 4.625% Semi-annually

December 11, 2020 $ 1,250 3/11/2026 0.900% Semi-annually

December 11, 2020 $ 750 3/11/2031 1.650% Semi-annually

March 18, 2021 $ 1,250 3/18/2024 SOFR + 0.500% Quarterly (1)

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March 3, 2022 $ 1,000 3/3/2032 2.900% Semi-annually

During the third quarter of 2021, we completed a debt exchange offer related to certain senior notes issued by TDA Holding for an equivalent amount of senior notes issued by CSC.

May 19, 2023 $ 1,200 5/19/2029 5.643% Semi-annually (2)

May 19, 2023 $ 1,300 5/19/2034 5.853% Semi-annually (2)

August 24, 2023 $ 1,350 8/24/2034 6.136% Semi-annually (2)

August 24, 2023 $ 1,000 8/24/2026 5.875% Semi-annually

November 17, 2023 $ 1,300 11/17/2029 6.196% Semi-annually (2)

(1) On February 18, 2024, the Company redeemed all of these outstanding floating-rate Senior Notes.

(2) Interest rates presented are those in effect at December 31, 2023.

For additional information regarding future interest rates on fixed-to-floating rate Senior Notes, see Item 8 – Note 12.

During 2021, we completed a debt exchange offer related to certain senior notes issued by TDA Holding for an equivalent amount of senior notes issued by CSC.

For further discussion of the exchange, see Item 8 – Note 12.

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Date Issued and Sold Net Proceeds

Series G April 30, 2020 $ 2,470

Series H December 11, 2020 $ 2,470

Series I March 18, 2021 $ 2,222

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The depositary shares were redeemed at a redemption price of $1,000 per depositary share for a total of $600 million.

For further discussion, see Item 8 – Note 13 for the Company’s outstanding debt and borrowing facilities and Item 8 – Note 19 for equity outstanding balances, issuances, and redemptions.

For further discussion, see Item 8 – Note 11 for the Company’s bank deposits, Item 8 – Note 12 for the Company’s outstanding debt and borrowing facilities, and Item 8 – Note 19 for equity outstanding balances and activity.

Contractual Obligations

Schwab’s principal contractual obligations as of December 31, 2022 include credit-related financial instruments, representing our banking subsidiaries’ commitments to extend credit to banking clients, purchase mortgage loans, and fund CRA investments;

payments on short-term borrowings and long-term debt;

purchase obligations for services such as advertising and marketing, telecommunications, hardware- and software-related agreements, and professional services;

and lease payments including legally-binding minimum lease payments for leases signed but not yet commenced.

For information on our contractual

Schwab’s principal contractual obligations as of December 31, 2023 include payments on brokered CDs;

payments on FHLB borrowings, other short-term borrowings, and long-term debt;

lease payments including legally-binding minimum lease payments for leases signed but not yet commenced;

credit-related financial instruments, representing our banking subsidiaries’ commitments to extend credit to banking clients, purchase mortgage loans, and fund CRA investments;

and purchase obligations for services such as advertising and marketing, telecommunications, hardware- and software-related agreements, and professional services.

For information on our contractual obligations for brokered CDs, FHLB borrowings, other short-term borrowings, long-term debt, leases, and credit-related financial instruments, see Item 8 – Notes 11, 12, 13, and 14.

THE CHARLES SCHWAB CORPORATION

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

obligations for credit-related financial instruments, short-term borrowings and long-term debt, and leases, see Part II, Item 8 – Notes 15, 13, and 14, respectively.

As of December 31, 2022, the Company had total short-term purchase obligations of $562 million and total long-term purchase obligations of $510 million.

December 31, 2023, the Company had total short-term purchase obligations of $537 million and total long-term purchase obligations of $439 million.

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

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CAPITAL MANAGEMENT

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

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, inclusive of balance sheet growth over time, management of the 2023 IDA agreement, financial support to our subsidiaries, sustained access to the capital markets, and regulatory capital requirements.

Schwab also seeks to return excess capital to stockholders.

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Internal guidelines are set, for both CSC and its regulated subsidiaries, to ensure capital levels are in line with our strategy and regulatory requirements.

Capital forecasts are reviewed monthly at Asset-Liability Management and Pricing Committee and Financial Risk Oversight Committee meetings.

A number of early warning indicators are monitored to help identify potential problems that could impact capital.

Capital forecasts are reviewed monthly at Asset-Liability Management and Pricing Committee and Financial Risk Oversight Committee meetings and regularly at meetings of the Board of Directors.

A number of early warning indicators are monitored to help identify potential developments that could negatively impact capital.

In addition, we monitor the subsidiaries’ capital levels and requirements.

Subject to regulatory capital requirements and any required approvals, any excess capital held by subsidiaries is transferred to CSC in the form of dividends and returns of capital.

At the banking subsidiaries, dividends and returns of capital are managed with consideration of minimum tangible common equity levels and sufficient capital above regulatory capital requirements.

At the banking subsidiaries, dividends and returns of capital are managed with consideration of minimum tangible common equity and regulatory capital requirements.

When subsidiaries have need of additional capital, funds are provided by CSC as equity investments and also as subordinated loans.

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Schwab conducts regular capital stress testing to assess the potential financial impacts of various adverse macroeconomic and company-specific events to which the Company could be subjected.

The objective of the capital stress testing is (1) to explore various potential outcomes – including rare and extreme events and (2) to assess impacts of potential stressful outcomes on both capital and liquidity.

Additionally, we have a comprehensive Capital Contingency Plan to provide action plans for certain low probability/high impact capital events that the Company might face.

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CSC is subject to capital requirements set by the Federal Reserve and is required to serve as a source of strength for our banking subsidiaries and to provide financial assistance if our banking subsidiaries experience financial distress.

Schwab is required to maintain a Tier 1 Leverage Ratio for CSC of at least 4%, and we have a long-term operating objective.

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

Due to the relatively low risk of our balance sheet assets and risk-based capital ratios at CSC and CSB that are well in excess of regulatory requirements, the Tier 1 Leverage Ratio is the most restrictive capital constraint on CSC’s asset growth.

Schwab is required to maintain a Tier 1 Leverage Ratio for CSC of at least 4%, and has maintained a long-term operating objective for the consolidated Tier 1 Leverage Ratio of 6.50%-6.75%.

Due to the relatively low credit risk of our balance sheet assets and risk-based capital ratios at CSC and CSB that are in excess of regulatory requirements, the Tier 1 Leverage Ratio is the most restrictive capital constraint on CSC’s asset growth.

Our banking subsidiaries are subject to capital requirements set by their regulators that are substantially similar to those imposed on CSC by the Federal Reserve.

Our banking subsidiaries’ failure to remain well capitalized could result in certain mandatory and possibly additional discretionary actions by the regulators that could have a direct material effect on the banks.

Schwab’s principal banking subsidiary, CSB, is required to maintain a Tier 1 Leverage Ratio of at least 5% to be well

THE CHARLES SCHWAB CORPORATION

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

Our banking subsidiaries are subject to capital requirements set by their regulators that are substantially similar to those imposed on CSC by the Federal Reserve.

Schwab’s principal banking subsidiary, CSB, is required to maintain a Tier 1 Leverage Ratio of at least 5% to be well capitalized, but seeks to maintain a ratio of at least 6.25%.

capitalized, but has sought to maintain a ratio of at least 6.25%.

Based on its regulatory capital ratios at December 31, 2023, CSB is considered well capitalized.

In July 2023, the Federal Reserve issued a notice of proposed changes to the regulatory capital rules that would require us to include AOCI in regulatory capital, phased in over a three-year transition period beginning July 1, 2025 (see Current Regulatory and Other Developments).

In anticipation of the rules being adopted, the Company’s capital management for consolidated CSC, CSB, and our other banking subsidiaries now incorporates measures that are inclusive of AOCI.

See below and Non-GAAP Financial Measures for additional information.

Our banking subsidiaries are required to provide notice to, and may be required to obtain approval from, the Federal Reserve and the banking subsidiaries’ state regulators in order to declare and pay dividends to CSC.

In 2023, we expect to be required to obtain approval from the Federal Reserve for our banking subsidiaries to declare and pay dividends in excess of the amount of recent net income and retained earnings.

In future periods, we may be required to obtain approval from the Federal Reserve for our banking subsidiaries to declare and pay dividends in excess of the amount of recent net income and retained earnings.

As broker-dealers, CS&Co, TDAC, and TD Ameritrade, Inc., are subject to regulatory requirements of the Uniform Net Capital Rule, which is intended to ensure the general financial soundness and liquidity of broker-dealers.

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In addition to the capital requirements above, Schwab’s subsidiaries are subject to other regulatory requirements intended to ensure financial soundness and liquidity.

See Item 8 – Note 23 for additional information on the components of stockholders’ equity and information on the capital requirements of significant subsidiaries.

See Item 8 – Notes 19 and 23 for additional information on the components of stockholders’ equity and information on the capital requirements of significant subsidiaries and CSC consolidated.

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

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Risk-Weighted Assets 128,230 83,809 139,657 99,631

Average Assets with regulatory adjustments 476,069 315,851 562,803 372,802

Total Leverage Exposure 479,302 318,007 566,809 375,846

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The Company’s consolidated Tier 1 Leverage Ratio increased to 8.5% at December 31, 2023 from 7.2% at year-end 2022.

This increase resulted primarily from lower bank deposits and payables to brokerage clients, which decreased by a total of $105.3 billion, or 18%, in 2022 due to client cash allocation decisions resulting from the rising interest rate environment;

strength in earnings in 2022;

and our March 2022 issuance of Series K preferred stock.

Partially offsetting these factors were

This increase was due primarily to a decrease in the Company’s total assets and 2023 net income.

Total balance sheet assets decreased $58.6 billion, or 11%, during 2023 primarily driven by a decrease of $89.4 billion, or 19%, in total bank deposits and payables to brokerage clients due to client cash allocation decisions resulting from the rising interest rate environment.

THE CHARLES SCHWAB CORPORATION

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

common stock repurchases of $3.4 billion and $1.0 billion in preferred stock redemptions.

CSB’s Tier 1 Leverage Ratio also increased from year-end 2021, ending 2022 at 7.3%.

In January and November of 2022, the Company transferred investment securities from the AFS category to the HTM category, with aggregate fair values of $108.8 billion and $79.8 billion, respectively, and net unrealized losses at the time of transfer of $2.4 billion and $15.8 billion, respectively.

Tier 1 Leverage Ratio also increased from year-end 2022, ending 2023 at 10.1% primarily as a result of lower total assets and capital contributions from CSC as well as 2023 net income.

In light of the Federal Reserve’s 2023 regulatory capital rule proposal, which among other things, would require the Company to include AOCI in regulatory capital, the Company has developed an adjusted Tier 1 Leverage Ratio, which is a non-GAAP financial measure that includes AOCI in the ratio.

The primary component of AOCI for Schwab is unrealized gains and losses on our AFS investment securities portfolio and on securities transferred from AFS to the HTM category.

As of December 31, 2023, our adjusted Tier 1 Leverage Ratio, which includes AOCI in the ratio, was 4.9% for CSC consolidated and 5.4% for CSB (see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results).

The Company is continuing to retain and accrete capital organically well ahead of the Federal Reserve’s proposed regulatory capital rules’ transition period.

During 2022, the Company transferred investment securities from the AFS category to the HTM category, with aggregate fair values of $188.6 billion and net unrealized losses at the time of transfer of $18.2 billion.

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

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

During 2022 and 2021, Schwab moved net amounts of $13.7 billion and $10.1 billion, respectively, of IDA balances to its balance sheet.

During 2023, Schwab did not move IDA balances to its balance sheet, and during 2022, Schwab moved net amounts of $13.7 billion of IDA balances to its balance sheet.

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

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While the payment and amount of dividends are at the discretion of the Board of Directors, subject to certain regulatory and other restrictions, CSC currently targets its common and nonvoting common stock cash dividend at approximately 20% to 30% of net income.

The Board of Directors of the Company declared quarterly cash dividend increases per common share during 2022 as shown below:

The Board of Directors of the Company declared a quarterly cash dividend increase per common share during 2023 as shown below:

Date of Declaration Quarterly Cash Increase Per Common Share % Increase New Quarterly Dividend Per Common Share

January 26, 2023 $ .03 14 % $ .25

July 27, 2022 .02 10 % .22

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

THE CHARLES SCHWAB CORPORATION

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Preferred Stock:

33 82.73 28 70.00

N/A N/A 33 82.73

45 59.52 45 59.52

N/A N/A 37 6,161.42

24 5,000.00 25 5,000.00

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37 5,000.00 28 3,708.33

28 3,708.33 N/A N/A

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

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The final dividend was paid on November 1, 2022.

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

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

(3) Dividends paid quarterly.

(2) Dividends are paid quarterly.

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

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The final dividend was paid on December 1, 2022.

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

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

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

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

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

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

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

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

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

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N/A Not applicable.

In addition, on January 24, 2024, the Board of Directors of the Company declared a dividend of $.25 per common share.

Share Repurchases

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

On July 27, 2022, CSC publicly announced that its Board of Directors approved a new 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.

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CSC repurchased an additional 32 million shares of its common stock under the new authorization for $2.4 billion during the year ended December 31, 2022.

There were no repurchases of CSC’s common stock under the terminated authorization during the years ended December 31, 2022 and 2021.

As of December 31, 2022, $11.6 billion remained on the new authorization.

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

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

CSC repurchased 37 million shares of its common stock under the new authorization for $2.8 billion during 2023;

we did not initiate repurchases after the first quarter of 2023.

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

There were no repurchases of CSC’s common stock under the terminated authorization during 2022.

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

we did not initiate repurchases after the first quarter of 2023 .

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

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

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

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

FOREIGN EXPOSURE

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

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

At December 31, 2021, the fair value of these holdings totaled $12.5 billion, with the top three exposures being to issuers and counterparties domiciled in the United Kingdom at $5.2 billion, France at $3.9 billion, and Sweden at $754 million.

In addition, Schwab had outstanding margin loans to foreign residents of $2.5 billion and $3.3 billion at December 31, 2022 and 2021, respectively.

At December 31, 2023, the fair value of these holdings totaled $12.8 billion, with the top three exposures being to issuers and counterparties domiciled in the United Kingdom at $5.0 billion, France at $3.2 billion,

THE CHARLES SCHWAB CORPORATION

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

and Canada at $1.5 billion.

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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See Item 8 – Note 14 for more information on the Company’s contingencies related to legal and regulatory reserves.

Business Combinations

We have accounted for our acquisitions using the acquisition method of accounting.

The acquisition method requires us to make significant estimates and assumptions, especially at the acquisition date as we allocate the purchase price to the estimated fair values of acquired tangible and intangible assets and the liabilities assumed.

We also use our best estimates to determine the

THE CHARLES SCHWAB CORPORATION

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

useful lives of the tangible and definite-lived intangible assets, which impact the periods over which depreciation and amortization of those assets are recognized.

These best estimates and assumptions are inherently uncertain as they pertain to forward looking views of our businesses, client behavior, and market conditions.

In our acquisitions, we have also recognized goodwill at the amount by which the purchase price paid exceeds the fair value of the net assets acquired.

See Item 8 – Notes 2 and 3 for more information on our valuation methods and the results of applying the acquisition method of accounting, including the estimated fair values of the assets acquired and liabilities assumed, and, where relevant, the estimated remaining useful lives.

Our ongoing accounting for goodwill and the tangible and intangible assets acquired requires us to make significant estimates and assumptions as we exercise judgement to evaluate these assets for impairment.

Our processes and accounting policies for evaluating impairments are further described in Item 8 – Note 2.

One of our reporting units has an immaterial amount of goodwill.

The results of the 2022 annual goodwill impairment testing for our other two reporting units indicated that the estimated fair values substantially exceeded their carrying amounts.

NON-GAAP FINANCIAL MEASURES

In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S.

(GAAP), Management’s Discussion and Analysis of Financial Condition and Results of Operations contains references to the non-GAAP financial measures described below.

(GAAP), Management’s Discussion and Analysis of Financial Condition and Results of Operations contain references to the non-GAAP financial measures described below.

We believe these non-GAAP financial measures provide useful supplemental information about the financial performance of the Company, and facilitate meaningful comparison of Schwab’s results in the current period to both historic and future results.

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Schwab’s use of non-GAAP measures is reflective of certain adjustments made to GAAP financial measures as described below.

Beginning in the third quarter of 2023, these adjustments also include restructuring costs, which the Company began incurring in connection with its previously announced plans to streamline its operations to prepare for post-integration of TD Ameritrade.

See Item 8 – Note 15 for additional information.

Non-GAAP Adjustment or Measure Definition Usefulness to Investors and Uses by Management

Acquisition and integration-related costs and amortization of acquired intangible assets Schwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, and, where applicable, the income tax effect of these expenses.

Acquisition and integration-related costs, amortization of acquired intangible assets and restructuring costs

Schwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, restructuring costs and, where applicable, the income tax effect of these expenses.

Adjustments made to exclude amortization of acquired intangible assets are reflective of all acquired intangible assets, which were recorded as part of purchase accounting.

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Amortization of acquired intangible assets will continue in future periods over their remaining useful lives.

We exclude acquisition and integration-related costs and amortization of acquired intangible assets for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and is useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods.

Acquisition and integration-related costs fluctuate based on the timing of acquisitions and integration activities, thereby limiting comparability of results among periods, and are not representative of the costs of running the Company’s ongoing business.

We exclude acquisition and integration-related costs, amortization of acquired intangible assets and restructuring costs for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and is useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods.

Costs related to acquisition and integration or restructuring fluctuate based on the timing of acquisitions, integration and restructuring activities, thereby limiting comparability of results among periods, and are not representative of the costs of running the Company’s ongoing business.

Amortization of acquired intangible assets is excluded because management does not believe it is indicative of the Company’s underlying operating performance.

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

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

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

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

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

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Amortization of acquired intangible assets (534) (596) (615)

Restructuring costs (2)

Adjusted total expenses (non-GAAP) $ 11,029 $ 10,386 $ 9,724

(1) Acquisition and integration-related costs for 2023 primarily consist of $187 million of compensation and benefits, $135 million of professional services,

$28 million of occupancy and equipment, and $27 million of other.

Acquisition and integration-related costs for 2022 primarily consist of $220 million of compensation and benefits, $140 million of professional services, and $21 million of occupancy and equipment.

Acquisition and integration-related costs for 2021 primarily consist of $283 million of compensation and benefits, $132 million of professional services, and $39 million of occupancy and equipment.

Acquisition and integration-related costs for 2020 primarily consist of $235 million of compensation and benefits, $158 million of professional services, and $30 million of other expense.

(2) Restructuring costs for 2023 primarily consist of $292 million of compensation and benefits, $17 million of occupancy and equipment, and $181 million of other.

There were no restructuring costs for 2022 and 2021.

Year Ended December 31,

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Amortization of acquired intangible assets 534 .29 596 .31 615 .32

Restructuring costs

495 .27 — — — —

Income tax effects (1)

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(non-GAAP), Adjusted diluted EPS (non-GAAP) $ 5,741 $ 3.13 $ 7,386 $ 3.90 $ 6,175 $ 3.25

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

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

Year Ended December 31,

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

December 31, 2023

Tier 1 Leverage Ratio (GAAP) 8.5 % 10.1 %

Tier 1 Capital $ 40,602 $ 31,777

AOCI adjustment (18,131) (15,746)

Adjusted Tier 1 Capital 22,471 16,031

Average assets with regulatory adjustments 476,069 315,851

AOCI adjustment (19,514) (17,194)

Adjusted average assets with regulatory adjustments $ 456,555 $ 298,657

Adjusted Tier 1 Leverage Ratio (non-GAAP) 4.9 % 5.4 %

THE CHARLES SCHWAB CORPORATION

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-K

Item 7. Management’s Discussion and Analysis