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Item 8. Financial Statements and Supplementary Data

2024-02-23 compared with 2023-02-24 · 596 added, 513 removed, 1900 unchanged (37% of the section changed)

8 unchanged sentences

Summary of Significant Accounting Policies

Business Acquisitions

Revenue Recognition

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Exit and Other Related Liabilities

D erivative Instruments and Hedging Activities

Financial Instruments Subject to Off-Balance Sheet Credit Risk

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Diluted $ 2.54 $ 3.50 $ 2.83

(1) Includes fee waivers of $ 57 million, $ 326 million, and $ 127 million for the years ended December 31, 2022, 2021, and 2020, respectively.

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

(1) No fee waivers were recognized for the year ended December 31, 2023.

Includes fee waivers of $ 57 million and $ 326 million for the years ended December 31, 2022 and 2021, respectively.

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

As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class.

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Receivables from brokerage clients — net 68,667 66,591

Available for sale securities (amortized cost of $ 160,162 and $ 391,482 at December 31, 2022 and 2021, respectively;

including assets pledged of $ 41 at December 31, 2022)

Available for sale securities (amortized cost of $ 116,336 and $ 160,162 at December 31, 2023 and 2022,

respectively;

including assets pledged of $ 1,733 and $ 41 , respectively)

107,646 147,871

Held to maturity securities (including assets pledged of $ 4,522 at December 31, 2022)

Held to maturity securities (including assets pledged of $ 3,703 and $ 4,522 at December 31, 2023 and

2022, respectively)

159,452 173,074

Bank loans — net 40,439 40,505

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Accrued expenses and other liabilities 18,400 13,124

Short-term borrowings 17,050 4,855

Other short-term borrowings 6,553 4,650

Federal Home Loan Bank borrowings

26,400 12,400

Long-term debt 26,128 20,828

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$ .01 par value per share;

2,023,295,180 and 1,994,895,180 shares issued at December 31, 2022 and 2021, respectively

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

Nonvoting common stock — 300 million shares authorized;

$ .01 par value per share;

50,893,695 and 79,293,695 shares issued at December 31, 2022 and 2021, respectively

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

Additional paid-in capital 27,330 27,075

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Total liabilities and stockholders’ equity $ 493,178 $ 551,772

(1) Certain prior year amounts have been reclassified to conform to the current year presentation.

See Note 1 for additional information.

See Notes to Consolidated Financial Statements.

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Other comprehensive income (loss), net of tax — — — — — — — — ( 6,503 ) ( 6,503 )

Acquisition of TD Ameritrade — 509 5 77 1 21,757 — ( 5 ) — 21,758

Issuance of preferred stock, net 2,806 — — — — — — — — 2,806

Redemption of preferred stock ( 585 ) — — — — — ( 15 ) — — ( 600 )

Dividends declared on preferred stock — — — — — — ( 456 ) — — ( 456 )

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— — — — — — ( 1,592 ) — — ( 1,592 )

Repurchase of common stock — — — — — — — ( 2,435 ) — ( 2,435 )

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

Conversion of nonvoting common stock to

common stock — 13 — ( 13 ) — — — — — —

Stock option exercises and other — — — — — ( 124 ) — 188 — 64

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Other comprehensive income (loss), net of tax — — — — — — — — 4,490 4,490

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

Redemption of preferred stock ( 988 ) — — — — — ( 12 ) — — ( 1,000 )

Redemption and repurchase of preferred stock,

inclusive of tax ( 515 ) — — — — — 44 — — ( 471 )

Dividends declared on preferred stock — — — — — — ( 438 ) — — ( 438 )

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— — — — — — ( 1,838 ) — — ( 1,838 )

Repurchase of common stock — — — — — — — ( 2,435 ) — ( 2,435 )

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

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

Repurchase of common stock, inclusive of tax — — — — — — — ( 2,866 ) — ( 2,866 )

Stock option exercises and other — — — — — ( 145 ) — 194 — 49

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Net change in bank loans 99 ( 5,788 ) ( 10,845 )

Cash acquired in acquisitions, net of cash paid — — 14,748

Purchases of equipment, office facilities, and property ( 700 ) ( 971 ) ( 916 )

Purchases of Federal Home Loan Bank stock ( 518 ) — ( 26 )

Proceeds from sales of Federal Home Loan Bank stock 19 — 32

Purchases of FHLB stock ( 1,869 ) ( 518 ) —

Proceeds from sales of FHLB stock 1,344 19 —

Purchases of Federal Reserve stock ( 221 ) ( 106 ) ( 245 )

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Net change in bank deposits ( 76,771 ) ( 77,054 ) 85,756

Proceeds from commercial paper and secured lines of credit 1,900 11,107 1,234

Repayments of commercial paper and secured lines of credit ( 6,511 ) ( 6,255 ) ( 1,234 )

Net change in other short-term borrowings 16,802 — —

Proceeds from FHLB borrowings 49,200 12,504 —

Repayments of FHLB borrowings ( 35,200 ) ( 104 ) —

Proceeds from other short-term borrowings 17,000 20,891 11,107

Repayments of other short-term borrowings ( 15,104 ) ( 21,100 ) ( 6,255 )

Issuances of long-term debt 6,097 2,971 7,036

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Repurchases of common stock and nonvoting common stock ( 2,842 ) ( 3,395 ) —

Net proceeds from preferred stock offerings 740 2,806 4,940

Redemption of preferred stock ( 1,000 ) ( 600 ) —

Issuance of preferred stock, net — 740 2,806

Redemption and repurchase of preferred stock ( 467 ) ( 1,000 ) ( 600 )

Dividends paid ( 2,276 ) ( 2,110 ) ( 1,822 )

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Non-cash investing activity:

Securities transferred from held to maturity to available for sale, at fair value $ — $ — $ 136,099

Securities transferred from available for sale to held to maturity, at fair value $ — $ 188,555 $ —

Changes in accrued equipment, office facilities, and property purchases $ 104 $ ( 19 ) $ 125

Acquisition of TD Ameritrade $ — $ — $ 21,758

Non-cash financing activity:

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statement of cash flows $ 74,473 $ 58,720 $ 93,338

(1) Certain prior year amounts have been reclassified to conform to the current year presentation.

See Note 1 for additional information.

(2) For more information on the nature of restrictions on restricted cash and cash equivalents, see Note 23.

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(CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds ® ) and for Schwab’s exchange-traded funds (Schwab ETFs ™ ).

Schwab’s securities broker-dealers have approximately 400 domestic branch offices in 48 states and the District of Columbia, as well as locations in Puerto Rico, the United Kingdom, Hong Kong, and Singapore.

Schwab’s securities broker-dealers have over 380 domestic branch offices in 48 states and the District of Columbia, as well as locations in Puerto Rico, the United Kingdom, Hong Kong, and Singapore.

Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries.

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While management makes its best judgment, actual amounts or results could differ from these estimates.

Certain estimates relate to taxes on income, legal and regulatory reserves, and fair values of assets acquired and liabilities assumed, as well as goodwill recognized, in business combinations.

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

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

See Note 3 for additional information on our acquisition of TD Ameritrade.

Certain estimates relate to taxes on income and legal and regulatory reserves.

Reclassifications:

Certain prior period amounts have been reclassified to conform to the current period presentation.

Beginning in 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings in the consolidated balance sheets.

Prior period amounts have been reclassified to reflect these changes.

Corresponding presentation changes have been made to the consolidated statements of cash flows and related notes also impacted.

Principles of Consolidation

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Bank deposit account fees

Bank deposit account fees consist of revenues resulting from sweep programs offered to certain clients whereby uninvested client cash is swept off-balance sheet to FDIC-insured (up to specified limits) accounts at the TD Depository Institutions and other third-party depository institutions.

The Company provides marketing, recordkeeping, and support services related to these sweep programs to the TD Depository Institutions and other third-party depository institutions in exchange for bank deposit account fees.

The Company provides marketing, recordkeeping, and support services related to these sweep programs to the TD Depository Institutions in exchange for bank deposit account fees.

These revenues are based on floating and fixed yields as elected by the Company subject to certain requirements, less interest paid to clients and other applicable fees.

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The collateral is not reflected in the consolidated financial statements.

Other securities owned at fair value

Other securities owned are included in other assets on the consolidated balance sheets and recorded at fair value based on quoted market prices or other observable market data.

Other securities owned and securities sold but not yet purchased

Other securities owned and securities sold but not yet purchased are included in other assets and accrued expenses and other liabilities, respectively, on the consolidated balance sheets and recorded at fair value based on quoted market prices or other observable market data.

Unrealized gains and losses are included in earnings.

Client-held fractional shares are included in other securities owned for client positions for which off-balance sheet treatment pursuant to ASC 940 Financial Services – Brokers and Dealers is not applicable and the derecognition criteria in ASC 860 Transfers and Servicing, are not met.

Client-held fractional shares are included in other securities owned for client positions where off-balance sheet treatment pursuant to ASC 940 Financial Services – Brokers and Dealers is not applicable and the derecognition criteria in ASC 860 Transfers and Servicing, are not met.

These client-held fractional shares have related repurchase liabilities that are accounted for at fair value with unrealized gains and losses included in earnings.

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Where applicable, prepayments are accounted for as they occur (i.e., prepayments are not estimated).

Accrued interest receivable for AFS and HTM investment securities are included in other assets in the Company’s consolidated balance sheets.

Accrued interest receivable for AFS and HTM investment securities is included in other assets in the Company’s consolidated balance sheets.

THE CHARLES SCHWAB CORPORATION

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The methodology also evaluates concentrations in the classes of financing receivables, including loan products within those classes, year of origination, and geographical distribution of collateral.

Expected credit losses are forecast using a loan-level simulation of the delinquency status of the loans over the term of the loans.

The simulation starts with the current relevant risk indicators, including the current delinquent status of each loan, the estimated current LTV ratio of each loan, the term and structure of each loan, borrower FICO scores, and current key interest rates including U.S.

Treasury, SOFR, and LIBOR rates.

The more significant variables in the simulation include delinquency roll rates, loss severity, housing prices, interest rates, and the unemployment rate.

Delinquency roll rates (i.e., the rates at which loans transition through delinquency stages and ultimately result in a loss) are estimated from our historical loss experience adjusted for current trends and market information, which includes current and forecasted conditions.

Loss severity (i.e., loss given default) estimates are based on our historical loss experience and market trends, both current and forecasted.

Expected credit losses are estimated using a loan-level model that projects each loan’s behavior over its term based on forecasted voluntary housing turnover, the rates of refinancing, delinquency transition rates, and severity of loss.

The model takes into account the current relevant risk indicators, including each loan’s term and structure, current delinquency status, and the estimated current LTV ratio, as well as borrower FICO scores and current key interest rates including U.S.

Treasury, SOFR, Prime, and mortgage rates.

The more significant variables in the model include delinquency roll rates, housing prices, interest rates, and the unemployment rate.

Loss severity (i.e., loss given default) estimates are based on forecasted net equity associated with each loan and property, as well as loss experience and market trends, both current and forecasted.

Housing price trends are derived from historical home price indices and econometric forecasts of future home values.

Factors affecting the home price index include housing inventory, unemployment, interest rates, and inflation expectations.

Interest rate projections are based on the current term structure of interest rates and historical volatilities to project various possible future interest rate paths.

Mortgage rates are estimated based on forecasted spread, while the rest of the interest rates used by the model are projected based on the forward rates.

The unemployment rate forecast is typically based on the recent consensus of regularly published economic surveys.

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See Note 14 for additional information on these commitments.

The liability is calculated by applying the loss factors described above to the commitments expected to be funded and is included in accrued expenses and other liabilities on the consolidated balance sheets.

The liability for expected credit losses on these commitments and related activity were immaterial for all periods presented.

The liability is calculated by applying the loss factors described above to the commitments expected to be funded and is included

THE CHARLES SCHWAB CORPORATION

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

in accrued expenses and other liabilities on the consolidated balance sheets.

The liability for expected credit losses on these commitments and related activity were immaterial for all periods presented.

Nonaccrual, nonperforming and impaired loans

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Leasehold improvements Lesser of useful life or lease term

(1) Amortized over contractual term if less than three years .

Equipment, office facilities, and property are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Equipment, office facilities, and property acquired in a business combination are recognized at their estimated fair values as of the date of acquisition.

The fair values of real property, personal property, construction in progress, and land acquired are estimated using a sales comparison and cost approach, including consideration of functional and economic obsolescence.

The Company determined the weighted-average useful lives of the assets based on the current condition and expected future use of the assets as of the date of acquisition.

(1) Amortized over contractual term if shorter than the estimated useful life.

Equipment, office facilities, and property are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group related to such assets may not be recoverable.

Impairment charges are recorded in other expenses.

Goodwill is not amortized but is tested for impairment annually or whenever indications of impairment exist.

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A qualitative assessment considers macroeconomic and other industry-specific factors, such as trends in short-term and long-term interest rates and the ability to access capital, and Company specific factors such as market capitalization in excess of net assets, trends in revenue generating activities, and merger or acquisition activity.

If the Company elects to bypass qualitatively assessing goodwill, or it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, management estimates the fair values of each of the Company’s reporting units (defined as the Company’s businesses for which financial information is available and reviewed regularly by management) and compares it to

THE CHARLES SCHWAB CORPORATION

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

their carrying values.

The estimated fair values of the reporting units are established using an income approach based on a discounted cash flow model that includes significant assumptions about the future operating results and cash flows of each reporting unit, a market approach which compares each reporting unit to comparable companies in their respective industries, as well as a market capitalization analysis.

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All intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Intangible assets acquired in a business combination are recognized at their estimated fair values as of the date of acquisition.

The fair values of the intangible assets acquired in the TD Ameritrade and USAA-IMCO acquisitions were determined using the following valuation methods:

Acquired intangible asset Acquisition Method

Client relationships TD Ameritrade, USAA-IMCO Multi-period excess earnings

Trade names TD Ameritrade Relief from royalty

Royalty-free license USAA-IMCO Relief from royalty

Brokerage referral agreement USAA-IMCO With-and-without

Existing technology TD Ameritrade Cost

The multi-period excess earnings method starts with a forecast of all of the expected future net cash flows associated with the asset and the relief from royalty method starts with a forecast of the royalties saved by the Company because it owns the asset.

The with-and-without method quantifies the difference between forecasted cash flows with the asset and without the asset.

The forecasts are then adjusted to present value by applying an appropriate discount rate that reflects the risks associated with the cash flow streams.

The cost approach uses replacement cost as an indicator of fair value.

Low-income housing tax credit (LIHTC) investments

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Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

At the commencement date, we determine classification as either an operating lease or finance lease and the ROU asset and lease liability is recognized based on the present value of lease payments over the lease term.

At the commencement date, we determine classification as either an operating lease or finance lease, and the ROU asset and lease liability are recognized based on the present value of lease payments over the lease term.

The lease liability may include payments that depend on a rate or index (such as the Consumer Price Index), measured using the rate or index at the commencement date.

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Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The amortization of finance lease ROU assets and the interest expense on finance lease liabilities are recognized over the lease term.

The amortization of finance lease ROU assets and the interest expense on finance lease liabilities are recognized over the lease term as depreciation and interest expense, respectively.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

We have lease agreements with lease and non-lease components.

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The lease terms may also include periods covered by options to terminate when it is reasonably certain that we will not exercise that option.

The ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group related to such assets may not be recoverable.

Impairment charges are recorded in other expense.

In certain situations, the Company may also abandon a lease prior to the end of its lease term.

Once the Company has committed to a plan to abandon the lease, the amortization period of the ROU asset is shortened to the abandonment date.

Advertising and market development

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Where it applies to these costs, the Company’s accounting policy is to expense when incurred.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Schwab provides for income taxes on all transactions that have been recognized in the consolidated financial statements.

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The excess tax benefits or deficiencies from the exercise of stock options and the vesting of restricted stock units are recorded in taxes on income.

Derivative instruments and hedging activities

As discussed further in Note 16, beginning in 2023, the Company utilizes derivative instruments as part of its interest rate risk management.

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

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

Hedge accounting generally matches the timing of gain or loss recognition on the derivatives with the recognition of the changes in the fair values or cash flows attributable to the risk being hedged .

Schwab’s policy is to designate all eligible derivatives in hedge accounting relationships.

To qualify for hedge accounting, among other requirements, a derivative must be highly effective at reducing exposure to the hedged risk.

The assessment of effectiveness is done for each hedging relationship at inception and on an ongoing basis.

Depending on certain criteria, these assessments of effectiveness may be qualitative or quantitative.

Schwab applies the “shortcut method” of hedge accounting for a portion of its fair value hedges, which assumes perfect effectiveness.

Alternatively, when quantitative effectiveness assessments are required, the Company uses regression analysis, which is the method employed for the rest of our hedging relationships.

For the Company’s fair value hedges of interest rate risk, the gain or loss on the derivatives and the changes in fair values of the hedged assets attributable to benchmark interest rates (basis adjustments) are both recorded in interest revenue on the consolidated statements of income.

If the hedging relationship is terminated, any remaining basis adjustment is included in the amortized cost of the hedged asset and amortized to interest revenue over its remaining life as a yield adjustment using the effective interest method.

The Company does not amortize basis adjustments prior to termination of the hedging relationship.

Certain fair value hedges may be designated under the portfolio layer method (PLM) of hedge accounting, which allows the Company to hedge the interest rate risk of prepayable and non-prepayable financial assets by designating a stated amount of a closed portfolio that is expected to be outstanding for the designated hedge period (a hedged layer) as the hedged item.

A PLM hedging relationship may include multiple hedged layers.

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

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

Allocated PLM

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

basis adjustments are included in the amortized cost of the hedged assets and amortized to interest revenue over their respective remaining lives as a yield adjustment using the effective interest method.

For the Company’s cash flow hedges of interest rate risk, the gain or loss on the derivatives is recorded in AOCI and subsequently reclassified into interest revenue or interest expense, depending on where the hedged cash flows are recognized, on the consolidated statements of income when the hedged transactions affect earnings.

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

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

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

Cash flows associated with derivative instruments are reflected as cash flows from operating activities in the statement of cash flows consistent with the treatment and nature of the items being hedged.

Fair values of assets and liabilities

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Where inputs used to measure fair value of an asset or liability are from different levels of the hierarchy, the asset or liability is categorized based on the lowest level input that is significant to the fair value measurement in its entirety.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

the significance of a particular input requires judgment.

Assessing the significance of a particular input requires judgment.

The fair value hierarchy includes three levels based on the objectivity of the inputs as follows:

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Schwab’s assets and liabilities measured at fair value on a recurring basis include:

certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, certain other assets, and accrued expenses and other liabilities.

certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, certain other assets, interest rate swaps, and certain accrued expenses and other liabilities.

The Company uses the market approach to determine the fair value of assets and liabilities.

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and non-agency commercial mortgage-backed securities.

Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities.

Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities.

We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable.

Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in material differences in the amounts recorded.

Liabilities measured at fair value on a recurring basis include repurchase liabilities related to client-held fractional shares of equities, ETFs, and other securities.

See Other securities owned at fair value above in this Note 2 for the treatment of client-held fractional shares.

Liabilities measured at fair value on a recurring basis include interest rate swaps, securities sold but not yet purchased, and repurchase liabilities related to client-held fractional shares of equities, ETFs, and other securities, which are included in other assets on the consolidated balance sheets (see Other securities owned and securities sold but not yet purchased above in this Note 2 for the treatment of client-held fractional shares).

The fair values of securities sold but not yet purchased are based on quoted market prices or other observable market data.

The Company has elected the fair value option pursuant to ASC 825 Financial Instruments for the repurchase liabilities to match the measurement and accounting of the related client-held fractional shares.

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The repurchase liabilities are included in accrued expenses and other liabilities on the consolidated balance sheet.

The fair values of interest rate swaps are based on market observable interest rate yield curves.

Fair value measurements are priced considering the coupon rate of the fixed leg of the contract and the variable coupon rate on the floating leg of the contract.

Valuation is based on both spot and forward rates on the swap yield curve.

The Company validates its valuations with counterparty quotations from central counterparty (CCP) clearing houses.

See Note 16 for additional information on the Company’s interest rate swaps.

THE CHARLES SCHWAB CORPORATION

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Adoption of New Accounting Standards

No new accounting standards that are material to the Company were adopted during the year ended December 31, 2022.

New Accounting Standards Not Yet Adopted

Standard Description Required Date of Adoption Effects on the Financial Statements or Other Significant Matters

Standard Description Date of Adoption

Effects on the Financial Statements or Other Significant Matters

Accounting Standards Update (ASU) 2022-02, “Financial Instruments—Credit Losses (Topic 326):

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January 1, 2023 The Company adopted this guidance prospectively on January 1, 2023.

As such, there was no impact to the Company’s consolidated financial statements upon initial adoption.

Adopting this guidance changed the Company’s accounting treatment for the loan modifications in scope of ASU 2022-02 prospectively from the adoption date.

The Company’s vintage disclosures in Note 7, Bank Loans and Related Allowance for Credit Losses, will be updated prospectively to include gross write offs.

Business Acquisitions

TD Ameritrade

On October 6, 2020, Schwab completed its acquisition of TD Ameritrade for $ 21.8 billion in stock.

As a result of the acquisition, TDA Holding became a wholly-owned subsidiary of CSC.

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

a nd futures and foreign exchange trade execution services.

In exchange for each share of TD Ameritrade common stock, TD Ameritrade stockholders received 1.0837 shares of CSC common stock, except for TD Bank and its affiliates which received a portion in nonvoting common stock.

In connection with the transaction, Schwab issued approximately 586 million common shares to TD Ameritrade stockholders consisting of approximately 509 million shares of common stock and approximately 77 million shares of nonvoting common stock.

For further details on nonvoting common stock, see Note 19.

The fair value of the purchase price transferred upon completion of the acquisition includes the fair value of CSC common stock and nonvoting common stock that was issued to TD Ameritrade stockholders, as well as the fair value of assumed TD Ameritrade equity awards attributable to pre-combination services.

The purchase price was calculated as follows:

Fair value of consideration for TD Ameritrade outstanding common stock $ 21,664

Fair value of replaced TD Ameritrade equity awards attributable to pre-combination services (1)

Purchase price $ 21,758

(1) Share-based awards held by TD Ameritrade employees prior to the acquisition date were assumed by Schwab and converted into share-based awards with respect to CSC common stock, after giving effect to the exchange ratio of 1.0837 .

Such share-based awards are otherwise subject to the same terms and conditions as were applicable immediately before the merger, except for performance-based restricted stock units which were converted into time-based restricted stock units.

The portion of the fair value of the share-based awards that relates to services performed by the employees prior to the acquisition date is included in the purchase price.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

The Company accounted for the TD Ameritrade acquisition as a business combination under GAAP and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values, except for certain exceptions to the recognition principle of acquisition accounting, such as leases, share-based payments, and income taxes, as of the date of acquisition.

I nformation regarding the acquisition is final and there were no adjustments to the provisional purchase price and fair value estimates presented in the 2020 Form 10-K.

The following table summarizes the purchase price, fair values of the assets acquired and liabilities assumed, and resulting goodwill as of the October 6, 2020 acquisition date:

Purchase price $ 21,758

Fair value of assets acquired:

Cash and cash equivalents 3,484

Cash and investments segregated and on deposit for regulatory purposes 14,236

Receivables from brokerage clients 28,009

Available for sale securities 1,779

Acquired intangible assets 8,880

Equipment, office facilities, and property 470

Other assets 3,088

Total assets acquired 59,946

Fair value of liabilities assumed:

Payables to brokerage clients 37,599

Accrued expenses and other liabilities 6,975

Long-term debt 3,829

Total liabilities assumed 48,403

Fair value of net identifiable assets acquired 11,543

Goodwill $ 10,215

The identifiable tangible and intangible assets of $ 470 million and $ 8.9 billion, respectively, are subject to depreciation and amortization.

The following table summarizes the major classes of tangible and intangible assets and their respective fair values and weighted-average useful lives:

Fair Value Weighted-Average Useful Life (Years)

Equipment, office facilities, and property

Real property (1)

Personal property (2)

Construction in progress 49 N/A

Total equipment, office facilities, and property $ 470

Acquired intangible assets

Client relationships $ 8,700 20

Existing technology 165 2

Trade names 15 2

Total acquired intangible assets $ 8,880

(1) Consists primarily of buildings.

(2) Consists primarily of equipment and leasehold improvements.

N/A Not applicable.

Goodwill of $ 10.2 billion is primarily attributable to the scale, skill sets, operations, and synergies that can be leveraged to enable the combined company to build a stronger enterprise and will not be deductible for tax purposes.

The goodwill assigned to the Investor Services and Advisor Services segments were $ 6.4 billion and $ 3.8 billion, respectively.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

The Company’s consolidated statements of income include total net revenues and net income attributable to the TD Ameritrade acquisition of $ 1.7 billion and $ 583 million, respectively, for the period October 6, 2020 through December 31, 2020.

In connection with the TD Ameritrade acquisition, the Company incurred various professional fees and other costs such as advisory, legal, and accounting fees.

In total, the Company incurred acquisition costs of $ 56 million for the year ended December 31, 2020, which are primarily included in professional services on the consolidated statement of income.

On May 26, 2020, the Company completed its acquisition of the assets of USAA-IMCO for $ 1.6 billion in cash.

Along with the asset purchase agreement, the companies entered into a long-term referral agreement that makes Schwab the exclusive provider of wealth management and investment brokerage services for USAA members.

The USAA-IMCO acquisition has added scale to the Company’s operations through the addition of over one million brokerage and managed portfolio accounts with approximately $ 80 billion in client assets at the acquisition date.

The transaction also provides Schwab the opportunity to further expand our client base by serving USAA’s members through the long-term referral agreement.

The Company accounted for the USAA-IMCO acquisition as a business combination under GAAP and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values as of the date of acquisition.

During the three months ended September 30, 2020, we made a $ 43 million post-closing adjustment to the purchase price resulting in reductions of $ 9 million and $ 34 million to our initial estimates of the fair value of the intangible assets acquired and goodwill, respectively.

The Company finalized the valuation of assets and liabilities during the three months ended December 31, 2020, resulting in no additional adjustments to the estimated fair values as of the date of acquisition.

The following table summarizes the purchase price, fair values of the assets acquired and liabilities assumed, and resulting goodwill as of the May 26, 2020 acquisition date, adjusted for the post-closing adjustments described above:

Purchase price $ 1,581

Fair value of assets acquired:

Cash segregated and on deposit for regulatory purposes 4,392

Receivables from brokerage clients 80

Acquired intangible assets 1,109

Total assets acquired 5,581

Fair value of liabilities assumed:

Payables to brokerage clients 4,472

Total liabilities assumed 4,472

Fair value of net identifiable assets acquired 1,109

Goodwill $ 472

The identifiable intangible assets of $ 1.1 billion are subject to amortization.

The following table summarizes the major classes of intangible assets acquired and their respective fair values and weighted-average useful lives:

Value Weighted-Average Useful Life (Years)

Customer relationships $ 962 18

Brokerage referral agreement (1)

Royalty-free license 5 7

Total acquired intangible assets $ 1,109

(1) The brokerage referral agreement has an initial term of 5 years and is automatically renewable for one-year increments thereafter.

Goodwill of $ 472 million, primarily attributable to the additional scale and anticipated synergies from the USAA-IMCO acquisition, was assigned to the Investor Services segment and is deductible for tax purposes.

The Company’s consolidated statements of income include total net revenues and net loss attributable to the USAA-IMCO acquisition of $ 235 million and $ 51 million, respectively, for the period May 26, 2020 through December 31, 2020.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

In connection with the acquisition, the Company agreed to reimburse USAA for certain contract termination and other fees and severance costs incurred by USAA.

These costs totaled $ 21 million for the year ended December 31, 2020 and are included in other expense on the consolidated statements of income.

Additionally, the Company incurred various professional fees and other costs related to the USAA-IMCO acquisition, such as advisory, legal, and accounting fees.

In total, the Company incurred acquisition costs of $ 54 million for the year ended December 31, 2020, which are primarily included in professional services, other expense, and compensation and benefits on the consolidated statement of income.

Pro Forma Financial Information (Unaudited)

The following table presents unaudited pro forma financial information as if the TD Ameritrade and USAA-IMCO acquisitions had occurred on January 1, 2019.

The unaudited pro forma results reflect after-tax adjustments for acquisition costs, amortization and depreciation of acquired intangible and tangible assets, the impact of the amended IDA agreement which reduced the service fee on client cash deposits held at the TD Depository Institutions to 15 basis points from the 25 basis points paid by TD Ameritrade under its previous IDA agreement, and other immaterial adjustments for the effects of purchase accounting, and do not reflect potential revenue growth or cost savings that may be realized as a result of the acquisitions.

In accordance with ASC 805 Business Combinations , pro forma net income for the year ended December 31, 2020 excludes after-tax acquisition costs for both Schwab and the acquirees of $ 156 million.

The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of future operations or results had the TD Ameritrade and USAA-IMCO acquisitions been completed as of January 1, 2019.

Total net revenues $ 16,617

Net income available to common stockholders 4,617

The adoption of this guidance did not have a material impact on the Company’s financial statements.

New Accounting Standards Not Yet Adopted

Standard Description Required Date of Adoption Effects on the Financial Statements or Other Significant Matters

ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”

Requires annual and interim disclosure of significant segment expenses that are provided to the chief operating decision maker (CODM) and included in segment profit or loss.

Also requires disclosure of the CODM’s title and position and how the CODM uses reported segment profit or loss information in assessing segment performance and allocating resources.

All currently required annual segment disclosures will be required for interim periods as well.

Adoption requires retrospective application as of the earliest comparative period presented in the financial statements.

Early adoption is permitted.

January 1, 2024 (applies to the annual financial statements for 2024 and interim periods thereafter)

The Company does not expect this guidance will have a material impact on its financial statements or disclosures.

ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”

Expands income tax disclosures, primarily by enhancing the rate reconciliation table and requiring additional disaggregated information about income taxes paid.

Adoption allows retrospective or prospective application, with early adoption permitted.

January 1, 2025 The Company does not expect this guidance will have a material impact on its financial statements or disclosures.

THE CHARLES SCHWAB CORPORATION

17 unchanged sentences

Payables to brokerage clients ( 271 ) ( 123 ) ( 9 )

Short-term borrowings ( 154 ) ( 9 ) —

Other short-term borrowings (1)

( 375 ) ( 48 ) ( 9 )

Federal Home Loan Bank borrowings (1)

( 1,810 ) ( 106 ) —

Long-term debt ( 715 ) ( 498 ) ( 384 )

16 unchanged sentences

Total net revenues $ 18,837 $ 20,762 $ 18,520

(1) Certain prior year amounts have been reclassified to conform to the current year presentation.

See Note 1 for additional information.

For additional discussion of contract balances, see Note 9.

For a summary of revenue provided by our reportable segments, see Note 24.

27 unchanged sentences

Treasury securities 22,459 1 989 21,471

Asset-backed securities (1)

13,672 — 649 13,023

Corporate debt securities (1)

13,344 — 860 12,484

Certificates of deposit 2,245 — 14 2,231

Asset-backed securities (2)

9,465 — 378 9,087

Foreign government agency securities 1,035 — 33 1,002

1 unchanged sentence

Non-agency commercial mortgage-backed securities 123 — 14 109

Certificates of deposit 100 — — 100

Other 22 — 3 19

Unallocated portfolio layer method fair value basis adjustments (3)

( 19 ) — ( 19 ) —

Total available for sale securities (4)

11 unchanged sentences

13,830 — 1,275 12,555

state and municipal securities 1,611 81 5 1,687

Non-agency commercial mortgage-backed securities 1,170 20 — 1,190

Certificates of deposit 2,245 — 14 2,231

Foreign government agency securities 1,033 — 64 969

Commercial paper 200 — — 200

state and municipal securities 713 — 75 638

Non-agency commercial mortgage-backed securities

Other 323 — 8 315

Total available for sale securities (4)

$ 160,162 $ — $ 12,291 $ 147,871

Held to maturity securities

agency mortgage-backed securities $ 173,074 $ 1,442 $ 15,580 $ 158,936

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

(1) As of December 31, 2023 and 2022, approximately 36 % and 37 %, respectively, of the total AFS corporate debt securities were issued by institutions in the financial services industry.

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

Asset-backed securities collateralized by credit card receivables represented approximately 24 % and 18 % of the asset-backed securities held as of December 31, 2023 and 2022, respectively.

(2) As of December 31, 2022 and 2021, approximately 37 % and 31 %, respectively, of the total AFS corporate debt securities were issued by institutions in the financial services industry.

(3) Included in cash and cash equivalents on the condensed consolidated balance sheets, but excluded from this table, is $ 48 million of AFS commercial paper as of December 31, 2022 ( none as of December 31, 2021).

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

See Notes 2 and 16 for more information on PLM hedge accounting.

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

These holdings have maturities of three months or less at the time of acquisition, and an aggregate market value equal to amortized cost.

In January and November 2022, the Company transferred $ 108.8 billion and $ 79.8 billion, respectively, of U.S.

agency mortgage-backed securities with a total net unrealized loss at the time of transfer of $ 2.4 billion and $ 15.8 billion, respectively, from the AFS category to the HTM category.

At December 31, 2022, our banking subsidiaries had pledged securities with a fair value of $ 63.1 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 13).

Our banking subsidiaries also pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a

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

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

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

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

As of December 31, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 11.5 billion net of tax effect ($ 15.0 billion pre-tax).

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

fair value of $ 7.8 billion as collateral for this facility at December 31, 2022.

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

The fair value of these pledged securities was $ 1.3 billion at December 31, 2022.

At December 31, 2023, our banking subsidiaries had pledged investment securities with a value of $ 70.1 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 12).

Our banking subsidiaries also pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a value of $ 6.2 billion as collateral for this facility at December 31, 2023.

Beginning in 2023, our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve through the Bank Term Funding Program, and had pledged securities with a par value of $ 39.2 billion as collateral for this facility at December 31, 2023 .

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

The value of these pledged securities was $ 1.6 billion at December 31, 2023.

At December 31, 2023, our banking subsidiaries had pledged HTM and AFS securities as collateral under repurchase agreements with external financial institutions.

1 unchanged sentence

agency mortgage-backed securities with an aggregate amortized cost of $ 3.7 billion, and AFS securities pledged were U.S.

Treasury securities with an aggregate fair value of $ 41 million.

agency mortgage-backed securities with an aggregate fair value of $ 1.5 billion.

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

See Notes 2, 12, and 17 for additional information on these repurchase agreements.

Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, of AFS investment securities are as follows:

At December 31, 2023, our banking subsidiaries had pledged AFS securities consisting of U.S.

Treasury securities with an aggregate fair value of $ 195 million as initial margin on interest rate swaps (see Notes 16 and 17).

All of Schwab’s interest rate swaps are cleared through CCPs which require the Company to post initial margin as collateral against potential losses.

Initial margin is posted through futures commission merchants (FCM) which serve as the intermediary between CCPs and Schwab.

The FCM agreements governing our swaps allow for securities pledged as initial margin to be sold, repledged, or otherwise used by the FCM.

AFS investment securities with unrealized losses, aggregated by category and period of continuous unrealized loss, are as follows:

12 months 12 months

6 unchanged sentences

agency mortgage-backed securities (1)

$ 1 $ — $ 62,794 $ 6,378 $ 62,795 $ 6,378

Treasury securities — — 19,450 989 19,450 989

Asset-backed securities 6,717 217 6,299 432 13,016 649

Corporate debt securities — — 12,484 860 12,484 860

Certificates of deposit 2,033 10 196 4 2,229 14

Asset-backed securities (1)

29 — 9,058 378 9,087 378

Foreign government agency securities — — 1,002 33 1,002 33

2 unchanged sentences

Other — — 19 3 19 3

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

$ 30 $ — $ 105,495 $ 8,710 $ 105,525 $ 8,710

December 31, 2022

5 unchanged sentences

Certificates of deposit 2,033 10 196 4 2,229 14

Foreign government agency securities 756 50 214 14 970 64

state and municipal securities 482 31 157 44 639 75

Non-agency commercial mortgage-backed securities 443 23 — — 443 23

Other 315 8 — — 315 8

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

(1) Unrealized losses less than 12 months amounts were less than $ 500 thousand.

(2) For purposes of this table, unrealized losses on AFS securities excludes the unallocated PLM fair value hedge basis adjustments of $ 19 million at December 31, 2023.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

At December 31, 2023, substantially all rated securities in the investment portfolios were investment grade.

6 unchanged sentences

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

All HTM securities as of December 31, 2022 were U.S.

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

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

The Company had $ 685 million of accrued interest receivable for AFS and HTM securities as of December 31, 2022 and $ 683 million of accrued interest receivable for AFS securities as of December 31, 2021.

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

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

There were no write-offs of accrued interest receivable on AFS and HTM securities during the year ended December 31, 2022, or for AFS securities for the year ended December 31, 2021.

The Company had $ 565 million and $ 685 million of accrued interest receivable for AFS and HTM securities as of December 31, 2023 and 2022, respectively.

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

There were no write-offs of accrued interest receivable on AFS and HTM securities during the years ended December 31, 2023 or 2022.

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

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

As of December 31, 2023, the estimated effective duration, which reflects anticipated future payments, of our total AFS and HTM investment securities portfolio is approximately 4.0 years.

The estimated effective duration of our AFS investment securities portfolio is approximately 2.5 years as of December 31, 2023.

Including the impact of the Company’s use of derivative instruments to manage changes in the fair values of our AFS investment portfolio, the effective duration of our total AFS and HTM investments securities as of December 31, 2023 is approximately 3.9 years and for our AFS investment securities is approximately 2.2 years (see Note 16).

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

7 unchanged sentences

Treasury securities 9,142 12,329 — — 21,471

Asset-backed securities — 4,198 1,714 7,111 13,023

Corporate debt securities 2,708 8,306 1,470 — 12,484

Certificates of deposit 2,134 97 — — 2,231

Asset-backed securities — 2,443 1,290 5,354 9,087

Foreign government agency securities 495 507 — — 1,002

1 unchanged sentence

Non-agency commercial mortgage-backed securities — — — 109 109

Certificates of deposit 100 — — — 100

Other — — — 19 19

1 unchanged sentence

Total amortized cost (1)

$ 13,427 $ 36,943 $ 15,345 $ 50,640 $ 116,355

Weighted-average yield (2)

6 unchanged sentences

2.61 % 1.98 % 1.76 % 1.73 % 1.75 %

(1) For purposes of this table, the amortized cost of AFS securities excludes the unallocated PLM fair value hedge basis adjustments of $ 19 million at December 31, 2023.

(2) The weighted-average yield is computed using the amortized cost at December 31, 2023.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

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

3 unchanged sentences

Gross realized losses 62 166 36

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Bank Loans and Related Allowance for Credit Losses

26 unchanged sentences

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

(2) At December 31, 2022 and 2021, 43 % and 46 %, respectively, of the First Mortgage and HELOC portfolios were concentrated in California.

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

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

19 unchanged sentences

Balance at beginning of year $ 22 $ 5 $ 27 $ — $ 3 $ 30

Adoption of ASU 2016-13 1 — 1 — — 1

Charge-offs — — — — ( 1 ) ( 1 )

Recoveries — 1 1 — — 1

5 unchanged sentences

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

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

Management’s macroeconomic outlook reflects a near-term home price depreciation, which combined with increases in Treasury yields and mortgage rates, have extended the expected life of the portfolio and reduced borrower affordability.

These changes to the macroeconomic outlook resulted in higher modeled projections of loss rates at December 31, 2022, compared to December 31, 2021, even as credit quality metrics continued to be strong in the Company’s bank loans portfolio.

A summary of bank loan-related nonperforming assets and troubled debt restructurings is as follows:

During 2023, the U.S.

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

However, amid sustained economic growth, supply and demand moved to a more balanced state, as inflation began to abate.

While the Federal Reserve held the policy rate steady during the last quarter of the year, our allowance assumes a near term continuation of elevated interest rates with only a slight increase in unemployment and modest home price depreciation.

Though higher mortgage rates are softening demand and reducing borrower affordability, we expect constrained housing supply to keep home prices relatively stable.

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

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

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

December 31, 2023 2022

2 unchanged sentences

Total nonperforming assets $ 15 $ 25

Troubled debt restructurings — —

Total nonperforming assets and troubled debt restructurings $ 25 $ 36

(1) Nonaccrual loans include nonaccrual troubled debt restructurings.

(1) Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02.

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

37 unchanged sentences

Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 851 $ 935 $ 26,153 $ 311 $ 168 $ 479

Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — $ —

Percent of Loans on

40 unchanged sentences

The interest rate during the initial draw period and the 20 -year amortizing period is a floating rate based on the prime rate plus a margin.

The following table presents HELOCs converted to amortizing loans during each period presented:

December 31, 2022 2021

HELOCs converted to amortizing loans $ 13 $ 19

THE CHARLES SCHWAB CORPORATION

8 unchanged sentences

> 5 years 205

(1) Includes $ 21 million of HELOCs converted to amortizing loans during the year ended December 31, 2023.

At December 31, 2023, $ 379 million of the HELOC portfolio was secured by second liens on the associated properties.

14 unchanged sentences

Total equipment, office facilities, and property — net $ 3,690 $ 3,714

As a result of its TDA integration and restructuring efforts, the Company recognized impairment losses on fixed assets of $ 47 million during the year ended December 31, 2023.

These losses are included in other expense on the consolidated statements of income.

For the purpose of measuring impairment loss, the fair value of the asset group was determined using a discounted cash flow analysis.

The fair value of the asset group was not material at December 31, 2023.

See Note 15 for additional information regarding the Company’s exit costs related to its TDA integration and restructuring activities.

THE CHARLES SCHWAB CORPORATION

2 unchanged sentences

Goodwill and Acquired Intangible Assets

Acquired intangible assets and goodwill are detailed below:

The changes in the carrying amount of goodwill, as allocated to our reportable segments, are presented in the following table:

Services Advisor

Services Total

December 31, 2021 $ 7,970 $ 3,982 $ 11,952

Goodwill acquired and other changes during the period ( 1 ) — ( 1 )

December 31, 2022 $ 7,969 $ 3,982 $ 11,951

Goodwill acquired and other changes during the period — — —

December 31, 2023 $ 7,969 $ 3,982 $ 11,951

We performed an assessment of each of the Company’s reporting units as of our annual testing date.

Based on this analysis, we concluded that goodwill was not impaired.

There were no indicators that goodwill was impaired after our annual testing date.

Schwab did not recognize any goodwill impairment in any of the years presented.

Acquired intangible assets are detailed below:

December 31, 2023 December 31, 2022

8 unchanged sentences

Trade names 123 ( 33 ) 90 120 ( 32 ) 88

Total acquired intangible

assets $ 10,504 $ ( 1,715 ) $ 8,789 $ 10,510 $ ( 1,131 ) $ 9,379

Total acquired intangible assets $ 10,510 $ ( 2,250 ) $ 8,260 $ 10,504 $ ( 1,715 ) $ 8,789

Estimated future annual amortization expense for acquired intangible assets as of December 31, 2023 is as follows:

2 unchanged sentences

The above schedule excludes indefinite-lived intangible assets of $ 88 million.

The changes in the carrying amount of goodwill, as allocated to our reportable segments, are presented in the following table:

Services Advisor

Services Total

Balance at December 31, 2020 $ 7,970 $ 3,982 $ 11,952

Goodwill acquired and other changes during the period — — —

December 31, 2021 7,970 3,982 11,952

Goodwill acquired and other changes during the period ( 1 ) — ( 1 )

Balance at December 31, 2022 $ 7,969 $ 3,982 $ 11,951

See Note 3 for additional information on the Company’s acquisitions.

We performed an assessment of each of the Company’s reporting units as of our annual testing date.

Based on this analysis, we concluded that goodwill was not impaired.

There were no indicators that goodwill was impaired after our annual testing date.

Schwab did no t recognize any goodwill impairment in any of the years presented.

THE CHARLES SCHWAB CORPORATION

3 unchanged sentences

December 31, 2023 2022

Deferred tax assets (1)

Other receivables from brokers, dealers, and clearing organizations 2,171 2,475

Deferred tax assets — net $ 4,300 $ 5,370

Other investments (1)

1 unchanged sentence

Other securities owned at fair value (2)

Operating lease ROU assets 894 842

Other receivables from brokers, dealers, and clearing organizations 1,764 2,171

Securities borrowed

Operating lease ROU assets 630 894

Customer contract receivables (3)

Capitalized contract costs 416 379

Other 539 713

Contract assets — net

Total other assets $ 17,900 $ 16,099

(1) At December 31, 2021, the Company had deferred tax liabilities of $ 1.5 billion (see Note 22), which are included in accrued expenses and other liabilities on the consolidated balance sheet.

(1) Includes LIHTC investments and certain other CRA-related investments (see Note 10).

This item also includes investments in FHLB stock of $ 528 million and $ 29 million at December 31, 2022 and 2021, respectively, which are required to be held as a condition of borrowing with the FHLB (see Note 13) and can only be sold to the issuer at its par value.

This item also includes investments in FHLB stock of $ 1.1 billion and $ 528 million at December 31, 2023 and 2022, respectively, which are required to be held as a condition of borrowing with the FHLB (see Note 12) and can only be sold to the issuer at its par value.

Any cash dividends received from investments in FHLB stock are recognized as interest revenue in the consolidated statements of income.

CSB, CSPB, and Trust Bank are members of the Federal Reserve and as a condition of membership, are required to hold Federal Reserve stock.

Other investments also includes investments in FRB stock of $ 345 million and $ 436 million at December 31, 2022 and 2021, respectively.

Other investments also includes investments in Federal Reserve stock of $ 468 million and $ 345 million at December 31, 2023 and 2022, respectively;

these holdings are a condition of CSB, CSPB, and Trust Bank’s membership with the Federal Reserve.

(2) Includes fractional shares held in client brokerage accounts.

2 unchanged sentences

(3) Represents substantially all receivables from contracts with customers within the scope of ASC 606.

Schwab did not have any other significant contract assets or contract liability balances as of December 31, 2022 or 2021.

Capitalized contract costs

2 unchanged sentences

Amortization expense related to capitalized contract costs was $ 85 million, $ 77 million, and $ 69 million during the years ended December 31, 2023, 2022, and 2021, respectively, which was recorded in compensation and benefits expense on the consolidated statements of income.

Contract assets

Contract assets relate to the buy down of fixed-rate obligation amounts pursuant to the 2023 IDA agreement, and are presented in the table above.

These assets are amortized on a straight-line basis over the remaining contractual term as a reduction to bank deposit account fee revenue.

For additional discussion of the 2023 IDA agreement, see Note 14.

Variable Interest Entities

6 unchanged sentences

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

Aggregate assets, liabilities, and maximum exposure to loss

Aggregate assets, liabilities, and maximum exposure to los s

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

20 unchanged sentences

Deposits swept from brokerage accounts $ 220,274 $ 333,754

Checking 19,719 22,786

Time certificates of deposit (1)

Checking 15,691 19,719

Savings and other 4,461 6,098

2 unchanged sentences

Total bank deposits $ 289,953 $ 366,724

(1) As of December 31, 2022, the full amount of time certificates of deposit were brokered certificates of deposit for which underlying individual balances are assumed to be less than $250,000.

Subsequent to December 31, 2022, the Company issued $ 9.4 billion of retail brokered certificates of deposit.

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

The weighted-average interest rates on outstanding time certificates of deposit at December 31, 2023 and 2022 were 5.15 % and 4.75 %, respectively.

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

Annual maturities on time certificates of deposit outstanding at December 31, 2023 are as follows:

2024 $ 46,659

Total $ 48,297

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

CSC Senior Notes

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Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes.

Interest for the fixed-to-floating rate Senior Notes is payable semi-annually during the fixed rate period of the notes and quarterly during the floating rate period of the notes.

TDA Holding Senior Notes

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Interest is payable semi-annually for the fixed-rate Senior Notes.

During 2021, we completed an offer to exchange certain senior notes issued by TDA Holding for senior notes issued by CSC.

Of the approximately $ 2.2 billion in aggregate principal amount of TDA Holding’s senior notes offered in the exchange, 90 %, or approximately $ 2.0 billion, were tendered and accepted.

The new senior notes issued by CSC have the same interest rates and maturity dates as the TDA Holding senior notes.

At December 31, 2023, $ 213 million not exchanged remained outstanding across four series of senior notes issued by TDA Holding.

The debt exchange was treated as a debt modification for accounting purposes.

THE CHARLES SCHWAB CORPORATION

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CSC Fixed-rate Senior Notes:

3.225 % due September 1, 2022

08/29/12 $ — $ 256

2.650 % due January 25, 2023

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03/03/22 1,000 1,000

5.875 % due August 24, 2026

08/24/23 1,000 —

CSC Floating-rate Senior Notes:

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03/03/22 500 500

CSC Fixed-to-Floating rate Senior Notes:

5.643 % due May 19, 2029 (2)

05/19/23 1,200 —

5.853 % due May 19, 2034 (3)

05/19/23 1,300 —

6.136 % due August 24, 2034 (4)

08/24/23 1,350 —

6.196 % due November 17, 2029 (5)

11/17/23 1,300 —

Total CSC Senior Notes 25,862 20,512

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04/27/17 56 56

3.300 % due April 1, 2027 (1)

04/27/17 56 56

2.750 % due October 1, 2029

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Total long-term debt $ 26,128 $ 20,828

(1) During 2021, we completed an offer to exchange certain senior notes issued by TDA Holding for senior notes issued by CSC.

Of the approximately $ 2.2 billion in aggregate principal amount of TDA Holding’s senior notes offered in the exchange, 90 %, or approximately $ 2.0 billion, were tendered and accepted.

The new senior notes issued by CSC have the same interest rates and maturity dates as the TDA Holding senior notes.

At December 31, 2022, $ 213 million not exchanged remained outstanding across four series of senior notes issued by TDA Holding.

The debt exchange was treated as a debt modification for accounting purposes.

(1) On February 18, 2024, the Company redeemed all of these outstanding floating-rate Senior Notes.

(2) The May 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.643 %, payable semi-annually, until the interest reset date on May 19, 2028.

On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.210 %, payable quarterly.

(3) The May 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.853 %, payable semi-annually, until the interest reset date on May 19, 2033.

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

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

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

(5) The November 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 6.196 %, payable semi-annually, until the interest reset date on November 17, 2028.

On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 1.878 %, payable quarterly.

THE CHARLES SCHWAB CORPORATION

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Total long-term debt $ 26,128

Short-term borrowings:

Total short-term borrowings outstanding at December 31, 2022 and 2021 were $ 17.1 billion and $ 4.9 billion, respectively, and had a weighted-average interest rate of 4.90 % and 0.27 %, respectively.

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

FHLB borrowings:

Our banking subsidiaries maintain secured credit facilities with the FHLB.

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

There was $ 26.4 billion and $ 12.4 billion outstanding under these facilities as of December 31, 2023 and 2022, respectively, and these borrowings had a weighted-average interest rate of 5.34 % and 4.88 %, respectively.

As of December 31, 2023 and 2022, the collateral pledged provided additional borrowing capacity of $ 63.1 billion and $ 68.6 billion, respectively.

Other short-term borrowings:

Total other short-term borrowings outstanding at December 31, 2023 and 2022 were $ 6.6 billion and $ 4.7 billion, respectively, and had a weighted-average interest rate of 5.57 % and 4.97 %, respectively.

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

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

CSC had $ 250 million and $ 3.0 billion of commercial paper notes outstanding at December 31, 2022 and 2021, respectively.

CSC had no amounts outstanding at December 31, 2023 and $ 250 million outstanding at December 31, 2022.

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

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

Our banking subsidiaries maintain secured credit facilities with the FHLB.

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

As of December 31, 2022 and 2021, the collateral pledged provided a total borrowing capacity of $ 68.6 billion and $ 63.5 billion, respectively.

There was $ 12.4 billion outstanding under the secured credit facilities as of December 31, 2022 and no balance outstanding as of December 31, 2021.

CS&Co also maintains secured, uncommitted lines of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral, based on the terms of the agreements, under which there was $ 950 million outstanding at December 31, 2023.

There were no borrowings outstanding at December 31, 2022.

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

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

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

As of December 31, 2023 and 2022, our collateral pledged provided total borrowing capacity of $ 6.2 billion and $ 7.8 billion, respectively, of which no amounts were outstanding at the end of either year.

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

The Company had $ 4.4 billion outstanding at December 31, 2022 and no borrowings outstanding at December 31, 2021 pursuant to such repurchase agreements.

Repurchase agreements outstanding at December 31, 2022 mature between August 2023 to September 2023.

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

This program offers loans through March 11, 2024 of up to one year in length, and amounts available are dependent upon the par value of certain investment securities that are pledged as collateral.

As of December 31, 2023, our collateral pledged provided total borrowing capacity of $ 39.2 billion.

This facility was not used during 2023;

there were no borrowings outstanding at December 31, 2023.

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

The Company had $ 4.9 billion and $ 4.4 billion outstanding pursuant to such repurchase agreements at December 31, 2023 and 2022, respectively.

Repurchase agreements outstanding at December 31, 2023 mature between January 2024 to July 2024.

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

There was no balance outstanding at December 31, 2022 and $ 1.9 billion outstanding under the secured uncommitted lines of credit as of and December 31, 2021.

See Note 17 for additional information.

TDAC maintained one senior unsecured committed revolving credit facility as of December 31, 2021 with an aggregate borrowing capacity of $ 600 million which matured in April 2022 and was not renewed.

There were no borrowings outstanding under the TDAC senior revolving facility as of December 31, 2021.

Subsequent to December 31, 2022, the Company’s banking subsidiaries had drawn an additional $ 13.0 billion of FHLB advances, and borrowed an additional $ 3.4 billion under repurchase agreements with external financial institutions.

There was $ 700 million outstanding at December 31, 2023 and no balance outstanding at December 31, 2022.

THE CHARLES SCHWAB CORPORATION

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

The following table details the amounts and locations of lease assets and liabilities on the consolidated balance sheet:

Annual maturities on FHLB borrowings and other short-term borrowings outstanding at December 31, 2023 are as follows:

FHLB borrowings $ 26,400

Other short-term borrowings 6,553

Total $ 32,953

The following table details the amounts and locations of lease assets and liabilities on the consolidated balance sheets:

December 31, 2023 2022

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The Company had immaterial finance lease cost and sublease income for the years ended December 31, 2023, 2022, and 2021.

In addition to the costs noted above and as a result of its TDA integration and restructuring efforts, the Company recognized impairment losses on ROU assets of $ 157 million for the year ended December 31, 2023.

These losses are included in other expense on the consolidated statements of income.

For the purpose of measuring impairment loss, the fair value of the asset group was determined using a discounted cash flow analysis.

The fair value of the asset group was not material at December 31, 2023.

See Note 15 for additional information regarding the Company’s exit costs related to its TDA integration and restructuring activities.

The following tables present supplemental operating lease information:

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(1) Lease payments exclude $ 17 million of legally binding minimum lease payments for leases signed, but not yet commenced.

These leases will commence between 2023 and 2024 with lease terms of five years to 15 years.

These leases will commence between 2024 and 2025 with lease terms of 7 to 15 years.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Commitments and Contingencies

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CSB purchased HELOCs with commitments of $ 181 million and $ 315 million during 2023 and 2022, respectively.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

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

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Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions.

We satisfy the margin requirements of these transactions through the pledging of certain client securities.

We satisfy the margin requirements of these transactions through pledging certain client securities.

For additional information on these pledged securities, refer to Note 17.

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IDA agreement:

The Company’s IDA agreement with the TD Depository Institutions became effective on October 6, 2020.

The IDA agreement creates responsibilities of the Company and certain contingent obligations.

The 2019 IDA agreement with the TD Depository Institutions became effective on October 6, 2020 and created responsibilities of the Company, including certain contingent obligations.

On May 4, 2023, the 2019 IDA agreement was replaced and superseded by the 2023 IDA agreement, which specifies responsibilities, including certain contingent obligations, of the Company going forward.

Pursuant to the 2023 IDA agreement, uninvested cash within eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions.

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

Though unlikely, in the event the sweep arrangement fee computation were to result in a negative amount in any given month, Schwab would be required to pay the TD Depository Institutions.

The IDA agreement provides that, as of July 1, 2021, Schwab has the option to migrate up to $ 10 billion of IDA balances every 12 months to Schwab’s balance sheet, subject to certain limitations and adjustments.

The Company’s ability to migrate these balances to its balance sheet is dependent upon multiple factors including having sufficient capital levels to sustain these incremental deposits and certain binding limitations specified in the IDA agreement.

In addition, Schwab also must maintain a minimum $ 50 billion IDA balance through June 2031, and at least 80 % of the IDA balances must be designated as fixed-rate obligations through June 2026.

If IDA balances were to decline below the required IDA balance minimum, Schwab could be required to direct additional sweep cash from its balance sheet to the IDA program.

Schwab moved net amounts of $ 13.7 billion and $ 10.1 billion of IDA balances to its balance sheet during 2022 and 2021, respectively.

The Company’s ability to migrate these balances to its balance sheet is dependent on multiple factors including having sufficient capital levels to sustain these incremental deposits and certain binding limitations specified in the 2023 IDA agreement, and, prior to May 4, 2023, the 2019 IDA agreement.

The 2019 IDA agreement provided that, as of July 1, 2021, Schwab had the option to migrate up to $ 10 billion of IDA balances every 12 months to Schwab’s balance sheet, subject to certain limitations and adjustments.

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

During 2023, Schwab did not move IDA balances to its balance sheet.

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

• Through September 10, 2025, Schwab must maintain minimum balances above the total of then-outstanding unmatured fixed-rate obligation amounts, with a maximum of $ 30 billion above this total amount.

During this period, withdrawals of IDA balances by Schwab are generally permitted only to the extent of withdrawals initiated by Schwab customers, with limited exceptions, except to the extent necessary for Schwab to maintain balances below the applicable maximum.

• After September 10, 2025, withdrawals of IDA balances are permitted at Schwab’s discretion, subject to an obligation to maintain IDA balances above a minimum of $ 60 billion, with a maximum of $ 90 billion.

The 2023 IDA agreement eliminates the requirement of the 2019 IDA agreement that at least 80 % of the IDA balances must be designated as fixed-rate obligation amounts.

Designation of deposit balances for investment in fixed- or floating-rate instruments

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

under the 2023 IDA agreement is now at Schwab’s sole discretion with certain limitations on the amount of fixed-rate obligation amounts.

Pursuant to the 2023 IDA agreement, Schwab has the option to buy down up to $ 5 billion of fixed-rate obligation amounts by paying a market-based fee during the agreement term, subject to certain limits.

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

In 2023, Schwab opted to buy down $ 5.0 billion of fixed-rate obligation amounts, incurring market-based fees of $ 249 million, which were capitalized as contract assets and included in other assets on the consolidated balance sheet.

For additional information on these contract assets, see Note 9.

As of December 31, 2023, the total ending IDA balance was $ 97.5 billion, of which $ 83.7 billion was fixed-rate obligation amounts and $ 13.8 billion was floating-rate obligation amounts.

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

The total ending IDA balances include the impact of client cash allocation decisions and Schwab’s movement of balances.

Legal contingencies:

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It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties.

Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

include novel or unsettled questions of law.

Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law.

Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available.

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Corrente Antitrust Litigation :

On June 6, 2022, the Company was sued in the U.S.

On June 6, 2022, CSC was sued in the U.S.

District Court for the Eastern District of Texas on behalf of a putative class of customers who purchased or sold securities through CS&Co or TD Ameritrade, Inc.

from October 26, 2020 to the present.

The lawsuit alleges that the Company’s acquisition of TD Ameritrade violated Section 7 of the Clayton Act because it has resulted in an anticompetitive market for the execution of retail customer orders.

The lawsuit alleges that CSC’s acquisition of TD Ameritrade violated Section 7 of the Clayton Act because it has resulted in an anticompetitive market for the execution of retail customer orders.

Plaintiffs seek unspecified damages, as well as injunctive and other relief.

The Company is vigorously contesting the lawsuit and on August 29, 2022 filed a motion to dismiss the complaint, which remains pending.

Schwab Intelligent Portfolios ® SEC Investigation :

As disclosed on July 1, 2021, Schwab’s second quarter 2021 financial results included a liability and related charge of approximately $ 200 million in connection with a tentative agreement reached with SEC staff to resolve an enforcement investigation into past disclosures for the Schwab Intelligent Portfolios digital advisory solution.

On June 13, 2022, the SEC announced the settlement under which CS&Co, Charles Schwab Investment Advisory, Inc., and Schwab Wealth Investment Advisory, Inc., without admitting or denying the SEC’s findings, resolved the matter and agreed to pay $ 186.5 million for deposit into a Fair Fund account for distribution to affected investors.

TD Ameritrade Acquisition Litigation :

As disclosed previously, on May 12, 2020, a putative class action lawsuit related to the acquisition was filed in the Delaware Court of Chancery (Hawkes v.

Bettino et al.) on behalf of a proposed class of TD Ameritrade’s stockholders, excluding, among others, TD Bank.

On February 5, 2021, plaintiff filed an amended complaint naming an officer and certain directors of TD Ameritrade at the time the acquisition was approved, as well as TD Bank, certain TD Bank related entities, and Schwab.

The amended complaint asserts separate claims for breach of fiduciary duty by the TD Ameritrade officer, certain members of the TD Ameritrade board and TD Bank, and against Schwab for aiding and abetting such breaches, the allegation being that the amendment of the IDA agreement TD Bank negotiated directly with Schwab allowed TD Bank to divert merger consideration from TD Ameritrade’s minority public stockholders.

Plaintiff seeks to recover monetary damages, costs and attorneys’ fees.

Schwab and the other defendants consider the allegations to be entirely without merit and on April 29, 2021, the defendants filed motions to dismiss the amended complaint.

On March 25, 2022, the parties filed a joint stipulation proposing a settlement of the lawsuit on a class basis.

On September 21, 2022, the court entered final judgment and approved the terms of the settlement, under which Schwab is paying an immaterial amount on behalf of the former TD Ameritrade officer and director defendants pursuant to indemnification obligations.

A motion by the Company to dismiss the lawsuit was denied by the court on February 24, 2023, and discovery is proceeding.

Crago Order Routing Litigation :

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

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

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

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

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

Plaintiffs filed a motion for class certification on April 30, 2021, and in a decision on October 27, 2021, the court denied the motion and held that certification of a class action is inappropriate.

Plaintiffs sought review of the order denying class certification by the Ninth Circuit Court of Appeals, which was denied.

On September 23, 2022, plaintiffs filed a renewed motion for class certification and defendants moved to compel plaintiffs’ case to arbitration.

On February 2, 2023, the court granted defendants’ motion, stayed the case pending the outcome of arbitration, and denied plaintiffs’ renewed motion for class certification as moot.

Plaintiffs sought review of the order denying class certification by the U.S.

Court of Appeals, 9th Circuit, which was denied.

On February 2, 2023, the District Court denied a renewed motion by plaintiffs for class certification and ruled that

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

any claims plaintiffs may pursue in their individual capacity must be brought in arbitration.

The likelihood any such claims would be material to the financial condition, operating results or cash flows of the Company is remote.

Ford Order Routing Litigation :

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District Court for the District of Nebraska on behalf of a putative class of TD Ameritrade, Inc.

clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

routing practices.

Plaintiffs seek unspecified damages and injunctive and other relief.

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

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

clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices.

Plaintiff seeks unspecified damages and injunctive and other relief.

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

On April 23, 2021, the U.S.

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Plaintiff renewed his motion for class certification, which the District Court granted on September 20, 2022.

On October 26, 2022, the U.S.

Court of Appeals, 8th Circuit, granted defendants’ petition for an immediate appeal of the District Court’s ruling.

Defendants are appealing the District Court’s ruling before the U.S.

Court of Appeals, 8th Circuit.

Exit and Other Related Liabilities

The Company completed its acquisition of TD Ameritrade effective October 6, 2020 and integration work continued during the year ended December 31, 2022.

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.

Integration of TD Ameritrade

The Company completed its acquisition of TD Ameritrade effective October 6, 2020 and integration work continued during the year ended December 31, 2023, including the completion of four client transition groups.

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

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

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

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

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

Our 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.

Inclusive of costs recognized through December 31, 2023, Schwab currently expects to incur total exit and other related costs for the integration of TD Ameritrade ranging from $ 500 million to $ 600 million, consisting of employee compensation and benefits, facility exit costs, and certain other costs.

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The Company expects that remaining exit and other related costs will be incurred and charged to expense over the next 12 months, with some costs expected to be incurred after client transition to decommission duplicative platforms and complete integration work.

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

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

THE CHARLES SCHWAB CORPORATION

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

The following is a summary of the activity in the Company’s exit and other related liabilities for the years ended December 31, 2022 and 2021:

The following is a summary of the TD Ameritrade integration activity in the Company’s exit and other related liabilities as of December 31, 2023 and 2022 and activity for the years ended December 31, 2023 and 2022:

Investor Services

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

The year ended December 31, 2021 includes a reduction of the liability resulting from changes in estimates of $ 9 million and $ 2 million in Investor Services and Advisor Services, respectively.

The following table summarizes the exit and other related costs recognized in expense for the year ended December 31, 2022:

The following table summarizes the TD Ameritrade integration exit and other related costs recognized in expense for the year ended December 31, 2023:

Investor Services Advisor Services

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Occupancy and equipment — 9 9 — 2 2 11

Other — 18 18 — 7 7 25

Total $ 20 $ 27 $ 47 $ 4 $ 9 $ 13 $ 60

(1) Costs related to facility closures.

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

The following table summarizes the exit and other related costs recognized in expense for the year ended December 31, 2021:

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

Impairment charges are included in other expense, while accelerated amortization of ROU assets are included in occupancy and equipment on the consolidated statements of income.

The following table summarizes the TD Ameritrade integration exit and other related costs recognized in expense for the year ended December 31, 2022:

Investor Services Advisor Services

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Investor Services Total Employee

and Benefits Facility Exit Costs (1)

and Benefits Facility Exit Cost (1)

Advisor Services Total Total

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Occupancy and equipment — 7 7 — 2 2 9

Professional services — 1 1 — — — 1

Other — 2 2 — — — 2

Total $ 19 $ 7 $ 26 $ 6 $ 2 $ 8 $ 34

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

The following table summarizes the exit and other related costs recognized in expense for the year ended December 31, 2020:

Accelerated amortization of ROU assets are included in occupancy and equipment on the consolidated statements of income.

The following table summarizes the TD Ameritrade integration exit and other related costs recognized in expense for the year ended December 31, 2021:

Investor Services Advisor Services

and Benefits Facility Exit Costs (1)

and Benefits Facility Exit Cost (1)

Investor Services Total Employee

and Benefits Facility Exit Costs (1)

and Benefits Facility Exit Cost (1)

Advisor Services Total Total

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Occupancy and equipment — 18 18 — 4 4 22

Depreciation and amortization — 2 2 — 1 1 3

Professional services — 1 1 — — — 1

Other — 2 2 — — — 2

Total $ 66 $ 21 $ 87 $ 17 $ 4 $ 21 $ 108

(1) Costs related to facility closures.

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

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

Accelerated amortization of ROU assets are included in occupancy and equipment on the consolidated statements of income.

THE CHARLES SCHWAB CORPORATION

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

The following table summarizes the exit and other related costs incurred from October 6, 2020 through December 31, 2022:

The following table summarizes the TD Ameritrade integration exit and other related costs incurred from October 6, 2020 through December 31, 2023:

Investor Services Advisor Services

and Benefits Facility Exit Costs (1)

Investor Services Total Employee

and Benefits Facility Exit Costs (1)

Employee Compensation and Benefits Facility Exit Costs (1)

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

Advisor Services Total Total

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(1) Costs related to facility closures.

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

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

Impairment charges are included in other expense, while accelerated amortization of ROU assets and accelerated depreciation of fixed assets are included in occupancy and equipment and depreciation expense, respectively, on the consolidated statements of income.

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

In order to achieve anticipated cost savings through these actions, the Company expects to incur 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.

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

The following is a summary of the restructuring activity in the Company’s exit and other related liabilities as of December 31, 2023 and activity for the year ended December 31, 2023:

Investor Services

Employee Compensation and Benefits Advisor Services

Employee Compensation and Benefits Total

Balance at December 31, 2022 (1)

Amounts recognized in expense (2)

Costs paid or otherwise settled ( 43 ) ( 15 ) ( 58 )

Balance at December 31, 2023 (1)

$ 171 $ 63 $ 234

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

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

The following table summarizes the restructuring exit and other related costs recognized in expense for the year ended December 31, 2023, which represents cumulative costs incurred to date:

Investor Services Advisor Services

Employee Compensation and Benefits Facility Exit Costs (1)

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

Advisor Services Total Total

Compensation and benefits $ 214 $ — $ 214 $ 78 $ — $ 78 $ 292

Occupancy and equipment — 13 13 — 4 4 17

Professional services — 4 4 — 1 1 5

Other — 134 134 — 47 47 181

Total $ 214 $ 151 $ 365 $ 78 $ 52 $ 130 $ 495

(1) Costs related to facility closures.

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

Impairment charges are included in other expense, while accelerated amortization of ROU assets are included in occupancy and equipment on the consolidated statements of income.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

Beginning in 2023, the Company utilizes derivative instruments to manage interest rate risk exposures that arise from business activities related to changes in fair values or the receipt of future known and uncertain cash amounts due to changes in interest rates.

The Company uses derivative instruments to manage changes in the fair values of, as well as changes in the amounts and/or timing of known or expected cash receipts related to, our AFS investment portfolio.

For a description of how the Company accounts for derivative instruments, see Note 2.

For additional information on the basis of presentation for derivative instruments on the Company’s consolidated balance sheets and related offsetting considerations, see Note 17.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of its fixed-rate AFS securities due to changes in benchmark interest rates.

The Company uses cleared interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate.

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

The Company had outstanding interest rate swaps with aggregate notional amounts of $ 8.9 billion at December 31, 2023 that were designated as fair value hedges of interest rate risk.

Fair Values of Derivative Instruments

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

December 31, 2023

Assets Liabilities

Interest rate swaps (1,2)

(1) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the consolidated balance sheet.

Amounts were less than $ 500 thousand as of December 31, 2023.

(2) Includes an $ 87 million and $ 2 million reduction of derivative assets and liabilities, respectively, related to variation margin settlements on derivatives cleared through CCPs.

Settlements on derivative positions cleared through CCPs are reflected as reductions to the associated derivative asset and liability balances.

Effects of Fair Value Hedge Accounting

The following amounts are included in AFS securities on the consolidated balance sheet related to fair value hedges:

December 31, 2023

Amortized cost of hedged AFS securities (1,2)

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

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

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

The cumulative basis adjustments associated with these hedging relationships are a reduction of the amortized cost basis of the closed portfolios of $ 19 million.

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

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

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

Year Ended December 31, 2023

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

Hedged items $ ( 85 )

Derivatives designated as hedging instruments (1)

(1) Excludes net income (expense) from periodic interest accruals and receipts (payments) of $ 2 million.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Financial Instruments Subject to Off-Balance Sheet Credit Risk

Interest rate swaps:

Beginning in 2023, Schwab uses interest rate swaps to manage certain interest rate risk exposures.

Schwab’s interest rate swaps are cleared through CCPs which require the Company to post initial margin as collateral against potential losses.

Schwab pledges investment securities as collateral in order to meet the CCP’s initial margin requirements.

Initial margin is posted through FCMs which serve as the intermediary between CCPs and Schwab.

Our interest rate swaps are subject to enforceable master netting arrangements allowing a right of setoff within each FCM-CCP relationship;

however, we do not net these positions.

Therefore, interest rate swaps are presented gross in the condensed consolidated balance sheets.

See Note 16 for additional information on the Company’s interest rate swaps.

Resale agreements:

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Securities lending:

Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned.

Schwab loans brokerage client securities temporarily to other broker-dealers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned.

Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral.

In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations.

In the event a counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations.

Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary.

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

The fair value of these borrowed securities was $ 685 million and $ 566 million at December 31, 2022 and 2021, respectively.

The fair value of these borrowed securities was $ 1.5 billion and $ 685 million at December 31, 2023 and 2022, respectively.

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

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Repurchase agreements:

Schwab enters into collateralized repurchase agreements with external financial institutions in which the Company’s banking subsidiaries sell securities and agree to repurchase these securities on a specified future date at a stated repurchase price.

Schwab enters into collateralized repurchase agreements with external financial institutions in which the Company sells securities and agrees to repurchase these securities on a specified future date at a stated repurchase price.

These repurchase agreements are collateralized by investment securities with a fair value equal to or in excess of the secured borrowing liability.

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

The following table presents information about our resale agreements, securities lending, and other activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities.

The following table presents information about our interest rate swaps, resale agreements, securities lending, repurchase agreements, and other activity depicting the potential effect of rights of setoff between these recognized assets and liabilities.

Liabilities Gross Amounts Offset in the Consolidated

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1,563 — 1,563 ( 1,307 ) ( 253 ) 3

Interest rate swaps (4)

— — — — — (5)

Total $ 10,407 $ — $ 10,407 $ ( 1,307 ) $ ( 9,097 ) $ 3

Repurchase agreements (6)

$ 4,903 $ — $ 4,903 $ — $ ( 4,903 ) $ —

Securities loaned (7)

5,397 — 5,397 ( 1,307 ) ( 3,619 ) 471

Repurchase agreements (6)

Secured short-term borrowings (8)

1,650 — 1,650 — ( 1,650 ) —

Interest rate swaps (4)

— — — — — (5)

Total $ 11,950 $ — $ 11,950 $ ( 1,307 ) $ ( 10,172 ) $ 471

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Total $ 12,864 $ — $ 12,864 $ ( 331 ) $ ( 12,525 ) $ 8

Securities loaned (4,5)

Repurchase agreements (6)

$ 4,402 $ — $ 4,402 $ — $ ( 4,402 ) $ —

Secured short-term borrowings (7)

Securities loaned (7)

4,200 — 4,200 ( 331 ) ( 3,313 ) 556

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

(4) Included in accrued expenses and other liabilities in the consolidated balance sheets.

The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at December 31, 2022 and 2021.

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

(6) Included in short-term borrowings in the consolidated balance sheets.

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

Amounts were less than $ 500 thousand during the periods presented.

(5) At December 31, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $ 195 million.

See Notes 5 and 16 for additional information.

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

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

At December 31, 2022, the fair value of collateral pledged in connection with repurchase agreements was $ 4.6 billion.

At December 31, 2023 and 2022, the fair value of collateral pledged in connection with repurchase agreements was $ 5.3 billion and $ 4.6 billion, respectively.

See Note 12 for additional information.

(7) Included in short-term borrowings in the consolidated balance sheets.

(7) Included in accrued expenses and other liabilities in the consolidated balance sheets.

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

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

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

See below for collateral pledged and Note 12 for additional information.

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

The fair value of fully-paid client securities available and pledged was $ 160 million as of December 31, 2022 and $ 118 million as of December 31, 2021.

The fair value of fully-paid client securities available and pledged was $ 179 million and $ 160 million as of December 31, 2023 and 2022, respectively.

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

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Money market funds $ 14,573 $ — $ — $ 14,573

Commercial paper — 48 — 48

Total cash equivalents 14,573 — — 14,573

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Government securities — 20,358 — 20,358

Certificates of deposit — 1,000 — 1,000

Total investments segregated and on deposit for regulatory purposes — 20,358 — 20,358

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Treasury securities — 21,471 — 21,471

Asset-backed securities — 13,023 — 13,023

Corporate debt securities — 12,484 — 12,484

Certificates of deposit — 2,231 — 2,231

Asset-backed securities — 9,087 — 9,087

Foreign government agency securities — 1,002 — 1,002

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Non-agency commercial mortgage-backed securities — 109 — 109

Certificates of deposit — 100 — 100

Other — 19 — 19

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Other assets:

Other securities owned:

Equity, corporate debt, and other securities 992 73 — 1,065

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Government securities — 26 — 26

Total other securities owned 1,787 126 — 1,913

Total other assets 1,787 126 — 1,913

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Accrued expenses and other liabilities:

Other $ 1,644 $ 89 $ — $ 1,733

Total accrued expenses and other liabilities 1,644 89 — 1,733

Total liabilities $ 1,644 $ 89 $ — $ 1,733

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Money market funds $ 14,007 $ — $ — $ 14,007

Commercial paper — 48 — 48

Total cash equivalents 14,007 48 — 14,055

Investments segregated and on deposit for regulatory purposes:

Certificates of deposit — 350 — 350

Government securities — 23,645 — 23,645

Certificates of deposit — 1,000 — 1,000

Total investments segregated and on deposit for regulatory purposes — 24,645 — 24,645

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Corporate debt securities — 12,555 — 12,555

state and municipal securities — 1,687 — 1,687

Non-agency commercial mortgage-backed securities — 1,190 — 1,190

Certificates of deposit — 2,231 — 2,231

Foreign government agency securities — 969 — 969

Commercial paper — 200 — 200

state and municipal securities — 638 — 638

Non-agency commercial mortgage-backed securities — 450 — 450

Other — 315 — 315

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Other assets:

Other securities owned:

Equity, corporate debt, and other securities 755 55 — 810

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Government securities — 1 — 1

Total other securities owned 1,351 81 — 1,432

Total other assets 1,351 81 — 1,432

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Accrued expenses and other liabilities:

Other $ 1,218 $ 43 $ — $ 1,261

Total accrued expenses and other liabilities 1,218 43 — 1,261

Total liabilities $ 1,218 $ 43 $ — $ 1,261

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Accrued expenses and other liabilities 7,609 — 7,609 — 7,609

Short-term borrowings 17,050 — 17,050 — 17,050

Other short-term borrowings 6,553 — 6,553 — 6,553

Federal Home Loan Bank borrowings 26,400 — 26,400 — 26,400

Long-term debt 26,043 — 25,000 — 25,000

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Receivables from brokerage clients — net 66,573 — 66,573 — 66,573

Held to maturity securities:

agency mortgage-backed securities 173,074 — 158,936 — 158,936

Total held to maturity securities 173,074 — 158,936 — 158,936

Bank loans — net:

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Accrued expenses and other liabilities 5,584 — 5,584 — 5,584

Short-term borrowings 4,855 — 4,855 — 4,855

Other short-term borrowings 4,650 — 4,650 — 4,650

Federal Home Loan Bank borrowings 12,400 — 12,400 12,400

Long-term debt 20,760 — 19,108 — 19,108

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Stockholders’ Equity

Except in connection with the 2020 acquisition of TD Ameritrade as described below, CSC did not issue common shares through external offerings during the years ended December 31, 2022, 2021 or 2020.

TD Ameritrade Acquisition

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

In conjunction with the acquisition, the Company issued shares of CSC common stock and a new, nonvoting class of CSC common stock.

Immediately prior to the acquisition, on October 6, 2020, the Company amended its certificate of incorporation to create the nonvoting class of common stock with 300 million shares authorized for issuance and to increase the number of authorized shares of capital stock by the same amount.

Common and Nonvoting Common Stock

CSC did not issue common shares through external offerings during the years ended December 31, 2023, 2022 or 2021.

In conjunction with its acquisition of TD Ameritrade in 2020, the Company issued shares of a nonvoting class of CSC common stock to TD Bank and its affiliates.

Each share of nonvoting common stock has identical rights to common stock, including liquidation and dividend rights, except that holders of nonvoting common stock have no voting rights other than over matters that significantly and adversely affect the rights or preferences of the nonvoting common stock, or as required by applicable law.

Holders of nonvoting common stock are restricted from transferring shares except for permitted inside or outside transfers, as defined in the certificate of incorporation.

Holders of nonvoting common stock are restricted from transferring shares except for permitted inside or outside transfers, as defined in the Company’s certificate of incorporation.

Shares of nonvoting common stock transferred in a permitted outside transfer are automatically converted to shares of common stock.

Pursuant to the Merger Agreement, CSC issued approximately 177 million shares of common stock and approximately 77 million shares of nonvoting common stock to TD Bank and its affiliates on October 6, 2020.

Those shares of common stock and nonvoting common stock were issued in reliance upon an exemption from registration afforded by Section 4(a)(2) of the Securities Act.

Following this issuance, TD Bank exchanged an aggregate of approximately 2 million shares of CSC common stock for an equal number of shares of CSC nonvoting common stock and held approximately 79 million shares of nonvoting common stock as of December 31, 2021.

TD Bank and its affiliates are not permitted to own more than 9.9 % of CSC common stock.

This limit is interpreted in accordance with the applicable rules of the Federal Reserve and includes shares of CSC common stock deemed to be beneficially owned directly or indirectly by TD Bank and its affiliates.

On August 1, 2022, an affiliate of TD Bank executed a permitted outside transfer of 13 million shares of CSC nonvoting common stock, upon which the shares of nonvoting common stock automatically converted to shares of common stock.

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Share Repurchase Program

On January 30, 2019, CSC publicly announced that its Board of Directors authorized a share repurchase program to repurchase up to $ 4.0 billion of common stock .

The share repurchase authorization does not have an expiration date.

There were no repurchases of CSC’s common stock under this authorization during the years ended December 31, 2020, 2021, and 2022.

On July 27, 2022, CSC publicly announced that its Board of Directors terminated the existing share repurchase authorization 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.

As of December 31, 2022, $ 11.6 billion remained on the new authorization.

CSC repurchased 37 million shares of its common stock for $ 2.8 billion during the year ended December 31, 2023.

As of December 31, 2023, approximately $ 8.7 billion remained on the new authorization.

Beginning in 2023, share repurchases, net of issuances, are subject to a nondeductible excise tax which was recognized as a direct and incremental cost associated with these transactions.

Preferred Stock

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The net proceeds of the offering were $ 2.2 billion, after deducting the underwriting discount and offering expenses.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

On March 30, 2021, the Company issued and sold 24,000,000 depositary shares, each representing a 1/40th ownership interest in a share of 4.450 % fixed-rate non-cumulative perpetual preferred stock, Series J, $ .01 par value, with a liquidation preference of $ 1,000 per share (equivalent of $ 25 per depositary share).

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The depositary shares were redeemed at a redemption price of $ 25 per depositary share for a total of $ 600 million.

On March 4, 2022, the Company issued and sold 750,000 depositary shares, each representing a 1/100th ownership interest in a share of 5.000 % fixed-rate reset non-cumulative perpetual preferred stock, Series K, $ .01 par value, with a liquidation preference of $ 100,000 per share (equivalent of $ 1,000 per depositary share).

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

of $ 100,000 per share (equivalent of $ 1,000 per depositary share).

The net proceeds of the offering were $ 740 million, after deducting the underwriting discount and offering expenses.

On November 1, 2022, the Company redeemed all of the 400,000 outstanding share of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series A at a redemption price of $ 1,000 per share for a total of $ 400 million.

On November 1, 2022, the Company redeemed all of the 400,000 outstanding shares of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series A at a redemption price of $ 1,000 per share for a total of $ 400 million.

On December 1, 2022, the Company redeemed all of the 6,000 outstanding shares of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series E, and the corresponding 600,000 depositary shares, each representing a 1/100th interest in a share of the Series E preferred stock.

The depositary shares were redeemed at a redemption price of $ 1,000 per depositary share for a total of $ 600 million.

During the year ended December 31, 2023, the Company repurchased 11,620 depositary shares representing interests in Series F preferred stock for $ 11 million, 42,036 depositary shares representing interests in Series G preferred stock for $ 42 million, 273,251 depositary shares representing interests in Series H preferred stock for $ 235 million, and 194,567 depositary shares representing interests in Series I preferred stock for $ 179 million on the open market .

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

The share repurchases, net of issuances, are subject to a nondeductible excise tax which was recognized as a direct and incremental cost associated with these transactions.

CSC was authorized to issue 9,940,000 shares of preferred stock, $ .01 par value, at December 31, 2023 and 2022.

The following is a summary of CSC’s non-cumulative perpetual preferred stock outstanding as of such dates:

The following is a summary of CSC’s non-cumulative perpetual preferred stock issued and outstanding as of such dates:

Dividend Rate in Effect at December 31, 2023 Date at Which Dividend Rate Resets or Becomes Floating Reset /

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Fixed-to-floating rate/Fixed-rate reset:

— 400,000 — — 397 01/26/12 — — — — —

— 6,000 — — 591 10/31/16 — — — — —

Series F 4,884 5,000 100,000 481 492 10/31/17 5.000 % 12/01/27 12/01/27 3M LIBOR (4)

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stock 1,429,785 1,435,000 9,191 9,706

(1) Represented by depositary shares, except for Series A.

(2) Series A and Series E were redeemed on November 1, 2022 and December 1, 2022, respectively.

(3) The dividend rate for Series G and Series I resets on each five-year anniversary from the first reset date.

(1) Represented by depositary shares.

(2) The dividend rate for Series G, Series I and Series K resets on each five-year anniversary from the first reset date.

(3) The dividend rate for Series H resets on each ten-year anniversary from the first reset date.

(5) The dividend rate for Series K resets on each five-year anniversary beginning on June 1, 2027 based on a five-year Treasury rate, representing the average of the yields on actively traded U.S.

Treasury securities adjusted to constant maturity for five-year maturities.

Series K is only redeemable on dividend payment dates on or after the first reset date.

(4) The reset/floating rate for Series F will be determined by the calculation agent prior to the commencement of the floating rate period using what the calculation agent determines to be the industry-accepted substitute or successor base rate to LIBOR.

N/A Not applicable.

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Year Ended December 31, 2023 2022 2021

(in millions) Per Share

(in millions)

(in millions) Per Share

$ 19.1 $ 47.73 $ 28.0 $ 70.00 $ 28.0 $ 70.00

N/A N/A $ 19.1 $ 47.73 $ 28.0 $ 70.00

N/A N/A N/A N/A 18.0 30.00

Series D 44.6 59.52 44.6 59.52 44.6 59.52

37.0 6,161.42 27.8 4,625.00 27.8 4,625.00

N/A N/A 37.0 6,161.42 27.8 4,625.00

Series F 24.3 5,000.00 25.0 5,000.00 25.0 5,000.00

132.2 5,375.00 134.4 5,375.00 134.4 5,375.00

100.0 4,000.00 97.2 3,888.89 N/A N/A

90.0 4,000.00 63.2 2,811.11 N/A N/A

90.4 4,000.00 100.0 4,000.00 97.2 3,888.89

82.8 4,000.00 90.0 4,000.00 63.2 2,811.11

26.7 44.52 26.7 44.52 17.9 29.8

37.4 5,000.00 27.8 3,708.33 N/A N/A

27.8 3,708.33 N/A N/A N/A N/A

Total $ 438.4 $ 504.6 $ 456.1

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

Such dividends are part of the consideration paid upon repurchase of the depositary shares during the year ended December 31, 2023.

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

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The final dividend was paid on December 1, 2022.

(4) Series G was issued on April 30, 2020.

Dividends are paid quarterly, and the first dividend was paid on September 1, 2020.

(5) Series H was issued on December 11, 2020.

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Available for sale securities:

Net unrealized gain (loss), excluding transfers to available for sale from held to maturity, net of tax expense (benefit) of $ 1,322

Net unrealized gain on securities transferred to available for sale from held to maturity, net of tax expense (benefit) of $ 336

Other reclassifications included in other revenue, net of tax expense (benefit) of $( 1 )

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

Balance at December 31, 2020 $ 5,394

Available for sale securities:

Net unrealized gain (loss), net of tax expense (benefit) of $( 2,029 )

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Net unrealized loss on securities transferred from available for sale, net of tax benefit of $ 4,377

Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense

(benefit) of $ 165

Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 165

Other, net of tax expense (benefit) of $ 15

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

In October 2019, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC jointly adopted a final rule which became effective on December 31, 2019, that revised the regulatory capital and liquidity requirements for large U.S.

banking organizations with $100 billion or more in total consolidated assets.

With total consolidated assets of $ 294.0 billion at December 31, 2019, CSC was designated as a Category III firm pursuant to the framework established by the final rules.

Accordingly, the Company opted to exclude AOCI from its regulatory capital as permitted by the regulatory capital and liquidity rule beginning January 1, 2020.

In accordance with ASC 320 Investment – Debt Securities and as of January 1, 2020, the Company transferred all of its investment securities designated as HTM to the AFS category without tainting our intent to hold other debt securities to maturity.

At the date of transfer, these securities had a total amortized cost of $ 134.7 billion and a total net unrealized gain of $ 1.4 billion.

The transfer resulted in a net of tax increase to AOCI of $ 1.1 billion.

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

Available for sale securities:

Net unrealized gain (loss), net of tax expense (benefit) of $ 886

Other reclassifications included in other revenue, net of tax expense (benefit) of $ 15

Held to maturity securities:

Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 657

Other, net of tax expense (benefit) of $( 9 )

Balance at December 31, 2023 $ ( 18,131 )

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

As of December 31, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 11.5 billion net of tax effect ($ 15.0 billion pre-tax).

See Note 5 for additional discussion on the 2022 transfers of AFS securities to HTM.

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Schwab’s share-based incentive plans provide for granting options and restricted stock units to employees and non-employee directors.

In addition, we offer retirement and employee stock purchase plans to eligible employees and sponsor deferred compensation plans for eligible officers and non-employee directors.

In addition, we offer retirement and employee stock purchase plans to eligible employees and sponsor deferred compensation plans for certain eligible employees and non-employee directors.

A summary of share-based compensation expense and related income tax benefit is as follows:

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As of December 31, 2023, there was $ 373 million of total unrecognized compensation cost related to outstanding stock options and restricted stock units, which is expected to be recognized through 2027 with a remaining weighted-average service period of 0.8 years for stock options, 1.8 years for restricted stock units without performance conditions, and 0.2 years for performance-based restricted stock units.

Acquisition of TD Ameritrade:

Upon the completion of the TD Ameritrade acquisition on October 6, 2020, TD Ameritrade’s equity awards, whether vested or unvested, were assumed by the Company and converted into equity awards based on CSC common stock taking into account the defined exchange ratio of 1.0837 .

Otherwise, these share-based awards are subject to the same terms and conditions that were applicable immediately before the merger, except for performance-based restricted stock units which were converted into time-based restricted stock units.

The fair value of the stock options assumed by the Company was determined using an option pricing model.

The portion of the fair value of the replacement awards related to services provided prior to the acquisition was $ 94 million and was accounted for as consideration transferred.

The remaining portion of the fair value of $ 73 million is associated with future services and had a remaining weighted-average service period of 1.9 years on the acquisition date.

A change in the actual or estimated forfeiture rate from the amount originally or subsequently estimated will result in an adjustment to compensation expense based on the full acquisition-date fair value of awards not expected to vest, regardless of whether those awards were treated as consideration transferred or stock-based compensation for future services.

Stock Option Plan

1 unchanged sentence

Options generally vest annually over a one - to four-year period from the date of grant.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Stock option activity is summarized below:

11 unchanged sentences

The aggregate intrinsic value in the table above represents the difference between CSC’s closing stock price and the exercise price of each in-the-money option on the last trading day of the period presented.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Information on stock options granted and exercised is presented below:

22 unchanged sentences

The fair value of the restricted stock units that vested during each of the years 2023, 2022, and 2021 was $ 288 million, $ 282 million, and $ 317 million, respectively.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

The Company’s restricted stock units activity is summarized below:

5 unchanged sentences

Outstanding at December 31, 2022 7 4 11 $ 62.12

Granted 3 2 5 72.96

( 3 ) ( 1 ) ( 4 ) 50.60

6 unchanged sentences

The Company’s total expense was $ 233 million, $ 217 million, and $ 187 million in 2023, 2022, and 2021, respectively.

Schwab’s deferred compensation plan for officers permits participants to defer the receipt of certain cash compensation.

Schwab’s deferred compensation plan for certain eligible employees permits participants to defer the receipt of certain cash compensation.

The deferred compensation plan for non-employee directors permits participants to defer receipt of all or a portion of their director fees and to receive either a grant of stock options, or upon ceasing service as a director, the number of shares of CSC’s common stock that would have resulted from investing the deferred fee amount into CSC’s common stock.

The deferred compensation liability was $ 215 million and $ 175 million at December 31, 2023 and 2022, respectively.

Effective upon the completion of the TD Ameritrade acquisition on October 6, 2020, TD Ameritrade’s 401(k) and deferred profit-sharing plan was terminated and all unvested balances in the plan became fully vested.

TD Ameritrade employees employed immediately prior to the acquisition who continued as employees of TDA Holding, CSC, or any of their subsidiaries after completion of the acquisition became eligible to participate in the SchwabPlan Retirement Savings and Investment Plan and make rollover contributions from their TD Ameritrade plan balances to the SchwabPlan Retirement Savings and Investment Plan.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Financial Consultant Career Achievement Plan

2 unchanged sentences

Allocations to the plan are calculated annually based on performance levels achieved and eligible compensation, and are subject to general creditors of the Company.

Full vesting occurs when a financial consultant reaches 60 years of age and has at least ten years of service with the Company.

Among other conditions, full vesting occurs when a financial consultant reaches 60 years of age and has at least ten years of service with the Company.

The following table presents the changes in projected benefit obligation:

2 unchanged sentences

Benefit cost (1)

Actuarial (gain)/loss (2)

Actuarial loss (gain) (2)

Projected benefit obligation at end of year (3)

(1) Includes service cost and interest cost, which are recognized in compensation and benefits expense and other expense, respectively, in the consolidated statements of income.

(2) Actuarial gain/loss is reflected in the consolidated statements of comprehensive income and is included in AOCI on the consolidated balance sheets and amortized over the participants’ expected remaining service period.

(2) Actuarial loss (gain) is reflected in the consolidated statements of comprehensive income and is included in AOCI on the consolidated balance sheets.

The portion, if any, beyond certain thresholds is subsequently amortized over the participants’ expected remaining service period into other expense on the consolidated statements of income.

(3) This amount is recognized as a liability in accrued expenses and other liabilities on the consolidated balance sheets.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Taxes on Income

8 unchanged sentences

Taxes on income $ 1,311 $ 2,205 $ 1,858

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

The temporary differences that created deferred tax assets and liabilities are detailed below:

2 unchanged sentences

Net unrealized loss on available for sale securities $ 5,610 $ 7,159

Section 174 capitalization associated with internal-use software development 363 96

Employee compensation, severance, and benefits 272 251

Operating lease liabilities 216 242

Reserves and allowances 69 74

Net operating loss carryforwards 8 9

Other 219 158

Total deferred tax assets 6,688 7,915

3 unchanged sentences

Amortization of acquired intangible assets ( 1,758 ) ( 1,837 )

Operating lease ROU assets ( 224 ) ( 210 )

Capitalized internal-use software development costs ( 200 ) ( 187 )

Operating lease ROU assets ( 156 ) ( 224 )

Equipment, office facilities, and property ( 109 ) ( 151 )

1 unchanged sentence

Total deferred tax liabilities ( 2,372 ) ( 2,536 )

Deferred tax asset (liability) — net (1)

Deferred tax assets (liabilities) — net (1)

$ 4,300 $ 5,370

(1) Amounts are included in other assets on the consolidated balance sheet at December 31, 2022 and in accrued expenses and other liabilities on the consolidated balance sheet at December 31, 2021.

(1) Amounts are included in other assets on the consolidated balance sheet at December 31, 2023 and 2022.

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

2 unchanged sentences

State income taxes, net of federal tax benefit 1.6 3.5 3.4

Research and development credits ( 1.2 ) — —

Equity compensation benefit ( 0.5 ) ( 0.5 ) ( 1.2 )

1 unchanged sentence

Effective income tax rate 20.6 % 23.5 % 24.1 %

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

13 unchanged sentences

The years open to examination by state and local governments vary by jurisdiction.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Regulatory Requirements

2 unchanged sentences

CSB is subject to examination, supervision, and regulation by the Federal Reserve, the TDSML, the CFPB, and the FDIC as its deposit insurer.

CSC is required to serve as a source of strength for CSB.

CSC is required to serve as a source of strength for our banking subsidiaries.

CSB is subject to various requirements and restrictions under federal and state laws, including regulatory capital requirements and requirements that restrict and govern the terms of affiliate transactions, such as extensions of credit to, or asset purchases from CSC or its other subsidiaries by CSB.

5 unchanged sentences

At December 31, 2023, both CSC and CSB met all of their respective capital requirements.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

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

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As of December 31, 2023, CSC was subject to a stress capital buffer of 2.5%.

In June 2022, CSC received its 2022 stress capital buffer requirement from the Federal Reserve of 2.5%, which became effective beginning October 1, 2022.

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

3 unchanged sentences

N/A Not applicable.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Based on its regulatory capital ratios at December 31, 2023 and 2022, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules.

5 unchanged sentences

Based on their regulatory capital ratios at December 31, 2023 and 2022, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

As securities broker-dealers, CS&Co, TDAC, and TD Ameritrade, Inc.

18 unchanged sentences

Net capital in excess of required net capital $ 444 $ 806

(1) During 2021, CS&Co transferred its futures business to Charles Schwab Futures and Forex LLC, a wholly-owned subsidiary of CSC.

This transfer was accounted for as a common control transaction and did not have an impact on the consolidated financial statements.

CS&Co subsequently deregistered prior to December 31, 2021 as an FCM with the CFTC, and, therefore, is no longer subject to net capital requirements under CFTC Regulation 1.17 under the Commodity Exchange Act.

Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at December 31, 2023.

1 unchanged sentence

Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit, whereas cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2023 for CS&Co totaled $ 24.1 billion and for TDAC totaled $ 9.7 billion.

As of January 4, 2023, CS&Co had deposited $ 986 million of cash and qualified securities into its segregated reserve accounts.

As of January 3, 2023, TDAC had deposited $ 72 million of cash and qualified securities into its segregated reserve accounts.

As of January 3, 2024, CS&Co had deposited $ 3.2 billion of cash into its segregated reserve accounts.

As of January 2, 2024, TDAC had deposited $ 767 million of cash into its segregated reserve accounts.

Cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2022 for CS&Co totaled $ 22.7 billion and for TDAC totaled $ 19.9 billion.

Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the consolidated statements of cash flows.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Segment Information

4 unchanged sentences

Revenues and expenses are attributed to the two segments based on which segment services the client.

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

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 Investor Services and Advisor Services based on which segment services the client.

See Note 3 for more information regarding business acquisitions.

The accounting policies of the segments are the same as those described in Note 2.

65 unchanged sentences

Net interest expense ( 172 ) ( 318 ) ( 344 )

Trading revenue — — 1

Other revenue — ( 2 ) ( 2 )

Expenses Excluding Interest:

Compensation and benefits ( 73 ) ( 87 ) ( 62 )

Regulatory fees and assessments ( 21 ) ( 20 ) ( 14 )

Professional services ( 21 ) ( 16 ) ( 17 )

Regulatory fees and assessments ( 16 ) ( 21 ) ( 20 )

Compensation and benefits ( 8 ) ( 73 ) ( 87 )

Other expenses excluding interest ( 112 ) ( 108 ) ( 18 )

15 unchanged sentences

Available for sale securities 1,979 4,112

Loans to non-bank subsidiaries 613 —

Investment in non-bank subsidiaries 33,485 35,025

33 unchanged sentences

Cash Flows from Financing Activities

Issuance of long-term debt 2,971 7,036 3,070

Repayment of long-term debt ( 256 ) ( 1,200 ) ( 700 )

Issuance of commercial paper 1,895 8,253 1,234

Repayments of commercial paper ( 4,656 ) ( 5,250 ) ( 1,234 )

Proceeds from short-term borrowings 344 1,895 8,253

Repayments of short-term borrowings ( 598 ) ( 4,656 ) ( 5,250 )

Issuances of long-term debt 6,097 2,971 7,036

Repayments of long-term debt ( 800 ) ( 256 ) ( 1,200 )

Repurchases of common stock and nonvoting common stock ( 2,842 ) ( 3,395 ) —

Net proceeds from preferred stock offerings 740 2,806 4,940

Redemption of preferred stock ( 1,000 ) ( 600 ) —

Issuance of preferred stock, net — 740 2,806

Redemption and repurchase of preferred stock ( 467 ) ( 1,000 ) ( 600 )

Dividends paid ( 2,276 ) ( 2,110 ) ( 1,822 )

Proceeds from stock options exercised and other 64 220 79

Other financing activities — — ( 1 )

Proceeds from stock options exercised 49 64 220

Net cash provided by (used for) financing activities ( 493 ) ( 5,747 ) 9,443

40 unchanged sentences

Critical Audit Matter Description

Net revenues from asset management and administrative fees (AMAF) are generated through proprietary, third-party mutual fund and exchange-traded funds (ETF) offerings, as well as fee-based advisory solutions.

Trading revenue is generated through commissions earned for executing trades for clients in individual equities, options, and certain third-party mutual funds and ETFs.

Both AMAF and trading revenues are made up of a significant volume of low-dollar transactions, and use automated systems to process and record these transactions based on underlying information sourced from multiple systems and contractual terms with individual investors and third-party mutual funds.

Given that the Company’s process to record revenue is highly automated and involves multiple systems and databases, auditing these revenue streams was complex and challenging due to the extent of audit effort required and involvement of professionals with expertise in information technology (IT) necessary for us to identify, test, and evaluate the Company’s systems, software applications, and automated controls.

Net revenues from the third-party mutual funds and advice solutions components of AMAF are generated through third-party mutual fund offerings, and fee-based advisory solutions, respectively.

Commissions within trading revenue are generated through fees earned for executing trades for clients in individual equities, options, and certain third-party mutual funds and exchange traded funds (ETFs).

Third-party mutual funds, advice solutions, and commissions are made up of a significant volume of low-dollar transactions, and use automated systems to process and record these transactions based on underlying information sourced from multiple systems and contractual terms with individual investors and third-party mutual funds.

Given that the Company’s processes to record revenue from third-party mutual funds, advice solutions, and commissions are highly automated and involve multiple systems and databases, auditing these revenue components was complex and challenging due to the extent of audit effort required and involvement of professionals with expertise in information technology (IT) necessary for us to identify, test, and evaluate the Company’s systems, software applications, and automated controls.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s systems to process the AMAF and trading revenue transactions included the following, among others:

Our audit procedures related to the Company’s systems to process the third-party mutual funds and advice solutions within AMAF, and commissions within trading revenue transactions included the following, among others:

• With the assistance of our IT specialists, we:

◦ Identified the significant systems used to process revenue transactions and, using a risk-based approach, tested the relevant general IT controls over each of these systems.

◦ Performed testing of automated business controls and system interface controls (including batch processing) within the relevant revenue streams.

• We tested internal controls within the relevant revenue business processes, including those in place to reconcile the various systems to the Company’s general ledger.

• We created data visualizations to evaluate recorded revenue and evaluate trends in the revenue data.

• For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to contractual agreements and testing the mathematical accuracy of the recorded revenue.

◦ Identified the significant systems used to process third-party mutual funds, advice solutions, and commissions revenue transactions and, using a risk-based approach, tested the relevant general IT controls over each of these systems.

◦ Performed testing of automated business controls and system interface controls (including batch processing) within the relevant third-party mutual funds, advice solutions, and commissions revenue streams.

◦ For a sample of pricing rules, inspected configuration and ascertained that the relevant systems applied appropriate rates and calculated advice solutions and commissions revenue completely and accurately.

• We tested internal controls within the relevant third-party mutual funds, advice solutions, and commissions revenue business processes, including those in place to reconcile the various systems to the Company’s general ledger.

• We created data visualizations to evaluate recorded third-party mutual funds, advice solutions, and commissions revenue and evaluate trends in the data.

• For a sample of third-party mutual funds, advice solutions, and commissions revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to contractual agreements and testing the mathematical accuracy of the recorded revenue.

• For a sample of accounts, we tested the accuracy and completeness of assets under management by obtaining independent pricing support and reconciling total positions to third-party statements.

15 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data