SCHWAB CHARLES CORP 10-K

Item 8. Financial Statements and Supplementary Data TABLE OF CONTENTS Consolidated Statements of Income 66 Consolidated Statements of Comprehensive Income 67 Consolidated Balance Sheets 68 Consolidated Statements of Stockholders’ Equity 69 Consolidated Statements of Cash Flows 70 Notes to Consolidated Financial Statements 72 Note 1. Introduction and Basis of Presentation 72 Note 2. Summary of Significant Accounting Policies 73 Note 3. Revenue Recognition 83 Note 4. Receivables from and Payables to Brokerage Clients 84 Note 5. Investment Securities 85 Note 6. Bank Loans and Related Allowance for Credit Losses 88 Note 7. Equipment, Office Facilities, and Property 92 Note 8. Goodwill and Acquired Intangible Assets 93 Note 9. Other Assets 94 Note 10. Variable Interest Entities 94 Note 11. Bank Deposits 95 Note 12. Borrowings 96 Note 13. Leases 99 Note 14. Commitments and Contingencies 100 Note 15. Exit and Other Related Liabilities 102 Note 16. D erivative Instruments and Hedging Activities 105 Note 17. Financial Instruments Subject to Off-Balance Sheet Credit Risk 106 Note 18. Fair Values of Assets and Liabilities 109 Note 19. Stockholders’ Equity 112 Note 20. Accumulated Other Comprehensive Income 115 Note 21. Employee Incentive, Retirement, Deferred Compensation, and Career Achievement Plans 116 Note 22. Taxes on Income 118 Note 23. Regulatory Requirements 120 Note 24. Segment Information 122 Note 25. Earnings Per Common Share 122 Note 26. The Charles Schwab Corporation – Parent Company Only Financial Statements 124 Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 126 Management’s Report on Internal Control Over Financial Reporting 128 - 65 - THE CHARLES SCHWAB CORPORATION Consolidated Statements of Income (In Millions, Except Per Share Amounts) Year Ended December 31, 2023 2022 2021 Net Revenues Interest revenue $ 16,111 $ 12,227 $ 8,506 Interest expense ( 6,684 ) ( 1,545 ) ( 476 ) Net interest revenue 9,427 10,682 8,030 Asset management and administration fees (1) 4,756 4,216 4,274 Trading revenue 3,230 3,673 4,152 Bank deposit account fees 705 1,409 1,315 Other 719 782 749 Total net revenues 18,837 20,762 18,520 Expenses Excluding Interest Compensation and benefits 6,315 5,936 5,450 Professional services 1,058 1,032 994 Occupancy and equipment 1,254 1,175 976 Advertising and market development 397 419 485 Communications 629 588 587 Depreciation and amortization 804 652 549 Amortization of acquired intangible assets 534 596 615 Regulatory fees and assessments 547 262 275 Other 921 714 876 Total expenses excluding interest 12,459 11,374 10,807 Income before taxes on income 6,378 9,388 7,713 Taxes on income 1,311 2,205 1,858 Net Income 5,067 7,183 5,855 Preferred stock dividends and other 418 548 495 Net Income Available to Common Stockholders $ 4,649 $ 6,635 $ 5,360 Weighted-Average Common Shares Outstanding: Basic 1,824 1,885 1,887 Diluted 1,831 1,894 1,897 Earnings Per Common Shares Outstanding (2) : Basic $ 2.55 $ 3.52 $ 2.84 Diluted $ 2.54 $ 3.50 $ 2.83 (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. See Notes 19 and 25 for additional information. See Notes to Consolidated Financial Statements. - 66 - THE CHARLES SCHWAB CORPORATION Consolidated Statements of Comprehensive Income (In Millions) Year Ended December 31, 2023 2022 2021 Net income $ 5,067 $ 7,183 $ 5,855 Other comprehensive income (loss), before tax: Change in net unrealized gain (loss) on available for sale securities: Net unrealized gain (loss) excluding transfers to held to maturity 3,539 ( 29,100 ) ( 8,521 ) Reclassification of net unrealized loss transferred to held to maturity — 18,228 — Other reclassifications included in other revenue 61 9 ( 4 ) Change in net unrealized gain (loss) on held to maturity securities: Reclassification of net unrealized loss transferred from available for sale — ( 18,228 ) — Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 2,474 707 — Other ( 35 ) 60 ( 11 ) Other comprehensive income (loss), before tax 6,039 ( 28,324 ) ( 8,536 ) Income tax effect ( 1,549 ) 6,812 2,033 Other comprehensive income (loss), net of tax 4,490 ( 21,512 ) ( 6,503 ) Comprehensive Income (Loss) $ 9,557 $ ( 14,329 ) $ ( 648 ) See Notes to Consolidated Financial Statements. - 67 - THE CHARLES SCHWAB CORPORATION Consolidated Balance Sheets (1) (In Millions, Except Per Share and Share Amounts) December 31, 2023 2022 Assets Cash and cash equivalents $ 43,337 $ 40,195 Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $ 8,844 and $ 12,159 at December 31, 2023 and 2022, respectively) 31,836 42,983 Receivables from brokerage clients — net 68,667 66,591 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 $ 3,703 and $ 4,522 at December 31, 2023 and 2022, respectively) 159,452 173,074 Bank loans — net 40,439 40,505 Equipment, office facilities, and property — net 3,690 3,714 Goodwill 11,951 11,951 Acquired intangible assets — net 8,260 8,789 Other assets 17,900 16,099 Total assets $ 493,178 $ 551,772 Liabilities and Stockholders’ Equity Bank deposits $ 289,953 $ 366,724 Payables to brokerage clients 84,786 97,438 Accrued expenses and other liabilities 18,400 13,124 Other short-term borrowings 6,553 4,650 Federal Home Loan Bank borrowings 26,400 12,400 Long-term debt 26,128 20,828 Total liabilities 452,220 515,164 Stockholders’ equity: Preferred stock — $ .01 par value per share; aggregate liquidation preference of $ 9,329 and $ 9,850 at December 31, 2023 and 2022, respectively 9,191 9,706 Common stock — 3 billion shares authorized; $ .01 par value per share; 2,023,295,180 shares issued at December 31, 2023 and 2022 20 20 Nonvoting common stock — 300 million shares authorized; $ .01 par value per share; 50,893,695 shares issued at December 31, 2023 and 2022 1 1 Additional paid-in capital 27,330 27,075 Retained earnings 33,901 31,066 Treasury stock, at cost — 250,678,452 and 221,033,042 shares at December 31, 2023 and 2022, respectively ( 11,354 ) ( 8,639 ) Accumulated other comprehensive income (loss) ( 18,131 ) ( 22,621 ) Total stockholders’ equity 40,958 36,608 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. - 68 - THE CHARLES SCHWAB CORPORATION Consolidated Statements of Stockholders’ Equity (In Millions) Nonvoting Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Preferred Stock Common Stock Retained Earnings Treasury Stock, at cost Shares Amount Shares Amount Total Balance at December 31, 2020 $ 7,733 1,995 $ 20 79 $ 1 $ 26,515 $ 21,975 $ ( 5,578 ) $ 5,394 $ 56,060 Net income — — — — — — 5,855 — — 5,855 Other comprehensive income (loss), net of tax — — — — — — — — ( 6,503 ) ( 6,503 ) Issuance of preferred stock, net 2,806 — — — — — — — — 2,806 Redemption of preferred stock ( 585 ) — — — — — ( 15 ) — — ( 600 ) Dividends declared on preferred stock — — — — — — ( 456 ) — — ( 456 ) Dividends declared on common stock — $ .72 per share — — — — — — ( 1,367 ) — — ( 1,367 ) Stock option exercises and other — — — — — ( 84 ) — 305 — 221 Share-based compensation — — — — — 229 — — — 229 Other — — — — — 81 — ( 65 ) — 16 Balance at December 31, 2021 9,954 1,995 20 79 1 26,741 25,992 ( 5,338 ) ( 1,109 ) 56,261 Net income — — — — — — 7,183 — — 7,183 Other comprehensive income (loss), net of tax — — — — — — — — ( 21,512 ) ( 21,512 ) Issuance of preferred stock, net 740 — — — — — — — — 740 Redemption of preferred stock ( 988 ) — — — — — ( 12 ) — — ( 1,000 ) Dividends declared on preferred stock — — — — — — ( 505 ) — — ( 505 ) Dividends declared on common stock — $ .84 per share — — — — — — ( 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 Share-based compensation — — — — — 348 — — — 348 Other — — — — — 110 — ( 54 ) — 56 Balance at December 31, 2022 9,706 2,023 20 51 1 27,075 31,066 ( 8,639 ) ( 22,621 ) 36,608 Net income — — — — — — 5,067 — — 5,067 Other comprehensive income (loss), net of tax — — — — — — — — 4,490 4,490 Redemption and repurchase of preferred stock, inclusive of tax ( 515 ) — — — — — 44 — — ( 471 ) Dividends declared on preferred stock — — — — — — ( 438 ) — — ( 438 ) Dividends declared on common stock — $ 1.00 per share — — — — — — ( 1,838 ) — — ( 1,838 ) Repurchase of common stock, inclusive of tax — — — — — — — ( 2,866 ) — ( 2,866 ) Stock option exercises and other — — — — — ( 145 ) — 194 — 49 Share-based compensation — — — — — 294 — — — 294 Other — — — — — 106 — ( 43 ) — 63 Balance at December 31, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,330 $ 33,901 $ ( 11,354 ) $ ( 18,131 ) $ 40,958 See Notes to Consolidated Financial Statements. - 69 - THE CHARLES SCHWAB CORPORATION Consolidated Statements of Cash Flows (1) (In Millions) Year Ended December 31, 2023 2022 2021 Cash Flows from Operating Activities Net income $ 5,067 $ 7,183 $ 5,855 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Share-based compensation 320 366 254 Depreciation and amortization 804 652 549 Amortization of acquired intangible assets 534 596 615 Provision (benefit) for deferred income taxes ( 478 ) ( 18 ) 53 Premium amortization, net, on available for sale and held to maturity securities 830 1,375 2,346 Other 702 490 372 Net change in: Investments segregated and on deposit for regulatory purposes 23,759 ( 874 ) ( 3,398 ) Receivables from brokerage clients ( 2,135 ) 23,947 ( 26,168 ) Other assets ( 2,020 ) 99 ( 1,152 ) Payables to brokerage clients ( 12,652 ) ( 28,233 ) 21,470 Accrued expenses and other liabilities 4,856 ( 3,526 ) 1,322 Net cash provided by (used for) operating activities 19,587 2,057 2,118 Cash Flows from Investing Activities Purchases of available for sale securities ( 1,487 ) ( 51,009 ) ( 171,732 ) Proceeds from sales of available for sale securities 8,465 24,704 13,306 Principal payments on available for sale securities 36,508 49,944 94,912 Principal payments on held to maturity securities 15,461 15,712 — Net change in bank loans 99 ( 5,788 ) ( 10,845 ) Purchases of equipment, office facilities, and property ( 700 ) ( 971 ) ( 916 ) Purchases of FHLB stock ( 1,869 ) ( 518 ) — Proceeds from sales of FHLB stock 1,344 19 — Purchases of Federal Reserve stock ( 221 ) ( 106 ) ( 245 ) Proceeds from sales of Federal Reserve stock 98 197 — Other investing activities ( 287 ) ( 136 ) ( 143 ) Net cash provided by (used for) investing activities 57,411 32,048 ( 75,663 ) Cash Flows from Financing Activities Net change in bank deposits ( 76,771 ) ( 77,054 ) 85,756 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 Repayments of long-term debt ( 831 ) ( 1,036 ) ( 1,822 ) Repurchases of common stock and nonvoting common stock ( 2,842 ) ( 3,395 ) — 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 49 64 221 Other financing activities ( 100 ) ( 94 ) ( 104 ) Net cash provided by (used for) financing activities ( 61,245 ) ( 68,723 ) 96,323 Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted 15,753 ( 34,618 ) 22,778 Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year 58,720 93,338 70,560 Cash and Cash Equivalents, including Amounts Restricted at End of Year $ 74,473 $ 58,720 $ 93,338 Continued on following page. - 70 - THE CHARLES SCHWAB CORPORATION Continued from previous page. Year Ended December 31, 2023 2022 2021 Supplemental Cash Flow Information Non-cash investing activity: 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 Non-cash financing activity: Common stock repurchased during the period but settled after period end $ — $ 40 $ — Other Supplemental Cash Flow Information Cash paid during the period for: Interest $ 5,623 $ 1,355 $ 501 Income taxes $ 1,620 $ 2,130 $ 2,053 Amounts included in the measurement of lease liabilities $ 255 $ 228 $ 212 Leased assets obtained in exchange for new operating lease liabilities $ 118 $ 274 $ 89 Leased assets obtained in exchange for new finance lease liabilities $ 48 $ 4 $ 109 December 31, 2023 2022 2021 Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2) Cash and cash equivalents $ 43,337 $ 40,195 $ 62,975 Restricted cash and cash equivalents amounts included in cash and investments segregated and on deposit for regulatory purposes 31,136 18,525 30,363 Total cash and cash equivalents, including amounts restricted shown in the 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. See Notes to Consolidated Financial Statements. - 71 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 1. Introduction and Basis of Presentation The Charles Schwab Corporation (CSC) is a savings and loan holding company. CSC engages, through its subsidiaries (collectively referred to as Schwab or the Company), in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. Principal business subsidiaries of CSC include the following: • Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer; • TD Ameritrade, Inc., an introducing securities broker-dealer; • TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.; • Charles Schwab Bank, SSB (CSB), our principal banking entity; and • Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds ® ) and for Schwab’s exchange-traded funds (Schwab ETFs ™ ). 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. The accompanying consolidated financial statements include CSC and its subsidiaries. Intercompany balances and transactions have been eliminated. These consolidated financial statements have been prepared in conformity with GAAP, which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements and in the related disclosures. These estimates are based on information available as of the date of the consolidated financial statements. While management makes its best judgment, actual amounts or results could differ from these estimates. 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 Schwab evaluates all entities in which it has financial interests for consolidation, except for money market funds, which are specifically excluded from consolidation guidance. When an entity is evaluated for consolidation, Schwab determines whether its interest in the entity constitutes a controlling financial interest under either the variable interest entity (VIE) model or the voting interest entity (VOE) model. In evaluating whether Schwab’s interest in a VIE is a controlling financial interest, we consider whether our involvement in the context of the design, purpose, and risks of the VIE, as well as any involvement of related parties, provides us with (i) the power to direct the most significant activities of the VIE, and (ii) the obligation to absorb losses or receive benefits that are significant to the VIE. If both of these conditions exist, then Schwab would be the primary beneficiary of that VIE and consolidate it. Based upon the assessments for all of our interests in VIEs, there are no cases where the Company is the primary beneficiary; therefore, we are not required to consolidate any VIEs. See Note 10 for further information about VIEs. Schwab consolidates all VOEs in which it has majority-voting interests. Investments in entities in which Schwab does not have a controlling financial interest are accounted for under the equity method of accounting when we have the ability to exercise significant influence over operating and financing decisions of the entity or by accounting policy for investments in certain types of limited liability entities. Investments in entities for which Schwab does not apply the equity method are generally carried at cost and adjusted for impairment and observable price changes of the identical or similar investments of the same issuer (adjusted cost method), except for certain investments in qualified affordable housing projects which are accounted for under the proportional amortization method. All equity method, adjusted cost method, and proportional amortization method investments are included in other assets on the consolidated balance sheets. - 72 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 2. Summary of Significant Accounting Policies Revenue recognition Net interest revenue Net interest revenue is not within the scope of Accounting Standards Codification (ASC) 606 Revenue From Contracts With Customers (ASC 606), because it is generated from financial instruments covered by various other areas of GAAP. Net interest revenue is the difference between interest generated on interest-earning assets and interest paid on funding sources. Our primary interest-earning assets include cash and cash equivalents; segregated cash and investments; margin loans; investment securities; and bank loans. Fees earned and incurred on securities borrowing and lending activities, which are conducted by the Company’s broker-dealer subsidiaries on assets held in client brokerage accounts, are also included in interest revenue and expense. Asset management and administration fees The majority of asset management and administration fees are generated through our proprietary and third-party mutual fund and ETF offerings, as well as fee-based advisory solutions. Mutual fund and ETF service fees are charged for investment management, shareholder, and administration services provided to Schwab Funds ® and Schwab ETFs ™ , as well as recordkeeping, shareholder, and administration services provided to third-party funds. Advice solutions fees are charged for brokerage and asset management services provided to advice solutions clients. Both mutual fund and ETF service fees and advice solutions fees are earned and recognized over time. Fees are generally based on a percentage of the daily value of assets under management and are collected on a monthly or quarterly basis. Trading revenue Trading revenue is primarily generated through commissions earned for executing trades for clients in individual equities, options, fixed income securities, and certain third-party mutual funds and ETFs, as well as order flow revenue. Commissions revenue is earned when the trades are executed and collected when the trades are settled. Order flow revenue is comprised of payments received from trade execution venues to which our broker-dealer subsidiaries send equity and option orders. Order flow revenue is recognized when the trades are executed and is collected on a monthly or quarterly basis. 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. 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. Bank deposit account fees are earned and recognized over time and collected on a monthly basis. Other revenue Other revenue includes exchange processing fees, service fees, and other gains and losses from the sale of assets. Generally, the most significant portion of other revenue is exchange processing fees, which are comprised of fees the Company’s broker-dealer subsidiaries charge clients to offset the exchange processing fees imposed on us by third-parties. Exchange processing fees are earned and collected when the trade is executed and are recognized gross of amounts remitted to the third-parties, which are included in other expenses. Unsatisfied performance obligations We do not have any unsatisfied performance obligations other than those that are subject to an elective practical expedient under ASC 606. The practical expedient applies to and is elected for contracts where we recognize revenue at the amount to which we have the right to invoice for services performed. - 73 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Cash and cash equivalents Schwab considers all highly liquid investments that mature in three months or less from the time of acquisition and that are not segregated and on deposit for regulatory purposes to be cash and cash equivalents. Cash and cash equivalents include money market funds, deposits with banks, certificates of deposit, commercial paper, and U.S. Treasury securities. Cash and cash equivalents also include balances that our banking subsidiaries maintain at the Federal Reserve. Cash and investments segregated and on deposit for regulatory purposes Pursuant to the Customer Protection Rule and other applicable regulations, Schwab maintains cash or qualified securities in segregated reserve accounts for the exclusive benefit of clients. Cash and investments segregated and on deposit for regulatory purposes include resale agreements, certificates of deposit, and U.S. Government securities. See Resale and repurchase agreements below in this Note 2 for further information on the resale agreements. Certificates of deposit and U.S. Government securities are recorded at fair value and unrealized gains and losses are included in earnings. Receivables from brokerage clients Receivables from brokerage clients include margin loans and other trading receivables from brokerage clients. Margin loans are collateralized by client securities and are carried at the amount receivable, net of an allowance for credit losses. Collateral is required to be maintained at specified minimum levels at all times. The Company monitors margin levels and requires clients to provide additional collateral, or reduce margin positions, to meet minimum collateral requirements if the fair value of the collateral changes. Schwab applies the practical expedient based on collateral maintenance provisions under ASC 326 Financial Instruments – Credit Losses (ASC 326), in estimating an allowance for credit losses for margin loans. This practical expedient can be applied for financial assets with collateral maintenance provisions requiring the borrower to continually adjust the amount of the collateral securing the financial assets as a result of fair value changes in the collateral. In accordance with the practical expedient, when the Company reasonably expects that borrowers (or counterparties, as applicable) will replenish the collateral as required, there is no expectation of credit losses when the collateral’s fair value is greater than the amortized cost of the financial asset. If the amortized cost exceeds the fair value of collateral, then credit losses are estimated only on the unsecured portion. An allowance for credit losses on unsecured or partially secured receivables from brokerage clients is estimated based on the aging of those receivables. Unsecured balances due to confirmed fraud are reserved immediately. The Company’s policy is to charge off any unsecured margin loans, including the accrued interest on such loans, no later than at 90 days past due. Accrued interest charged off is recognized as credit loss expense and is included in other expenses in the consolidated statements of income. Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in accordance with federal regulations. The collateral is not reflected in the consolidated financial statements. 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 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. See Fair values of assets and liabilities below in this Note 2 for further information on these repurchase liabilities. Investment securities AFS investment securities are recorded at fair value and unrealized gains and losses, other than losses related to credit factors, are reported, net of taxes, in AOCI included in stockholders’ equity. HTM investment securities are recorded at amortized cost, net of any allowance for credit losses, based on the Company’s positive intent and ability to hold these securities to maturity. Realized gains and losses from sales of AFS investment securities are determined using the specific-identification method and are included in other revenue. Interest income on investment securities is recognized using the effective interest method based on the contractual terms of the security. Where applicable, prepayments are accounted for as they occur (i.e., prepayments are not estimated). Accrued interest receivable for AFS and HTM investment securities is included in other assets in the Company’s consolidated balance sheets. - 74 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) An AFS investment security is impaired if the fair value of the security is less than its amortized cost basis. Management evaluates AFS investment securities with unrealized losses to determine whether the security’s impairment has resulted from a credit loss or other factors. This evaluation is performed quarterly on an individual security basis. The evaluation of whether the AFS security impairment has resulted from a credit loss is inherently judgmental. This evaluation considers multiple factors including: the financial condition of the issuer; the payment structure of the security; external credit ratings; our internal credit ratings; the security’s market implied credit spread; for asset-backed securities, the amount of credit support provided by the structure of the security to absorb credit losses on the underlying collateral; recent events specific to the issuer and the issuer’s industry; and whether all scheduled principal and interest payments have been received. If management determines that the impairment of an AFS investment security (or a portion of the impairment) is related to credit losses, an allowance for credit losses is recorded for that security through a charge to earnings. The allowance for credit losses on AFS investment securities is measured as the difference between the amortized cost and the present value of expected cash flows and is limited to the difference between amortized cost and the fair value of the security. The Company estimates credit losses on a discounted cash flow basis using the security’s effective interest rate. If it is determined that the Company intends to sell the impaired security or if it is more likely than not that the Company will be required to sell the security before any anticipated recovery of the amortized cost basis, any allowance for credit losses of that security will be written off and the amortized cost basis of the security will be written down to fair value with any incremental impairment recorded through earnings. The Company separately evaluates its HTM investment securities for any expected credit losses. If HTM investment securities share risk characteristics, management evaluates those securities on a collective basis. An allowance for credit losses is recorded through a charge to earnings based on an estimate of current expected credit losses over the remaining expected lives of the HTM investment securities. Management reviews the allowance for credit losses quarterly, taking into consideration current conditions, reasonable and supportable forecasts, past events, and historical experience that affect the expected collectability of the reported amounts. For the purposes of identifying and measuring impairment of AFS investment securities and for the purposes of estimating the allowance for credit losses on all investment securities, the Company excludes accrued interest from the amortized cost basis and when applicable, the fair value, of investment securities. Changes in the allowance for credit losses on investment securities are recorded through earnings in the period of the change. For some of the AFS and HTM investment securities the Company has an expectation that nonpayment of the amortized cost basis is zero based on a long history with no credit losses and considering current conditions and reasonable and supportable forecasts. This applies to a limited set of securities that are guaranteed by the U.S. Treasury, U.S. government agencies, and sovereign entities of high credit quality. The expectation that nonpayment of the amortized cost basis is zero is continually reevaluated. AFS and HTM investment securities are placed on nonaccrual status on a timely basis and any accrued interest receivable is reversed through interest income. Resale and repurchase agreements Resale and repurchase agreements are accounted for as collateralized financing transactions with a receivable or payable recorded at their contractual amounts plus accrued interest. Schwab’s resale agreements are typically collateralized by U.S. Government and agency securities and the receivable is included in cash and investments segregated and on deposit for regulatory purposes in the consolidated balance sheets. Securities received under resale agreements are not recorded on the consolidated balance sheets. Securities transferred to counterparties under repurchase agreements continue to be recognized on the Company’s consolidated balance sheets in the respective financial statement line item and at the respective measurement basis. Payables for repurchase agreements are included in short-term borrowings on the consolidated balance sheets. The Company monitors its collateral requirements under these agreements daily and collateral is adjusted to ensure full collateralization. Interest received or paid is recorded in interest revenue or interest expense, respectively. Schwab applies the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for resale agreements. Securities borrowed and securities loaned Securities borrowing and lending transactions are accounted for as collateralized financing transactions. Securities borrowed transactions require Schwab to deliver cash to the lender in exchange for securities; the receivables from these transactions are - 75 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) included in other assets on the consolidated balance sheets. For securities loaned, Schwab receives collateral in the form of cash in an amount equal to or greater than the market value of securities loaned; the payables from these transactions are included in accrued expenses and other liabilities on the consolidated balance sheets. The market value of securities borrowed and loaned is monitored and collateral is adjusted to ensure full collateralization. Fees received or paid are recorded in interest revenue or interest expense. Schwab applies the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for securities borrowed receivables. Bank loans and related allowance for loan losses Bank loans held for investments are recorded at amortized cost, which is comprised of the contractual principal amounts adjusted for unamortized direct origination costs or net purchase discounts or premiums. Direct origination costs and premiums and discounts are recognized in interest revenue using the effective interest method over the contractual life of the loan and are adjusted for actual prepayments. Additionally, management estimates an allowance for credit losses, which is deducted from the amortized cost basis of loans to arrive at the amount expected to be collected. The bank loan portfolio includes three portfolio segments: residential real estate, PALs, and other loans. We use these segments when developing and documenting our methodology for determining the allowance for credit losses. The residential real estate portfolio segment is divided into two classes of financing receivables for purposes of monitoring and assessing credit risk: First Mortgages and HELOCs. Schwab records an allowance for credit losses through a charge to earnings based on our estimate of current expected credit losses for the existing portfolio. We review the allowance for credit losses quarterly, taking into consideration current economic conditions, reasonable and supportable forecasts, the composition of the existing loan portfolio, past loss experience, and any other risks inherent in the portfolio to ensure that the allowance for credit losses is maintained at an appropriate level. PALs are collateralized by marketable securities with liquid markets. Credit lines are over-collateralized and borrowers are required to maintain collateral at specified levels at all times. The required collateral levels are determined based on the type of security pledged. Additionally, collateral market value is monitored on a daily basis and a borrower’s credit line may be reduced or collateral may be liquidated if the collateral is in danger of falling below specified levels. As such, the credit loss inherent within this portfolio is limited. Schwab applies the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for PALs. The methodology to establish an allowance for credit losses for the residential real estate portfolio segment utilizes statistical models that estimate prepayments, defaults, and expected losses for this portfolio segment based on predicted behavior of individual loans within the segment. 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 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. 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 over a full economic cycle. 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. 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. Linear interpolation is applied to revert to long-term trends after the reasonable and supportable forecast period. The methodology described above results in loss factors that are applied to the amortized cost basis of loans, exclusive of accrued interest receivable, to determine the allowance for credit losses for First Mortgages and HELOCs. Management also estimates a liability for expected credit losses on the Company’s commitments to extend credit related to unused HELOCs and commitments to purchase First Mortgages. 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 - 76 - 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 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 First Mortgages, HELOCs, PALs, and other loans are placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless the loans are well-secured and in the process of collection), or when the full timely collection of interest or principal becomes uncertain, including loans to borrowers who have filed for bankruptcy. HELOC loans secured by a second lien are placed on non-accrual status if the associated first lien is 90 days or more delinquent, regardless of the payment status of the HELOC. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is reversed and the loan is accounted for on the cash or cost recovery method until qualifying for return to accrual status. Generally, a nonaccrual loan may be returned to accrual status when all delinquent interest and principal is repaid and the borrower demonstrates a sustained period of performance, or when the loan is both well-secured and in the process of collection and collectability is no longer doubtful. Loans on nonaccrual status and other real estate owned are considered nonperforming assets. Loan charge-offs The Company charges off a loan in the period that it is deemed uncollectible and records a reduction in the allowance for credit losses and the loan balance. Our charge-off policy for First Mortgage and HELOC loans is to assess the value of the property when the loan has been delinquent for 180 days or has been discharged in bankruptcy proceedings, regardless of whether the property is in foreclosure, and charge off the amount of the loan balance in excess of the estimated current value of the underlying property less estimated costs to sell. The Company’s policy for PALs is to charge off any unsecured balances no later than at 90 days past due. Equipment, office facilities, and property Equipment, office facilities, and property are recorded at cost net of accumulated depreciation and amortization, except for land, which is recorded at cost. Equipment, office facilities, and property include certain capitalized costs of acquired or internally developed software. Costs for internally developed software are capitalized when the costs relate to development of approved projects for our internal needs that result in additional functionality. Costs related to preliminary project and post-project activities are expensed as incurred. Equipment, office facilities, and property (other than land) are depreciated on a straight-line basis over their estimated useful lives. Estimated useful lives are as follows: All equipment types and furniture 3 to 10 years Buildings 40 years Building and land improvements 20 years Software 3 to 10 years (1) Leasehold improvements Lesser of useful life or lease term (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 Goodwill is not amortized but is tested for impairment annually or whenever indications of impairment exist. Impairment exists when the carrying amount of a reporting unit exceeds its estimated fair value, resulting in an impairment charge for this excess, with the maximum charge limited to the carrying value of goodwill allocated to that reporting unit. Our annual impairment testing date is April 1 st . Schwab can elect to qualitatively assess goodwill for impairment if it is more likely than not that the fair value of a reporting unit exceeds its carrying value. 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 - 77 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (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. Intangible assets Finite-lived intangible assets are amortized over their useful lives in a manner that best reflects their economic benefit. 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. Low-income housing tax credit (LIHTC) investments We account for investments in qualified affordable housing projects using the proportional amortization method if the applicable requirements are met. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized as a component of taxes on income. The carrying value of LIHTC investments is included in other assets on the consolidated balance sheets. Unfunded commitments related to LIHTC investments are included in accrued expenses and other liabilities on the consolidated balance sheets. Leases Leases primarily consist of operating leases for corporate offices, branch locations, and server equipment. We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The Company has also elected to not record leases acquired in a business combination on the balance sheet if the remaining term as of the acquisition date is 12 months or less. 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 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. Payments that vary because of changes in facts or circumstances occurring after the commencement date are considered variable. These payments are not recognized as part of the lease liability and are expensed in the period incurred. 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 as depreciation and interest expense, respectively. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have lease agreements with lease and non-lease components. For the majority of our leases (real estate leases), the Company has elected the practical expedient to account for the lease and non-lease components as a single lease component. We have not elected the practical expedient for equipment leases and account for lease and non-lease components separately for that class of leases. As the rates implicit in our leases are not readily determinable, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include periods covered by options to extend when it is reasonably certain that we will exercise those options. 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 Advertising and market development activities include the cost to produce and distribute marketing campaigns as well as client incentives and discounts. Where it applies to these costs, the Company’s accounting policy is to expense when incurred. - 78 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Income taxes Schwab provides for income taxes on all transactions that have been recognized in the consolidated financial statements. Accordingly, deferred tax assets are adjusted to reflect the tax rates at which future taxable amounts will likely be settled or realized. The effects of tax rate changes on future deferred tax assets and deferred tax liabilities, as well as other changes in income tax laws, are recorded in earnings in the period such changes are enacted. Uncertain tax positions are evaluated to determine whether they are more likely than not to be sustained upon examination. When tax positions are more likely than not to be sustained upon examination the difference between positions taken on tax return filings and estimated potential tax settlement outcomes are recognized in accrued expenses and other liabilities. If a position is not more likely than not to be sustained, then none of the tax benefit is recognized in Schwab’s financial statements. Accrued interest and penalties relating to unrecognized tax benefits are recorded in taxes on income. Schwab records amounts within AOCI net of taxes. Income tax effects are released from AOCI using the specific-identification method. Share-based compensation Share-based compensation includes employee and board of director stock options and restricted stock units. Schwab measures compensation expense for these share-based payment arrangements based on their estimated fair values as of the grant date. The grant date fair value is amortized to compensation expense on a straight-line basis over the requisite service period. Share-based compensation expense is based on options or units expected to vest and therefore is reduced for estimated forfeitures. Per the Company’s accounting policy election, forfeitures are estimated at the time of grant and reviewed annually based on the Company’s historical forfeiture experience. Share-based compensation expense is adjusted in subsequent periods if actual forfeitures differ from estimated forfeitures. For share-based payment awards with performance conditions, management assesses and estimates their expected level of achievement. Share-based compensation expense is recognized based on the level of achievement deemed probable and changes in the estimated outcome are reflected as a cumulative adjustment to expense in the period of the change in estimate. 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 - 79 - 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 Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement accounting guidance describes the fair value hierarchy for disclosing assets and liabilities measured at fair value based on the inputs used to value them. The fair value hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are based on market pricing data obtained from third-party sources independent of the Company. A quoted price in an active market provides the most reliable evidence of fair value and is generally used to measure fair value whenever available. Unobservable inputs reflect management’s judgment about the assumptions market participants would use in pricing the asset or liability. 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. 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: • Level 1 inputs are quoted prices in active markets as of the measurement date for identical assets or liabilities that the Company has the ability to access. • Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates, benchmark yields, issuer spreads, new issue data, and collateral performance. • Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Assets and liabilities measured at fair value on a recurring basis Schwab’s assets and liabilities measured at fair value on a recurring basis include: certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, certain other assets, interest rate swaps, and certain accrued expenses and other liabilities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. Quoted prices for investments in exchange-traded securities represent end-of-day close prices published by exchanges. Quoted prices for money market funds and other mutual funds represent reported net asset values. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices in active markets do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets, and we generally obtain prices from three independent third-party pricing sources for such assets recorded at fair value. Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposits; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for - 80 - 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 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. The fair values of the repurchase liabilities are based on quoted market prices or other observable market data consistent with the related client-held fractional shares. Unrealized gains and losses on client-held fractional shares offset the unrealized gains and losses on the corresponding repurchase liabilities, resulting in no impact to the consolidated statements of income. The Company’s liabilities to repurchase client-held fractional shares do not have credit risk, and, as a result, the Company has not recognized any gains or losses in the consolidated statements of income or comprehensive income attributable to instrument-specific credit risk for these repurchase liabilities. The repurchase liabilities are included in accrued expenses and other liabilities on the 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. - 81 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) New Accounting Standards Adoption of New Accounting Standards Standard Description Date of Adoption Effects on the Financial Statements or Other Significant Matters Accounting Standards Update (ASU) 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” Troubled Debt Restructurings (TDRs) Eliminates the accounting guidance for TDRs. Rather than applying the specific guidance for TDRs, creditors will apply the recognition and measurement guidance for loan refinancings and restructurings to determine whether a modification results in a new loan or a continuation of an existing loan. The guidance requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Vintage Disclosures Requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. Adoption provides for prospective application, with an option to apply the modified retrospective transition method for the change in recognition and measurement of TDRs. January 1, 2023 The Company adopted this guidance prospectively on January 1, 2023. 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. - 82 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 3. Revenue Recognition Disaggregated Revenue Disaggregation of Schwab’s revenue by major source is as follows: Year Ended December 31, 2023 2022 2021 Net interest revenue Cash and cash equivalents $ 1,894 $ 812 $ 40 Cash and investments segregated 1,355 691 24 Receivables from brokerage clients 4,793 3,321 2,455 Available for sale securities 2,987 4,139 4,641 Held to maturity securities 2,872 1,688 — Bank loans 1,664 1,083 620 Securities lending revenue 419 471 720 Other interest revenue 127 22 6 Interest revenue 16,111 12,227 8,506 Bank deposits ( 3,363 ) ( 723 ) ( 54 ) Payables to brokerage clients ( 271 ) ( 123 ) ( 9 ) Other short-term borrowings (1) ( 375 ) ( 48 ) ( 9 ) Federal Home Loan Bank borrowings (1) ( 1,810 ) ( 106 ) — Long-term debt ( 715 ) ( 498 ) ( 384 ) Securities lending expense ( 147 ) ( 48 ) ( 24 ) Other interest expense ( 3 ) 1 4 Interest expense ( 6,684 ) ( 1,545 ) ( 476 ) Net interest revenue 9,427 10,682 8,030 Asset management and administration fees Mutual funds, ETFs, and CTFs 2,563 2,055 1,961 Advice solutions 1,868 1,854 1,993 Other 325 307 320 Asset management and administration fees 4,756 4,216 4,274 Trading revenue Commissions 1,601 1,787 2,050 Order flow revenue 1,404 1,738 2,053 Principal transactions 225 148 49 Trading revenue 3,230 3,673 4,152 Bank deposit account fees 705 1,409 1,315 Other 719 782 749 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. The recognition of revenue is not impacted by the operating segment in which revenue is generated. - 83 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 4. Receivables from and Payables to Brokerage Clients Receivables from and payables to brokerage clients are detailed below: December 31, 2023 2022 Receivables Margin loans $ 62,582 $ 63,065 Other brokerage receivables 6,085 3,526 Receivables from brokerage clients — net (1) $ 68,667 $ 66,591 Payables Interest-bearing payables $ 67,675 $ 81,583 Non-interest-bearing payables 17,111 15,855 Payables to brokerage clients $ 84,786 $ 97,438 (1) The allowance for credit losses for receivables from brokerage clients and related activity was immaterial for all periods presented. At December 31, 2023 and 2022, approximately 17 % of total CS&Co and TD Ameritrade, Inc. client accounts were located in California. - 84 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 5. Investment Securities The amortized cost, gross unrealized gains and losses, and fair value of the Company’s AFS and HTM investment securities are as follows: December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale securities U.S. agency mortgage-backed securities $ 69,173 $ — $ 6,378 $ 62,795 U.S. Treasury securities 22,459 1 989 21,471 Corporate debt securities (1) 13,344 — 860 12,484 Asset-backed securities (2) 9,465 — 378 9,087 Foreign government agency securities 1,035 — 33 1,002 U.S. state and municipal securities 634 — 55 579 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) $ 116,336 $ 1 $ 8,691 $ 107,646 Held to maturity securities U.S. agency mortgage-backed securities $ 159,452 $ 1,435 $ 13,796 $ 147,091 Total held to maturity securities $ 159,452 $ 1,435 $ 13,796 $ 147,091 December 31, 2022 Available for sale securities U.S. agency mortgage-backed securities $ 85,994 $ — $ 8,306 $ 77,688 U.S. Treasury securities 41,879 — 1,877 40,002 Asset-backed securities (2) 13,672 — 649 13,023 Corporate debt securities (1) 13,830 — 1,275 12,555 Certificates of deposit 2,245 — 14 2,231 Foreign government agency securities 1,033 — 64 969 U.S. state and municipal securities 713 — 75 638 Non-agency commercial mortgage-backed securities 473 — 23 450 Other 323 — 8 315 Total available for sale securities (4) $ 160,162 $ — $ 12,291 $ 147,871 Held to maturity securities U.S. agency mortgage-backed securities $ 173,074 $ 1,442 $ 15,580 $ 158,936 Total held to maturity securities $ 173,074 $ 1,442 $ 15,580 $ 158,936 (1) 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. (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. 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). - 85 - 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, 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. HTM securities pledged were U.S. agency mortgage-backed securities with an aggregate amortized cost of $ 3.7 billion, and AFS securities pledged were U.S. 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. 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: Less than 12 months 12 months or longer Total December 31, 2023 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available for sale securities U.S. agency mortgage-backed securities (1) $ 1 $ — $ 62,794 $ 6,378 $ 62,795 $ 6,378 U.S. Treasury securities — — 19,450 989 19,450 989 Corporate debt securities — — 12,484 860 12,484 860 Asset-backed securities (1) 29 — 9,058 378 9,087 378 Foreign government agency securities — — 1,002 33 1,002 33 U.S. state and municipal securities — — 579 55 579 55 Non-agency commercial mortgage-backed securities — — 109 14 109 14 Other — — 19 3 19 3 Total (2) $ 30 $ — $ 105,495 $ 8,710 $ 105,525 $ 8,710 December 31, 2022 Available for sale securities U.S. agency mortgage-backed securities $ 34,938 $ 2,025 $ 42,558 $ 6,281 $ 77,496 $ 8,306 U.S. Treasury securities 27,063 716 12,519 1,161 39,582 1,877 Asset-backed securities 6,717 217 6,299 432 13,016 649 Corporate debt securities 8,552 542 3,998 733 12,550 1,275 Certificates of deposit 2,033 10 196 4 2,229 14 Foreign government agency securities 756 50 214 14 970 64 U.S. state and municipal securities 482 31 157 44 639 75 Non-agency commercial mortgage-backed securities 443 23 — — 443 23 Other 315 8 — — 315 8 Total $ 81,299 $ 3,622 $ 65,941 $ 8,669 $ 147,240 $ 12,291 (1) 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. - 86 - 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. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises. For a description of management’s quarterly evaluation of AFS securities in unrealized loss positions, see Note 2. No amounts were recognized as credit loss expense and no securities were written down to fair value through earnings for the years ended December 31, 2023 and 2022. 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, 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 $ 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: December 31, 2023 Within 1 year After 1 year through 5 years After 5 years through 10 years After 10 years Total Available for sale securities U.S. agency mortgage-backed securities $ 798 $ 11,126 $ 10,650 $ 40,221 $ 62,795 U.S. Treasury securities 9,142 12,329 — — 21,471 Corporate debt securities 2,708 8,306 1,470 — 12,484 Asset-backed securities — 2,443 1,290 5,354 9,087 Foreign government agency securities 495 507 — — 1,002 U.S. state and municipal securities — 71 396 112 579 Non-agency commercial mortgage-backed securities — — — 109 109 Certificates of deposit 100 — — — 100 Other — — — 19 19 Total fair value $ 13,243 $ 34,782 $ 13,806 $ 45,815 $ 107,646 Total amortized cost (1) $ 13,427 $ 36,943 $ 15,345 $ 50,640 $ 116,355 Weighted-average yield (2) 1.82 % 1.84 % 1.87 % 2.62 % 2.18 % Held to maturity securities U.S. agency mortgage-backed securities $ 1,217 $ 7,765 $ 37,584 $ 100,525 $ 147,091 Total fair value $ 1,217 $ 7,765 $ 37,584 $ 100,525 $ 147,091 Total amortized cost $ 1,248 $ 8,198 $ 40,139 $ 109,867 $ 159,452 Weighted-average yield (2) 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. - 87 - 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: Year Ended December 31, 2023 2022 2021 Proceeds $ 8,465 $ 24,704 $ 13,306 Gross realized gains 1 157 40 Gross realized losses 62 166 36 6. Bank Loans and Related Allowance for Credit Losses The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows: December 31, 2023 Current 30-59 days past due 60-89 days past due >90 days past due and other nonaccrual loans (3) Total past due and other nonaccrual loans Total loans Allowance for credit losses Total bank loans – net Residential real estate: First Mortgages (1,2) $ 26,111 $ 33 $ 2 $ 7 $ 42 $ 26,153 $ 32 $ 26,121 HELOCs (1,2) 473 1 1 4 6 479 2 477 Total residential real estate 26,584 34 3 11 48 26,632 34 26,598 Pledged asset lines 13,533 11 — 4 15 13,548 — 13,548 Other 297 — — — — 297 4 293 Total bank loans $ 40,414 $ 45 $ 3 $ 15 $ 63 $ 40,477 $ 38 $ 40,439 December 31, 2022 Residential real estate: First Mortgages (1,2) $ 25,157 $ 25 $ 2 $ 14 $ 41 $ 25,198 $ 66 $ 25,132 HELOCs (1,2) 590 2 — 5 7 597 4 593 Total residential real estate 25,747 27 2 19 48 25,795 70 25,725 Pledged asset lines 14,584 4 — 4 8 14,592 — 14,592 Other 191 — — — — 191 3 188 Total bank loans $ 40,522 $ 31 $ 2 $ 23 $ 56 $ 40,578 $ 73 $ 40,505 (1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $ 100 million and $ 98 million at December 31, 2023 and 2022, respectively. (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. (3) There were no loans accruing interest that were contractually 90 days or more past due at December 31, 2023 or 2022. At December 31, 2023, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 12). - 88 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Changes in the allowance for credit losses on bank loans were as follows: December 31, 2023 First Mortgages HELOCs Total residential real estate Pledged asset lines Other Total Balance at beginning of year $ 66 $ 4 $ 70 $ — $ 3 $ 73 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses ( 34 ) ( 2 ) ( 36 ) — 1 ( 35 ) Balance at end of year $ 32 $ 2 $ 34 $ — $ 4 $ 38 December 31, 2022 Balance at beginning of year $ 13 $ 2 $ 15 $ — $ 3 $ 18 Charge-offs — — — ( 4 ) — ( 4 ) Recoveries — 1 1 — — 1 Provision for credit losses 53 1 54 4 — 58 Balance at end of year $ 66 $ 4 $ 70 $ — $ 3 $ 73 December 31, 2021 Balance at beginning of year $ 22 $ 5 $ 27 $ — $ 3 $ 30 Charge-offs — — — — ( 1 ) ( 1 ) Recoveries — 1 1 — — 1 Provision for credit losses ( 9 ) ( 4 ) ( 13 ) — 1 ( 12 ) Balance at end of year $ 13 $ 2 $ 15 $ — $ 3 $ 18 As discussed in Note 2, the Company charges off any unsecured PAL balances no later than 90-days past due. PALs are also subject to the collateral maintenance practical expedient under ASC 326 Financial Instruments — Credit Losses . All PALs were fully collateralized by securities with fair values in excess of borrowings as of December 31, 2023 and 2022, respectively. Therefore, no allowance for credit losses for PALs as of those dates was required. 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 Nonaccrual loans (1) $ 15 $ 23 Other real estate owned (2) — 2 Total nonperforming assets $ 15 $ 25 (1) Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02. (2) Included in other assets on the consolidated balance sheets. - 89 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Credit Quality In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following: • Year of origination; • Borrower FICO scores at origination (Origination FICO); • Updated borrower FICO scores (Updated FICO); • Loan-to-value (LTV) ratios at origination (Origination LTV); and • Estimated Current LTV ratios (Estimated Current LTV). Borrowers’ FICO scores are provided by an independent third-party credit reporting service and generally updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index. The credit quality indicators of the Company’s First Mortgages and HELOCs are detailed below: First Mortgages Amortized Cost Basis by Origination Year December 31, 2023 2023 2022 2021 2020 2019 pre-2019 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ — $ 2 $ 1 $ 1 $ — $ 1 $ 5 $ — $ — $ — 620 – 679 4 27 30 20 2 13 96 — 1 1 680 – 739 299 782 1,160 395 106 188 2,930 50 38 88 ≥740 2,391 5,258 10,439 3,558 743 733 23,122 261 129 390 Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 851 $ 935 $ 26,153 $ 311 $ 168 $ 479 Origination LTV ≤70% $ 1,818 $ 4,492 $ 10,078 $ 3,306 $ 687 $ 695 $ 21,076 $ 279 $ 117 $ 396 >70% – ≤90% 876 1,577 1,552 668 164 238 5,075 32 50 82 >90% – ≤100% — — — — — 2 2 — 1 1 Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 851 $ 935 $ 26,153 $ 311 $ 168 $ 479 Updated FICO <620 $ 4 $ 15 $ 19 $ 8 $ 2 $ 15 $ 63 $ 2 $ 5 $ 7 620 – 679 46 77 87 38 11 39 298 6 10 16 680 – 739 265 575 984 316 61 108 2,309 48 26 74 ≥740 2,379 5,402 10,540 3,612 777 773 23,483 255 127 382 Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 851 $ 935 $ 26,153 $ 311 $ 168 $ 479 Estimated Current LTV (1) ≤70% $ 1,853 $ 4,855 $ 11,341 $ 3,960 $ 850 $ 931 $ 23,790 $ 308 $ 167 $ 475 >70% – ≤90% 841 1,185 289 14 1 4 2,334 3 1 4 >90% – ≤100% — 28 — — — — 28 — — — >100% — 1 — — — — 1 — — — Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 851 $ 935 $ 26,153 $ 311 $ 168 $ 479 Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — Percent of Loans on Nonaccrual Status 0.01 % 0.02 % 0.01 % 0.01 % 0.01 % 0.36 % 0.03 % 0.07 % 2.40 % 0.84 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. - 90 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) First Mortgages Amortized Cost Basis by Origination Year December 31, 2022 2022 2021 2020 2019 pre-2019 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ 3 $ 1 $ — $ — $ 1 $ 5 $ — $ — $ — 620 – 679 28 31 21 2 15 97 — 2 2 680 – 739 820 1,224 430 116 243 2,833 59 47 106 ≥740 5,593 11,037 3,819 811 1,003 22,263 323 166 489 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Origination LTV ≤70% $ 4,771 $ 10,641 $ 3,549 $ 749 $ 940 $ 20,650 $ 332 $ 153 $ 485 >70% – ≤90% 1,673 1,652 721 180 320 4,546 50 61 111 >90% – ≤100% — — — — 2 2 — 1 1 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Updated FICO <620 $ 11 $ 12 $ 7 $ 2 $ 13 $ 45 $ 2 $ 5 $ 7 620 – 679 87 127 42 10 43 309 6 10 16 680 – 739 711 1,079 378 89 161 2,418 52 35 87 ≥740 5,635 11,075 3,843 828 1,045 22,426 322 165 487 Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Estimated Current LTV (1) ≤70% $ 4,574 $ 11,751 $ 4,255 $ 928 $ 1,257 $ 22,765 $ 380 $ 214 $ 594 >70% – ≤90% 1,845 542 15 1 5 2,408 2 1 3 >90% – ≤100% 25 — — — — 25 — — — >100% — — — — — — — — — Total $ 6,444 $ 12,293 $ 4,270 $ 929 $ 1,262 $ 25,198 $ 382 $ 215 $ 597 Percent of Loans on Nonaccrual Status 0.02 % 0.03 % 0.09 % 0.02 % 0.43 % 0.06 % 0.34 % 1.90 % 0.84 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. At December 31, 2023, First Mortgage loans of $ 21.5 billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 27 % of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 86 % of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates. At December 31, 2023 and 2022, Schwab had $ 157 million and $ 134 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and is included in other assets on the consolidated balance sheets. The HELOC product has a 30 -year loan term with an initial draw period of ten years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a 20 -year amortizing loan. The interest rate during the initial draw period and the 20 -year amortizing period is a floating rate based on the prime rate plus a margin. - 91 - 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 following table presents when current outstanding HELOCs will convert to amortizing loans: December 31, 2023 Balance Converted to an amortizing loan by period end (1) $ 168 Within 1 year 18 > 1 year – 3 years 41 > 3 years – 5 years 47 > 5 years 205 Total $ 479 (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. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At December 31, 2023, the borrowers on approximately 60 % of HELOC loan balances outstanding only paid the minimum amount due. 7. Equipment, Office Facilities, and Property Equipment, office facilities, and property are detailed below: December 31, 2023 2022 Software $ 3,375 $ 2,940 Buildings 1,720 1,693 Information technology and telecommunications equipment 1,133 1,008 Leasehold improvements 411 472 Land 214 209 Construction in progress 213 274 Other 380 351 Total equipment, office facilities, and property 7,446 6,947 Accumulated depreciation and amortization ( 3,756 ) ( 3,233 ) 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. - 92 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 8. Goodwill and Acquired Intangible Assets The changes in the carrying amount of goodwill, as allocated to our reportable segments, are presented in the following table: Investor 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 Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value Client relationships $ 10,088 $ ( 1,933 ) $ 8,155 $ 10,085 $ ( 1,422 ) $ 8,663 Technology 299 ( 284 ) 15 299 ( 261 ) 38 Trade names 123 ( 33 ) 90 120 ( 32 ) 88 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: 2024 $ 519 2025 512 2026 508 2027 508 2028 507 Thereafter 5,618 Total $ 8,172 Note: The above schedule excludes indefinite-lived intangible assets of $ 88 million. - 93 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 9. Other Assets The components of other assets are as follows: December 31, 2023 2022 Deferred tax assets — net $ 4,300 $ 5,370 Other investments (1) 3,155 2,130 Receivables — interest, dividends, and other 2,538 1,919 Other securities owned at fair value (2) 1,913 1,432 Other receivables from brokers, dealers, and clearing organizations 1,764 2,171 Securities borrowed 1,563 705 Operating lease ROU assets 630 894 Customer contract receivables (3) 599 560 Capitalized contract costs 416 379 Contract assets — net 239 — Other 783 539 Total other assets $ 17,900 $ 16,099 (1) Includes LIHTC investments and certain other CRA-related investments (see Note 10). 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. 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. Corresponding repurchase liabilities in an equal amount for these client-held fractional shares are included in accrued expenses and other liabilities on the consolidated balance sheet. See also Notes 2 and 18. (3) Represents substantially all receivables from contracts with customers within the scope of ASC 606. Capitalized contract costs Capitalized contract costs relate to incremental costs of obtaining a contract with a customer, including sales commissions paid to employees for obtaining contracts with clients, and are presented in the table above. These costs are amortized to expense on a straight-line basis over a period that is consistent with how the related revenue is recognized. 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. 10. Variable Interest Entities As of December 31, 2023 and 2022, substantially all of Schwab’s involvement with VIEs is through CSB’s CRA-related investments and most of these are related to LIHTC investments. As part of CSB’s community reinvestment initiatives, CSB invests in funds that make equity investments in multifamily affordable housing properties and receives tax credits and other tax benefits for these investments. During 2023, 2022, and 2021, CSB recorded amortization of $ 119 million, $ 96 million, and $ 71 million, respectively, and recognized tax credits and other tax benefits of $ 153 million, $ 121 million, and $ 90 million, respectively, associated with these investments. The amortization, as well as the tax credits and other tax benefits, are included in taxes on income. - 94 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 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: December 31, 2023 December 31, 2022 Aggregate assets Aggregate liabilities Maximum exposure to loss Aggregate assets Aggregate liabilities Maximum exposure to loss LIHTC investments (1) $ 1,407 $ 759 $ 1,407 $ 1,094 $ 619 $ 1,094 Other investments (2) 179 — 231 167 — 215 Total $ 1,586 $ 759 $ 1,638 $ 1,261 $ 619 $ 1,309 (1) Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the consolidated balance sheets. (2) Other investments include non-LIHTC CRA investments that are accounted for as loans at amortized cost, equity method investments, AFS securities, or using the adjusted cost method. Aggregate assets are included in AFS securities, bank loans – net, or other assets on the consolidated balance sheets. Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. Schwab’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and Schwab expects to pay substantially all of these commitments between 2024 and 2027. During the years ended December 31, 2023, 2022, and 2021, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide. 11. Bank Deposits Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows: December 31, 2023 2022 Interest-bearing deposits: Deposits swept from brokerage accounts $ 220,274 $ 333,754 Time certificates of deposit (1) 48,297 6,047 Checking 15,691 19,719 Savings and other 4,461 6,098 Total interest-bearing deposits 288,723 365,618 Non-interest-bearing deposits 1,230 1,106 Total bank deposits $ 289,953 $ 366,724 (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: Balance 2024 $ 46,659 2025 1,638 Total $ 48,297 - 95 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 12. Borrowings CSC Senior Notes CSC’s Senior Notes are unsecured obligations. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. Interest for the fixed-to-floating rate Senior Notes is payable semi-annually during the fixed rate period of the notes and quarterly during the floating rate period of the notes. TDA Holding Senior Notes TDA Holding’s Senior Notes are unsecured obligations. TDA Holding may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes. 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. - 96 - 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 following table lists long-term debt by instrument outstanding as of December 31, 2023 and 2022: Date of Principal Amount Outstanding Issuance 2023 2022 CSC Fixed-rate Senior Notes: 2.650 % due January 25, 2023 12/07/17 $ — $ 800 3.550 % due February 1, 2024 10/31/18 500 500 0.750 % due March 18, 2024 03/18/21 1,500 1,500 3.750 % due April 1, 2024 09/24/21 350 350 3.000 % due March 10, 2025 03/10/15 375 375 4.200 % due March 24, 2025 03/24/20 600 600 3.625 % due April 1, 2025 09/24/21 418 418 3.850 % due May 21, 2025 05/22/18 750 750 3.450 % due February 13, 2026 11/13/15 350 350 0.900 % due March 11, 2026 12/11/20 1,250 1,250 1.150 % due May 13, 2026 05/13/21 1,000 1,000 3.200 % due March 2, 2027 03/02/17 650 650 2.450 % due March 3, 2027 03/03/22 1,500 1,500 3.300 % due April 1, 2027 09/24/21 744 744 3.200 % due January 25, 2028 12/07/17 700 700 2.000 % due March 20, 2028 03/18/21 1,250 1,250 4.000 % due February 1, 2029 10/31/18 600 600 3.250 % due May 22, 2029 05/22/19 600 600 2.750 % due October 1, 2029 09/24/21 475 475 4.625 % due March 22, 2030 03/24/20 500 500 1.650 % due March 11, 2031 12/11/20 750 750 2.300 % due May 13, 2031 05/13/21 750 750 1.950 % due December 1, 2031 08/26/21 850 850 2.900 % due March 3, 2032 03/03/22 1,000 1,000 5.875 % due August 24, 2026 08/24/23 1,000 — CSC Floating-rate Senior Notes: SOFR + 0.500 % due March 18, 2024 (1) 03/18/21 1,250 1,250 SOFR + 0.520 % due May 13, 2026 05/13/21 500 500 SOFR + 1.050 % due March 3, 2027 03/03/22 500 500 CSC Fixed-to-Floating rate Senior Notes: 5.643 % due May 19, 2029 (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 TDA Holding Fixed-rate Senior Notes: 3.750 % due April 1, 2024 11/01/18 50 50 3.625 % due April 1, 2025 10/22/14 82 82 3.300 % due April 1, 2027 04/27/17 56 56 2.750 % due October 1, 2029 08/16/19 25 25 Total TDA Holding Senior Notes 213 213 Finance lease liabilities 85 68 Unamortized premium — net 87 129 Debt issuance costs ( 119 ) ( 94 ) Total long-term debt $ 26,128 $ 20,828 (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. - 97 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Annual maturities on all long-term debt outstanding at December 31, 2023, are as follows: Maturities 2024 $ 3,686 2025 2,249 2026 4,112 2027 3,463 2028 1,950 Thereafter 10,700 Total maturities 26,160 Unamortized premium — net 87 Debt issuance costs ( 119 ) Total long-term debt $ 26,128 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 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. 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 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. 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 $ 700 million outstanding at December 31, 2023 and no balance outstanding at December 31, 2022. - 98 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Annual maturities on FHLB borrowings and other short-term borrowings outstanding at December 31, 2023 are as follows: 2024 FHLB borrowings $ 26,400 Other short-term borrowings 6,553 Total $ 32,953 13. Leases The following table details the amounts and locations of lease assets and liabilities on the consolidated balance sheets: December 31, 2023 2022 Lease assets: Balance Sheet Classification Operating lease ROU assets Other assets $ 630 $ 894 Finance lease ROU assets Equipment, office facilities, and property — net 84 66 Lease liabilities: Operating lease liabilities Accrued expenses and other liabilities $ 892 $ 994 Finance lease liabilities Long-term debt 85 68 The components of lease expense are as follows: Year Ended December 31, 2023 2022 2021 Lease Cost Operating lease cost (1) $ 260 $ 242 $ 220 Variable lease cost (2) 48 50 48 (1) Includes short-term lease cost, which is immaterial. (2) Includes payments that are entirely variable and amounts that represent the difference between payments based on an index or rate that is reflected in the lease liability and amounts actually incurred. 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: December 31, 2023 2022 Lease Term and Discount Rate Weighted-average remaining lease term (years) 5.60 5.94 Weighted-average discount rate 3.64 % 3.00 % Maturity of Lease Liabilities Operating Leases 2024 $ 231 2025 230 2026 142 2027 109 2028 74 Thereafter 200 Total lease payments (1) 986 Less: Interest 94 Present value of lease liabilities $ 892 (1) Lease payments exclude $ 17 million of legally binding minimum lease payments for leases signed, but not yet commenced. These leases will commence between 2024 and 2025 with lease terms of 7 to 15 years. - 99 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 14. Commitments and Contingencies Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Rocket Mortgage, LLC (Rocket Mortgage ® ). Pursuant to the Program, Rocket Mortgage originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Rocket Mortgage. CSB purchased First Mortgages of $ 2.9 billion and $ 6.9 billion during 2023 and 2022, respectively. CSB purchased HELOCs with commitments of $ 181 million and $ 315 million during 2023 and 2022, respectively. The Company’s commitments to extend credit on lines of credit and to purchase First Mortgages are as follows: December 31, 2023 2022 Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit $ 2,996 $ 4,533 Commitments to purchase First Mortgage loans 351 492 Total $ 3,347 $ 5,025 Guarantees and indemnifications: Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We satisfy the margin requirements of these transactions through pledging certain client securities. For additional information on these pledged securities, refer to Note 17. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral. The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the amounts it has posted as collateral. The Company also engages third-party firms to clear clients’ futures and options on futures transactions and to facilitate clients’ foreign exchange trading, and has agreed to indemnify these firms for any losses that they may incur from the client transactions introduced to them by the Company. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees. IDA agreement: The 2019 IDA agreement with the TD Depository Institutions became effective on October 6, 2020 and created responsibilities of the Company, 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. 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 - 100 - 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. Legal contingencies: Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available. Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company. Corrente Antitrust Litigation : On June 6, 2022, CSC was sued in the U.S. District Court for the Eastern District of Texas on behalf of a putative class of customers who purchased or sold securities through CS&Co or TD Ameritrade, Inc. from October 26, 2020 to the present. The lawsuit alleges that CSC’s acquisition of TD Ameritrade violated Section 7 of the Clayton Act because it has resulted in an anticompetitive market for the execution of retail customer orders. Plaintiffs seek unspecified damages, as well as injunctive and other relief. A motion by the Company to dismiss the lawsuit was denied by the court on February 24, 2023, and discovery is proceeding. Crago Order Routing Litigation : On July 13, 2016, a securities class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of a putative class of customers executing equity orders through CS&Co. The lawsuit names CS&Co and CSC as defendants and alleges that an agreement under which CS&Co routed orders to UBS Securities LLC between July 13, 2011 and December 31, 2014 violated CS&Co’s duty to seek best execution. Plaintiffs seek unspecified damages, interest, injunctive and equitable relief, and attorneys’ fees and costs. 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 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 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 - 101 - 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 : On September 15, 2014, TDA Holding, TD Ameritrade, Inc. and its former CEO, Frederick J. Tomczyk, were sued in the U.S. District Court for the District of Nebraska on behalf of a putative class of TD Ameritrade, Inc. clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices. 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. Court of Appeals, 8th Circuit, issued a decision reversing the District Court’s certification of a class and remanding the case back to the District Court for further proceedings. Plaintiff renewed his motion for class certification, which the District Court granted on September 20, 2022. Defendants are appealing the District Court’s ruling before the U.S. Court of Appeals, 8th Circuit. 15. Exit and Other Related Liabilities Integration of TD Ameritrade The Company completed its acquisition of TD Ameritrade effective October 6, 2020 and integration work continued during the 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. Such costs have included, and are expected to continue to include, professional fees, such as legal, advisory, and accounting fees, compensation and benefits expenses for employees and contractors involved in the integration work, and costs for technology enhancements. The Company has also incurred exit and other related costs to attain anticipated synergies, which are primarily comprised of employee compensation and benefits such as severance pay, other termination benefits, and retention costs, as well as costs related to facility closures, such as accelerated amortization and depreciation or impairments of assets in those locations. Exit and other related costs are a component of the Company’s overall acquisition and integration-related spending, and support the Company’s ability to achieve integration objectives including expected synergies. Our estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change based on 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. During each of the years ended December 31, 2023, 2022, and 2021, the Company recognized $ 60 million, $ 34 million, and $ 108 million of acquisition-related exit costs, respectively. The Company expects that remaining exit and other related costs will be incurred and charged to expense over the next 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 (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) . - 102 - 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 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 Employee Compensation and Benefits Advisor Services Employee Compensation and Benefits Total Balance at December 31, 2021 (1) $ 28 $ 7 $ 35 Amounts recognized in expense (2) 19 6 25 Costs paid or otherwise settled ( 11 ) ( 3 ) ( 14 ) Balance at December 31, 2022 (1) $ 36 $ 10 $ 46 Amounts recognized in expense (2) 20 4 24 Costs paid or otherwise settled ( 14 ) ( 2 ) ( 16 ) Balance at December 31, 2023 (1) $ 42 $ 12 $ 54 (1) Included in accrued and expenses and other liabilities on the consolidated balance sheets. (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 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 Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 20 $ — $ 20 $ 4 $ — $ 4 $ 24 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 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 Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Cost (1) Advisor Services Total Total Compensation and benefits $ 19 $ — $ 19 $ 6 $ — $ 6 $ 25 Occupancy and equipment — 7 7 — 2 2 9 Total $ 19 $ 7 $ 26 $ 6 $ 2 $ 8 $ 34 (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. 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 Employee Compensation and Benefits Facility Exit Cost (1) Investor Services Total Employee Compensation and Benefits Facility Exit Cost (1) Advisor Services Total Total Compensation and benefits $ 66 $ — $ 66 $ 17 $ — $ 17 $ 83 Occupancy and equipment — 18 18 — 4 4 22 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 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. - 103 - 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 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 Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 243 $ — $ 243 $ 65 $ — $ 65 $ 308 Occupancy and equipment — 40 40 — 9 9 49 Depreciation and amortization — 2 2 — 1 1 3 Professional services — 1 1 — — — 1 Other — 20 20 — 7 7 27 Total $ 243 $ 63 $ 306 $ 65 $ 17 $ 82 $ 388 (1) Costs related to facility closures. These costs, which are primarily comprised of impairment and accelerated amortization of ROU assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties. 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. Other With significant progress now made in the integration of TD Ameritrade, the Company has begun to take incremental actions to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. In order to achieve anticipated cost savings through these actions, the Company expects to incur 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) 214 78 292 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. - 104 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 16. 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) $ 8,765 Cumulative fair value hedging adjustment included in the amortized cost of hedged AFS securities (1,2) ( 85 ) (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) 85 (1) Excludes net income (expense) from periodic interest accruals and receipts (payments) of $ 2 million. - 105 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 17. 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: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investments requirement. Schwab’s resale agreements as of December 31, 2023 and 2022 were not subject to master netting arrangements. Securities lending: 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 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. In addition, most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $ 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; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the consolidated balance sheets. Repurchase agreements: Schwab enters into collateralized repurchase agreements with external financial institutions in which the Company sells securities and agrees to repurchase these securities on a specified future date at a stated repurchase price. These repurchase agreements are collateralized by investment securities with a fair value equal to or in excess of the secured borrowing liability. Decreases in security prices posted as collateral for repurchase agreements may require Schwab to transfer cash or additional securities deemed acceptable by the counterparty. To mitigate this risk, Schwab monitors the fair value of underlying securities pledged as collateral compared to the related liability. Our collateralized repurchase agreements with each external financial institution are considered to be enforceable master netting arrangements. However, we do not net these arrangements. As such, the secured short-term borrowings associated with these collateralized repurchase agreements are presented gross in the consolidated balance sheets. - 106 - 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 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. Gross Assets/ Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets Net Amount Counterparty Offsetting Collateral December 31, 2023 Assets Resale agreements (1) $ 8,844 $ — $ 8,844 $ — $ ( 8,844 ) (2) $ — Securities borrowed (3) 1,563 — 1,563 ( 1,307 ) ( 253 ) 3 Interest rate swaps (4) — — — — — (5) — Total $ 10,407 $ — $ 10,407 $ ( 1,307 ) $ ( 9,097 ) $ 3 Liabilities Repurchase agreements (6) $ 4,903 $ — $ 4,903 $ — $ ( 4,903 ) $ — Securities loaned (7) 5,397 — 5,397 ( 1,307 ) ( 3,619 ) 471 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 December 31, 2022 Assets Resale agreements (1) $ 12,159 $ — $ 12,159 $ — $ ( 12,159 ) (2) $ — Securities borrowed (3) 705 — 705 ( 331 ) ( 366 ) 8 Total $ 12,864 $ — $ 12,864 $ ( 331 ) $ ( 12,525 ) $ 8 Liabilities Repurchase agreements (6) $ 4,402 $ — $ 4,402 $ — $ ( 4,402 ) $ — Securities loaned (7) 4,200 — 4,200 ( 331 ) ( 3,313 ) 556 Total $ 8,602 $ — $ 8,602 $ ( 331 ) $ ( 7,715 ) $ 556 (1) Included in cash and investments segregated and on deposit for regulatory purposes in the consolidated balance sheets. (2) Actual collateral was greater than or equal to the value of the related assets. At December 31, 2023 and 2022, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $ 9.0 billion and $ 12.3 billion, respectively. (3) Included in other assets 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, 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 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. Client trade settlement: Schwab is obligated to settle transactions with brokers and other financial institutions even if our clients fail to meet their obligations to us. Clients are required to complete their transactions on settlement date, generally two business days after the trade date. If clients do not fulfill their contractual obligations, we may incur losses. We have established procedures to reduce this risk by requiring deposits from clients in excess of amounts prescribed by regulatory requirements for certain types of trades, and therefore the potential to make payments under these client transactions is remote. Accordingly, no liability has been recognized for these transactions. - 107 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged to third parties under such regulations and from securities borrowed transactions: December 31, 2023 2022 Fair value of client securities available to be pledged $ 86,911 $ 86,775 Fair value of securities pledged for: Fulfillment of requirements with the Options Clearing Corporation (1) $ 13,355 $ 11,717 Fulfillment of client short sales 7,009 4,750 Securities lending to other broker-dealers 4,688 3,472 Collateral for secured short-term borrowings 1,991 — Total collateral pledged to third parties $ 27,043 $ 19,939 Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $ 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. - 108 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 18. Fair Values of Assets and Liabilities For a description of the fair value hierarchy and Schwab’s fair value methodologies, including the use of independent third-party pricing services, see Note 2. The Company did not adjust prices received from the primary independent third-party pricing service at December 31, 2023 or 2022. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis: December 31, 2023 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 14,573 $ — $ — $ 14,573 Total cash equivalents 14,573 — — 14,573 Investments segregated and on deposit for regulatory purposes: U.S. Government securities — 20,358 — 20,358 Total investments segregated and on deposit for regulatory purposes — 20,358 — 20,358 Available for sale securities: U.S. agency mortgage-backed securities — 62,795 — 62,795 U.S. Treasury securities — 21,471 — 21,471 Corporate debt securities — 12,484 — 12,484 Asset-backed securities — 9,087 — 9,087 Foreign government agency securities — 1,002 — 1,002 U.S. state and municipal securities — 579 — 579 Non-agency commercial mortgage-backed securities — 109 — 109 Certificates of deposit — 100 — 100 Other — 19 — 19 Total available for sale securities — 107,646 — 107,646 Other assets: Other securities owned: Equity, corporate debt, and other securities 992 73 — 1,065 Mutual funds and ETFs 795 — — 795 State and municipal debt obligations — 27 — 27 U.S. Government securities — 26 — 26 Total other securities owned 1,787 126 — 1,913 Total other assets 1,787 126 — 1,913 Total assets $ 16,360 $ 128,130 $ — $ 144,490 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 - 109 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) December 31, 2022 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 14,007 $ — $ — $ 14,007 Commercial paper — 48 — 48 Total cash equivalents 14,007 48 — 14,055 Investments segregated and on deposit for regulatory purposes: U.S. Government securities — 23,645 — 23,645 Certificates of deposit — 1,000 — 1,000 Total investments segregated and on deposit for regulatory purposes — 24,645 — 24,645 Available for sale securities: U.S. agency mortgage-backed securities — 77,688 — 77,688 U.S. Treasury securities — 40,002 — 40,002 Asset-backed securities — 13,023 — 13,023 Corporate debt securities — 12,555 — 12,555 Certificates of deposit — 2,231 — 2,231 Foreign government agency securities — 969 — 969 U.S. state and municipal securities — 638 — 638 Non-agency commercial mortgage-backed securities — 450 — 450 Other — 315 — 315 Total available for sale securities — 147,871 — 147,871 Other assets: Other securities owned: Equity, corporate debt, and other securities 755 55 — 810 Mutual funds and ETFs 596 — — 596 State and municipal debt obligations — 25 — 25 U.S. Government securities — 1 — 1 Total other securities owned 1,351 81 — 1,432 Total other assets 1,351 81 — 1,432 Total assets $ 15,358 $ 172,645 $ — $ 188,003 Accrued expenses and other liabilities: Other $ 1,218 $ 43 $ — $ 1,261 Total accrued expenses and other liabilities 1,218 43 — 1,261 Total liabilities $ 1,218 $ 43 $ — $ 1,261 - 110 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Fair Value of Other Financial Instruments The following tables present the fair value hierarchy for other financial instruments: December 31, 2023 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 28,764 $ 28,764 $ — $ — $ 28,764 Cash and investments segregated and on deposit for regulatory purposes 11,438 2,628 8,810 — 11,438 Receivables from brokerage clients — net 68,629 — 68,629 — 68,629 Held to maturity securities: U.S. agency mortgage-backed securities 159,452 — 147,091 — 147,091 Total held to maturity securities 159,452 — 147,091 — 147,091 Bank loans — net: First Mortgages 26,121 — 23,226 — 23,226 HELOCs 477 — 508 — 508 Pledged asset lines 13,548 — 13,548 — 13,548 Other 293 — 293 — 293 Total bank loans — net 40,439 — 37,575 — 37,575 Other assets 4,960 — 4,960 — 4,960 Liabilities Bank deposits $ 289,953 $ — $ 289,953 $ — $ 289,953 Payables to brokerage clients 84,786 — 84,786 — 84,786 Accrued expenses and other liabilities 7,609 — 7,609 — 7,609 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 December 31, 2022 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 26,140 $ 26,140 $ — $ — $ 26,140 Cash and investments segregated and on deposit for regulatory purposes 18,288 6,156 12,132 — 18,288 Receivables from brokerage clients — net 66,573 — 66,573 — 66,573 Held to maturity securities: U.S. agency mortgage-backed securities 173,074 — 158,936 — 158,936 Total held to maturity securities 173,074 — 158,936 — 158,936 Bank loans — net: First Mortgages 25,132 — 22,201 — 22,201 HELOCs 593 — 657 — 657 Pledged asset lines 14,592 — 14,592 — 14,592 Other 188 — 188 — 188 Total bank loans — net 40,505 — 37,638 — 37,638 Other assets 3,788 — 3,788 — 3,788 Liabilities Bank deposits $ 366,724 $ — $ 366,724 $ — $ 366,724 Payables to brokerage clients 97,438 — 97,438 — 97,438 Accrued expenses and other liabilities 5,584 — 5,584 — 5,584 Other short-term borrowings 4,650 — 4,650 — 4,650 Federal Home Loan Bank borrowings 12,400 — 12,400 12,400 Long-term debt 20,760 — 19,108 — 19,108 - 111 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 19. Stockholders’ Equity 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 Company’s certificate of incorporation. Shares of nonvoting common stock transferred in a permitted outside transfer are automatically converted to shares of common stock. 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. Following this transfer and CSC’s repurchase of nonvoting common stock described below, TD Bank and its affiliates held approximately 51 million shares of nonvoting common stock as of December 31, 2023. Share Repurchase Program 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. On August 1, 2022, CSC purchased, directly from an affiliate of TD Bank, 15 million shares of nonvoting common stock for a total of $ 1.0 billion, or approximately $ 66.53 per share. The shares of nonvoting common stock automatically converted into common stock and were purchased under CSC’s new share repurchase authorization. The purchase price paid by CSC was equal to the lowest price per share that the affiliate of TD Bank received in a contemporaneous share sale facilitated by a third-party market maker, which resulted in a purchase price lower than the closing price on August 1, 2022. 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. 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 On March 18, 2021, the Company issued and sold 2,250,000 depositary shares, each representing a 1/100th ownership interest in a share of 4.000 % fixed-rate reset non-cumulative perpetual preferred stock, Series I, $ .01 par value per share, with a liquidation preference of $ 100,000 per share (equivalent of $ 1,000 per depositary share). The net proceeds of the offering were $ 2.2 billion, after deducting the underwriting discount and offering expenses. 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). The net proceeds of the offering were $ 584 million, after deducting the underwriting discount and offering expenses. On June 1, 2021, the Company redeemed all of the 600,000 outstanding shares of its 6.00 % non-cumulative perpetual preferred stock, Series C, and the corresponding 24,000,000 depositary shares, each representing a 1/40th interest in a share of the Series C preferred stock. 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 - 112 - 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 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 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 / Floating Rate Margin Over Reset / Floating Rate Shares Issued and Outstanding (in ones) at December 31, Liquidation Preference Per Share Carrying Value at December 31, Earliest Redemption Date 2023 (1) 2022 (1) 2023 2022 Issue Date Fixed-rate: Series D 750,000 750,000 1,000 728 728 03/07/16 5.950 % 06/01/21 N/A N/A N/A Series J 600,000 600,000 1,000 584 584 03/30/21 4.450 % 06/01/26 N/A N/A N/A Fixed-to-floating rate/Fixed-rate reset: Series F 4,884 5,000 100,000 481 492 10/31/17 5.000 % 12/01/27 12/01/27 3M LIBOR (4) 2.575 % Series G (2) 24,580 25,000 100,000 2,428 2,470 04/30/20 5.375 % 06/01/25 06/01/25 5 -Year Treasury 4.971 % Series H (3) 22,267 25,000 100,000 2,200 2,470 12/11/20 4.000 % 12/01/30 12/01/30 10 -Year Treasury 3.079 % Series I (2) 20,554 22,500 100,000 2,030 2,222 03/18/21 4.000 % 06/01/26 06/01/26 5 -Year Treasury 3.168 % Series K (2) 7,500 7,500 100,000 740 740 03/04/22 5.000 % 06/01/27 06/01/27 5 -Year Treasury 3.256 % Total preferred stock 1,429,785 1,435,000 9,191 9,706 (1) Represented by depositary shares. (2) The dividend rate for Series G, Series I and Series K resets on each five-year anniversary from the first reset date. (3) The dividend rate for Series H resets on each ten-year anniversary from the first reset date. (4) The reset/floating rate for Series F will be determined by the calculation agent prior to the commencement of the floating rate period using what the calculation agent determines to be the industry-accepted substitute or successor base rate to LIBOR. N/A Not applicable. - 113 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Dividends declared on the Company’s preferred stock are as follows: Year Ended December 31, 2023 2022 2021 Total Declared (1) (in millions) Per Share Amount Total Declared (in millions) Per Share Amount Total Declared (in millions) Per Share Amount Series A (2) N/A N/A $ 19.1 $ 47.73 $ 28.0 $ 70.00 Series C (3) 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 Series E (4) 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 Series G 132.2 5,375.00 134.4 5,375.00 134.4 5,375.00 Series H (5) 90.4 4,000.00 100.0 4,000.00 97.2 3,888.89 Series I (6) 82.8 4,000.00 90.0 4,000.00 63.2 2,811.11 Series J (7) 26.7 44.52 26.7 44.52 17.9 29.8 Series K (8) 37.4 5,000.00 27.8 3,708.33 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. Prior to redemption, dividends were paid semi-annually until February 1, 2022 and quarterly thereafter. The final dividend was paid on November 1, 2022. (3) Series C was redeemed on June 1, 2021. Prior to redemption, dividends were paid quarterly and the final dividend was paid on June 1, 2021. (4) Series E was redeemed on December 1, 2022. Prior to redemption, dividends were paid semi-annually until March 1, 2022 and quarterly thereafter. The final dividend was paid on December 1, 2022. (5) Series H was issued on December 11, 2020. Dividends are paid quarterly, and the first dividend was paid on March 1, 2021. (6) Series I was issued on March 18, 2021. Dividends are paid quarterly, and the first dividend was paid on June 1, 2021. (7) Series J was issued on March 30, 2021. Dividends are paid quarterly, and the first dividend was paid on June 1, 2021. (8) Series K was issued on March 4, 2022. Dividends are paid quarterly, and the first dividend was paid on June 1, 2022. N/A Not applicable. Dividends on CSC’s preferred stock are not cumulative and will only be paid on a series of preferred stock for a dividend period if declared by CSC’s Board of Directors. Under the terms of each series of preferred stock, CSC’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock or any preferred stock ranking on parity with or junior to the series of preferred stock, is subject to restrictions in the event that CSC does not declare and either pay or set aside a sum sufficient for payment of dividends on the series of preferred stock for the immediately preceding dividend period. Dividends on fixed-rate and fixed-rate reset preferred stock are payable quarterly. Dividends on fixed-to-floating-rate preferred stock are payable semi-annually while at a fixed rate and will become payable quarterly after converting to a floating rate. Redemption Rights Each series of CSC’s preferred stock, except for Series G, may be redeemed at CSC’s option on any dividend payment date on or after the earliest redemption date for that series. Series G preferred stock may be redeemed at CSC’s option on any reset date on or after the earliest redemption date for the series. All outstanding preferred stock series may also be redeemed following a “capital treatment event,” as described in the terms of each series set forth in the relevant certificate of designations. Any redemption of CSC’s preferred stock is subject to approval from the Federal Reserve. - 114 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 20. Accumulated Other Comprehensive Income AOCI represents cumulative gains and losses that are not reflected in earnings. AOCI balances and the components of other comprehensive income (loss) are as follows: Total AOCI Balance at December 31, 2020 $ 5,394 Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $( 2,029 ) ( 6,492 ) Other reclassifications included in other revenue, net of tax expense (benefit) of $( 1 ) ( 3 ) Other, net of tax expense (benefit) of $( 3 ) ( 8 ) Balance at December 31, 2021 $ ( 1,109 ) Available for sale securities: Net unrealized gain (loss), excluding transfers to held to maturity, net of tax expense (benefit) of $( 6,994 ) ( 22,106 ) Net unrealized loss on securities transferred to held to maturity, net of tax benefit of $ 4,377 13,851 Other reclassifications included in other revenue, net of tax expense (benefit) of $ 2 7 Held to maturity securities: Net unrealized loss on securities transferred from available for sale, net of tax benefit of $ 4,377 ( 13,851 ) Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 165 542 Other, net of tax expense (benefit) of $ 15 45 Balance at December 31, 2022 $ ( 22,621 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $ 886 2,653 Other reclassifications included in other revenue, net of tax expense (benefit) of $ 15 46 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 657 1,817 Other, net of tax expense (benefit) of $( 9 ) ( 26 ) 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. - 115 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 21. Employee Incentive, Retirement, Deferred Compensation, and Career Achievement Plans 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 certain eligible employees and non-employee directors. A summary of share-based compensation expense and related income tax benefit is as follows: Year Ended December 31, 2023 2022 2021 Stock option expense $ 33 $ 30 $ 36 Restricted stock unit expense 262 311 200 Employee stock purchase plan expense 25 25 18 Total share-based compensation expense $ 320 $ 366 $ 254 Income tax benefit on share-based compensation expense (1) $ ( 76 ) $ ( 88 ) $ ( 60 ) (1) Excludes income tax benefits from stock options exercised and restricted stock units vested of $ 31 million, $ 51 million, and $ 93 million in 2023, 2022, and 2021, respectively. The Company issues shares for stock options and restricted stock units from treasury stock. On May 17, 2022, stockholders approved the 2022 Stock Incentive Plan which, among other things, increased the number of shares of common stock available for issuance to 113 million, plus up to 150 million shares from outstanding awards from predecessor stock incentive plans that expire, are forfeited or cancelled, or that are reacquired by the Company after May 17, 2022. At December 31, 2023, the Company was authorized to grant up to 108 million common shares under its existing stock incentive plans. Additionally, at December 31, 2023, the Company had 25 million shares reserved for future issuance under its employee stock purchase plan. 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. Stock Option Plan Options are granted for the purchase of shares of common stock at an exercise price not less than market value on the date of grant, and expire ten years from the date of grant. Options generally vest annually over a one - to four-year period from the date of grant. Stock option activity is summarized below: Number of Options (in millions) Weighted- Average Exercise Price per Share Weighted- Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at December 31, 2022 16 $ 42.98 4.95 $ 646 Granted 3 68.25 Exercised ( 1 ) 28.29 Forfeited (1) — 63.16 Expired (1) — 39.30 Outstanding at December 31, 2023 18 $ 48.69 5.20 $ 379 Vested and expected to vest at December 31, 2023 17 $ 48.44 5.12 $ 377 Vested and exercisable at December 31, 2023 13 $ 41.51 3.84 $ 355 (1) Number of options was less than 500 thousand. 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. - 116 - 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: Year Ended December 31, 2023 2022 2021 Weighted-average fair value of options granted per share $ 19.72 $ 22.09 $ 19.51 Cash received from options exercised 49 64 221 Tax benefit realized on options exercised 12 22 61 Aggregate intrinsic value of options exercised 62 113 322 We use an option pricing model to estimate the fair value of options granted. The model takes into account the contractual term of the stock option, expected volatility, dividend yield, and the risk-free interest rate. Expected volatility is based on the implied volatility of publicly-traded options on CSC’s stock. Dividend yield is based on the average historical CSC dividend yield. The risk-free interest rate is based on the yield of a U.S. Treasury zero-coupon issue with a remaining term similar to the contractual term of the option. We use historical option exercise data, which includes employee termination data, to estimate the probability of future option exercises. The assumptions used to value the options granted during the years presented and their expected lives were as follows: Year Ended December 31, 2023 2022 2021 Weighted-average expected dividend yield 1.70 % 1.18 % 1.36 % Weighted-average expected volatility 31 % 33 % 37 % Weighted-average risk-free interest rate 3.9 % 1.8 % 0.8 % Expected life (in years) 4.1 - 5.3 4.1 - 5.2 4.2 - 5.4 Restricted Stock Units Restricted stock units are awards that entitle the holder to receive shares of CSC’s common stock following a vesting period and are restricted from transfer or sale until vested. Restricted stock units without performance conditions generally vest annually over a one - to four-year period, while performance-based restricted stock units generally cliff vest over a three-year period and also require the Company to achieve certain financial or other measures prior to vesting. The fair value of restricted stock units is based on the market price of the Company’s stock on the date of grant. 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 Company’s restricted stock units activity is summarized below: Restricted Stock Units Without Performance Conditions (in millions) Performance-Based Restricted Stock Units (in millions) Total Number of Restricted Stock Units (in millions) Weighted- Average Grant Date Fair Value per Unit Outstanding at December 31, 2022 7 4 11 $ 62.12 Granted (1) 3 — 3 76.73 Vested ( 3 ) ( 1 ) ( 4 ) 50.60 Forfeited (1) — — — 69.22 Outstanding at December 31, 2023 7 3 10 $ 72.76 (1) Number of units was less than 500 thousand. Retirement and Deferred Compensation Plans Employees can participate in Schwab’s qualified retirement plan, the SchwabPlan Retirement Savings and Investment Plan. The Company may match certain employee contributions or make additional contributions to this plan at its discretion. 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 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. - 117 - 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 The financial consultant career achievement plan is a noncontributory, unfunded, nonqualified plan for eligible financial consultants. A financial consultant is eligible for earned cash payments after retirement contingent upon meeting certain performance levels, tenure, age, and client transitioning requirements. Allocations to the plan are calculated annually based on performance levels achieved and eligible compensation, and are subject to general creditors of 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: December 31, 2023 2022 Projected benefit obligation at beginning of year $ 78 $ 119 Benefit cost (1) 12 19 Actuarial loss (gain) (2) 35 ( 60 ) Projected benefit obligation at end of year (3) $ 125 $ 78 (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 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. 22. Taxes on Income The components of taxes on income are as follows: Year Ended December 31, 2023 2022 2021 Current: Federal $ 1,658 $ 1,889 $ 1,507 State 131 334 298 Total current 1,789 2,223 1,805 Deferred: Federal ( 395 ) ( 26 ) 38 State ( 83 ) 8 15 Total deferred ( 478 ) ( 18 ) 53 Taxes on income $ 1,311 $ 2,205 $ 1,858 - 118 - 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: December 31, 2023 2022 Deferred tax assets: 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 Net operating loss carryforwards 8 9 Other 219 158 Total deferred tax assets 6,688 7,915 Valuation allowance ( 16 ) ( 9 ) Deferred tax assets — net of valuation allowance 6,672 7,906 Deferred tax liabilities: Amortization of acquired intangible assets ( 1,758 ) ( 1,837 ) Capitalized internal-use software development costs ( 200 ) ( 187 ) Operating lease ROU assets ( 156 ) ( 224 ) Equipment, office facilities, and property ( 109 ) ( 151 ) Other ( 149 ) ( 137 ) Total deferred tax liabilities ( 2,372 ) ( 2,536 ) 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, 2023 and 2022. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: Year Ended December 31, 2023 2022 2021 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % 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 ) Other ( 0.3 ) ( 0.5 ) 0.9 Effective income tax rate 20.6 % 23.5 % 24.1 % A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: December 31, 2023 2022 Balance at beginning of year $ 205 $ 271 Additions for tax positions related to the current year 46 36 Additions for tax positions related to prior years 177 12 Reductions for tax positions related to prior years ( 36 ) ( 59 ) Reductions due to lapse of statute of limitations ( 8 ) ( 13 ) Reductions for settlements with tax authorities ( 4 ) ( 42 ) Balance at end of year $ 380 $ 205 Unrecognized tax benefits totaled $ 380 million and $ 205 million as of December 31, 2023 and 2022, respectively, $ 315 million and $ 165 million of which if recognized, would affect the annual effective tax rate. Interest and penalties were accrued related to unrecognized tax benefits in tax expense. At December 31, 2023 and 2022, we had accrued approximately $ 72 million and $ 41 million, respectively, for the payment of interest and penalties. The Company and its subsidiaries are subject to routine examinations by the respective federal, state, and applicable local jurisdictions’ taxing authorities. Federal returns for 2017 through 2022 remain subject to examination. The years open to examination by state and local governments vary by jurisdiction. - 119 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 23. Regulatory Requirements CSC is a savings and loan holding company and is subject to examination, supervision, and regulation by the Federal Reserve. CSB, CSC’s primary depository institution subsidiary, is a Texas-chartered state savings bank and is a member of the Federal Reserve system. 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 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. In addition, our banking subsidiaries are required to provide notice to, and are required to obtain approval from, the Federal Reserve and the banking subsidiaries’ state regulators in order to declare and pay dividends to CSC in excess of the amount of recent net income and retained earnings. The federal banking agencies have broad powers to enforce regulations, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver. Under the prompt corrective action provisions of the Federal Deposit Insurance Act, CSB could be subject to restrictive actions if it were to fall within one of the lowest three of five capital categories. CSC and CSB are required to maintain minimum capital levels as specified in federal banking regulations. Failure to meet the minimum levels could result in certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on CSC and CSB. At December 31, 2023, both CSC and CSB met all of their respective capital requirements. The regulatory capital and ratios for CSC (consolidated) and CSB are as follows: Actual Minimum to be Well Capitalized Minimum Capital Requirement December 31, 2023 Amount Ratio Amount Ratio Amount Ratio (1) CSC Common Equity Tier 1 Risk-Based Capital $ 31,411 24.5 % N/A $ 5,770 4.5 % Tier 1 Risk-Based Capital 40,602 31.7 % N/A 7,694 6.0 % Total Risk-Based Capital 40,645 31.7 % N/A 10,258 8.0 % Tier 1 Leverage 40,602 8.5 % N/A 19,043 4.0 % Supplementary Leverage Ratio 40,602 8.5 % N/A 14,379 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 31,777 37.9 % $ 5,448 6.5 % $ 3,771 4.5 % Tier 1 Risk-Based Capital 31,777 37.9 % 6,705 8.0 % 5,029 6.0 % Total Risk-Based Capital 31,816 38.0 % 8,381 10.0 % 6,705 8.0 % Tier 1 Leverage 31,777 10.1 % 15,793 5.0 % 12,634 4.0 % Supplementary Leverage Ratio 31,777 10.0 % N/A 9,540 3.0 % December 31, 2022 CSC Common Equity Tier 1 Risk-Based Capital $ 30,590 21.9 % N/A $ 6,258 4.5 % Tier 1 Risk-Based Capital 40,296 28.9 % N/A 8,379 6.0 % Total Risk-Based Capital 40,376 28.9 % N/A 11,173 8.0 % Tier 1 Leverage 40,296 7.2 % N/A 22,512 4.0 % Supplementary Leverage Ratio 40,296 7.1 % N/A 17,004 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 27,296 27.4 % $ 6,476 6.5 % $ 4,483 4.5 % Tier 1 Risk-Based Capital 27,296 27.4 % 7,970 8.0 % 5,978 6.0 % Total Risk-Based Capital 27,370 27.5 % 9,963 10.0 % 7,970 8.0 % Tier 1 Leverage 27,296 7.3 % 18,640 5.0 % 14,912 4.0 % Supplementary Leverage Ratio 27,296 7.3 % N/A 11,275 3.0 % (1) Under risk-based capital rules, CSC and CSB are also required to maintain additional capital buffers above the regulatory minimum risk-based capital ratios. As of December 31, 2023, CSC was subject to a stress capital buffer of 2.5%. In addition, CSB is required to maintain a capital conservation buffer of 2.5%. CSC and CSB are also required to maintain a countercyclical capital buffer above the regulatory minimum risk-based capital ratios, which was zero for both periods presented. If a buffer falls below the minimum requirement, CSC and CSB would be subject to increasingly strict limits on capital distributions and discretionary bonus payments to executive officers. At December 31, 2023, the minimum capital ratio requirements for both CSC and CSB, inclusive of their respective buffers, were 7.0%, 8.5%, and 10.5% for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital, respectively. N/A Not applicable. - 120 - 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. There are no conditions or events since December 31, 2023 that management believes have changed CSB’s capital category. CSC’s other banking subsidiaries are Charles Schwab Premier Bank, SSB (CSPB) and Charles Schwab Trust Bank (Trust Bank). CSPB is a Texas-chartered state savings bank that provides banking and custody services, and Trust Bank is a Nevada-state chartered savings bank that provides trust and custody services. At December 31, 2023 and 2022, the balance sheets of CSPB and Trust Bank primarily consisted of investment securities. At December 31, 2023 and 2022, CSPB held total assets of $ 27.7 billion and $ 31.5 billion, respectively, and Trust Bank held total assets of $ 10.2 billion and $ 13.0 billion, respectively. 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. As securities broker-dealers, CS&Co, TDAC, and TD Ameritrade, Inc. are subject to the SEC’s Uniform Net Capital Rule. CS&Co, TDAC, and TD Ameritrade, Inc. each compute net capital under the alternative method permitted by the Uniform Net Capital Rule, which requires the maintenance of minimum net capital, as defined, of the greater of 2% of aggregate debit balances arising from client transactions or a minimum dollar requirement, which is based on the type of business conducted by the broker-dealer. Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans if such payment would result in a net capital amount of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement. Net capital and net capital requirements for CS&Co, TDAC, and TD Ameritrade, Inc., are as follows: December 31, 2023 2022 CS&Co Net capital $ 5,629 $ 5,386 Minimum dollar requirement 0.250 0.250 2% of aggregate debit balances 1,069 778 Net capital in excess of required net capital $ 4,560 $ 4,608 TDAC Net capital $ 3,634 $ 5,291 Minimum dollar requirement 1.500 1.500 2% of aggregate debit balances 440 626 Net capital in excess of required net capital $ 3,194 $ 4,665 TD Ameritrade, Inc. Net capital $ 444 $ 806 Minimum dollar requirement 0.250 0.250 2% of aggregate debit balances — — Net capital in excess of required net capital $ 444 $ 806 Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at December 31, 2023. The SEC’s Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit, 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 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. - 121 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 24. Segment Information Schwab’s two reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are attributed to the two segments based on which segment services the client. The accounting policies of the segments are the same as those described in Note 2. For the computation of its segment information, Schwab utilizes an activity-based costing model to allocate traditional income statement line item expenses (e.g., compensation and benefits, depreciation and amortization, and professional services) to the business activities driving segment expenses (e.g., client service, opening new accounts, or business development) and a funds transfer pricing methodology to allocate certain revenues. Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments. Financial information for the segments is presented in the following table: Investor Services Advisor Services Total Year Ended December 31, 2023 2022 2021 2023 2022 2021 2023 2022 2021 Net Revenues Net interest revenue $ 7,095 $ 7,819 $ 6,052 $ 2,332 $ 2,863 $ 1,978 $ 9,427 $ 10,682 $ 8,030 Asset management and administration fees 3,398 3,049 3,130 1,358 1,167 1,144 4,756 4,216 4,274 Trading revenue 2,806 3,181 3,753 424 492 399 3,230 3,673 4,152 Bank deposit account fees 524 916 964 181 493 351 705 1,409 1,315 Other 582 605 562 137 177 187 719 782 749 Total net revenues 14,405 15,570 14,461 4,432 5,192 4,059 18,837 20,762 18,520 Expenses Excluding Interest 9,217 8,514 8,289 3,242 2,860 2,518 12,459 11,374 10,807 Income before taxes on income $ 5,188 $ 7,056 $ 6,172 $ 1,190 $ 2,332 $ 1,541 $ 6,378 $ 9,388 $ 7,713 Capital expenditures $ 586 $ 702 $ 771 $ 218 $ 250 $ 270 $ 804 $ 952 $ 1,041 Depreciation and amortization $ 595 $ 471 $ 399 $ 209 $ 181 $ 150 $ 804 $ 652 $ 549 Amortization of acquired intangible assets $ 441 $ 479 $ 499 $ 93 $ 117 $ 116 $ 534 $ 596 $ 615 25. Earnings Per Common Share EPS is computed using the two-class method. Preferred stock dividends, and undistributed earnings and dividends allocated to participating securities are subtracted from net income in determining net income available to common stockholders. Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated similar to basic EPS except that the numerator and denominator are adjusted as necessary for any effects of dilutive potential common shares, which include, if dilutive, outstanding stock options and non-vested restricted stock units. For the years ended December 31, 2023, 2022, and 2021, the Company had voting and nonvoting common stock outstanding. Since the rights of the voting and nonvoting common stock are identical, except with respect to voting, the net income of the Company has been allocated on a proportionate basis to the two classes. Diluted earnings per share is calculated using the treasury stock method for outstanding stock options and non-vested restricted stock units and the if-converted method for nonvoting common stock. The if-converted method assumes conversion of all nonvoting common stock to common stock. - 122 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) EPS under the basic and diluted computations for both common stock and nonvoting common stock are as follows: Year Ended December 31, 2023 2022 2021 Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Basic earnings per share: Numerator Net income $ 4,925 $ 142 $ 6,926 $ 257 $ 5,610 $ 245 Preferred stock dividends and other (1) ( 406 ) ( 12 ) ( 528 ) ( 20 ) ( 474 ) ( 21 ) Net income available to common stockholders $ 4,519 $ 130 $ 6,398 $ 237 $ 5,136 $ 224 Denominator Weighted-average common shares outstanding — basic 1,773 51 1,818 67 1,808 79 Basic earnings per share $ 2.55 $ 2.55 $ 3.52 $ 3.52 $ 2.84 $ 2.84 Diluted earnings per share: Numerator Net income available to common stockholders $ 4,519 $ 130 $ 6,398 $ 237 $ 5,136 $ 224 Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares 130 — 237 — 224 — Allocation of net income available to common stockholders: $ 4,649 $ 130 $ 6,635 $ 237 $ 5,360 $ 224 Denominator Weighted-average common shares outstanding — basic 1,773 51 1,818 67 1,808 79 Conversion of nonvoting shares to voting shares 51 — 67 — 79 — Common stock equivalent shares related to stock incentive plans 7 — 9 — 10 — Weighted-average common shares outstanding — diluted (2) 1,831 51 1,894 67 1,897 79 Diluted earnings per share $ 2.54 $ 2.54 $ 3.50 $ 3.50 $ 2.83 $ 2.83 (1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units. (2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 19 million, 15 million, and 16 million in 2023, 2022, and 2021, respectively. - 123 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) 26. The Charles Schwab Corporation – Parent Company Only Financial Statements Condensed Statements of Income Year Ended December 31, 2023 2022 2021 Interest revenue $ 545 $ 183 $ 11 Interest expense ( 717 ) ( 501 ) ( 355 ) Net interest expense ( 172 ) ( 318 ) ( 344 ) Other revenue — ( 2 ) ( 2 ) Expenses Excluding Interest: 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 ) Loss before income tax benefit and equity in net income of subsidiaries ( 329 ) ( 538 ) ( 488 ) Income tax benefit (expense) 60 32 32 Loss before equity in net income of subsidiaries ( 269 ) ( 506 ) ( 456 ) Equity in net income of subsidiaries: Equity in undistributed net income (distributions in excess of net income) of subsidiaries 1,318 ( 2,432 ) 3,361 Dividends from bank subsidiaries — 6,670 — Dividends from non-bank subsidiaries 4,018 3,451 2,950 Net Income 5,067 7,183 5,855 Preferred stock dividends and other (1) 418 548 495 Net Income Available to Common Stockholders $ 4,649 $ 6,635 $ 5,360 (1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units. Condensed Balance Sheets December 31, 2023 2022 Assets Cash and cash equivalents $ 11,326 $ 8,800 Receivables from subsidiaries 1,193 1,266 Available for sale securities 1,979 4,112 Loans to non-bank subsidiaries 613 — Investment in non-bank subsidiaries 33,485 35,025 Investment in bank subsidiaries 18,324 8,245 Other assets 653 581 Total assets $ 67,573 $ 58,029 Liabilities and Stockholders’ Equity Accrued expenses and other liabilities $ 727 $ 584 Payables to subsidiaries 66 54 Short-term borrowings — 248 Long-term debt 25,822 20,535 Total liabilities 26,615 21,421 Stockholders’ equity 40,958 36,608 Total liabilities and stockholders’ equity $ 67,573 $ 58,029 - 124 - THE CHARLES SCHWAB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted) Condensed Statements of Cash Flows Year Ended December 31, 2023 2022 2021 Cash Flows from Operating Activities Net income $ 5,067 $ 7,183 $ 5,855 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Dividends in excess of (equity in undistributed) earnings of subsidiaries ( 1,318 ) 2,432 ( 3,361 ) Other ( 35 ) 53 21 Net change in: Other assets ( 106 ) ( 230 ) 76 Accrued expenses and other liabilities 77 ( 5 ) 112 Net cash provided by (used for) operating activities 3,685 9,433 2,703 Cash Flows from Investing Activities Due from (to) subsidiaries — net ( 174 ) 333 211 Increase in investments in subsidiaries ( 2,720 ) ( 2,139 ) ( 10,926 ) Purchases of available for sale securities ( 1,486 ) ( 5,699 ) ( 8,002 ) Proceeds from sales of available for sale securities — 2 2 Principal payments on available for sale securities 3,721 5,803 8,754 Other investing activities ( 7 ) ( 25 ) — Net cash provided by (used for) investing activities ( 666 ) ( 1,725 ) ( 9,961 ) Cash Flows from Financing Activities 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 ) — 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 49 64 220 Net cash provided by (used for) financing activities ( 493 ) ( 5,747 ) 9,443 Increase (Decrease) in Cash and Cash Equivalents 2,526 1,961 2,185 Cash and Cash Equivalents at Beginning of Year 8,800 6,839 4,654 Cash and Cash Equivalents at End of Year $ 11,326 $ 8,800 $ 6,839 Supplemental Cash Flow Information Non-cash investing and financing activity: Exchange of TDA Holding-issued senior notes for CSC-issued senior notes $ — $ — $ 1,987 Common stock repurchased during the period but settled after period end $ — $ 40 $ — - 125 - THE CHARLES SCHWAB CORPORATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of The Charles Schwab Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of The Charles Schwab Corporation and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting . Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. - 126 - THE CHARLES SCHWAB CORPORATION Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Asset Management and Administration Fees (AMAF) and Trading Revenue – Refer to Note 3 to the financial statements Critical Audit Matter Description 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 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 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. /s/ DELOITTE & TOUCHE LLP Dallas, TX February 23, 2024 We have served as the Company’s auditor since 1976. - 127 - THE CHARLES SCHWAB CORPORATION Management’s Report on Internal Control Over Financial Reporting Management of The Charles Schwab Corporation, together with its subsidiaries (the Company), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of and effected by the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with accounting principles generally accepted in the United States of America. As of December 31, 2023, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting was effective as of December 31, 2023. The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. The Company’s internal control over financial reporting as of December 31, 2023, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on the previous pages. - 128 - THE CHARLES SCHWAB CORPORATION Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.