What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-08 · 346 added, 554 removed, 549 unchanged (62% of the section changed)

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regulatory capital disclosures based on Basel III, our average liquidity coverage ratio (LCR), and our average net stable funding ratio (NSFR).

The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with them.

The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with the Commission.

FORWARD-LOOKING STATEMENTS

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• Maximizing our market valuation and stockholder returns over time;

our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I – Item 2);

• Expected timing for the TD Ameritrade client transitions;

deal-related asset attrition;

cost estimates and timing related to the TD Ameritrade integration, including acquisition and integration-related costs and capital expenditures, cost synergies, and exit and other related costs (see Overview and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);

• Investments to support growth in our client base (see Overview);

• Our actions to streamline our operations and expectation to realize at least $500 million of incremental run-rate cost savings and the timing and amount of associated exit and related costs that we will incur (see Overview, Results of Operations, and Exit and Other Related Liabilities in Item 1 – Note 10);

• The expected impact of proposed and final rules (see Current Regulatory and Other Developments);

and our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I – Item 2);

• Integration of Ameritrade, including the timing of client transitions, transition-related attrition, the amount and timing of expense and revenue synergies, and the benefits of the combined platform (see Overview in Part I – Item 2, and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);

• Investments to support growth in our client base (see Overview in Part I – Item 2);

• Our actions to streamline our operations and amount of associated exit and related costs that we will incur (see Overview and Results of Operations in Part I – Item 2, and Exit and Other Related Liabilities in Item 1 – Note 10);

• The expected impact of proposed and final rules (see Current Regulatory and Other Developments in Part I – Item 2);

• Net interest revenue;

the adjustment of rates paid on client-related liabilities;

outstanding balances and the use of supplemental funding;

net interest revenue (see Results of Operations);

• Capital expenditures (see Results of Operations);

and outstanding balances and the use of supplemental funding (see Results of Operations in Part I – Item 2);

• Capital expenditures (see Results of Operations in Part I – Item 2);

• Management of interest rate risk;

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

• The phase-out of the use of LIBOR (see Risk Management);

• Sources and uses of liquidity and capital (see Liquidity Risk and Capital Management);

the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity, and liability and asset duration (see Risk Management in Part I – Item 2);

• Sources and uses of liquidity and capital (see Liquidity Risk and Capital Management in Part I – Item 2);

• Capital management;

the potential migration of insured deposit account balances (IDA balances) to our balance sheet;

the return of capital to stockholders;

potential migration of insured deposit account balances (IDA balances) to our balance sheet;

expectations about capital requirements, including accumulated other comprehensive income (AOCI), and meeting those requirements;

plans regarding capital and dividends (see Capital Management and Commitments and Contingencies in Item 1 – Note 9);

plans regarding capital and dividends (see Capital Management in Part I – Item 2 and Commitments and Contingencies in Item 1 – Note 9);

• The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Item 1 – Note 2);

• The likelihood of indemnification and guarantee payment obligations and clients failing to fulfill contractual obligations (see Commitments and Contingencies in Item 1 – Note 9);

• The impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 9 and Legal Proceedings in Part II – Item 1).

• The outcome and impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 9 and Legal Proceedings in Part II – Item 1).

Achievement of the expressed beliefs, objectives, and expectations described in these statements is subject to certain risks and uncertainties that could cause actual results to differ materially from the expressed beliefs, objectives, and expectations.

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

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

• The level and mix of client trading activity;

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

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

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• The level of client assets, including cash balances;

• Client cash allocations and sensitivity to deposit rates;

• Competitive pressure on pricing, including deposit rates;

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

• Client sensitivity to rates;

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

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

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• Our ability to support client activity levels;

• The risk that expected cost synergies and other benefits from the TD Ameritrade acquisition may not be fully realized or may take longer to realize than expected and that integration-related expenses may be higher than expected;

• Our ability to successfully implement integration plans relating to Ameritrade, including client account transitions;

• The risk that client transitions may not be completed when expected or may result in a negative client experience;

expected expense and revenue synergies and other benefits from the Ameritrade acquisition may not be fully realized or may take longer to realize, and integration expense may be higher than expected;

• Increased compensation and other costs due to inflationary pressures;

• The timing and scope of integration-related and other technology projects;

• Re al estate and workforce decisions;

• Our ability to timely and successfully streamline our operations and realize expected run-rate cost savings;

• Client cash allocations;

• Migrations of bank deposit account balances (BDA balances);

• The timing and scope of technology projects;

• Capital and liquidity needs and management;

• Balance sheet positioning relative to changes in interest rates;

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• Prepayment levels for mortgage-backed securities;

• Migrations of bank deposit account balances (BDA balances);

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

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Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance.

Results for the third quarter and first nine months of 2023 and 2022 are as follows:

Results for the first quarter of 2024 and 2023 are as follows:

Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2023 2022 2023 2022

March 31, Percent

Client Metrics

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Return on tangible common equity 39 % 83 %

(1) The third quarter and first nine months of 2023 include inflows of $3.3 billion and $30.1 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB.

Also, the first nine months of 2023 include an inflow of $12.0 billion from a mutual fund clearing services client.

The third quarter and first nine months of 2023 also include an outflow of $0.8 billion from an international relationship.

The first nine months of 2022 include an outflow of $20.8 billion from a mutual fund clearing services client.

(2) Client cash as a percentage of client assets excludes brokered CDs issued by CSB.

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

(1) The first quarter of 2024 and 2023 include net outflows of $7.4 billion and inflows of $19.0 billion, respectively, from off-platform certificates of deposit (CDs) issued by CSB.

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

The prior period has been recast to reflect this change.

(3) In the first quarter of 2024, adjustments made to GAAP financial measures also include restructuring costs.

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

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See Non-GAAP Financial Measures.

Against a challenging macroeconomic and geopolitical backdrop, Schwab continued to be a trusted partner for investors throughout the third quarter and first nine months of 2023.

The Federal Reserve raised the Federal Funds rate again in July, representing the fourth time in 2023 for a total of 100 basis points.

Investor sentiment was bearish in the first quarter, particularly following the onset of the banking industry turmoil in March, before turning positive in the second quarter and then declining again into a bearish sentiment in the third quarter.

Equity markets declined during the third quarter, though remained positive on the year, with the S&P 500 ® down 4% in the third quarter and up 12% year-to-date.

Schwab gathered $45.7 billion in core net new assets in the third quarter, bringing our 2023 year-to-date total to $229.6 billion.

Total client assets were $7.82 trillion as of September 30, 2023, up 11% from year-end 2022 primarily as a result of asset gathering and market gains, partially offset by some expected deal-related asset attrition from clients originating at TD Ameritrade.

Trading volume continued to be lower in the third quarter and throughout the first nine months of 2023 when compared with the same periods in 2022.

Clients’ daily average trades (DATs) were 5.2 million and 5.5 million in the third

Further improvements in the macroeconomic environment helped bolster investor sentiment and engagement in the first quarter of 2024.

Inflation remained at moderate though persistent levels during the quarter, leading to shifting market expectations around the pace and extent of potential Federal Reserve interest rate reductions.

Equity markets had a strong start to the year, with the S&P 500 ® rising 10% in the first quarter of 2024.

Schwab’s organic asset gathering and equity market gains helped total client assets reach $9.12 trillion as of quarter-end, up 20% from March 31, 2023, as clients entrusted us with core net new assets of $95.6 billion in the first quarter of 2024.

As we have experienced over the course of the Ameritrade client account conversions, net new assets in the first quarter of 2024 reflected expected asset attrition from the Ameritrade integration, though the amount of attrition continued to be below amounts anticipated when we announced the acquisition in late 2019.

Clients’ daily average trades (DATs) were 6.0 million in the first quarter of 2024, up slightly from the first quarter of the prior year.

Clients opened 1.1 million new brokerage accounts in the first quarter of 2024, helping active brokerage accounts rise 3% year-over-year to reach 35.3 million at quarter-end.

THE CHARLES SCHWAB CORPORATION

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

quarter and first nine months of 2023, respectively, down 6% and 11% from the respective prior periods.

Clients opened 894 thousand and 2.9 million new brokerage accounts in the third quarter and first nine months of 2023, respectively, bringing active brokerage accounts to 34.5 million, at quarter-end, up 2% year-over-year.

Schwab’s net income totaled $1.1 billion and $4.0 billion in the third quarter and first nine months of 2023, respectively, down 44% and 23% from the same periods in 2022.

Diluted earnings per share (EPS) was $.56 and $2.03 in the third quarter and first nine months of 2023, respectively, down 43% and 20% from the comparable periods in the prior year.

Adjusted diluted EPS (1) was $.77 and $2.45 in the third quarter and first nine months of 2023, respectively, down 30% and 13% from the comparable 2022 periods.

Total net revenues were $4.6 billion and $14.4 billion for the third quarter and first nine months of 2023, respectively, down 16% and 6% from the same periods in 2022.

Net interest revenue was $2.2 billion and $7.3 billion in the third quarter and first nine months of 2023, respectively, down 24% and 5% from the same prior-year periods, reflecting the impact of client allocation decisions within a higher interest rate environment.

Asset management and administration fees totaled $1.2 billion and $3.5 billion in the third quarter and first nine months of 2023, respectively, rising 17% and 11% from the same periods in 2022, due primarily to growth in money market funds and other proprietary fund products.

Trading revenue was $768 million and $2.5 billion in the third quarter and first nine months of 2023, respectively, down 17% and 11% from the comparable 2022 periods primarily related to mix of client trading activity and overall lower trading volume.

Bank deposit account fee revenue was $205 million and $531 million in the third quarter and first nine months of 2023, respectively, down 50% from both comparable periods in the prior year due to lower average BDA balances and lower net yields, as well as $97 million in one-time breakage fees related to ending our arrangements with certain third-party banks in the first quarter of 2023.

BDA balances totaled $99.6 billion at September 30, 2023, down 21% from year-end 2022 due primarily to client cash allocation decisions.

Total expenses excluding interest were $3.2 billion and $9.2 billion in the third quarter and first nine months of 2023, respectively, increasing 14% and 8% from the same prior-year periods.

These increases were due primarily to restructuring charges in the third quarter of 2023, as well as higher expenses for compensation and benefits and depreciation and amortization, due primarily to growth in headcount and investment in technology to support growth in our client base and TD Ameritrade integration, as well as higher regulatory fees and assessments due to higher Federal Deposit Insurance Corporation (FDIC) assessments.

Adjusted total expenses (1) were $2.7 billion and $8.2 billion in the third quarter and first nine months of 2023, respectively, up 5% and 6% from the same periods in 2022.

Acquisition and integration-related costs were $106 million and $334 million in the third quarter and first nine months of 2023, respectively, up 5% and 15% from the same periods in 2022 due to higher real estate exit costs incurred primarily in the second quarter of 2023.

Amortization of acquired intangible assets was $135 million and $404 million in the third quarter and first nine months of 2023, respectively, down 11% and 12% from the same periods in 2022 as certain assets from the TD Ameritrade acquisition were fully amortized at the beginning of the fourth quarter of 2022.

Beginning in the third quarter of 2023, adjusted total expenses (1) also excludes restructuring costs, which were $279 million in the third quarter and first nine months of 2023.

Return on average common stockholders’ equity was 14% and 18% for the third quarter and first nine months of 2023, respectively, down from 25% in the third quarter of 2022 and flat with 18% in the first nine months of 2022.

Return on tangible common equity (1) (ROTCE) was 58% and 66% in the third quarter and first nine months of 2023, respectively, down from 74% and up from 42% during the same periods in 2022.

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

Stockholders’ equity was lower in the first nine months of 2023 due to a year-over-year decrease in average AOCI driven by unrealized losses on our available for sale (AFS) investment securities portfolio and securities transferred from AFS to held to maturity (HTM) in 2022 (see Item 1 – Note 4).

The Company continued its diligent approach to balance sheet management in the first nine months of 2023 to maintain capital and liquidity levels to support our growing client base.

Total balance sheet assets were $475.2 billion at September 30, 2023, a decrease of 14% from year-end 2022 and 7% during the third quarter.

Amid higher market interest rates in the first nine months of 2023, clients allocated assets to higher yielding cash and fixed income alternatives, and to facilitate these client cash movements and help build available cash, the Company utilized additional temporary funding sources including Federal Home Loan Bank (FHLB) borrowings and issuances of brokered CDs.

Schwab’s financial performance in the first quarter of 2024 reflected the benefits of a supportive macroeconomic backdrop, increased client engagement, and solid organic growth.

The Company’s financial results were down relative to the first quarter of 2023, though overall performance improved sequentially from the fourth quarter of 2023 driven by lower interest expense due to reduced supplemental funding, rising equity markets and client engagement, and our late-2023 cost reduction efforts.

Net income totaled $1.4 billion in the first quarter of 2024, down 15% from the first quarter of 2023 and up 30% from the fourth quarter of 2023.

Diluted earnings per share (EPS) was $.68 in the first quarter of 2024, down 18% from the prior-year first quarter and up 33% from the fourth quarter of 2023.

Adjusted diluted EPS (1) was $.74 in the first quarter of 2024, down 20% from the first quarter of 2023 and up 9% from the fourth quarter of 2023.

Total net revenues decreased 7% year-over-year to $4.7 billion during the first quarter of 2024.

Net interest revenue was $2.2 billion in the first quarter of 2024, down 19% from the prior year’s first quarter due primarily to greater use of supplemental funding and lower average interest-earning assets, partially offset by higher rates on interest-earning assets.

Asset management and administration fees totaled $1.3 billion in the first quarter of 2024, rising 21% from the first quarter of 2023 primarily as a result of growth in money market funds, equity market gains, and growth in advice solutions.

Trading revenue declined 8% year-over-year to $817 million in the first quarter of 2024, primarily due to a decrease in order flow revenue, reflecting narrower spreads on options and lower equity volume.

Bank deposit account fee revenue was $183 million in the first quarter of 2024, up 21% year-over-year due primarily to $97 million of one-time breakage fees incurred when we ended our arrangements with certain third-party banks in the first quarter of 2023.

BDA balances totaled $90.3 billion at March 31, 2024, down 7% from year-end 2023, reflecting client cash allocation decisions.

Total expenses excluding interest were $2.9 billion in the first quarter of 2024, down 2% from the first quarter of 2023, reflecting the benefits of our cost reduction restructuring efforts undertaken in late 2023, which drove year-over-year decreases in compensation and benefits and occupancy and equipment.

Partially offsetting these reductions were growth in depreciation and amortization driven by capital expenditures to support the Ameritrade integration and growth of the business, and higher regulatory fees and assessments, which included an incremental Federal Deposit Insurance Corporation (FDIC) special assessment of $25 million (see Current Regulatory and Other Developments).

Adjusted total expenses (1) were $2.8 billion, up 1% from the first quarter of 2023 reflecting the above items and lower acquisition and integration-related costs in the first quarter of 2024.

Acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs totaled $140 million in the first quarter of 2024, down 40% from the first quarter of 2023.

Return on average common stockholders’ equity was 15% in the first quarter of 2024, down from 23% in the first quarter of 2023.

Return on tangible common equity (1) (ROTCE) was 39% in the first quarter of 2024, down from 83% in the first quarter of 2023.

These decreases were due primarily to higher average stockholders’ equity and lower year-over-year net income.

Average stockholders’ equity was higher in the first quarter of 2024 due to higher average retained earnings due to full-year 2023 and first-quarter 2024 net income, as well as higher average AOCI.

The increase in average AOCI was driven by lower unrealized losses on our available for sale (AFS) investment securities portfolio and securities transferred in 2022 from AFS to held to maturity (HTM) (see Item 1 – Note 15).

The Company continued its diligent approach to balance sheet management, seeking to prioritize flexibility.

During the first quarter of 2024, total balance sheet assets decreased 5% from year-end 2023 to $468.8 billion.

This decrease was driven primarily by lower cash balances.

As the pace and amount of client cash realignment continued to decrease, the Company reduced the total outstanding balance of supplemental funding, which includes brokered CDs, Federal Home Loan Bank (FHLB) borrowings, and borrowings under repurchase agreements, by $8.8 billion, or 11%, during the first quarter of 2024.

In addition, the Company repaid $3.3 billion in maturing long-term debt during the first quarter of 2024.

Supported by net income and a smaller balance sheet, our consolidated Tier 1 Leverage Ratio increased to 8.8% as of March 31, 2024.

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

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

Integration of Ameritrade

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

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

We’ve transitioned approximately $1.6 trillion in client assets across more than 15 million client accounts, including 7,000 RIAs, from Ameritrade to the Schwab platform across four transition groups.

In connection with these transitions, we have experienced some related attrition of client assets from retail

THE CHARLES SCHWAB CORPORATION

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

Apart from an increase in August following the Federal Reserve’s July rate hike, the pace of client cash realignment decisions declined significantly during the second and third quarters of 2023.

Net cash flows from our investment portfolio were used to reduce the balance of supplemental borrowings during the third quarter of 2023.

Amounts outstanding under FHLB borrowings, other short-term borrowings, and brokered CDs decreased by a net total of $5.4 billion during the third quarter of 2023.

In May and August 2023, the Company issued long-term debt of $2.5 billion and $2.4 billion, respectively, which provided incremental liquidity, and the May issuance was also used to help bolster our capital ratios at our banking subsidiaries.

Driven by a combination of the Company’s net income and a smaller balance sheet in the first nine months of 2023, our consolidated Tier 1 Leverage Ratio increased to 8.2% as of September 30.

Integration of TD Ameritrade

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

The Company made significant progress in the integration during the first nine months of 2023, including the completion of three client transition groups.

We completed our third conversion in September, as we transitioned $1.3 trillion in client assets, including more than 7,000 RIAs and 3.6 million retail brokerage accounts.

The Company completed its fourth conversion of 2023 in November and we have now completed the transition of RIAs and nearly 90% of TD Ameritrade client accounts to the Schwab platform.

In connection with these transitions, we have experienced some deal-related attrition of client assets from retail accounts and RIAs consistent with our expectations.

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

We continue to expect to incur total acquisition and integration-related costs and capital expenditures of between $2.4 billion and $2.5 billion.

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

More specifically, factors that could cause variability in our expected acquisition and integration-related costs include the level of employee attrition, changes in the scope and cost of technology, the timeline to wind-down the TD Ameritrade broker-dealers, and real estate-related exit cost variability.

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

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $106 million and $334 million for the third quarter and first nine months of 2023, respectively, and $101 million and $291 million for the third quarter and first nine months of 2022, respectively.

Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through September 30, 2023, we have achieved approximately 75% of this amount on an annualized run-rate basis.

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

accounts and RIAs, which have been below our initial estimates when we announced the acquisition.

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

We continue to expect total acquisition and integration-related costs and capital expenditures will be between $2.4 billion and $2.5 billion.

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

More specifically, factors that could cause variability in our expected acquisition and integration-related costs as we prepare for the last transition group and remaining integration work include the level of employee attrition, the complexity to wind-down the operations of the Ameritrade broker-dealers and related technology, and real estate-related exit cost variability.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $38 million and $98 million for the first quarters of 2024 and 2023, respectively.

Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through March 31, 2024, we have achieved over 80% of this amount on an annualized run-rate basis.

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

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

Refer to Part II – Item 7 – Overview in our 2022 Form 10-K, Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 1 – Note 10 for additional information regarding our integration of TD Ameritrade.

In addition to cost synergies directly related to 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.

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

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

During the third quarter of 2023, the Company incurred $279 million in exit costs, primarily related to position eliminations.

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

Refer to Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7) – Overview in our 2023 Form 10-K, Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 1 – Note 10 for additional information regarding our integration of Ameritrade.

In addition to cost synergies directly related to the integration of Ameritrade, the Company took incremental actions in 2023 to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint.

Through these actions, the Company has realized approximately $500 million of incremental run-rate cost savings in addition to integration synergies.

In order to achieve these cost savings, the Company expects to incur total exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $500 million, substantially all of which have been recognized as of March 31, 2024.

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

Refer to Results of Operations – Total Expenses Excluding Interest and Item 1 – Note 10 for additional information.

Current Regulatory and Other Developments

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

Department of Labor released a proposed rule to significantly broaden the definition of “fiduciary” under the Employee Retirement Income Security

THE CHARLES SCHWAB CORPORATION

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

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

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

The Company is currently evaluating the impact of the proposed rule.

In October 2023, the Board of Governors of the Federal Reserve System, in collaboration with the Office of the Comptroller of the Currency and the FDIC, issued a final rule that makes extensive revisions to the regulations implementing the Community Reinvestment Act (CRA).

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

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

The Company is evaluating the impact of the new rule, but does not expect it to have a material impact on the Company’s business, financial condition, or results of operations.

In August 2023, the Board of Governors of the Federal Reserve System, in collaboration with the Office of the Comptroller of the Currency and the FDIC, issued a proposed rulemaking on long-term debt requirements for certain large banking organizations.

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

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

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

The comment period for the proposed rule ends on November 30, 2023 and the rule proposal is subject to further modification.

The Company is currently evaluating the impact of the proposed rule, which would interact with the final provisions of the currently proposed amendments to the regulatory capital rules discussed below.

In July 2023, the Board of Governors of the Federal Reserve System, in collaboration with the Office of the Comptroller of the Currency and the FDIC, issued a notice of proposed rulemaking for amendments to the regulatory capital rules.

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

The comment period for the proposed rules was extended and will end on January 16, 2024.

In May 2023, the FDIC issued a notice of proposed rulemaking that would impose a special assessment to recover losses incurred by the Deposit Insurance Fund to protect uninsured depositors due to the March 2023 closures of two banks.

Based on the proposed rule, the Company estimates its total special assessment would be approximately $160 million, which would be paid over eight quarters beginning in the first quarter of 2024.

Any special assessment will be recognized fully in earnings upon enactment of a final rule.

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

The four proposed rules are described below.

• The “Order Competition Rule” would require that, before most individual investors’ orders could be executed internally by a trading center (like wholesaler market makers), those orders must first be exposed to a qualifying order-by-order auction in which both market makers and institutional investors can participate.

• “Regulation Best Execution” would establish an SEC-level best execution standard (in addition to the existing FINRA and MSRB best execution rules) for broker-dealers and require them to establish, maintain, and enforce written policies and procedures addressing how the broker-dealer will comply with the best execution standard and make routing or execution decisions for customer orders.

Regulation Best Execution would apply not only to equities, but to all securities.

• Amendments to Rule 605 of Regulation NMS requiring enhanced disclosures of order execution quality for large brokers that handle retail orders.

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

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

In April 2024, the U.S.

Department of Labor adopted a final rule to significantly broaden the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974.

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

The rule generally takes effect on September 23, 2024 with a one-year transition period after the effective date for certain provisions.

The Company is currently evaluating the impacts and the related implementation and operational issues of the final rule.

In March 2024, the SEC adopted amendments to Rule 605 of Regulation National Market System (NMS) requiring enhanced disclosures of order execution quality for large broker-dealers that handle retail orders.

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

Three related equity market structure rule proposals released in December 2022 by the SEC remain pending.

In November 2023, the FDIC approved a final special assessment to recover losses incurred by the Deposit Insurance Fund (DIF) to protect uninsured depositors due to the March 2023 closures of two banks, that was subject to potential extension and a potential one-time final special assessment for any shortfall in the DIF.

The pre-tax impact of the final rule’s initial assessment to the Company was $172 million, which is tax deductible and was recognized in earnings in the fourth quarter of 2023.

The special assessment will be paid over eight quarters which began in the first quarter of 2024.

In late February 2024, the FDIC notified banks, including the Company’s banking subsidiaries, that the estimated assessed losses to the DIF increased.

Accordingly, during the first quarter of 2024, Schwab recognized a pre-tax charge of $25 million for its estimate of this incremental special assessment, which is tax deductible.

This amount remains subject to further adjustment;

the FDIC has indicated it will provide any updates to the estimated special assessment applicable to each bank as part of the FDIC’s June 2024 invoices.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

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

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

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

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

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

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

See Part II – Item 7 – Current Regulatory and Other Developments in our 2023 Form 10-K for additional information regarding these and other pending regulatory matters including:

federal banking agencies’ August 2023 proposed rulemaking on long-term debt requirements for certain large banking organizations;

federal banking agencies’ July 2023 notice of proposed rulemaking with amendments to the regulatory capital rules, which, among other things, would require us to include AOCI in regulatory capital and to calculate our risk-weighted assets using a revised risk-based approach, a component of which is based on operational risk;

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

RESULTS OF OPERATIONS

1 unchanged sentence

The following tables present a comparison of revenue by category:

Three Months Ended September 30, Percent

Three Months Ended March 31, Percent

Change Amount % of

2 unchanged sentences

Interest revenue (2) % $ 3,941 83 % $ 4,016 78 %

Interest expense N/M (1,791) (39) % (431) (8) %

Interest expense 37 % (1,708) (36) % (1,246) (24) %

Net interest revenue (19) % 2,233 47 % 2,770 54 %

13 unchanged sentences

Total net revenues (7) % $ 4,740 100 % $ 5,116 100 %

N/M Not meaningful.

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

THE CHARLES SCHWAB CORPORATION

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

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

Nine Months Ended September 30, Percent

Change Amount % of

Revenues Amount % of

Net Interest Revenue

Interest revenue 45 % $ 12,148 85 % $ 8,386 55 %

Interest expense N/M (4,851) (34) % (733) (5) %

Net interest revenue (5) % 7,297 51 % 7,653 50 %

Asset management and administration fees

Mutual funds, ETFs, and CTFs 23 % 1,881 13 % 1,524 10 %

Advice solutions (1) % 1,393 10 % 1,409 9 %

Other 3 % 241 1 % 234 2 %

Asset management and administration fees 11 % 3,515 24 % 3,167 21 %

Trading revenue

Commissions (11) % 1,210 8 % 1,362 9 %

Order flow revenue (17) % 1,104 8 % 1,332 9 %

Principal transactions 77 % 149 1 % 84 —

Trading revenue (11) % 2,463 17 % 2,778 18 %

Bank deposit account fees (50) % 531 4 % 1,059 7 %

Other (6) % 572 4 % 608 4 %

Total net revenues (6) % $ 14,378 100 % $ 15,265 100 %

N/M Not meaningful.

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

Net Interest Revenue

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

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See also Risk Management – Interest Rate Risk Simulations.

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

Short-term rates were near zero until the Federal Reserve began its aggressive tightening cycle in March 2022 in response to rising inflation, ultimately increasing the federal funds target overnight rate eleven times between March 2022 and September 2023 for a total increase of 525 basis points.

Long-term rates increased throughout 2022 and the first nine months of 2023, generally at a slower pace, thus leading to an inverted yield curve, though long-term rates increased significantly in the third quarter of 2023.

Schwab’s average interest-earning assets in the third quarter and first nine months of 2023 were lower compared with the same periods of 2022 due primarily to client cash allocation movement to higher yielding investment solutions beginning in the second quarter of 2022 through the third quarter of 2023, which resulted primarily from the rapid increases to the federal funds overnight rate.

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

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

The average daily pace of client cash allocation out of sweep products into higher yielding investment solutions decreased significantly beginning in the second quarter of 2023 and, apart from an increase in August following the Federal Reserve’s July rate increase, continued to decline during the third quarter of 2023 to its slowest pace since the beginning of the current interest rate tightening cycle.

In response to continued elevated inflation, the Federal Reserve raised the federal funds target overnight rate four times in the first three quarters of 2023 for a total of 100 basis points before holding rates unchanged since July 2023.

Short-term rates

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

remained consistent through the first quarter of 2024, as the Federal Reserve maintained the upper bound of the target overnight rate at 5.50%.

Schwab’s average interest-earning assets in the first quarter of 2024 were lower compared with the first quarter of 2023, primarily due to clients’ reallocation of cash from sweep products to higher-yielding investment solutions throughout 2023 and the first quarter of 2024, which resulted primarily from increases to the federal funds overnight rate.

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

To support this client cash allocation activity, the Company has been utilizing supplemental funding, including drawing upon FHLB secured lending facilities, engaging with external financial institutions in repurchase agreements, and issuing brokered CDs.

The average pace of client cash allocation out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second half of 2023, and continued to decrease in the first quarter of 2024.

The following tables present net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:

Three Months Ended September 30, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

Three Months Ended March 31, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

Interest-earning assets

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

(2) Beginning in the first quarter of 2023, FHLB borrowings are presented separately from other short-term borrowings.

Prior period amounts have been reclassified to reflect this change.

(3) Average balance and interest expense were less than $500 thousand in the prior period.

THE CHARLES SCHWAB CORPORATION

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

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

Nine Months Ended September 30, Average

Balance Interest

Expense Average

Balance Interest

Expense Average

Interest-earning assets

Cash and cash equivalents $ 38,700 $ 1,419 4.83 % $ 63,598 $ 461 0.95 %

Cash and investments segregated 29,752 1,041 4.61 % 50,891 308 0.80 %

Receivables from brokerage clients 61,682 3,533 7.55 % 78,630 2,244 3.76 %

Available for sale securities (1)

143,360 2,340 2.17 % 281,897 3,196 1.51 %

Held to maturity securities (1)

167,405 2,172 1.73 % 100,890 1,062 1.40 %

Bank loans 40,183 1,227 4.08 % 38,238 717 2.50 %

Total interest-earning assets 481,082 11,732 3.23 % 614,144 7,988 1.73 %

Securities lending revenue 341 383

Other interest revenue 75 15

Total interest-earning assets $ 481,082 $ 12,148 3.35 % $ 614,144 $ 8,386 1.81 %

Funding sources

Bank deposits $ 315,309 $ 2,392 1.01 % $ 440,801 $ 285 0.09 %

Payables to brokerage clients 68,548 205 0.40 % 101,472 47 0.06 %

Other short-term borrowings (2)

7,286 280 5.13 % 2,656 12 0.60 %

Federal Home Loan Bank borrowings (2,3)

35,896 1,387 5.11 % — — —

Long-term debt 21,685 489 3.01 % 20,673 363 2.34 %

Total interest-bearing liabilities 448,724 4,753 1.41 % 565,602 707 0.17 %

Non-interest-bearing funding sources 32,358 48,542

Securities lending expense 96 28

Other interest expense 2 (2)

Total funding sources $ 481,082 $ 4,851 1.35 % $ 614,144 $ 733 0.16 %

Net interest revenue $ 7,297 2.00 % $ 7,653 1.65 %

(1) Amounts have been calculated based on amortized cost.

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

(2) Beginning in the first quarter of 2023, FHLB borrowings are presented separately from other short-term borrowings.

Prior period amounts have been reclassified to reflect this change.

(3) Average balance and interest expense were less than $500 thousand in the prior period.

Net interest revenue decreased $689 million, or 24%, and $356 million, or 5%, in the third quarter of 2023 and first nine months of 2023, respectively, compared to the same periods in 2022.

These decreases were primarily due to utilization of higher cost supplemental funding sources to support client cash allocations in the rising rate environment, and lower average interest-earning assets, which more than offset the benefits of higher average yields on interest-earning assets.

Net premium amortization of investment securities decreased to $222 million and $614 million in the third quarter and first nine months of 2023, respectively, from $295 million and $1.2 billion in the third quarter and first nine months of 2022, respectively, as a result of increases in market interest rates and a smaller investment securities portfolio.

Average interest-earning assets for the third quarter and first nine months of 2023 were lower by 23% and 22%, respectively, compared to the same periods in 2022.

These decreases were primarily due to lower bank deposits and payables to brokerage clients as a result of changes in client cash allocations due to higher market interest rates.

Net interest margin decreased slightly to 1.94% during the third quarter of 2023 from 1.97% compared to the same period in 2022, as increased utilization of higher cost funding sources to facilitate client cash allocation decisions offset the benefits of higher average yields on interest-earning assets.

Net interest margin during the first nine months of 2023 increased to 2.00% from 1.65% in the same period in 2022 as higher market interest rates improved yields on interest-earning assets, which more than offset the higher rates paid across interest-bearing funding sources.

The Company’s higher average balances in the third quarter and first nine months of 2023 relative to the same periods in 2022 of FHLB borrowings, other short-term borrowings, and brokered CDs resulted in higher funding costs.

The Company continues to prioritize repayment of the outstanding balances of its supplemental funding sources, and during the third quarter of 2023, the outstanding balance decreased by $5.4 billion.

The Company’s use of these supplemental funding sources is dependent on several factors, including the volume and pace of clients’ cash allocation activity, which is driven primarily by changes in market interest rates, as well as asset gathering.

While client cash realignment activity has slowed significantly since the second

Net interest revenue decreased $537 million, or 19%, in the first quarter of 2024 compared to the same period in 2023.

This decrease was primarily due to utilization of higher cost supplemental funding sources to support client cash allocations in the rising rate environment, and lower average interest-earning assets, which more than offset the benefits of higher average yields on interest-earning assets.

Average interest-earning assets for the first quarter of 2024 were lower by 13% compared to the same period in 2023.

This decrease was primarily due to lower bank deposits as a result of changes in client cash allocations due to higher market interest rates and a smaller investment securities portfolio, partially offset by greater margin loan balances.

Net interest margin decreased to 2.02% in the first quarter of 2024 from 2.19% in the same period in 2023, as the higher rates paid across interest-bearing funding sources more than offset the improved yields on interest-earning assets.

The Company’s higher average balances in the first quarter of 2024 relative to the same period in 2023 of FHLB borrowings, repurchase agreements, and brokered CDs resulted in higher funding costs.

The Company prioritizes repayment of the outstanding balances of its supplemental funding sources, and during the first quarter of 2024, the total outstanding balance

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

quarter of 2023, continued uncertainty remains regarding the path of market interest rates and client behavior.

The Company currently expects its outstanding balances of supplemental funding sources to decrease between now and the end of 2024, with some amount remaining outstanding into 2025.

decreased by $8.8 billion, which helped support a 13-basis-point improvement in net interest margin for the first quarter of 2024 compared with the fourth quarter of 2023.

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

While client cash realignment activity has continued to decline from peak levels, uncertainty remains, including in regard to the path of market interest rates and client behavior, which will significantly impact our utilization of supplemental funding sources.

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

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

Certain amounts outstanding at March 31, 2024 will require rollover into new borrowings, the amount and costs of which will depend on the above noted factors.

See also Risk Management – Liquidity Risk, Item 1 – Note 7 Bank Deposits, and Item 1 – Note 8 Borrowings for additional information on these and other funding sources.

1 unchanged sentence

The following table presents asset management and administration fees, average client assets, and average fee yields:

Three Months Ended September 30, 2023 2022

Three Months Ended March 31, 2024 2023

Assets Revenue Average

Schwab money market funds before fee waivers $ 414,074 $ 270 0.26 % $ 184,834 $ 132 0.28 %

Fee waivers — —

Schwab money market funds $ 499,887 $ 336 0.27 % $ 316,391 $ 213 0.27 %

13 unchanged sentences

Total asset management and administration fees $ 1,348 $ 1,118

Nine Months Ended September 30, Average

Assets Revenue Average

Schwab money market funds before fee waivers $ 368,788 $ 735 0.27 % $ 158,525 $ 340 0.29 %

Fee waivers — (57)

Schwab money market funds 368,788 735 0.27 % 158,525 283 0.24 %

Schwab equity and bond funds, ETFs, and CTFs 466,995 284 0.08 % 436,928 278 0.09 %

Mutual Fund OneSource ® and other NTF funds (1)

235,561 469 0.27 % 196,032 453 0.31 %

Other third-party mutual funds and ETFs (1)

663,577 393 0.08 % 805,204 510 0.08 %

Total mutual funds, ETFs, and CTFs (2)

$ 1,734,921 1,881 0.14 % $ 1,596,689 1,524 0.13 %

Advice solutions (2)

Fee-based $ 455,730 1,393 0.41 % $ 446,979 1,409 0.42 %

Non-fee-based 95,951 — — 87,528 — —

Total advice solutions $ 551,681 1,393 0.34 % $ 534,507 1,409 0.35 %

Other balance-based fees (3)

588,922 189 0.04 % 573,733 186 0.04 %

Total asset management and administration fees $ 3,515 $ 3,167

(1) The third quarter and first nine months of 2023 and the first nine months of 2022 include transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and other NTF funds.

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

1 unchanged sentence

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

Asset management and administration fees increased by $177 million, or 17%, and $348 million, or 11%, in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.

These increases were primarily a result of higher balances in Schwab money market funds and, for the first nine months of 2023 , the elimination of fee waivers on those funds as well as higher average client asset balances due to stronger equity markets.

Money market fund balances increased in 2023 as clients shifted their cash allocations to higher yielding investment solutions, and money market fund fee waivers were

THE CHARLES SCHWAB CORPORATION

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

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

eliminated during 2022, both due primarily to the Federal Reserve’s increases to the federal funds target overnight rate.

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

Asset management and administration fees increased by $230 million, or 21%, in the first quarter of 2024 compared to the same period in 2023.

This increase was primarily a result of higher balances in Schwab money market funds as clients shifted their cash allocations to higher-yielding investment solutions.

The increase was also due to growth in balances in Mutual Fund OneSource ® and fee-based advice solutions, as a result of strong equity markets and, for advice solutions, net inflows of client assets.

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

These funds generated 44% and 42% of the asset management and administration fees earned in the third quarter and first nine months of 2023, respectively, compared with 34% and 32% in the third quarter and first nine months of 2022, respectively:

Market Funds Schwab Equity and

Bond Funds, ETFs, and CTFs Mutual Fund OneSource ®

and Other NTF funds

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

Balance at beginning of period $ 392,887 $ 159,231 $ 465,847 $ 387,211 $ 254,636 $ 196,578

Net inflows (outflows) 38,265 51,111 3,010 10,805 (7,060) (9,600)

Net market gains (losses) and other (1)

5,174 737 (14,763) (24,272) 40,416 (5,480)

Balance at end of period $ 436,326 $ 211,079 $ 454,094 $ 373,744 $ 287,992 $ 181,498

These funds generated 48% and 40% of the asset management and administration fees earned in the first quarter of 2024 and 2023, respectively:

Market Funds Schwab Equity and

1 unchanged sentence

and Other NTF funds

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

Three Months Ended March 31, 2024 2023 2024 2023 2024 2023

Balance at beginning of period $ 476,409 $ 278,926 $ 506,149 $ 412,942 $ 306,222 $ 235,738

3 unchanged sentences

Balance at end of period $ 515,678 $ 357,822 $ 548,890 $ 443,719 $ 329,176 $ 244,262

(1) Includes $39.8 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and Other NTF Funds for the three and nine months ended September 30, 2023.

Includes $14.2 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource ® and Other NTF Funds for the nine months ended September 30, 2022.

THE CHARLES SCHWAB CORPORATION

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

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

Trading Revenue

Trading revenue includes commissions, order flow revenue, and principal transactions revenues.

Commission revenue is affected by volume and mix of trades executed.

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

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

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

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

The following tables present trading revenue, client trading activity, and related information:

Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2023 2022 2023 2022

March 31, Percent

Commissions $ 413 $ 422 (2) %

5 unchanged sentences

Total trading revenue $ 817 $ 892 (8) %

THE CHARLES SCHWAB CORPORATION

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

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

Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2023 2022 2023 2022

March 31, Percent

DATs (in thousands) 5,958 5,895 1 %

9 unchanged sentences

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

Trading revenue decreased $162 million and $315 million in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.

This change is primarily due to lower options order flow revenue from changes in the mix of client trading activity and narrower quoted spreads in the options market, and lower equity order flow revenue reflecting a shift toward more low-price securities and lower equity trading activity overall.

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

Partially offsetting the decrease during the first nine months of 2023 compared to the same period in 2022, principal transactions revenue increased as a result of higher volume in fixed income trading and higher market interest rates.

Trading revenue decreased $75 million, or 8%, in the first quarter of 2024 compared to the same period in 2023.

This change is primarily due to lower options order flow revenue reflecting narrower quoted spreads in the options market, and lower equities order flow revenue reflecting lower equity trading volume overall.

Additionally, commissions decreased as a result of changes in the mix of client trading activity and fewer trading days.

Bank Deposit Account Fees

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

On May 4, 2023, the Company executed the Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement) with the TD Depository Institutions that replaced and superseded the previous agreement dated November 24, 2019, as amended (the 2019 IDA agreement).

In accordance with the 2023 IDA agreement, cash held in eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions, consistent with the 2019 IDA agreement.

In accordance with the Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement) executed on May 4, 2023, cash held in 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.

Under the 2023 IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions remains at 15 basis points, as it was in the 2019 IDA agreement.

Under the 2023 IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions is 15 basis points.

See Item 1 – Note 9 for additional discussion of the 2023 IDA agreement.

THE CHARLES SCHWAB CORPORATION

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

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

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

Three Months Ended September 30, Percent Change Nine Months Ended

September 30, Percent Change

2023 2022 2023 2022

Three Months Ended March 31, Percent Change

Bank deposit account fees $ 183 $ 151 21 %

4 unchanged sentences

Floating-rate balances 12 % 8 %

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

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

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

Bank deposit account fees increased $32 million, or 21%, in the first quarter of 2024, compared to the same period in 2023.

The increase was primarily due to $97 million of breakage fees incurred that resulted in lower bank deposit account fee revenue in the first quarter of 2023.

In addition, the average amount of floating-rate BDA balances increased in the first quarter of 2024 compared to the first quarter of 2023, which contributed to an increase in average net yield.

These factors were partially offset by a decrease in average BDA balances in the first quarter of 2024 compared to the same period in 2023, primarily due to client cash allocation decisions in response to higher short-term market interest rates.

The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of March 31, 2024 were 88% and 12%, respectively.

Other Revenue

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

Other revenue decreased $26 million, or 14%, in the first quarter of 2024 compared to the same period in 2023, primarily due to lower exchange processing fees and certain lower service fees, partially offset by lower provision for credit losses on bank loans.

Exchange processing fees decreased primarily due to a decrease in the SEC fee rate which became effective in the first quarter of 2023.

The provision for credit losses on bank loans was lower in the first quarter of 2024 compared to the same period in 2023, as during the first quarter of 2024, loan loss factors decreased while the total balance of first lien residential real estate mortgage loans (First Mortgages) remained consistent with year-end 2023.

Subsequent to March 31, 2024, the SEC announced that effective May 22, 2024, it would increase its fee rates applicable to most securities transactions from the rate in effect since late February 2023.

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

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

Bank deposit account fees decreased $208 million, or 50%, and $528 million, or 50%, in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.

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

These factors also contributed to the decrease in average net yield in the third quarter and first nine months of 2023 compared to the same periods in 2022.

The decreases in average BDA balances in the third quarter and first nine months of 2023 compared to the same periods in 2022 were primarily due to client cash allocation decisions in response to rising short-term market interest rates throughout 2022 and through the third quarter of 2023.

The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of September 30, 2023 were 89% and 11%, respectively.

Other Revenue

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

Other revenue decreased $12 million and $36 million in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022, due to the impact of changes to exchange processing fees and net losses on sales of AFS securities, partially offset by lower provision for credit losses on bank loans and certain service fees.

Exchange processing fees decreased in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily due to a decrease in the SEC fee rate and lower year-to-date options volume.

The provision for credit losses on bank loans was lower in the third quarter and first nine months of 2023 compared to the same periods in 2022, as loan loss factors decreased in the third quarter of 2023 while the total balance of first lien residential real estate mortgage loans (First Mortgages) increased slightly compared to year-end 2022.

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

In addition, other revenue in the first nine months of 2022 included a gain of $46 million on the sale of Schwab Compliance Technologies, Inc.

and certain investments.

Total Expenses Excluding Interest

The following table shows a comparison of expenses excluding interest:

The following table presents a comparison of expenses excluding interest:

Three Months Ended

September 30, Percent

Change Nine Months Ended

September 30, Percent

2023 2022 2023 2022

March 31, Percent

Compensation and benefits

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Average 32.7 35.6 (8) %

Expenses excluding interest increased by $400 million, or 14%, and $719 million, or 8%, in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.

Adjusted total expenses, which excludes acquisition and

THE CHARLES SCHWAB CORPORATION

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

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

integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased 5% and 6% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.

Expenses excluding interest decreased by $64 million, or 2%, in the first quarter of 2024, compared to the same period in 2023.

Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased 1% in the first quarter of 2024, compared to the same period in 2023.

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

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

Total compensation and benefits expense increased in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily due to restructuring costs recognized during the third quarter of 2023 related to position eliminations, higher employee headcount to support our expanding client base and TDA client account transitions, and annual merit increases.

These increases were partially offset by lower incentive compensation.

Compensation and benefits included acquisition and integration-related costs of $52 million and $57 million in the third quarter of 2023 and 2022, respectively, and $158 million and $166 million in the first nine months of 2023 and 2022, respectively.

Compensation and benefits also included restructuring costs of $276 million in the third quarter and first nine months of 2023.

Professional services expense increased in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily due to increased utilization of professional services to support overall growth of the business, as well as the TDA integration and client account transitions.

Professional services included acquisition and integration-related costs of $37 million and $36 million in the third quarter of 2023 and 2022, respectively, and $111 million and $102 million in the first nine months of 2023 and 2022, respectively.

Occupancy and equipment expense increased in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade.

Occupancy and equipment included acquisition and integration-related costs of $7 million and $6 million in the third quarter of 2023 and 2022, respectively, and $21 million and $14 million in the first nine months of 2023 and 2022, respectively.

Advertising and market development expense increased in the third quarter of 2023, compared to the same period in 2022, primarily due to higher traditional and digital advertising spending.

Advertising and market development expense decreased slightly in the first nine months of 2023, compared to the same period in 2022, primarily due to lower client promotional spending for TD Ameritrade.

Communications expense increased in the third quarter and first nine months of 2023, compared to the same periods in 2022, primarily a result of client communications related to TDA account transitions completed during the first nine months of 2023.

Depreciation and amortization expense increased in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily as a result of higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2022 and the first nine months of 2023 to support the TDA integration and enhance our technological infrastructure to support growth of the business.

Amortization of acquired intangible assets decreased in the third quarter and first nine months of 2023 compared to the same periods in 2022, as certain assets from the TDA acquisition were fully amortized by the beginning of the fourth quarter of 2022.

Regulatory fees and assessments increased in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily as a result of higher FDIC deposit insurance assessments, reflecting greater use of brokered CDs and a 2-basis-point increase to the FDIC deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023, partially offset by lower assessment bases.

Other expense decreased in the third quarter of 2023 and increased slightly in the first nine months of 2023, compared to the same periods in 2022.

The decrease in the third quarter was primarily due to lower exchange processing fees, partially offset by impairment of leased assets related to facility closures.

Exchange processing fees decreased in the third quarter of 2023 compared to the third quarter of 2022 as a result of a decrease in SEC fee rates.

The increase in other expense in the first nine months of 2023 was primarily a result of impairment of leased assets related to facility closures.

Other expense included acquisition and integration-related costs of $4 million and $26 million in the third quarter and first nine months of 2023, respectively.

Capital expenditures were $250 million and $193 million in the third quarter of 2023 and 2022, respectively, and $605 million and $741 million for the first nine months of 2023 and 2022, respectively.

Capital expenditures increased for the third quarter of

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

Total compensation and benefits expense decreased in the first quarter of 2024 compared to the same period in 2023, primarily due to lower headcount as a result of position eliminations completed in the second half of 2023 as part of restructuring, partially offset by higher incentive compensation and annual merit increases.

Compensation and benefits included acquisition and integration-related costs of $17 million and $58 million in the first quarter of 2024 and 2023, respectively.

Compensation and benefits also included a $31 million benefit in the first quarter of 2024 primarily due to a change in estimate in restructuring costs.

Professional services expense decreased in the first quarter of 2024 compared to the same period in 2023, primarily due to lower utilization of professional services as we approach the completion of the Ameritrade integration and client account transitions.

Professional services included acquisition and integration-related costs of $17 million and $33 million in the first quarter of 2024 and 2023, respectively.

Occupancy and equipment expense decreased in the first quarter of 2024 compared to the same period in 2023, primarily due to lower technology equipment and software costs, as well as lower occupancy costs as a result of facility closures in 2023 related to restructuring and the Ameritrade integration.

Occupancy and equipment included restructuring costs of $2 million in the first quarter of 2024 and acquisition and integration-related costs of $4 million in the first quarter of 2023.

Advertising and market development expense in the first quarter of 2024 remained consistent with the same period in 2023.

Communications expense decreased slightly in the first quarter of 2024, compared to the same period in 2023, primarily as a result of certain lower exchange quotation services expenses.

THE CHARLES SCHWAB CORPORATION

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

2023, primarily due to higher purchased software to enhance our technological infrastructure to support our expanding client base, partially offset by lower integration-related equipment purchases compared to 2022.

Capital expenditures in the first nine months of 2023 decreased when compared to heightened integration-related spend in 2022 in preparation for TDA client account transitions, partially offset by higher purchased software.

Depreciation and amortization expense increased in the first quarter of 2024 compared to the same period in 2023, primarily as a result of higher amortization of purchased and internally developed software, driven by capital expenditures in 2023 and the first three months of 2024 to support the Ameritrade integration and enhance our technological infrastructure to support growth of the business.

Amortization of acquired intangible assets decreased slightly in the first quarter of 2024 compared to the same period in 2023, as certain assets from the Ameritrade acquisition were fully amortized during 2023.

Regulatory fees and assessments increased in the first quarter of 2024 compared to the same period in 2023, primarily as a result of a $25 million incremental FDIC special assessment and higher FDIC deposit insurance assessments, reflecting greater use of brokered CDs, partially offset by a lower assessment base.

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

Other expense increased slightly in the first quarter of 2024 compared to the same period in 2023, primarily due to higher exchange processing fees, partially offset by lower other clearing costs.

Exchange processing fees increased in the first quarter of 2024 compared to the first quarter of 2023 as a result of higher trading volumes.

Other expense included restructuring costs of $1 million in the first quarter of 2024.

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

Capital expenditures were $122 million and $187 million in the first quarter of 2024 and 2023, respectively.

Capital expenditures decreased for the first quarter of 2024 compared to the same period in 2023, primarily due to lower purchased and internally developed software as we approach the completion of the Ameritrade integration and client account transitions.

We continue to anticipate capital expenditures for full-year 2024 will be approximately 3-5% of total net revenues.

Taxes on Income

Taxes on income were $258 million and $657 million for the third quarter of 2023 and 2022, respectively, resulting in effective tax rates of 18.7% and 24.5%, respectively.

Taxes on income were $1.2 billion and $1.6 billion for the first nine months of 2023 and 2022, respectively, resulting in effective tax rates of 22.4% and 23.2%, respectively.

The decrease in the effective tax rates in the third quarter and first nine months of 2023 compared to the same periods in 2022 was primarily related to the recognition of certain tax credits, partially offset by an increase in 2023 state tax expense.

Taxes on income were $436 million and $507 million for the first quarter of 2024 and 2023, respectively, resulting in effective tax rates of 24.2% and 24.0%, respectively.

The increase in the effective tax rate in the first quarter of 2024 compared to the same period in 2023 was primarily related to the release of tax reserves in the first quarter of 2023 due to the resolution of certain state tax matters and a decrease in equity compensation benefit in the first quarter of 2024.

These increases were partially offset by a decrease in state tax expense and the recognition of certain tax credits.

Segment Information

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Investor Services Advisor Services Total

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

Net interest revenue (20) % $ 1,710 $ 2,143 (33) % $ 527 $ 783 (24) % $ 2,237 $ 2,926

Asset management and administration fees 16 % 877 755 19 % 347 292 17 % 1,224 1,047

Trading revenue (16) % 672 800 (26) % 96 130 (17) % 768 930

Bank deposit account fees (40) % 157 263 (68) % 48 150 (50) % 205 413

Other (5) % 144 151 (15) % 28 33 (7) % 172 184

Total net revenues (13) % 3,560 4,112 (25) % 1,046 1,388 (16) % 4,606 5,500

Expenses Excluding Interest 11 % 2,356 2,117 23 % 867 706 14 % 3,223 2,823

Income before taxes on income (40) % $ 1,204 $ 1,995 (74) % $ 179 $ 682 (48) % $ 1,383 $ 2,677

Net New Client Assets (in billions) (1)

(48) % $ 28.6 $ 55.1 (67) % $ 19.6 $ 59.5 (58) % $ 48.2 $ 114.6

Investor Services Advisor Services Total

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

Three Months Ended March 31, Percent Change 2024 2023 Percent Change 2024 2023 Percent Change 2024 2023

Net interest revenue (14) % $ 1,742 $ 2,033 (33) % $ 491 $ 737 (19) % $ 2,233 $ 2,770

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(56) % $ 34.9 $ 79.4 (25) % $ 53.3 $ 71.3 (41) % $ 88.2 $ 150.7

(1) In the third quarter and first nine months of 2023, Investor Services includes net inflows of $3.3 billion and $30.1 billion, respectively, from off-platform brokered CDs issued by CSB.

Also, in the first nine months of 2023, Investor Services includes an inflow of $12.0 billion from a mutual fund clearing services client.

In the first nine months of 2022, Investor Services includes an outflow of $20.8 billion from a mutual fund clearing services client.

In the third quarter and first nine months of 2023, Advisor Services includes an outflow of $0.8 billion from an international relationship.

Segment Net Revenues

Investor Services total net revenues decreased by 13% and 4% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022, while Advisor Services total net revenues decreased by 25% and 11% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.

Net interest revenue decreased for both segments in the third quarter and first nine months of 2023 due to higher cost funding sources and lower average interest-

(1) In the first quarter of 2024 and 2023, Investor Services includes net outflows of $7.4 billion and inflows of $19.0 billion, respectively, from off-platform brokered CDs issued by CSB.

THE CHARLES SCHWAB CORPORATION

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

earning asset balances, as described above.

Both segments saw a decrease in bank deposit account fees in the third quarter and first nine months of 2023 due to lower average BDA balances and higher yields paid to clients, as well as, for the first nine months of 2023, breakage fees incurred as a result of ending certain third-party bank arrangements.

Trading revenue decreased in the third quarter and first nine months of 2023 for both segments primarily as a result of changes in client trading mix and lower client trading activity as described above.

Other revenue decreased in the third quarter and first nine months of 2023 for both segments primarily due to lower exchange processing fees, net losses on sales of AFS securities, and for the first nine months of 2023, gains on the sale of certain investments in 2022, partially offset by lower provision for credit losses on bank loans.

These decreases were partially offset by higher asset management and administration fees in both segments in the third quarter and first nine months of 2023, primarily as a result of higher money market fund balances and, for the nine-month period, the elimination of money market fund fee waivers during 2022 and growth in Schwab equity and bond funds, ETFs, and CTFs, partially offset by lower balances of certain third-party funds.

Segment Net Revenues

Investor Services total net revenues decreased by 5% in the first quarter of 2024, compared to the same period in 2023, and Advisor Services total net revenues decreased by 15% in the first quarter of 2024, compared to the same period in 2023.

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

Trading revenue decreased for both segments, primarily due to lower payment for order flow and, for Investor Services, lower commissions, as described above.

Other revenue decreased for both segments, primarily due to lower exchange processing fees and certain lower service fees, partially offset by lower provision for credit losses on bank loans.

These decreases were partially offset by higher asset management and administration fees in both segments, primarily as a result of higher balances in money market funds, and Mutual Fund OneSource ® and, additionally for Investor Services, fee-based advice solutions.

Bank deposit account fees increased for Investor Services and decreased for Advisor Services.

Both segments were impacted by breakage fees incurred in the first quarter of 2023, partially offset by lower average BDA balances in the first quarter of 2024.

Segment Expenses Excluding Interest

Investor Services total expenses excluding interest increased by 11% and 7% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022, while Advisor Services total expenses excluding interest increased by 23% and 14% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.

Both segments saw higher compensation and benefits expenses due to restructuring costs recognized in the third quarter of 2023, increases in headcount to support our expanding client base and TDA client account transitions, and annual merit increases, partially offset by lower incentive compensation.

Regulatory fees and assessments increased in both segments in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily due to higher FDIC deposit insurance assessments described above.

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

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

Both segments saw higher communications expenses due to client communications related to TDA account transitions.

In Investor Services, these increases were partially offset by lower amortization of acquired intangible assets as certain assets from the TDA acquisition became fully amortized in 2022.

Investor Services total expenses excluding interest increased by 1% in the first quarter of 2024, compared to the same period in 2023, while Advisor Services total expenses excluding interest decreased by 12% in the first quarter of 2024, compared to the same period in 2023.

Both segments had decreases in compensation and benefits expense primarily due to lower headcount as a result of position eliminations in 2023, partially offset by higher incentive compensation and annual merit increases.

Occupancy and equipment expense decreased in both segments, primarily due to lower technology equipment and software costs and lower occupancy costs due to facility closures in 2023 related to restructuring and the Ameritrade integration.

Other expense decreased for Advisor Services and increased for Investor Services, primarily due to decreases in exchange processing fees and other clearing costs for Advisor Services and increases in similar fees and costs for Investor Services.

Additionally, regulatory fees and assessments increased in both segments, primarily due to higher FDIC assessments, as described above.

For Investor Services, depreciation and amortization expense also increased, primarily due to higher amortization of purchased and internally developed software, driven by capital expenditures in 2023 and the first three months of 2024 to enhance our technological infrastructure to support growth of the business.

RISK MANAGEMENT

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

For a discussion of our risk management programs, see Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2022 Form 10-K.

For a discussion of our risk management programs, see Part II – Item 7 – Risk Management in the 2023 Form 10-K.

Market risk is the potential for changes in earnings or the value of financial instruments held by Schwab as a result of fluctuations in interest rates, equity prices, or market conditions.

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

Key assumptions include the projection of interest rate scenarios with rate floors,

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

We use independent third-

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

rates and balances of non-maturity client cash held on the balance sheet, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans.

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

party models to simulate net interest revenue sensitivity and related analyses.

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

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

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

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

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

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

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

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

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

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

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

If the cost of funding sources is greater than the increased revenue from repricing assets, however, net interest margin can be reduced.

The following table shows simulated changes to net interest revenue over the next 12 months beginning September 30, 2023 and December 31, 2022 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

September 30, 2023 December 31, 2022

The following table presents simulated changes to net interest revenue over the next 12 months beginning March 31, 2024 and December 31, 2023 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

March 31, 2024 December 31, 2023

Increase of 200 basis points 10.0 % 10.8 %

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Decrease of 200 basis points (3.5) % (4.2) %

The Company’s simulated incremental increases in market interest rates had a larger impact on net interest revenue as of September 30, 2023 compared to December 31, 2022 primarily due to higher margin loan and cash balances, which was partially offset by an increased allocation to FHLB borrowings and other short-term borrowings across the Company’s banking subsidiaries.

Simulated incremental decreases in market interest rates had a larger impact on net interest revenue as of September 30, 2023 compared to December 31, 2022 primarily due to higher margin loan and cash balances, while increased allocation to shorter-term liabilities contributed to lower interest expense in a lower rate environment.

In addition to measuring the effect of gradual parallel increases or decreases in current interest rates, we regularly simulate the effects of non-parallel shifts and instantaneous shifts of interest rates on net interest revenue.

THE CHARLES SCHWAB CORPORATION

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

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

The Company’s simulated incremental increases and decreases in market interest rates had a smaller impact on net interest revenue as of March 31, 2024 compared to December 31, 2023.

This is primarily due to lower cash balances held at March 31, 2024, partially offset by lower interest-bearing deposits, which reduces interest expense in a higher rate environment and reduces interest expense savings in a lower rate environment.

Effective Duration

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

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

The Company’s estimated effective duration of consolidated total assets was approximately 2.5 years at both September 30, 2023 (inclusive of the impact of derivative instruments), and September 30, 2022.

The estimated effective duration of our AFS investment securities portfolio was approximately 2.5 years (2.2 years inclusive of the impact of derivative instruments) and 3.3 years as of September 30, 2023 and 2022, respectively.

This change in the estimated effective duration of our AFS portfolio was due primarily to the 2022 transfer of securities from the AFS category to the HTM category (see also Item 1 – Note 4).

The estimated effective duration for the Company’s total AFS and HTM investment securities portfolio was approximately 4.0 years (3.9 years inclusive of the impact of derivative instruments on AFS securities) and 3.9 years as of September 30, 2023 and 2022, respectively.

AFS and HTM securities comprised approximately 57% of the Company’s consolidated total assets as of both September 30, 2023 and 2022.

The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both September 30, 2023 and 2022.

The Company’s liability duration is impacted by the

THE CHARLES SCHWAB CORPORATION

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

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

composition of funding sources, and typically decreases in periods of rising market interest rates and increases in periods of declining market interest rates.

The following table presents the Company’s estimated effective durations, which reflects anticipated future payments, by category:

March 31, 2024 March 31, 2023

Estimated effective duration, exclusive of derivatives:

Consolidated total assets 2.5 2.6

AFS investment securities portfolio 2.4 2.4

AFS and HTM investment securities portfolio 3.9 4.0

Estimated effective duration, inclusive of derivatives (1) :

Consolidated total assets 2.4 2.6

AFS investment securities portfolio 2.1 2.3

AFS and HTM investment securities portfolio 3.8 3.9

(1) See Note 11 for additional discussion on the Company’s derivatives.

AFS and HTM securities comprised approximately 55% and 58% of the Company’s consolidated total assets as of March 31, 2024 and 2023, respectively.

The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both March 31, 2024 and 2023.

Economic Value of Equity Simulation

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

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

As interest rates rose through the first nine months of 2023, EVE sensitivity generally trended higher due to a shortening of liability duration.

We rely on third-party models for term structure modeling and prepayment speed modeling for mortgage-backed securities and mortgage loans.

As interest rates have risen in the Federal Reserve’s tightening cycle, EVE sensitivity has generally trended higher due to a shortening of liability duration.

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

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

As of September 30, 2023 and December 31, 2022, simulated changes in bank deposit account fee revenue from gradual changes in market interest rates relative to prevailing market rates, under the interest rate scenarios described above for net interest revenue, did not have a significant impact on the Company’s total net revenues.

As of March 31, 2024 and December 31, 2023, simulated changes in bank deposit account fee revenue from gradual changes in market interest rates relative to prevailing market rates, under the interest rate scenarios described above for net interest revenue, did not have a significant impact on the Company’s total net revenues.

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

Phase-out of LIBOR

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

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

We also continue to monitor our financial models and systems that previously referenced LIBOR.

See also Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2022 Form 10-K.

THE CHARLES SCHWAB CORPORATION

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

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

Liquidity Risk

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

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

THE CHARLES SCHWAB CORPORATION

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

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

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

The capital needs of the banking subsidiaries are primarily driven by client deposit levels and other borrowings.

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These funds are used to purchase investment securities and extend loans to clients.

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, FHLB borrowings, issuance of CDs, cash provided by securities issuances by CSC in the capital markets, and other facilities described below.

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, FHLB borrowings, borrowings under repurchase agreements with external financial institutions, issuance of CDs, cash provided by securities issuances by CSC in the capital markets, and other facilities described below.

To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments.

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Our clients’ bank deposits and brokerage cash balances primarily originate from our 35.3 million active brokerage accounts.

More than 80% of our bank deposits qualified for FDIC insurance as of September 30, 2023.

More than 80% of our bank deposits qualified for FDIC insurance as of March 31, 2024.

Our clients’ allocation of cash held on our balance sheet as bank deposits or payables to brokerage clients is sensitive to interest rate levels, with clients typically increasing their utilization of investment cash solutions such as purchased money market funds and certain fixed income products when those yields are higher than those of cash sweep features.

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

The following table describes external debt facilities available at September 30, 2023:

The following table describes external debt facilities available at March 31, 2024:

Description Borrower Outstanding Available Maturity of Amounts Outstanding Weighted-Average Interest Rate on Amounts Outstanding

FHLB secured credit facilities Banking subsidiaries $ 24,000 $ 63,439 (1)

October 2023 - September 2024 5.17%

May 2024 - January 2025 5.33%

Federal Reserve discount window Banking subsidiaries — 32,935 (1,2)

Federal Reserve Bank Term Funding Program Banking subsidiaries — 40,157 (1)

Repurchase agreements Banking subsidiaries, CSC 7,705 — (3)

October 2023 - July 2024 5.34%

Uncommitted, unsecured lines of credit with

various external banks CSC, CS&Co — 1,767 N/A —

Unsecured commercial paper CSC 85 4,915 December 2023 5.65%

April 2024 - December 2024 5.46%

Unsecured, uncommitted lines of credit with

various external banks

CSC, CS&Co — 1,617 N/A —

Unsecured commercial paper CSC — 5,000 N/A —

Secured uncommitted lines of credit with various external banks

CS&Co — — (4)

November 2023 - January 2024 5.67%

Secured uncommitted lines of credit with various

external banks TDAC 700 — (4)

(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of September 30, 2023.

April 2024 5.69%

Unsecured, committed revolving line of credit with various external banks

CSC — 2,100 (5)

(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of March 31, 2024.

Incremental borrowing capacity may be made available by pledging additional assets, subject to applicable facility terms.

See below and Note 8 for additional information.

(2) On March 11, 2024, the Federal Reserve Bank Term Funding Program (BTFP) ceased to make new loans available.

As such, during the first quarter of 2024, the Company reallocated certain amounts of collateral previously pledged under the BTFP to the Federal Reserve discount window.

The BTFP was not used by the Company during the first quarter of 2024.

(3) Secured borrowing capacity is made available based on the banking subsidiaries’ or CSC’s ability to provide collateral deemed acceptable by each respective counterparty.

See Note 12 for additional information.

(3) In the second and third quarter of 2023, CS&Co entered into three secured, uncommitted line of credit agreements with external banks.

Secured borrowing capacity is made available based on CS&Co’s ability to provide acceptable collateral to the lenders as determined by the credit agreements.

(4) Secured borrowing capacity is made available based on TDAC’s ability to provide acceptable collateral to the lenders as determined by the credit agreements.

(4) Secured borrowing capacity is made available based on CS&Co’s or TDAC’s ability to provide acceptable collateral to the lenders as determined by the credit agreements.

(5) During the first quarter of 2024, CSC entered into an unsecured committed revolving line of credit with various external banks.

N/A Not applicable.

Available borrowing capacity from the FHLB and Federal Reserve facilities maintained by our banking subsidiaries is dependent on the value of assets pledged and the terms of the borrowing arrangements.

As of September 30, 2023, the Company had additional investment securities with a par value of approximately $146 billion or a fair value of approximately $131 billion available to be pledged to obtain additional capacity.

These securities could be used to provide additional borrowing capacity of up to $146 billion, dependent on the facility utilized.

As of March 31, 2024, the Company had additional investment securities with a par value of approximately $135 billion or a fair value of approximately $124 billion available to be pledged to obtain additional capacity.

Additional details regarding availability and use of these facilities is described below.

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Our banking subsidiaries also have access to short-term secured funding through the Federal Reserve discount window.

Amounts available under the Federal Reserve discount window are dependent on the fair value of certain investment securities that are pledged as collateral.

Amounts available under the Federal Reserve discount window are dependent on the value of certain investment securities that are pledged as collateral.

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

In addition, our banking subsidiaries are counterparties to the standing repo facility with the Federal Reserve Bank of New York;

other than de minimis tests performed to satisfy the Federal Reserve Bank of New York’s testing requirements, this facility was not used during the first nine months of 2023 and there were no amounts outstanding at September 30, 2023.

Beginning in the second quarter of 2023, CSC maintains a standing bilateral repurchase agreement with an external bank.

Other than de minimis tests, this facility was not used during the second or third quarter of 2023 and there were no amounts outstanding under this facility at September 30, 2023.

On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program, offering loans through March 11, 2024 of up to one year in length to eligible financial institutions with U.S.

Treasury securities, agency debt, mortgage-backed securities, and other qualifying assets pledged as collateral.

Borrowing capacity available under this program is dependent upon the par value of the investment securities that are pledged as collateral.

The Company is eligible to obtain advances under this program.

This facility was not used during the first nine months of 2023.

other than de minimis tests performed to satisfy the Federal Reserve Bank of New York’s testing requirements, this facility was not used during the first three months of 2024 and there were no amounts outstanding at March 31, 2024.

CSC maintains a standing bilateral repurchase agreement with an external bank.

This facility was not used during the first quarter of 2024 and there were no amounts outstanding under this facility at March 31, 2024.

CSC’s ratings for Commercial Paper Notes were P1 by Moody’s Investor Service (Moody’s), A2 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at March 31, 2024.

CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities.

THE CHARLES SCHWAB CORPORATION

1 unchanged sentence

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

During the second quarter of 2023, Standard & Poor’s downgraded its rating of CSC’s Commercial Paper Notes from A1 to A2, and Moody’s changed its outlook from positive to stable.

CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities.

Beginning in the first quarter of 2024, CSC has access to an unsecured, committed revolving line of credit with various external banks.

This line will expire in January 2025.

Other than an overnight borrowing to test the availability, the facility was not used during the first quarter of 2024.

CS&Co maintains uncommitted, unsecured bank credit lines with a group of banks as a source of short-term liquidity, which can also be accessed by CSC.

1 unchanged sentence

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.

In the fourth quarter of 2022 and first nine months of 2023, CSB issued brokered CDs as a supplemental funding source.

The following table provides information about brokered CDs issued by CSB and outstanding as of September 30, 2023:

During 2023 and the first three months of 2024, CSB issued brokered CDs as a supplemental funding source.

The following table provides information about brokered CDs issued by CSB and outstanding as of March 31, 2024:

Amount Outstanding Maturity Weighted-Average Interest Rate

Brokered CDs $ 45,418 November 2023 - April 2025 5.06%

Brokered CDs $ 39,128 April 2024 - April 2025 5.22%

Cash Flow Activity

As a result of rapidly increasing short-term interest rates beginning in 2022, the Company saw an increase in the pace at which clients moved certain cash balances out of our sweep features and into higher yielding alternatives.

As a result of these outflows, our banking subsidiaries have supplemented excess cash on hand and cash generated by maturities and paydowns on our investment securities portfolios with fixed- and floating-rate FHLB advances, repurchase agreements, and issuances of brokered CDs.

The average daily pace of client cash allocations out of our sweep products into higher yielding investment solutions decreased significantly beginning in the second quarter of 2023, and, apart from an increase in August following the Federal Reserve’s July rate increase, continued to decline during the third quarter of 2023 to its slowest pace since the beginning of the current interest rate tightening cycle.

In the third quarter of 2023, the Company’s FHLB borrowings and other short-term borrowings decreased by $9.5 billion as a result of repayments during the period.

Bank deposits decreased during the third quarter of 2023 by $20.0 billion, resulting from a decrease of $23.1 billion in deposits swept from brokerage accounts due to client cash allocations, partially offset by a net increase in brokered CDs of $4.1 billion.

During the first nine months of 2023, the Company’s cash and cash equivalents, excluding amounts restricted, decreased by $6.9 billion to $33.3 billion as of September 30, 2023.

This decrease was driven by net cash used for financing activities, partially offset by net cash provided by investing activities.

Bank deposits decreased by a total of $82.3 billion during the first nine months of 2023;

this was driven by a decrease of $116.2 billion in deposits swept from brokerage accounts due primarily to clients’ cash allocation decisions described above, partially offset by a net increase in brokered CDs of $39.4 billion.

Offsetting the decrease in bank deposits, investing net cash flows from our AFS and HTM securities totaled $49.2 billion in the first nine months of 2023, and the Company increased its FHLB borrowings and other short-term borrowings by a total of $22.3 billion.

THE CHARLES SCHWAB CORPORATION

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

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

The average pace of client cash allocations out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second half of 2023, and continued to decrease in the first quarter of 2024.

Cash and cash equivalents decreased $11.6 billion from year-end 2023 to $31.8 billion at March 31, 2024;

cash and cash equivalents, including amounts restricted, decreased $16.8 billion to $57.7 billion at March 31, 2024.

This decrease reflected repayments of supplemental funding balances of $8.8 billion and maturities of long-term debt of $3.3 billion.

Bank deposits decreased during the first quarter of 2024 by $20.5 billion, resulting from a decrease of $11.4 billion in deposits swept from brokerage accounts due to client cash allocations and a decrease in brokered CDs of $9.2 billion.

Partially offsetting the decrease in bank deposits and repayment of borrowings, net investing cash flows from our AFS and HTM securities totaled $10.0 billion in the first three months of 2024.

Liquidity Coverage Ratio

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See Part I – Item 1 – Business – Regulation in the 2023 Form 10-K for additional information.

The Company was in compliance with the LCR rule at September 30, 2023, and the table below presents information about our average daily LCR:

The Company was in compliance with the LCR rule at March 31, 2024, and the table below presents information about our average daily LCR:

Average for the Three Months Ended

September 30, 2023 June 30, 2023

March 31, 2024 December 31, 2023

Total eligible HQLA $ 58,841 $ 58,056

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To support growth in margin loan balances at our broker-dealer subsidiaries while meeting our LCR requirements, the Company may issue commercial paper or draw on secured lines of credit, in addition to capital markets issuances.

In managing compliance with our LCR requirements, the broker-dealer subsidiaries may also retain client cash balances rather than sweeping such balances to our banking subsidiaries.

THE CHARLES SCHWAB CORPORATION

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

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

Net Stable Funding Ratio

Schwab is subject to disclosure requirements under the NSFR rule, which requires the semi-annual public disclosure of its NSFR levels beginning in the second quarter of 2023.

Schwab is subject to disclosure requirements under the NSFR rule, which requires the semi-annual public disclosure of its NSFR levels.

The NSFR rule stipulates that the Company’s available stable funding (ASF) must be at least 100% of the Company’s required stable funding (RSF).

ASF is calculated by assessing the stability of the Company’s funding sources and RSF is calculated by evaluating the characteristics of the Company’s assets, derivatives, and off-balance-sheet exposures.

The Company was in compliance with the NSFR rule at September 30, 2023.

The Company was in compliance with the NSFR rule at March 31, 2024.

Long-Term Borrowings

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $24.8 billion and $20.8 billion at September 30, 2023 and December 31, 2022, respectively.

The following table provides information about our Senior Notes outstanding at September 30, 2023:

September 30, 2023 Par

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $22.9 billion and $26.1 billion at March 31, 2024 and December 31, 2023, respectively.

The following table provides information about our Senior Notes outstanding at March 31, 2024:

March 31, 2024 Par

Outstanding Maturity Weighted Average

2 unchanged sentences

CSC Senior Notes $ 22,612 2024 - 2034 3.72% A2 A- A

TDA Holding Senior Notes 213 2024 - 2029 3.47% A2 A- —

During the second quarter of 2023, Standard and Poor’s downgraded CSC’s and TDA Holding’s long-term issuer credit and senior unsecured debt ratings from A to A- and affirmed its outlook remained stable.

Moody’s also affirmed its rating of A2 for CSC and TDA Holding and changed its outlook from positive to stable.

Ameritrade Holding Senior Notes 213 2024 - 2029 3.47% A2 A- —

New Debt Issuances

The below debt issuances in the first nine months of 2023 were senior unsecured obligations.

Additional details are as follows:

Issuance Date Issuance Amount Maturity Date Interest Rate

May 19, 2023 $ 1,200 05/19/2029 5.643% (1)

May 19, 2023 1,300 05/19/2034 5.853% (1)

August 24, 2023 1,350 08/24/2034 6.136% (1)

August 24, 2023 1,000 08/24/2026 5.875%

(1) Interest rates presented are those in effect at September 30, 2023.

For additional information regarding future interest rates on fixed-to-floating rate Senior Notes, see Item 1 – Note 8.

There were no new debt issuances of senior unsecured obligations in the first three months of 2024.

Schwab additionally enters into guarantees and other similar arrangements in the ordinary course of business.

For information on these arrangements, see Item 1 – Notes 5, 6, 8, 9, and 12.

THE CHARLES SCHWAB CORPORATION

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

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

Additional information regarding our sources and uses of liquidity and management of liquidity risk is included in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk in our 2022 Form 10-K.

Additional information regarding our sources and uses of liquidity and management of liquidity risk is included in Part II – Item 7 – Risk Management – Liquidity Risk in our 2023 Form 10-K.

See also Item 1 – Condensed Consolidated Statements of Cash Flows, Item 1 – Note 7 for the Company’s bank deposits, Item 1 – Note 8 for the Company’s debt and borrowing facilities, and Item 1 – Note 14 for equity outstanding balances and activity.

CAPITAL MANAGEMENT

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including balance sheet growth over time, management of the 2023 IDA agreement inclusive of potential migration of IDA balances (see further discussion below), providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries.

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, inclusive of balance sheet growth over time, management of the 2023 IDA agreement, financial support to our subsidiaries, sustained access to the capital markets, and regulatory capital requirements.

Schwab also seeks to return excess capital to stockholders.

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Regulatory Capital Requirements

CSC and certain subsidiaries including our banking and broker-dealer subsidiaries are subject to various capital requirements set by regulatory agencies as discussed in further detail in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Management of the 2022 Form 10-K and in Item 1 – Note 17.

As of September 30, 2023, CSC and our banking subsidiaries are considered well capitalized, and CS&Co, TDAC, and TD Ameritrade, Inc.

CSC and certain subsidiaries including our banking and broker-dealer subsidiaries are subject to various capital requirements set by regulatory agencies as discussed in further detail in Part II – Item 7 – Capital Management of the 2023 Form 10-K and in Item 1 – Note 17.

As of March 31, 2024, CSC and our banking subsidiaries are considered well capitalized, and CS&Co, TDAC, and TD Ameritrade, Inc.

are in compliance with their respective net capital requirements.

THE CHARLES SCHWAB CORPORATION

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

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

The following table details the capital ratios for CSC consolidated and CSB:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

CSC CSB CSC CSB

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As a Category III banking organization, CSC has elected to exclude AOCI from regulatory capital.

The Company’s consolidated Tier 1 Leverage Ratio increased to 8.2% at September 30, 2023 from 7.5% at June 30, 2023 and 7.2% at year-end 2022.

This increase during the third quarter was primarily due to net income during the quarter and a decrease in the Company’s total assets.

Total balance sheet assets decreased $36.3 billion, or 7%, during the third quarter of 2023 due

THE CHARLES SCHWAB CORPORATION

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

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

primarily to a decrease of $32.0 billion, or 8%, in total bank deposits and payables to brokerage clients due to client cash allocation decisions resulting from the rising interest rate environment.

CSB’s Tier 1 Leverage Ratio increased from year-end 2022, ending the third quarter of 2023 at 9.6% primarily as a result of capital contributions from CSC as well as net income.

The Board of Governors of the Federal Reserve System recently issued a notice of proposed changes to the regulatory capital rules that would require us to include AOCI in regulatory capital, phased in over a three-year transition period beginning July 1, 2025 (see Current Regulatory and Other Developments).

As of September 30, 2023, our adjusted Tier 1 Leverage Ratio, which reflects the inclusion of AOCI in the ratio, was 4.1% for CSC consolidated and 4.4% for CSB (see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results).

In anticipation of the rules being adopted, the Company is continuing to retain and accrete capital organically well ahead of the proposed transition period.

The Company’s consolidated Tier 1 Leverage Ratio increased to 8.8% at March 31, 2024 from 8.5% at year-end 2023.

This increase during the first quarter was primarily due to lower total Company assets and also the benefit of net income earned during the quarter.

Total balance sheet assets decreased $24.4 billion, or 5%, during the first quarter of 2024 due primarily to a decrease of $11.4 billion in bank sweep deposits, a decrease of $9.2 billion in brokered CDs, and repayment of $3.3 billion in long-term debt.

CSB’s Tier 1 Leverage Ratio also increased from year-end 2023, ending the first quarter of 2024 at 10.4% primarily as a result of lower total assets as well as net income during the quarter.

In light of the Federal Reserve’s 2023 regulatory capital rule proposal, which among other things, would require the Company to include AOCI in regulatory capital (See Part II – Item 7 – Current Regulatory and Other Developments in the 2023 Form 10-K), the Company has developed an adjusted Tier 1 Leverage Ratio, which is a non-GAAP financial measure that includes AOCI in the ratio.

The primary component of AOCI for Schwab is unrealized gains and losses on our AFS investment securities portfolio and on securities transferred from AFS to the HTM category.

As of March 31, 2024, our adjusted Tier 1 Leverage Ratio, which includes AOCI in the ratio, was 5.3% for CSC consolidated and 5.7% for CSB (see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results).

The Company is continuing to retain and accrete capital organically well ahead of the Federal Reserve’s proposed regulatory capital rules’ transition period.

IDA Agreement

Certain brokerage client deposits are swept off-balance sheet to the TD Depository Institutions pursuant to the 2023 IDA agreement.

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

During the first three months of 2024, Schwab did not move IDA balances to its balance sheet.

The Company’s overall capital management strategy includes supporting migration of IDA balances in future periods as available pursuant to the terms of the 2023 IDA agreement.

1 unchanged sentence

See Item 1 – Note 9 for further information on the 2023 IDA agreement.

On January 26, 2023, the Board of Directors (Board) of CSC declared a three cent, or 14%, increase in the quarterly cash dividend to $.25 per common share.

Cash dividends paid and per share amounts, exclusive of amounts related to preferred stock repurchases, for the first nine months of 2023 and 2022 are as follows:

Nine Months Ended September 30, Cash Paid Per Share

THE CHARLES SCHWAB CORPORATION

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

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

Cash dividends paid and per share amounts, exclusive of amounts related to preferred stock repurchases, for the first three months of 2024 and 2023 are as follows:

Three Months Ended March 31, Cash Paid Per Share

Amount Cash Paid Per Share

1 unchanged sentence

Preferred Stock:

N/A N/A 25 63.30

11 14.88 11 14.88

N/A N/A 27 4,544.37

33 1,343.75 33 1,343.75

3 unchanged sentences

9 1,250.00 9 1,250.00

28 3,750.00 18 2,458.33

(1) 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.

(1) Dividends paid quarterly.

(3) 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.

(2) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter.

(5) 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.

Share Repurchases

On July 27, 2022, CSC publicly announced that its Board of Directors approved a new share repurchase authorization to repurchase up to $15.0 billion of common stock, replacing the previous and now terminated share repurchase authorization of up to $4.0 billion of common stock.

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

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

CSC repurchased 37 million shares of

THE CHARLES SCHWAB CORPORATION

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

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

its common stock for $2.8 billion during the nine months ended September 30, 2023.

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

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

The Company repurchased 11,620 depositary shares representing interests in Series F preferred stock for $11 million, 42,036 depositary shares representing interests in Series G preferred stock for $42 million, 273,251 depositary shares representing interests in Series H preferred stock for $235 million, and 194,567 depositary shares representing interests in Series I preferred stock for $179 million on the open market during the nine months ended September 30, 2023 .

On July 27, 2022, CSC publicly announced that its Board of Directors approved a 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 share repurchase authorization does not have an expiration date.

There were no repurchases of CSC’s common stock during the three months ended March 31, 2024.

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

As of March 31, 2024, approximately $8.7 billion remained on the authorization.

There were no repurchases of CSC’s preferred stock during the three months ended March 31, 2024 .

During the three months ended March 31, 2023, the Company repurchased on the open market 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 .

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

Beginning in 2023, share repurchases, net of issuances, are subject to a nondeductible 1% excise tax which was recognized as a direct and incremental cost associated with these transactions.

Share repurchases, net of issuances, are subject to a nondeductible 1% excise tax which was recognized as a direct and incremental cost associated with these transactions.

For repurchases of common stock, the tax is recorded as part of the cost basis of the treasury stock repurchased, resulting in no impact to the condensed consolidated statement of income.

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Foreign Exposure

At September 30, 2023, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments.

At September 30, 2023, the fair value of these holdings totaled $7.8 billion, with the top three exposures being to issuers and counterparties domiciled in France at $2.0 billion, Canada at $1.5 billion, and the United Kingdom at $908 million.

At December 31, 2022, the fair value of these holdings totaled $16.4 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.1 billion, the United Kingdom at $4.8 billion, and Canada at $1.7 billion.

In addition, Schwab had outstanding margin loans to foreign residents of $2.7 billion and $2.5 billion at September 30, 2023 and December 31, 2022, respectively.

At March 31, 2024, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments.

At March 31, 2024, the fair value of these holdings totaled $13.0 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.9 billion, the United Kingdom at $2.7 billion, and Canada at $887 million.

At December 31, 2023, the fair value of these holdings totaled $12.8 billion, with the top three exposures being to issuers and counterparties domiciled in the United Kingdom at $5.0 billion, France at $3.2 billion, and Canada at $1.5 billion.

In addition, Schwab had outstanding margin loans to foreign residents of $2.7 billion and $2.5 billion at March 31, 2024 and December 31, 2023, respectively.

THE CHARLES SCHWAB CORPORATION

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

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

CRITICAL ACCOUNTING ESTIMATES

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2022 Form 10-K.

There have been no changes to critical accounting estimates during the first nine months of 2023.

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Critical Accounting Estimates in the 2023 Form 10-K.

There have been no changes to critical accounting estimates during the first three months of 2024.

NON-GAAP FINANCIAL MEASURES

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These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may not be comparable to non-GAAP financial measures presented by other companies.

THE CHARLES SCHWAB CORPORATION

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

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

Schwab’s use of non-GAAP measures is reflective of certain adjustments made to GAAP financial measures as described below.

Beginning in the third quarter of 2023, these adjustments also include restructuring costs, which the Company began incurring in connection with its previously announced plans to streamline its operations to prepare for post-integration of TD Ameritrade.

See Part I – Item 1 – Note 10 for additional information.

Non-GAAP Adjustment or Measure Definition Usefulness to Investors and Uses by Management

Acquisition and integration-related costs, amortization of acquired intangible assets and restructuring costs

Schwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, restructuring costs and, where applicable, the income tax effect of these expenses.

Acquisition and integration-related costs, amortization of acquired intangible assets and restructuring costs Schwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, restructuring costs and, where applicable, the income tax effect of these expenses.

Adjustments made to exclude amortization of acquired intangible assets are reflective of all acquired intangible assets, which were recorded as part of purchase accounting.

13 unchanged sentences

The Compensation Committee of CSC’s Board of Directors maintains discretion in evaluating performance against these criteria.

THE CHARLES SCHWAB CORPORATION

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

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

The following tables present reconciliations of GAAP measures to non-GAAP measures:

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

2023 2022 2023 2022

Three Months Ended

Total expenses excluding interest (GAAP) $ 2,942 $ 3,006

Acquisition and integration-related costs (1)

(106) (101) (334) (291)

Amortization of acquired intangible assets (130) (135)

Restructuring costs (2)

(279) — (279) —

Adjusted total expenses (non-GAAP) $ 2,802 $ 2,773

(1) Acquisition and integration-related costs for the three and nine months ended September 30, 2023 primarily consist of $52 million and $158 million of compensation and benefits, $37 million and $111 million of professional services, $7 million and $21 million of occupancy and equipment, and $4 million and $26 million of other.

Acquisition and integration-related costs for the three and nine months ended September 30, 2022 primarily consist of $57 million and $166 million of compensation and benefits, $36 million and $102 million of professional services, and $6 million and $14 million of occupancy and equipment.

(2) Restructuring costs for the three and nine months ended September 30, 2023 primarily consist of $276 million of compensation and benefits.

There were no restructuring costs for the three and nine months ended September 30, 2022.

THE CHARLES SCHWAB CORPORATION

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

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

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

2023 2022 2023 2022

Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS

(1) Acquisition and integration-related costs for the three months ended March 31, 2024 primarily consist of $17 million of compensation and benefits, and $17 million of professional services.

Acquisition and integration-related costs for the three months ended March 31, 2023 primarily consist of $58 million of compensation and benefits, $33 million of professional services, and $4 million of occupancy and equipment.

(2) Restructuring costs for the three months ended March 31, 2024 reflect a change in estimate of $31 million in compensation and benefits, partially offset by $2 million of occupancy and equipment expense and $1 million of other expense for the period.

There were no restructuring costs for the three months ended March 31, 2023.

Three Months Ended

Amount Diluted

EPS Amount Diluted

Net income available to common stockholders (GAAP),

8 unchanged sentences

(1) The income tax effects of the non-GAAP adjustments are determined using an effective tax rate reflecting the exclusion of non-deductible acquisition costs and are used to present the acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs on an after-tax basis.

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

2023 2022 2023 2022

Three Months Ended

Return on average common stockholders’ equity (GAAP) 15 % 23 %

9 unchanged sentences

(1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).

September 30, 2023

THE CHARLES SCHWAB CORPORATION

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

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

March 31, 2024

Tier 1 Leverage Ratio (GAAP)

9 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis