What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 418 added, 276 removed, 619 unchanged (53% of the section changed)

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(CS&Co), incorporated in 1971, a securities broker-dealer;

• TD Ameritrade, Inc., an introducing securities broker-dealer;

• TD Ameritrade Clearing, Inc.

(TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.;

• Charles Schwab Bank, SSB (CSB), our principal banking entity;

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

In May 2024, the Company completed the final client account conversions to CS&Co from the Ameritrade broker-dealers, TD Ameritrade, Inc.

and TD Ameritrade Clearing, Inc.

Accordingly, these entities are no longer principal business subsidiaries.

See Overview – Integration of Ameritrade for additional information regarding the integration.

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

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On our website, https://www.aboutschwab.com , we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC or Commission):

annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

In addition, we post to the website the Dodd-Frank stress test results, our

annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a)

THE CHARLES SCHWAB CORPORATION

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

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

or 15(d) of the Securities Exchange Act of 1934.

In addition, we post to the website the Dodd-Frank stress test results, our 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 the Commission.

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In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934.

Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “expand,” “aim,” “maintain,” “continue,” “seek,” and other similar expressions.

In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “prioritize,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “maintain,” “continue,” “seek,” and other similar expressions.

In addition, any statements that refer to expectations, strategy, objectives, projections, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are estimates based on the best judgment of Schwab’s senior management.

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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);

• Integration of Ameritrade, expected levels of attrition, and expense and revenue synergies (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);

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

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

• Net interest revenue;

the adjustment of rates paid on client-related liabilities;

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);

the adjustment of rates paid on client-related liabilities (see Results of Operations in Part I – Item 2);

• Supplemental funding and expectations for repayment of outstanding balances (see Results of Operations in Part I – Item 2, and Liquidity Risk 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 in Part I – Item 2);

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

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

• Capital management;

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 in Part I – Item 2 and Commitments and Contingencies in Item 1 – Note 9);

capital accretion;

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

long-term operating objective;

and uses of capital and return of excess capital to stockholders (see Capital Management in Part I – Item 2 and Commitments and Contingencies in Item 1 – Note 9);

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

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

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• Client cash allocations and sensitivity to deposit rates;

• Competitive pressure on pricing, including deposit rates;

THE CHARLES SCHWAB CORPORATION

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• Competitive pressure on pricing, including deposit rates;

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

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• Our ability to support client activity levels;

• 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;

• Our ability to successfully implement integration plans relating to Ameritrade;

• The risk that client transitions 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;

• Re al estate and workforce decisions;

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

• Regulatory and legislative developments;

• 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 first quarter of 2024 and 2023 are as follows:

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

Three Months Ended

March 31, Percent

June 30, Percent

Change Six Months Ended

June 30, Percent

2024 2023 2024 2023

Client Metrics

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

10.0 % 11.2 %

Company Financial Information and Metrics

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Return on tangible common equity 34 % 62 % 36 % 71 %

(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.

(1) The second quarter and first six months of 2024 include net inflows of $2.7 billion and net outflows of $4.7 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB.

Also in the second quarter and first six months of 2024, this includes an inflow of $10.3 billion from a mutual fund clearing services client.

The second quarter and first six months of 2023 includes inflows of $7.8 billion and $26.8 billion, respectively, from off-platform brokered CDs issued by CSB.

Also in the second quarter and first six months of 2023, this includes an inflow of $12.0 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 July 2023, adjustments made to GAAP financial measures also include restructuring costs.

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

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See Non-GAAP Financial Measures.

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.

During the second quarter and first six months of 2024, the macroeconomic environment reflected generally positive investor sentiment and engagement, as equity markets, primarily led by technology stocks, continued to advance.

The S&P 500 ® rose 4% in the second quarter and 14% in the first half of the year, while the NASDAQ Composite ® moved higher by 8% in the second quarter and 18% year-to-date.

While inflation remained above the Federal Reserve’s target of 2%, readings late in the second quarter showed progress, increasing expectations for the Federal Reserve to cut rates later this year.

Sustained equity market strength and organic asset gathering pushed total client assets to $9.41 trillion as of June 30, 2024.

Core net new assets gathered in the second quarter were $61.2 billion, up 17% year-over-year, which brought the year-to-date total to $156.8 billion.

Our second quarter and first half of 2024 net new assets 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.

Our clients were engaged in the markets throughout the first six months of the year, with clients’ daily

THE CHARLES SCHWAB CORPORATION

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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.

average trades (DATs) at 5.5 million and 5.7 million during the second quarter and first six months of 2024, respectively, up 4% and 2% from the prior-year periods.

Clients opened 985 thousand new brokerage accounts in the second quarter of 2024 to bring the total for the first half of the year to 2.1 million, helping active brokerage accounts rise 4% year-over-year to reach 35.6 million at quarter-end.

The Company’s financial performance in the second quarter and first six months of 2024 reflected the benefits of equity market strength, increased client engagement, and solid organic growth.

Net income totaled $1.3 billion and $2.7 billion in the second quarter and first six months of 2024, respectively, up 3% and down 7% from the same periods in 2023.

The Company produced diluted earnings per share (EPS) of $.66 and $1.34 in the second quarter and first six months of 2024, respectively, up 3% and down 9% from the comparable periods in the prior year.

Adjusted diluted EPS (1) was $.73 and $1.47 in the second quarter and first six months of 2024, respectively, down 3% and 13% from the comparable 2023 periods.

Total net revenues increased 1% year-over-year to $4.7 billion in the second quarter, bringing the year-to-date total to $9.4 billion, down 3% from the first half of 2023.

Net interest revenue was $2.2 billion and $4.4 billion in the second quarter and first six months of 2024, respectively, down 6% and 13% from the comparable periods in 2023, due primarily to lower balances of interest-earning assets and higher interest rates paid on funding sources, partially offset by higher yields on interest-earning assets and increased margin and bank lending.

Asset management and administration fees totaled $1.4 billion and $2.7 billion in the second quarter and first six months of 2024, respectively, rising 18% and 19% from the comparable 2023 periods primarily as a result of growth in money market funds, equity market gains, and growth in advice solutions.

Trading revenue was $777 million and $1.6 billion in the second quarter and first six months of 2024, respectively, down 3% and 6% from the same periods in 2023, due to lower commissions and order flow revenue as a result of changes in mix.

Bank deposit account fee revenue was $153 million in the second quarter of 2024, down 13% year-over-year primarily due to lower average BDA balances.

For the first six months of 2024, bank deposit account fee revenue was up 3% from the prior-year period due primarily to $97 million of one-time breakage fees incurred in 2023.

BDA balances totaled $84.5 billion at June 30, 2024, down 13% from year-end 2023, reflecting client cash allocation decisions.

Total expenses excluding interest were $2.9 billion and $5.9 billion in the second quarter and first six months of 2024, respectively, lower by 1% from both comparable periods in the prior year, reflecting lower acquisition and integration-related costs, as well as the benefits of our cost reduction restructuring efforts undertaken in late 2023, which helped drive 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, higher other expenses inclusive of $43 million in regulatory accruals (see Results of Operations – Expenses Excluding Interest and Item 1 – Note 9) and higher exchange processing fees due primarily to the SEC’s May 2024 fee rate increase, and higher regulatory fees and assessments, reflecting incremental Federal Deposit Insurance Corporation (FDIC) special assessments of $5 million and $30 million in the second quarter and first six months of 2024, respectively (see Current Regulatory and Other Developments).

Adjusted total expenses (1) were $2.8 billion and $5.6 billion in the second quarter and first six months of 2024, respectively, up 2% from both comparable prior-year periods.

Acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs totaled $175 million and $315 million in the second quarter and first six months of 2024, respectively, down 34% and 37% from the comparable periods in 2023.

Return on average common stockholders’ equity was 14% and 15% for the second quarter and first six months of 2024, respectively, down from 17% and 20% from the same prior-year periods.

Return on tangible common equity (1) (ROTCE) was 34% and 36% in the second quarter and first six months of 2024, respectively, down from 62% and 71% in the same periods in 2023.

These decreases were due primarily to higher average stockholders’ equity for both the second quarter and year-to-date periods, and for the year-to-date period, lower net income.

Average stockholders’ equity was higher in the second quarter and first six months of 2024 due to higher average retained earnings driven by net income for full-year 2023 and the second quarter and first half of 2024, 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

Total balance sheet assets decreased 4% during the second quarter, and decreased 9% from year-end 2023 to June 30, 2024.

These decreases were driven primarily by lower bank deposits, which reflected client cash reallocation into higher-yielding investment cash alternatives, strong client engagement in the equity markets, and seasonal tax payments in the second quarter.

Total outstanding balances of supplemental funding, which included brokered CDs of $40.3 billion, Federal Home Loan Bank (FHLB) borrowings of $24.4 billion, and borrowings under repurchase agreements of $9.0 billion, increased in aggregate by $2.9 billion, or 4%, during the second quarter of 2024 due primarily to margin loan growth, though the outstanding balance of

THE CHARLES SCHWAB CORPORATION

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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.

supplemental funding of $73.7 billion as of June 30, 2024 was lower by $5.9 billion, or 7%, from year-end 2023.

Supported by net income and a smaller balance sheet, our consolidated Tier 1 Leverage Ratio increased to 9.4% as of June 30, 2024.

Our consolidated adjusted Tier 1 Leverage Ratio (1) , which includes AOCI in the ratio, was 5.9% as of the end of the second quarter.

In addition, the Company updated its long-term operating objective to be its consolidated adjusted Tier 1 Leverage Ratio (1) of 6.75% - 7.00% (see Capital Management for additional information).

(1) Adjusted diluted EPS, adjusted total expenses, return on tangible common equity, and adjusted Tier 1 Leverage Ratio 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

During the second quarter of 2024, the Company completed the conversion of the final client transition group from Ameritrade to the Schwab platform.

Over the course of five client transition groups, we converted approximately $1.9 trillion in client assets across more than 17 million client accounts, including 7,000 RIAs, from Ameritrade to Schwab, and conversion of this final client group is a significant milestone in our integration.

In connection with these transitions, we have experienced some related attrition of client assets from retail accounts and RIAs that continues to be below our initial estimates when we announced the acquisition.

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.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $36 million and $74 million for the second quarter and first six months of 2024, respectively, and $130 million and $228 million for the second quarter and first six months of 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 June 30, 2024, we have achieved approximately 90% 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.

Estimated timing and amounts of costs incurred and synergy realization are subject to change as we work to complete the integration.

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.

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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.

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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.

Among other requirements, the rule, in conjunction with associated prohibited transaction exemptions (PTEs), subjects broker-dealers who provide non-discretionary investment advice to retirement plans and accounts to a “best interest” standard.

The rule was scheduled to take effect September 23, 2024, with a one-year transition period for certain PTE provisions.

On July 25 and 26, 2024, federal district court judges in two separate industry lawsuits seeking to vacate the rule stayed effectiveness of the rule pending resolution of litigation.

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.

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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

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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 was tax deductible and was recognized in earnings in the fourth quarter of 2023.

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.

During the second quarter of 2024, the Company recognized an additional pre-tax charge of $5 million based on the FDIC’s June 2024 invoices, resulting in a year-to-date total of $30 million.

The Company paid its first amount on the special assessment in the second quarter of 2024 and expects the remaining collection period to be the next two years.

The FDIC has indicated that its special assessments and related collection period remain subject to further refinement.

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:

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The following tables present a comparison of revenue by category:

Three Months Ended March 31, Percent

Three Months Ended June 30, Percent

Change Amount % of

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Total net revenues 1 % $ 4,690 100 % $ 4,656 100 %

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)

Six Months Ended June 30, Percent

Change Amount % of

Revenues Amount % of

Net interest revenue

Interest revenue (4) % $ 7,758 82 % $ 8,120 83 %

Interest expense 10 % (3,367) (36) % (3,060) (31) %

Net interest revenue (13) % 4,391 46 % 5,060 52 %

Asset management and administration fees

Mutual funds, ETFs, and CTFs 27 % 1,543 16 % 1,215 13 %

Advice solutions 10 % 1,013 11 % 917 9 %

Other 10 % 175 2 % 159 2 %

Asset management and administration fees 19 % 2,731 29 % 2,291 24 %

Trading revenue

Commissions (2) % 796 8 % 816 8 %

Order flow revenue (9) % 709 8 % 779 8 %

Principal transactions (11) % 89 1 % 100 1 %

Trading revenue (6) % 1,594 17 % 1,695 17 %

Bank deposit account fees 3 % 336 4 % 326 3 %

Other (6) % 378 4 % 400 4 %

Total net revenues (3) % $ 9,430 100 % $ 9,772 100 %

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.

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

In response to 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 remained consistent through the first six months 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 second quarter and first six months of 2024 were lower compared with the same periods in 2023, reflecting clients’ reallocation of cash from sweep products to higher-yielding investment solutions particularly throughout 2023, which resulted from the higher interest rate environment.

In the first six months of 2024, the Company saw additional reduction of sweep cash, which also reflected strong client engagement in the equity markets and seasonal tax payments in the second quarter.

These changes in client cash reduced average balances of bank deposits during the second quarter and first six months of 2024, and payables to brokerage clients during the first six months of 2024.

To support client cash allocation activity that resulted from the higher interest rate environment, 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 half of 2024 from peak levels seen in mid-2023.

THE CHARLES SCHWAB CORPORATION

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

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

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

Interest-earning assets

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Net interest revenue $ 2,158 2.03 % $ 2,290 1.87 %

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)

Six Months Ended June 30, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

Interest-earning assets

Cash and cash equivalents $ 31,394 $ 836 5.26 % $ 40,891 $ 960 4.67 %

Cash and investments segregated 25,503 669 5.19 % 33,699 756 4.46 %

Receivables from brokerage clients 66,259 2,611 7.80 % 60,626 2,251 7.39 %

Available for sale securities (1)

107,956 1,149 2.12 % 150,382 1,616 2.15 %

Held to maturity securities (1)

155,862 1,348 1.73 % 169,184 1,466 1.73 %

Bank loans 41,046 900 4.40 % 40,185 801 4.00 %

Total interest-earning assets 428,020 7,513 3.49 % 494,967 7,850 3.16 %

Securities lending revenue 171 236

Other interest revenue 74 34

Total interest-earning assets $ 428,020 $ 7,758 3.60 % $ 494,967 $ 8,120 3.27 %

Funding sources

Bank deposits $ 266,243 $ 1,761 1.33 % $ 327,739 $ 1,481 0.91 %

Payables to brokerage clients 68,011 150 0.44 % 70,997 139 0.40 %

Other short-term borrowings 8,327 232 5.60 % 7,272 183 5.06 %

Federal Home Loan Bank borrowings 25,220 678 5.35 % 35,697 910 5.07 %

Long-term debt 23,730 432 3.64 % 20,766 296 2.85 %

Total interest-bearing liabilities 391,531 3,253 1.66 % 462,471 3,009 1.31 %

Non-interest-bearing funding sources 36,489 32,496

Securities lending expense 112 50

Other interest expense 2 1

Total funding sources $ 428,020 $ 3,367 1.57 % $ 494,967 $ 3,060 1.24 %

Net interest revenue $ 4,391 2.03 % $ 5,060 2.03 %

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

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

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

Net interest revenue decreased $132 million, or 6%, and $669 million, or 13%, in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023.

These decreases were primarily due to lower average interest-earning assets and, for the year-to-date period, utilization of higher cost supplemental funding sources to support client cash allocations in the elevated rate environment.

Average interest-earning assets for both the second quarter and first six months of 2024 were lower by 14% compared to the same periods in 2023.

These decreases were due primarily to lower bank sweep deposits as a result of client cash reallocation into higher-yielding investment cash alternatives and fixed income investments.

Maturities and paydowns on the AFS and HTM investment securities portfolio supported reductions in bank sweep deposits, and, for the second quarter, lower year-over-year balances of supplemental funding sources.

Net interest margin increased to 2.03% during the second quarter of 2024 from 1.87% compared to the same period in 2023 as improved yields on interest-earning assets offset higher rates paid across interest-bearing funding sources.

Net interest margin during the first six months of 2024 was 2.03%, remaining unchanged from the same period in 2023 as the benefit of improved yields on interest-earning assets was offset by higher rates paid on interest-bearing funding sources.

The Company’s average balances of FHLB borrowings and brokered CDs were lower in the second quarter of 2024 compared to the same period in 2023, which helped support a 16-basis-point improvement in net interest margin for the second quarter of 2024 compared with the same period in 2023.

The Company continues to prioritize repayment of the outstanding balances of its supplemental funding sources.

The total outstanding balance of supplemental funding sources increased by $2.9 billion during the second quarter of 2024 as client cash was retained on the Company’s broker-dealer to support higher levels of margin lending activity, though the outstanding balance of supplemental funding of $73.7 billion as of June 30, 2024 was lower by $5.9 billion, or 7%, from year-end 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, clients’ margin lending activity, as well as asset gathering and the level of maturities and paydowns on our investment securities portfolios.

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, levels of interest rates, and the use of proceeds.

The Company currently expects its

THE CHARLES SCHWAB CORPORATION

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

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.

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.

outstanding balances of supplemental funding sources to decrease over time.

Certain amounts outstanding at June 30, 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.

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

Three Months Ended March 31, 2024 2023

Three Months Ended June 30, 2024 2023

Assets Revenue Average

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Other third-party mutual funds and ETFs 600,902 102 0.07 % 681,486 133 0.08 %

Total mutual funds, ETFs, and CTFs (1)

$ 2,028,613 $ 785 0.16 % $ 1,751,670 $ 630 0.14 %

Advice solutions (1)

Fee-based $ 525,689 $ 510 0.39 % $ 455,859 $ 464 0.41 %

Non-fee-based 110,234 — — 95,427 — —

Total advice solutions $ 635,923 $ 510 0.32 % $ 551,286 $ 464 0.34 %

Other balance-based fees (2)

763,750 69 0.04 % 594,528 63 0.04 %

Total asset management and administration fees $ 1,383 $ 1,173

Six Months Ended June 30,

Schwab money market funds $ 511,776 $ 693 0.27 % $ 346,145 $ 465 0.27 %

Schwab equity and bond funds, ETFs, and CTFs 552,755 219 0.08 % 457,830 185 0.08 %

Mutual Fund OneSource and other NTF funds

326,387 423 0.26 % 225,822 299 0.27 %

Other third-party mutual funds and ETFs 603,263 208 0.07 % 678,915 266 0.08 %

Total mutual funds, ETFs, and CTFs (1)

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(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 $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 48% and 40% of the asset management and administration fees earned in the first quarter of 2024 and 2023, respectively:

Asset management and administration fees increased by $210 million, or 18%, and $440 million, or 19%, in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023.

These increases were primarily a result of higher balances in Schwab money market funds as clients shifted their cash allocations to higher-yielding investment solutions.

These increases were 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 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 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 49% of the asset management and administration fees earned in both the second quarter and first six months of 2024, compared with 42% and 41% in the second quarter and first six months of 2023, respectively:

Market Funds Schwab Equity and

1 unchanged sentence

and Other NTF funds

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

Three Months Ended June 30, 2024 2023 2024 2023 2024 2023

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

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Balance at end of period $ 533,586 $ 392,887 $ 564,002 $ 465,847 $ 344,813 $ 254,636

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)

Six Months Ended June 30,

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

Net inflows (outflows) 42,235 105,843 16,513 12,659 (11,024) (11,279)

Net market gains (losses) and other

14,942 8,118 41,340 40,246 49,615 30,177

Balance at end of period $ 533,586 $ 392,887 $ 564,002 $ 465,847 $ 344,813 $ 254,636

Trading Revenue

1 unchanged sentence

Three Months Ended

March 31, Percent

June 30, Percent

Change Six Months Ended

June 30, Percent

2024 2023 2024 2023

Commissions $ 383 $ 394 (3) % $ 796 $ 816 (2) %

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Three Months Ended

March 31, Percent

June 30, Percent

Change Six Months Ended

June 30, Percent

2024 2023 2024 2023

DATs (in thousands) 5,486 5,272 4 % 5,718 5,584 2 %

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

Trading revenue decreased $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.

Trading revenue decreased $26 million and $101 million in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023.

These decreases were primarily due to lower commissions and order flow revenue, reflecting changes in the mix of client trading activity.

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)

Bank Deposit Account Fees

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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 March 31, Percent Change

Three Months Ended June 30, Percent

Change Six Months Ended

June 30, Percent Change

2024 2023 2024 2023

Bank deposit account fees $ 153 $ 175 (13) % $ 336 $ 326 3 %

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Floating-rate balances 12 % 3 % 12 % 6 %

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.

Bank deposit account fees decreased $22 million, or 13%, and increased $10 million, or 3%, in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023.

The decrease in the second quarter of 2024 compared to 2023 was primarily due to lower average BDA balances.

The increase in the first six months of 2024 compared to 2023 was primarily due to $97 million of breakage fees incurred that resulted in lower bank deposit account fee revenue in the first six months of 2023.

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

These factors were partially offset by a decrease in average BDA balances in the second quarter and first six months of 2024 compared to the same periods 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 June 30, 2024 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 $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.

Other revenue increased $4 million, or 2%, and decreased $22 million, or 6%, in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023.

The increase in the second quarter of 2024 was primarily due to higher exchange processing fees and lower provision for credit losses on bank loans, partially offset by certain lower service and other fees.

The decrease in the first six months of 2024 was primarily due to certain lower service and other fees, partially offset by lower provision for credit losses on bank loans.

Exchange processing fees increased in the second quarter of 2024 due to higher SEC fee rates compared to the second quarter of 2023.

Effective May 22, 2024, the SEC increased 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 provision for credit losses on bank loans was lower in the second quarter and the first six months of 2024 compared to the same periods in 2023, due to lower loan loss factors while the total balance of first lien residential real estate mortgage loans (First Mortgages) remained largely consistent with year-end 2023.

THE CHARLES SCHWAB CORPORATION

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Three Months Ended

March 31, Percent

June 30, Percent

Change Six Months Ended

June 30, Percent

2024 2023 2024 2023

Compensation and benefits

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Average 32.3 36.2 (11) % 32.5 35.9 (9) %

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.

Expenses excluding interest decreased by $22 million, or 1%, and $86 million, or 1%, in the second quarter and first six months of 2024, respectively, compared to the same periods 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 2% in the second quarter and first six months of 2024, compared to the same periods 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 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.

Total compensation and benefits expense decreased in the second quarter and first six months of 2024 compared to the same periods 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 $18 million and $48 million in the second quarter of 2024 and 2023, respectively, and $35 million and $106 million in the first six months of 2024 and 2023, respectively.

Compensation and benefits also included a $3 million and $34 million benefit in the second quarter and first six months of 2024, respectively, due to a change in estimated restructuring costs.

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

Professional services included acquisition and integration-related costs of $12 million and $41 million in the second quarter of 2024 and 2023, respectively, and $29 million and $74 million in the first six months of 2024 and 2023, respectively.

Occupancy and equipment expense decreased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to lower technology equipment and software costs, lower property tax expense, and 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 $1 million and $3 million in the second quarter and first six months of 2024, respectively.

THE CHARLES SCHWAB CORPORATION

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

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.

Occupancy and equipment included acquisition and integration-related costs of $10 million and $14 million in the second quarter and first six months of 2023, respectively.

Advertising and market development expense increased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to higher client promotional spending.

Communications expense decreased in the second quarter and first six months of 2024, compared to the same periods in 2023, primarily as a result of lower exchange quotation services expenses.

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

Depreciation and amortization expense included acquisition and integration-related costs of $5 million in the second quarter and first six months of 2024.

Amortization of acquired intangible assets decreased in the second quarter and first six months of 2024 compared to the same periods in 2023, as certain assets from the Ameritrade acquisition were fully amortized during 2023.

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

The incremental FDIC special assessments totaled $5 million and $30 million in the second quarter and first six months of 2024, respectively.

See Current Regulatory and Other Developments for further discussion of these special assessments.

Other expense increased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to a $43 million accrual in the second quarter of 2024 related to an industry-wide regulatory review of off-channel communications, and higher exchange processing fees, partially offset by lower other clearing costs.

Exchange processing fees increased due largely to higher SEC fee rates in effect during the second quarter of 2024 compared to the second quarter of 2023.

Effective May 22, 2024, the SEC increased 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 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.

Other expense included restructuring costs of $12 million and $13 million in the second quarter and first six months of 2024, respectively.

Other expense included acquisition and integration-related costs of $20 million and $22 million in the second quarter and first six months of 2023, respectively.

Capital expenditures were $92 million and $168 million in the second quarter of 2024 and 2023, respectively, and $214 million and $355 million in the first six months of 2024 and 2023, respectively.

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

As a result of higher year-to-date total net revenues and lower spending, we now estimate capital expenditures for full-year 2024 will be on the lower end of our previously disclosed expected range of approximately 3-5% of total net revenues.

Taxes on Income

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.

Taxes on income were $415 million and $397 million for the second quarter of 2024 and 2023, respectively, resulting in effective tax rates of 23.8% and 23.5%, respectively.

Taxes on income were $851 million and $904 million for the first six months of 2024 and 2023, respectively, resulting in effective tax rates of 24.0% and 23.8%, respectively.

The increase in the effective tax rates in the second quarter and first six months of 2024 compared to the same periods in 2023 was primarily related to the release of tax reserves in the first six months of 2023 due to the resolution of certain state tax matters.

This increase was partially offset by a decrease in state tax expense and the recognition of certain tax credits.

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)

Segment Information

1 unchanged sentence

Investor Services Advisor Services Total

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

Three Months Ended June 30, Percent Change 2024 2023 Percent Change 2024 2023 Percent Change 2024 2023

Net interest revenue 1 % $ 1,715 $ 1,705 (24) % $ 443 $ 585 (6) % $ 2,158 $ 2,290

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11 % $ 39.9 $ 36.0 (5) % $ 34.3 $ 36.0 3 % $ 74.2 $ 72.0

(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.

Six Months Ended June 30,

Net interest revenue (8) % $ 3,457 $ 3,738 (29) % $ 934 $ 1,322 (13) % $ 4,391 $ 5,060

Asset management and administration fees 17 % 1,920 1,646 26 % 811 645 19 % 2,731 2,291

Trading revenue (5) % 1,398 1,476 (11) % 196 219 (6) % 1,594 1,695

Bank deposit account fees 4 % 248 239 1 % 88 87 3 % 336 326

Other (1) % 303 307 (19) % 75 93 (6) % 378 400

Total net revenues (1) % 7,326 7,406 (11) % 2,104 2,366 (3) % 9,430 9,772

Expenses Excluding Interest 2 % 4,496 4,424 (10) % 1,389 1,547 (1) % 5,885 5,971

Income before taxes on income (5) % $ 2,830 $ 2,982 (13) % $ 715 $ 819 (7) % $ 3,545 $ 3,801

Net new client assets (in billions) (1)

(35) % $ 74.8 $ 115.4 (18) % $ 87.6 $ 107.3 (27) % $ 162.4 $ 222.7

(1) In the second quarter and first six months of 2024, Investor Services includes net inflows of $2.7 billion and net outflows of $4.7 billion, respectively, from off-platform brokered CDs issued by CSB.

Also in the second quarter and first six months of 2024, Investor Services includes an inflow of $10.3 billion from a mutual fund clearing services client.

In the second quarter and first six months of 2023, Investor Services includes inflows of $7.8 billion and $26.8 billion, respectively, from off-platform brokered CDs issued by CSB.

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

Segment Net Revenues

Investor Services total net revenues increased by 3% in the second quarter of 2024 compared to the same period in 2023.

This increase was primarily due to higher asset management and administration fees as a result of higher balances in money market funds, fee-based advice solutions, and Mutual Fund OneSource ® .

This increase was partially offset by lower bank deposit account fees primarily due to lower average BDA balances.

Net interest revenue was relatively flat as lower average interest-earning asset balances and higher cost funding sources were offset by higher margin loan balances.

Advisor Services total net revenues decreased by 7% in the second quarter of 2024 compared to the same period in 2023.

This decrease was primarily due to lower net interest revenue as a result of lower average interest-earning asset balances and higher rates paid on funding sources.

This decrease was partially offset by higher asset management and administration fees, primarily as a result of higher balances in money market funds and Mutual Fund OneSource.

Investor Services and Advisor Services total net revenues decreased by 1% and 11%, respectively, in the first six months of 2024 compared to the same period in 2023.

The decreases for both segments were primarily due to lower net interest revenue as a result of lower average interest-earning asset balances and higher cost funding sources, with the Investor Services decrease being partially offset by higher margin loan balances.

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

These decreases were partially offset by higher asset management and administration fees for 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.

THE CHARLES SCHWAB CORPORATION

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

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 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.

Investor Services total expenses excluding interest increased by 2% in the second quarter and first six months of 2024, compared to the same periods in 2023, while Advisor Services total expenses excluding interest decreased by 8% and 10% in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023.

Compensation and benefits expense decreased in both segments, 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, lower property tax expense, and facility closures in 2023 related to restructuring and the Ameritrade integration.

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

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

In Investor Services, other expense increased primarily due to accruals related to an industry-wide regulatory review of off-channel communications and higher exchange processing fees.

RISK MANAGEMENT

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

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

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

For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 1 – Note 11.

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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

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

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

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

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

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

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These assets are sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment.

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

Because we establish the rates paid on certain brokerage client cash balances and bank deposits and the rates charged on certain margin and bank loans, and control the composition of our

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)

investment securities, we have some ability to manage our net interest spread, depending on competitive factors and market conditions.

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

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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.

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

The following table presents simulated changes to net interest revenue over the next 12 months beginning June 30, 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:

June 30, 2024 December 31, 2023

Increase of 200 basis points 9.8% 10.8%

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Decrease of 200 basis points (3.2)% (4.2)%

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.

The Company’s simulated incremental increases and decreases in market interest rates had a smaller impact on net interest revenue as of June 30, 2024 compared to December 31, 2023.

This is primarily due to lower cash balances held at June 30, 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

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 CHARLES SCHWAB CORPORATION

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(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

June 30, 2024 June 30, 2023

Estimated effective duration, exclusive of derivatives:

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(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.

AFS and HTM securities comprised approximately 55% and 57% of the Company’s consolidated total assets as of June 30, 2024 and 2023, respectively.

The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both June 30, 2024 and 2023.

Economic Value of Equity Simulation

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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 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.

As of June 30, 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.

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Due to its role as a source of financial strength, CSC’s liquidity needs are primarily driven by the liquidity and capital needs of:

CS&Co, TD Ameritrade, Inc., and TDAC, our principal broker-dealer subsidiaries;

CS&Co, our principal broker-dealer subsidiary;

the capital needs of the banking subsidiaries;

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

principal and interest due on corporate debt;

and dividend payments on CSC’s preferred and common stock.

The liquidity needs of our broker-dealer subsidiary 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.

We have established liquidity policies to support the successful execution of business strategies, while ensuring ongoing and sufficient

THE CHARLES SCHWAB CORPORATION

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(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.

We have established liquidity policies to support the successful execution of business strategies, while ensuring ongoing and sufficient liquidity to meet operational needs and satisfy applicable regulatory requirements under both normal and stressed conditions.

liquidity to meet operational needs and satisfy applicable regulatory requirements under both normal and stressed conditions.

We seek to maintain client confidence in the balance sheet and the safety of client assets by maintaining liquidity and diversity of funding sources to allow the Company to meet its obligations.

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Our clients’ bank deposits and brokerage cash balances primarily originate from our 35.6 million active brokerage accounts.

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

More than 80% of our bank deposits qualified for FDIC insurance as of June 30, 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 March 31, 2024:

The following table describes external debt facilities available at June 30, 2024:

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

FHLB secured credit facilities Banking subsidiaries $ 24,400 $ 54,426 (1)

May 2024 - January 2025 5.33%

July 2024 - February 2025 5.38%

Federal Reserve discount window Banking subsidiaries — 35,870 (1)

Repurchase agreements Banking subsidiaries, CSC 8,996 — (2)

April 2024 - December 2024 5.46%

July 2024 - February 2025 5.47%

Unsecured uncommitted lines of credit with

various external banks

CSC, CS&Co — 1,617 N/A —

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)

Secured uncommitted lines of credit with various

external banks TDAC 700 — (4)

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.

Secured uncommitted lines of credit with

various external banks CS&Co 1,000 — (3)

August 2024 - September 2024 5.70%

Secured uncommitted lines of credit with

various external banks TDAC — — (3)

Unsecured committed revolving line of credit with

various external banks CSC — 2,100 (4)

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

See below and Item 1 – Note 8 for additional information.

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

See Note 12 for additional information.

See below and Item 1 – Note 12 for additional information.

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

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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 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.

As of June 30, 2024, the Company had additional investment securities with a par value of approximately $130 billion or a fair value of approximately $119 billion available to be pledged to obtain additional capacity.

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

Amounts available under secured credit facilities with the FHLB are dependent on the value of our First Mortgages, home equity lines of credit (HELOCs), and the fair value of certain of our investment securities that are pledged as collateral.

Amounts available under secured credit facilities with the FHLB are dependent on the value of our First Mortgages, home equity lines of credit (HELOCs), and the value of certain of our investment securities that are pledged as collateral.

These credit facilities are also available as backup financing in the event the outflow of client cash from the banking subsidiaries’ respective balance sheets is greater than maturities and paydowns on investment securities and bank loans.

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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 three months of 2024 and there were no amounts outstanding at March 31, 2024.

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 six months of 2024 and there were no amounts outstanding at June 30, 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.

Other than de minimis tests, this facility was not used during the first six months of 2024 and there were no amounts outstanding under this facility at June 30, 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.

Beginning in 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 six months of 2024.

THE CHARLES SCHWAB CORPORATION

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

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.

CS&Co also maintains secured, uncommitted lines of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral, based on the terms of the agreements.

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

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:

CSB issues brokered CDs as a supplemental funding source.

The following table provides information about brokered CDs issued by CSB and outstanding as of June 30, 2024:

Amount Outstanding Maturity Weighted-Average Interest Rate

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

Brokered CDs $ 40,308 August 2024 - June 2025 5.26%

Cash Flow Activity

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

The average pace of client cash allocations out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second 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.

During the second quarter of 2024, bank deposits decreased $17.0 billion, which resulted primarily from a decrease of $16.7 billion in deposits swept from brokerage accounts, partially offset by a net increase in brokered CDs of $1.2 billion.

The decrease in deposits swept from brokerage accounts reflected client cash reallocations, strong client engagement in equity markets, seasonal tax payments, and retention of amounts on our broker-dealer to support margin loan demand.

As a result of these factors, FHLB borrowings and other short-term borrowings increased by $1.7 billion during the quarter.

During the first six months of 2024, the Company’s cash and cash equivalents decreased $18.0 billion from year-end 2023 to $25.4 billion at June 30, 2024;

cash and cash equivalents, including amounts restricted, decreased $27.4 billion to $47.1 billion at June 30, 2024.

These decreases reflected net repayments of supplemental funding balances of $5.9 billion and maturities of long-term debt of $3.7 billion.

Bank deposits decreased during the first six months of 2024 by $37.5 billion, resulting from a decrease of $28.1 billion in deposits swept from brokerage accounts due to client cash allocations and a decrease in brokered CDs of $8.0 billion.

Partially offsetting the decrease in bank deposits and repayment of borrowings, net investing cash flows from our AFS and HTM securities totaled $21.3 billion in the first six 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 March 31, 2024, and the table below presents information about our average daily LCR:

The Company was in compliance with the LCR rule at June 30, 2024, and the table below presents information about our average daily LCR:

Average for the Three Months Ended

March 31, 2024 December 31, 2023

June 30, 2024 March 31, 2024

Total eligible HQLA $ 53,815 $ 58,841

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LCR 120 % 130 %

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.

To support growth in margin loan balances at our broker-dealer subsidiary 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 subsidiary may also retain client cash balances rather than sweeping such balances to our banking subsidiaries.

THE CHARLES SCHWAB CORPORATION

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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 March 31, 2024.

The Company was in compliance with the NSFR rule at June 30, 2024, and the table below presents information about our average NSFR:

Average for the Three Months Ended

June 30, 2024 March 31, 2024

ASF $ 193,668 $ 197,076

RSF 151,514 150,708

NSFR 128 % 131 %

Long-Term Borrowings

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

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $22.4 billion and $26.1 billion at June 30, 2024 and December 31, 2023, respectively.

The following table provides information about our Senior Notes outstanding at June 30, 2024:

June 30, 2024 Par

Outstanding Maturity Weighted Average

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CSC Senior Notes $ 22,262 2025 - 2034 3.71% A2 A- A

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

Ameritrade Holding LLC Senior Notes 163 2025 - 2029 3.38% A2 A- —

New Debt Issuances

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

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

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

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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

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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.

As of June 30, 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.

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

March 31, 2024 December 31, 2023

June 30, 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 8.8% 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.

The Company’s consolidated Tier 1 Leverage Ratio increased to 9.4% at June 30, 2024 from 8.8% at March 31, 2024 and 8.5% at year-end 2023.

This increase during the second 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 $19.1 billion, or 4%, during the second quarter of 2024 due primarily to a decrease of $17.0 billion, or 6%, in total bank deposits.

CSB’s Tier 1 Leverage Ratio increased from 10.4% at March 31, 2024 and 10.1% at year-end 2023, ending the second quarter of 2024 at 10.9% 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.

During the second quarter of 2024, Schwab updated its long-term operating objective to be its consolidated adjusted Tier 1 Leverage Ratio of 6.75% - 7.00%.

As of June 30, 2024, our adjusted Tier 1 Leverage Ratio, which includes AOCI in the ratio, was 5.9% for CSC consolidated and 6.2% for CSB (see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results).

In working toward our long-term operating objective, the Company is continuing to retain and accrete capital organically.

The Company will continue to manage its capital as described above.

In evaluating returns of excess capital to stockholders, we may consider the amount of supplemental funding outstanding, and Schwab may choose to utilize the liquidity we would otherwise use for capital returns to repay outstanding supplemental balances.

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

During the first six 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.

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(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

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

Six Months Ended June 30, Cash Paid Per Share

Amount Cash Paid Per Share

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13 22.26 13 22.26

19 2,500.00 19 2,500.00

(1) Dividends paid quarterly.

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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 .

There were no repurchases of CSC’s common stock during the three and six months ended June 30, 2024, and for the three months ended June 30, 2023.

CSC repurchased 37 million shares of its common stock for $2.8 billion during the six months ended June 30, 2023.

As of June 30, 2024, approximately $8.7 billion remained on the authorization.

There were no repurchases of CSC’s preferred stock during the three and six months ended June 30, 2024, and for the three months ended June 30, 2023 .

During the six months ended June 30, 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.

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Foreign Exposure

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 June 30, 2024, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments.

At June 30, 2024, the fair value of these holdings totaled $13.3 billion, with the top three exposures being to issuers and counterparties domiciled in France at $4.9 billion, the United Kingdom at $4.1 billion, and Canada at $895 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.

In addition, Schwab had outstanding margin loans to foreign residents of $3.2 billion and $2.5 billion at June 30, 2024 and December 31, 2023, respectively.

THE CHARLES SCHWAB CORPORATION

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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.

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

NON-GAAP FINANCIAL MEASURES

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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.

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

Additionally, the Company uses adjusted Tier 1 Leverage Ratio in managing capital, including its use of the measure as its long-term operating objective.

THE CHARLES SCHWAB CORPORATION

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Total expenses excluding interest (GAAP) $ 2,943 $ 2,965 $ 5,885 $ 5,971

Acquisition and integration-related costs (1)

(36) (130) (74) (228)

Amortization of acquired intangible assets (129) (134) (259) (269)

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Adjusted total expenses (non-GAAP) $ 2,768 $ 2,701 $ 5,570 $ 5,474

(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.

(1) Acquisition and integration-related costs for the three and six months ended June 30, 2024 primarily consist of $18 million and $35 million of compensation and benefits, $12 million and $29 million of professional services, and $5 million of depreciation and amortization.

Acquisition and integration-related costs for the three and six months ended June 30, 2023 primarily consist of $48 million and $106 million of compensation and benefits, $41 million and $74 million of professional services, and $10 million and $14 million of occupancy and equipment, and $20 million and $22 million of other.

(2) Restructuring costs for the three and six months ended June 30, 2024 reflect a change in estimate of $3 million and $34 million in compensation and benefits, offset by $1 million and $3 million of occupancy and equipment and $12 million and $13 million of other expense for the periods.

There were no restructuring costs for the three and six months ended June 30, 2023.

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Amount Diluted

EPS Amount Diluted

Net income available to common stockholders (GAAP),

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Return on average common stockholders’ equity (GAAP) 14 % 17 % 15 % 20 %

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acquired intangible assets — net

1,747 1,834 1,753 1,837

Average tangible common equity $ 15,720 $ 8,848 $ 14,934 $ 8,658

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

March 31, 2024

June 30, 2024 December 31, 2023

CSC CSB CSC CSB

Tier 1 Leverage Ratio (GAAP)

9.4 % 10.9 % 8.5 % 10.1 %

Tier 1 Capital

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Adjusted Tier 1 Leverage Ratio (non-GAAP)

5.9 % 6.2 % 4.9 % 5.4 %

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