What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-08 compared with 2024-08-08 · 289 added, 276 removed, 761 unchanged (43% of the section changed)

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• 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 (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);

• Net interest revenue, the adjustment of rates paid on client-related liabilities, and client cash realignment activity (see Results of Operations in Part I – Item 2);

• Utilization of bank 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);

modeling and assumptions, 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 (see Liquidity Risk in Part I – Item 2);

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• The timing and scope of technology projects;

• Capital and liquidity needs and management;

• Balance sheet positioning relative to changes in interest rates;

• Interest-earning asset mix and growth;

• Our ability to access and use supplemental funding sources;

• Our ability to access supplemental funding sources;

• Prepayment levels for mortgage-backed securities;

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

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

Three Months Ended

June 30, Percent

Change Six Months Ended

June 30, Percent

September 30, Percent

Change Nine Months Ended

September 30, Percent

2024 2023 2024 2023

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Return on tangible common equity 31 % 58 % 33 % 66 %

(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.

(1) The third quarter and first nine months of 2024 include net outflows of $4.4 billion and $9.1 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB.

Also, the first nine months of 2024 include an inflow of $10.3 billion from a mutual fund clearing services client.

The third quarter and first nine months of 2024 also include an outflow of $0.1 billion from an international relationship.

The third quarter and first nine months of 2023 includes inflows of $3.3 billion and $30.1 billion, respectively, from off-platform brokered CDs issued by CSB.

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

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

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

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See Non-GAAP Financial Measures.

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

While the third quarter of 2024 introduced changes to the macroeconomic landscape, investor sentiment remained bullish and client engagement continued to be strong.

In September, amid easing inflation and a cooling labor market, the Federal Reserve cut interest rates for the first time in over four years, reducing the federal funds overnight rate by 50 basis points.

This action helped push equity markets to near all-time highs to close out the third quarter.

The Standard & Poor’s ® 500 and the NASDAQ Composite ® moved higher in the third quarter, with both indices rising 21% in the first nine months of 2024.

The strength of equity markets and organic asset gathering helped total client assets rise to $9.92 trillion as of September 30, 2024, and our organic growth trends have improved since the final Ameritrade client conversion in May.

Core net new assets totaled $95.3 billion in the third quarter, up 109% from the same period in the prior year, as the third quarter of 2023 reflected expected Ameritrade client asset attrition in relation to the large client transition completed in September 2023.

THE CHARLES SCHWAB CORPORATION

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

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.

2024 core net new assets totaled $252.1 billion, up 10% from the first nine months of 2023.

We continued to see client engagement in the markets throughout the first nine months of the year;

clients’ daily average trades (DATs) were 5.7 million for both the third quarter and year-to-date periods, which were higher by 9% and 5% from the respective prior-year periods.

Clients opened 972 thousand new brokerage accounts in the third quarter to bring the year-to-date total to 3.1 million.

Active brokerage accounts were up 4% year-over-year, totaling 36.0 million at September 30, 2024.

The Company’s financial results in the third quarter and first nine months of 2024 reflected the impact of positive equity markets, solid asset gathering, sustained client engagement, and continued deceleration of client cash realignment activity.

Net income totaled $1.4 billion and $4.1 billion in the third quarter and first nine months of 2024, respectively, up 25% and 2% from the same periods in 2023.

Diluted earnings per common share (EPS) was $.71 and $2.05 in the third quarter and first nine months of 2024, respectively, up 27% and 1% from the comparable prior-year periods.

Adjusted diluted EPS (1) was $.77 and $2.25 in the third quarter and first nine months of 2024, respectively, flat and down 8% from the same periods in 2023.

Our third quarter results reflected sequential growth, as net income, diluted EPS, and adjusted diluted EPS were higher by 6%, 8%, and 5%, respectively, from the second quarter of 2024.

Total net revenues rose 5% year-over-year to $4.8 billion in the third quarter, bringing the year-to-date total to $14.3 billion, down 1% from the same period in 2023.

Net interest revenue was $2.2 billion and $6.6 billion in the third quarter and first nine months of 2024, respectively, down 1% and 9% from the comparable periods in 2023 due primarily to lower average interest-earning assets and higher rates paid on funding sources.

Asset management and administration fees were $1.5 billion and $4.2 billion in the third quarter and first nine months of 2024, respectively, increasing 21% and 20% from the same prior-year periods as a result of growth in money market funds, equity market gains, and growth in advice solutions.

Trading revenue was $797 million in the third quarter of 2024, increasing 4% from the prior-year third quarter primarily due to higher volume and changes in mix;

year-to-date trading revenue of $2.4 billion was lower by 3% from the prior year due to changes in mix.

Bank deposit account fee revenue was $152 million and $488 million in the third quarter and first nine months of 2024, respectively, down 26% and 8% from the same prior-year periods primarily due to lower average BDA balances.

BDA balances totaled $84.0 billion at September 30, 2024, down 14% from year-end 2023 primarily resulting from lower client cash allocations.

Total expenses excluding interest were $3.0 billion and $8.9 billion in the third quarter and first nine months of 2024, respectively, lower by 7% and 3% from the same periods in the prior year.

These decreases reflected lower restructuring costs and lower acquisition and integration-related costs, partially offset by higher incentive compensation and other expense.

Other expense reflected higher exchange processing fees primarily due to the SEC’s May 2024 fee rate increase.

Adjusted total expenses (1) were $2.9 billion and $8.4 billion in the third quarter and first nine months of 2024, respectively, up 6% and 3% from the comparable prior-year periods.

Acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs totaled $153 million and $468 million in the third quarter and first nine months of 2024, respectively, down 71% and 54% from the comparable periods in 2023.

Return on average common stockholders’ equity was 14% for both the third quarter and first nine months of 2024, which was flat with the third quarter of 2023 and down from 18% in the first nine months of 2023.

The decrease in the year-to-date measure was due primarily to higher average stockholders’ equity.

For the quarter-to-date period, year-over-year growth in net income largely offset year-over-year growth in average stockholders’ equity.

Return on tangible common equity (1) (ROTCE) was 31% and 33% in the third quarter and first nine months of 2024, respectively, down from 58% and 66% in the same periods in 2023.

The decreases in ROTCE were primarily due to higher average stockholders’ equity, and, for the year-to-date period, lower adjusted net income available to common stockholders (1) .

Average common stockholders’ equity was higher year-over-year for both the quarter-to-date and year-to-date periods due to net income for full-year 2023 and the first nine months 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.

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

Total balance sheet assets increased 4% during the third quarter of 2024 to $466.1 billion, which was due in part to client cash inflows during the quarter.

The growth of client cash helped us pay down $8.9 billion of our aggregate bank supplemental funding during the quarter, which includes brokered CDs, Federal Home Loan Bank (FHLB) borrowings, and borrowings under repurchase agreements at our banks.

Total bank supplemental funding ended the third quarter at $64.8 billion, down $14.8 billion, or 19%, from year-end 2023.

Supported by net income, our consolidated Tier 1 Leverage Ratio increased to 9.7% as of September 30, 2024.

Our consolidated adjusted Tier 1 Leverage Ratio (1) , which includes AOCI in the ratio, increased to 6.7% as of the end of the third quarter, as we continue to build towards our operating objective of 6.75% - 7.00%.

THE CHARLES SCHWAB CORPORATION

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

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.

(1) Adjusted diluted EPS, adjusted total expenses, adjusted net income available to common stockholders, 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.

In May 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 throughout the integration, 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 expected 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.

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.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $23 million and $97 million for the third quarter and first nine months of 2024, respectively, and $106 million and $334 million for the third quarter and first nine 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 September 30, 2024, we have achieved approximately 95% 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 costs incurred and synergy realization are subject to change as we work to complete the integration.

Estimated timing and amounts of costs incurred and synergies to be realized 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 June 30, 2024.

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

Current Regulatory and Other Developments

In September 2024, the SEC adopted amendments to Rules 610 and 612 of Regulation National Market System (NMS) to (i) establish an additional minimum price increment, or “tick size,” for the quoting and trading of certain NMS stocks, (ii) reduce the exchange access fee caps, and (iii) require transparency of odd-lots.

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

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

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

On July 30, 2024, the Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking to amend the brokered deposits framework effective since 2021 (2021 framework) setting forth its conditions for when broker-dealers such as CS&Co that place deposits with depository institutions through brokerage sweep arrangements qualify for the primary purpose exception (PPE) from the definition of a deposit broker, and from attendant restrictions for brokered deposits, under Section 29 of the Federal Deposit Insurance Act.

Under the 2021 framework, a broker-dealer qualifies for the PPE if less than 25 percent of its customer assets under administration for a particular business line are placed at depository institutions.

Among other changes, the FDIC is proposing a new framework that would revert back to the 10 percent threshold it applied to broker-dealers prior to 2021.

The proposed new framework, certain alternatives, and other amendments described in the notice are subject to a public comment period through November 21, 2024.

The impacts to Schwab from any ultimate changes will depend on further clarification of definitions and requirements in any final rule.

In April 2024, the U.S.

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

Among other requirements, the rule, 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.

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

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

In November 2023, the FDIC approved a final special assessment to recover losses incurred by the Deposit Insurance Fund (DIF) to protect uninsured depositors due to the March 2023 closures of two banks, which was subject to potential extension

Among other requirements, the rule, in conjunction with associated

THE CHARLES SCHWAB CORPORATION

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

and a potential one-time final special assessment for any shortfall in the DIF.

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.

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.

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

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)

RESULTS OF OPERATIONS

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The following tables present a comparison of revenue by category:

Three Months Ended June 30, Percent

Three Months Ended September 30, Percent

Change Amount % of

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Total net revenues 5 % $ 4,847 100 % $ 4,606 100 %

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

Nine Months Ended September 30, Percent

Change Amount % of

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Total net revenues (1) % $ 14,277 100 % $ 14,378 100 %

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)

Net Interest Revenue

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

See also Risk Management – Interest Rate Risk Simulations.

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

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

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

See also Risk Management – Market Risk.

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.

The Federal Reserve maintained the upper bound of the target overnight rate at 5.50% from July 2023 through much of the first nine months of 2024 before reducing the rate by 50 basis points towards the end of September 2024.

Schwab’s average interest-earning assets in the third quarter and first nine months of 2024 were lower compared with the same periods in 2023, reflecting clients’ reallocation of cash from sweep products to higher-yielding investment cash alternatives and fixed income investments particularly throughout 2023, which resulted from the higher interest rate environment.

The Company saw additional reduction of sweep cash through much of the first nine months of 2024, which also reflected strong client engagement in the equity markets.

These changes in client cash reduced average balances of bank deposits in the third quarter and first nine months of 2024.

To support client cash allocation activity that resulted from the higher interest rate environment during 2023 and through most of 2024, the Company has utilized bank 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 through the third quarter and first nine months of 2024 from peak levels seen in mid-2023.

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 June 30, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate

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

Interest-earning assets

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(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

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

Interest-earning assets

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

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

Net interest revenue decreased $15 million, or 1%, and $684 million, or 9%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.

These decreases were primarily due to lower average interest-earning assets, higher average rates paid on funding sources, and lower net interest revenue contributed from securities lending, partially offset by lower average bank supplemental funding.

Average interest-earning assets were lower by 8% and 12% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.

These decreases were due primarily to lower average bank sweep deposits, which reflected client cash reallocation into higher-yielding investment cash alternatives and fixed income investments as well as client engagement with the equity markets.

The decreases in average interest-earning assets in the third quarter and first nine months of 2024 were partially offset by growth in margin lending, which was supported by increased use of broker-dealer funding sources including securities lending, and growth in bank loans.

Additionally, principal and interest on the AFS and HTM investment securities portfolio, along with deceleration of client cash reallocation activity, supported a reduction of bank supplemental funding balances.

Net interest margin increased to 2.08% and 2.04% during the third quarter and first nine months of 2024, respectively, compared to 1.94% and 2.00% during the same periods in 2023 as improved yields on most interest-earning assets offset higher rates paid across interest-bearing funding sources.

The Company’s average balances of FHLB borrowings and brokered CDs were lower in the third quarter of 2024 compared to the same period in 2023, which helped contribute to a 14-basis-point improvement in net interest margin for the third quarter of 2024 compared with the same period in 2023.

The Company continues to prioritize repayment of bank supplemental funding balances.

The total outstanding balance of bank supplemental funding decreased by $8.9 billion during the third quarter of 2024.

Our use and the financial impacts of such bank supplemental funding is dependent on several factors, including the volume and pace of clients’ cash allocation activity, which is driven primarily by changes in market interest rates, as well as asset gathering 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 the path of market interest rates and client behavior, which could significantly impact our utilization of bank supplemental funding sources.

The impacts to net interest revenue of using bank 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 outstanding balances of bank supplemental funding sources to decrease over time.

Certain balances outstanding at September 30, 2024 will require rollover into new borrowings, the amount and costs

THE CHARLES SCHWAB CORPORATION

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

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.

of which will depend on the above noted factors.

See also Risk Management – Liquidity Risk, Capital Management, Item 1 – Note 7, Note 8, and Note 12 for additional information on these and other funding sources.

Asset Management and Administration Fees

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

Three Months Ended June 30, 2024 2023

Three Months Ended September 30, 2024 2023

Assets Revenue Average

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Other third-party mutual funds and ETFs (1)

611,555 106 0.07 % 632,902 127 0.08 %

Total mutual funds, ETFs, and CTFs (2)

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Total asset management and administration fees $ 1,476 $ 1,224

Six Months Ended June 30,

Nine Months Ended September 30,

Schwab money market funds $ 525,166 $ 1,072 0.27 % $ 368,788 $ 735 0.27 %

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Other third-party mutual funds and ETFs (1)

606,026 314 0.07 % 663,577 393 0.08 %

Total mutual funds, ETFs, and CTFs (2)

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Total asset management and administration fees $ 4,207 $ 3,515

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

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

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

Asset management and administration fees increased by $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.

Asset management and administration fees increased by $252 million, or 21%, and $692 million, or 20%, in the third quarter and first nine 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.

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

THE CHARLES SCHWAB CORPORATION

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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:

These funds generated 49% of the asset management and administration fees earned in both the third quarter and first nine months of 2024, compared with 44% and 42% in the third quarter and first nine months of 2023, respectively:

Market Funds Schwab Equity and

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and Other NTF funds

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

Three Months Ended September 30, 2024 2023 2024 2023 2024 2023

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

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Balance at end of period $ 562,079 $ 436,326 $ 614,777 $ 454,094 $ 357,991 $ 287,992

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Balance at end of period $ 562,079 $ 436,326 $ 614,777 $ 454,094 $ 357,991 $ 287,992

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

Trading Revenue

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Three Months Ended

June 30, Percent

Change Six Months Ended

June 30, Percent

September 30, Percent

Change Nine Months Ended

September 30, Percent

2024 2023 2024 2023

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Three Months Ended

June 30, Percent

Change Six Months Ended

June 30, Percent

September 30, Percent

Change Nine Months Ended

September 30, Percent

2024 2023 2024 2023

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$ 2.20 $ 2.35 (6) % $ 2.23 $ 2.42 (8) %

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

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

Trading revenue increased $29 million in the third quarter compared to the same period in 2023, primarily due to higher volumes and changes in the mix of client trading activity.

Trading revenue decreased $72 million in the first nine months of 2024 compared to the same period in 2023, reflecting lower order flow and commissions revenue primarily due to changes in the mix of client trading activity.

THE CHARLES SCHWAB CORPORATION

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

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 June 30, Percent

Change Six Months Ended

June 30, Percent Change

The following table presents bank deposit account fee revenue and related information:

Three Months Ended September 30, Percent

Change Nine Months Ended

September 30, Percent Change

2024 2023 2024 2023

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Floating-rate balances 13 % 9 % 12 % 7 %

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.

Bank deposit account fees decreased $53 million, or 26%, and $43 million, or 8%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.

The decrease in the third quarter and first nine months of 2024 compared to the same periods in 2023 was primarily due to lower average BDA balances.

The decrease in the first nine months of 2024 compared to the same period in 2023 was partially offset by $97 million of breakage fees incurred that resulted in lower bank deposit account fee revenue in the first nine months of 2023.

The decrease in average BDA balances in the third quarter and first nine months of 2024 compared to the same periods in 2023 was primarily due to client cash allocation decisions in response to higher short-term market interest rates during 2023 and through most of 2024.

Average net yield decreased in the third quarter of 2024 compared to the same period in 2023, as the increase in the average amount of floating-rate BDA balances was more than offset by a decrease in average net yield on fixed-rate BDA balances.

Average net yield increased in the first nine months of 2024 compared to the same period in 2023, due to the breakage fees incurred in 2023 and the increase in the average amount of floating-rate BDA balances, which was partially offset by the decrease in average net yield on fixed-rate BDA balances.

The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of September 30, 2024 were 84% and 16%, 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 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.

Other revenue increased $28 million, or 16%, and $6 million, or 1%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.

The increase in the third quarter and first nine months of 2024 was primarily due to higher exchange processing fees and lower losses recognized on sales of AFS securities, partially offset by certain lower service and other fees and a smaller release from the provision for credit losses on bank loans.

Exchange processing fees increased in the third quarter and first nine months of 2024 due to higher SEC fee rates compared to the same periods in 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

June 30, Percent

Change Six Months Ended

June 30, Percent

September 30, Percent

Change Nine Months Ended

September 30, Percent

2024 2023 2024 2023

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Average 32.3 36.1 (11) % 32.4 36.0 (10) %

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.

Expenses excluding interest decreased by $218 million, or 7%, and $304 million, or 3%, in the third quarter and first nine 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 6% and 3% in the third quarter and first nine months of 2024, respectively, 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 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.

Total compensation and benefits expense decreased in the third quarter and first nine months of 2024 compared to the same periods in 2023, primarily due to the recognition of $276 million of restructuring costs during the third quarter of 2023.

The decreases were also due to lower headcount as a result of position eliminations from the restructuring and Ameritrade integration, partially offset by higher incentive compensation and annual merit increases.

Compensation and benefits included acquisition and integration-related costs of $9 million and $52 million in the third quarter of 2024 and 2023, respectively, and $44 million and $158 million in the first nine months of 2024 and 2023, respectively.

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

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

Professional services included acquisition and integration-related costs of $3 million and $37 million in the third quarter of 2024 and 2023, respectively, and $32 million and $111 million in the first nine months of 2024 and 2023, respectively.

Occupancy and equipment expense decreased in the third quarter and first nine 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 $3 million in the first nine months of 2024.

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

THE CHARLES SCHWAB CORPORATION

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

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.

Advertising and market development expense remained consistent in the third quarter and first nine months of 2024 compared to the same periods in 2023, as higher client promotional spending largely offset lower digital advertising costs.

Communications expense decreased in the third quarter and first nine 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 third quarter and first nine 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 nine months of 2024 primarily to enhance our technological infrastructure to support growth of the business.

Depreciation and amortization expense included acquisition and integration-related costs of $8 million and $13 million in the third quarter and first nine months of 2024, respectively.

Amortization of acquired intangible assets decreased in the third quarter and first nine 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 decreased in the third quarter and increased in the first nine months of 2024 compared to the same periods in 2023.

The decrease in the third quarter of 2024 was primarily due to lower FDIC deposit insurance assessments, reflecting a decrease in brokered CDs compared to the third quarter of 2023, and a lower assessment base.

The increase in the first nine months of 2024 was primarily as a result of incremental FDIC special assessments and higher FDIC deposit insurance assessments, reflecting greater use of brokered CDs compared to the first nine months of 2023, partially offset by a lower assessment base.

The incremental FDIC special assessments totaled $30 million in the first nine months of 2024.

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.

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

The first nine months of 2024 also included a $43 million accrual related to an industry-wide regulatory review of off-channel communications (see Item 1 – Note 9).

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

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.

Other expense included restructuring costs of $13 million in the first nine months of 2024.

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

Capital expenditures were $135 million and $250 million in the third quarter of 2024 and 2023, respectively, and $349 million and $605 million in the first nine months of 2024 and 2023, respectively.

Capital expenditures decreased for the third quarter and first nine 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 of 2024 and approach the completion of the Ameritrade integration.

As a result of higher year-to-date total net revenues and lower spending, we continue to 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 $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.

Taxes on income were $434 million and $258 million for the third quarter of 2024 and 2023, respectively, resulting in effective tax rates of 23.6% and 18.7%, respectively.

Taxes on income were $1.3 billion and $1.2 billion for the first nine months of 2024 and 2023, respectively, resulting in effective tax rates of 23.9% and 22.4%, respectively.

The increase in the effective tax rates in the third quarter and first nine months of 2024 compared to the same periods in 2023 was primarily due to the recognition of certain tax credits in the third quarter of 2023, partially offset by a decrease in state tax expense and additional tax credits recognized in the third quarter of 2024.

THE CHARLES SCHWAB CORPORATION

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Investor Services Advisor Services Total

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

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

Net interest revenue 3 % $ 1,755 $ 1,710 (11) % $ 467 $ 527 (1) % $ 2,222 $ 2,237

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28 % $ 36.7 $ 28.6 176 % $ 54.1 $ 19.6 88 % $ 90.8 $ 48.2

Six Months Ended June 30,

Nine Months Ended September 30,

Net interest revenue (4) % $ 5,212 $ 5,448 (24) % $ 1,401 $ 1,849 (9) % $ 6,613 $ 7,297

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(23) % $ 111.5 $ 144.0 12 % $ 141.7 $ 126.9 (7) % $ 253.2 $ 270.9

(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.

(1) In the third quarter and first nine months of 2024, Investor Services includes net outflows of $4.4 billion and $9.1 billion, respectively, from off-platform brokered CDs issued by CSB, and an outflow of $0.1 billion from an international relationship.

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

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

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

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

Segment Net Revenues

Investor Services total net revenues 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.

Investor Services and Advisor Services total net revenues increased by 6% and 1%, respectively, in the third quarter of 2024 compared to the same period in 2023.

Asset management and administration fees increased 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.

Net interest revenue increased for Investor Services primarily due to higher margin loan balances, partially offset by other lower average interest-earning assets and higher average rates on funding sources, while net interest revenue decreased for Advisor Services primarily due to lower average interest-earning assets and higher average rates on funding sources.

Additionally, trading revenue increased for Investor Services, primarily due to higher order flow revenue as a result of higher trading volume and changes in the mix of client trading activity.

These increases were partially offset by decreases in bank deposit account fees for both segments, primarily due to lower average BDA balances.

Investor Services and Advisor Services total net revenues increased by 1% and decreased by 7%, respectively, in the first nine months of 2024 compared to the same period in 2023.

Asset management and administration fees increased 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.

Net interest revenue decreased for both segments, primarily due to lower average interest-earning assets and higher average rates on funding sources, which were partially offset by higher margin loan balances for Investor Services.

Trading revenue decreased for both segments, primarily due to lower commissions for Investor Services and lower order flow revenue for Advisor Services as a result of changes in the mix of client trading activity.

Additionally, bank deposit account fees decreased for both segments, primarily due to lower average BDA balances.

THE CHARLES SCHWAB CORPORATION

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Segment Expenses Excluding Interest

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.

Investor Services total expenses excluding interest decreased by 4% in the third quarter of 2024 and remained flat in the first nine months of 2024, compared to the same periods in 2023.

Advisor Services total expenses excluding interest decreased by 14% and 12% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.

Compensation and benefits expense decreased in both segments, primarily due to restructuring costs recognized during the third quarter of 2023 and lower headcount as a result of position eliminations, 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.

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 nine months of 2024 to enhance our technological infrastructure to support growth of the business.

Regulatory fees and assessments increased in both segments in the first nine months of 2024, primarily due to higher FDIC assessments, as described above.

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

RISK MANAGEMENT

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

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.

The Company utilizes 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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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

Because we establish the rates paid on certain brokerage client cash

THE CHARLES SCHWAB CORPORATION

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(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.

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

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

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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 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

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

September 30, 2024 December 31, 2023

Increase of 200 basis points 10.4% 10.8%

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Decrease of 200 basis points (9.4)% (4.2)%

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.

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

The Company’s simulated incremental decreases in market interest rates had a larger impact on net interest revenue as of September 30, 2024 compared to December 31, 2023, primarily due to lower non-maturity deposit rates, which reduced interest expense savings in a lower interest rate environment, and a decreased allocation to shorter-term liabilities across the Company’s banking subsidiaries, partially offset by lower cash balances.

Effective Duration

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

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Estimated effective duration, exclusive of derivatives:

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AFS and HTM investment securities portfolio 3.8 3.9

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

AFS and HTM securities comprised approximately 55% and 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.

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

AFS and HTM securities comprised approximately 51% and 57% of the Company’s consolidated total assets as of September 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 September 30, 2024 and 2023.

Economic Value of Equity Simulation

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

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

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

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

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

Bank Deposit Account Fees Simulation

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

As of 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.

As of September 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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Our clients’ bank deposits and brokerage cash balances primarily originate from our 36.0 million active brokerage accounts.

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

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

Schwab’s need for borrowings from external debt facilities arises primarily from timing differences between cash flow requirements, including in the event the outflow of client cash from the balance sheet is greater than cash flows from operations and investment securities and bank loans;

payments on interest-earning investments;

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

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

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

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

FHLB secured credit facilities Banking subsidiaries $ 22,600 $ 57,099 (1)

July 2024 - February 2025 5.38%

October 2024 - June 2025 5.34%

Federal Reserve discount window Banking subsidiaries — 32,481 (1)

Repurchase agreements Banking subsidiaries, CSC 8,093 — (2)

July 2024 - February 2025 5.47%

October 2024 - May 2025 5.27%

Unsecured uncommitted lines of credit with

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various external banks CS&Co 2,500 — (3)

August 2024 - September 2024 5.70%

Secured uncommitted lines of credit with

various external banks TDAC — — (3)

October 2024 - December 2024 5.71%

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.

(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of September 30, 2024.

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

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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.

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

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

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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 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.

As of September 30, 2024, the Company had additional investment securities with a par value of approximately $128 billion, or a fair value of approximately $121 billion, available to be pledged to obtain additional capacity.

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

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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 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.

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’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 June 30, 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 nine months of 2024 and there were no amounts outstanding at September 30, 2024.

CSC maintains standing bilateral repurchase agreements with external banks.

Other than de minimis tests, these facilities were not used during the first nine months of 2024 and there were no amounts outstanding under these facilities at September 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.

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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.

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

THE CHARLES SCHWAB CORPORATION

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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.

CS&Co is also able to lend eligible securities held in client brokerage accounts in exchange for cash collateral as a source of short-term liquidity.

As of September 30, 2024, liabilities for securities loaned totaled $12.5 billion and are included in accrued expenses and other liabilities on the condensed consolidated balance sheet.

At September 30, 2024, $7.5 billion of securities loaned had overnight and continuous remaining contractual maturities;

$5.0 billion of securities loaned had contractual maturities of 30-95 days and had a weighted-average interest rate of 5.09%.

See Item 1 – Note 12 for additional information on securities lending activities.

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:

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

Amount Outstanding Maturity Weighted-Average Interest Rate

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

Brokered CDs $ 34,075 October 2024 - September 2025 5.18%

Cash Flow Activity

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

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

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

During the third quarter of 2024, the Company saw an increase in client sweep cash, which, along with principal and interest on the AFS and HTM investment securities portfolio, supported the Company’s net reduction of $8.9 billion of aggregate bank supplemental funding.

Bank deposits decreased $6.0 billion during the third quarter of 2024, which reflected a net decrease of $6.2 billion in brokered CDs, and a $0.6 billion increase in deposits swept from brokerage accounts.

During the first nine months of 2024, the Company’s cash and cash equivalents decreased $8.5 billion from year-end 2023 to $34.9 billion at September 30, 2024;

cash and cash equivalents, including amounts restricted, decreased $7.5 billion from year-end 2023 to $67.0 billion at September 30, 2024.

These decreases reflected a net reduction of bank supplemental funding balances of $14.8 billion and maturities of long-term debt of $3.7 billion.

Bank deposits decreased during the first nine months of 2024 by $43.5 billion, which reflected a $27.4 billion decrease in deposits swept from brokerage accounts due to client cash allocations and client engagement with equity markets, as well as a net decrease in brokered CDs of $14.2 billion.

Partially offsetting the decrease in bank deposits and repayment of borrowings, net investing cash inflows from our AFS and HTM securities totaled $31.1 billion in the first nine months of 2024, and net cash inflows from operations totaled $13.5 billion.

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 June 30, 2024, and the table below presents information about our average daily LCR:

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

Average for the Three Months Ended

June 30, 2024 March 31, 2024

September 30, 2024 June 30, 2024

Total eligible HQLA $ 56,288 $ 53,815

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LCR 130 % 120 %

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.

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

THE CHARLES SCHWAB CORPORATION

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

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.

Net Stable Funding Ratio

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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 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 %

The Company was in compliance with the NSFR rule at September 30, 2024.

Long-Term Borrowings

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

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

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

September 30, 2024 Par

Outstanding Maturity Weighted Average

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New Debt Issuances

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

There were no new debt issuances of senior unsecured obligations in the first nine 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 the Company’s equity outstanding balances and activity.

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, Item 1 – Note 12 for the Company’s securities lending activities, and Item 1 – Note 14 for the Company’s 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 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.

As of September 30, 2024, CSC and our banking subsidiaries are considered well capitalized, and CS&Co is in compliance with its net capital requirements.

THE CHARLES SCHWAB CORPORATION

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

June 30, 2024 December 31, 2023

September 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 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.

The Company’s consolidated Tier 1 Leverage Ratio increased to 9.7% at September 30, 2024 from 9.4% at June 30, 2024 and 8.5% at year-end 2023.

This increase during the third quarter of 2024 was primarily due to the benefit of net income earned during the quarter.

CSB’s Tier 1 Leverage Ratio increased from 10.9% at June 30, 2024 and 10.1% at year-end 2023, ending the third quarter of 2024 at 11.2% 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.

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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).

As of September 30, 2024, our adjusted Tier 1 Leverage Ratio, which includes AOCI in the ratio, was 6.7% for CSC (consolidated) and 7.1% 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.

In evaluating returns of excess capital to stockholders, we will consider the amount of bank supplemental funding outstanding, and may choose to utilize the liquidity we would otherwise use for capital returns to repay outstanding bank supplemental funding 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 six months of 2024, Schwab did not move IDA balances to its balance sheet.

During the first nine 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 six months of 2024 and 2023 are as follows:

Six Months Ended June 30, Cash Paid Per Share

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

Nine Months Ended September 30, Cash Paid Per Share

Amount Cash Paid Per Share

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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 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 .

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

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

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

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

During the nine months ended September 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.

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

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

For repurchases of preferred stock, the tax impact is included within preferred stock dividends and other on the condensed consolidated statement of income.

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

For repurchases of preferred stock, the tax impact is included within preferred stock dividends and other on the condensed consolidated statements of income.

Foreign Exposure

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

At September 30, 2024, the fair value of these holdings totaled $17.5 billion, with the top three exposures being to issuers and counterparties domiciled in France at $7.0 billion, the United Kingdom at $6.2 billion, and Canada at $906 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 $3.2 billion and $2.5 billion at June 30, 2024 and December 31, 2023, respectively.

In addition, Schwab had outstanding margin loans to foreign residents of $2.9 billion and $2.5 billion at September 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 six months of 2024.

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

NON-GAAP FINANCIAL MEASURES

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

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

See Item 1 – Note 10 for additional information.

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

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Restructuring costs (2)

— (279) 18 (279)

Adjusted total expenses (non-GAAP) $ 2,852 $ 2,703 $ 8,422 $ 8,177

(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.

(1) Acquisition and integration-related costs for the three and nine months ended September 30, 2024 primarily consist of $9 million and $44 million of compensation and benefits, $3 million and $32 million of professional services, and $8 million and $13 million of depreciation and amortization.

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

(2) Restructuring costs for the nine months ended September 30, 2024 reflect a change in estimate of $34 million in compensation and benefits, offset by $3 million of occupancy and equipment and $13 million of other.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis