SCHWAB CHARLES CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2. - 28 - Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Income (In Millions, Except Per Share Amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net Revenues Interest revenue $ 3,928 $ 4,028 $ 11,686 $ 12,148 Interest expense ( 1,706 ) ( 1,791 ) ( 5,073 ) ( 4,851 ) Net interest revenue 2,222 2,237 6,613 7,297 Asset management and administration fees 1,476 1,224 4,207 3,515 Trading revenue 797 768 2,391 2,463 Bank deposit account fees 152 205 488 531 Other 200 172 578 572 Total net revenues 4,847 4,606 14,277 14,378 Expenses Excluding Interest Compensation and benefits 1,522 1,770 4,510 4,906 Professional services 256 275 756 805 Occupancy and equipment 271 305 784 923 Advertising and market development 101 102 296 293 Communications 147 151 460 485 Depreciation and amortization 231 198 692 566 Amortization of acquired intangible assets 130 135 389 404 Regulatory fees and assessments 88 114 309 277 Other 259 173 694 535 Total expenses excluding interest 3,005 3,223 8,890 9,194 Income before taxes on income 1,842 1,383 5,387 5,184 Taxes on income 434 258 1,285 1,162 Net Income 1,408 1,125 4,102 4,022 Preferred stock dividends and other 109 108 341 299 Net Income Available to Common Stockholders $ 1,299 $ 1,017 $ 3,761 $ 3,723 Weighted-Average Common Shares Outstanding: Basic 1,829 1,821 1,827 1,825 Diluted 1,834 1,827 1,833 1,832 Earnings Per Common Shares Outstanding (1) : Basic $ .71 $ .56 $ 2.06 $ 2.04 Diluted $ .71 $ .56 $ 2.05 $ 2.03 (1) The Company has voting and nonvoting common stock outstanding. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class. See Note 16 for additional information. See Notes to Condensed Consolidated Financial Statements. - 29 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Comprehensive Income (In Millions) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 1,408 $ 1,125 $ 4,102 $ 4,022 Other comprehensive income (loss), before tax: Change in net unrealized gain (loss) on available for sale securities: Net unrealized gain (loss) 2,434 ( 720 ) 2,807 446 Other reclassifications included in other revenue 10 24 30 44 Change in net unrealized gain (loss) on held to maturity securities: Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 576 645 1,723 1,896 Other 11 — 1 ( 9 ) Other comprehensive income (loss), before tax 3,031 ( 51 ) 4,561 2,377 Income tax effect ( 713 ) 29 ( 1,048 ) ( 508 ) Other comprehensive income (loss), net of tax 2,318 ( 22 ) 3,513 1,869 Comprehensive Income (Loss) $ 3,726 $ 1,103 $ 7,615 $ 5,891 See Notes to Condensed Consolidated Financial Statements. - 30 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Balance Sheets (In Millions, Except Per Share and Share Amounts) (Unaudited) September 30, 2024 December 31, 2023 Assets Cash and cash equivalents $ 34,850 $ 43,337 Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $ 13,591 and $ 8,844 at September 30, 2024 and December 31, 2023, respectively) 33,671 31,836 Receivables from brokerage clients — net 74,016 68,667 Available for sale securities (amortized cost of $ 95,871 at September 30, 2024 and $ 116,336 at December 31, 2023; including assets pledged of $ 188 and $ 1,733 , respectively) 90,018 107,646 Held to maturity securities (including assets pledged of $ 8,340 at September 30, 2024 and $ 3,703 at December 31, 2023) 149,862 159,452 Bank loans — net 43,311 40,439 Equipment, office facilities, and property — net 3,340 3,690 Goodwill 11,951 11,951 Acquired intangible assets — net 7,873 8,260 Other assets 17,163 17,900 Total assets $ 466,055 $ 493,178 Liabilities and Stockholders’ Equity Bank deposits $ 246,462 $ 289,953 Payables to brokerage clients 89,164 84,786 Accrued expenses and other liabilities 27,579 18,400 Other short-term borrowings 10,593 6,553 Federal Home Loan Bank borrowings 22,600 26,400 Long-term debt 22,442 26,128 Total liabilities 418,840 452,220 Stockholders’ equity: Preferred stock — $ .01 par value per share; aggregate liquidation preference of $ 9,329 at September 30, 2024 and December 31, 2023 9,191 9,191 Common stock — 3 billion shares authorized; $ .01 par value per share; 2,023,295,180 shares issued at September 30, 2024 and December 31, 2023 20 20 Nonvoting common stock — 300 million shares authorized; $ .01 par value per share; 50,893,695 shares issued at September 30, 2024 and December 31, 2023 1 1 Additional paid-in capital 27,548 27,330 Retained earnings 36,303 33,901 Treasury stock, at cost — 244,640,081 and 250,678,452 shares at September 30, 2024 and December 31, 2023, respectively ( 11,230 ) ( 11,354 ) Accumulated other comprehensive income (loss) ( 14,618 ) ( 18,131 ) Total stockholders’ equity 47,215 40,958 Total liabilities and stockholders’ equity $ 466,055 $ 493,178 See Notes to Condensed Consolidated Financial Statements. - 31 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Stockholders ’ Equity (In Millions) (Unaudited) Accumulated Other Comprehensive Income (Loss) Preferred Stock Common Stock Nonvoting Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at cost Total Shares Amount Shares Amount Balance at June 30, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,220 $ 32,865 $ ( 11,420 ) $ ( 20,730 ) $ 37,147 Net income — — — — — — 1,125 — — 1,125 Other comprehensive income (loss), net of tax — — — — — — — — ( 22 ) ( 22 ) Dividends declared on preferred stock — — — — — — ( 103 ) — — ( 103 ) Dividends declared on common stock — $ .25 per share — — — — — — ( 458 ) — — ( 458 ) Stock option exercises and other — — — — — ( 9 ) — 18 — 9 Share-based compensation — — — — — 60 — — — 60 Other — — — — — 22 — 4 — 26 Balance at September 30, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,293 $ 33,429 $ ( 11,398 ) $ ( 20,752 ) $ 37,784 Balance at June 30, 2024 $ 9,191 2,023 $ 20 51 $ 1 $ 27,470 $ 35,458 $ ( 11,251 ) $ ( 16,936 ) $ 43,953 Net income — — — — — — 1,408 — — 1,408 Other comprehensive income (loss), net of tax — — — — — — — — 2,318 2,318 Dividends declared on preferred stock — — — — — — ( 103 ) — — ( 103 ) Dividends declared on common stock — $ .25 per share — — — — — — ( 460 ) — — ( 460 ) Stock option exercises and other — — — — — ( 6 ) — 16 — 10 Share-based compensation — — — — — 59 — — — 59 Other — — — — — 25 — 5 — 30 Balance at September 30, 2024 $ 9,191 2,023 $ 20 51 $ 1 $ 27,548 $ 36,303 $ ( 11,230 ) $ ( 14,618 ) $ 47,215 Accumulated Other Comprehensive Income (Loss) Preferred Stock Common Stock Nonvoting Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at cost Total Shares Amount Shares Amount Balance at December 31, 2022 $ 9,706 2,023 $ 20 51 $ 1 $ 27,075 $ 31,066 $ ( 8,639 ) $ ( 22,621 ) $ 36,608 Net income — — — — — — 4,022 — — 4,022 Other comprehensive income (loss), net of tax — — — — — — — — 1,869 1,869 Redemption and repurchase of preferred stock, inclusive of tax ( 515 ) — — — — — 44 — — ( 471 ) Dividends declared on preferred stock — — — — — — ( 324 ) — — ( 324 ) Dividends declared on common stock — $ .75 per share — — — — — — ( 1,379 ) — — ( 1,379 ) Repurchase of common stock, inclusive of tax — — — — — — — ( 2,869 ) — ( 2,869 ) Stock option exercises and other — — — — — ( 110 ) — 143 — 33 Share-based compensation — — — — — 242 — — — 242 Other — — — — — 86 — ( 33 ) — 53 Balance at September 30, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,293 $ 33,429 $ ( 11,398 ) $ ( 20,752 ) $ 37,784 Balance at December 31, 2023 $ 9,191 2,023 $ 20 51 $ 1 $ 27,330 $ 33,901 $ ( 11,354 ) $ ( 18,131 ) $ 40,958 Net income — — — — — — 4,102 — — 4,102 Other comprehensive income (loss), net of tax — — — — — — — — 3,513 3,513 Dividends declared on preferred stock — — — — — — ( 321 ) — — ( 321 ) Dividends declared on common stock — $ .75 per share — — — — — — ( 1,379 ) — — ( 1,379 ) Stock option exercises and other — — — — — ( 122 ) — 175 — 53 Share-based compensation — — — — — 249 — — — 249 Other — — — — — 91 — ( 51 ) — 40 Balance at September 30, 2024 $ 9,191 2,023 $ 20 51 $ 1 $ 27,548 $ 36,303 $ ( 11,230 ) $ ( 14,618 ) $ 47,215 See Notes to Condensed Consolidated Financial Statements. - 32 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Cash Flows (in Millions) (Unaudited) Nine Months Ended September 30, 2024 2023 Cash Flows from Operating Activities Net income $ 4,102 $ 4,022 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Share-based compensation 267 260 Depreciation and amortization 692 566 Amortization of acquired intangible assets 389 404 Provision (benefit) for deferred income taxes ( 163 ) 5 Premium amortization, net, on available for sale and held to maturity securities 618 614 Other 370 391 Net change in: Investments segregated and on deposit for regulatory purposes ( 818 ) 17,539 Receivables from brokerage clients ( 5,387 ) ( 2,502 ) Other assets 169 202 Payables to brokerage clients 4,378 ( 24,620 ) Accrued expenses and other liabilities 8,880 2,669 Net cash provided by (used for) operating activities 13,497 ( 450 ) Cash Flows from Investing Activities Purchases of available for sale securities ( 2,250 ) ( 775 ) Proceeds from sales of available for sale securities 2,929 6,385 Principal payments on available for sale securities 19,582 31,593 Principal payments on held to maturity securities 10,888 12,030 Net change in bank loans ( 2,935 ) 194 Purchases of equipment, office facilities, and property ( 366 ) ( 637 ) Purchases of FHLB stock ( 786 ) ( 1,652 ) Proceeds from sales of FHLB stock 1,005 876 Purchases of Federal Reserve stock ( 134 ) ( 212 ) Proceeds from sales of Federal Reserve stock — 98 Other investing activities ( 236 ) ( 171 ) Net cash provided by (used for) investing activities 27,697 47,729 Cash Flows from Financing Activities Net change in bank deposits ( 43,491 ) ( 82,316 ) Proceeds from FHLB borrowings 20,001 41,800 Repayments of FHLB borrowings ( 23,801 ) ( 22,400 ) Proceeds from other short-term borrowings 18,225 14,190 Repayments of other short-term borrowings ( 14,185 ) ( 11,296 ) Issuances of long-term debt — 4,809 Repayments of long-term debt ( 3,676 ) ( 823 ) Redemption and repurchase of preferred stock — ( 467 ) Dividends paid ( 1,700 ) ( 1,703 ) Proceeds from stock options exercised 53 33 Repurchases of common stock and nonvoting common stock — ( 2,842 ) Other financing activities ( 90 ) ( 77 ) Net cash provided by (used for) financing activities ( 48,664 ) ( 61,092 ) Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted ( 7,470 ) ( 13,813 ) Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year 74,473 58,720 Cash and Cash Equivalents, including Amounts Restricted at End of Period $ 67,003 $ 44,907 Continued on following page. - 33 - THE CHARLES SCHWAB CORPORATION Condensed Consolidated Statements of Cash Flows (in Millions) (Unaudited) Continued from previous page. Nine Months Ended September 30, 2024 2023 Supplemental Cash Flow Information Non-cash investing activity: Securities matured during the period but settled after period end $ — $ 415 Changes in accrued equipment, office facilities, and property purchases $ ( 17 ) $ ( 32 ) Other Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 5,213 $ 3,851 Income taxes $ 1,313 $ 1,243 Amounts included in the measurement of lease liabilities $ 193 $ 190 Leased assets obtained in exchange for new operating lease liabilities $ 126 $ 88 September 30, 2024 September 30, 2023 Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (1) Cash and cash equivalents $ 34,850 $ 33,251 Restricted cash and cash equivalents amounts included in cash and investments segregated and on deposit for regulatory purposes 32,153 11,656 Total cash and cash equivalents, including amounts restricted shown in the statement of cash flows $ 67,003 $ 44,907 (1) For more information on the nature of restrictions on restricted cash and cash equivalents, see Note 17. See Notes to Condensed Consolidated Financial Statements. - 34 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 1. Introduction and Basis of Presentation The Charles Schwab Corporation (CSC) is a savings and loan holding company. CSC engages, through its subsidiaries (collectively referred to as Schwab or the Company), in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. Principal business subsidiaries of CSC include the following: • Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer; • Charles Schwab Bank, SSB (CSB), our principal banking entity; and • Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds ® ) and for Schwab’s exchange-traded funds (Schwab ETFs™). In May 2024, the Company completed the final client account conversions to CS&Co from the Ameritrade broker-dealers, TD Ameritrade, Inc. and TD Ameritrade Clearing, Inc. (TDAC). Accordingly, these entities are no longer principal business subsidiaries. See Note 10 for additional information regarding the Company’s integration of Ameritrade. Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries. These unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements and in the related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. While management makes its best judgment, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in Schwab’s 2023 Form 10-K. The significant accounting policies are included in Item 8 – Note 2 in the 2023 Form 10-K. There have been no significant changes to these accounting policies during the first nine months of 2024. 2. New Accounting Standards Adoption of New Accounting Standards Standard Description Date of Adoption Effects on the Financial Statements or Other Significant Matters Accounting Standards Update ( ASU ) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” Requires annual and interim disclosure of significant segment expenses that are provided to the chief operating decision maker (CODM) and included in segment profit or loss. Also requires disclosure of the CODM’s title and position and how the CODM uses reported segment profit or loss information in assessing segment performance and allocating resources. All required segment disclosures will be presented both on an interim and annual basis. Adoption requires retrospective application as of the earliest comparative period presented in the financial statements. January 1, 2024 (applies to the annual financial statements for 2024 and interim periods thereafter) The Company does not expect this guidance will have a material impact on its financial statements or disclosures. - 35 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) New Accounting Standards Not Yet Adopted Standard Description Required Date of Adoption Effects on the Financial Statements or Other Significant Matters ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” Expands income tax disclosures, primarily by enhancing the rate reconciliation table and requiring additional disaggregated information about income taxes paid. Adoption allows retrospective or prospective application, with early adoption permitted. January 1, 2025 The Company does not expect this guidance will have a material impact on its financial statements or disclosures. 3. Revenue Recognition Disaggregation of Schwab’s revenue by major source is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net interest revenue Cash and cash equivalents $ 369 $ 459 $ 1,205 $ 1,419 Cash and investments segregated 345 285 1,014 1,041 Receivables from brokerage clients 1,431 1,282 4,042 3,533 Available for sale securities 531 724 1,680 2,340 Held to maturity securities 650 706 1,998 2,172 Bank loans 484 426 1,384 1,227 Securities lending revenue 87 105 258 341 Other interest revenue 31 41 105 75 Interest revenue 3,928 4,028 11,686 12,148 Bank deposits ( 841 ) ( 911 ) ( 2,602 ) ( 2,392 ) Payables to brokerage clients ( 79 ) ( 66 ) ( 229 ) ( 205 ) Other short-term borrowings ( 150 ) ( 97 ) ( 382 ) ( 280 ) Federal Home Loan Bank borrowings ( 310 ) ( 477 ) ( 988 ) ( 1,387 ) Long-term debt ( 208 ) ( 193 ) ( 640 ) ( 489 ) Securities lending expense ( 118 ) ( 46 ) ( 230 ) ( 96 ) Other interest expense — ( 1 ) ( 2 ) ( 2 ) Interest expense ( 1,706 ) ( 1,791 ) ( 5,073 ) ( 4,851 ) Net interest revenue 2,222 2,237 6,613 7,297 Asset management and administration fees Mutual funds, ETFs, and CTFs 827 666 2,370 1,881 Advice solutions 559 476 1,572 1,393 Other 90 82 265 241 Asset management and administration fees 1,476 1,224 4,207 3,515 Trading revenue Commissions 388 394 1,184 1,210 Order flow revenue 357 325 1,066 1,104 Principal transactions 52 49 141 149 Trading revenue 797 768 2,391 2,463 Bank deposit account fees 152 205 488 531 Other 200 172 578 572 Total net revenues $ 4,847 $ 4,606 $ 14,277 $ 14,378 Note: For a summary of revenue provided by our reportable segments, see Note 18. The recognition of revenue is not impacted by the operating segment in which revenue is generated. - 36 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Contract balances : Receivables from contracts with customers within the scope of Accounting Standards Codification (ASC) 606 Revenue From Contracts With Customers (ASC 606), are included in other assets on the condensed consolidated balance sheets, and totaled $ 684 million and $ 599 million at September 30, 2024 and December 31, 2023, respectively. The Company had net contract assets of $ 222 million and $ 239 million at September 30, 2024 and December 31, 2023, respectively, related to the buy down of fixed-rate obligation amounts pursuant to the 2023 IDA agreement. These amounts are included in other assets on the condensed consolidated balance sheets and are amortized on a straight-line basis over the remaining contractual term as a reduction to bank deposit account fee revenue. For additional discussion of the 2023 IDA agreement, see Note 9. Unsatisfied performance obligations : We do not have any unsatisfied performance obligations other than those that are subject to an elective practical expedient under ASC 606. The practical expedient applies to and is elected for contracts where we recognize revenue at the amount to which we have the right to invoice for services performed. - 37 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 4. Investment Securities The amortized cost, gross unrealized gains and losses, and fair value of the Company’s AFS and HTM investment securities are as follows: September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale securities U.S. agency mortgage-backed securities $ 60,837 $ — $ 4,557 $ 56,280 U.S. Treasury securities 16,137 2 516 15,623 Corporate debt securities (1) 10,790 — 544 10,246 Asset-backed securities (2) 6,818 — 188 6,630 Foreign government agency securities 533 — 10 523 U.S. state and municipal securities 627 — 42 585 Non-agency commercial mortgage-backed securities 122 — 10 112 Other 21 — 2 19 Unallocated portfolio layer method fair value basis adjustments (3) ( 14 ) — ( 14 ) — Total available for sale securities $ 95,871 $ 2 $ 5,855 $ 90,018 Held to maturity securities U.S. agency mortgage-backed securities $ 149,862 $ 2,365 $ 11,230 $ 140,997 Total held to maturity securities $ 149,862 $ 2,365 $ 11,230 $ 140,997 December 31, 2023 Available for sale securities U.S. agency mortgage-backed securities $ 69,173 $ — $ 6,378 $ 62,795 U.S. Treasury securities 22,459 1 989 21,471 Corporate debt securities (1) 13,344 — 860 12,484 Asset-backed securities (2) 9,465 — 378 9,087 Foreign government agency securities 1,035 — 33 1,002 U.S. state and municipal securities 634 — 55 579 Non-agency commercial mortgage-backed securities 123 — 14 109 Certificates of deposit 100 — — 100 Other 22 — 3 19 Unallocated portfolio layer method fair value basis adjustments (3) ( 19 ) — ( 19 ) — Total available for sale securities $ 116,336 $ 1 $ 8,691 $ 107,646 Held to maturity securities U.S. agency mortgage-backed securities $ 159,452 $ 1,435 $ 13,796 $ 147,091 Total held to maturity securities $ 159,452 $ 1,435 $ 13,796 $ 147,091 (1) As of September 30, 2024 and December 31, 2023, approximately 34 % and 36 %, respectively, of the total AFS in corporate debt securities were issued by institutions in the financial services industry. (2) Approximately 57 % and 61 % of asset-backed securities held as of September 30, 2024 and December 31, 2023, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately 28 % and 24 % of the asset-backed securities held as of September 30, 2024 and December 31, 2023, respectively. (3) This represents the amount of portfolio layer method (PLM) fair value hedge basis adjustments related to AFS securities hedged in a closed portfolio. See Note 11 for more information on PLM hedge accounting. At September 30, 2024, our banking subsidiaries had pledged investment securities with a value of $ 61.7 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 8). Our banking subsidiaries also pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a value of $ 32.5 billion as collateral for this facility at September 30, 2024. The Company also pledges investment securities issued by federal agencies to secure certain trust deposits. The value of these pledged securities was $ 1.6 billion at September 30, 2024. At September 30, 2024, our banking subsidiaries had pledged HTM securities as collateral under repurchase agreements with external financial institutions. HTM securities pledged were U.S. agency mortgage-backed securities with an aggregate - 38 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) amortized cost of $ 8.3 billion. Securities pledged as collateral under these repurchase agreements may be sold, repledged, or otherwise used by the counterparties. See Notes 8 and 12 for additional information on these repurchase agreements. At September 30, 2024, our banking subsidiaries had pledged AFS securities consisting of U.S. Treasury securities with an aggregate fair value of $ 188 million as initial margin on interest rate swaps (see Notes 11 and 12). All of Schwab’s interest rate swaps are cleared through central counterparty (CCP) clearing houses which require the Company to post initial margin as collateral against potential losses. Initial margin is posted through futures commission merchants (FCM) which serve as the intermediary between the CCPs and Schwab. The FCM agreements governing our swaps allow for securities pledged as initial margin to be sold, repledged, or otherwise used by the FCM. AFS securities with unrealized losses, aggregated by category and period of continuous unrealized loss, are as follows: Less than 12 months 12 months or longer Total September 30, 2024 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available for sale securities U.S. agency mortgage-backed securities $ — $ — $ 56,280 $ 4,557 $ 56,280 $ 4,557 U.S. Treasury securities (1) 242 — 13,878 516 14,120 516 Corporate debt securities — — 10,246 544 10,246 544 Asset-backed securities — — 6,618 188 6,618 188 Foreign government agency securities — — 523 10 523 10 U.S. state and municipal securities — — 585 42 585 42 Non-agency commercial mortgage-backed securities — — 112 10 112 10 Other — — 19 2 19 2 Total (2) $ 242 $ — $ 88,261 $ 5,869 $ 88,503 $ 5,869 December 31, 2023 Available for sale securities U.S. agency mortgage-backed securities (1) $ 1 $ — $ 62,794 $ 6,378 $ 62,795 $ 6,378 U.S. Treasury securities — — 19,450 989 19,450 989 Corporate debt securities — — 12,484 860 12,484 860 Asset-backed securities (1) 29 — 9,058 378 9,087 378 Foreign government agency securities — — 1,002 33 1,002 33 U.S. state and municipal securities — — 579 55 579 55 Non-agency commercial mortgage-backed securities — — 109 14 109 14 Other — — 19 3 19 3 Total (2) $ 30 $ — $ 105,495 $ 8,710 $ 105,525 $ 8,710 (1) Unrealized losses less than 12 months amounts were less than $ 500 thousand. (2) For purposes of this table, unrealized losses on AFS securities excludes the unallocated PLM fair value hedge basis adjustments of $ 14 million and $ 19 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises. For a description of management’s quarterly evaluation of AFS securities in unrealized loss positions, see Item 8 – Note 2 in the 2023 Form 10-K. No amounts were recognized as credit loss expense and no securities were written down to fair value through earnings for the nine months ended September 30, 2024 and the year ended December 31, 2023. None of the Company’s AFS securities held as of September 30, 2024 and December 31, 2023 had an allowance for credit losses. All HTM securities as of September 30, 2024 and December 31, 2023 were U.S. agency mortgage-backed securities and therefore had no allowance for credit losses because expected nonpayment of the amortized cost basis is zero. The Company had $ 464 million and $ 565 million of accrued interest for AFS and HTM securities as of September 30, 2024 and December 31, 2023, respectively. These amounts are excluded from the amortized cost basis and fair market value of AFS and HTM securities and included in other assets on the condensed consolidated balance sheets. There were no writeoffs of accrued interest receivable on AFS and HTM securities during the nine months ended September 30, 2024, or for the year ended December 31, 2023. - 39 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table presents the Company’s estimated effective duration, which reflects anticipated future payments, by category at September 30, 2024: In years Estimated effective duration, exclusive of derivatives: AFS investment securities portfolio 2.3 AFS and HTM investment securities portfolio 3.9 Estimated effective duration, inclusive of derivatives (1) : AFS investment securities portfolio 2.0 AFS and HTM investment securities portfolio 3.8 (1) See Note 11 for additional discussion on the Company’s derivatives. In the table below, mortgage-backed securities and other asset-backed securities have been allocated to maturity groupings based on final contractual maturities. As borrowers may have the right to call or prepay certain obligations underlying our investment securities, actual maturities may differ from the scheduled contractual maturities presented below. The maturities of AFS and HTM investment securities are as follows: September 30, 2024 Within 1 year After 1 year through 5 years After 5 years through 10 years After 10 years Total Available for sale securities U.S. agency mortgage-backed securities $ 3,200 $ 8,202 $ 9,941 $ 34,937 $ 56,280 U.S. Treasury securities 9,254 6,369 — — 15,623 Corporate debt securities 4,651 4,075 1,520 — 10,246 Asset-backed securities 9 1,944 1,282 3,395 6,630 Foreign government agency securities 523 — — — 523 U.S. state and municipal securities — 106 436 43 585 Non-agency commercial mortgage-backed securities — — — 112 112 Other — — — 19 19 Total fair value $ 17,637 $ 20,696 $ 13,179 $ 38,506 $ 90,018 Total amortized cost (1) $ 17,861 $ 21,752 $ 14,326 $ 41,946 $ 95,885 Held to maturity securities U.S. agency mortgage-backed securities $ 1,646 $ 9,686 $ 35,593 $ 94,072 $ 140,997 Total fair value $ 1,646 $ 9,686 $ 35,593 $ 94,072 $ 140,997 Total amortized cost $ 1,667 $ 10,037 $ 37,043 $ 101,115 $ 149,862 (1) For purposes of this table, the amortized cost of AFS securities excludes the unallocated PLM fair value hedge basis adjustments of $ 14 million at September 30, 2024. Proceeds and gross realized gains and losses from sales of AFS investment securities are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Proceeds $ 886 $ 3,485 $ 2,929 $ 6,385 Gross realized gains — 1 — 1 Gross realized losses 10 25 30 45 - 40 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 5. Bank Loans and Related Allowance for Credit Losses The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows: September 30, 2024 Current 30-59 days past due 60-89 days past due > 90 days past due and other nonaccrual loans (3) Total past due and other nonaccrual loans Total loans Allowance for credit losses Total bank loans – net Residential real estate: First Mortgages (1,2) $ 26,744 $ 33 $ 2 $ 20 $ 55 $ 26,799 $ 14 $ 26,785 HELOCs (1,2) 430 1 1 3 5 435 1 434 Total residential real estate 27,174 34 3 23 60 27,234 15 27,219 Pledged asset lines 15,707 6 — — 6 15,713 — 15,713 Other 383 — — 1 1 384 5 379 Total bank loans $ 43,264 $ 40 $ 3 $ 24 $ 67 $ 43,331 $ 20 $ 43,311 December 31, 2023 Residential real estate: First Mortgages (1,2) $ 26,111 $ 33 $ 2 $ 7 $ 42 $ 26,153 $ 32 $ 26,121 HELOCs (1,2) 473 1 1 4 6 479 2 477 Total residential real estate 26,584 34 3 11 48 26,632 34 26,598 Pledged asset lines 13,533 11 — 4 15 13,548 — 13,548 Other 297 — — — — 297 4 293 Total bank loans $ 40,414 $ 45 $ 3 $ 15 $ 63 $ 40,477 $ 38 $ 40,439 (1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $ 107 million and $ 100 million at September 30, 2024 and December 31, 2023, respectively. (2) At September 30, 2024 and December 31, 2023, 42 % and 43 %, respectively, of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole. (3) There were no loans accruing interest that were contractually 90 days or more past due at September 30, 2024 or December 31, 2023. At September 30, 2024, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8). - 41 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Changes in the allowance for credit losses on bank loans were as follows: Three Months Ended September 30, 2024 First Mortgages HELOCs Total residential real estate Pledged asset lines Other Total Balance at beginning of period $ 14 $ 1 $ 15 $ — $ 5 $ 20 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses — — — — — — Balance at end of period $ 14 $ 1 $ 15 $ — $ 5 $ 20 September 30, 2023 Balance at beginning of period $ 68 $ 3 $ 71 $ — $ 4 $ 75 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses ( 21 ) ( 1 ) ( 22 ) — 1 ( 21 ) Balance at end of period $ 47 $ 2 $ 49 $ — $ 5 $ 54 Nine Months Ended September 30, 2024 Balance at beginning of period $ 32 $ 2 $ 34 $ — $ 4 $ 38 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses ( 18 ) ( 1 ) ( 19 ) — 1 ( 18 ) Balance at end of period $ 14 $ 1 $ 15 $ — $ 5 $ 20 September 30, 2023 Balance at beginning of period $ 66 $ 4 $ 70 $ — $ 3 $ 73 Charge-offs — — — — — — Recoveries — — — — — — Provision for credit losses ( 19 ) ( 2 ) ( 21 ) — 2 ( 19 ) Balance at end of period $ 47 $ 2 $ 49 $ — $ 5 $ 54 Consistent with Schwab’s loan charge-off policy for pledged asset lines (PALs) as disclosed in Item 8 – Note 2 of the 2023 Form 10-K, the Company charges off any unsecured balances no later than 90 days past due. As of September 30, 2024, substantially all PALs are also subject to the collateral maintenance practical expedient under ASC 326 Financial Instruments — Credit Losses . All PALs were fully collateralized by securities with fair values in excess of borrowings as of September 30, 2024 and December 31, 2023, and no allowance for credit losses for PALs as of those dates was required. The U.S. economy continued to face tight monetary policy and geopolitical unrest. Amid slower hiring and moderating inflation, the Federal Reserve lowered the federal funds target overnight rate in mid-September. However, management’s macroeconomic outlook continues to reflect a near-term continuation of elevated interest rates, with unemployment remaining relatively flat and modest home price appreciation. Though higher mortgage rates are softening demand and reducing borrower affordability, we expect constrained housing supply will keep home prices relatively stable. Furthermore, credit quality metrics in the Company’s bank loans portfolio remain very strong and have improved in recent quarters. As a result of these factors, we decreased projected loss rates at September 30, 2024, as compared to December 31, 2023. Bank loan-related nonperforming assets consisted of nonaccrual loans of $ 24 million and $ 15 million at September 30, 2024 and December 31, 2023, respectively. Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02, “ Financial Instruments — Credit Losses : Troubled Debt Restructurings and Vintage Disclosures” on January 1, 2023. - 42 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Credit Quality In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following: • Year of origination; • Borrower Fair Isaac Corporation (FICO) scores at origination (Origination FICO); • Updated borrower FICO scores (Updated FICO); • Loan-to-value (LTV) ratios at origination (Origination LTV); and • Estimated Current LTV ratios (Estimated Current LTV). Borrowers’ FICO scores are provided by an independent third-party credit reporting service and are generally updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index. The credit quality indicators of the Company’s First Mortgages and HELOCs are detailed below: First Mortgages Amortized Cost Basis by Origination Year September 30, 2024 2024 2023 2022 2021 2020 pre-2020 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ — $ — $ 2 $ 1 $ 1 $ 1 $ 5 $ — $ — $ — 620 – 679 21 5 26 29 18 12 111 — 1 1 680 – 739 228 264 741 1,109 372 230 2,944 48 32 80 ≥740 2,140 2,020 4,998 9,956 3,372 1,253 23,739 244 110 354 Total $ 2,389 $ 2,289 $ 5,767 $ 11,095 $ 3,763 $ 1,496 $ 26,799 $ 292 $ 143 $ 435 Origination LTV ≤70% $ 1,649 $ 1,537 $ 4,279 $ 9,628 $ 3,136 $ 1,169 $ 21,398 $ 270 $ 100 $ 370 >70% – ≤90% 740 752 1,488 1,467 627 325 5,399 22 42 64 >90% – ≤100% — — — — — 2 2 — 1 1 Total $ 2,389 $ 2,289 $ 5,767 $ 11,095 $ 3,763 $ 1,496 $ 26,799 $ 292 $ 143 $ 435 Updated FICO <620 $ 3 $ 7 $ 25 $ 16 $ 9 $ 16 $ 76 $ 2 $ 5 $ 7 620 – 679 18 30 63 108 44 34 297 7 8 15 680 – 739 219 202 523 820 278 157 2,199 44 22 66 ≥740 2,149 2,050 5,156 10,151 3,432 1,289 24,227 239 108 347 Total $ 2,389 $ 2,289 $ 5,767 $ 11,095 $ 3,763 $ 1,496 $ 26,799 $ 292 $ 143 $ 435 Estimated Current LTV (1) ≤70% $ 1,625 $ 1,778 $ 5,022 $ 10,944 $ 3,740 $ 1,492 $ 24,601 $ 289 $ 142 $ 431 >70% – ≤90% 764 511 729 150 21 4 2,179 3 1 4 >90% – ≤100% — — 14 — 2 — 16 — — — >100% — — 2 1 — — 3 — — — Total $ 2,389 $ 2,289 $ 5,767 $ 11,095 $ 3,763 $ 1,496 $ 26,799 $ 292 $ 143 $ 435 Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — Percent of Loans on Nonaccrual Status 0.01 % 0.01 % 0.11 % 0.04 % 0.03 % 0.51 % 0.07 % 0.07 % 2.28 % 0.69 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. - 43 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) First Mortgages Amortized Cost Basis by Origination Year December 31, 2023 2023 2022 2021 2020 pre-2020 Total First Mortgages Revolving HELOCs amortized cost basis HELOCs converted to term loans Total HELOCs Origination FICO <620 $ — $ 2 $ 1 $ 1 $ 1 $ 5 $ — $ — $ — 620 – 679 4 27 30 20 15 96 — 1 1 680 – 739 299 782 1,160 395 294 2,930 50 38 88 ≥740 2,391 5,258 10,439 3,558 1,476 23,122 261 129 390 Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 1,786 $ 26,153 $ 311 $ 168 $ 479 Origination LTV ≤70% $ 1,818 $ 4,492 $ 10,078 $ 3,306 $ 1,382 $ 21,076 $ 279 $ 117 $ 396 >70% – ≤90% 876 1,577 1,552 668 402 5,075 32 50 82 >90% – ≤100% — — — — 2 2 — 1 1 Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 1,786 $ 26,153 $ 311 $ 168 $ 479 Updated FICO <620 $ 4 $ 15 $ 19 $ 8 $ 17 $ 63 $ 2 $ 5 $ 7 620 – 679 46 77 87 38 50 298 6 10 16 680 – 739 265 575 984 316 169 2,309 48 26 74 ≥740 2,379 5,402 10,540 3,612 1,550 23,483 255 127 382 Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 1,786 $ 26,153 $ 311 $ 168 $ 479 Estimated Current LTV (1) ≤70% $ 1,853 $ 4,855 $ 11,341 $ 3,960 $ 1,781 $ 23,790 $ 308 $ 167 $ 475 >70% – ≤90% 841 1,185 289 14 5 2,334 3 1 4 >90% – ≤100% — 28 — — — 28 — — — >100% — 1 — — — 1 — — — Total $ 2,694 $ 6,069 $ 11,630 $ 3,974 $ 1,786 $ 26,153 $ 311 $ 168 $ 479 Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Percent of Loans on Nonaccrual Status 0.01 % 0.02 % 0.01 % 0.01 % 0.19 % 0.03 % 0.07 % 2.40 % 0.84 % (1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs. At September 30, 2024, First Mortgage loans of $ 22.4 billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 26 % of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 81 % of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates. At September 30, 2024 and December 31, 2023, Schwab had $ 173 million and $ 157 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the condensed consolidated balance sheets. The HELOC product has a 30-year loan term with an initial draw period of ten years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a 20-year amortizing loan. The interest rate during the initial draw period and the 20-year amortizing period is a floating-rate based on the prime rate plus a margin. - 44 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table presents when current outstanding HELOCs will convert to amortizing loans: September 30, 2024 Balance Converted to an amortizing loan by period end (1) $ 143 Within 1 year 16 > 1 year – 3 years 38 > 3 years – 5 years 35 > 5 years 203 Total $ 435 (1) Includes $ 4 million and $ 9 million of HELOCs converted to amortizing loans during the three and nine months ended September 30, 2024, respectively. At September 30, 2024, $ 344 million of the HELOCs portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At September 30, 2024, the borrowers on approximately 61 % of HELOC loan balances outstanding only paid the minimum amount due. 6. Variable Interest Entities As of September 30, 2024 and December 31, 2023, substantially all of Schwab’s involvement with variable interest entities (VIEs) was through CSB’s Community Reinvestment Act (CRA) related investments and most of these are related to Low-Income Housing Tax Credit (LIHTC) investments. As part of CSB’s community reinvestment initiatives, CSB invests in funds that make equity investments in multifamily affordable housing properties and receives tax credits and other tax benefits for these investments. During the three months ended September 30, 2024 and 2023, CSB recorded amortization of $ 37 million and $ 30 million, respectively, and recognized tax credits and other tax benefits of $ 48 million and $ 35 million, respectively, associated with these investments. During the nine months ended September 30, 2024 and 2023, CSB recorded amortization of $ 117 million and $ 96 million, respectively, and recognized tax credits and other tax benefits of $ 150 million and $ 124 million, respectively, associated with these investments. The amortization, as well as the tax credits and other tax benefits, are included in taxes on income on the condensed consolidated statements of income. Tax credits and other tax benefits are reflected as cash flows from operating activities on the condensed consolidated statements of cash flows. Aggregate assets, liabilities, and maximum exposure to loss The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below: September 30, 2024 December 31, 2023 Aggregate assets Aggregate liabilities Maximum exposure to loss Aggregate assets Aggregate liabilities Maximum exposure to loss LIHTC investments (1) $ 1,674 $ 934 $ 1,674 $ 1,407 $ 759 $ 1,407 Other investments (2) 209 — 241 179 — 231 Total $ 1,883 $ 934 $ 1,915 $ 1,586 $ 759 $ 1,638 (1) Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets. (2) Other investments include non-LIHTC CRA investments that are accounted for as loans at amortized cost, equity method investments, AFS securities, or using the adjusted cost method. Aggregate assets are included in AFS securities, bank loans – net, or other assets on the condensed consolidated balance sheets. Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. Schwab’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and Schwab expects to pay substantially all of these commitments between 2024 and 2027. During the nine months ended September 30, 2024 and year ended December 31, 2023, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide. - 45 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 7. Bank Deposits Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows: September 30, 2024 December 31, 2023 Interest-bearing deposits: Deposits swept from brokerage accounts $ 192,840 $ 220,274 Time certificates of deposit (1) 34,075 48,297 Checking 14,374 15,691 Savings and other 4,002 4,461 Total interest-bearing deposits 245,291 288,723 Non-interest-bearing deposits 1,171 1,230 Total bank deposits $ 246,462 $ 289,953 (1) Time certificates of deposit consist of brokered CDs. The weighted-average interest rates on outstanding time certificates of deposit at September 30, 2024 and December 31, 2023 were 5.18 % and 5.15 %, respectively. As of September 30, 2024 and December 31, 2023, there were no time deposits that were in excess of FDIC insurance limits or otherwise uninsured. Annual maturities on time certificates of deposit outstanding at September 30, 2024 are as follows: Balance 2024 $ 12,401 2025 21,674 Total $ 34,075 8. Borrowings CSC Senior Notes CSC’s Senior Notes are unsecured obligations. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. Interest for the fixed-to-floating rate Senior Notes is payable semi-annually during the fixed-rate period of the notes and quarterly during the floating-rate period of the notes. Ameritrade Holding LLC Senior Notes Ameritrade Holding LLC’s (Ameritrade Holding) Senior Notes are unsecured obligations. Ameritrade Holding may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes. - 46 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table lists long-term debt by instrument outstanding as of September 30, 2024 and December 31, 2023: Date of Issuance Principal Amount Outstanding September 30, 2024 December 31, 2023 CSC Fixed-rate Senior Notes: 3.550 % due February 1, 2024 10/31/18 $ — $ 500 0.750 % due March 18, 2024 03/18/21 — 1,500 3.750 % due April 1, 2024 09/24/21 — 350 3.000 % due March 10, 2025 03/10/15 375 375 4.200 % due March 24, 2025 03/24/20 600 600 3.625 % due April 1, 2025 09/24/21 418 418 3.850 % due May 21, 2025 05/22/18 750 750 3.450 % due February 13, 2026 11/13/15 350 350 0.900 % due March 11, 2026 12/11/20 1,250 1,250 1.150 % due May 13, 2026 05/13/21 1,000 1,000 5.875 % due August 24, 2026 08/24/23 1,000 1,000 3.200 % due March 2, 2027 03/02/17 650 650 2.450 % due March 3, 2027 03/03/22 1,500 1,500 3.300 % due April 1, 2027 09/24/21 744 744 3.200 % due January 25, 2028 12/07/17 700 700 2.000 % due March 20, 2028 03/18/21 1,250 1,250 4.000 % due February 1, 2029 10/31/18 600 600 3.250 % due May 22, 2029 05/22/19 600 600 2.750 % due October 1, 2029 09/24/21 475 475 4.625 % due March 22, 2030 03/24/20 500 500 1.650 % due March 11, 2031 12/11/20 750 750 2.300 % due May 13, 2031 05/13/21 750 750 1.950 % due December 1, 2031 08/26/21 850 850 2.900 % due March 3, 2032 03/03/22 1,000 1,000 CSC Floating-rate Senior Notes: SOFR + 0.500 % due March 18, 2024 03/18/21 — 1,250 SOFR + 0.520 % due May 13, 2026 05/13/21 500 500 SOFR + 1.050 % due March 3, 2027 03/03/22 500 500 CSC Fixed-to-Floating rate Senior Notes: 5.643 % due May 19, 2029 (1) 05/19/23 1,200 1,200 6.196 % due November 17, 2029 (2) 11/17/23 1,300 1,300 5.853 % due May 19, 2034 (3) 05/19/23 1,300 1,300 6.136 % due August 24, 2034 (4) 08/24/23 1,350 1,350 Total CSC Senior Notes 22,262 25,862 Ameritrade Holding Fixed-rate Senior Notes: 3.750 % due April 1, 2024 11/01/18 — 50 3.625 % due April 1, 2025 10/22/14 82 82 3.300 % due April 1, 2027 04/27/17 56 56 2.750 % due October 1, 2029 08/16/19 25 25 Total Ameritrade Holding Senior Notes 163 213 Finance lease liabilities 55 85 Unamortized premium — net 61 87 Debt issuance costs ( 99 ) ( 119 ) Total long-term debt $ 22,442 $ 26,128 (1) The May 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.643 %, payable semi-annually, until the interest reset date on May 19, 2028. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.210 %, payable quarterly. (2) The November 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 6.196 %, payable semi-annually, until the interest reset date on November 17, 2028. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 1.878 %, payable quarterly. (3) The May 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.853 %, payable semi-annually, until the interest reset date on May 19, 2033. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.500 %, payable quarterly. (4) The August 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 6.136 %, payable semi-annually, until the interest reset date on August 24, 2033. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.010 %, payable quarterly. - 47 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Annual maturities on all long-term debt outstanding at September 30, 2024 are as follows: Maturities 2024 $ 6 2025 2,249 2026 4,112 2027 3,463 2028 1,950 Thereafter 10,700 Total maturities 22,480 Unamortized premium — net 61 Debt issuance costs ( 99 ) Total long-term debt $ 22,442 FHLB borrowings : Our banking subsidiaries maintain secured credit facilities with the FHLB. Amounts available under these facilities are dependent on the amount of bank loans and the value of certain investment securities that are pledged as collateral. There was $ 22.6 billion and $ 26.4 billion outstanding under these facilities as of September 30, 2024 and December 31, 2023, respectively, and these borrowings had a weighted-average interest rate of 5.34 % at both September 30, 2024 and December 31, 2023. As of September 30, 2024 and December 31, 2023, the collateral pledged provided additional borrowing capacity of $ 57.1 billion and $ 63.1 billion, respectively. Other short-term borrowings : Total other short-term borrowings outstanding at September 30, 2024 and December 31, 2023 were $ 10.6 billion and $ 6.6 billion, respectively, and had a weighted-average interest rate of 5.38 % and 5.57 %, respectively. Additional information regarding our other short-term borrowings facilities is described below. The Company may engage with external financial institutions in repurchase agreements collateralized by investment securities as another source of short-term liquidity. The Company had $ 8.1 billion and $ 4.9 billion outstanding pursuant to such repurchase agreements at September 30, 2024 and December 31, 2023, respectively. Repurchase agreements outstanding at September 30, 2024 mature between October 2024 and May 2025. Our banking subsidiaries have access to funding through the Federal Reserve discount window. Amounts available are dependent upon the value of certain investment securities that are pledged as collateral. As of September 30, 2024 and December 31, 2023, our collateral pledged provided total borrowing capacity of $ 32.5 billion and $ 6.2 billion, respectively, of which no amounts were outstanding at the end of either period. During the first quarter of 2024 and the year ended December 31, 2023, our banking subsidiaries had access to funding through the Federal Reserve Bank Term Funding Program (BTFP). This program offered loans through March 11, 2024 of up to one year in length, and amounts available were dependent upon the par value of certain investment securities pledged as collateral. As of September 30, 2024, there was no collateral pledged or borrowings outstanding under the BTFP. As of December 31, 2023, our collateral pledged provided total borrowing capacity of $ 39.2 billion. There were no borrowings outstanding at December 31, 2023. CSC has the ability to issue up to $ 5.0 billion of commercial paper notes with maturities of up to 270 days. There were no amounts outstanding at September 30, 2024 or December 31, 2023. Beginning in 2024, CSC has access to an unsecured, committed revolving line of credit with various external banks with a total borrowing capacity of $ 2.1 billion. There were no amounts outstanding as of September 30, 2024. CSC and CS&Co also have access to unsecured, uncommitted lines of credit with external banks with total borrowing capacity of $ 1.7 billion; no amounts were outstanding as of September 30, 2024 or December 31, 2023. CS&Co maintains secured, uncommitted lines of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral, based on the terms of the agreements, under which there was $ 2.5 billion outstanding at September 30, 2024 and $ 950 million outstanding as of December 31, 2023. TDAC also previously maintained secured uncommitted lines of credit. Prior to the final client account conversions to CS&Co from the Ameritrade broker-dealers, TDAC could borrow on either a demand or short-term basis and pledged client margin securities as collateral. The TDAC lines of credit were terminated as of September 30, 2024. There was $ 700 million outstanding under the TDAC lines of credit at December 31, 2023. - 48 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Annual maturities on FHLB borrowings and other short-term borrowings outstanding at September 30, 2024 are as follows: 2024 2025 Total FHLB borrowings $ 8,900 $ 13,700 $ 22,600 Other short-term borrowings 5,094 5,499 10,593 Total $ 13,994 $ 19,199 $ 33,193 9. Commitments and Contingencies Loan Portfolio : CSB provides a co-branded loan origination program for CSB clients (the Program) with Rocket Mortgage, LLC (Rocket Mortgage ® ). Pursuant to the Program, Rocket Mortgage originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Rocket Mortgage. CSB purchased First Mortgages of $ 1.1 billion and $ 765 million during the third quarters of 2024 and 2023, respectively, and $ 2.6 billion and $ 2.4 billion during the first nine months of 2024 and 2023, respectively. CSB purchased HELOCs with commitments of $ 38 million and $ 49 million during the third quarters of 2024 and 2023, respectively, and $ 121 million and $ 144 million during the first nine months of 2024 and 2023, respectively. The Company’s commitments to extend credit on lines of credit and to purchase First Mortgages are as follows: September 30, 2024 December 31, 2023 Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit $ 1,962 $ 2,996 Commitments to purchase First Mortgage loans 958 351 Total $ 2,920 $ 3,347 Guarantees and indemnifications : Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We satisfy the margin requirements of these transactions through pledging certain client securities. For additional information on these pledged securities, refer to Note 12. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral. The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the amounts it has posted as collateral. The Company also engages third-party firms to clear clients’ futures and options on futures transactions and to facilitate clients’ foreign exchange trading, and has agreed to indemnify these firms for any losses that they may incur from the client transactions introduced to them by the Company. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees. IDA agreement : On May 4, 2023, the Company executed the 2023 IDA agreement with the TD Depository Institutions that replaced and superseded the previous agreement dated November 24, 2019, as amended. The 2023 IDA agreement specifies responsibilities, including certain contingent obligations, of the Company going forward. Pursuant to the 2023 IDA agreement, uninvested cash within eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions. Schwab provides recordkeeping and support services to the TD Depository Institutions with respect to the deposit accounts for which Schwab receives an aggregate monthly fee. The Company’s ability to migrate these balances to its balance sheet is dependent on multiple factors including having sufficient capital levels to sustain these incremental deposits and certain binding limitations specified in the 2023 IDA agreement. During the first nine months of 2024, Schwab did not move IDA balances to its balance sheet. The 2023 IDA agreement extends the agreement term to sweep balances to the TD Depository Institutions through July 1, 2034, and requires that Schwab maintain minimum and maximum IDA balances as follows: • Through September 10, 2025, Schwab must maintain minimum balances above the total of then-outstanding unmatured fixed-rate obligation amounts, with a maximum of $ 30 billion above this total amount. During this period, withdrawals of IDA balances by Schwab are generally permitted only to the extent of withdrawals initiated by Schwab - 49 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) customers, with limited exceptions, except to the extent necessary for Schwab to maintain balances below the applicable maximum. • After September 10, 2025, withdrawals of IDA balances are permitted at Schwab’s discretion, subject to an obligation to maintain IDA balances above a minimum of $ 60 billion, with a maximum of $ 90 billion. Designation of deposit balances for investment in fixed- or floating-rate instruments under the 2023 IDA agreement is at Schwab’s sole discretion with certain limitations on the amount of fixed-rate obligation amounts. If IDA balances decline below the required IDA balance minimum as described above, Schwab would be required to make a nonperformance payment to the TD Depository Institutions pursuant to the terms of the 2023 IDA agreement. Pursuant to the 2023 IDA agreement, in 2023, Schwab opted to buy down $ 5.0 billion of fixed-rate obligation amounts, incurring market-based fees of $ 249 million, which were capitalized as contract assets and included in other assets on the condensed consolidated balance sheet. For additional information on these contract assets, see Note 3. As of September 30, 2024, the total ending IDA balance was $ 84.0 billion, of which $ 70.2 billion was fixed-rate obligation amounts and $ 13.8 billion was floating-rate obligation amounts. As of December 31, 2023, the total ending IDA balance was $ 97.5 billion, of which $ 83.7 billion was fixed-rate obligation amounts and $ 13.8 billion was floating-rate obligation amounts. Legal contingencies : Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available. Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company. Corrente Antitrust Litigation : On June 6, 2022, CSC was sued in the U.S. District Court for the Eastern District of Texas on behalf of a putative class of customers who purchased or sold securities through CS&Co or TD Ameritrade, Inc. from October 26, 2020 to the present. The lawsuit alleges that CSC’s acquisition of Ameritrade violated Section 7 of the Clayton Act because it has resulted in an anticompetitive market for the execution of retail customer orders. Plaintiffs seek unspecified damages, as well as injunctive and other relief. A motion by the Company to dismiss the lawsuit was denied by the court on February 24, 2023, and discovery is proceeding. Ford Order Routing Litigation : On September 15, 2014, Ameritrade Holding, TD Ameritrade, Inc. and its former CEO, Frederick J. Tomczyk, were sued in the U.S. District Court for the District of Nebraska on behalf of a putative class of TD Ameritrade, Inc. clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices. Plaintiff sought unspecified damages and injunctive and other relief. On September 14, 2018, the District Court granted plaintiff’s motion for class certification, and defendants petitioned for an immediate appeal of the District Court’s class certification decision. On April 23, 2021, the U.S. Court of Appeals, 8th Circuit, issued a decision reversing the District Court’s certification of a class and remanding the case back to the District Court for further proceedings. Plaintiff renewed his motion for class certification, which the District Court granted on September 20, 2022. Defendants - 50 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) appealed, and in a decision filed on September 3, 2024, the Court of Appeals again reversed the District Court’s certification of a class. Plaintiff is now pursuing his claims individually in arbitration. The likelihood such claims would be material to the financial condition, operating results, or cash flows of the Company is remote. Other Matters : Certain of the Company’s registered subsidiaries have been responding to inquiries from the SEC and Commodity Futures Trading Commission in relation to a publicly reported, industry-wide sweep related to record retention and the use of unauthorized messaging channels. The Company has accrued amounts in anticipation of resolving these matters and expects that any final resolution would not be material to the financial condition, operating results, or cash flows of the Company. 10. Exit and Other Related Liabilities Integration of Ameritrade The Company’s integration work continued during the first nine months of 2024, including completion of the final client transition group from the Ameritrade broker-dealers to CS&Co in May 2024. The Company expects to continue to incur acquisition and integration-related costs throughout the remainder of 2024 to decommission duplicative platforms and complete integration work. Such costs have included, and are expected to continue to include, professional fees, such as legal, advisory, and accounting fees, compensation and benefits expenses for employees and contractors involved in the integration work, and costs for technology enhancements. The Company has also incurred exit and other related costs to attain anticipated synergies, which are primarily comprised of employee compensation and benefits such as severance pay, other termination benefits, and retention costs, as well as costs related to facility closures, such as accelerated amortization and depreciation or impairments of assets in those locations. Exit and other related costs are a component of the Company’s overall acquisition and integration-related spending, and support the Company’s ability to achieve integration objectives including expected synergies. Inclusive of costs recognized through September 30, 2024, Schwab currently expects to incur total exit and other related costs for the integration of Ameritrade ranging from $ 475 million to $ 525 million, consisting of employee compensation and benefits, facility exit costs, and certain other costs. Our estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change as we work to complete the integration. During the three months ended September 30, 2024 and 2023, the Company recognized $ 14 million and $ 16 million of acquisition-related exit costs, respectively. During the nine months ended September 30, 2024 and 2023, the Company recognized $ 27 million and $ 56 million of acquisition-related exit costs, respectively. The Company expects that remaining exit and other related costs will be incurred and charged to expense over the next 3 months. In addition to ASC 420 Exit or Disposal Cost Obligations (ASC 420), certain of the costs associated with these activities are accounted for in accordance with ASC 360 Property, Plant and Equipment (ASC 360), ASC 712 Compensation — Nonretirement Post Employment Benefits (ASC 712), ASC 718 Compensation — Stock Compensation (ASC 718), and ASC 842 Leases (ASC 842). The following is a summary of the Ameritrade integration activity in the Company’s exit and other related liabilities as of September 30, 2024 and activity for the nine months ended September 30, 2024: Investor Services Employee Compensation and Benefits Advisor Services Employee Compensation and Benefits Total Balance at December 31, 2023 (1) $ 42 $ 12 $ 54 Amounts recognized in expense (2) 7 3 10 Costs paid or otherwise settled ( 47 ) ( 13 ) ( 60 ) Balance at September 30, 2024 (1) $ 2 $ 2 $ 4 (1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets. (2) Amounts recognized in expense for severance pay and other termination benefits, as well as retention costs, are included in compensation and benefits on the condensed consolidated statements of income. - 51 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table summarizes the Ameritrade integration exit and other related costs recognized in expense for the three and nine months ended September 30, 2024: Investor Services Advisor Services Three Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 3 $ — $ 3 $ 2 $ — $ 2 $ 5 Occupancy and equipment — 1 1 — — — 1 Depreciation and amortization — 5 5 — 3 3 8 Total $ 3 $ 6 $ 9 $ 2 $ 3 $ 5 $ 14 Investor Services Advisor Services Nine Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 7 $ — $ 7 $ 3 $ — $ 3 $ 10 Occupancy and equipment — 2 2 — — — 2 Depreciation and amortization — 9 9 — 4 4 13 Other — 2 2 — — — 2 Total $ 7 $ 13 $ 20 $ 3 $ 4 $ 7 $ 27 (1) Costs related to facility closures. These costs, which are primarily comprised of impairment and accelerated amortization of right-of-use (ROU) assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties. Impairment charges are included in other expense, while accelerated amortization of ROU assets are included in occupancy and equipment on the condensed consolidated statements of income. The following table summarizes the Ameritrade integration exit and other related costs recognized in expense for the three and nine months ended September 30, 2023: Investor Services Advisor Services Three Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 9 $ — $ 9 $ — $ — $ — $ 9 Occupancy and equipment — 3 3 — — — 3 Other — 4 4 — — — 4 Total $ 9 $ 7 $ 16 $ — $ — $ — $ 16 Investor Services Advisor Services Nine Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 20 $ — $ 20 $ 3 $ — $ 3 $ 23 Occupancy and equipment — 6 6 — 2 2 8 Other — 18 18 — 7 7 25 Total $ 20 $ 24 $ 44 $ 3 $ 9 $ 12 $ 56 (1) Costs related to facility closures. These costs, which are comprised of impairment and accelerated amortization of ROU assets, relate to the impact of abandoning leased properties. Impairment charges are included in other expense, while accelerated amortization of ROU assets are included in occupancy and equipment on the condensed consolidated statements of income. - 52 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table summarizes the Ameritrade integration exit and other related costs incurred from October 6, 2020 through September 30, 2024: Investor Services Advisor Services Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 250 $ — $ 250 $ 68 $ — $ 68 $ 318 Occupancy and equipment — 42 42 — 9 9 51 Depreciation and amortization — 11 11 — 5 5 16 Professional services — 1 1 — — — 1 Other — 22 22 — 7 7 29 Total $ 250 $ 76 $ 326 $ 68 $ 21 $ 89 $ 415 (1) Costs related to facility closures. These costs, which are primarily comprised of impairment and accelerated amortization of ROU assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties. Impairment charges are included in other expense, while accelerated amortization of ROU assets are included in occupancy and equipment on the condensed consolidated statements of income. Other With significant progress made in the integration of Ameritrade, the Company took incremental actions in 2023 to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. In order to achieve anticipated cost savings through these actions, the Company expects to incur exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $ 500 million inclusive of costs recognized through September 30, 2024 as described below. The Company anticipates the remaining costs, primarily related to real estate, will be incurred during 2024. In addition to ASC 420, certain of the costs associated with these activities are accounted for in accordance with ASC 360, ASC 712, ASC 718, and ASC 842. The following is a summary of the restructuring activity in the Company’s exit and other related liabilities as of September 30, 2024 and activity for the nine months ended September 30, 2024: Investor Services Employee Compensation and Benefits Advisor Services Employee Compensation and Benefits Total Balance at December 31, 2023 (1) $ 171 $ 63 $ 234 Amounts recognized in expense (2) ( 25 ) ( 9 ) ( 34 ) Costs paid or otherwise settled ( 146 ) ( 54 ) ( 200 ) Balance at September 30, 2024 (1) $ — $ — $ — (1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets. (2) Amounts recognized in expense for severance pay and other termination benefits are included in compensation and benefits on the condensed consolidated statements of income. The nine months ended September 30, 2024 includes a reduction of the liability resulting from changes in estimates of $ 27 million and $ 9 million in Investor Services and Advisor Services, respectively. - 53 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The were no restructuring exit and other related costs recognized in expense for the three months ended September 30, 2024. The following table summarizes the restructuring exit and other related costs (benefits) recognized in expense for the nine months ended September 30, 2024: Investor Services Advisor Services Nine Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ ( 25 ) $ — $ ( 25 ) $ ( 9 ) $ — $ ( 9 ) $ ( 34 ) Occupancy and equipment — 2 2 — 1 1 3 Other — 10 10 — 3 3 13 Total $ ( 25 ) $ 12 $ ( 13 ) $ ( 9 ) $ 4 $ ( 5 ) $ ( 18 ) (1) Costs related to facility closures. These costs, which are primarily comprised of impairment and accelerated amortization of ROU assets and impairment of fixed assets, relate to the impact of abandoning leased and other properties. Impairment charges are included in other expense, while accelerated amortization of ROU assets are included in occupancy and equipment on the condensed consolidated statements of income. The following table summarizes the restructuring exit and other related costs recognized in expense for the three and nine months ended September 30, 2023: Investor Services Advisor Services Three and Nine Months Ended September 30, Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 202 $ — $ 202 $ 74 $ — $ 74 $ 276 Occupancy and equipment — 1 1 — 1 1 2 Other — 1 1 — — — 1 Total $ 202 $ 2 $ 204 $ 74 $ 1 $ 75 $ 279 (1) Costs related to facility closures. These costs, which are primarily comprised of accelerated amortization of ROU assets, relate to the impact of abandoning leased properties. Accelerated amortization of ROU assets are included in occupancy and equipment on the condensed consolidated statements of income. The following table summarizes the restructuring exit and other related costs incurred from July 1, 2023 through September 30, 2024: Investor Services Advisor Services Employee Compensation and Benefits Facility Exit Costs (1) Investor Services Total Employee Compensation and Benefits Facility Exit Costs (1) Advisor Services Total Total Compensation and benefits $ 189 $ — $ 189 $ 69 $ — $ 69 $ 258 Occupancy and equipment — 15 15 — 5 5 20 Professional services — 4 4 — 1 1 5 Other — 144 144 — 50 50 194 Total $ 189 $ 163 $ 352 $ 69 $ 56 $ 125 $ 477 (1) Costs related to facility closures. These costs, which are primarily comprised of impairment and accelerated amortization of ROU assets and impairment of fixed assets, relate to the impact of abandoning leased and other properties. Impairment charges are included in other expense, while accelerated amortization of ROU assets are included in occupancy and equipment on the condensed consolidated statements of income. 11. Derivative Instruments and Hedging Activities Risk Management Objective of Using Derivatives The Company utilizes derivative instruments to manage interest rate risk exposures that arise from business activities related to changes in fair values or the receipt of future known and uncertain cash amounts due to changes in interest rates. The Company uses derivative instruments to manage changes in the fair values of, as well as changes in the amounts and/or timing of known or expected cash receipts related to, our AFS investment portfolio. For a description of how the Company accounts for derivative instruments, see Item 8 – Note 2 in the 2023 Form 10-K. For additional information on the basis of presentation for derivative instruments on the Company’s condensed consolidated balance sheets and related offsetting considerations, see Note 12. Cash flows associated with derivative instruments are - 54 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) reflected as cash flows from operating activities in the condensed consolidated statements of cash flows consistent with the treatment and nature of the items being hedged. Fair Value Hedges of Interest Rate Risk The Company is exposed to changes in the fair value of its fixed-rate AFS securities due to changes in benchmark interest rates. The Company uses cleared interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Cleared interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a CCP in exchange for the Company receiving floating-rate payments over the life of the agreements without the exchange of the underlying notional amount. The Company had outstanding interest rate swaps with aggregate notional amounts of $ 8.8 billion and $ 8.9 billion at September 30, 2024 and December 31, 2023, respectively, that were designated as fair value hedges of interest rate risk. Fair Values of Derivative Instruments The table below presents the gross fair values of the Company’s interest rate swaps designated as hedging instruments on the condensed consolidated balance sheets: September 30, 2024 December 31, 2023 Assets Liabilities Assets Liabilities Interest rate swaps (1,2) $ 1 $ — $ — $ — (1) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. Derivative liabilities as of September 30, 2024 and derivative assets and liabilities as of December 31, 2023 were less than $ 500 thousand. (2) Includes reductions related to variation margin settlements. Settlements on derivative positions cleared through CCPs are reflected as reductions to the associated derivative asset and liability balances. As of September 30, 2024, there was a $ 73 million reduction of derivative assets and an $ 8 million reduction of derivative liabilities related to variation margin settlements. As of December 31, 2023, there was an $ 87 million reduction of derivative assets and a $ 2 million reduction of derivative liabilities related to variation margin settlements. Effects of Fair Value Hedge Accounting The following amounts were recorded in AFS securities on the condensed consolidated balance sheets related to fair value hedges: September 30, 2024 December 31, 2023 Amortized cost of hedged AFS securities (1,2) $ 8,837 $ 8,765 Cumulative fair value hedging adjustment included in the amortized cost of hedged AFS securities (1,2) ( 66 ) ( 85 ) (1) Includes the amortized cost basis of closed portfolios of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At September 30, 2024 and December 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $ 2.0 billion and $ 2.1 billion, respectively, of which $ 1.5 billion and $ 1.6 billion, respectively, was designated in a portfolio layer hedging relationship. The cumulative basis adjustments associated with these hedging relationships were a reduction of the amortized cost basis of the closed portfolios of $ 14 million and $ 19 million at September 30, 2024 and December 31, 2023, respectively. (2) Excludes the amortized cost and fair value hedging adjustment of AFS securities for which hedge accounting has been discontinued. The cumulative amount of fair value hedging adjustments remaining for these securities was a reduction of the amortized cost basis of $ 2 million at September 30, 2024, which is recorded in AFS securities on the condensed consolidated balance sheets and amortized to interest revenue as a yield adjustment over the lives of the securities. At December 31, 2023, the cumulative amount of fair value hedging adjustments remaining for these securities was a reduction of less than $ 500 thousand. The table below presents the effect of the Company’s interest rate swaps designated as fair value hedges on the condensed consolidated statements of income: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Gain (loss) on fair value hedging relationships recognized in interest revenue: Hedged items $ 216 $ ( 182 ) $ 19 $ ( 304 ) Derivatives designated as hedging instruments (1) ( 214 ) 182 ( 19 ) 304 (1) Excludes net income from periodic interest accruals and receipts of $ 20 million and $ 36 million for the three and nine months ended September 30, 2024, respectively. - 55 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 12. Financial Instruments Subject to Off-Balance Sheet Credit Risk Resale agreements : Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investments requirement. Schwab’s resale agreements as of September 30, 2024 and December 31, 2023 were not subject to master netting arrangements. Securities lending : Schwab loans brokerage client securities temporarily to other broker-dealers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event a counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. In addition, most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $ 1.3 billion and $ 1.5 billion at September 30, 2024 and December 31, 2023, respectively. Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets. Repurchase agreements : Schwab enters into collateralized repurchase agreements with external financial institutions in which the Company sells securities and agrees to repurchase these securities on a specified future date at a stated repurchase price. These repurchase agreements are collateralized by investment securities with a fair value equal to or in excess of the secured borrowing liability. Decreases in security prices posted as collateral for repurchase agreements may require Schwab to transfer cash and/or additional securities deemed acceptable by the counterparty. To mitigate this risk, Schwab monitors the fair value of underlying securities pledged as collateral compared to the related liability. Our collateralized repurchase agreements with each external financial institution are considered to be enforceable master netting arrangements. However, we do not net these arrangements. As such, the secured short-term borrowings associated with these collateralized repurchase agreements are presented gross in the condensed consolidated balance sheets. Interest rate swaps : Schwab uses interest rate swaps to manage certain interest rate risk exposures. Schwab’s interest rate swaps are cleared through CCPs which require the Company to post initial margin as collateral against potential losses. Schwab pledges investment securities as collateral in order to meet the CCP’s initial margin requirements. Initial margin is posted through FCMs which serve as the intermediary between CCPs and Schwab. Our interest rate swaps are subject to enforceable master netting arrangements allowing a right of setoff within each FCM-CCP relationship; however, we do not net these positions. Therefore, interest rate swaps are presented gross in the condensed consolidated balance sheets. See Note 11 for additional information on the Company’s interest rate swaps. - 56 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The following table presents information about our interest rate swaps, resale agreements, securities lending, repurchase agreements, and other activity depicting the potential effect of rights of setoff between these recognized assets and liabilities. Gross Assets/ Liabilities Gross Amounts Offset in the Condensed Consolidated Balance Sheets Net Amounts Presented in the Condensed Consolidated Balance Sheets Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Net Amount Counterparty Offsetting Collateral September 30, 2024 Assets Resale agreements (1) $ 13,591 $ — $ 13,591 $ — $ ( 13,591 ) (2) $ — Securities borrowed (3) 1,311 — 1,311 ( 1,270 ) ( 40 ) 1 Interest rate swaps (4) 1 — 1 — — (5) 1 Total $ 14,903 $ — $ 14,903 $ ( 1,270 ) $ ( 13,631 ) $ 2 Liabilities Repurchase agreements (6) $ 8,093 $ — $ 8,093 $ — $ ( 8,093 ) $ — Securities loaned (7) 12,469 — 12,469 ( 1,270 ) ( 10,648 ) 551 Secured short-term borrowings (8) 2,500 — 2,500 — ( 2,500 ) — Interest rate swaps (4) — — — — — (5) — Total $ 23,062 $ — $ 23,062 $ ( 1,270 ) $ ( 21,241 ) $ 551 December 31, 2023 Assets Resale agreements (1) $ 8,844 $ — $ 8,844 $ — $ ( 8,844 ) (2) $ — Securities borrowed (3) 1,563 — 1,563 ( 1,307 ) ( 253 ) 3 Interest rate swaps (4) — — — — — (5) — Total $ 10,407 $ — $ 10,407 $ ( 1,307 ) $ ( 9,097 ) $ 3 Liabilities Repurchase agreements (6) $ 4,903 $ — $ 4,903 $ — $ ( 4,903 ) $ — Securities loaned (7) 5,397 — 5,397 ( 1,307 ) ( 3,619 ) 471 Secured short-term borrowings (8) 1,650 — 1,650 — ( 1,650 ) — Interest rate swaps (4) — — — — — (5) — Total $ 11,950 $ — $ 11,950 $ ( 1,307 ) $ ( 10,172 ) $ 471 (1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets. (2) Actual collateral was greater than or equal to the value of the related assets. At September 30, 2024 and December 31, 2023, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $ 13.8 billion and $ 9.0 billion, respectively. (3) Included in other assets in the condensed consolidated balance sheets. (4) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Derivative liabilities as of September 30, 2024 and derivative assets and liabilities as of December 31, 2023 were less than $ 500 thousand. (5) At September 30, 2024 and December 31, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $ 188 million and $ 195 million, respectively. See Notes 4 and 11 for additional information. (6) Included in other short-term borrowings in the condensed consolidated balance sheets. Actual collateral value was greater than or equal to the value of the related liabilities. At September 30, 2024 and December 31, 2023, the fair value of collateral pledged in connection with repurchase agreements was $ 8.6 billion and $ 5.3 billion, respectively. See Note 8 for additional information. (7) Included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Securities loaned are predominantly comprised of equity securities held in client brokerage accounts. At September 30, 2024, $ 7.5 billion of securities loaned had overnight and continuous remaining contractual maturities and $ 5.0 billion of securities loaned had contractual maturities of 30 - 95 days. At December 31, 2023, remaining contractual maturities of securities loaned were predominantly overnight and continuous. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at September 30, 2024 and December 31, 2023. (8) Included in other short-term borrowings in the condensed consolidated balance sheets. See below for collateral pledged and Note 8 for additional information. - 57 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Margin lending : Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged to third-parties under such regulations and from securities borrowed transactions: September 30, 2024 December 31, 2023 Fair value of client securities available to be pledged $ 101,320 $ 86,911 Fair value of securities pledged for: Fulfillment of requirements with the Options Clearing Corporation (1) $ 20,040 $ 13,355 Fulfillment of client short sales 6,144 7,009 Securities lending to other broker-dealers 11,725 4,688 Collateral for secured short-term borrowings 3,292 1,991 Total collateral pledged to third-parties $ 41,201 $ 27,043 Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $ 163 million and $ 179 million at September 30, 2024 and December 31, 2023, respectively. (1) Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation. 13. Fair Values of Assets and Liabilities Assets and liabilities measured at fair value on a recurring basis Schwab’s assets and liabilities measured at fair value on a recurring basis include: certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, certain other assets, interest rate swaps, and certain accrued expenses and other liabilities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. Quoted prices for investments in exchange-traded securities represent end-of-day close prices published by exchanges. Quoted prices for money market funds and other mutual funds represent reported net asset values. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices in active markets do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets, and we generally obtain prices from three independent third-party pricing sources for such assets recorded at fair value. Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposits; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in material differences in the amounts recorded. Liabilities measured at fair value on a recurring basis include interest rate swaps, securities sold but not yet purchased, and repurchase liabilities related to client-held fractional shares of equities, ETFs, and other securities, which are included in other assets on the condensed consolidated balance sheets. The fair values of securities sold but not yet purchased are based on quoted market prices or other observable market data. The Company has elected the fair value option pursuant to ASC 825 Financial Instruments for the repurchase liabilities to match the measurement and accounting of the related client-held fractional shares. The fair values of the repurchase liabilities are based on quoted market prices or other observable market data consistent with the related client-held fractional shares. Unrealized gains and losses on client-held fractional shares offset the unrealized gains and losses on the corresponding repurchase liabilities, resulting in no impact to the condensed consolidated statements of income. The Company’s liabilities to repurchase client-held fractional shares do not have credit risk, and, as a result, the Company has not recognized any gains or losses in the condensed consolidated statements of income or comprehensive income attributable to instrument-specific credit risk for these repurchase liabilities. The repurchase liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. - 58 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) The fair values of interest rate swaps are based on market observable interest rate yield curves. Fair value measurements are priced considering the coupon rate of the fixed leg of the contract and the variable coupon rate on the floating leg of the contract. Valuation is based on both spot and forward rates on the swap yield curve. The Company validates its valuations with counterparty quotations from CCPs. See Note 11 for additional information on the Company’s interest rate swaps. For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2023 Form 10-K. The Company did not adjust prices received from the primary independent third-party pricing service at September 30, 2024 or December 31, 2023. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis: September 30, 2024 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 14,694 $ — $ — $ 14,694 Total cash equivalents 14,694 — — 14,694 Investments segregated and on deposit for regulatory purposes: U.S. Government securities — 17,569 — 17,569 Total investments segregated and on deposit for regulatory purposes — 17,569 — 17,569 Available for sale securities: U.S. agency mortgage-backed securities — 56,280 — 56,280 U.S. Treasury securities — 15,623 — 15,623 Corporate debt securities — 10,246 — 10,246 Asset-backed securities — 6,630 — 6,630 Foreign government agency securities — 523 — 523 U.S. state and municipal securities — 585 — 585 Non-agency commercial mortgage-backed securities — 112 — 112 Other — 19 — 19 Total available for sale securities — 90,018 — 90,018 Other assets: Other securities owned: Equity, corporate debt, and other securities 1,318 85 — 1,403 Mutual funds and ETFs 981 — — 981 State and municipal debt obligations — 42 — 42 U.S. Government securities — 12 — 12 Total other securities owned 2,299 139 — 2,438 Interest rate swaps — 1 — 1 Total other assets 2,299 140 — 2,439 Total assets $ 16,993 $ 107,727 $ — $ 124,720 Accrued expenses and other liabilities: Other $ 2,084 $ 36 $ — $ 2,120 Total accrued expenses and other liabilities 2,084 36 — 2,120 Total liabilities $ 2,084 $ 36 $ — $ 2,120 - 59 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) December 31, 2023 Level 1 Level 2 Level 3 Balance at Fair Value Cash equivalents: Money market funds $ 14,573 $ — $ — $ 14,573 Total cash equivalents 14,573 — — 14,573 Investments segregated and on deposit for regulatory purposes: U.S. Government securities — 20,358 — 20,358 Total investments segregated and on deposit for regulatory purposes — 20,358 — 20,358 Available for sale securities: U.S. agency mortgage-backed securities — 62,795 — 62,795 U.S. Treasury securities — 21,471 — 21,471 Corporate debt securities — 12,484 — 12,484 Asset-backed securities — 9,087 — 9,087 Foreign government agency securities — 1,002 — 1,002 U.S. state and municipal securities — 579 — 579 Non-agency commercial mortgage-backed securities — 109 — 109 Certificates of deposit — 100 — 100 Other — 19 — 19 Total available for sale securities — 107,646 — 107,646 Other assets: Other securities owned: Equity, corporate debt, and other securities 992 73 — 1,065 Mutual funds and ETFs 795 — — 795 State and municipal debt obligations — 27 — 27 U.S. Government securities — 26 — 26 Total other securities owned 1,787 126 — 1,913 Total other assets 1,787 126 — 1,913 Total assets $ 16,360 $ 128,130 $ — $ 144,490 Accrued expenses and other liabilities: Other $ 1,644 $ 89 $ — $ 1,733 Total accrued expenses and other liabilities 1,644 89 — 1,733 Total liabilities $ 1,644 $ 89 $ — $ 1,733 - 60 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Fair Value of Other Financial Instruments The following tables present the fair value hierarchy for other financial instruments: September 30, 2024 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 20,156 $ 20,156 $ — $ — $ 20,156 Cash and investments segregated and on deposit for regulatory purposes 16,055 2,505 13,550 — 16,055 Receivables from brokerage clients — net 73,958 — 73,958 — 73,958 Held to maturity securities: U.S. agency mortgage-backed securities 149,862 — 140,997 — 140,997 Total held to maturity securities 149,862 — 140,997 — 140,997 Bank loans — net: First Mortgages 26,785 — 23,959 — 23,959 HELOCs 434 — 465 — 465 Pledged asset lines 15,713 — 15,713 — 15,713 Other 379 — 379 — 379 Total bank loans — net 43,311 — 40,516 — 40,516 Other assets 5,055 — 5,055 — 5,055 Liabilities Bank deposits $ 246,462 $ — $ 246,462 $ — $ 246,462 Payables to brokerage clients 89,164 — 89,164 — 89,164 Accrued expenses and other liabilities 17,551 — 17,551 — 17,551 Other short-term borrowings 10,593 — 10,593 — 10,593 Federal Home Loan Bank borrowings 22,600 — 22,600 — 22,600 Long-term debt 22,387 — 22,013 — 22,013 December 31, 2023 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value Assets Cash and cash equivalents $ 28,764 $ 28,764 $ — $ — $ 28,764 Cash and investments segregated and on deposit for regulatory purposes 11,438 2,628 8,810 — 11,438 Receivables from brokerage clients — net 68,629 — 68,629 — 68,629 Held to maturity securities: U.S. agency mortgage-backed securities 159,452 — 147,091 — 147,091 Total held to maturity securities 159,452 — 147,091 — 147,091 Bank loans — net: First Mortgages 26,121 — 23,226 — 23,226 HELOCs 477 — 508 — 508 Pledged asset lines 13,548 — 13,548 — 13,548 Other 293 — 293 — 293 Total bank loans — net 40,439 — 37,575 — 37,575 Other assets 4,960 — 4,960 — 4,960 Liabilities Bank deposits $ 289,953 $ — $ 289,953 $ — $ 289,953 Payables to brokerage clients 84,786 — 84,786 — 84,786 Accrued expenses and other liabilities 7,609 — 7,609 — 7,609 Other short-term borrowings 6,553 — 6,553 — 6,553 Federal Home Loan Bank borrowings 26,400 — 26,400 — 26,400 Long-term debt 26,043 — 25,000 — 25,000 - 61 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 14. Stockholders’ Equity On July 27, 2022, CSC publicly announced that its Board of Directors approved a share repurchase authorization to repurchase up to $ 15.0 billion of common stock, replacing the previous and now terminated share repurchase authorization of up to $ 4.0 billion of common stock. The share repurchase authorization does not have an expiration date. There were no repurchases of CSC’s common stock during the three 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 . The Company repurchased 11,620 depositary shares representing interests in Series F preferred stock for $ 11 million, 42,036 depositary shares representing interests in Series G preferred stock for $ 42 million, 273,251 depositary shares representing interests in Series H preferred stock for $ 235 million, and 194,567 depositary shares representing interests in Series I preferred stock for $ 179 million on the open market during the nine months ended September 30, 2023 . 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 excise tax which was recognized as a direct and incremental cost associated with these transactions. The Company’s preferred stock issued and outstanding is as follows: Liquidation Preference Per Share Dividend Rate in Effect at September 30, 2024 Earliest Redemption Date Date at Which Dividend Rate Resets or Becomes Floating Reset / Floating-Rate Margin Over Reset / Floating -Rate Shares Issued and Outstanding (in ones) at Carrying Value at September 30, 2024 (1) December 31, 2023 (1) September 30, 2024 December 31, 2023 Issue Date Fixed-rate: Series D 750,000 750,000 $ 1,000 $ 728 $ 728 03/07/16 5.950 % 06/01/21 N/A N/A N/A Series J 600,000 600,000 1,000 584 584 03/30/21 4.450 % 06/01/26 N/A N/A N/A Fixed-to-floating rate/Fixed-rate reset: Series F 4,884 4,884 100,000 481 481 10/31/17 5.000 % 12/01/27 12/01/27 3 M LIBOR (4) 2.575 % Series G (2) 24,580 24,580 100,000 2,428 2,428 04/30/20 5.375 % 06/01/25 06/01/25 5 -Year Treasury 4.971 % Series H (3) 22,267 22,267 100,000 2,200 2,200 12/11/20 4.000 % 12/01/30 12/01/30 10 -Year Treasury 3.079 % Series I (2) 20,554 20,554 100,000 2,030 2,030 03/18/21 4.000 % 06/01/26 06/01/26 5 -Year Treasury 3.168 % Series K (2) 7,500 7,500 100,000 740 740 03/04/22 5.000 % 06/01/27 06/01/27 5 -Year Treasury 3.256 % Total preferred stock 1,429,785 1,429,785 $ 9,191 $ 9,191 (1) Represented by depositary shares. (2) The dividend rate for Series G, Series I, and Series K resets on each five-year anniversary from the first reset date. (3) The dividend rate for Series H resets on each ten-year anniversary from the first reset date. (4) The reset/floating-rate for Series F will be determined by the calculation agent prior to the commencement of the floating-rate period using what the calculation agent determines to be the industry-accepted substitute or successor base rate to LIBOR. N/A Not applicable. - 62 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Dividends declared on the Company’s preferred stock are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Total Declared Per Share Amount Total Declared Per Share Amount Total Declared Per Share Amount Total Declared (1) Per Share Amount Series D (2) $ 11.2 $ 14.88 $ 11.2 $ 14.88 $ 33.5 $ 44.64 $ 33.5 $ 44.64 Series F (3) — — — — 12.2 2,500.00 12.2 2,500.00 Series G (2) 33.0 1,343.75 33.0 1,343.75 99.0 4,031.25 99.3 4,031.25 Series H (2) 22.2 1,000.00 22.2 1,000.00 66.7 3,000.00 68.2 3,000.00 Series I (2) 20.6 1,000.00 20.6 1,000.00 61.8 3,000.00 62.5 3,000.00 Series J (2) 6.7 11.13 6.7 11.13 20.1 33.39 20.1 33.39 Series K (2) 9.3 1,250.00 9.3 1,250.00 28.1 3,750.00 28.1 3,750.00 Total $ 103.0 $ 103.0 $ 321.4 $ 323.9 (1) Excludes $ 3 million of dividends declared on Series G, H and I, and accrued by stockholders as of the repurchase date. Such dividends were part of the consideration paid upon repurchase of the depositary shares during the nine months ended September 30, 2023. (2) Dividends paid quarterly. (3) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter. - 63 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 15. Accumulated Other Comprehensive Income AOCI represents cumulative gains and losses that are not reflected in earnings. AOCI balances and the components of other comprehensive income (loss) are as follows: Total AOCI Balance at June 30, 2023 $ ( 20,730 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $( 182 ) ( 538 ) Other reclassifications included in other revenue, net of tax expense (benefit) of $ 6 18 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 147 498 Balance at September 30, 2023 $ ( 20,752 ) Balance at June 30, 2024 $ ( 16,936 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $ 577 1,857 Other reclassifications included in other revenue, net of tax expense (benefit) of $ 2 8 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 134 442 Other (1) 11 Balance at September 30, 2024 $ ( 14,618 ) Balance at December 31, 2022 $ ( 22,621 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $ 79 367 Other reclassifications included in other revenue, net of tax expense (benefit) of $ 11 33 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 420 1,476 Other, net of tax expense (benefit) of $( 2 ) ( 7 ) Balance at September 30, 2023 $ ( 20,752 ) Balance at December 31, 2023 $ ( 18,131 ) Available for sale securities: Net unrealized gain (loss), net of tax expense (benefit) of $ 654 2,153 Other reclassifications included in other revenue, net of tax expense (benefit) of $ 7 23 Held to maturity securities: Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $ 387 1,336 Other (1) 1 Balance at September 30, 2024 $ ( 14,618 ) (1) Tax expense (benefit) was less than $ 500 thousand. In 2022, the Company transferred a portion of its AFS securities to the HTM category. The transfer of these securities to the HTM category reduces the Company’s exposure to fluctuations in AOCI that can result from unrealized losses on AFS securities due to changes in market interest rates. The unrealized loss at the time of transfer is amortized over the remaining life of the security, offsetting the amortization of the security’s premium or discount, and resulting in no impact to net income. As of September 30, 2024, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $ 10.2 billion net of tax effect ($ 13.3 billion pre-tax). - 64 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 16. Earnings Per Common Share The Company has voting and nonvoting common stock outstanding. As the rights of the voting and nonvoting common stock are identical, except with respect to voting, the net income of the Company has been allocated on a proportionate basis to the two classes. Diluted earnings per share is calculated using the treasury stock method for outstanding stock options and non-vested restricted stock units and the if-converted method for nonvoting common stock. The if-converted method assumes conversion of all nonvoting common stock to common stock. For further details surrounding the EPS computation, see Item 8 – Note 25 in the 2023 Form 10-K. EPS under the basic and diluted computations for both common stock and nonvoting common stock are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Common Stock Nonvoting Common Stock Basic earnings per share: Numerator Net income $ 1,369 $ 39 $ 1,094 $ 31 $ 3,988 $ 114 $ 3,910 $ 112 Preferred stock dividends and other (1) ( 106 ) ( 3 ) ( 105 ) ( 3 ) ( 332 ) ( 9 ) ( 291 ) ( 8 ) Net income available to common stockholders $ 1,263 $ 36 $ 989 $ 28 $ 3,656 $ 105 $ 3,619 $ 104 Denominator Weighted-average common shares outstanding — basic 1,778 51 1,770 51 1,776 51 1,774 51 Basic earnings per share $ .71 $ .71 $ .56 $ .56 $ 2.06 $ 2.06 $ 2.04 $ 2.04 Diluted earnings per share: Numerator Net income available to common stockholders $ 1,263 $ 36 $ 989 $ 28 $ 3,656 $ 105 $ 3,619 $ 104 Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares 36 — 28 — 105 — 104 — Allocation of net income available to common stockholders: $ 1,299 $ 36 $ 1,017 $ 28 $ 3,761 $ 105 $ 3,723 $ 104 Denominator Weighted-average common shares outstanding — basic 1,778 51 1,770 51 1,776 51 1,774 51 Conversion of nonvoting shares to voting shares 51 — 51 — 51 — 51 — Common stock equivalent shares related to stock incentive plans 5 — 6 — 6 — 7 — Weighted-average common shares outstanding — diluted (2) 1,834 51 1,827 51 1,833 51 1,832 51 Diluted earnings per share $ .71 $ .71 $ .56 $ .56 $ 2.05 $ 2.05 $ 2.03 $ 2.03 (1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units. (2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 14 million and 18 million for the three and nine months ended September 30, 2024, respectively, and 15 million and 18 million for the three and nine months ended September 30, 2023, respectively. - 65 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) 17. Regulatory Requirements At September 30, 2024, CSC and its banking subsidiaries met all of their respective capital requirements. Regulatory capital and ratios for CSC (consolidated) and CSB are as follows: Actual Minimum to be Well Capitalized Minimum Capital Requirement September 30, 2024 Amount Ratio Amount Ratio Amount Ratio (1) CSC Common Equity Tier 1 Risk-Based Capital $ 34,501 29.1 % N/A $ 5,338 4.5 % Tier 1 Risk-Based Capital 43,692 36.8 % N/A 7,117 6.0 % Total Risk-Based Capital 43,721 36.9 % N/A 9,489 8.0 % Tier 1 Leverage 43,692 9.7 % N/A 18,030 4.0 % Supplementary Leverage Ratio 43,692 9.6 % N/A 13,618 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 32,225 40.6 % $ 5,165 6.5 % $ 3,576 4.5 % Tier 1 Risk-Based Capital 32,225 40.6 % 6,357 8.0 % 4,768 6.0 % Total Risk-Based Capital 32,246 40.6 % 7,946 10.0 % 6,357 8.0 % Tier 1 Leverage 32,225 11.2 % 14,396 5.0 % 11,517 4.0 % Supplementary Leverage Ratio 32,225 11.1 % N/A 8,700 3.0 % December 31, 2023 CSC Common Equity Tier 1 Risk-Based Capital $ 31,411 24.5 % N/A $ 5,770 4.5 % Tier 1 Risk-Based Capital 40,602 31.7 % N/A 7,694 6.0 % Total Risk-Based Capital 40,645 31.7 % N/A 10,258 8.0 % Tier 1 Leverage 40,602 8.5 % N/A 19,043 4.0 % Supplementary Leverage Ratio 40,602 8.5 % N/A 14,379 3.0 % CSB Common Equity Tier 1 Risk-Based Capital $ 31,777 37.9 % $ 5,448 6.5 % $ 3,771 4.5 % Tier 1 Risk-Based Capital 31,777 37.9 % 6,705 8.0 % 5,029 6.0 % Total Risk-Based Capital 31,816 38.0 % 8,381 10.0 % 6,705 8.0 % Tier 1 Leverage 31,777 10.1 % 15,793 5.0 % 12,634 4.0 % Supplementary Leverage Ratio 31,777 10.0 % N/A 9,540 3.0 % (1) Under risk-based capital rules, CSC and CSB are also required to maintain additional capital buffers above the regulatory minimum risk-based capital ratios. As of September 30, 2024, CSC was subject to a stress capital buffer of 2.5%. In addition, CSB is required to maintain a capital conservation buffer of 2.5%. CSC and CSB are also required to maintain a countercyclical capital buffer above the regulatory minimum risk-based capital ratios, which was zero for both periods presented. If a buffer falls below the minimum requirement, CSC and CSB would be subject to increasingly strict limits on capital distributions and discretionary bonus payments to executive officers. At September 30, 2024, the minimum capital ratio requirements for both CSC and CSB, inclusive of their respective buffers, were 7.0%, 8.5%, and 10.5% for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital, respectively. N/A Not applicable. Based on its regulatory capital ratios at September 30, 2024, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since September 30, 2024 that management believes have changed CSB’s capital category. CSC’s other banking subsidiaries are Charles Schwab Premier Bank, SSB (CSPB) and Charles Schwab Trust Bank (Trust Bank). CSPB is a Texas state-chartered savings bank that provides banking and custody services, and Trust Bank is a Nevada state-chartered savings bank that provides trust and custody services. At September 30, 2024, the balance sheets of CSPB and Trust Bank consisted primarily of investment securities, and the entities held total assets of $ 25.8 billion and $ 9.6 billion, respectively. Based on their regulatory capital ratios, at September 30, 2024, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules. - 66 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Net capital and net capital requirements for CS&Co are as follows: September 30, 2024 December 31, 2023 CS&Co Net capital $ 9,888 $ 5,629 Minimum dollar requirement 0.250 0.250 2% of aggregate debit balances 1,786 1,069 Net capital in excess of required net capital $ 8,102 $ 4,560 Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at September 30, 2024. The SEC’s Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit. Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the condensed consolidated statements of cash flows. Following the completion of the final client account conversions to CS&Co from the Ameritrade broker-dealers in May 2024, TD Ameritrade, Inc. and TDAC subsequently submitted Uniform Requests for Broker-Dealer Withdrawal (BDW) to terminate their registration as broker-dealers with the SEC, the Financial Industry Regulatory Authority, Inc. (FINRA), and other applicable regulatory organizations. As of September 30, 2024, TDAC continued to be registered as a broker-dealer and was in compliance with its respective net capital requirements. As of September 30, 2024, TD Ameritrade, Inc. was no longer registered as a broker-dealer with the SEC and FINRA and was not subject to the Uniform Net Capital Rule. 18. Segment Information Schwab’s two reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are attributed to the two segments based on which segment services the client. Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments. - 67 - THE CHARLES SCHWAB CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted) (Unaudited) Financial information for the segments is presented in the following table: Investor Services Advisor Services Total Three Months Ended September 30, 2024 2023 2024 2023 2024 2023 Net Revenues Net interest revenue $ 1,755 $ 1,710 $ 467 $ 527 $ 2,222 $ 2,237 Asset management and administration fees 1,046 877 430 347 1,476 1,224 Trading revenue 706 672 91 96 797 768 Bank deposit account fees 114 157 38 48 152 205 Other 166 144 34 28 200 172 Total net revenues 3,787 3,560 1,060 1,046 4,847 4,606 Expenses Excluding Interest 2,262 2,356 743 867 3,005 3,223 Income before taxes on income $ 1,525 $ 1,204 $ 317 $ 179 $ 1,842 $ 1,383 Nine Months Ended September 30, Net Revenues Net interest revenue $ 5,212 $ 5,448 $ 1,401 $ 1,849 $ 6,613 $ 7,297 Asset management and administration fees 2,966 2,523 1,241 992 4,207 3,515 Trading revenue 2,104 2,148 287 315 2,391 2,463 Bank deposit account fees 362 396 126 135 488 531 Other 469 451 109 121 578 572 Total net revenues 11,113 10,966 3,164 3,412 14,277 14,378 Expenses Excluding Interest 6,758 6,780 2,132 2,414 8,890 9,194 Income before taxes on income $ 4,355 $ 4,186 $ 1,032 $ 998 $ 5,387 $ 5,184