SCHWAB CHARLES CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations INTRODUCTION 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). Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries. Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan and business 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 to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers. Schwab was founded on the belief that all Americans deserve access to a better investing experience. Although much has changed in the intervening years, our purpose remains clear – to champion every client’s goals with passion and integrity. Guided by this purpose and our vision of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.” This strategy emphasizes placing clients’ perspectives, needs, and desires at the forefront. Because investing plays a fundamental role in building financial security, we strive to deliver a better investing experience for our clients – individual investors and the people and institutions who serve them – by disrupting longstanding industry practices on their behalf and providing superior service. We also aim to offer a broad range of products and solutions to meet client needs with a focus on transparency, value, and trust. In addition, management works to couple Schwab’s scale and resources with ongoing expense discipline to keep costs low and ensure that products and solutions are affordable as well as responsive to client needs. In combination, these are the key elements of our “no trade-offs” approach to serving investors. We believe that following this strategy is the best way to maximize our market valuation and stockholder returns over time. Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $70 trillion, which means the Company’s $9.93 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value. This Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (2024 Form 10-K). On our website, https://www.aboutschwab.com , we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC or Commission): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In addition, we post to the website the Dodd-Frank stress test results, our regulatory capital disclosures based on Basel III, our average liquidity coverage ratio (LCR), and our average net stable funding ratio (NSFR). The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with the Commission. - 1 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) FORWARD-LOOKING STATEMENTS In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “prioritize,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “maintain,” “continue,” “seek,” and other similar expressions. In addition, any statements that refer to expectations, strategy, objectives, projections, or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are estimates based on the best judgment of Schwab’s senior management. These statements relate to, among other things: • Maximizing our market valuation and stockholder returns over time; and our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I – Item 2); • Capital expenditures and expense management (see Results of Operations in Part I – Item 2); • Net interest revenue, client cash allocation behavior, and adjustment of rates paid on client-related liabilities (see Results of Operations in Part I – Item 2); • Funding sources and uses of liquidity (see Liquidity Risk in Part I – Item 2); • Utilization of bank supplemental funding and expectations for repayment of outstanding balances (see Results of Operations in Part I – Item 2, and Liquidity Risk in Part I – Item 2); • Management of interest rate risk; modeling and assumptions, the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity (EVE), and liability and asset duration (see Risk Management in Part I – Item 2); • Capital management; potential migration of insured deposit account balances (IDA balances) to our balance sheet; capital accretion; expectations about capital requirements, including accumulated other comprehensive income (AOCI); long-term operating objective; and uses of capital and return of excess capital to stockholders (see Capital Management in Part I – Item 2 and Commitments and Contingencies in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10); • The expected impact of proposed and final rules (see Current Regulatory and Other Developments in Part I – Item 2); • The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Item 1 – Note 2); • The likelihood of indemnification and guarantee payment obligations and clients failing to fulfill contractual obligations (see Commitments and Contingencies in Item 1 – Note 10); and • The outcome and impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 10, and Legal Proceedings in Part II – Item 1). Achievement of the expressed beliefs, objectives, and expectations described in these statements is subject to certain risks and uncertainties that could cause actual results to differ materially from the expressed beliefs, objectives, and expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents incorporated by reference, as of the date of those documents. Important factors that may cause actual results to differ include, but are not limited to: • General economic and market conditions, including the level of interest rates, equity market valuations and volatility; • Our ability to attract and retain clients, develop trusted relationships, and grow client assets; • Client use of our advisory and lending solutions and other products and services; • The level of client assets, including cash balances; • Client cash allocations and sensitivity to deposit rates; • Competitive pressure on pricing, including deposit rates; • The level and mix of client trading activity, including daily average trades, margin balances, and balance sheet cash; • Regulatory guidance and adverse impacts from new or changed legislation, rulemaking or regulatory expectations; • Capital and liquidity needs and management; • Our ability to manage expenses; • Our ability to attract and retain talent; • Our ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance our infrastructure, in a timely and successful manner; • Our ability to monetize client assets; • Our ability to support client activity levels; - 2 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) • Increased compensation and other costs; • Re al estate and workforce decisions; • The timing and scope of technology projects; • Balance sheet positioning relative to changes in interest rates; • Interest-earning asset mix and growth; • Our ability to access and use supplemental funding sources; • Prepayment levels for mortgage-backed securities; • Migrations of bank deposit account balances (BDA balances); • Regulatory and legislative developments; • Adverse developments in litigation or regulatory matters and any related charges; and • Potential breaches of contractual terms for which we have indemnification and guarantee obligations. Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in Part I – Item 1A – Risk Factors in the 2024 Form 10-K. - 3 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) OVERVIEW Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the first quarter of 2025 and 2024 are as follows: Three Months Ended March 31, Percent Change 2025 2024 Client Metrics Net new client assets (in billions) (1) $ 132.4 $ 88.2 50 % Core net new client assets (in billions) $ 137.7 $ 95.6 44 % Client assets (in billions, at quarter end) $ 9,929.7 $ 9,118.4 9 % Average client assets (in billions) $ 10,212.1 $ 8,761.1 17 % New brokerage accounts (in thousands) 1,183 1,094 8 % Active brokerage accounts (in thousands, at quarter end) 37,011 35,301 5 % Assets receiving ongoing advisory services (in billions, at quarter end) $ 5,061.1 $ 4,628.0 9 % Client cash as a percentage of client assets (at quarter end) 10.6 % 10.0 % Company Financial Information and Metrics Total net revenues $ 5,599 $ 4,740 18 % Total expenses excluding interest 3,144 2,942 7 % Income before taxes on income 2,455 1,798 37 % Taxes on income 546 436 25 % Net income 1,909 1,362 40 % Preferred stock dividends and other 113 111 2 % Net income available to common stockholders $ 1,796 $ 1,251 44 % Earnings per common share — diluted $ .99 $ .68 46 % Net revenue change from prior year 18 % (7) % Pre-tax profit margin 43.8 % 37.9 % Return on average common stockholders’ equity (annualized) 18 % 15 % Expenses excluding interest as a percentage of average client assets (annualized) 0.12 % 0.14 % Consolidated Tier 1 Leverage Ratio (at quarter end) 9.9 % 8.8 % Non-GAAP Financial Measures Adjusted total expenses (2) $ 3,014 $ 2,802 Adjusted diluted earnings per common share $ 1.04 $ .74 Return on tangible common equity 35 % 39 % (1) The first quarter of 2025 and 2024 include net outflows of $5.3 billion and $7.4 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB. (2) Adjusted total expenses is a non-GAAP financial measure adjusting total expenses excluding interest. See Non-GAAP Financial Measures. The first quarter of 2025 presented investors with an increasingly uncertain macroeconomic environment. While equity markets rose early in the first quarter of 2025, uncertainty around the economic impacts of trade policy and increased volatility dampened equity markets and investor sentiment. The Standard & Poor’s ® 500 Index (S&P 500 ® ) was down 5% during the first three months of 2025, and the NASDAQ Composite ® declined 10%. The 10-year U.S. Treasury yield fell by 35 basis points to 4.23%, and the Federal Reserve left the federal funds overnight rate unchanged in the first quarter. Against this backdrop, clients continued to turn to Schwab, as the Company saw strength in asset gathering, new accounts, and client engagement in the first quarter of the year. Core net new assets totaled $137.7 billion in the first quarter of 2025, up 44% from the same period in 2024, representing an annualized growth rate of 5.5%. Active brokerage accounts rose 5% year-over-year to 37.0 million at March 31, 2025, including 1.2 million new brokerage accounts in the first quarter of 2025, up 8% from the first quarter of 2024. Clients were highly engaged in the markets, especially amid market volatility late in the first quarter. Clients’ daily average trades (DATs) were up significantly year-over-year to 7.4 million in the first three months of 2025, an increase of 24% from the first quarter of 2024. Schwab’s financial performance in the first quarter of 2025 reflected strength in asset gathering, increased client engagement, reduced reliance on higher-cost bank supplemental funding, and continued demand for margin and bank lending. Net income totaled $1.9 billion in the first quarter of 2025, rising 40% from the first quarter of 2024. Diluted earnings per common share - 4 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) (EPS) was $.99 in the first quarter of 2025, higher by 46% from the prior-year first quarter. Adjusted diluted EPS (1) was $1.04 in the first quarter of 2025, up 41% from the same period in 2024. Total net revenues increased 18% year-over-year to $5.6 billion in the first quarter of 2025. Net interest revenue was $2.7 billion in the first quarter of 2025, increasing 21% from the first quarter of 2024, primarily due to lower interest expense and growth in margin and bank lending, which more than offset lower yields on interest-earning assets due to lower market rates. Asset management and administration fees were $1.5 billion in the first quarter of 2025, higher by 14% year-over-year due to continued growth in money market funds and managed investing solutions, and higher overall client asset balances due to strength of asset gathering and year-over-year equity market appreciation. Trading revenue was $908 million in the first quarter of 2025, an increase of 11% from the first quarter of the prior year, which was due primarily to higher trading volume. Bank deposit account fee revenue totaled $245 million in the first quarter of the year, rising 34% from the first quarter of 2024 due to improved net yield as a growing percentage of the balances have converted to floating rates. BDA balances decreased 4% from year-end 2024, ending the first quarter at $83.7 billion. Total expenses excluding interest were $3.1 billion in the first quarter of 2025, higher by 7% from the first quarter of 2024. This increase was due primarily to higher compensation and benefits expense, inclusive of annual merit increases and a reduction in the prior year for a change in estimated restructuring costs, and higher other expense which was due to higher industry fees resulting from the SEC’s May 2024 fee rate increase and higher client trading volume. For the first quarter of 2025, adjusted total expenses (1) totaled $3.0 billion, up 8% from the same period in 2024 due to higher compensation and benefits and other expense. Return on average common stockholders’ equity was 18% in the first quarter of 2025, up from 15% in the first quarter of 2024, due to growth in net income, which more than offset higher average common stockholders’ equity. Return on tangible common equity (1) was 35% in the first quarter of 2025, down from 39% in the first quarter of 2024, as higher average tangible common equity more than offset growth in net income. Average common stockholders’ equity increased primarily as a result of year-over-year growth in retained earnings and higher average AOCI. The increase in average AOCI was due to lower unrealized losses on available for sale (AFS) investment securities and securities previously transferred from AFS to held to maturity (HTM). Schwab supported continued client-driven demand for margin and bank lending, while reducing bank supplemental funding and returning capital to stockholders. Total balance sheet assets decreased 4% from year-end 2024 to end the first quarter of 2025 at $462.9 billion. Principal and interest from our AFS and HTM securities portfolios supported further reduction in bank supplemental funding, which includes brokered CDs, Federal Home Loan Bank (FHLB) borrowings, and borrowings under repurchase agreements at our banks. The Company reduced total bank supplemental funding by $11.8 billion, or 24%, during the first three months of 2025, with $38.1 billion outstanding at March 31. Though investors reduced their leverage later in the first quarter following an increase in market volatility, the Company continued to see strong demand for margin lending, with margin loans ending the first quarter at $83.6 billion, largely flat with year-end 2024. Bank loans grew 4% during the first three months of 2025, ending the first quarter at $47.1 billion. Concurrent with the completion of The Toronto-Dominion Bank’s (TD Bank) February 2025 secondary public offering of CSC common shares, the Company repurchased all remaining outstanding shares of nonvoting common stock directly from TD Group US Holdings, LLC, an affiliate of TD Bank, for a total repurchase of $1.5 billion (see Capital Management – Share Repurchases and Item 1 – Note 14). In addition, the Company increased its common dividend during the first quarter by 8% to $.27 per share. Inclusive of these capital actions, the Company’s consolidated Tier 1 Leverage Ratio was 9.9% for the first quarter of 2025, remaining consistent with year-end 2024 due to strong first-quarter net income. Our consolidated adjusted Tier 1 Leverage Ratio (1) rose to 7.1% due to the first quarter’s net income and higher AOCI. (1) Adjusted diluted EPS, adjusted total expenses, return on tangible common equity, and adjusted Tier 1 Leverage Ratio are non-GAAP financial measures. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results. - 5 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) Current Regulatory and Other Developments Refer to Part II – Item 7 – Current Regulatory and Other Developments in our 2024 Form 10-K for information regarding pending regulatory matters including: • The Federal Deposit Insurance Corporation’s (FDIC) July 2024 proposed rulemaking to amend the brokered deposits framework setting forth its conditions for when broker-dealers such as CS&Co qualify for the primary purpose exception (PPE) from the definition of a deposit broker and from attendant restrictions for brokered deposits; • The U.S. Department of Labor’s April 2024 final rule significantly broadening the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974 and related litigation; • The FDIC’s November 2023 and February 2024 special assessments on banks, including the Company’s banking subsidiaries, to recover losses incurred by the Deposit Insurance Fund (DIF) to protect uninsured depositors due to the March 2023 closures of two banks; • The U.S. federal banking agencies’ August 2023 proposed rulemaking on long-term debt requirements for certain large banking organizations; • The U.S. federal banking agencies’ July 2023 notice of proposed rulemaking with amendments to the regulatory capital rules, which, among other things, would require us to include AOCI in regulatory capital and to calculate our risk-weighted assets using a revised risk-based approach, a component of which is based on operational risk; and • The SEC’s December 2022 equity market structure rule proposals, “Order Competition Rule” and “Regulation Best Execution”. RESULTS OF OPERATIONS Total Net Revenues The following tables present a comparison of revenue by category: 2025 2024 Three Months Ended March 31, Percent Change Amount % of Total Net Revenues Amount % of Total Net Revenues Net interest revenue Interest revenue (5) % $ 3,757 67 % $ 3,941 83 % Interest expense (38) % (1,051) (19) % (1,708) (36) % Net interest revenue 21 % 2,706 48 % 2,233 47 % Asset management and administration fees Mutual funds, exchange-traded funds (ETFs), and collective trust funds (CTFs) 14 % 865 15 % 758 16 % Managed investing solutions 13 % 569 10 % 503 11 % Other 10 % 96 2 % 87 2 % Asset management and administration fees 14 % 1,530 27 % 1,348 29 % Trading revenue Commissions 4 % 431 8 % 413 9 % Order flow revenue 26 % 443 8 % 352 7 % Principal transactions (35) % 34 — 52 1 % Trading revenue 11 % 908 16 % 817 17 % Bank deposit account fees 34 % 245 5 % 183 4 % Other 32 % 210 4 % 159 3 % Total net revenues 18 % $ 5,599 100 % $ 4,740 100 % Net Interest Revenue Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on cash and cash equivalents, floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, FHLB borrowings, other short-term - 6 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities. See also Risk Management – Market Risk. The Federal Reserve maintained the upper bound of the target overnight rate at 5.50% through most of 2024 before reducing the rate by 50 basis points during the third quarter of 2024 and another 50 basis points across two cuts during the fourth quarter of 2024. During the first quarter of 2025, the Federal Reserve maintained the upper bound of the target overnight rate at 4.50%. Schwab’s average interest-earning assets in the first quarter of 2025 were lower compared with the same period in 2024; however, client demand for margin and bank lending continued to be strong during the first quarter of 2025, even as clients reduced leverage amid market volatility late in the first quarter. Margin and bank loan balances increased by 23% and 16%, respectively, from March 31, 2024 to the end of the first quarter of 2025. Following further deceleration in the pace of clients’ reallocation of cash from sweep products to higher-yielding investment solutions in 2024, client activity in the first quarter of 2025 reflected normalized cash behavior, inclusive of organic growth, seasonality, and investor sentiment against a backdrop of increased market volatility. Bank sweep deposits and payables to brokerage clients increased by a total of $11.5 billion, or 4%, from March 31, 2024 to the end of the first quarter of 2025. Principal and interest payments on AFS and HTM securities supported a further reduction in bank supplemental funding of $11.8 billion, or 24%, during the first quarter of 2025. Since March 31, 2024, the Company has reduced bank supplemental funding by $32.7 billion, or 46%. The following table presents net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets: 2025 2024 Three Months Ended March 31, Average Balance Interest Revenue/ Expense Average Yield/Rate Average Balance Interest Revenue/ Expense Average Yield/Rate Interest-earning assets Cash and cash equivalents $ 30,483 $ 328 4.31 % $ 33,791 $ 454 5.31 % Cash and investments segregated 38,611 412 4.27 % 29,297 388 5.24 % Receivables from brokerage clients 83,137 1,382 6.65 % 63,804 1,260 7.81 % Available for sale securities (1) 84,590 433 2.05 % 111,867 594 2.12 % Held to maturity securities (1) 144,401 622 1.72 % 157,410 690 1.75 % Bank loans 46,043 493 4.32 % 40,529 440 4.36 % Total interest-earning assets 427,265 3,670 3.44 % 436,698 3,826 3.48 % Securities lending revenue 60 76 Other interest revenue 27 39 Total interest-earning assets $ 427,265 $ 3,757 3.52 % $ 436,698 $ 3,941 3.59 % Funding sources Bank deposits $ 245,719 $ 436 0.72 % $ 274,368 $ 921 1.35 % Payables to brokers, dealers, and clearing organizations (2) 14,177 137 3.88 % 5,513 55 3.96 % Payables to brokerage clients 90,173 51 0.23 % 68,343 73 0.43 % Other short-term borrowings 6,695 82 4.96 % 7,385 103 5.61 % Federal Home Loan Bank borrowings 10,725 133 4.94 % 24,857 330 5.27 % Long-term debt 22,281 212 3.81 % 25,000 224 3.59 % Total interest-bearing liabilities (2) 389,770 1,051 1.09 % 405,466 1,706 1.69 % Non-interest-bearing funding sources (2) 37,495 31,232 Other interest expense — 2 Total funding sources $ 427,265 $ 1,051 0.99 % $ 436,698 $ 1,708 1.57 % Net interest revenue $ 2,706 2.53 % $ 2,233 2.02 % (1) Amounts have been calculated based on amortized cost. Interest revenue on investment securities is presented net of related premium amortization. (2) Beginning in the fourth quarter of 2024, payables to brokers, dealers, and clearing organizations is presented separately from non-interest-bearing funding sources and included in total interest-bearing liabilities. This line item includes securities loaned and related interest expense. Prior period amounts have been reclassified to reflect this change. - 7 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) Net interest revenue increased $473 million, or 21%, in the first quarter of 2025, compared to the same period in 2024. This increase was primarily due to lower balances of bank supplemental funding, lower average rates paid on funding sources, and growth in margin and bank lending, partially offset by lower yields on floating-rate assets due to lower market rates. Average interest-earning assets declined by 2% in the first quarter of 2025 from the first quarter of 2024, as cash inflows from AFS and HTM securities were used to pay down bank supplemental funding amid improvement in client cash trends. The decrease was partially offset by growth in margin lending, which was supported by higher payables to brokerage clients and increased securities lending, and growth in bank loans. Net interest margin increased to 2.53% in the first quarter of 2025, compared to 2.02% during the same period in 2024, as lower rates paid on funding sources and reduced balances of bank supplemental funding more than offset lower yields on floating-rate assets due to lower market interest rates. The Company continues to prioritize repayment of bank supplemental funding balances and expects the total outstanding balance to continue to decrease over time to a level consistent with our diversified long-term funding profile. Our use and the financial impacts of such bank supplemental funding are dependent on several factors, including the volume and pace of clients’ cash allocation activity, which are driven primarily by changes in market interest rates, client engagement with equity markets, as well as asset gathering and the level of maturities and paydowns on our investment securities portfolios. The Company may rollover certain balances outstanding at March 31, 2025 into new borrowings, the amount and costs of which will depend on the above noted factors. See also Risk Management – Liquidity Risk, Capital Management, Item 1 – Notes 8, 9, and 12 for additional information on these and other funding sources. Asset Management and Administration Fees The following table presents asset management and administration fees, average client assets, and average fee yields: Three Months Ended March 31, 2025 2024 Average Client Assets Revenue Average Fee Average Client Assets Revenue Average Fee Schwab money market funds $ 621,474 $ 418 0.27 % $ 499,887 $ 336 0.27 % Schwab equity and bond funds, ETFs, and CTFs 658,588 122 0.08 % 539,661 107 0.08 % Mutual Fund OneSource ® and other no-transaction-fee (NTF) funds 359,696 222 0.25 % 314,576 209 0.27 % Other third-party mutual funds and ETFs 623,647 103 0.07 % 605,625 106 0.07 % Total mutual funds, ETFs, and CTFs (1) $ 2,263,405 $ 865 0.15 % $ 1,959,749 $ 758 0.16 % Managed investing solutions (1) Fee-based $ 590,483 $ 569 0.39 % $ 506,133 $ 503 0.40 % Non-fee-based 120,442 — — 106,032 — — Total managed investing solutions $ 710,925 $ 569 0.32 % $ 612,165 $ 503 0.33 % Other balance-based fees (2) 841,555 77 0.04 % 719,447 69 0.04 % Other (3) 19 18 Total asset management and administration fees $ 1,530 $ 1,348 (1) Average client assets for managed investing solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above. (2) Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees. (3) Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based. Asset management and administration fees increased by $182 million, or 14%, in the first quarter of 2025 compared to the same period in 2024. This increase was primarily a result of continued growth in Schwab money market funds amid the ongoing elevated interest rate environment. The increase in asset management and administration fees in the first quarter of 2025 was also due to growth in fee-based managed investing solutions and Mutual Fund OneSource ® . These increases reflected the Company’s asset gathering and net inflows into managed investing solutions, as well as year-over-year equity market appreciation, which more than offset equity market declines experienced in the first quarter of 2025. - 8 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource and other NTF funds. These funds generated 50% and 48% of the asset management and administration fees earned in the first quarter of 2025 and 2024, respectively: Schwab Money Market Funds Schwab Equity and Bond Funds, ETFs, and CTFs Mutual Fund OneSource ® and Other NTF funds Three Months Ended March 31, 2025 2024 2025 2024 2025 2024 Balance at beginning of period $ 596,531 $ 476,409 $ 627,166 $ 506,149 $ 347,798 $ 306,222 Net inflows (outflows) 38,477 30,940 9,088 7,719 (7,046) (4,161) Net market gains (losses) and other 6,524 8,329 (11,030) 35,022 (472) 27,115 Balance at end of period $ 641,532 $ 515,678 $ 625,224 $ 548,890 $ 340,280 $ 329,176 Trading Revenue The following tables present trading revenue, client trading activity, and related information: Three Months Ended March 31, Percent Change 2025 2024 Commissions $ 431 $ 413 4 % Order flow revenue Options 270 242 12 % Equities 173 110 57 % Total order flow revenue 443 352 26 % Principal transactions 34 52 (35) % Total trading revenue $ 908 $ 817 11 % Three Months Ended March 31, Percent Change 2025 2024 DATs (in thousands) 7,391 5,958 24 % Product as a percentage of DATs Equities 56 % 51 % Derivatives 20 % 22 % ETFs 18 % 19 % Mutual funds 5 % 6 % Fixed income 1 % 2 % Number of trading days 60.0 61.0 (2) % Revenue per trade (1) $ 2.05 $ 2.25 (9) % (1) Revenue per trade is calculated as trading revenue divided by the product of DATs multiplied by the number of trading days. Trading revenue increased $91 million, or 11%, in the first quarter of 2025 compared to the same period in 2024, primarily driven by an increase in order flow revenue reflecting higher volume. Commission revenue increased due to higher volume, partially offset by changes in the mix of client trading activity. Offsetting the increase in commission revenue, principal transactions revenue decreased reflecting changes to the fair value of securities positions held to facilitate client activity and cash and investments segregated for regulatory purposes. Bank Deposit Account Fees The Company earns bank deposit account fee revenue from TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions), in accordance with the Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement). These fees are affected by changes in interest rates and the composition of balances designated as fixed- and floating-rate obligation amounts. See Item 1 – Note 10 for additional information. - 9 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) The following table presents bank deposit account fee revenue and related information: Three Months Ended March 31, Percent Change 2025 2024 Bank deposit account fees $ 245 $ 183 34 % Average BDA balances $ 84,186 $ 92,859 (9) % Average net yield 1.16 % 0.78 % Percentage of average BDA balances designated as: Fixed-rate balances 78 % 88 % Floating-rate balances 22 % 12 % Bank deposit account fees increased $62 million, or 34%, in the first quarter of 2025, compared to the same period in 2024, primarily due to a decrease in the amount paid to clients as a result of lower interest rates in the first quarter of 2025 compared to the same period in 2024, partially offset by lower average BDA balances. The decrease in average BDA balances in the first quarter of 2025 compared to the same period in 2024 was primarily due to client cash allocation decisions in 2024 in response to elevated short-term market interest rates through most of 2024. Average net yield increased in the first quarter of 2025 compared to the same period in 2024 due to an increase in the average amount of floating-rate BDA balances, which was partially offset by a decrease in the average net yields on fixed-rate and floating-rate BDA balances. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of March 31, 2025 were 77% and 23%, respectively. Other Revenue Other revenue includes industry fees, certain service fees, other gains and losses from the sale of assets, and the provision for credit losses on bank loans. Other revenue increased $51 million, or 32%, in the first quarter of 2025 compared to the same period in 2024, primarily due to higher industry fees. Industry fees increased primarily due to higher SEC fee rates in effect during the first quarter of 2025 compared to the same period in 2024 and an increase in trading volumes. Subsequent to March 31, 2025, the SEC announced that effective May 14, 2025, it would decrease the fee rate applicable to most securities transactions to zero from the rate in effect since May 22, 2024. This change will result in lower industry fees in other revenue and a corresponding decrease in other expense after the effective date, resulting in no impact to net income. - 10 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) Total Expenses Excluding Interest The following table presents a comparison of expenses excluding interest: Three Months Ended March 31, Percent Change 2025 2024 Compensation and benefits Salaries and wages $ 923 $ 854 8 % Incentive compensation 412 387 6 % Employee benefits and other 337 297 13 % Total compensation and benefits $ 1,672 $ 1,538 9 % Professional services 269 241 12 % Occupancy and equipment 274 265 3 % Advertising and market development 96 88 9 % Communications 153 141 9 % Depreciation and amortization 217 228 (5) % Amortization of acquired intangible assets 130 130 — Regulatory fees and assessments 89 125 (29) % Other 244 186 31 % Total expenses excluding interest $ 3,144 $ 2,942 7 % Expenses as a percentage of total net revenues Compensation and benefits 30 % 32 % Advertising and market development 2 % 2 % Full-time equivalent employees (in thousands) At quarter end 32.1 32.6 (2) % Average 32.1 32.7 (2) % Expenses excluding interest increased by $202 million, or 7%, in the first quarter of 2025 compared to the same period in 2024. Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs, increased 8% in the first quarter of 2025 compared to the same period in 2024. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results. There were no acquisition and integration-related costs or restructuring costs in the first quarter of 2025. Total compensation and benefits expense increased in the first quarter of 2025 compared to the same period in 2024, primarily due to annual merit increases and higher incentive compensation. In the first quarter of 2024, compensation and benefits included a $31 million benefit due to a change in estimated restructuring costs, and also acquisition and integration-related costs of $17 million. Professional services expense increased in the first quarter of 2025 compared to the same period in 2024, reflecting increased utilization of technology and other professional services to support overall growth of the business. Professional services included acquisition and integration-related costs of $17 million in the first quarter of 2024. Occupancy and equipment expense increased in the first quarter of 2025 compared to the same period in 2024, reflecting higher building expenses and technology equipment and software costs related to growth of the business. Occupancy and equipment included restructuring costs of $2 million in the first quarter of 2024. Advertising and market development expense increased in the first quarter of 2025 compared to the same period in 2024, primarily due to higher client promotional spending. Communications expense increased in the first quarter of 2025 compared to the same period in 2024, primarily as a result of higher exchange quotation services expenses. Depreciation and amortization expense decreased in the first quarter of 2025 compared to the same period in 2024, primarily due to finance lease terminations in 2024 and lower depreciation on equipment due to abandonment of certain data centers in 2024 related to the integration of Ameritrade Holding LLC (Ameritrade Holding) and its consolidated subsidiaries (collectively, Ameritrade). - 11 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) Amortization of acquired intangible assets remained consistent in the first quarter of 2025 with the same period in 2024. Regulatory fees and assessments decreased in the first quarter of 2025 compared to the same period in 2024. The decrease in the first quarter of 2025 was primarily due to a $25 million incremental FDIC special assessment in the first quarter of 2024 and lower FDIC deposit insurance assessments, reflecting a decrease in brokered CDs and a lower assessment base, compared to the first quarter of 2024. Other expense increased in the first quarter of 2025 compared to the same period in 2024, primarily due to higher industry fees. Industry fees increased primarily due to higher SEC fee rates in effect during the first quarter of 2025 compared to the first quarter of 2024 and an increase in trading volumes. Subsequent to March 31, 2025, the SEC announced that effective May 14, 2025, it would decrease the fee rate applicable to most securities transactions to zero from the rate in effect since May 22, 2024. This change will result in lower industry fees in other expense and a corresponding decrease in other revenue after the effective date, resulting in no impact to net income. Capital expenditures were $156 million and $122 million in the first quarter of 2025 and 2024, respectively. Capital expenditures increased in the first quarter of 2025 compared to the same period in 2024, primarily due to higher investment in purchased software and buildings, partially offset by lower internally developed software. We continue to anticipate capital expenditures for full-year 2025 will be approximately 3-5% of total net revenues. Taxes on Income Taxes on income were $546 million and $436 million for the first quarter of 2025 and 2024, respectively, resulting in effective tax rates of 22.2% and 24.2%, respectively. The decrease in the effective tax rate in the first quarter of 2025 compared to the same period in 2024 was primarily due to the reversal of tax reserves due to the resolution of certain state tax matters during the first quarter of 2025, an increase in equity compensation tax deduction benefits, and a decrease in non-deductible FDIC deposit insurance assessments. - 12 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) Segment Information Financial information for our segments is presented in the following table (1) : Investor Services Advisor Services Total Three Months Ended March 31, Percent Change 2025 2024 Percent Change 2025 2024 Percent Change 2025 2024 Net Revenues Net interest revenue 22 % $ 2,158 $ 1,766 17 % $ 548 $ 467 21 % $ 2,706 $ 2,233 Asset management and administration fees 14 % 1,114 975 12 % 416 373 14 % 1,530 1,348 Trading revenue 12 % 805 717 3 % 103 100 11 % 908 817 Bank deposit account fees 35 % 191 141 29 % 54 42 34 % 245 183 Other 28 % 177 138 57 % 33 21 32 % 210 159 Total net revenues 19 % 4,445 3,737 15 % 1,154 1,003 18 % 5,599 4,740 Expenses Excluding Interest Compensation and benefits 8 % $ 1,285 $ 1,189 11 % $ 387 $ 349 9 % $ 1,672 $ 1,538 Professional services 10 % 214 194 17 % 55 47 12 % 269 241 Occupancy and equipment 4 % 215 206 — 59 59 3 % 274 265 Advertising and market development 3 % 64 62 23 % 32 26 9 % 96 88 Communications 14 % 113 99 (5) % 40 42 9 % 153 141 Depreciation and amortization (11) % 165 186 24 % 52 42 (5) % 217 228 Amortization of acquired intangible assets (18) % 106 129 N/M 24 1 — 130 130 Regulatory fees and assessments (26) % 70 94 (39) % 19 31 (29) % 89 125 Other 29 % 202 156 40 % 42 30 31 % 244 186 Total expenses excluding interest 5 % 2,434 2,315 13 % 710 627 7 % 3,144 2,942 Income before taxes on income 41 % $ 2,011 $ 1,422 18 % $ 444 $ 376 37 % $ 2,455 $ 1,798 Net new client assets (in billions) (2) 85 % $ 69.5 $ 37.6 24 % $ 62.9 $ 50.6 50 % $ 132.4 $ 88.2 (1) In connection with certain changes in Schwab’s organizational management structure, in the fourth quarter of 2024, the Retirement Business Services business unit was transferred from the Advisor Services segment to the Investor Services segment. Accordingly, amounts related to the Retirement Business Services business unit are included within Investor Services for the first quarter of 2025, and prior-year amounts have been recast to reflect this new basis of segmentation. (2) In the first quarter of 2025 and 2024, Investor Services includes net outflows of $5.3 billion and $7.4 billion, respectively, from off-platform brokered CDs issued by CSB. N/M Not meaningful. Percentage changes greater than 200% are presented as not meaningful. Segment Net Revenues Investor Services and Advisor Services total net revenues increased by 19% and 15%, respectively, in the first quarter of 2025 compared to the same period in 2024. Net interest revenue increased for both segments, primarily as a result of lower balances of bank supplemental funding, lower average rates paid on funding sources, and growth in margin and bank lending, partially offset by lower average interest-earnings assets. Asset management and administration fees increased for both segments, primarily as a result of higher balances in money market funds, equity and bond funds, ETFs, CTFs, and Mutual Fund OneSource ® , and, additionally for Investor Services, managed investing solutions. Trading revenue increased for both segments, primarily due to higher order flow revenue as a result of higher trading volume and increased commission revenue, partially offset by changes in the mix of client trading activity and lower principal transactions revenue. Bank deposit account fees increased for both segments, primarily due to an increase in average net yield partially offset by lower average BDA balances. Other revenue increased for both segments, primarily due to higher industry fees. Segment Expenses Excluding Interest Investor Services and Advisor Services total expenses excluding interest increased by 5% and 13%, respectively, in the first quarter of 2025, compared to the same period in 2024. Compensation and benefits expense increased in both segments, primarily due to annual merit increases, higher incentive compensation, and employee benefits and taxes. Professional services expense increased in both segments, due to increased utilization of technology and other professional services to support overall growth of the business. Regulatory fees and assessments decreased for both segments primarily due to a $25 million incremental FDIC special assessment in the first quarter of 2024 and lower FDIC assessments. Other expenses increased for both segments primarily due to higher industry fees driven by higher SEC fee rates coupled with higher trading volumes. - 13 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) RISK MANAGEMENT Schwab’s business activities expose it to a variety of risks, including operational, compliance, credit, market, and liquidity risks. The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational impact. For a discussion of our risk management programs, see Part II – Item 7 – Risk Management in the 2024 Form 10-K. Market Risk Market risk is the potential for changes in earnings or the value of financial instruments held by Schwab as a result of fluctuations in interest rates, equity prices, or market conditions. Schwab is exposed to market risk primarily from changes in interest rates within our interest-earning assets relative to changes in the costs of funding sources that finance these assets. To manage interest rate risk, we have established policies and procedures, which include setting limits on net interest revenue risk and EVE risk. To remain within these limits, we manage the maturity, repricing, and cash flow characteristics of the investment portfolios. Management monitors established guidelines to stay within the Company’s risk appetite. The Company utilizes interest rate swap derivative instruments to assist with managing interest rate risk, the effects of which are incorporated into the Company’s net interest revenue and EVE analyses. For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 1 – Note 11. Our measurement of interest rate risk involves assumptions that are inherently uncertain and, as a result, cannot precisely estimate the impact of changes in interest rates on net interest revenue, bank deposit account fees, or EVE. Actual results may differ from simulated results due to balance growth or decline and the timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and management strategies, including changes in asset and liability mix. Financial instruments are also subject to the risk that valuations will be negatively affected by changes in demand and the underlying market for a financial instrument. We are indirectly exposed to option, futures, and equity market fluctuations in connection with client option and futures accounts, securities collateralizing margin loans to brokerage customers, and client securities loaned out as part of the brokerage securities lending activities. Equity market valuations may also affect the level of brokerage client trading activity, margin borrowing, and overall client engagement with Schwab. Additionally, we earn mutual fund and ETF service fees and asset management fees based upon daily balances of certain client assets. Fluctuations in these client asset balances caused by changes in equity valuations directly impact the amount of fee revenue we earn. Our market risk related to financial instruments held for trading is not material. Net Interest Revenue Simulation For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulations include all balance sheet interest rate-sensitive assets and liabilities, and include derivative instruments. Key assumptions include the projection of interest rate scenarios with rate floors, rates and balances of non-maturity client cash held on the balance sheet, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans. We use independent third-party models to simulate net interest revenue sensitivity and related analyses. Fixed income analytical vendors provide term structure models, prepayment speed models for mortgage-backed securities and mortgage loans, and cash flow projections based on interest income, contractual maturities, and prepayments. The Company’s net interest revenue sensitivity analyses utilize gradual parallel increases/decreases in interest rates over a twelve-month period, though we also regularly simulate the effects of non-parallel shifts and instantaneous shifts of interest rates on net interest revenue. Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may reprice at different times or by different amounts, and the spread between short- and long-term interest rates. Interest-earning assets include investment securities, margin loans, bank loans, and cash and cash equivalents. These assets are sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment. Because we establish the rates paid on certain brokerage client cash balances and bank deposits and the rates charged on certain margin and bank loans, and control the composition of our - 14 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) investment securities, we have some ability to manage our net interest spread, depending on competitive factors and market conditions. When we have liquidity needs that exceed our primary sources of funding, the Company has needed to utilize higher-cost funding sources, which can reduce net interest margin and net interest revenue. Higher prevailing short-term interest rates generally improve yields on shorter duration interest-earning assets. During periods of rapidly rising interest rates, clients tend to reallocate cash out of sweep products into higher-yielding, off-balance sheet, fixed income investments and money market funds within Schwab’s product offerings. This can result in lower interest-earning assets and/or may require supplemental funding with higher funding costs, which therefore tend to constrain net interest revenue when interest rates are moving rapidly higher. A decline in short-term interest rates could negatively impact the yield on the Company’s investment and loan portfolios to a greater degree than any offsetting reduction in interest expense from funding sources, compressing net interest margin. Net interest revenue sensitivity analyses assume both statically and dynamically-sized balance sheet composition. Statically-sized balance sheet modeling assumes the asset and liability structure of the consolidated balance sheet would not be changed as a result of the simulated changes in interest rates. While this approach is useful to isolate the impact of changes in interest rates on a statically-sized asset and liability structure, it does not capture changes to client cash allocations. We therefore also conduct dynamically-sized balance sheet compositions as a function of interest rates. Dynamic net interest revenue simulations assume runoff of bank deposit and payables to brokerage client balances is supplemented with wholesale borrowing when needed to fund assets through the simulation horizon. We also conduct similar simulations on EVE to capture the impact of client cash allocation changes on our balance sheet. As we actively manage the consolidated balance sheet and interest rate exposure, we have taken and would typically seek to take steps to manage additional interest rate exposure that could result from changes in the interest rate environment. The following table assumes a statically-sized balance sheet with simulated changes to net interest revenue over the next 12 months beginning March 31, 2025 and December 31, 2024 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period: March 31, 2025 December 31, 2024 Increase of 200 basis points 8.8% 8.6% Increase of 100 basis points 4.6% 4.6% Increase of 50 basis points 2.5% 2.5% Decrease of 50 basis points (2.2)% (2.3)% Decrease of 100 basis points (4.5)% (4.6)% Decrease of 200 basis points (8.8)% (9.3)% The Company’s simulated incremental increases in market interest rates had a largely consistent impact on net interest revenue as of March 31, 2025 compared to December 31, 2024. The Company’s simulated incremental decreases in market interest rates had a smaller impact on net interest revenue as of March 31, 2025 compared to December 31, 2024, primarily due to lower balances of floating-rate interest-earning assets. Effective Duration Effective duration measures price sensitivity relative to a change in prevailing interest rates, taking account of amortizing cash flows and prepayment optionality for mortgage-related securities and loans. Duration is measured in years and commonly interpreted as the average timing of principal and interest cash flows. We seek to manage the Company’s asset duration in relation to management’s estimate of the Company’s liability duration. The Company’s liability duration is impacted by the composition of funding sources, and typically decreases in periods of rising market interest rates and increases in periods of declining market interest rates. The Company also utilizes derivative hedging instruments such as interest rate swaps in managing its asset and liability duration. - 15 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) The following table presents the Company’s estimated effective durations, which reflects anticipated future payments, by category: March 31, 2025 March 31, 2024 In years Estimated effective duration, exclusive of derivatives: Consolidated total assets 2.1 2.5 AFS investment securities portfolio 2.4 2.4 AFS and HTM investment securities portfolio 3.9 3.9 Long-term debt CSC Senior Notes 3.1 3.7 Estimated effective duration, inclusive of derivatives (1) : Consolidated total assets 2.1 2.4 AFS investment securities portfolio 1.9 2.1 AFS and HTM investment securities portfolio 3.8 3.8 Long-term debt CSC Senior Notes 2.2 3.7 (1) See Item 1 – Note 11 for additional discussion on the Company’s derivatives. AFS and HTM securities comprised approximately 47% and 55% of the Company’s consolidated total assets as of March 31, 2025 and 2024, respectively. The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both March 31, 2025 and 2024. Economic Value of Equity Simulation Management also uses EVE simulations to measure interest rate risk. EVE sensitivity measures the long-term impact of interest rate changes on the net present value of assets and liabilities, and includes the impact of derivative instruments. While EVE does not have a direct accounting relationship, the measure aims to capture a theoretical value of assets and liabilities under a variety of interest rate environments. EVE is calculated by subjecting the balance sheet to hypothetical instantaneous shifts in the level of interest rates. This analysis is highly dependent upon asset and liability assumptions based on historical behaviors. Key assumptions in our EVE calculation include projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, term structure models of interest rates, behavior of non-maturity client cash held on the balance sheet, and pricing assumptions. We use both proprietary and independent third-party models to simulate EVE sensitivity and related analyses. We develop and maintain client credits and deposits run-off models internally based on historical experience and prevailing client cash realignment behaviors. We rely on third-party models for interest rate term structure modeling, prepayment speed modeling for mortgage-backed securities and mortgage loans, and cash flow projections based on interest income, and contractual maturities. Schwab’s EVE profile is characterized by a more stable asset duration relative to liabilities in both higher and lower interest rate environments. Currently, the EVE exposure to rates increasing or decreasing in a similar magnitude shows that there is greater exposure to rates decreasing. Bank Deposit Account Fees Simulation Consistent with the presentation on the consolidated statement of income, the sensitivity of bank deposit account fee revenue to interest rate changes is assessed separately from the net interest revenue simulation described above. As of March 31, 2025 and December 31, 2024, simulated changes in bank deposit account fee revenue from gradual changes in market interest rates relative to prevailing market rates, under the interest rate scenarios described above for net interest revenue, did not have a significant impact on the Company’s total net revenues. Our net interest revenue, EVE, and bank deposit account fee revenue simulations reflect the assumption of non-negative investment yields. Liquidity Risk Liquidity risk is the potential that Schwab will be unable to sell assets or meet cash flow obligations when they come due without incurring unacceptable losses. Due to its role as a source of financial strength, CSC’s liquidity needs are primarily driven by the liquidity and capital needs of: CS&Co, our principal broker-dealer subsidiary; the capital needs of the banking subsidiaries; principal and interest due on corporate debt; and dividend payments on CSC’s preferred and common stock. The liquidity needs of our broker-dealer - 16 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) subsidiary are primarily driven by client activity, including trading and margin lending activities, and capital expenditures. The capital needs of the banking subsidiaries are primarily driven by client deposit levels and other borrowings. We have established liquidity policies to support the successful execution of business strategies, while ensuring ongoing and sufficient liquidity to meet operational needs and satisfy applicable regulatory requirements under both normal and stressed conditions. We seek to maintain client confidence in the balance sheet and the safety of client assets by maintaining liquidity and diversity of funding sources to allow the Company to meet its obligations. To this end, we have established limits and contingency funding plans to support liquidity levels during both business as usual and stressed conditions. We employ a variety of metrics to monitor and manage liquidity. We conduct regular liquidity stress testing to develop a view of liquidity risk exposures and to ensure our ability to maintain sufficient liquidity during market-related or company-specific liquidity stress events. Liquidity sources are also tested periodically and results are reported to the Financial Risk Oversight Committee. A number of early warning indicators are monitored to help identify emerging liquidity stresses in the market or within the organization and are reviewed with management periodically. Funding Sources Schwab’s primary source of funds is cash generated by client activity which includes bank deposits and cash balances in client brokerage accounts. These funds are used to purchase investment securities and extend loans to clients. Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, FHLB borrowings, borrowings under repurchase agreements with external financial institutions, issuance of CDs, cash provided by securities issuances by CSC in the capital markets, and other facilities described below. To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments. For unanticipated liquidity needs, we also maintain a buffer of highly liquid investments, including U.S. Treasury securities. Our clients’ bank deposits and brokerage cash balances primarily originate from our 37.0 million active brokerage accounts. More than 80% of our bank deposits qualified for FDIC insurance as of March 31, 2025. Our clients’ allocation of cash held on our balance sheet as bank deposits or payables to brokerage clients is sensitive to interest rate levels, with clients typically increasing their utilization of investment cash solutions, such as purchased money market funds and certain fixed income products when those yields are higher than those of cash sweep features. As a participant in the financial services industry, Schwab relies on access to external financing in the normal course of business. Schwab’s use of external debt facilities may arise from timing differences between cash flow requirements, such as client cash outflows, cash flows from operations, payments on interest-earning assets, movements of cash to meet regulatory brokerage client cash segregation requirements, and general corporate purposes. Rollover risk is the risk that we will not be able to refinance or payoff borrowings as they mature. We maintain policies and procedures necessary to access funding, and test borrowing procedures on a periodic basis. We manage rollover risk on borrowings, taking into account expected principal paydowns on our investment and loan portfolios along with expected deposit flows. - 17 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) The following table describes certain external debt facilities available at March 31, 2025: Description Borrower Outstanding Available Maturity of Amounts Outstanding Weighted-Average Interest Rate on Amounts Outstanding FHLB secured credit facilities Banking subsidiaries $ 11,500 $ 65,028 (1) April 2025 - September 2025 4.60% Federal Reserve discount window Banking subsidiaries — 30,357 (1) N/A — Repurchase agreements Banking subsidiaries, CSC 5,492 — (2) April 2025 - August 2025 4.65% Unsecured uncommitted lines of credit with various external banks CSC, CS&Co — 1,692 N/A — Unsecured commercial paper CSC 950 4,050 (3) June 2025 - August 2025 4.53% Secured uncommitted lines of credit with various external banks CS&Co 500 — (4) July 2025 4.78% (1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of March 31, 2025. Incremental borrowing capacity may be made available by pledging additional assets, subject to applicable facility terms. See below and Item 1 – Note 9 for additional information. (2) Secured borrowing capacity is made available based on the banking subsidiaries’ or CSC’s ability to provide collateral deemed acceptable by each respective counterparty. See below and Item 1 – Note 12 for additional information. (3) Outstanding balance of unsecured commercial paper as of March 31, 2025 represents the gross par value before discount of $15 million. (4) Secured borrowing capacity is made available based on CS&Co’s ability to provide acceptable collateral to the lenders as determined by the credit agreements. N/A Not applicable. Available borrowing capacity from the FHLB and Federal Reserve facilities maintained by our banking subsidiaries is dependent on the value of assets pledged and the terms of the borrowing arrangements. As of March 31, 2025, the Company had additional investment securities with a par value of approximately $112 billion, or a fair value of approximately $104 billion, available to be pledged to obtain additional capacity. Additional details regarding availability and use of these facilities is described below. Amounts available under secured credit facilities with the FHLB are dependent on the value of our First Mortgages, home equity lines of credit (HELOCs), and the value of certain of our investment securities that are pledged as collateral. These credit facilities are also available as backup financing in the event the outflow of client cash from the banking subsidiaries’ respective balance sheets is greater than maturities and paydowns on investment securities and bank loans. CSC’s banking subsidiaries must each maintain positive tangible capital, as defined by the Federal Housing Finance Agency (FHFA), in order to place new draws upon these credit facilities, and the Company manages capital with consideration of minimum tangible capital ratios at our banking subsidiaries. Tangible capital pursuant to the requirements of the FHLB borrowing facilities for our banking subsidiaries is common equity less goodwill and intangible assets. Our banking subsidiaries also have access to short-term secured funding through the Federal Reserve discount window. Amounts available under the Federal Reserve discount window are dependent on the value of certain investment securities that are pledged as collateral. Our banking subsidiaries may also engage with external financial institutions and the Fixed Income Clearing Corporation (FICC) in repurchase agreements collateralized by investment securities as another source of short-term liquidity. In addition, our banking subsidiaries are counterparties to the Standing Repo Facility with the Federal Reserve Bank of New York; other than de minimis tests performed to satisfy the Federal Reserve Bank of New York’s testing requirements, this facility was not used during the first three months of 2025 and there were no amounts outstanding at March 31, 2025. CSC maintains standing bilateral repurchase agreements with external banks. Other than de minimis tests, these facilities were not used during the first three months of 2025 and there were no amounts outstanding under these facilities at March 31, 2025. CSC’s ratings for Commercial Paper Notes were P1 by Moody’s Investor Service (Moody’s), A2 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at March 31, 2025. CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities. - 18 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) CS&Co maintains unsecured uncommitted bank credit lines with a group of banks as a source of short-term liquidity, which can also be accessed by CSC. CS&Co also maintains secured uncommitted lines of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral, based on the terms of the agreements. CS&Co is also able to lend eligible securities held in client brokerage accounts in exchange for cash collateral as a source of short-term liquidity. As of March 31, 2025, liabilities for securities loaned totaled $14.7 billion and are included in payables to brokers, dealers, and clearing organizations on the condensed consolidated balance sheet. As of March 31, 2025, $9.4 billion of securities loaned had overnight and continuous remaining contractual maturities; $5.3 billion of securities loaned had contractual maturities of 35-95 days and had a weighted-average interest rate of 4.67%. See Item 1 – Note 12 for additional information on securities lending activities. CSB issues brokered CDs as a supplemental funding source. The following table provides information about brokered CDs issued by CSB and outstanding as of March 31, 2025: Amount Outstanding Maturity Weighted-Average Interest Rate Brokered CDs $ 21,104 April 2025 - November 2025 4.82% Cash Flow Activity The Company’s cash and cash equivalents decreased $7.1 billion from year-end 2024 to $35.0 billion at March 31, 2025; cash and cash equivalents, including amounts restricted, decreased $3.5 billion from year-end 2024 to $62.0 billion at March 31, 2025. These decreases reflected a reduction of bank supplemental funding balances of $11.8 billion and maturities of long-term debt of $975 million. Bank deposits decreased during the first three months of 2025 by $13.0 billion, which reflected a $6.7 billion decrease in deposits swept from brokerage accounts due to typical first quarter seasonality and a decrease of $6.6 billion in brokered CDs, partially offset by client net equity selling towards the end of the quarter. The Company reduced FHLB borrowings and other short-term borrowings by a net total of $4.3 billion. Partially offsetting the decrease in bank deposits and repayment of borrowings, net investing cash inflows from our AFS and HTM securities totaled $12.4 billion in the first three months of 2025, and net cash inflows from operations totaled $6.4 billion. Liquidity Coverage Ratio Schwab is subject to the full LCR rule, which requires the Company to hold high quality liquid assets (HQLA) in an amount equal to at least 100% of the Company’s projected net cash outflows over a prospective 30-calendar-day period of acute liquidity stress, calculated on each business day. See Part I – Item 1 – Business – Regulation in the 2024 Form 10-K for additional information. The Company was in compliance with the LCR rule at March 31, 2025, and the table below presents information about our average daily LCR: Average for the Three Months Ended March 31, 2025 December 31, 2024 Total eligible HQLA $ 55,383 $ 56,109 Net cash outflows 40,213 40,232 LCR 138 % 140 % To support growth in margin loan balances at our broker-dealer subsidiary while meeting our LCR requirements, the Company may issue commercial paper, draw on secured lines of credit, or engage in securities lending, in addition to capital markets issuances. In managing compliance with our LCR requirements, the broker-dealer subsidiary may also retain client cash balances rather than sweeping such balances to our banking subsidiaries. Net Stable Funding Ratio Schwab is subject to disclosure requirements under the NSFR rule, which requires the semi-annual public disclosure of its NSFR levels. The NSFR rule stipulates that the Company’s available stable funding (ASF) must be at least 100% of the Company’s required stable funding (RSF). ASF is calculated by assessing the stability of the Company’s funding sources and RSF is calculated by evaluating the characteristics of the Company’s assets, derivatives, and off-balance-sheet exposures. The Company was in compliance with the NSFR rule at March 31, 2025. - 19 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) Long-Term Borrowings The Company’s long-term debt is primarily comprised of Senior Notes and totaled $21.5 billion and $22.4 billion at March 31, 2025 and December 31, 2024, respectively. The following table provides information about our Senior Notes outstanding at March 31, 2025: March 31, 2025 Par Outstanding Maturity Weighted Average Interest Rate (1) Moody’s Standard & Poor’s Fitch CSC Senior Notes $ 21,287 2025 - 2034 3.67% A2 A- A Ameritrade Holding Senior Notes 163 2025 - 2029 3.38% A2 A- — (1) Weighted average interest rates presented here exclude the impact of derivatives. See Note 11 for information on the Company’s hedging of Senior Notes. New Debt Issuances There were no new debt issuances of senior unsecured obligations in the first three months of 2025. Schwab enters into guarantees and other similar arrangements in the ordinary course of business. For information on these arrangements, see Item 1 – Notes 6, 7, 9, 10, and 12. Pursuant to the 2023 IDA agreement, certain brokerage accounts are required to be swept off-balance sheet to the TD Depository Institutions. See Item 1 – Note 10 for additional information. Additional information regarding our sources and uses of liquidity and management of liquidity risk is included in Part II – Item 7 – Risk Management – Liquidity Risk in our 2024 Form 10-K. See also Item 1 – Condensed Consolidated Statements of Cash Flows, Item 1 – Note 8 for the Company’s bank deposits, Item 1 – Note 9 for the Company’s debt and borrowing facilities, Item 1 – Note 12 for the Company’s securities lending activities, and Item 1 – Note 14 for the Company’s equity outstanding balances and activity. CAPITAL MANAGEMENT Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, inclusive of balance sheet growth over time, financial support to our subsidiaries, sustained access to the capital markets, and regulatory capital requirements. Schwab also seeks to return excess capital to stockholders. We may return excess capital through dividends, repurchases of common shares, preferred stock redemptions, and repurchases of our preferred stock represented by depositary shares. Schwab’s primary sources of capital are funds generated by the operations of subsidiaries and securities issuances by CSC in the capital markets. To ensure that Schwab has sufficient capital to absorb unanticipated losses or declines in asset values, we have adopted a policy to remain well capitalized even in stressed scenarios. Regulatory Capital Requirements CSC and certain subsidiaries, including our banking and broker-dealer subsidiaries, are subject to various capital requirements set by regulatory agencies as discussed in further detail in Part II – Item 7 – Capital Management of the 2024 Form 10-K and in Item 1 – Note 17. As of March 31, 2025, CSC and our banking subsidiaries are considered well capitalized, and CS&Co is in compliance with its net capital requirements. - 20 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) The following table details the capital ratios for CSC (consolidated) and CSB: March 31, 2025 December 31, 2024 CSC CSB CSC CSB Total stockholders’ equity $ 49,511 $ 21,297 $ 48,375 $ 19,700 Less: Preferred stock 9,191 — 9,191 — Common Equity Tier 1 Capital before regulatory adjustments $ 40,320 $ 21,297 $ 39,184 $ 19,700 Less: Goodwill, net of associated deferred tax liabilities $ 11,737 $ 13 $ 11,746 $ 13 Other intangible assets, net of associated deferred tax liabilities 6,125 — 6,232 — Deferred tax assets, net of valuation allowances and deferred tax liabilities 50 41 50 41 AOCI adjustment (1) (13,614) (11,835) (14,839) (12,938) Common Equity Tier 1 Capital $ 36,022 $ 33,078 $ 35,995 $ 32,584 Tier 1 Capital $ 45,213 $ 33,078 $ 45,186 $ 32,584 Total Capital 45,240 33,100 45,218 32,606 Risk-Weighted Assets 112,485 76,263 113,648 78,134 Average Assets with regulatory adjustments 457,495 272,273 458,119 280,701 Total Leverage Exposure 460,701 274,203 461,200 282,629 Common Equity Tier 1 Capital/Risk-Weighted Assets 32.0 % 43.4 % 31.7 % 41.7 % Tier 1 Capital/Risk-Weighted Assets 40.2 % 43.4 % 39.8 % 41.7 % Total Capital/Risk-Weighted Assets 40.2 % 43.4 % 39.8 % 41.7 % Tier 1 Leverage Ratio 9.9 % 12.1 % 9.9 % 11.6 % Supplementary Leverage Ratio 9.8 % 12.1 % 9.8 % 11.5 % (1) Changes in market interest rates can result in unrealized gains or losses on AFS securities, which are included in AOCI. As a Category III banking organization, CSC has elected to exclude most components of AOCI from regulatory capital. The Company’s consolidated Tier 1 Leverage Ratio at March 31, 2025 remained consistent with year-end 2024, ending the first quarter of 2025 at 9.9%. CSB’s Tier 1 Leverage Ratio increased from 11.6% at year-end 2024, ending the first quarter of 2025 at 12.1% primarily as a result of lower total assets as well as net income during the quarter. In light of the Federal Reserve’s 2023 regulatory capital rule proposal, which, among other things, would require the Company to include AOCI in regulatory capital (see Part II – Item 7 – Current Regulatory and Other Developments in the 2024 Form 10-K), the Company has developed an adjusted Tier 1 Leverage Ratio, which is a non-GAAP financial measure that includes AOCI in the ratio. The primary component of AOCI for Schwab is unrealized gains and losses on our AFS investment securities portfolio and on securities transferred from AFS to the HTM category. The Company maintains a long-term operating objective for its consolidated adjusted Tier 1 Leverage Ratio of 6.75% - 7.00%. As of March 31, 2025, our adjusted Tier 1 Leverage Ratio, which includes AOCI in the ratio, was 7.1% for CSC (consolidated) and 8.2% for CSB (see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results). The Company is continuing to accrete capital organically, and will continue to manage its capital as described above and in Part II – Item 7 – Capital Management of the 2024 Form 10-K. In evaluating returns of excess capital to stockholders, we will consider the amount of bank supplemental funding outstanding, and may choose to utilize the liquidity we would otherwise use for capital returns to repay outstanding bank supplemental funding balances. IDA Agreement Certain brokerage client deposits are swept off-balance sheet to the TD Depository Institutions pursuant to the 2023 IDA agreement. During the first three months of 2025, Schwab did not move IDA balances to its balance sheet. The Company’s overall capital management strategy includes supporting migration of IDA balances in future periods as available pursuant to the terms of the 2023 IDA agreement. The Company’s ability to migrate these balances to its balance sheet is dependent upon multiple factors including having sufficient capital levels to sustain these incremental deposits. See Item 1 – Note 10 for further information on the 2023 IDA agreement. - 21 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) Dividends On January 29, 2025, the Board of Directors of the Company declared a two cent, or 8%, increase in the quarterly cash dividend to $.27 per common share. Cash dividends paid and per share amounts for the first three months of 2025 and 2024 are as follows: 2025 2024 Three Months Ended March 31, Cash Paid Per Share Amount Cash Paid Per Share Amount Common and Nonvoting Common Stock (1) $ 492 $ .27 $ 459 $ .25 Preferred Stock: Series D (2) 11 14.88 11 14.88 Series F (3) — — — — Series G (2) 33 1,343.75 33 1,343.75 Series H (2) 22 1,000.00 22 1,000.00 Series I (2) 21 1,000.00 21 1,000.00 Series J (2) 7 11.13 7 11.13 Series K (2) 9 1,250.00 9 1,250.00 (1) The Company had no nonvoting common stock outstanding as of the record date for the Company’s first quarter 2025 dividend and accordingly, no dividends were paid on nonvoting common stock during the three months ended March 31, 2025. (2) Dividends paid quarterly. (3) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter. Share Repurchases On February 12, 2025, TD Group US Holdings LLC, an affiliate of TD Bank, completed a secondary public offering of the Company’s common shares through which TD Group US Holdings LLC sold 133.8 million shares of the Company’s common stock and 31.7 million shares of the Company’s nonvoting common stock, which automatically converted into common stock, for an aggregate amount of $13.1 billion. The Company did not receive any of the proceeds from the sale of shares. Concurrent with the completion of the secondary offering, and pursuant to a repurchase agreement dated February 9, 2025, the Company repurchased directly from TD Group US Holdings LLC its remaining 19.2 million shares of nonvoting common stock at a price of $77.982 per share for an aggregate repurchase amount of $1.5 billion, which settled on February 12, 2025. The shares of nonvoting common stock automatically converted into common stock upon repurchase and are now held in treasury stock, reducing the number of shares outstanding. These shares were purchased under CSC’s $15.0 billion share repurchase authorization. The share repurchase authorization does not have an expiration date and as of March 31, 2025, approximately $7.2 billion remained on the authorization. There were no repurchases of CSC’s common stock during the three months ended March 31, 2024. Share repurchases, net of issuances, are subject to a nondeductible 1% excise tax which was recognized as a direct and incremental cost associated with these transactions. For repurchases of common stock, the tax is recorded as part of the cost basis of the treasury stock repurchased, resulting in no impact to the condensed consolidated statements of income. Through the completion of the secondary offering and the Company’s repurchase of nonvoting common stock, TD Bank disposed of all of its common shares of CSC and the Company has no remaining nonvoting common stock outstanding. See Item 1 – Note 14 for additional information. OTHER Foreign Exposure At March 31, 2025, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At March 31, 2025, the fair value of these holdings totaled $15.2 billion, with the top three exposures being to issuers and counterparties domiciled in France at $8.7 billion, the United Kingdom at $3.8 billion, and Norway at $750 million. At December 31, 2024, the fair value of these holdings totaled $10.6 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.1 billion, the United Kingdom at $2.1 billion, and Canada at $889 million. In addition, Schwab had outstanding margin loans to foreign residents of $3.5 billion at both March 31, 2025 and December 31, 2024. - 22 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) CRITICAL ACCOUNTING ESTIMATES Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Critical Accounting Estimates in the 2024 Form 10-K. There have been no changes to critical accounting estimates during the first three months of 2025. NON-GAAP FINANCIAL MEASURES In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S. (GAAP), Management’s Discussion and Analysis of Financial Condition and Results of Operations contain references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide useful supplemental information about the financial performance of the Company, and facilitate meaningful comparison of Schwab’s results in the current period to both historic and future results. These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may not be comparable to non-GAAP financial measures presented by other companies. Schwab’s use of non-GAAP measures is reflective of certain adjustments made to GAAP financial measures as described below. Non-GAAP Adjustment or Measure Definition Usefulness to Investors and Uses by Management Acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs Schwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, restructuring costs, and, where applicable, the income tax effect of these expenses. Adjustments made to exclude amortization of acquired intangible assets are reflective of all acquired intangible assets, which were recorded as part of purchase accounting. These acquired intangible assets contribute to the Company’s revenue generation. Amortization of acquired intangible assets will continue in future periods over their remaining useful lives. We exclude acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and is useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods. Costs related to acquisition and integration or restructuring fluctuate based on the timing of acquisitions, integration and restructuring activities, thereby limiting comparability of results among periods, and are not representative of the costs of running the Company’s ongoing business. Amortization of acquired intangible assets is excluded because management does not believe it is indicative of the Company’s underlying operating performance. Return on tangible common equity Return on tangible common equity represents annualized adjusted net income available to common stockholders as a percentage of average tangible common equity. Tangible common equity represents common equity less goodwill, acquired intangible assets – net, and related deferred tax liabilities. Acquisitions typically result in the recognition of significant amounts of goodwill and acquired intangible assets. We believe return on tangible common equity may be useful to investors as a supplemental measure to facilitate assessing capital efficiency and returns relative to the composition of Schwab’s balance sheet. Adjusted Tier 1 Leverage Ratio Adjusted Tier 1 Leverage Ratio represents the Tier 1 Leverage Ratio as prescribed by bank regulatory guidance for the consolidated company and for CSB, adjusted to reflect the inclusion of AOCI in the ratio. Inclusion of the impacts of AOCI in the Company’s Tier 1 Leverage Ratio provides additional information regarding the Company’s current capital position. We believe Adjusted Tier 1 Leverage Ratio may be useful to investors as a supplemental measure of the Company’s capital levels. The Company also uses adjusted diluted EPS and return on tangible common equity as components of performance criteria for employee bonus and certain executive management incentive compensation arrangements. The Compensation Committee of CSC’s Board of Directors maintains discretion in evaluating performance against these criteria. Additionally, the Company uses adjusted Tier 1 Leverage Ratio in managing capital, including its use of the measure as its long-term operating objective. - 23 - THE CHARLES SCHWAB CORPORATION Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular Amounts in Millions, Except Ratios, or as Noted) The following tables present reconciliations of GAAP measures to non-GAAP measures: Three Months Ended March 31, 2025 2024 Total expenses excluding interest (GAAP) $ 3,144 $ 2,942 Amortization of acquired intangible assets (130) (130) Acquisition and integration-related costs (1) — (38) Restructuring costs (2) — 28 Adjusted total expenses (non-GAAP) $ 3,014 $ 2,802 (1) There were no acquisition and integration-related costs for the three months ended March 31, 2025. Acquisition and integration-related costs for the three months ended March 31, 2024 primarily consist of $17 million of compensation and benefits and $17 million of professional services. (2) There were no restructuring costs for the three months ended March 31, 2025. Restructuring costs for the three months ended March 31, 2024 reflect a benefit due to a change in estimate of $31 million in compensation and benefits, partially offset by $2 million of occupancy and equipment expense and $1 million of other expense. Three Months Ended March 31, 2025 2024 Amount Diluted EPS Amount Diluted EPS Net income available to common stockholders (GAAP), Earnings per common share — diluted (GAAP) $ 1,796 $ .99 $ 1,251 $ .68 Amortization of acquired intangible assets 130 .07 130 .07 Acquisition and integration-related costs — — 38 .02 Restructuring costs — — (28) (.01) Income tax effects (1) (31) (.02) (33) (.02) Adjusted net income available to common stockholders (non-GAAP), Adjusted diluted EPS (non-GAAP) $ 1,895 $ 1.04 $ 1,358 $ .74 (1) The income tax effects of the non-GAAP adjustments are determined using an effective tax rate reflecting the exclusion of non-deductible acquisition costs and are used to present the acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs on an after-tax basis. Three Months Ended March 31, 2025 2024 Return on average common stockholders’ equity (GAAP) 18 % 15 % Average common stockholders’ equity $ 39,752 $ 32,493 Less: Average goodwill (11,951) (11,951) Less: Average acquired intangible assets — net (7,679) (8,196) Plus: Average deferred tax liabilities related to goodwill and acquired intangible assets — net 1,709 1,759 Average tangible common equity $ 21,831 $ 14,105 Adjusted net income available to common stockholders (1) $ 1,895 $ 1,358 Return on tangible common equity (non-GAAP) 35 % 39 % (1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP). March 31, 2025 December 31, 2024 CSC CSB CSC CSB Tier 1 Leverage Ratio (GAAP) 9.9 % 12.1 % 9.9 % 11.6 % Tier 1 Capital $ 45,213 $ 33,078 $ 45,186 $ 32,584 Plus: AOCI adjustment (13,614) (11,835) (14,839) (12,938) Adjusted Tier 1 Capital 31,599 21,243 30,347 19,646 Average assets with regulatory adjustments 457,495 272,273 458,119 280,701 Plus: AOCI adjustment (14,165) (12,419) (14,831) (13,037) Adjusted average assets with regulatory adjustments $ 443,330 $ 259,854 $ 443,288 $ 267,664 Adjusted Tier 1 Leverage Ratio (non-GAAP) 7.1 % 8.2 % 6.8 % 7.3 % - 24 - THE CHARLES SCHWAB CORPORATION