Annual Statements Open main menu

SCHWAB CHARLES CORP - Quarter Report: 2023 June (Form 10-Q)


UNITED STATES
SECURITIES  AND  EXCHANGE  COMMISSION
Washington, D.C.  20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number: 1-9700

THE  CHARLES  SCHWAB  CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
94-3025021
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

3000 Schwab Way, Westlake, TX  76262
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:  (817) 859-5000

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock – $.01 par value per shareSCHWNew York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 5.95% Non-Cumulative Preferred Stock, Series DSCHW PrDNew York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 4.450% Non-Cumulative Preferred Stock, Series JSCHW PrJNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒                        Accelerated filer ☐
Non-accelerated filer ☐                        Smaller reporting company ☐         
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,770,219,589 shares of $.01 par value Common Stock and 50,893,695 shares of $.01 par value Nonvoting Common Stock outstanding on July 31, 2023



THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2023



 Index
 
 
    
Item 1. 
    
  
  
  
  33-34
  35-67
    
Item 2. 1-28
    
Item 3. 
    
Item 4. 
    
  
    
Item 1. 
    
Item 1A. 
    
Item 2. 
   
Item 3. 
    
Item 4. 
    
Item 5. 
    
Item 6. 
    
 
  





Part I – FINANCIAL INFORMATION

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)



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;
TD Ameritrade, Inc., an introducing securities broker-dealer;
TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.;
Charles Schwab Bank, SSB (CSB), our principal banking entity; 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 services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent 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 $60 trillion, which means the Company’s $8.02 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, 2022 (2022 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
- 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)

regulatory capital disclosures based on Basel III, our average liquidity coverage ratio (LCR), and our average net stable funding ratio (NSFR). The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with them.

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,” “plan,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “expand,” “aim,” “maintain,” “continue,” “seek,” and other similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

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; 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);
Investments to support growth in the business; business momentum (see Overview);
Expected timing for the TD Ameritrade client transitions; cost estimates and timing related to the TD Ameritrade integration, including acquisition and integration-related costs and capital expenditures, cost synergies, and exit and other related costs (see Overview and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);
Our planning to take actions to streamline our operations and expectation to realize at least $500 million of incremental run-rate cost savings and the timing and amount of associated exit and related costs that we will incur (see Overview, Results of Operations, and Exit and Other Related Liabilities in Item 1 – Note 10);
The expected impact of proposed rules (see Current Regulatory and Other Developments);
•     The adjustment of rates paid on client-related liabilities; outstanding balances and the use of supplemental funding; net interest revenue (see Results of Operations);
Capital expenditures (see Results of Operations);
Management of interest rate risk; the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity, and liability and asset duration (see Risk Management);
The phase-out of the use of LIBOR (see Risk Management);
Sources and uses of liquidity and capital (see Liquidity Risk and Capital Management);
Capital management; the potential migration of insured deposit account balances (IDA balances) to our balance sheet; expectations about capital requirements, including accumulated other comprehensive income (AOCI), and meeting those requirements; plans regarding capital and dividends (see Capital Management and Commitments and Contingencies in Item 1 – Note 9);
The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Item 1 – Note 2);
The likelihood of indemnification and guarantee payment obligations and clients failing to fulfill contractual obligations (see Commitments and Contingencies in Item 1 – Note 9); and
The impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 9 and Legal Proceedings in Part II – Item 1).

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 market conditions, including equity valuations and the level of interest rates;
The level and mix of client trading activity;
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;
Competitive pressure on pricing, including deposit rates;
- 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)

Client sensitivity to rates;
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;
The risk that expected cost synergies and other benefits from the TD Ameritrade acquisition may not be fully realized or may take longer to realize than expected and that integration-related expenses may be higher than expected;
Increased compensation and other costs due to inflationary pressures;
The timing and scope of integration-related and other technology projects;
Real estate and workforce decisions;
Our ability to timely and successfully streamline our operations and realize expected run-rate cost savings;
Client cash allocations;
Migrations of bank deposit account balances (BDA balances);
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;
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 2022 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 second quarter and first six months of 2023 and 2022 are as follows:
Three Months Ended
June 30,
Percent
Change
Six Months Ended
June 30,
Percent
Change
2023202220232022
Client Metrics   
Net new client assets (in billions) (1)
$72.0 $43.4 66 %$222.7 $163.9 36 %
Core net new client assets (in billions)$52.2 $64.2 (19)%$183.9 $184.7 — 
Client assets (in billions, at quarter end)$8,015.8 $6,832.5 17 %
Average client assets (in billions)$7,698.3 $7,262.7 %$7,541.8 $7,514.6 — 
New brokerage accounts (in thousands)960 1,014 (5)%2,002 2,216 (10)%
Active brokerage accounts (in thousands, at quarter end)34,382 33,896 %
Assets receiving ongoing advisory services (in billions,
  at quarter end)
$4,075.3 $3,524.2 16 %
Client cash as a percentage of client assets (at quarter end) (2)
10.5 %12.8 % 
Company Financial Information and Metrics   
Total net revenues$4,656 $5,093 (9)%$9,772 $9,765 — 
Total expenses excluding interest2,965 2,819 %5,971 5,652 %
Income before taxes on income1,691 2,274 (26)%3,801 4,113 (8)%
Taxes on income397 481 (17)%904 918 (2)%
Net income1,294 1,793 (28)%2,897 3,195 (9)%
Preferred stock dividends and other121 141 (14)%191 265 (28)%
Net income available to common stockholders$1,173 $1,652 (29)%$2,706 $2,930 (8)%
Earnings per common share — diluted$.64 $.87 (26)%$1.48 $1.54 (4)%
Net revenue change from prior year(9)%13 % — %
Pre-tax profit margin36.3 %44.6 % 38.9 %42.1 %
Return on average common stockholders’ equity (annualized)17 %19 % 20 %15 %
Expenses excluding interest as a percentage of average client
  assets (annualized)
0.15 %0.16 %0.16 %0.15 %
Consolidated Tier 1 Leverage Ratio (at quarter end)7.5 %6.4 %
Non-GAAP Financial Measures (3)
Adjusted total expenses (4)
$2,701 $2,571 $5,474 $5,154 
Adjusted diluted EPS$.75 $.97 $1.68 $1.74 
Return on tangible common equity62 %45 %71 %32 %
(1) The second quarter and first six months of 2023 include inflows of $7.8 billion and $26.8 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB and includes an inflow of $12.0 billion from a mutual fund clearing services client. The second quarter and first six months of 2022 include an outflow of $20.8 billion from a mutual fund clearing services client.
(2) Client cash as a percentage of client assets excludes brokered CDs issued by CSB.
(3) See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
(4) Adjusted total expenses is a non-GAAP financial measure adjusting total expenses excluding interest. See Non-GAAP Financial Measures.

Schwab saw sustained strong client engagement and momentum during the second quarter and first six months of 2023 through an evolving macroeconomic environment. Under its monetary tightening policy, the Federal Reserve raised the Federal Funds rate twice in the first quarter and once in the second quarter for a total of 75 basis points. Investor sentiment was bearish throughout the first quarter, especially following the onset of banking industry turmoil in early March, but turned positive by the end of the second quarter, and Schwab’s clients were net buyers of equities in June. Equity markets continued to rise from year-end 2022 levels in the second quarter, with the S&P 500® increasing 8% and 16% during the second quarter and first six months of 2023, respectively.

Core net new assets totaled $52.2 billion in the second quarter of 2023, bringing year-to-date asset gathering to $183.9 billion, representing an annualized organic growth rate of over 5%. Total client assets were $8.02 trillion at June 30, 2023, up 14% from year-end 2022, supported by sustained asset gathering as well as market value gains. Trading volume was lower throughout the first half of 2023 relative to the same period in 2022. Clients’ daily average trades (DATs) were 5.3 million and 5.6 million in the second quarter and first half of 2023, respectively, down 15% and 13% from the respective prior periods.
- 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)

Clients opened 960 thousand and 2.0 million new brokerage accounts in the second quarter and first six months of 2023, respectively, bringing active brokerage accounts to 34.4 million at quarter-end, up 1% year-over-year. Schwab’s financial performance in the second quarter and first six months of 2023 reflected effects of significantly increased interest rates and improvement in equity market valuations.

Net income totaled $1.3 billion and $2.9 billion in the second quarter and first six months of 2023, respectively, down 28% and 9% from the same periods in 2022. The Company produced diluted earnings per share (EPS) of $.64 and $1.48 in the second quarter and first six months of 2023, respectively, down 26% and 4% from the comparable periods in the prior year. Adjusted diluted EPS (1), which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, was $.75 and $1.68 in the second quarter and first six months of 2023, respectively, down 23% and 3% from the comparable 2022 periods.

Total net revenues were $4.7 billion in the second quarter of 2023, down 9% from the prior year, which brought the year-to-date total to $9.8 billion, up slightly from the first half of 2022. Net interest revenue was $2.3 billion and $5.1 billion in the second quarter and first six months of 2023, respectively, down 10% and up 7% from the comparable periods in 2022, as the benefits of significantly higher interest rates were more than offset in the second quarter by increased utilization of supplemental funding to facilitate client cash allocation decisions and lower interest-earning assets. Asset management and administration fees totaled $1.2 billion and $2.3 billion in the second quarter and first six months of 2023, respectively, rising 12% and 8% from the comparable periods in 2022 due to growth in money market funds, partially offset by lower balances in other third-party mutual funds and ETFs. Trading revenue was $803 million and $1.7 billion in the second quarter and first six months of 2023, respectively, down 9% and 8% from the comparable periods in 2022 due primarily to lower trading volume and change in mix of client trading activity. Bank deposit account fee revenue was $175 million and $326 million in the second quarter and first six months of 2023, respectively, down 50% from both comparable periods in the prior year due to lower average BDA balances and lower net yields, as well as $97 million in one-time breakage fees related to ending our arrangements with certain third-party banks in the first quarter of 2023. BDA balances totaled $102.7 billion at June 30, 2023, down 19% from year-end 2022 due primarily to client cash allocation decisions. During the second quarter of 2023, the Company executed a Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement) (see Results of Operations – Bank Deposit Account Fees).

Total expenses excluding interest were $3.0 billion and $6.0 billion in the second quarter and first six months of 2023, respectively, increasing 5% and 6% from the same periods in 2022. Adjusted total expenses (1) were $2.7 billion and $5.5 billion in the second quarter and first six months of 2023, respectively, also higher by 5% and 6% from the comparable prior-year periods. These increases reflected higher expenses for compensation and benefits, depreciation and amortization, and occupancy and equipment, due largely to investments in people and technology to support growth in the business and TD Ameritrade integration. Acquisition and integration-related costs were $130 million and $228 million during the second quarter and first six months of 2023, respectively, up 38% and 20% from the same periods in 2022 due primarily to real estate exit costs incurred in the second quarter of 2023. Amortization of acquired intangible assets was $134 million and $269 million in the second quarter and first six months of 2023, respectively, down 13% from both comparable periods in 2022 as certain assets from the TD Ameritrade acquisition were fully amortized at the beginning of the fourth quarter of 2022.

Return on average common stockholders’ equity was 17% and 20% for the second quarter and first six months of 2023, respectively, down from 19% and up from 15% from the same periods in 2022. Return on tangible common equity (1) (ROTCE) was 62% and 71% for the second quarter and first six months of 2023, respectively, up from 45% and 32% in the same periods in 2022. These changes reflected lower stockholders’ equity and lower net income in 2023 compared with 2022. Stockholders’ equity was lower in the first six months of 2023 due to a year-over-year decrease in average AOCI driven by unrealized losses on our available for sale (AFS) portfolio and securities transferred from AFS to held to maturity (HTM) in 2022 (see Item 1 – Note 4).

The Company continued its diligent approach to balance sheet management throughout the first six months of 2023 to maintain capital and liquidity levels to sustain ongoing business momentum. Total balance sheet assets decreased 7% from year-end 2022 to June 30, 2023. Amid higher market interest rates in the first half of 2023, clients allocated assets to higher yielding cash and fixed income alternatives, and to facilitate these client cash movements and help build available cash, the Company utilized additional temporary funding sources including Federal Home Loan Bank (FHLB) borrowings and issuances of brokered CDs. Amounts outstanding under FHLB borrowings, other short-term borrowings, and brokered CDs increased by a total of

(1) Adjusted diluted EPS, adjusted total expenses, and return on tangible common equity are non-GAAP financial measures. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
- 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)

$6.8 billion from March 31 to June 30, 2023, though the outstanding balance of these temporary funding sources declined $6.9 billion from an intra-quarter peak in May to quarter-end, as the pace of client cash reallocations declined significantly during the second quarter. In addition, in May, the Company issued $2.5 billion in long-term debt which provided incremental liquidity to support growth and helped bolster our capital ratios at our banking subsidiaries. Concurrently, driven by a combination of the Company’s first-half net income and a smaller balance sheet, our consolidated Tier 1 Leverage Ratio increased to 7.5% as of June 30, 2023.

Integration of TD Ameritrade

Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade Holding Corporation (TDA Holding) and its consolidated subsidiaries (collectively referred to as “TD Ameritrade” or “TDA”). Integration work continued during the first six months of 2023, including the completion of client transition groups in February and May 2023. With the completion of the May transition group, which included more than five million client accounts, the Company has now transitioned approximately one-third of its TD Ameritrade client accounts to the Schwab platform. The Company expects to complete most remaining client transitions from TD Ameritrade to Schwab across two groups over the remainder of 2023, with the transition of a small client group in the first half of 2024. We expect to incur total acquisition and integration-related costs and capital expenditures of between $2.4 billion and $2.5 billion.

The Company’s estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change based on a number of factors, including the expected duration and complexity of the integration process and the continued uncertainty of the economic environment. More specifically, factors that could cause variability in our expected acquisition and integration-related costs include the level of employee attrition and availability of third-party labor, workforce redeployment from eliminated positions into open roles, changes in the levels of client activity, as well as changes in the scope and cost of technology and real estate-related exit cost variability due to effects of changes in remote working trends.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $130 million and $228 million for the second quarter and first six months of 2023, respectively, and $94 million and $190 million for the second quarter and first six months of 2022, respectively. Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through June 30, 2023, we have achieved approximately 75% of this amount on an annualized run-rate basis. The Company expects to realize the vast majority of the remaining estimated cost synergies by the end of 2024, with anticipated full year synergy realization beginning in 2025. Estimated timing and amounts of synergy realization are subject to change as we progress in the integration. Refer to Part II – Item 7 – Overview in our 2022 Form 10-K, Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 1 – Note 10 for additional information regarding our integration of TD Ameritrade.

Other

In addition to cost synergies directly related to the integration of TD Ameritrade, the Company is planning incremental actions to streamline its operations to prepare for post-integration. Schwab is currently assessing its real estate footprint, and plans to close or downsize certain corporate offices. In addition, the Company plans to streamline its operational design, including through position eliminations. Through these actions, the Company expects to realize at least $500 million of incremental run-rate cost savings in addition to integration synergies. Refer to Results of Operations – Total Expenses Excluding Interest for additional information.

Current Regulatory and Other Developments

In July 2023, the Board of Governors of the Federal Reserve System, in collaboration with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC), issued a notice of proposed rulemaking for amendments to the regulatory capital rule. Among other things, the proposed rule would require us to include AOCI in regulatory capital and to calculate our risk-weighted assets using a revised risk-based approach, a component of which is based on operational risk, phased in over a three-year transition period beginning July 1, 2025 and ending July 1, 2028. The comment period for the proposed rule ends on November 30, 2023.

In May 2023, the FDIC issued a notice of proposed rulemaking that would impose a special assessment to recover losses incurred by the Deposit Insurance Fund to protect uninsured depositors due to the March 2023 closures of two banks. Based on the proposed rule, the Company estimates its total special assessment would be approximately $160 million, which would be
- 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)

paid over eight quarters beginning in the first quarter of 2024. Any special assessment will be recognized fully in earnings upon enactment of a final rule.

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

The “Order Competition Rule” would require that, before most individual investors’ orders could be executed internally by a trading center (like wholesaler market makers), those orders must first be exposed to a qualifying order-by-order auction in which both market makers and institutional investors can participate.
“Regulation Best Execution” would establish an SEC-level best execution standard (in addition to the existing FINRA and MSRB best execution rules) for broker-dealers and require them to establish, maintain, and enforce written policies and procedures addressing how the broker-dealer will comply with the best execution standard and make routing or execution decisions for customer orders. Regulation Best Execution would apply not only to equities, but to all securities.
Amendments to Rule 605 of Regulation NMS requiring enhanced disclosures of order execution quality for large brokers that handle retail orders.
A rule to (i) amend minimum pricing increments (or tick sizes) that would apply to both the quoting and trading of NMS stocks, (ii) reduce the exchange access fee caps, and (iii) require transparency of odd-lots.

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

In November 2022, the SEC proposed a rule that would require substantial changes to the liquidity risk management programs for open-end mutual funds other than money market funds (funds) and require them to implement “swing pricing” and impose a “hard close” on the acceptance of purchase and redemption orders. Swing pricing would require funds to adjust the fund’s current net asset value (NAV) per share by a “swing factor” if the fund has either (i) net redemptions (no threshold) or (ii) net purchases that exceed a specified threshold (2% of the fund’s net assets). To implement the swing pricing requirements, the proposed rule also would require that a fund, its transfer agent, or a registered clearing agency receive purchase and redemption orders prior to the time the fund has established for determining the NAV, typically market close, in order to receive a given day’s NAV (a “hard close”). Current practices permit fund orders received by a financial intermediary prior to the fund cut-off time to be transmitted to the fund after the fund cut-off time and for the order to receive that day’s NAV. Under the proposed rule, orders received by the fund, its transfer agent or registered clearing agency after the fund cut-off time would receive the next day’s NAV. The comment period for the proposed rule ended on February 14, 2023 and the impact to Schwab cannot be assessed until the final rule is released.

In May 2022, the federal banking agencies issued a joint notice of proposed rulemaking that would substantially revise how an insured depository institution’s Community Reinvestment Act (CRA) performance is evaluated. The proposed rule includes revisions relating to the delineation of assessment areas, the overall evaluation framework and performance standards and metrics, the definition of community development activities and data collection and reporting. The comment period for the proposed rule ended on August 5, 2022 and the impact to Schwab cannot be assessed until the final rule is released.




- 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)

RESULTS OF OPERATIONS

Total Net Revenues

The following tables present a comparison of revenue by category:
 20232022
Three Months Ended June 30,Percent
Change
Amount% of
Total Net
Revenues
Amount% of
Total Net
Revenues
Net interest revenue
Interest revenue51 %$4,104 88 %$2,710 53 %
Interest expenseN/M(1,814)(39)%(166)(3)%
Net interest revenue(10)%2,290 49 %2,544 50 %
Asset management and administration fees   
Mutual funds, exchange-traded funds (ETFs), and collective trust
  funds (CTFs)
22 %630 13 %515 10 %
Advice solutions%464 10 %461 %
Other%79 %76 %
Asset management and administration fees12 %1,173 25 %1,052 21 %
Trading revenue  
Commissions(11)%394 %443 %
Order flow revenue(15)%365 %430 %
Principal transactionsN/M44 %12 — 
Trading revenue(9)%803 17 %885 17 %
Bank deposit account fees(50)%175 %352 %
Other(17)%215 %260 %
Total net revenues(9)%$4,656 100 %$5,093 100 %

20232022
Six Months Ended June 30,Percent
Change
Amount% of
Total Net
Revenues
Amount% of
Total Net
Revenues
Net interest revenue
Interest revenue61 %$8,120 83 %$5,029 51 %
Interest expenseN/M(3,060)(31)%(302)(3)%
Net interest revenue%5,060 52 %4,727 48 %
Asset management and administration fees
Mutual funds, ETFs, and CTFs21 %1,215 13 %1,004 10 %
Advice solutions(4)%917 %957 10 %
Other— 159 %159 %
Asset management and administration fees%2,291 24 %2,120 22 %
Trading revenue
Commissions(12)%816 %927 %
Order flow revenue(13)%779 %900 %
Principal transactionsN/M100 %21 %
Trading revenue(8)%1,695 17 %1,848 19 %
Bank deposit account fees(50)%326 %646 %
Other(6)%400 %424 %
Total net revenues— $9,772 100 %$9,765 100 %
N/M Not meaningful. Percent changes greater than 200% are presented as not meaningful.
- 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)

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 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, Federal Home Loan Bank (FHLB) borrowings, other short-term borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities. See also Risk Management – Interest Rate Risk Simulations.

Interest rates increased significantly beginning late in the first quarter of 2022 through the second quarter of 2023. Short-term rates were near zero until the Federal Reserve began its aggressive tightening cycle in March 2022 in response to rising inflation, ultimately increasing the federal funds target overnight rate ten times between March 2022 and May 2023 for a total increase of 500 basis points. Long-term interest rates increased throughout 2022 and the first six months of 2023, though at a slower pace, leading to an inverted yield curve.

Schwab’s average interest-earning assets in the second quarter and first six months of 2023 were lower compared with the same periods of 2022 due primarily to client cash allocation movement to higher yielding investment solutions beginning in the second quarter of 2022 through the second quarter of 2023, which resulted primarily from the rapid increases to the federal funds overnight rate. These changes in client cash allocations reduced average balances of bank deposits and payables to brokerage clients. To support this client cash allocation activity, the Company utilized temporary supplemental funding beginning in the fourth quarter of 2022 and during the first half of 2023, including drawing upon FHLB secured lending facilities and issuing brokered CDs. The average daily pace of client cash allocation out of sweep products into higher yielding investment solutions decreased significantly in the second quarter of 2023, and in June, the Company was able to accommodate these client cash movements without accessing additional FHLB borrowings or issuing additional brokered CDs.

The following tables present net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:
20232022
Three Months Ended June 30, 2023Average BalanceInterest Revenue/ ExpenseAverage Yield/RateAverage BalanceInterest Revenue/ ExpenseAverage Yield/Rate
Interest-earning assets      
Cash and cash equivalents$44,683 $547 4.84 %$65,414 $133 0.81 %
Cash and investments segregated27,399 324 4.68 %51,232 79 0.61 %
Receivables from brokerage clients60,709 1,167 7.60 %79,061 706 3.53 %
Available for sale securities (1)
145,032 791 2.18 %287,313 1,088 1.51 %
Held to maturity securities (1)
167,499 720 1.72 %101,752 339 1.33 %
Bank loans40,124 410 4.09 %38,831 230 2.38 %
Total interest-earning assets485,446 3,959 3.24 %623,603 2,575 1.64 %
Securities lending revenue124 130 
Other interest revenue 21 
Total interest-earning assets $485,446 $4,104 3.36 %$623,603 $2,710 1.73 %
Funding sources
Bank deposits$312,543 $863 1.11 %$449,936 $28 0.03 %
Payables to brokerage clients64,892 64 0.40 %101,784 0.02 %
Other short-term borrowings (2)
7,622 97 5.08 %2,587 0.69 %
Federal Home Loan Bank borrowings (2,3)
46,813 606 5.13 %— — — 
Long-term debt21,237 157 2.95 %21,119 124 2.34 %
Total interest-bearing liabilities453,107 1,787 1.57 %575,426 160 0.11 %
Non-interest-bearing funding sources
32,339 48,177 
Securities lending expense
28 
Other interest expense
(1)(2)
Total funding sources $485,446 $1,814 1.49 %$623,603 $166 0.11 %
Net interest revenue$2,290 1.87 %$2,544 1.62 %
- 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)

20232022
Six Months Ended June 30,Average
Balance
Interest
Revenue/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Revenue/
Expense
Average
Yield/
Rate
Interest-earning assets
Cash and cash equivalents$40,891 $960 4.67 %$68,920 $167 0.48 %
Cash and investments segregated33,699 756 4.46 %51,570 94 0.36 %
Receivables from brokerage clients60,626 2,251 7.39 %81,618 1,332 3.24 %
Available for sale securities (1)
150,382 1,616 2.15 %285,927 2,035 1.42 %
Held to maturity securities (1)
169,184 1,466 1.73 %102,580 717 1.40 %
Bank loans40,185 801 4.00 %37,351 417 2.24 %
Total interest-earning assets494,967 7,850 3.16 %627,966 4,762 1.51 %
Securities lending revenue236 259 
Other interest revenue34 
Total interest-earning assets$494,967 $8,120 3.27 %$627,966 $5,029 1.60 %
Funding sources
Bank deposits$327,739 $1,481 0.91 %$451,306 $44 0.02 %
Payables to brokerage clients70,997 139 0.40 %103,846 0.01 %
Other short-term borrowings (2)
7,272 183 5.06 %3,646 0.46 %
Federal Home Loan Bank borrowings (2,3)
35,697 910 5.07 %— — — 
Long-term debt20,766 296 2.85 %20,495 232 2.26 %
Total interest-bearing liabilities462,471 3,009 1.31 %579,293 290 0.10 %
Non-interest-bearing funding sources32,496 48,673 
Securities lending expense50 15 
Other interest expense(3)
Total funding sources$494,967 $3,060 1.24 %$627,966 $302 0.10 %
Net interest revenue$5,060 2.03 %$4,727 1.50 %
(1) Amounts have been calculated based on amortized cost. Interest revenue on investment securities is presented net of related premium amortization.
(2) Beginning in the first quarter of 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.
(3) Average balance and interest expense were less than $500 thousand in the prior period.

Net interest revenue decreased $254 million, or 10%, in the second quarter of 2023 compared to the second quarter of 2022, primarily due to utilization of higher cost funding sources including FHLB borrowings, other short-term borrowings, and brokered CDs to support client cash allocations in the rising rate environment, and lower average interest-earning assets, which more than offset the benefits of higher average yields on interest-earning assets. Net interest revenue in the first six months of 2023 increased $333 million, or 7%, compared to the same period in 2022, primarily due to higher average yields on interest-earning assets, partially offset by utilization of higher cost funding sources and lower average interest-earning assets. With the increases in market interest rates during the first half of 2023, net premium amortization of investment securities decreased to $207 million and $392 million in the second quarter and first six months of 2023, respectively, from $382 million and $868 million in the second quarter and first six months of 2022, respectively.

Average interest-earning assets for the second quarter and first six months of 2023 were lower by 22% and 21%, respectively, compared to the same periods in 2022. These decreases were primarily due to lower bank deposits and payables to brokerage clients as a result of changes in client cash allocations due to higher market interest rates.

Net interest margin increased to 1.87% and 2.03% during the second quarter and first six months of 2023, respectively, from 1.62% and 1.50% during the same periods in 2022. Higher market interest rates improved yields on interest-earning assets, which more than offset the higher rates paid across interest-bearing funding sources.

The Company’s higher average balances in the second quarter and first six months of 2023 of FHLB borrowings, other short-term borrowings, and brokered CDs resulted in higher funding costs. The Company currently expects its outstanding balances of supplemental funding sources to decrease between now and the end of 2024, with a limited portion remaining outstanding in early 2025. Additional higher cost supplemental funding may be necessary if client cash allocation movements increase, which
- 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)

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

Asset Management and Administration Fees

The following table presents asset management and administration fees, average client assets, and average fee yields:
Three Months Ended June 30,20232022
Average
Client
Assets
RevenueAverage
Fee
Average
Client
Assets
RevenueAverage
Fee
Schwab money market funds before fee waivers$375,898 $252 0.27 %$146,009 $106 0.29 %
Fee waivers— (3)
Schwab money market funds375,898 252 0.27 %146,009 103 0.28 %
Schwab equity and bond funds, ETFs, and CTFs465,079 94 0.08 %431,747 92 0.09 %
Mutual Fund OneSource® and other no-transaction-fee (NTF) funds
229,207 151 0.26 %192,435 149 0.31 %
Other third-party mutual funds and ETFs681,486 133 0.08 %795,727 171 0.09 %
Total mutual funds, ETFs, and CTFs (1)
$1,751,670 630 0.14 %$1,565,918 515 0.13 %
Advice solutions (1)
Fee-based$455,859 464 0.41 %$440,336 461 0.42 %
Non-fee-based95,427 — — 86,684 — — 
Total advice solutions$551,286 464 0.34 %$527,020 461 0.35 %
Other balance-based fees (2)
594,528 63 0.04 %566,712 61 0.04 %
Other (3)
16 15 
Total asset management and administration fees$1,173 $1,052 
20232022
Six Months Ended June 30,Average
Client
Assets
RevenueAverage
Fee
Average
Client
Assets
RevenueAverage
Fee
Schwab money market funds before fee waivers$346,145 $465 0.27% $145,371 $208 0.29% 
Fee waivers— (57)
Schwab money market funds346,145 465 0.27% 145,371 151 0.21% 
Schwab equity and bond funds, ETFs, and CTFs457,830 185 0.08% 444,036 189 0.09% 
Mutual Fund OneSource® and other NTF funds (4)
225,822 299 0.27% 202,538 314 0.31% 
Other third-party mutual funds and ETFs (4)
678,915 266 0.08% 833,969 350 0.08% 
Total mutual funds, ETFs, and CTFs (1)
$1,708,712 1,215 0.14% $1,625,914 1,004 0.12% 
Advice solutions (1)
Fee-based$449,443 917 0.41% $454,830 957 0.42% 
Non-fee-based94,948 — — 88,509 — — 
Total advice solutions$544,391 917 0.34% $543,339 957 0.36% 
Other balance-based fees (2)
578,158 125 0.04% 591,695 128 0.04% 
Other (3)
34 31 
Total asset management and administration fees$2,291 $2,120 
(1) Average client assets for advice 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.
(4) The first six months of 2022 include transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and other NTF funds.

Asset management and administration fees increased by $121 million, or 12%, and $171 million, or 8%, in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022. These increases were primarily a result of higher balances in Schwab money market funds and, for the first six months of 2023, the elimination of fee waivers on those funds. Money market fund balances increased as clients shifted their cash allocations to higher yielding investment solutions, and money market fund fee waivers were eliminated during 2022, both due primarily to the Federal Reserve’s increases to the federal funds target overnight rate. These increases were partially offset by lower balances in other third-party mutual funds and ETFs.

- 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)

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 42% and 41% of the asset management and administration fees earned in the second quarter and first six months of 2023, respectively, compared with 33% and 31% in the second quarter and first six months of 2022, respectively:
Schwab Money
Market Funds
Schwab Equity and
Bond Funds, ETFs, and CTFs
Mutual Fund OneSource®
and Other NTF funds
Three Months Ended June 30,202320222023202220232022
Balance at beginning of period$357,822 $143,105 $443,719 $444,277 $244,262 $235,465 
Net inflows (outflows)30,807 16,012 2,315 5,684 (6,650)(10,207)
Net market gains (losses) and other4,258 114 19,813 (62,750)17,024 (28,680)
Balance at end of period$392,887 $159,231 $465,847 $387,211 $254,636 $196,578 
Schwab Money
Market Funds
Schwab Equity and
Bond Funds, ETFs, and CTFs
Mutual Fund OneSource®
and Other NTF funds
Six Months Ended June 30,202320222023202220232022
Balance at beginning of period$278,926 $146,509 $412,942 $454,864 $235,738 $234,940 
Net inflows (outflows)105,843 12,592 12,659 15,145 (11,279)(18,763)
Net market gains (losses) and other (1)
8,118 130 40,246 (82,798)30,177 (19,599)
Balance at end of period$392,887 $159,231 $465,847 $387,211 $254,636 $196,578 
(1) Includes $14.2 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and Other NTF Funds in 2022.
Trading Revenue

Trading revenue includes commissions, order flow revenue, and principal transactions revenues. Commission revenue is affected by volume and mix of trades executed. Order flow revenue is comprised of payments received from trade execution venues to which our broker-dealer subsidiaries send equity and option orders. Order flow revenue is affected by volume and mix of client trades, as well as pricing received from trade execution venues. Principal transactions revenue is recognized primarily as a result of accommodating clients’ fixed income trading activity, and includes adjustments to the fair value of securities positions held to facilitate such client trading activity. Principal transactions revenue also includes unrealized gains and losses on cash and investments segregated for regulatory purposes.

The following tables present trading revenue, trade details, and related information:
Three Months Ended
June 30,
Percent
Change
Six Months Ended
June 30,
Percent
Change
2023202220232022
Commissions$394 $443 (11)%$816 $927 (12)%
Order flow revenue
Options251 286 (12)%532 603 (12)%
Equities114 144 (21)%247 297 (17)%
Total order flow revenue365 430 (15)%779 900 (13)%
Principal transactions44 12 N/M100 21 N/M
Total trading revenue$803 $885 (9)%$1,695 $1,848 (8)%
N/M Not meaningful. Percent changes greater than 200% are presented as not meaningful.
- 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)


Three Months Ended
June 30,
Percent
Change
Six Months Ended
June 30,
Percent
Change
2023202220232022
DATs (in thousands)5,272 6,227 (15)%5,584 6,403 (13)%
Product as a percentage of DATs
Equities51 %50 %50 %51 %
Derivatives24 %22 %23 %23 %
ETFs19 %22 %20 %20 %
Mutual funds%%%%
Fixed income%%%%
Number of trading days62.0 62.0 — 124.0 124.0 — 
Revenue per trade (1)
$2.46 $2.29 %$2.45 $2.33 5% 
(1) Revenue per trade is calculated as trading revenue divided by DATs multiplied by the number of trading days.

Trading revenue decreased $82 million and $153 million in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022. This change is primarily due to a decrease in commissions and order flow revenue resulting from lower client trading activity. Additionally, order flow revenue decreased due to a shift in the mix of client trading activity toward more lower-dollar equity trades and index options and futures and fewer single stocks. Partially offsetting these decreases, principal transactions revenue increased as a result of higher volume in fixed income trading and higher market interest rates.

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

On May 4, 2023, the Company executed the 2023 IDA agreement with the TD Depository Institutions that replaced and superseded the previous agreement dated November 24, 2019, as amended (the 2019 IDA agreement). In accordance with the 2023 IDA agreement, cash held in eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions, consistent with the 2019 IDA agreement. Schwab provides recordkeeping and support services to the TD Depository Institutions with respect to the deposit accounts for which Schwab receives an aggregate monthly fee. Under the 2023 IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions remains at 15 basis points, as it was in the 2019 IDA agreement. See Item 1 – Note 9 for additional discussion of the 2023 IDA agreement.

The following table presents bank deposit account fee revenue, average BDA balances, average net yield, and average balances earning fixed- and floating-rate yields:
Three Months Ended June 30,Percent ChangeSix Months Ended
June 30,
Percent Change
2023202220232022
Bank deposit account fees$175 $352 (50)%$326 $646 (50)%
Average BDA balances$103,622 $154,227 (33)%$109,716 $155,013 (29)%
Average net yield0.67 %0.90 %0.59 %0.83 %
Percentage of average BDA balances designated as:
Fixed-rate balances97 %77 %94 %77 %
Floating-rate balances%23 %%23 %

In January 2023, the Company ended its arrangements with other third-party banks to simplify bank sweep operations ahead of the first TD Ameritrade client transition group in February 2023. In addition, the FDIC implemented a 2-basis-point increase to the initial base deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023. This increase in the FDIC’s deposit insurance assessment results in a decrease to bank deposit account fee revenue, dependent on BDA balance levels.

- 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)

Bank deposit account fees decreased $177 million, or 50%, and $320 million, or 50%, in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022. The decreases were primarily due to breakage fees of $97 million incurred during the first quarter of 2023 as a result of ending the other third-party bank arrangements, the decrease in average floating-rate BDA balances, and an increase in the amount paid to clients due to higher interest rates. These factors also contributed to the decrease in average net yield in the second quarter and first six months of 2023 compared to the same periods in 2022. The decreases in average BDA balances in the second quarter and first six months of 2023 compared to the same periods in 2022 were primarily due to client cash allocation decisions in response to rising short-term market interest rates throughout 2022 and through the second quarter of 2023. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of June 30, 2023 were 94% and 6%, respectively.

Other Revenue

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

Other revenue decreased $45 million and $24 million in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022, due to the impact of changes to exchange processing fees and net losses on sales of AFS securities, partially offset by lower provision for credit losses on bank loans and certain service fees. Exchange processing fees decreased in the second quarter of 2023 compared to the second quarter of 2022 as a result of an SEC fee rate decrease which became effective February 27, 2023, and decreased the fee rate by approximately 65% from the rate in effect since May 2022. Exchange processing fees were higher during the first six months of 2023 compared to the same period in 2022, due to a higher average SEC fee rate in effect during the first quarter of 2023. The provision for credit losses on bank loans was lower in the second quarter and first six months of 2023 compared to the same periods in 2022, as loan loss factors and the total balance of first lien residential real estate mortgage loans (First Mortgages) remained consistent with year-end 2022. The Company’s provision for credit losses on bank loans in the second quarter and first six months of 2022 reflected increased loan loss factors driven primarily by higher forecasted interest rates at the start of the Federal Reserve’s monetary tightening, as well as growth in the loan portfolio. In addition, other revenue in the second quarter and first six months of 2022 included gains of $37 million and $46 million, respectively, on the sale of Schwab Compliance Technologies, Inc. and certain investments.

- 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)

Total Expenses Excluding Interest

The following table shows a comparison of expenses excluding interest:
Three Months Ended
June 30,
Percent
Change
Six Months Ended
June 30,
Percent
Change
2023202220232022
Compensation and benefits
Salaries and wages$961 $876 10 %$1,933 $1,729 12 %
Incentive compensation287 333 (14)%651 750 (13)%
Employee benefits and other250 217 15 %552 493 12 %
Total compensation and benefits$1,498 $1,426 %$3,136 $2,972 %
Professional services272 258 %530 502 %
Occupancy and equipment319 294 %618 563 10 %
Advertising and market development103 105 (2)%191 207 (8)%
Communications188 169 11 %334 313 %
Depreciation and amortization191 159 20 %368 309 19 %
Amortization of acquired intangible assets134 154 (13)%269 308 (13)%
Regulatory fees and assessments80 67 19 %163 135 21 %
Other180 187 (4)%362 343 %
Total expenses excluding interest$2,965 $2,819 %$5,971 $5,652 %
Expenses as a percentage of total net revenues
Compensation and benefits32 %28 %32 %30 %
Advertising and market development%%%%
Full-time equivalent employees (in thousands)
At quarter end36.635.2%
Average36.234.5%35.934.2%

Expenses excluding interest increased by $146 million, or 5%, and $319 million, or 6%, in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022. Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased 5% and 6% in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

Total compensation and benefits expense increased in the second quarter and first six months of 2023 compared to the same periods in 2022, primarily due to growth in employee headcount to support our expanding client base and TDA client account transitions, as well as annual merit increases. These increases were partially offset by lower incentive compensation. Compensation and benefits included acquisition and integration-related costs of $48 million and $53 million in the second quarter of 2023 and 2022, respectively, and $106 million and $109 million in the first six months of 2023 and 2022, respectively.

Professional services expense increased in the second quarter and first six months of 2023 compared to the same periods in 2022, primarily due to increased utilization of professional services to support overall growth of the business and enhancement to technological infrastructure to support our expanding client base, as well as the TDA integration and client account transitions. Professional services included acquisition and integration-related costs of $41 million and $35 million in the second quarter of 2023 and 2022, respectively, and $74 million and $66 million in the first six months of 2023 and 2022, respectively.

Occupancy and equipment expense increased in the second quarter and first six months of 2023 compared to the same periods in 2022, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade. Occupancy and equipment included acquisition and integration-related costs of $10 million and $4 million in the second quarter of 2023 and 2022, respectively, and $14 million and $8 million in the first six months of 2023 and 2022, respectively.

Advertising and market development expense decreased in the second quarter and first six months of 2023, compared to the same periods in 2022. These decreases were primarily due to lower client promotional spending for TD Ameritrade.

- 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)

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

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

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

Regulatory fees and assessments increased in the second quarter and first six months of 2023 compared to the same periods in 2022, primarily as a result of a 2-basis-point increase to the FDIC deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023.

Other expense decreased in the second quarter of 2023 and increased in the first six months of 2023, compared to the same periods in 2022. The decrease in the second quarter was primarily due to lower exchange processing fees, partially offset by impairment of leased assets related to facility closures. Exchange processing fees decreased in the second quarter of 2023 compared to the second quarter of 2022 as a result of an SEC fee rate decrease which became effective February 27, 2023, and decreased the fee rate by approximately 65% from the rate in effect since May 2022. The increase in other expense in the first six months of 2023 was primarily a result of impairment of leased assets related to facility closures and higher exchange processing fees. Exchange processing fees were higher during the first six months of 2023 compared to the same period in 2022, due to a higher average SEC fee rate in effect during the first quarter of 2023. Other expense included acquisition and integration-related costs of $20 million and $22 million in the second quarter and first six months of 2023, respectively.

Capital expenditures were $168 million and $339 million in the second quarter of 2023 and 2022, respectively, and $355 million and $548 million for the first six months of 2023 and 2022, respectively. Capital expenditures decreased when compared to heightened integration-related spend in 2022 in preparation for TDA client account transitions. These decreases were partially offset by higher purchased software to enhance our technological infrastructure to support our expanding client base. We continue to anticipate capital expenditures for full-year 2023 will be approximately 3-4% of total net revenues.

With significant progress now made in the integration of TD Ameritrade, the Company is planning incremental actions to streamline its operations to prepare for post-integration. Schwab is currently assessing its real estate footprint, and plans to close or downsize certain corporate offices. In addition, the Company plans to reduce its operating costs primarily through lower headcount and professional services. The Company is still evaluating both its real estate locations and its organizational headcount, though Schwab expects to realize at least $500 million of total annual run-rate cost savings to be achieved through these actions. In order to achieve these cost savings, the Company will incur exit and related costs, which could be significant, primarily related to employee compensation and benefits and facility exit costs. The Company anticipates most costs related to position eliminations will be incurred in the second half of 2023, and costs related to real estate will be incurred in 2023 and 2024; however, amounts related to these planned actions are not yet estimable.

Taxes on Income

Taxes on income were $397 million and $481 million for the second quarter of 2023 and 2022, respectively, resulting in effective tax rates of 23.5% and 21.2%, respectively. Taxes on income were $904 million and $918 million for the first six months of 2023 and 2022, respectively, resulting in effective tax rates of 23.8% and 22.3%, respectively. The increase in the effective tax rates in the second quarter and first six months of 2023 compared to the same periods in 2022 was primarily related to a decrease in reserve releases in 2023, tax benefits recognized on the portion of a regulatory matter charge that was determined upon settlement to be deductible in the second quarter of 2022, and increased 2023 state tax expense.

- 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)

Segment Information

Financial information for our segments is presented in the following tables:
Investor ServicesAdvisor ServicesTotal
Three Months Ended June 30,Percent Change20232022Percent Change20232022Percent Change20232022
Net Revenues         
Net interest revenue(7)%$1,705 $1,834 (18)%$585 $710 (10)%$2,290 $2,544 
Asset management and administration fees10 %841 763 15 %332 289 12 %1,173 1,052 
Trading revenue(8)%701 763 (16)%102 122 (9)%803 885 
Bank deposit account fees(38)%140 227 (72)%35 125 (50)%175 352 
Other(17)%156 187 (19)%59 73 (17)%215 260 
Total net revenues(6)%3,543 3,774 (16)%1,113 1,319 (9)%4,656 5,093 
Expenses Excluding Interest%2,191 2,111 %774 708 %2,965 2,819 
Income before taxes on income(19)%$1,352 $1,663 (45)%$339 $611 (26)%$1,691 $2,274 
Net New Client Assets (in billions) (1)
N/M$36.0 $8.8 %$36.0 $34.6 66 %$72.0 $43.4 

Investor ServicesAdvisor ServicesTotal
Six Months Ended June 30,Percent Change20232022Percent Change20232022Percent Change20232022
Net Revenues
Net interest revenue10 %$3,738 $3,408 — $1,322 $1,319 %$5,060 $4,727 
Asset management and administration fees%1,646 1,544 12 %645 576 %2,291 2,120 
Trading revenue(8)%1,476 1,607 (9)%219 241 (8)%1,695 1,848 
Bank deposit account fees(44)%239 427 (60)%87 219 (50)%326 646 
Other(2)%307 314 (15)%93 110 (6)%400 424 
Total net revenues%7,406 7,300 (4)%2,366 2,465 — 9,772 9,765 
Expenses Excluding Interest%4,424 4,242 10 %1,547 1,410 %5,971 5,652 
Income before taxes on income(2)%$2,982 $3,058 (22)%$819 $1,055 (8)%$3,801 $4,113 
Net New Client Assets (in billions) (1)
82 %$115.4 $63.4 %$107.3 $100.5 36 %$222.7 $163.9 
(1) In the second quarter and first six months of 2023, Investor Services includes inflows of $7.8 billion and $26.8 billion, respectively, from off-platform brokered CDs issued by CSB. Also, in the second quarter and first six months of 2023, Investor Services includes an inflow of $12.0 billion from a mutual fund clearing services client. In the second quarter and first six months of 2022, Investor Services includes an outflow of $20.8 billion from a mutual fund clearing services client.
N/M Not meaningful. Percentage changes greater than 200% are presented as not meaningful.

Segment Net Revenues

Investor Services total net revenues decreased by 6% and increased by 1% in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022, while Advisor Services total net revenues decreased by 16% and 4%, in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022. Decreases in Investor Services and Advisor Services revenues for the second quarter were primarily driven by decreases in net interest revenue due to higher cost funding sources and certain lower average interest-earning asset balances, as described above. For the six-month period, the increase in Investor Services revenues was primarily driven by higher net interest revenue due to higher yields on interest-earning assets as described above, while Advisor Services net interest revenue was flat. Both segments saw a decrease in bank deposit account fees in the second quarter and first six months of 2023 due to lower average BDA balances and higher yields paid to clients, as well as, for the six-month period, breakage fees incurred as a result of ending certain third-party bank arrangements. Trading revenue decreased in the second quarter and first six months of 2023 for both segments primarily due to lower client trading activity and changes in client trading mix, resulting in lower commissions and order flow revenue. Other revenue also decreased in the second quarter and first six months of 2023 for both segments primarily due to gains on the sale of certain investments in 2022 and net losses on sales of AFS securities in 2023. These decreases were partially offset by increased asset management and administration fees in both segments in the second quarter and first six months of 2023, primarily as a result of higher money market fund balances and, for the six-month period, the elimination of money market fund fee waivers during 2022.
- 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)

Segment Expenses Excluding Interest

Investor Services total expenses excluding interest increased by 4% in the second quarter and first six months of 2023 compared to the same periods in 2022, while Advisor Services total expenses excluding interest increased by 9% and 10% in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022. Both segments saw higher compensation and benefits expenses due to increases in headcount to support our expanding client base and TDA client account transitions, and annual merit increases, partially offset by lower incentive compensation. Depreciation and amortization increased for both segments primarily due to higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2022 and the first six months of 2023 to enhance our technological infrastructure to support growth of the business. Occupancy and equipment expenses increased in both segments, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade. Both segments saw higher communications expenses due to client communications related to TDA account transitions and overall growth of the business. Regulatory fees and assessments increased in both segments in the second quarter and first six months of 2023 compared to the same periods in 2022, primarily due to the FDIC deposit insurance assessment rate increase described above. In Investor Services, these increases were partially offset by lower amortization of acquired intangible assets as certain assets from the TDA acquisition became fully amortized in 2022.

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 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2022 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 economic value of equity (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. In 2023, the Company began to utilize interest rate swap derivative instruments to assist with managing interest rate risk. For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 1 – Note 11.

Interest Rate Risk Simulations

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. 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.

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

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.

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

Higher short-term interest rates would generally positively impact net interest margin as yields on interest-earning assets are expected to rise faster than the cost of funding sources. If the cost of funding sources is greater than the increased revenue from repricing assets, however, net interest margin can be reduced. 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.

The following table shows simulated changes to net interest revenue over the next 12 months beginning June 30, 2023 and December 31, 2022 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:
June 30, 2023December 31, 2022
Increase of 200 basis points9.1 %7.3 %
Increase of 100 basis points4.5 %3.6 %
Increase of 50 basis points2.2 %1.7 %
Decrease of 50 basis points(1.8)%(1.5)%
Decrease of 100 basis points(3.4)%(3.2)%
Decrease of 200 basis points(7.0)%(6.7)%

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

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

Bank Deposit Account Fees Simulation

Consistent with the presentation on the consolidated statement of income, the sensitivity of bank deposit account fee revenue to interest rate changes is assessed separately from the net interest revenue simulation described above. As of June 30, 2023 and December 31, 2022, simulated changes in bank deposit account fee revenue from gradual changes in market interest rates relative to prevailing market rates, under the interest rate scenarios described above for net interest revenue, did not have a significant impact on the Company’s total net revenues.

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. 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 as well as our expectations of the economic environment. 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. Our net interest revenue, bank deposit account fee revenue, and EVE simulations reflect the assumption of non-negative investment yields.

- 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)

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 estimated effective duration of our AFS investment securities portfolio was approximately 2.4 years and 3.4 years as of June 30, 2023 and 2022, respectively. The estimated effective duration for the Company’s total AFS and HTM investment securities portfolio was approximately 4.0 years and 4.1 years as of June 30, 2023 and 2022, respectively. AFS and HTM securities comprised approximately 57% of the Company’s consolidated total assets as of both June 30, 2023 and 2022. The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both June 30, 2023 and 2022. The Company’s estimated effective duration of consolidated total assets was approximately 2.5 years at June 30, 2023 and 2022.

Phase-out of LIBOR

Effective June 30, 2023, publication of the London Interbank Offered Rate (LIBOR) ceased. While we completed all LIBOR transition work that could be done prior to June 30, 2023, we will continue to monitor and manage the LIBOR substitution for certain investment securities that we hold and the portfolio of legacy loans that we have for which scheduled interest rate resets or related interest rate transitions will occur in future periods. We will also monitor our financial models and systems that previously referenced LIBOR.

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

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, TD Ameritrade, Inc., and TDAC, our principal broker-dealer subsidiaries; 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 subsidiaries are primarily driven by client activity including trading and margin lending activities and capital expenditures. The capital needs of the banking subsidiaries are primarily driven by client deposit levels and other borrowings. We have established liquidity policies to support the successful execution of business strategies, while ensuring ongoing and sufficient liquidity to meet operational needs and satisfy applicable regulatory requirements under both normal and stressed conditions. 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, issuance of CDs, cash provided by securities issuances by CSC in the capital markets, and other facilities described below.

- 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)

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 34.4 million active brokerage accounts. More than 80% of our bank deposits qualified for FDIC insurance as of June 30, 2023. Our clients’ allocation of cash held on our balance sheet as bank deposits or payables to brokerage clients is sensitive to interest rate levels, with clients typically increasing their utilization of investment cash solutions such as purchased money market funds and certain fixed income products when those yields are higher than those of cash sweep features.

Schwab’s need for borrowings from external debt facilities arises primarily from timing differences between cash flow requirements, including in the event the outflow of client cash from the balance sheet is greater than cash flows from operations and investment securities and bank loans; payments on interest-earning investments; movements of cash to meet regulatory brokerage client cash segregation requirements; and general corporate purposes. We maintain policies and procedures necessary to access funding, and test borrowing procedures on a periodic basis. Rollover risk is the risk that we will not be able to refinance or payoff borrowings as they mature. We manage rollover risk on borrowings, taking into account expected principal paydowns on our investment and loan portfolios along with expected deposit flows.

The following table describes external debt facilities available at June 30, 2023:
DescriptionBorrowerOutstandingAvailableMaturity of Amounts OutstandingWeighted-Average Interest Rate on Amounts Outstanding
FHLB secured credit facilitiesBanking subsidiaries$41,000 $38,288 
(1)
July 2023 - September 20245.14%
Federal Reserve discount windowBanking subsidiaries— 8,802 
(1)
N/A
Federal Reserve Bank Term Funding ProgramBanking subsidiaries— 41,583 
(1)
N/A
Repurchase agreementsBanking subsidiaries7,831 — 
(2)
August 2023 - April 20245.01%
Uncommitted, unsecured lines of credit with
  various external banks
CSC, CS&Co— 1,767 N/A
Unsecured commercial paper CSC— 5,000 N/A
Secured uncommitted line of credit with external bankCS&Co— — 
(3)
N/A
Secured uncommitted lines of credit with various
  external banks
TDAC— — 
(4)
N/A
(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of June 30, 2023. Incremental borrowing capacity may be made available by pledging additional assets, subject to applicable facility terms. See below and Note 8 for additional information.
(2) Secured borrowing capacity is made available based on the banking subsidiaries’ ability to provide collateral deemed acceptable by each respective counterparty. See Note 12 for additional information.
(3) In the second quarter of 2023, CS&Co entered into a secured, uncommitted line of credit agreement with an external bank. Secured borrowing capacity is made available based on CS&Co’s ability to provide acceptable collateral to lender as determined by the credit agreement.
(4) Secured borrowing capacity is made available based on TDAC’s ability to provide acceptable collateral to the lenders as determined by the credit agreements.
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 June 30, 2023, the Company had additional investment securities with a par value of approximately $172 billion or a fair value of approximately $156 billion available to be pledged to obtain additional capacity. These securities could be used to provide additional borrowing capacity of up to $172 billion, dependent on the facility utilized. Additional details regarding availability and use of these facilities is described below.

Amounts available under secured credit facilities with the FHLB are dependent on the value of our First Mortgages, home equity lines of credit (HELOCs), and the fair value of certain of our investment securities that are pledged as collateral. 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, 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 fair value of certain investment securities that are pledged as collateral. Our banking subsidiaries may also engage with external financial institutions in repurchase
- 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)

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 six months of 2023 and there were no amounts outstanding at June 30, 2023. Beginning in the second quarter of 2023, CSC maintains a standing bilateral repurchase agreement with an external bank. Other than a de minimis test, this facility was not used during the second quarter of 2023 and there were no amounts outstanding under this facility at June 30, 2023.

On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program, offering loans of up to one year in length to eligible financial institutions with U.S. Treasury securities, agency debt, mortgage-backed securities, and other qualifying assets pledged as collateral. Borrowing capacity available under this program is dependent upon the par value of the investment securities that are pledged as collateral. The Company is eligible to obtain advances under this program. This facility was not used during the first six months of 2023.

CSC’s ratings for Commercial Paper Notes were P1 by Moody’s Investor Service (Moody’s), A2 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at June 30, 2023. During the second quarter of 2023, Standard & Poor’s downgraded its rating of CSC’s Commercial Paper Notes from A1 to A2, and Moody’s changed its outlook from positive to stable.

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

CS&Co maintains uncommitted, unsecured bank credit lines with a group of banks as a source of short-term liquidity, which can also be accessed by CSC. Beginning in the second quarter of 2023, CS&Co also maintains a secured, uncommitted line of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral. TDAC maintains secured uncommitted lines of credit, under which TDAC borrows on either a demand or short-term basis and pledges client margin securities as collateral.

In the fourth quarter of 2022 and first six months of 2023, CSB issued brokered CDs as a supplemental funding source. The following table provides information about brokered CDs issued by CSB and outstanding as of June 30, 2023:
Amount OutstandingMaturityWeighted-Average Interest Rate
Brokered CDs$41,368 July 2023 - April 20254.97%

Cash Flow Activity

As a result of rapidly increasing short-term interest rates beginning in 2022, the Company saw an increase in the pace at which clients moved certain cash balances out of our sweep features and into higher yielding alternatives. As a result of these outflows, our banking subsidiaries have supplemented excess cash on hand and cash generated by maturities and paydowns on our investment securities portfolios with fixed- and floating-rate FHLB advances, repurchase agreements, and issuances of brokered CDs. During the second quarter of 2023, the pace of client cash allocations out of our sweep features decreased significantly, and in June, the Company was able to cover these client cash movements without drawing upon additional FHLB borrowings or issuing additional brokered CDs.

In the second quarter of 2023, the Company’s FHLB borrowings and other short-term borrowings decreased by $3.8 billion as a result of FHLB maturities during the period. Bank deposits also decreased during the second quarter of 2023 by $21.3 billion, resulting from a decrease of $29.5 billion in deposits swept from brokerage accounts due to ongoing changes in client cash allocations and a slight increase in client equities purchases, which was partially offset by a net increase in brokered CDs of $10.6 billion.

During the first six months of 2023, the Company’s cash and cash equivalents, excluding amounts restricted, increased by $7.5 billion to $47.7 billion as of June 30, 2023. This increase was driven by net cash provided by investing and operating activities, partially offset by net cash used for financing activities. Bank deposits decreased by a total of $62.3 billion during the first six months of 2023; this was driven by a decrease of $93.2 billion in deposits swept from brokerage accounts due primarily to clients’ cash allocation decisions described above, partially offset by a net increase in brokered CDs of $35.3 billion. Offsetting the decrease in bank deposits, investing cash flows from our AFS and HTM securities totaled $30.8 billion in the first six months of 2023, and the Company increased its FHLB borrowings and other short-term borrowings by a total of $31.8 billion.
- 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)

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 2022 Form 10-K for additional information. The Company was in compliance with the LCR rule at June 30, 2023, and the table below presents information about our average daily LCR:
Average for the Three Months Ended
June 30, 2023March 31, 2023
Total eligible HQLA$65,738 $80,128 
Net cash outflows50,965 62,163 
LCR129 %129 %

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

Net Stable Funding Ratio

Schwab is subject to disclosure requirements under the NSFR rule, which requires the semi-annual public disclosure of its NSFR levels beginning in the second quarter of 2023. 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 June 30, 2023, and the table below presents information about our average NSFR:
Average for the Three Months Ended
June 30, 2023March 31, 2023
ASF$200,512 $202,504 
RSF166,428 163,622 
NSFR120 %124 %

Long-Term Borrowings

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $22.5 billion and $20.8 billion at June 30, 2023 and December 31, 2022, respectively.

The following table provides information about our Senior Notes outstanding at June 30, 2023:
June 30, 2023Par
Outstanding
MaturityWeighted Average
Interest Rate
Moody’sStandard
& Poor’s
Fitch
CSC Senior Notes$22,212 2024 - 20342.81%A2A-A
TDA Holding Senior Notes213 2024 - 20293.47%A2A-

During the second quarter of 2023, Standard and Poor’s downgraded CSC’s and TDA Holding’s long-term issuer credit and senior unsecured debt ratings from A to A- and affirmed its outlook remained stable. Moody’s also affirmed its rating of A2 for CSC and TDA Holding and changed its outlook from positive to stable.

- 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)

New Debt Issuances

The below debt issuances in the first six months of 2023 were senior unsecured obligations. Additional details are as follows:
Issuance DateIssuance AmountMaturity DateInterest Rate
May 19, 2023$1,200 05/19/20295.643% 
(1)
May 19, 20231,300 05/19/20345.853% 
(1)
(1) Interest rates presented are those in effect at June 30, 2023. For additional information regarding future interest rates on fixed-to-floating rate Senior Notes, see Item 1 – Note 8.

Schwab additionally enters into guarantees and other similar arrangements in the ordinary course of business. For information on these arrangements, see Item 1 – Notes 5, 6, 8, 9, and 12.

Additional information regarding our sources and uses of liquidity and management of liquidity risk is included in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk in our 2022 Form 10-K. See also Item 1 – Condensed Consolidated Statements of Cash Flows, Item 1 – Note 7 for the Company’s bank deposits, Item 1 – Note 8 for the Company’s debt and borrowing facilities, and Item 1 – Note 14 for equity outstanding balances and activity.

CAPITAL MANAGEMENT

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including balance sheet growth over time, management of the 2023 IDA agreement inclusive of potential migration of IDA balances (see further discussion below), providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries. Schwab also seeks to return excess capital to stockholders. We may return excess capital through such activities as 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 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Management of the 2022 Form 10-K and in Item 1 – Note 17. As of June 30, 2023, CSC and our banking subsidiaries are considered well capitalized, and CS&Co, TDAC, and TD Ameritrade, Inc. are in compliance with their respective net capital requirements.

- 24 -


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:
June 30, 2023December 31, 2022
CSCCSBCSCCSB
Total stockholders’ equity$37,147 $13,552 $36,608 $7,664 
Less:
Preferred stock9,191 — 9,706 — 
Common Equity Tier 1 Capital before regulatory adjustments$27,956 $13,552 $26,902 $7,664 
Less:
Goodwill, net of associated deferred tax liabilities$11,797 $13 $11,816 $13 
Other intangible assets, net of associated deferred tax liabilities6,852 — 7,079 — 
Deferred tax assets, net of valuation allowances and deferred tax liabilities37 35 37 35 
AOCI adjustment (1)
(20,729)(18,052)(22,620)(19,680)
Common Equity Tier 1 Capital$29,999 $31,556 $30,590 $27,296 
Tier 1 Capital$39,190 $31,556 $40,296 $27,296 
Total Capital39,272 31,632 40,376 27,370 
Risk-Weighted Assets132,791 94,278 139,657 99,631 
Average Assets with regulatory adjustments520,602 356,406 562,803 372,802 
Total Leverage Exposure524,576 359,257 566,809 375,846 
Common Equity Tier 1 Capital/Risk-Weighted Assets22.6 %33.5 %21.9 %27.4 %
Tier 1 Capital/Risk-Weighted Assets29.5 %33.5 %28.9 %27.4 %
Total Capital/Risk-Weighted Assets29.6 %33.6 %28.9 %27.5 %
Tier 1 Leverage Ratio7.5 %8.9 %7.2 %7.3 %
Supplementary Leverage Ratio7.5 %8.8 %7.1 %7.3 %
(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 AOCI from regulatory capital.

The Company’s consolidated Tier 1 Leverage Ratio increased to 7.5% at June 30, 2023 from 7.1% at March 31, 2023 and 7.2% at year-end 2022. This increase during the second quarter was primarily due to net income during the quarter and a decrease in the Company’s total assets. Total balance sheet assets decreased $24.0 billion, or 4%, during the second quarter of 2023 due primarily to a decrease of $24.1 billion, or 6%, in total bank deposits and payables to brokerage clients due to client cash allocation decisions resulting from the rising interest rate environment. CSB’s Tier 1 Leverage Ratio increased from year-end 2022, ending the second quarter of 2023 at 8.9% primarily as a result of capital contributions from CSC enabled by the Company’s issuance of $2.5 billion of long-term debt in May 2023.

The Board of Governors of the Federal Reserve System recently issued a notice of proposed changes to the regulatory capital rules that would require us to include AOCI in regulatory capital, phased in over a three-year transition period beginning July 1, 2025 (see Current Regulatory and Other Developments). As of June 30, 2023, our adjusted Tier 1 Leverage Ratio, which reflects the inclusion of AOCI in the ratio, was 3.7% for CSC consolidated and 4.0% 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 and retain capital while it continues to evaluate the impacts of the proposal. The Company currently anticipates meeting the proposed capital requirements organically well ahead of the transition period provided within the proposal.

IDA Agreement

Certain brokerage client deposits are swept off-balance sheet to the TD Depository Institutions pursuant to the 2023 IDA agreement. During the first six months of 2023, 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 9 for further information on the 2023 IDA agreement.

Dividends

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


THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Cash dividends paid and per share amounts, exclusive of amounts related to preferred stock repurchases, for the first six months of 2023 and 2022 are as follows:
20232022
Six Months Ended June 30,Cash PaidPer Share
Amount
Cash PaidPer Share
Amount
Common and Nonvoting Common Stock$921 $.50 $762 $.40 
Preferred Stock:
Series A (1)
N/AN/A19 47.70 
Series D (2)
22 29.76 22 29.76 
Series E (3)
N/AN/A20 3,293.32 
Series F (4)
12 2,500.00 13 2,500.00 
Series G (2)
67 2,687.50 67 2,687.50 
Series H (2)
46 2,000.00 50 2,000.00 
Series I (2)
42 2,000.00 45 2,000.00 
Series J (2)
13 22.26 13 22.26 
Series K (5)
19 2,500.00 1,208.33 
(1) Series A was redeemed on November 1, 2022. Prior to redemption, dividends were paid semi-annually until February 1, 2022 and quarterly thereafter. The final dividend was paid on November 1, 2022.
(2) Dividends paid quarterly.
(3) Series E was redeemed on December 1, 2022. Prior to redemption, dividends were paid semi-annually until March 1, 2022 and quarterly thereafter. The final dividend was paid on December 1, 2022.
(4) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter.
(5) Series K was issued on March 4, 2022. Dividends are paid quarterly, and the first dividend was paid on June 1, 2022.
N/A Not applicable.

Share Repurchases

On July 27, 2022, CSC publicly announced that its Board of Directors approved a new share repurchase authorization to repurchase up to $15.0 billion of common stock, replacing the previous and now terminated share repurchase authorization of up to $4.0 billion of common stock. The new share repurchase authorization does not have an expiration date. There were no repurchases of CSC’s common stock during the three months ended June 30, 2023. CSC repurchased 37 million shares of its common stock for $2.8 billion during the six months ended June 30, 2023. As of June 30, 2023, approximately $8.7 billion remained on the new authorization. There were no repurchases of CSC’s common stock under the terminated authorization during the six months ended June 30, 2022.

There were no repurchases of CSC’s preferred stock during the three months ended June 30, 2023. The Company repurchased 11,620 depositary shares representing interests in Series F preferred stock for $11 million, 42,036 depositary shares representing interests in Series G preferred stock for $42 million, 273,251 depositary shares representing interests in Series H preferred stock for $235 million, and 194,567 depositary shares representing interests in Series I preferred stock for $179 million on the open market during the six months ended June 30, 2023. The repurchase prices are inclusive of $3 million of dividends accrued by the stockholders as of the repurchase date.

Beginning in 2023, share repurchases, net of issuances, are subject to a nondeductible 1% excise tax which was recognized as a direct and incremental cost associated with these transactions. For repurchases of common stock, the tax is recorded as part of the cost basis of the treasury stock repurchased, resulting in no impact to the condensed consolidated statement of income. For repurchases of preferred stock, the tax impact is included within preferred stock dividends and other on the condensed consolidated statement of income.

OTHER

Foreign Exposure
At June 30, 2023, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At June 30, 2023, the fair value of these holdings totaled $10.5 billion, with the top three exposures being to issuers and counterparties domiciled in France at $2.9 billion, the United Kingdom at $2.4 billion, and Canada at $1.7 billion. At December 31, 2022, the fair value of these holdings totaled $16.4 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.1 billion, the United Kingdom at $4.8 billion, and
- 26 -


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)

Canada at $1.7 billion. In addition, Schwab had outstanding margin loans to foreign residents of $2.7 billion and $2.5 billion at June 30, 2023 and December 31, 2022, respectively.

CRITICAL ACCOUNTING ESTIMATES

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2022 Form 10-K. There have been no changes to critical accounting estimates during the first six months of 2023.

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 MeasureDefinitionUsefulness to Investors and Uses by Management
Acquisition and integration-related costs and amortization of acquired intangible assetsSchwab 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, 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 and amortization of acquired intangible assets 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.

Acquisition and integration-related costs fluctuate based on the timing of acquisitions and integration 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 equityReturn 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 RatioAdjusted 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.

- 27 -


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 June 30,Six Months Ended June 30,
2023202220232022
Total expenses excluding interest (GAAP)$2,965 $2,819 $5,971 $5,652 
Acquisition and integration-related costs (1)
(130)(94)(228)(190)
Amortization of acquired intangible assets(134)(154)(269)(308)
Adjusted total expenses (non-GAAP)$2,701 $2,571 $5,474 $5,154 
(1) Acquisition and integration-related costs for the three and six months ended June 30, 2023 primarily consist of $48 million and $106 million of compensation and benefits, $41 million and $74 million of professional services, $10 million and $14 million of occupancy and equipment, and $20 million and $22 million of other. Acquisition and integration-related costs for the three and six months ended June 30, 2022 primarily consist of $53 million and $109 million of compensation and benefits, $35 million and $66 million of professional services, and $4 million and $8 million of occupancy and equipment.

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
AmountDiluted EPSAmountDiluted EPSAmountDiluted EPSAmountDiluted EPS
Net income available to common stockholders (GAAP),
  Earnings per common share — diluted (GAAP)
$1,173 $.64 $1,652 $.87 $2,706 $1.48 $2,930 $1.54 
Acquisition and integration-related costs130 .07 94 .05 228 .12 190 .10 
Amortization of acquired intangible assets134 .07 154 .08 269 .15 308 .16 
Income tax effects (1)
(64)(.03)(60)(.03)(120)(.07)(121)(.06)
Adjusted net income available to common stockholders
  (non-GAAP), Adjusted diluted EPS (non-GAAP)
$1,373 $.75 $1,840 $.97 $3,083 $1.68 $3,307 $1.74 
(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 and amortization of acquired intangible assets on an after-tax basis.

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Return on average common stockholders’ equity (GAAP)17 %19 %20 %15 %
Average common stockholders’ equity$27,556 $35,611 $27,429 $40,063 
Less: Average goodwill(11,951)(11,952)(11,951)(11,952)
Less: Average acquired intangible assets — net(8,591)(9,151)(8,657)(9,227)
Plus: Average deferred tax liabilities related to goodwill and
acquired intangible assets — net
1,834 1,868 1,837 1,877 
Average tangible common equity$8,848 $16,376 $8,658 $20,761 
Adjusted net income available to common stockholders (1)
$1,373 $1,840 $3,083 $3,307 
Return on tangible common equity (non-GAAP)62 %45 %71 %32 %
(1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).

June 30, 2023
CSCCSB
Tier 1 Leverage Ratio (GAAP)
7.5 %8.9 %
Tier 1 Capital
$39,190 $31,556 
Plus: AOCI adjustment(20,729)(18,052)
Adjusted Tier 1 Capital18,461 13,504 
Average assets with regulatory adjustments
520,602 356,406 
Plus: AOCI adjustment(20,397)(17,707)
Adjusted average assets with regulatory adjustments$500,205 $338,699 
Adjusted Tier 1 Leverage Ratio (non-GAAP)
3.7 %4.0 %


Item 3. Quantitative and Qualitative Disclosures About Market Risk

For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2.

- 28 -


Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Income
(In Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net Revenues
Interest revenue$4,104 $2,710 $8,120 $5,029 
Interest expense(1,814)(166)(3,060)(302)
Net interest revenue2,290 2,544 5,060 4,727 
Asset management and administration fees (1)
1,173 1,052 2,291 2,120 
Trading revenue803 885 1,695 1,848 
Bank deposit account fees175 352 326 646 
Other215 260 400 424 
Total net revenues4,656 5,093 9,772 9,765 
Expenses Excluding Interest
Compensation and benefits1,498 1,426 3,136 2,972 
Professional services272 258 530 502 
Occupancy and equipment319 294 618 563 
Advertising and market development103 105 191 207 
Communications188 169 334 313 
Depreciation and amortization191 159 368 309 
Amortization of acquired intangible assets134 154 269 308 
Regulatory fees and assessments80 67 163 135 
Other180 187 362 343 
Total expenses excluding interest2,965 2,819 5,971 5,652 
Income before taxes on income1,691 2,274 3,801 4,113 
Taxes on income397 481 904 918 
Net Income1,294 1,793 2,897 3,195 
Preferred stock dividends and other121 141 191 265 
Net Income Available to Common Stockholders$1,173 $1,652 $2,706 $2,930 
Weighted-Average Common Shares Outstanding:
Basic1,820 1,896 1,827 1,895 
Diluted1,825 1,904 1,834 1,905 
Earnings Per Common Shares Outstanding (2):
Basic$.64 $.87 $1.48 $1.55 
Diluted$.64 $.87 $1.48 $1.54 
(1) No fee waivers were recognized for the three and six months ended June 30, 2023. Includes fee waivers of $3 million and $57 million for the three and six months ended June 30, 2022, respectively.
(2) The Company has voting and nonvoting common stock outstanding. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class. See Note 16 for additional information.

See Notes to Condensed Consolidated Financial Statements.

- 29 -


THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In Millions)
(Unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net income$1,294 $1,793 $2,897 $3,195 
Other comprehensive income (loss), before tax:  
Change in net unrealized gain (loss) on available for sale securities:  
Net unrealized gain (loss) excluding transfers to held to maturity(683)(6,671)1,166 (19,806)
Reclassification of net unrealized loss transferred to held to maturity— — — 2,429 
Other reclassifications included in other revenue11 (5)20 (17)
Change in net unrealized gain (loss) on held to maturity securities:
Reclassification of net unrealized loss transferred from available for sale— — — (2,429)
Amortization of amounts previously recorded upon transfer to held to maturity
  from available for sale
642 122 1,251 214 
Other(1)— (9)— 
Other comprehensive income (loss), before tax(31)(6,554)2,428 (19,609)
Income tax effect(9)1,577 (537)4,696 
Other comprehensive income (loss), net of tax(40)(4,977)1,891 (14,913)
Comprehensive Income (Loss)$1,254 $(3,184)$4,788 $(11,718)

See Notes to Condensed Consolidated Financial Statements.

- 30 -


THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Balance Sheets (1)
(In Millions, Except Per Share and Share Amounts)
(Unaudited)

June 30, 2023December 31, 2022
Assets  
Cash and cash equivalents$47,651 $40,195 
Cash and investments segregated and on deposit for regulatory purposes (including resale
  agreements of $5,405 and $12,159 at June 30, 2023 and December 31, 2022,
  respectively)
25,083 42,983 
Receivables from brokerage clients — net65,162 66,591 
Available for sale securities (amortized cost of $136,874 at June 30, 2023 and
  $160,162 at December 31, 2022; including assets pledged of $28 and $41, respectively)
125,769 147,871 
Held to maturity securities (including assets pledged of $8,365 at June 30, 2023
 and $4,522 at December 31, 2022)
166,328 173,074 
Bank loans — net40,061 40,505 
Equipment, office facilities, and property — net3,686 3,714 
Goodwill11,951 11,951 
Acquired intangible assets — net8,524 8,789 
Other assets17,290 16,099 
Total assets$511,505 $551,772 
Liabilities and Stockholders’ Equity  
Bank deposits$304,414 $366,724 
Payables to brokerage clients84,795 97,438 
Accrued expenses and other liabilities13,836 13,124 
Other short-term borrowings7,831 4,650 
Federal Home Loan Bank borrowings41,000 12,400 
Long-term debt22,482 20,828 
Total liabilities474,358 515,164 
Stockholders’ equity:  
Preferred stock — $.01 par value per share; aggregate liquidation preference of $9,328
  and $9,850 at June 30, 2023 and December 31, 2022, respectively
9,191 9,706 
Common stock — 3 billion shares authorized; $.01 par value per share;
  2,023,295,180 shares issued at June 30, 2023 and December 31, 2022
20 20 
Nonvoting common stock — 300 million shares authorized; $.01 par value per share;
  50,893,695 shares issued at June 30, 2023 and December 31, 2022
Additional paid-in capital27,220 27,075 
Retained earnings32,865 31,066 
Treasury stock, at cost — 253,803,819 and 221,033,042 shares at June 30, 2023
  and December 31, 2022, respectively
(11,420)(8,639)
Accumulated other comprehensive income (loss)(20,730)(22,621)
Total stockholders’ equity37,147 36,608 
Total liabilities and stockholders’ equity$511,505 $551,772 
(1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information.

See Notes to Condensed Consolidated Financial Statements.

- 31 -


THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Stockholders Equity
(In Millions)
(Unaudited)

Accumulated Other Comprehensive Income (Loss)
Preferred StockCommon StockNonvoting
Common Stock
Additional Paid-in CapitalRetained EarningsTreasury Stock,
at cost
Total
SharesAmountSharesAmount
Balance at March 31, 2022$10,694 1,995 $20 79 $$26,826 $26,895 $(5,293)$(11,045)$48,098 
Net income— — — — — — 1,793 — — 1,793 
Other comprehensive income (loss), net of tax— — — — — — — — (4,977)(4,977)
Dividends declared on preferred stock— — — — — — (133)— — (133)
Dividends declared on common stock — $.20 per share
— — — — — — (381)— — (381)
Stock option exercises and other— — — — — (5)— — 
Share-based compensation— — — — — 53 — — — 53 
Other— — — — — 44 — 13 — 57 
Balance at June 30, 2022$10,694 1,995 $20 79 $$26,918 $28,174 $(5,272)$(16,022)$44,513 
Balance at March 31, 2023$9,191 2,023 $20 51 $$27,136 $32,144 $(11,455)$(20,690)$36,347 
Net income— — — — — — 1,294 — — 1,294 
Other comprehensive income (loss), net of tax— — — — — — — — (40)(40)
Dividends declared on preferred stock— — — — — — (116)— — (116)
Dividends declared on common stock — $.25 per share
— — — — — — (457)— — (457)
Stock option exercises and other— — — — — (9)— 14 — 
Share-based compensation— — — — — 53 — — — 53 
Other— — — — — 40 — 21 — 61 
Balance at June 30, 2023$9,191 2,023 $20 51 $$27,220 $32,865 $(11,420)$(20,730)$37,147 
Accumulated Other Comprehensive Income (Loss)
Preferred StockCommon StockNonvoting
Common Stock
Additional Paid-in CapitalRetained EarningsTreasury Stock,
at cost
Total
SharesAmountSharesAmount
Balance at December 31, 2021$9,954 1,995 $20 79 $$26,741 $25,992 $(5,338)$(1,109)$56,261 
Net income— — — — — — 3,195 — — 3,195 
Other comprehensive income (loss), net of tax— — — — — — — — (14,913)(14,913)
Issuance of preferred stock, net740 — — — — — — — — 740 
Dividends declared on preferred stock— — — — — — (251)— — (251)
Dividends declared on common stock — $.40
  per share
— — — — — — (762)— — (762)
Stock option exercises and other— — — — — (56)— 89 — 33 
Share-based compensation— — — — — 165 — — — 165 
Other— — — — — 68 — (23)— 45 
Balance at June 30, 2022$10,694 1,995 $20 79 $$26,918 $28,174 $(5,272)$(16,022)$44,513 
Balance at December 31, 2022$9,706 2,023 $20 51 $$27,075 $31,066 $(8,639)$(22,621)$36,608 
Net income— — — — — — 2,897 — — 2,897 
Other comprehensive income (loss), net of tax— — — — — — — — 1,891 1,891 
Redemption and repurchase of preferred stock, inclusive of tax(515)— — — — — 44 — — (471)
Dividends declared on preferred stock— — — — — — (221)— — (221)
Dividends declared on common stock — $.50
  per share
— — — — — — (921)— — (921)
Repurchase of common stock, inclusive of tax— — — — — — — (2,869)— (2,869)
Stock option exercises and other— — — — — (101)— 125 — 24 
Share-based compensation— — — — — 182 — — — 182 
Other— — — — — 64 — (37)— 27 
Balance at June 30, 2023$9,191 2,023 $20 51 $$27,220 $32,865 $(11,420)$(20,730)$37,147 

See Notes to the Condensed Consolidated Financial Statements.
- 32 -


THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows (1)
(in Millions)
(Unaudited)

Six Months Ended
June 30,
20232022
Cash Flows from Operating Activities  
Net income$2,897 $3,195 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:  
Share-based compensation194 206 
Depreciation and amortization368 309 
Amortization of acquired intangible assets269 308 
Provision (benefit) for deferred income taxes(37)
Premium amortization, net, on available for sale and held to maturity securities392 868 
Other278 187 
Net change in:  
Investments segregated and on deposit for regulatory purposes10,832 (10,605)
Receivables from brokerage clients1,409 14,420 
Other assets(27)(74)
Payables to brokerage clients(12,643)(10,791)
Accrued expenses and other liabilities588 (2,876)
Net cash provided by (used for) operating activities4,561 (4,890)
Cash Flows from Investing Activities  
Purchases of available for sale securities— (46,454)
Proceeds from sales of available for sale securities2,900 13,470 
Principal payments on available for sale securities20,181 28,533 
Principal payments on held to maturity securities7,672 8,658 
Net change in bank loans413 (4,830)
Purchases of equipment, office facilities, and property(398)(537)
Purchases of FHLB stock(1,562)— 
Proceeds from sales of FHLB stock82 — 
Purchases of Federal Reserve stock(82)(85)
Proceeds from sales of Federal Reserve stock98 
Other investing activities(108)(11)
Net cash provided by (used for) investing activities29,196 (1,252)
Cash Flows from Financing Activities  
Net change in bank deposits(62,310)(1,775)
Proceeds from FHLB borrowings39,200 
Repayments of FHLB borrowings(10,600)(4)
Proceeds from other short-term borrowings8,114 14,499 
Repayments of other short-term borrowings(4,939)(18,007)
Issuances of long-term debt2,478 2,971 
Repayments of long-term debt(815)(765)
Net proceeds from preferred stock offerings— 740 
Redemption and repurchase of preferred stock(467)— 
Dividends paid(1,142)(1,020)
Proceeds from stock options exercised24 33 
Repurchases of common stock and nonvoting common stock(2,842)— 
Other financing activities(71)(46)
Net cash provided by (used for) financing activities(33,370)(3,370)
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted387 (9,512)
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year58,720 93,338 
Cash and Cash Equivalents, including Amounts Restricted at End of Period$59,107 $83,826 

Continued on following page.




- 33 -


THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows (1)
(in Millions)
(Unaudited)

Continued from previous page.
Six Months Ended
June 30,
20232022
Supplemental Cash Flow Information  
Non-cash investing activity:
Securities transferred from available for sale to held to maturity, at fair value$— $108,805 
Changes in accrued equipment, office facilities, and property purchases$(43)$11 
Other Supplemental Cash Flow Information:
Cash paid during the period for:  
Interest$2,135 $286 
Income taxes$876 $837 
Amounts included in the measurement of lease liabilities $128 $106 
Leased assets obtained in exchange for new operating lease liabilities $40 $199 
Leased assets obtained in exchange for new finance lease liabilities$— $
June 30, 2023June 30, 2022
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2)
Cash and cash equivalents$47,651 $64,550 
Restricted cash and cash equivalents amounts included in cash and investments segregated
  and on deposit for regulatory purposes
11,456 19,276 
Total cash and cash equivalents, including amounts restricted shown in the
  statement of cash flows
$59,107 $83,826 
(1) Certain prior period amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information.
(2) For more information on the nature of restrictions on restricted cash and cash equivalents, see Note 17.

See Notes to Condensed Consolidated Financial Statements.

- 34 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

1.    Introduction and Basis of Presentation
The Charles Schwab Corporation (CSC) is a savings and loan holding company. CSC engages, through its subsidiaries (collectively referred to as Schwab or the Company), in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.

Principal business subsidiaries of CSC include the following:

Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer;
TD Ameritrade, Inc., an introducing securities broker-dealer;
TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.;
Charles Schwab Bank, SSB (CSB), our principal banking entity; 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.

These unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements and in the related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. While management makes its best judgment, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in Schwab’s 2022 Form 10-K.

Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation. Beginning in 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings in the condensed consolidated balance sheets. Prior period amounts have been reclassified to reflect these changes. Corresponding presentation changes have been made to the condensed consolidated statements of cash flows and related notes.

The significant accounting policies are included in Item 8 – Note 2 in the 2022 Form 10-K. There have been no significant changes to these accounting policies during the first six months of 2023, except as described in Note 2 below.


2.    Summary of Significant Accounting Policies and New Accounting Standards

Derivative Instruments and Hedging Activities

As discussed further in Note 11, beginning in 2023, the Company utilizes derivative instruments as part of its interest rate risk management. The Company records all derivatives on the balance sheet at fair value. Accounting for the changes in the fair values of derivatives depends on the nature of the hedging relationship, and whether we qualify for and elect to apply hedge accounting. Hedge accounting generally matches the timing of gain or loss recognition on the derivatives with the recognition of the changes in the fair values or cash flows attributable to the risk being hedged of the hedged asset or liability in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge, respectively. Schwab’s policy is to designate all eligible derivatives in hedge accounting relationships. To qualify for hedge accounting, among other requirements, a derivative must be highly effective at reducing exposure to the hedged risk. The assessment of effectiveness is done at inception and on an ongoing basis for hedging relationships and, depending on certain criteria, may be qualitative or quantitative. Schwab applies the “shortcut method” of hedge accounting for a portion of its fair value hedges, which assumes perfect effectiveness. Alternatively, when quantitative effectiveness assessments are required, the Company uses regression analysis, which is the method employed for the rest of our hedging relationships.

For derivatives the Company has designated and that qualify as fair value hedges of interest rate risk, the gain or loss on the derivatives and the changes in fair values of the hedged assets attributable to benchmark interest rates (basis adjustments) are
- 35 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
both recorded in interest revenue on the condensed consolidated statement of income. If the hedging relationship is terminated, the basis adjustment remaining on the hedged asset continues to be reported as part of the amortized cost of that asset and is amortized to interest revenue over the remaining life of the asset as a yield adjustment using the effective interest method. The Company does not amortize basis adjustments prior to termination of the hedging relationship.

Certain fair value hedges may be designated under the portfolio layer method (PLM) of hedge accounting, which allows the Company to hedge the interest rate risk of prepayable and non-prepayable financial assets by designating a stated amount of a closed portfolio that is expected to be outstanding for the designated hedge period (a hedged layer) as the hedged item. A PLM hedging relationship may include multiple hedged layers. If at any point during the hedge period the aggregate amount of the hedged layers exceeds the amount of the closed portfolio (i.e., a breach of the hedged layer(s) has occurred), the PLM hedge must be fully or partially terminated to cure the breach. Basis adjustments for active PLM hedges are maintained at the closed portfolio level and are only allocated to individual assets remaining in the closed portfolio when the hedge is terminated, except for the portion of the basis adjustment related to the breach of the hedged layer(s), if any, which is recognized in interest revenue immediately. Allocated PLM basis adjustments are reported as part of the amortized cost of the assets and are amortized to interest revenue over the assets’ respective remaining lives as a yield adjustment using the effective interest method.

For derivatives the Company has designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivatives is recorded in AOCI and subsequently reclassified into interest revenue or interest expense, depending on where the hedged cash flows are recognized, on the condensed consolidated statement of income in the same period during which the hedged transactions affect earnings. Amounts reported in AOCI for cash flow hedges of AFS investment securities or other recognized financial assets are reclassified into interest revenue as interest payments on the securities or financial assets are accrued or received. If the hedging relationship is terminated and transactions that were hedged are no longer probable of occurring, the gain or loss on the derivative(s) recorded in AOCI prior to termination is reclassified into interest revenue immediately. Otherwise, the derivative gain or loss in AOCI will continue to be reclassified into interest revenue or interest expense in the periods during which the transactions that were hedged affect earnings.

Cash flows associated with derivative instruments are reflected as cash flows from operating activities in the statement of cash flows consistent with the treatment and nature of the items being hedged.

Adoption of New Accounting Standards

StandardDescriptionDate of AdoptionEffects on the Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”
Troubled Debt Restructurings (TDRs)
Eliminates the accounting guidance for TDRs. Rather than applying the specific guidance for TDRs, creditors will apply the recognition and measurement guidance for loan refinancings and restructurings to determine whether a modification results in a new loan or a continuation of an existing loan. The guidance requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Vintage Disclosures
Requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.

Adoption provides for prospective application, with an option to apply the modified retrospective transition method for the change in recognition and measurement of TDRs.

January 1, 2023The Company adopted this guidance on January 1, 2023 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s financial statements.
New Accounting Standards Not Yet Adopted

There are currently no new accounting standards not yet adopted that are material to the Company.
- 36 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
3.    Revenue Recognition
Disaggregation of Schwab’s revenue by major source is as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net interest revenue
Cash and cash equivalents$547 $133 $960 $167 
Cash and investments segregated324 79 756 94 
Receivables from brokerage clients1,167 706 2,251 1,332 
Available for sale securities 791 1,088 1,616 2,035 
Held to maturity securities720 339 1,466 717 
Bank loans410 230 801 417 
Securities lending revenue124 130 236 259 
Other interest revenue21 34 
Interest revenue4,104 2,710 8,120 5,029 
Bank deposits(863)(28)(1,481)(44)
Payables to brokerage clients(64)(4)(139)(6)
Other short-term borrowings (1)
(97)(4)(183)(8)
Federal Home Loan Bank borrowings (1)
(606)— (910)— 
Long-term debt(157)(124)(296)(232)
Securities lending expense(28)(8)(50)(15)
Other interest expense(1)
Interest expense(1,814)(166)(3,060)(302)
Net interest revenue2,290 2,544 5,060 4,727 
Asset management and administration fees
Mutual funds, ETFs, and CTFs630 515 1,215 1,004 
Advice solutions464 461 917 957 
Other79 76 159 159 
Asset management and administration fees1,173 1,052 2,291 2,120 
Trading revenue
Commissions394 443 816 927 
Order flow revenue365 430 779 900 
Principal transactions44 12 100 21 
Trading revenue803 885 1,695 1,848 
Bank deposit account fees175 352 326 646 
Other 215 260 400 424 
Total net revenues$4,656 $5,093 $9,772 $9,765 
Note: For a summary of revenue provided by our reportable segments, see Note 18. The recognition of revenue is not impacted by the operating segment in which revenue is generated.
(1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information.

Contract balances: Substantially all receivables from contracts with customers within the scope of Accounting Standards Codification (ASC) 606 Revenue From Contracts With Customers (ASC 606), are included in other assets on the condensed consolidated balance sheets, and totaled $634 million and $560 million at June 30, 2023 and December 31, 2022, respectively. Schwab did not have any other significant contract assets as of December 31, 2022.

At June 30, 2023, the Company also had net contract assets of $111 million related to the buy down of fixed-rate obligation amounts pursuant to the 2023 IDA agreement. This balance is included in other assets on the condensed consolidated balance sheet, and is amortized on a straight-line basis over the remaining contract term as a reduction to bank deposit account fee revenue. For additional discussion of the 2023 IDA agreement, see Note 9. Schwab did not have any significant contract liability balances as of June 30, 2023 or December 31, 2022.

Unsatisfied performance obligations: We do not have any unsatisfied performance obligations other than those that are subject to an elective practical expedient under ASC 606. The practical expedient applies to and is elected for contracts where we recognize revenue at the amount to which we have the right to invoice for services performed.
- 37 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
4.    Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s AFS and HTM investment securities are as follows:
June 30, 2023Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Available for sale securities    
U.S. agency mortgage-backed securities$79,534 $$7,808 $71,727 
U.S. Treasury securities30,015 — 1,491 28,524 
Asset-backed securities (1)
11,499 — 542 10,957 
Corporate debt securities (2)
13,427 — 1,145 12,282 
Certificates of deposit350 — 348 
Foreign government agency securities1,034 — 56 978 
U.S. state and municipal securities637 — 65 572 
Non-agency commercial mortgage-backed securities282 — 19 263 
Other122 — 118 
Unallocated portfolio layer method fair value basis adjustments (3)
(26)— (26)— 
Total available for sale securities (4)
$136,874 $$11,106 $125,769 
Held to maturity securities    
U.S. agency mortgage-backed securities$166,328 $817 $15,548 $151,597 
Total held to maturity securities$166,328 $817 $15,548 $151,597 
December 31, 2022Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Available for sale securities
U.S. agency mortgage-backed securities$85,994 $— $8,306 $77,688 
U.S. Treasury securities41,879 — 1,877 40,002 
Asset-backed securities (1)
13,672 — 649 13,023 
Corporate debt securities (2)
13,830 — 1,275 12,555 
Certificates of deposit2,245 — 14 2,231 
Foreign government agency securities1,033 — 64 969 
U.S. state and municipal securities713 — 75 638 
Non-agency commercial mortgage-backed securities473 — 23 450 
Other323 — 315 
Total available for sale securities (4)
$160,162 $— $12,291 $147,871 
Held to maturity securities
U.S. agency mortgage-backed securities$173,074 $1,442 $15,580 $158,936 
Total held to maturity securities$173,074 $1,442 $15,580 $158,936 
(1) Approximately 61% and 57% of asset-backed securities held as of June 30, 2023 and December 31, 2022, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately 19% and 18% of the asset-backed securities held as of June 30, 2023 and December 31, 2022, respectively.
(2) As of both June 30, 2023 and December 31, 2022, approximately 37% of the total AFS in corporate debt securities were issued by institutions in the financial services industry.
(3) Beginning in 2023, this represents the amount of PLM basis adjustments related to AFS securities hedged in a closed portfolio. These amounts are not allocated to individual securities, however the amounts impact the unrealized gains or losses for the individual securities being hedged. See Note 2 for more information on PLM hedge accounting.
(4) Included in cash and cash equivalents on the condensed consolidated balance sheets, but excluded from this table is $48 million of AFS commercial paper as of December 31, 2022 (none as of June 30, 2023). These holdings have maturities of three months or less and an aggregate market value equal to amortized cost.

During 2022, the Company transferred a total of $188.6 billion of U.S. agency mortgage-backed securities with a total net pretax unrealized loss at the times of transfer of $18.2 billion from the AFS category to the HTM category. The transfer of these securities to the HTM category reduces the Company’s exposure to fluctuations in AOCI that can result from unrealized losses on AFS securities due to changes in market interest rates. The unrealized loss at the time of transfer is amortized over the remaining life of the security, offsetting the amortization of the security’s premium or discount, and resulting in no impact to
- 38 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
net income. As of June 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $12.3 billion net of tax effect ($16.3 billion pretax).

At June 30, 2023, our banking subsidiaries had pledged investment securities with a value of $61.4 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 8). Our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve discount window, and had pledged securities with a fair value of $8.8 billion as collateral for this facility at June 30, 2023. Beginning in 2023, our banking subsidiaries pledge investment securities as collateral to secure borrowing capacity at the Federal Reserve through the Bank Term Funding Program, and had pledged securities with a par value of $41.6 billion as collateral for this facility at June 30, 2023. The Company also pledges investment securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $1.6 billion at June 30, 2023.

At June 30, 2023, our banking subsidiaries had pledged HTM and AFS securities as collateral under repurchase agreements with external financial institutions. HTM securities pledged were U.S. agency mortgage-backed securities with an aggregate amortized cost of $8.4 billion, and AFS securities pledged were U.S. agency mortgage-backed securities with an aggregate fair value of $28 million. Securities pledged as collateral under these repurchase agreements may be sold, repledged, or otherwise used by the counterparties. See Notes 8 and 12 for additional information on these repurchase agreements.

At June 30, 2023, our banking subsidiaries had pledged AFS securities with an aggregate fair value of $178 million as initial margin on interest rate swaps (see Note 11). All of Schwab’s interest rate swaps are cleared through central counterparty (CCP) clearing houses which require the Company to post initial margin as collateral against potential losses.

Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, of AFS investment securities are as follows:
Less than 12 months12 months or longerTotal
June 30, 2023Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available for sale securities      
U.S. agency mortgage-backed securities$2,811 $111 $68,687 $7,697 $71,498 $7,808 
U.S. Treasury securities2,371 26,153 1,485 28,524 1,491 
Asset-backed securities263 10,669 540 10,932 542 
Corporate debt securities192 12,090 1,138 12,282 1,145 
Certificates of deposit250 — 98 348 
Foreign government agency securities— — 978 56 978 56 
U.S. state and municipal securities18 — 554 65 572 65 
Non-agency commercial mortgage-backed securities— — 263 19 263 19 
Other— — 118 118 
Total (1)
$5,905 $126 $119,610 $11,006 $125,515 $11,132 
December 31, 2022   
Available for sale securities       
U.S. agency mortgage-backed securities$34,938 $2,025 $42,558 $6,281 $77,496 $8,306 
U.S. Treasury securities27,063 716 12,519 1,161 39,582 1,877 
Asset-backed securities6,717 217 6,299 432 13,016 649 
Corporate debt securities8,552 542 3,998 733 12,550 1,275 
Certificates of deposit2,033 10 196 2,229 14 
Foreign government agency securities756 50 214 14 970 64 
U.S. state and municipal securities482 31 157 44 639 75 
Non-agency commercial mortgage-backed securities443 23 — — 443 23 
Other315 — — 315 
Total$81,299 $3,622 $65,941 $8,669 $147,240 $12,291 
(1) For purposes of this table, unrealized losses on AFS securities excludes the PLM fair value hedge basis adjustments of $26 million at June 30, 2023.
At June 30, 2023, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality
- 39 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises. For a description of management’s quarterly evaluation of AFS securities in unrealized loss positions see Item 8 – Note 2 in the 2022 Form 10-K. No amounts were recognized as credit loss expense and no securities were written down to fair value through earnings for the six months ended June 30, 2023 and the year ended December 31, 2022. None of the Company’s AFS securities held as of June 30, 2023 and December 31, 2022 had an allowance for credit losses. All HTM securities as of June 30, 2023 and December 31, 2022 were U.S. agency mortgage-backed securities and therefore had no allowance for credit losses because expected nonpayment of the amortized cost basis is zero.

The Company had $607 million and $685 million of accrued interest for AFS and HTM securities as of June 30, 2023 and December 31, 2022, respectively. These amounts are excluded from the amortized cost basis and fair market value of AFS and HTM securities and included in other assets on the condensed consolidated balance sheets. There were no writeoffs of accrued interest receivable on AFS and HTM securities during the six months ended June 30, 2023, or for the year ended December 31, 2022.

In the table below, mortgage-backed securities and other asset-backed securities have been allocated to maturity groupings based on final contractual maturities. As borrowers may have the right to call or prepay certain obligations underlying our investment securities, actual maturities may differ from the scheduled contractual maturities presented below. As of June 30, 2023, the estimated effective duration, which reflects anticipated future payments, of our total AFS and HTM investment securities portfolio is approximately 4.0 years. The estimated effective duration of our AFS investment securities portfolio is approximately 2.4 years as of June 30, 2023.

The maturities of AFS and HTM investment securities are as follows:
June 30, 2023Within
1 year
After 1 year
through
5 years
After 5 years
through
10 years
After
10 years
Total
Available for sale securities     
U.S. agency mortgage-backed securities$727 $14,526 $13,340 $43,134 $71,727 
U.S. Treasury securities13,789 14,707 28 — 28,524 
Asset-backed securities31 3,000 1,745 6,181 10,957 
Corporate debt securities1,835 8,259 2,188 — 12,282 
Certificates of deposit348 — — — 348 
Foreign government agency securities201 777 — — 978 
U.S. state and municipal securities— 38 402 132 572 
Non-agency commercial mortgage-backed securities— — — 263 263 
Other 98 — — 20 118 
Total fair value$17,029 $41,307 $17,703 $49,730 $125,769 
Total amortized cost (1)
$17,276 $44,216 $19,887 $55,521 $136,900 
Held to maturity securities     
U.S. agency mortgage-backed securities$700 $6,371 $38,623 $105,903 $151,597 
Total fair value$700 $6,371 $38,623 $105,903 $151,597 
Total amortized cost$716 $6,808 $41,871 $116,933 $166,328 
(1) For purposes of this table, the amortized cost of AFS securities excludes the PLM fair value hedge basis adjustments of $26 million at June 30, 2023.

Proceeds and gross realized gains and losses from sales of AFS investment securities are as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Proceeds$1,849 $3,949 $2,900 $13,470 
Gross realized gains— 25 — 140 
Gross realized losses11 20 20 123 


- 40 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
5.    Bank Loans and Related Allowance for Credit Losses
The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows:
June 30, 2023Current30-59 days
past due
60-89 days
past due
>90 days past
due and other
nonaccrual loans
(3)
Total past due
and other
nonaccrual loans
Total
loans
Allowance
for credit
losses
Total
bank
loans – net
Residential real estate:
First Mortgages (1,2)
$25,783 $12 $$10 $23 $25,806 $68 $25,738 
HELOCs (1,2)
507 — 513 510 
Total residential real estate26,290 12 15 29 26,319 71 26,248 
Pledged asset lines13,566 — — 13,572 — 13,572 
Other245 — — — — 245 241 
Total bank loans$40,101 $18 $$15 $35 $40,136 $75 $40,061 
December 31, 2022        
Residential real estate:
First Mortgages (1,2)
$25,157 $25 $$14 $41 $25,198 $66 $25,132 
HELOCs (1,2)
590 — 597 593 
Total residential real estate25,747 27 19 48 25,795 70 25,725 
Pledged asset lines14,584 — 14,592 — 14,592 
Other191 — — — — 191 188 
Total bank loans$40,522 $31 $$23 $56 $40,578 $73 $40,505 
(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $99 million and $98 million at June 30, 2023 and December 31, 2022, respectively.
(2) At both June 30, 2023 and December 31, 2022, 43% of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole.
(3) There were no loans accruing interest that were contractually 90 days or more past due at June 30, 2023 or December 31, 2022.

At June 30, 2023, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8).

Changes in the allowance for credit losses on bank loans were as follows:
Three Months Ended
June 30, 2023First MortgagesHELOCsTotal residential real estatePledged asset linesOtherTotal
Balance at beginning of period$67 $$71 $— $$74 
Charge-offs— — — — — — 
Recoveries— — — — — — 
Provision for credit losses(1)— — 
Balance at end of period$68 $$71 $— $$75 
June 30, 2022
Balance at beginning of period$23 $$25 $— $$28 
Charge-offs— — — — — — 
Recoveries— — — — — — 
Provision for credit losses— — 
Balance at end of period$31 $$34 $— $$37 
- 41 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Six Months Ended
June 30, 2023First MortgagesHELOCsTotal residential real estatePledged asset linesOtherTotal
Balance at beginning of period$66 $$70 $— $$73 
Charge-offs— — — — — — 
Recoveries— — — — — — 
Provision for credit losses(1)— 
Balance at end of period$68 $$71 $— $$75 
June 30, 2022
Balance at beginning of period$13 $$15 $— $$18 
Charge-offs— — — — — — 
Recoveries— — — — — — 
Provision for credit losses18 19 — — 19 
Balance at end of period$31 $$34 $— $$37 

Consistent with Schwab’s loan charge off policy for pledged asset lines (PALs) as disclosed in Item 8 – Note 2 of the 2022 Form 10-K, the Company charges off any unsecured balances no later than 90-days past due. PALs are also subject to the collateral maintenance practical expedient under ASC 326 Financial Instruments — Credit Losses. All PALs were fully collateralized by securities with fair values in excess of borrowings as of June 30, 2023 and December 31, 2022. Therefore, no allowance for credit losses for PALs as of those dates was required.

The U.S. economy continues to be challenged by elevated inflation, tightening monetary policy, and geopolitical unrest. Although some of the headwinds show signs of moderation, management’s macroeconomic outlook reflects a near term increase in unemployment coupled with home price depreciation, which combined with rising Treasury yields and mortgage rates, have softened demand and reduced borrower affordability. This macroeconomic outlook, combined with continued strong credit quality metrics in the Company’s bank loans portfolio, resulted in relatively stable projections of loss rates at June 30, 2023, as compared to December 31, 2022.

A summary of bank loan-related nonperforming assets is as follows:
June 30, 2023December 31, 2022
Nonaccrual loans (1)
$15 $23 
Other real estate owned (2)
— 
Total nonperforming assets$15 $25 
(1) Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02.
(2) Included in other assets on the condensed consolidated balance sheets.

Credit Quality
In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following:
Year of origination;
Borrower FICO scores at origination (Origination FICO);
Updated borrower FICO scores (Updated FICO);
Loan-to-value (LTV) ratios at origination (Origination LTV); and
Estimated Current LTV ratios (Estimated Current LTV).
Borrowers’ FICO scores are provided by an independent third-party credit reporting service and generally updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index.

- 42 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The credit quality indicators of the Company’s bank loan portfolio are detailed below:
First Mortgages Amortized Cost Basis by Origination Year
June 30, 202320232022202120202019pre-2019Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
Origination FICO
<620$— $$$$— $$$— $— $— 
620 – 67927 30 20 13 95 — 
680 – 739177 807 1,193 412 110 215 2,914 53 41 94 
≥7401,319 5,426 10,719 3,689 776 863 22,792 274 144 418 
Total$1,499 $6,262 $11,943 $4,122 $888 $1,092 $25,806 $327 $186 $513 
Origination LTV
≤70%$1,017 $4,638 $10,343 $3,425 $718 $812 $20,953 $288 $130 $418 
>70% – ≤90%482 1,624 1,600 697 170 278 4,851 39 55 94 
>90% – ≤100%— — — — — — 
Total$1,499 $6,262 $11,943 $4,122 $888 $1,092 $25,806 $327 $186 $513 
Updated FICO
<620$$13 $13 $$$11 $47 $$$
620 – 67919 85 119 41 11 37 312 10 15 
680 – 739170 604 956 344 72 132 2,278 45 28 73 
≥7401,309 5,560 10,855 3,730 803 912 23,169 275 144 419 
Total$1,499 $6,262 $11,943 $4,122 $888 $1,092 $25,806 $327 $186 $513 
Estimated Current LTV (1)
≤70%$1,016 $4,756 $11,603 $4,108 $887 $1,090 $23,460 $322 $186 $508 
>70% – ≤90%483 1,484 340 14 2,324 — 
>90% – ≤100%— 19 — — — — 19 — — — 
>100%— — — — — — — — 
Total$1,499 $6,262 $11,943 $4,122 $888 $1,092 $25,806 $327 $186 $513 
Gross charge-offs$— $— $— $— $— $— $— $— $— $— 
Percent of Loans on
  Nonaccrual Status
0.02 %0.03 %0.03 %0.03 %0.02 %0.30 %0.04 %0.26 %2.01 %0.97 %
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.



- 43 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
First Mortgages Amortized Cost Basis by Origination Year
December 31, 20222022202120202019pre-2019Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
Origination FICO
<620$$$— $— $$$— $— $— 
620 – 67928 31 21 15 97 — 
680 – 739820 1,224 430 116 243 2,833 59 47 106 
≥7405,593 11,037 3,819 811 1,003 22,263 323 166 489 
Total$6,444 $12,293 $4,270 $929 $1,262 $25,198 $382 $215 $597 
Origination LTV
≤70%$4,771 $10,641 $3,549 $749 $940 $20,650 $332 $153 $485 
>70% – ≤90%1,673 1,652 721 180 320 4,546 50 61 111 
>90% – ≤100%— — — — — 
Total$6,444 $12,293 $4,270 $929 $1,262 $25,198 $382 $215 $597 
Updated FICO
<620$11 $12 $$$13 $45 $$$
620 – 67987 127 42 10 43 309 10 16 
680 – 739711 1,079 378 89 161 2,418 52 35 87 
≥7405,635 11,075 3,843 828 1,045 22,426 322 165 487 
Total$6,444 $12,293 $4,270 $929 $1,262 $25,198 $382 $215 $597 
Estimated Current LTV (1)
≤70%$4,574 $11,751 $4,255 $928 $1,257 $22,765 $380 $214 $594 
>70% – ≤90%1,845 542 15 2,408 
>90% – ≤100%25 — — — — 25 — — — 
>100%— — — — — — — — — 
Total$6,444 $12,293 $4,270 $929 $1,262 $25,198 $382 $215 $597 
Percent of Loans on
  Nonaccrual Status
0.02 %0.03 %0.09 %0.02 %0.43 %0.06 %0.34 %1.90 %0.84 %
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.

At June 30, 2023, First Mortgage loans of $21.1 billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 27% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 91% of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates.

At June 30, 2023 and December 31, 2022, Schwab had $144 million and $134 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the condensed consolidated balance sheets.

The HELOC product has a 30-year loan term with an initial draw period of ten years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a 20-year amortizing loan. The interest rate during the initial draw period and the 20-year amortizing period is a floating rate based on the prime rate plus a margin.

- 44 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following table presents when current outstanding HELOCs will convert to amortizing loans:
June 30, 2023Balance
Converted to an amortizing loan by period end (1)
$186 
Within 1 year24 
> 1 year – 3 years42 
> 3 years – 5 years53 
> 5 years208 
Total$513 
(1) Includes $5 million and $11 million of HELOCs converted to amortizing loans during the three and six months ended June 30, 2023, respectively.

At June 30, 2023, $404 million of the HELOC portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At June 30, 2023, the borrowers on approximately 57% of HELOC loan balances outstanding only paid the minimum amount due.


6.    Variable Interest Entities
As of June 30, 2023 and December 31, 2022, substantially all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s CRA-related investments and most of these are related to Low-Income Housing Tax Credit (LIHTC) investments. As part of CSB’s community reinvestment initiatives, CSB invests in funds that make equity investments in multifamily affordable housing properties and receives tax credits and other tax benefits for these investments.

Aggregate assets, liabilities, and maximum exposure to loss

The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below:
June 30, 2023December 31, 2022
Aggregate
assets
Aggregate
liabilities
Maximum
exposure
to loss
Aggregate
assets
Aggregate
liabilities
Maximum
exposure
to loss
LIHTC investments (1)
$1,201 $697 $1,201 $1,094 $619 $1,094 
Other investments (2)
182 — 225 167 — 215 
Total$1,383 $697 $1,426 $1,261 $619 $1,309 
(1) Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets.
(2) Other investments include non-LIHTC CRA investments that are accounted for as loans at amortized cost, equity method investments, AFS securities, or using the adjusted cost method. Aggregate assets are included in AFS securities, bank loans – net, or other assets on the condensed consolidated balance sheets.

Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. Schwab’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and Schwab expects to pay substantially all of these commitments between 2023 and 2026. During the six months ended June 30, 2023 and year ended December 31, 2022, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide.


- 45 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
7.    Bank Deposits

Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:
June 30, 2023December 31, 2022
Interest-bearing deposits:  
Deposits swept from brokerage accounts$240,575 $333,754 
Time certificates of deposit (1)
41,368 6,047 
Checking16,347 19,719 
Savings and other5,055 6,098 
Total interest-bearing deposits303,345 365,618 
Non-interest-bearing deposits1,069 1,106 
Total bank deposits$304,414 $366,724 
(1) Time certificates of deposit consist of brokered CDs. As of June 30, 2023, uninsured time CDs totaled $178 million. As of December 31, 2022, there were no time deposits that were in excess of FDIC insurance limits or otherwise uninsured.

Annual maturities on time certificates of deposit outstanding at June 30, 2023 are as follows:
Balance
2023$9,615 
202430,115 
20251,638 
Total$41,368 


8.    Borrowings

CSC Senior Notes

CSC’s Senior Notes are unsecured obligations. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. Interest for the fixed-to-floating rate Senior Notes is payable semi-annually during the fixed rate period of the notes and quarterly during the floating rate period of the notes.

TDA Holding Senior Notes

TDA Holding’s Senior Notes are unsecured obligations. TDA Holding may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes.

















- 46 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following table lists long-term debt by instrument outstanding as of June 30, 2023 and December 31, 2022:
Date of IssuancePrincipal Amount Outstanding
June 30, 2023December 31, 2022
CSC Fixed-rate Senior Notes:
2.650% due January 25, 2023
12/07/17$— $800 
3.550% due February 1, 2024
10/31/18500 500 
0.750% due March 18, 2024
03/18/211,500 1,500 
3.750% due April 1, 2024
09/24/21350 350 
3.000% due March 10, 2025
03/10/15375 375 
4.200% due March 24, 2025
03/24/20600 600 
3.625% due April 1, 2025
09/24/21418 418 
3.850% due May 21, 2025
05/22/18750 750 
3.450% due February 13, 2026
11/13/15350 350 
0.900% due March 11, 2026
12/11/201,250 1,250 
1.150% due May 13, 2026
05/13/211,000 1,000 
3.200% due March 2, 2027
03/02/17650 650 
2.450% due March 3, 2027
03/03/221,500 1,500 
3.300% due April 1, 2027
09/24/21744 744 
3.200% due January 25, 2028
12/07/17700 700 
2.000% due March 20, 2028
03/18/211,250 1,250 
4.000% due February 1, 2029
10/31/18600 600 
3.250% due May 22, 2029
05/22/19600 600 
2.750% due October 1, 2029
09/24/21475 475 
4.625% due March 22, 2030
03/24/20500 500 
1.650% due March 11, 2031
12/11/20750 750 
2.300% due May 13, 2031
05/13/21750 750 
1.950% due December 1, 2031
08/26/21850 850 
2.900% due March 3, 2032
03/03/221,000 1,000 
CSC Floating-rate Senior Notes:
SOFR + 0.500% due March 18, 2024
03/18/211,250 1,250 
SOFR + 0.520% due May 13, 2026
05/13/21500 500 
SOFR + 1.050% due March 3, 2027
03/03/22500 500 
CSC Fixed-to-Floating rate Senior Notes:
5.643% due May 19, 2029 (1)
05/19/231,200 — 
5.853% due May 19, 2034 (2)
05/19/231,300 — 
Total CSC Senior Notes22,212 20,512 
TDA Holding Fixed-rate Senior Notes:
3.750% due April 1, 2024
11/01/1850 50 
3.625% due April 1, 2025
10/22/1482 82 
3.300% due April 1, 2027
04/27/1756 56 
2.750% due October 1, 2029
08/16/1925 25 
Total TDA Holding Senior Notes213 213 
Finance lease liabilities52 68 
Unamortized premium — net109 129 
Debt issuance costs(104)(94)
Total long-term debt$22,482 $20,828 
(1) The 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.643%, payable semi-annually, until the interest reset date on May 19, 2028. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.210%, payable quarterly.
(2) The 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.853%, payable semi-annually, until the interest reset date on May 19, 2033. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.500%, payable quarterly.

- 47 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Annual maturities on all long-term debt outstanding at June 30, 2023 are as follows:
Maturities
2023$15 
20243,675 
20252,237 
20263,100 
20273,450 
Thereafter10,000 
Total maturities22,477 
Unamortized premium — net109 
Debt issuance costs(104)
Total long-term debt$22,482 

FHLB borrowings: Our banking subsidiaries maintain secured credit facilities with the FHLB. Amounts available under these facilities are dependent on the amount of bank loans and the fair value of certain investment securities that are pledged as collateral. There was $41.0 billion and $12.4 billion outstanding under these facilities as of June 30, 2023 and December 31, 2022, respectively, and these borrowings had a weighted-average interest rate of 5.14% and 4.88%, respectively. As of June 30, 2023 and December 31, 2022, the collateral pledged provided additional borrowing capacity of $38.3 billion and $68.6 billion, respectively.

Other short-term borrowings: Total other short-term borrowings outstanding at June 30, 2023 and December 31, 2022 were $7.8 billion and $4.7 billion, respectively, and had a weighted-average interest rate of 5.01% and 4.97%, respectively. Additional information regarding our other short-term borrowings facilities is described below.

CSC has the ability to issue up to $5.0 billion of commercial paper notes with maturities of up to 270 days. There were no commercial paper notes outstanding at June 30, 2023 and CSC had $250 million outstanding at December 31, 2022. CSC and CS&Co also have access to uncommitted lines of credit with external banks with total borrowing capacity of $1.8 billion; no amounts were outstanding as of June 30, 2023 or December 31, 2022. Beginning in the second quarter of 2023, CS&Co maintains a secured, uncommitted line of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral. There was no balance outstanding at June 30, 2023.

Our banking subsidiaries have access to funding through the Federal Reserve discount window. Amounts available are dependent upon the fair value of certain investment securities that are pledged as collateral. As of June 30, 2023 and December 31, 2022, our collateral pledged provided total borrowing capacity of $8.8 billion and $7.8 billion, respectively, of which no amounts were outstanding at the end of either period.

Beginning in 2023, our banking subsidiaries now have access to funding through the Federal Reserve Bank Term Funding Program. Amounts available are dependent upon the par value of certain investment securities that are pledged as collateral. As of June 30, 2023, our collateral pledged provided total borrowing capacity of $41.6 billion. There were no borrowings outstanding at June 30, 2023.

The Company may engage with external financial institutions in repurchase agreements collateralized by investment securities as another source of short-term liquidity. The Company had $7.8 billion and $4.4 billion outstanding pursuant to such repurchase agreements at June 30, 2023 and December 31, 2022, respectively. Repurchase agreements outstanding at June 30, 2023 mature between August 2023 and April 2024.

TDAC maintains senior uncommitted lines of credit, under which TDAC borrows on either a demand or short-term basis and pledges client margin securities as collateral. There was no balance outstanding at June 30, 2023 or December 31, 2022.

Annual maturities on FHLB borrowings and other short-term borrowings outstanding at June 30, 2023 are as follows:
20232024Total
FHLB borrowings$24,200 $16,800 $41,000 
Other short-term borrowings6,625 1,206 7,831 
Total$30,825 $18,006 $48,831 

- 48 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
9.    Commitments and Contingencies

Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Rocket Mortgage, LLC (Rocket Mortgage®). Pursuant to the Program, Rocket Mortgage originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Rocket Mortgage. CSB purchased First Mortgages of $854 million and $2.0 billion during the second quarters of 2023 and 2022, respectively, and $1.6 billion and $4.7 billion during the first six months of 2023 and 2022, respectively. CSB purchased HELOCs with commitments of $52 million and $70 million during the second quarters of 2023 and 2022, respectively, and $95 million and $160 million during the first six months of 2023 and 2022, respectively.

The Company’s commitments to extend credit on lines of credit and to purchase First Mortgages are as follows:
June 30, 2023December 31, 2022
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit$3,674 $4,533 
Commitments to purchase First Mortgage loans481 492 
Total$4,155 $5,025 

Guarantees and indemnifications: Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We satisfy the margin requirements of these transactions through the pledging of certain client securities. For additional information on these pledged securities refer to Note 12. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral.

The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the amounts it has posted as collateral. The Company also engages third-party firms to clear clients’ futures and options on futures transactions and to facilitate clients’ foreign exchange trading, and has agreed to indemnify these firms for any losses that they may incur from the client transactions introduced to them by the Company. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees.

IDA agreement: The 2019 IDA agreement with the TD Depository Institutions became effective on October 6, 2020 and created responsibilities of the Company and certain contingent obligations. On May 4, 2023, the 2019 IDA agreement was replaced and superseded by the 2023 IDA agreement, which specifies responsibilities, including certain contingent obligations, of the Company going forward. Pursuant to the 2023 IDA agreement, uninvested cash within eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions. Schwab provides recordkeeping and support services to the TD Depository Institutions with respect to the deposit accounts for which Schwab receives an aggregate monthly fee. The Company’s ability to migrate these balances to its balance sheet is dependent on multiple factors including having sufficient capital levels to sustain these incremental deposits and certain binding limitations specified in the 2023 IDA agreement, and, prior to May 4, 2023, the 2019 IDA agreement.

The 2019 IDA agreement provided that, as of July 1, 2021, Schwab had the option to migrate up to $10 billion of IDA balances every 12 months to Schwab’s balance sheet, subject to certain limitations and adjustments. The Company migrated balances to the balance sheet in 2021 and 2022, subject to the terms of the 2019 IDA agreement. During the first six months of 2023, Schwab did not move IDA balances to its balance sheet.

The 2023 IDA agreement extends the agreement term to sweep balances to the TD Depository Institutions through July 1, 2034, and requires that Schwab maintain minimum and maximum IDA balances as follows:

Through September 10, 2025, Schwab must maintain minimum balances above the total of then-outstanding unmatured fixed-rate obligation amounts, with a maximum of $30 billion above this total amount. During this period, withdrawals of IDA balances by Schwab are generally permitted only to the extent of withdrawals initiated by Schwab customers, with limited exceptions, except to the extent necessary for Schwab to maintain balances below the applicable maximum.
After September 10, 2025, withdrawals of IDA balances are permitted at Schwab’s discretion, subject to an obligation to maintain IDA balances above a minimum of $60 billion, with a maximum of $90 billion.
- 49 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The 2023 IDA agreement eliminates the requirement of the 2019 IDA agreement that at least 80% of the IDA balances be designated as fixed-rate obligation amounts. Designation of deposit balances for investment in fixed- or floating-rate instruments under the 2023 IDA agreement is now at Schwab’s sole discretion with certain limitations on the amount of fixed-rate obligation amounts.

Pursuant to the 2023 IDA agreement, Schwab has the option to buy down up to $5 billion of fixed-rate obligation amounts by paying a market-based fee during the agreement term, subject to certain limits. If IDA balances decline below the required IDA balance minimum as described above, Schwab would be required to make a nonperformance payment to the TD Depository Institutions pursuant to the terms of the 2023 IDA agreement.

In May 2023, Schwab opted to buy down $2.4 billion of fixed-rate obligation amounts, incurring a market-based fee of $112 million, which was capitalized as a contract asset and included in other assets on the condensed consolidated balance sheet. For additional information on the contract asset, see Note 3.

As of June 30, 2023, the total ending IDA balance was $102.7 billion, of which $96.4 billion was fixed-rate obligation amounts and $6.3 billion was floating-rate obligation amounts. As of December 31, 2022, the total ending IDA balance was $122.6 billion, of which $108.5 billion was fixed-rate obligation amounts and $14.1 billion was floating-rate obligation amounts.

Legal contingencies: Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies.

Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available.

Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company.

Corrente Antitrust Litigation: On June 6, 2022, CSC was sued in the U.S. District Court for the Eastern District of Texas on behalf of a putative class of customers who purchased or sold securities through CS&Co or TD Ameritrade, Inc. from October 26, 2020 to the present. The lawsuit alleges that CSC’s acquisition of TD Ameritrade violated Section 7 of the Clayton Act because it has resulted in an anticompetitive market for the execution of retail customer orders. Plaintiffs seek unspecified damages, as well as injunctive and other relief. A motion by the Company to dismiss the lawsuit was denied by the court on February 24, 2023, and discovery is proceeding. The Company considers the claims to be without merit and is vigorously contesting the lawsuit.

Crago Order Routing Litigation: On July 13, 2016, a securities class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of a putative class of customers executing equity orders through CS&Co. The lawsuit names CS&Co and CSC as defendants and alleges that an agreement under which CS&Co routed orders to UBS Securities LLC between July 13, 2011 and December 31, 2014 violated CS&Co’s duty to seek best execution. Plaintiffs seek unspecified damages, interest, injunctive and equitable relief, and attorneys’ fees and costs. Defendants consider the allegations to be entirely without merit and have been vigorously contesting the lawsuit. After a first amended complaint was dismissed with
- 50 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
leave to amend, plaintiffs filed a second amended complaint on August 14, 2017. Defendants again moved to dismiss, and in a decision issued December 5, 2017, the court denied the motion. Plaintiffs filed a motion for class certification on April 30, 2021, and in a decision on October 27, 2021, the court denied the motion and held that certification of a class action is inappropriate. Plaintiffs sought review of the order denying class certification by the U.S. Court of Appeals, 9th Circuit, which was denied. On September 23, 2022, plaintiffs filed a renewed motion for class certification and defendants moved to compel plaintiffs’ case to arbitration. On February 2, 2023, the court granted defendants’ motion, stayed the case pending the outcome of arbitration, and denied plaintiffs’ renewed motion for class certification as moot.

Ford Order Routing Litigation: On September 15, 2014, TDA Holding, TD Ameritrade, Inc. and its former CEO, Frederick J. Tomczyk, were sued in the U.S. District Court for the District of Nebraska on behalf of a putative class of TD Ameritrade, Inc. clients alleging that defendants failed to seek best execution and made misrepresentations and omissions regarding its order routing practices. Plaintiffs seek unspecified damages and injunctive and other relief. Defendants consider the allegations to be entirely without merit and have been vigorously contesting the lawsuit. On September 14, 2018, the District Court granted plaintiffs’ motion for class certification, and defendants petitioned for an immediate appeal of the District Court’s class certification decision. On April 23, 2021, the U.S. Court of Appeals, 8th Circuit, issued a decision reversing the District Court’s certification of a class and remanding the case back to the District Court for further proceedings. Plaintiff renewed his motion for class certification, which the District Court granted on September 20, 2022. Defendants are appealing the District Court’s ruling before the U.S. Court of Appeals, 8th Circuit.


10.    Exit and Other Related Liabilities

Integration of TD Ameritrade

The Company completed its acquisition of TD Ameritrade effective October 6, 2020 and integration work continued during the first six months of 2023, including the completion of client transition groups in February and May 2023. The Company expects to complete most remaining client transitions from TD Ameritrade to Schwab across two groups over the remainder of 2023, with the transition of a small client group in the first half of 2024.

The Company expects to continue to incur significant acquisition and integration-related costs and integration-related capital expenditures throughout the remaining integration process. Such costs have included, and are expected to continue to include, professional fees, such as legal, advisory, and accounting fees, compensation and benefits expenses for employees and contractors involved in the integration work, and costs for technology enhancements. The Company has also incurred exit and other related costs to attain anticipated synergies, which are primarily comprised of employee compensation and benefits such as severance pay, other termination benefits, and retention costs, as well as costs related to facility closures, such as accelerated amortization and depreciation or impairments of assets in those locations. Exit and other related costs are a component of the Company’s overall acquisition and integration-related spending, and support the Company’s ability to achieve integration objectives including expected synergies.

Our estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change based on a number of factors, including the expected duration and complexity of the integration process and the continued uncertainty of the economic environment. More specifically, factors that could cause variability in our expected acquisition and integration-related costs include the level of employee attrition and availability of third-party labor, workforce redeployment from eliminated positions into open roles, changes in the levels of client activity, as well as changes in the scope and cost of technology and real estate-related exit cost variability due to the effects of changes in remote working trends.

Inclusive of costs recognized through June 30, 2023, Schwab currently expects to incur total exit and other related costs for the integration of TD Ameritrade ranging from $500 million to $700 million, consisting of employee compensation and benefits, facility exit costs, and certain other costs. During the three months ended June 30, 2023 and 2022, the Company recognized $30 million and $8 million of acquisition-related exit costs, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized $40 million and $20 million of acquisition-related exit costs, respectively. The Company expects that remaining exit and other related costs will be incurred and charged to expense over the next 18 months, with some costs expected to be incurred after client transition to decommission duplicative platforms and complete integration work. In addition to ASC 420 Exit or Disposal Cost Obligations, certain of the costs associated with these activities are accounted for in accordance with ASC 360 Property, Plant and Equipment, ASC 712 Compensation — Nonretirement Post Employment Benefits, ASC 718 Compensation — Stock Compensation, and ASC 842 Leases.
- 51 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following is a summary of the activity in the Company’s exit and other related liabilities as of June 30, 2023 and activity for the six months ended June 30, 2023:
Investor Services
Employee Compensation and Benefits
Advisor Services
Employee Compensation and Benefits
Total
Balance at December 31, 2022 (1)
$36 $10 $46 
Amounts recognized in expense (2)
11 14 
Costs paid or otherwise settled(4)(1)(5)
Balance at June 30, 2023 (1)
$43 $12 $55 
(1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets.
(2) Amounts recognized in expense for severance pay and other termination benefits, as well as retention costs, are included in compensation and benefits on the condensed consolidated statements of income.

The following table summarizes the exit and other related costs recognized in expense for the three and six months ended June 30, 2023:
Investor ServicesAdvisor Services
Three Months Ended June 30,Employee Compensation and Benefits
Facility Exit Costs (1)
Investor Services TotalEmployee Compensation and Benefits
Facility Exit Costs (1)
Advisor Services TotalTotal
Compensation and benefits$$— $$$— $$
Occupancy and equipment— — 
Other— 14 14 — 21 
Total$$17 $20 $$$10 $30 
Investor ServicesAdvisor Services
Six Months Ended June 30,Employee Compensation and Benefits
Facility Exit Costs (1)
Investor Services TotalEmployee Compensation and Benefits
Facility Exit Costs (1)
Advisor Services TotalTotal
Compensation and benefits$11 $— $11 $$— $$14 
Occupancy and equipment— — 
Other— 14 14 — 21 
Total$11 $17 $28 $$$12 $40 
(1) Costs related to facility closures. These costs, which are comprised of impairment and accelerated amortization of right-of-use (ROU) assets, relate to the impact of abandoning leased properties.

The following table summarizes the exit and other related costs recognized in expense for the three and six months ended June 30, 2022:
Investor ServicesAdvisor Services
Three Months Ended June 30,Employee Compensation and Benefits
Facility Exit Costs (1)
Investor Services TotalEmployee Compensation and Benefits
Facility Exit Costs (1)
Advisor Services TotalTotal
Compensation and benefits$$— $$$— $$
Occupancy and equipment— — — — 
Total$$$$$— $$
Investor ServicesAdvisor Services
Six Months Ended June 30,Employee Compensation and Benefits
Facility Exit Costs (1)
Investor Services TotalEmployee Compensation and Benefits
Facility Exit Costs (1)
Advisor Services TotalTotal
Compensation and benefits$13 $— $13 $$— $$17 
Occupancy and equipment— — 
Total$13 $$15 $$$$20 
(1) Costs related to facility closures. These costs, which are comprised of accelerated amortization of right-of-use (ROU) assets, relate to the impact of abandoning leased properties.
- 52 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following table summarizes the exit and other related costs incurred from October 6, 2020 through June 30, 2023:
Investor ServicesAdvisor Services
Employee Compensation and Benefits
Facility Exit Costs (1)
Investor Services TotalEmployee Compensation and Benefits
Facility Exit Costs (1)
Advisor Services TotalTotal
Compensation and benefits$234 $— $234 $64 $— $64 $298 
Occupancy and equipment— 34 34 — 43 
Depreciation and amortization— — 
Professional services— — — — 
Other— 16 16 — 23 
Total$234 $53 $287 $64 $17 $81 $368 
(1) Costs related to facility closures. These costs, which are primarily comprised of impairment and accelerated amortization of ROU assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties.

Other

With significant progress now made in the integration of TD Ameritrade, the Company is planning incremental actions to streamline its operations to prepare for post-integration. Schwab is currently assessing its real estate footprint, and plans to close or downsize certain corporate offices. In addition, the Company plans to streamline its operational design, including through position eliminations. Through these actions, the Company expects to realize incremental run-rate cost savings in addition to integration synergies. In order to achieve these cost savings, the Company will incur exit and related costs, which could be significant, primarily related to employee compensation and benefits and facility exit costs. The Company is still evaluating both its real estate locations and its organizational headcount and associated exit and related costs are not yet estimable.


11.    Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

Beginning in 2023, the Company utilizes derivative instruments to manage interest rate risk exposures that arise from business activities related to changes in fair values or the receipt of future known and uncertain cash amounts due to changes in interest rates. The Company uses derivative instruments to manage changes in the fair values of, as well as changes in the amounts and/or timing of known or expected cash receipts related to, our AFS investment portfolio.

For a description of how the Company accounts for derivative instruments, see Note 2. For additional information on the basis of presentation for derivative instruments on the Company’s condensed consolidated balance sheets and related offsetting considerations, see Note 12.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of its fixed-rate AFS securities due to changes in benchmark interest rates. The Company uses cleared interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Cleared interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a CCP in exchange for the Company receiving floating-rate payments over the life of the agreements without the exchange of the underlying notional amount.

The Company had outstanding interest rate swaps with aggregate notional amounts of $8.9 billion at June 30, 2023 that were designated as fair value hedges of interest rate risk.









- 53 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Fair Values of Derivative Instruments

The table below presents the gross fair values of the Company’s interest rate swaps designated as hedging instruments on the condensed consolidated balance sheet:
June 30, 2023
AssetsLiabilities
Interest rate swaps (1,2)
$$— 
(1) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheet.
(2) Includes a $121 million reduction of derivative assets related to variation margin settlements on derivatives cleared through CCPs. Settlements on derivative positions cleared through CCPs are reflected as reductions to the associated derivative asset and liability balances.

Effects of Fair Value Hedge Accounting

The following amounts were recorded in AFS securities on the condensed consolidated balance sheet related to fair value hedges:
June 30, 2023
Carrying amount of hedged AFS securities (1,2)
$8,863 
Cumulative fair value hedging adjustment included in the carrying amount of hedged AFS securities (1,2)
(122)
(1) Includes the amortized cost basis of closed portfolios of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. The amortized cost basis of the closed portfolios used in these hedging relationships is $1.6 billion and the notional amount of the designated hedged items is $1.6 billion. The cumulative basis adjustments associated with these hedges is an unrealized loss of $26 million.
(2) Excludes the carrying amount and fair value hedging adjustment of AFS securities for which hedge accounting has been discontinued. The cumulative amount of fair value hedging adjustments remaining for these securities is an unrealized loss of less than $500 thousand, which is recorded in AFS securities on the condensed consolidated balance sheet.

The table below presents the effect of the Company’s interest rate swaps designated as fair value hedges on the condensed consolidated statement of income:
Three Months Ended
June 30,
Six Months Ended
June 30,
20232023
Gain (loss) on fair value hedging relationships recognized in interest revenue:
Hedged items$(126)$(122)
Derivatives designated as hedging instruments126 122 


12.    Financial Instruments Subject to Off-Balance Sheet Credit Risk

Interest rate swaps: Beginning in 2023, Schwab uses interest rate swaps to manage certain interest rate risk exposures. Schwab’s interest rate swaps are cleared through CCPs which require the Company to post initial margin as collateral against potential losses. Schwab pledges investment securities as collateral in order to meet the CCP’s initial margin requirements. Initial margin is posted through futures commission merchants (FCM) which serve as the intermediary between CCPs and Schwab. Our interest rate swaps are subject to enforceable master netting arrangements allowing a right of setoff within each FCM-CCP relationship; however, we do not net these positions. Therefore, interest rate swaps are presented gross in the condensed consolidated balance sheets. See Note 11 for additional information on the Company’s interest rate swaps.

Resale agreements: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investments requirement. Schwab’s resale agreements as of June 30, 2023 and December 31, 2022 were not subject to master netting arrangements.

- 54 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Securities lending: Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. In addition, most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $1.3 billion and $685 million at June 30, 2023 and December 31, 2022, respectively. Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets.

Repurchase agreements: Schwab enters into collateralized repurchase agreements with external financial institutions in which the Company sells securities and agrees to repurchase these securities on a specified future date at a stated repurchase price. These repurchase agreements are collateralized by investment securities with a fair value equal to or in excess of the secured borrowing liability. Decreases in security prices posted as collateral for repurchase agreements may require Schwab to transfer cash or additional securities deemed acceptable by the counterparty. To mitigate this risk, Schwab monitors the fair value of underlying securities pledged as collateral compared to the related liability. Our collateralized repurchase agreements with each external financial institution are considered to be enforceable master netting arrangements. However, we do not net these arrangements. As such, the secured short-term borrowings associated with these collateralized repurchase agreements are presented gross in the condensed consolidated balance sheets.


- 55 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following table presents information about our interest rate swaps, resale agreements, securities lending, and other activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities.
Gross
Assets/
Liabilities
Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets
Net Amounts
Presented in the
Condensed
Consolidated
Balance Sheets
Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets
Net
Amount
Counterparty
Offsetting
Collateral
June 30, 2023
Assets      
Interest rate swaps (1,3)
$$— $$— $— 
(5)
$
Resale agreements (1)
5,405 — 5,405 — (5,405)
(2)
— 
Securities borrowed (4)
1,349 — 1,349 (907)(439)
Total$6,755 $— $6,755 $(907)$(5,844)$
Liabilities      
Repurchase agreements (6)
$7,831 $— $7,831 $— $(7,831)$— 
Securities loaned (7)
4,612 — 4,612 (907)(3,200)505 
Total$12,443 $— $12,443 $(907)$(11,031)$505 
December 31, 2022      
Assets      
Resale agreements (1)
$12,159 $— $12,159 $— $(12,159)
(2)
$— 
Securities borrowed (4)
705 — 705 (331)(366)
Total$12,864 $— $12,864 $(331)$(12,525)$
Liabilities      
Repurchase agreements (6)
$4,402 $— $4,402 $— $(4,402)$— 
Securities loaned (7)
4,200 — 4,200 (331)(3,313)556 
Total$8,602 $— $8,602 $(331)$(7,715)$556 
(1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets.
(2) Actual collateral was greater than or equal to the value of the related assets. At June 30, 2023 and December 31, 2022, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $5.5 billion and $12.3 billion, respectively.
(3) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. Derivative asset and liability positions are inclusive of variation margin settlements cleared through CCPs which are reflected as reductions to the associated derivative asset and liability balances. See Note 11 for additional information.
(4) Included in other assets on the condensed consolidated balance sheets.
(5) At June 30, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $178 million. See Notes 4 and 11 for additional information.
(6) Included in other short-term borrowings in the condensed consolidated balance sheets. Actual collateral was greater than or equal to the value of the related liabilities. At June 30, 2023 and December 31, 2022, the fair value of collateral pledged in connection with repurchase agreements was $8.4 billion and $4.6 billion, respectively. See Note 8 for additional information.
(7) Included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at June 30, 2023 and December 31, 2022.

Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged to third parties under such regulations and from securities borrowed transactions:
June 30, 2023December 31, 2022
Fair value of client securities available to be pledged$86,977 $86,775 
Fair value of securities pledged for:
Fulfillment of requirements with the Options Clearing Corporation (1)
$15,847 $11,717 
Fulfillment of client short sales7,447 4,750 
Securities lending to other broker-dealers3,900 3,472 
Total collateral pledged to third parties$27,194 $19,939 
Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $195 million and $160 million at June 30, 2023 and December 31, 2022, respectively.
(1)     Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.
- 56 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
13.    Fair Values of Assets and Liabilities

Assets and liabilities measured at fair value on a recurring basis

Schwab’s assets and liabilities measured at fair value on a recurring basis include: certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, AFS securities, certain other assets, interest rate swaps and certain accrued expenses and other liabilities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. Quoted prices for investments in exchange-traded securities represent end-of-day close prices published by exchanges. Quoted prices for money market funds and other mutual funds represent reported net asset values. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices in active markets do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets, and we generally obtain prices from three independent third-party pricing sources for such assets recorded at fair value.

Our primary independent pricing service provides prices for our fixed income investments such as commercial paper; certificates of deposits; U.S. government and agency securities; state and municipal securities; corporate debt securities; asset-backed securities; foreign government agency securities; and non-agency commercial mortgage-backed securities. Such prices are based on observable trades, broker/dealer quotes, and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in material differences in the amounts recorded.

Liabilities measured at fair value on a recurring basis include interest rate swaps and repurchase liabilities related to client-held fractional shares of equities, ETFs, and other securities, which are included in other assets on the condensed consolidated balance sheets. The Company has elected the fair value option pursuant to ASC 825 Financial Instruments for the repurchase liabilities to match the measurement and accounting of the related client-held fractional shares. The fair values of the repurchase liabilities are based on quoted market prices or other observable market data consistent with the related client-held fractional shares. Unrealized gains and losses on client-held fractional shares offset the unrealized gains and losses on the corresponding repurchase liabilities, resulting in no impact to the condensed consolidated statements of income. The Company’s liabilities to repurchase client-held fractional shares do not have credit risk, and, as a result, the Company has not recognized any gains or losses in the condensed consolidated statements of income or comprehensive income attributable to instrument-specific credit risk for these repurchase liabilities. The repurchase liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets.

The fair values of interest rate swaps are based on market observable interest rate yield curves. Fair value measurements are priced considering the coupon rate of the fixed leg of the contract and the variable coupon rate on the floating leg of the contract. Valuation is based on both spot and forward rates on the swap yield curve. The Company validates its valuations with counterparty quotations from CCPs. See Note 11 for additional information on the Company’s interest rate swaps.

For a description of the fair value hierarchy and Schwab’s fair value methodologies, see Item 8 – Note 2 in the 2022 Form 10-K. The Company did not adjust prices received from the primary independent third-party pricing service at June 30, 2023 or December 31, 2022.
- 57 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:
June 30, 2023Level 1Level 2Level 3Balance at
Fair Value
Cash equivalents:
Money market funds$14,361 $— $— $14,361 
Total cash equivalents14,361 — — 14,361 
Investments segregated and on deposit for regulatory purposes:
U.S. Government securities— 14,230 — 14,230 
Certificates of deposit— 1,098 — 1,098 
Total investments segregated and on deposit for regulatory purposes— 15,328 — 15,328 
Available for sale securities:
U.S. agency mortgage-backed securities— 71,727 — 71,727 
U.S. Treasury securities— 28,524 — 28,524 
Asset-backed securities— 10,957 — 10,957 
Corporate debt securities— 12,282 — 12,282 
Certificates of deposit— 348 — 348 
Foreign government agency securities— 978 — 978 
U.S. state and municipal securities— 572 — 572 
Non-agency commercial mortgage-backed securities— 263 — 263 
Other— 118 — 118 
Total available for sale securities— 125,769 — 125,769 
Other assets:
Other securities owned at fair value:
Equity, corporate debt, and other securities880 67 — 947 
Mutual funds and ETFs695 — — 695 
State and municipal debt obligations— 23 — 23 
U.S. Government securities— — 
Total other securities owned at fair value1,575 92 — 1,667 
Interest rate swaps— — 
Total other assets1,575 93 — 1,668 
Total assets$15,936 $141,190 $— $157,126 
Accrued expenses and other liabilities:
Other$1,428 $46 $— $1,474 
Total accrued expenses and other liabilities1,428 46 — 1,474 
Total liabilities$1,428 $46 $— $1,474 
- 58 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
December 31, 2022Level 1Level 2Level 3Balance at
Fair Value
Cash equivalents:
Money market funds$14,007 $— $— $14,007 
Commercial paper— 48 — 48 
Total cash equivalents14,007 48 — 14,055 
Investments segregated and on deposit for regulatory purposes:
U.S. Government securities— 23,645 — 23,645 
Certificates of deposit— 1,000 — 1,000 
Total investments segregated and on deposit for regulatory purposes— 24,645 — 24,645 
Available for sale securities:
U.S. agency mortgage-backed securities— 77,688 — 77,688 
U.S. Treasury securities— 40,002 — 40,002 
Asset-backed securities— 13,023 — 13,023 
Corporate debt securities— 12,555 — 12,555 
Certificates of deposit— 2,231 — 2,231 
Foreign government agency securities— 969 — 969 
U.S. state and municipal securities— 638 — 638 
Non-agency commercial mortgage-backed securities— 450 — 450 
Other— 315 — 315 
Total available for sale securities— 147,871 — 147,871 
Other assets:
Other securities owned at fair value:
Equity, corporate debt, and other securities755 55 — 810 
Mutual funds and ETFs596 — — 596 
State and municipal debt obligations— 25 — 25 
U.S. Government securities— — 
Total other securities owned at fair value1,351 81 — 1,432 
Total other assets1,351 81 — 1,432 
Total assets $15,358 $172,645 $— $188,003 
Accrued expenses and other liabilities:
Other$1,218 $43 $— $1,261 
Total accrued expenses and other liabilities1,218 43 — 1,261 
Total liabilities$1,218 $43 $— $1,261 












- 59 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Fair Value of Other Financial Instruments
The following tables present the fair value hierarchy for other financial instruments:
June 30, 2023Carrying
Amount
Level 1Level 2Level 3Balance at
Fair Value
Assets     
Cash and cash equivalents$33,290 $33,290 $— $— $33,290 
Cash and investments segregated and on deposit for
  regulatory purposes
9,708 4,314 5,394 — 9,708 
Receivables from brokerage clients — net65,147 — 65,147 — 65,147 
Held to maturity securities:  
U.S. agency mortgage-backed securities166,328 — 151,597 — 151,597 
Total held to maturity securities166,328 — 151,597 — 151,597 
Bank loans — net:     
First Mortgages25,738 — 22,625 — 22,625 
HELOCs510 — 558 — 558 
Pledged asset lines13,572 — 13,572 — 13,572 
Other241 — 241 — 241 
Total bank loans — net40,061 — 36,996 — 36,996 
Other assets5,420 — 5,420 — 5,420 
Liabilities     
Bank deposits$304,414 $— $304,414 $— $304,414 
Payables to brokerage clients84,795 — 84,795 — 84,795 
Accrued expenses and other liabilities5,987 — 5,987 — 5,987 
Other short-term borrowings7,831 — 7,831 — 7,831 
Federal Home Loan Bank borrowings41,000 — 41,000 — 41,000 
Long-term debt22,430 — 20,553 — 20,553 
December 31, 2022Carrying
Amount
Level 1Level 2Level 3Balance at
Fair Value
Assets     
Cash and cash equivalents$26,140 $26,140 $— $— $26,140 
Cash and investments segregated and on deposit for
  regulatory purposes
18,288 6,156 12,132 — 18,288 
Receivables from brokerage clients — net66,573 — 66,573 — 66,573 
Held to maturity securities:    
U.S. agency mortgage-backed securities173,074 — 158,936 — 158,936 
Total held to maturity securities173,074 — 158,936 — 158,936 
Bank loans — net:     
First Mortgages25,132 — 22,201 — 22,201 
HELOCs593 — 657 — 657 
Pledged asset lines14,592 — 14,592 — 14,592 
Other188 — 188 — 188 
Total bank loans — net40,505 — 37,638 — 37,638 
Other assets3,788 — 3,788 — 3,788 
Liabilities     
Bank deposits$366,724 $— $366,724 $— $366,724 
Payables to brokerage clients97,438 — 97,438 — 97,438 
Accrued expenses and other liabilities5,584 — 5,584 — 5,584 
Other short-term borrowings4,650 — 4,650 — 4,650 
Federal Home Loan Bank borrowings12,400 — 12,400 — 12,400 
Long-term debt20,760 — 19,108 — 19,108 


- 60 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
14.    Stockholders’ Equity

On July 27, 2022, CSC publicly announced that its Board of Directors approved a new share repurchase authorization to repurchase up to $15.0 billion of common stock, replacing the previous and now terminated share repurchase authorization of up to $4.0 billion of common stock. The new share repurchase authorization does not have an expiration date. There were no repurchases of CSC’s common stock during the three months ended June 30, 2023. CSC repurchased 37 million shares of its common stock for $2.8 billion during the six months ended June 30, 2023. As of June 30, 2023, approximately $8.7 billion remained on the new authorization. There were no repurchases of CSC’s common stock under the terminated authorization during the six months ended June 30, 2022.

There were no repurchases of CSC’s preferred stock during the three months ended June 30, 2023. The Company repurchased 11,620 depositary shares representing interests in Series F preferred stock for $11 million, 42,036 depositary shares representing interests in Series G preferred stock for $42 million, 273,251 depositary shares representing interests in Series H preferred stock for $235 million, and 194,567 depositary shares representing interests in Series I preferred stock for $179 million on the open market during the six months ended June 30, 2023. The repurchase prices are inclusive of $3 million of dividends accrued by the stockholders as of the repurchase date.

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

The Company’s preferred stock issued and outstanding is as follows:
Liquidation Preference Per ShareDividend Rate in Effect at June 30, 2023Earliest Redemption DateDate at Which Dividend Rate Resets or Becomes FloatingReset / Floating RateMargin Over Reset / Floating Rate
Shares Issued and Outstanding (in ones) atCarrying Value at
June 30, 2023 (1)
December 31, 2022 (1)
June 30, 2023December 31, 2022Issue Date
Fixed-rate:
Series D750,000 750,000 $1,000 $728 $728 03/07/165.950 %06/01/21N/AN/AN/A
Series J600,000 600,000 1,000 584 584 03/30/214.450 %06/01/26N/AN/AN/A
Fixed-to-floating-rate/Fixed-rate reset:
Series F4,883 5,000 100,000 481 492 10/31/175.000 %12/01/2712/01/27
3M LIBOR(4)
2.575 %
Series G (2)
24,580 25,000 100,000 2,428 2,470 04/30/205.375 %06/01/2506/01/25
5-Year Treasury
4.971 %
Series H (3)
22,267 25,000 100,000 2,200 2,470 12/11/204.000 %12/01/3012/01/30
10-Year Treasury
3.079 %
Series I (2)
20,554 22,500 100,000 2,030 2,222 03/18/214.000 %06/01/2606/01/26
5-Year Treasury
3.168 %
Series K (2)
7,500 7,500 100,000 740 740 03/04/225.000 %06/01/2706/01/27
5-Year Treasury
3.256 %
Total preferred
   stock
1,429,784 1,435,000 $9,191 $9,706  
(1) Represented by depositary shares.
(2) The dividend rate for Series G, Series I, and Series K resets on each five-year anniversary from the first reset date.
(3) The dividend rate for Series H resets on each ten-year anniversary from the first reset date.
(4) The reset/floating rate for Series F will be determined by the calculation agent prior to the commencement of the floating rate period using what the calculation agent determines to be the industry-accepted substitute or successor base rate to LIBOR.
N/A Not applicable.

- 61 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Dividends declared on the Company’s preferred stock are as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Total
Declared
Per Share
Amount
Total
Declared
Per Share
Amount
Total
Declared (1)
Per Share
Amount
Total
Declared
Per Share
Amount
Series A (2)
N/AN/A$6.2 $15.60 N/AN/A$11.2 $28.30 
Series D (3)
$11.1 $14.88 11.1 14.88 $22.3 $29.76 22.3 29.76 
Series E (4)
N/AN/A5.9 980.82 N/AN/A19.8 3,293.32 
Series F (5)
12.2 2,500.00 12.5 2,500.00 12.2 2,500.00 12.5 2,500.00 
Series G (3)
33.1 1,343.75 33.6 1,343.75 66.3 2,687.50 67.2 2,687.50 
Series H (3)
22.3 1,000.00 25.0 1,000.00 46.0 2,000.00 50.0 2,000.00 
Series I (3)
20.6 1,000.00 22.5 1,000.00 41.9 2,000.00 45.0 2,000.00 
Series J (3)
6.7 11.13 6.7 11.13 13.4 22.26 13.4 22.26 
Series K (6)
9.5 1,250.00 9.1 1,208.33 18.8 2,500.00 9.1 1,208.33 
Total$115.5 $132.6 $220.9 $250.5 
(1) Excludes $3 million of dividends declared on Series G, H and I, and accrued by stockholders as of the repurchase date. Such dividends are part of the consideration paid upon repurchase of the depositary shares during the six months ended June 30, 2023.
(2) Series A was redeemed on November 1, 2022. Prior to redemption, dividends were paid semi-annually until February 1, 2022 and quarterly thereafter. The final dividend was paid on November 1, 2022.
(3) Dividends paid quarterly.
(4) Series E was redeemed on December 1, 2022. Prior to redemption, dividends were paid semi-annually until March 1, 2022 and quarterly thereafter. The final dividend was paid on December 1, 2022.
(5) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter.
(6) Series K was issued on March 4, 2022. Dividends are paid quarterly, and the first dividend was paid on June 1, 2022.
N/A Not applicable.

15.    Accumulated Other Comprehensive Income

AOCI represents cumulative gains and losses that are not reflected in earnings. AOCI balances and the components of other comprehensive income (loss) are as follows:
Total AOCI
Balance at March 31, 2022$(11,045)
Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $(1,604)
(5,067)
Other reclassifications included in other revenue, net of tax expense (benefit) of $(1)
(4)
Held to maturity securities:
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $28
94 
Balance at June 30, 2022$(16,022)
Balance at March 31, 2023$(20,690)
Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $(160)
(523)
Other reclassifications included in other revenue, net of tax expense (benefit) of $3
Held to maturity securities:
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $166
476 
Other (1)
(1)
Balance at June 30, 2023$(20,730)

- 62 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Total AOCI
Balance at December 31, 2021$(1,109)
Available for sale securities:
Net unrealized gain (loss), excluding transfers to held to maturity, net of tax expense (benefit) of $(4,741)
(15,065)
Net unrealized loss on securities transferred to held to maturity, net of tax benefit of $579
1,850 
Other reclassifications included in other revenue, net of tax expense (benefit) of $(4)
(13)
Held to maturity securities:
Net unrealized loss on securities transferred from available for sale, net of tax benefit of $579
(1,850)
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $49
165 
Balance at June 30, 2022$(16,022)
Balance at December 31, 2022$(22,621)
Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $261
905 
Other reclassifications included in other revenue, net of tax expense (benefit) of $5
15 
Held to maturity securities:
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $273
978 
Other, net of tax expense (benefit) of $(2)
(7)
Balance at June 30, 2023$(20,730)
(1) Tax expense (benefit) was less than $1 million.

In 2022, the Company transferred a portion of its AFS securities to the HTM category. As of June 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $12.3 billion net of tax effect ($16.3 billion pretax). See Note 4 for additional discussion on the 2022 transfers of AFS securities to HTM.


- 63 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
16.    Earnings Per Common Share

For the three and six months ended June 30, 2023 and 2022, the Company had voting and nonvoting common stock outstanding. Since the rights of the voting and nonvoting common stock are identical, except with respect to voting, the net income of the Company has been allocated on a proportionate basis to the two classes. Diluted earnings per share is calculated using the treasury stock method for outstanding stock options and non-vested restricted stock units and the if-converted method for nonvoting common stock. The if-converted method assumes conversion of all nonvoting common stock to common stock. For further details surrounding the EPS computation, see Item 8 – Note 25 in the 2022 Form 10-K.

EPS under the basic and diluted computations for both common stock and nonvoting common stock are as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Common
Stock
Nonvoting
Common Stock
Common
Stock
Nonvoting
Common Stock
Common
Stock
Nonvoting
Common Stock
Common
Stock
Nonvoting
Common Stock
Basic earnings per share:
Numerator
Net income$1,258 $36 $1,718 $75 $2,817 $80 $3,062 $133 
Preferred stock dividends and other (1)
(118)(3)(135)(6)(186)(5)(254)(11)
Net income available to common stockholders$1,140 $33 $1,583 $69 $2,631 $75 $2,808 $122 
Denominator
Weighted-average common shares outstanding — basic1,769 51 1,817 79 1,776 51 1,816 79 
Basic earnings per share$.64 $.64 $.87 $.87 $1.48 $1.48 $1.55 $1.55 
Diluted earnings per share:
Numerator
Net income available to common stockholders$1,140 $33 $1,583 $69 $2,631 $75 $2,808 $122 
Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares33 — 69 — 75 — 122 — 
Allocation of net income available to common stockholders:$1,173 $33 $1,652 $69 $2,706 $75 $2,930 $122 
Denominator
Weighted-average common shares outstanding — basic1,769 51 1,817 79 1,776 51 1,816 79 
Conversion of nonvoting shares to voting shares51 — 79 — 51 — 79 — 
Common stock equivalent shares related to stock incentive plans— — — 10 — 
Weighted-average common shares outstanding — diluted (2)
1,825 51 1,904 79 1,834 51 1,905 79 
Diluted earnings per share$.64 $.64 $.87 $.87 $1.48 $1.48 $1.54 $1.54 
(1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
(2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 15 million and 18 million for the three and six months ended June 30, 2023, respectively, and 13 million and 14 million for the three and six months ended June 30, 2022, respectively.

- 64 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
17.    Regulatory Requirements

At June 30, 2023, CSC and its banking subsidiaries met all of their respective capital requirements. Regulatory capital and ratios for CSC (consolidated) and CSB are as follows:
ActualMinimum to be
Well Capitalized
Minimum Capital Requirement
June 30, 2023AmountRatioAmountRatioAmount
Ratio (1)
CSC      
Common Equity Tier 1 Risk-Based Capital$29,999 22.6 %N/A $5,976 4.5 %
Tier 1 Risk-Based Capital39,190 29.5 %N/A 7,967 6.0 %
Total Risk-Based Capital39,272 29.6 %N/A 10,623 8.0 %
Tier 1 Leverage39,190 7.5 %N/A 20,824 4.0 %
Supplementary Leverage Ratio39,190 7.5 %N/A15,737 3.0 %
CSB  
Common Equity Tier 1 Risk-Based Capital$31,556 33.5 %$6,128 6.5 %$4,243 4.5 %
Tier 1 Risk-Based Capital31,556 33.5 %7,542 8.0 %5,657 6.0 %
Total Risk-Based Capital31,632 33.6 %9,428 10.0 %7,542 8.0 %
Tier 1 Leverage31,556 8.9 %17,820 5.0 %14,256 4.0 %
Supplementary Leverage Ratio31,556 8.8 %N/A10,778 3.0 %
December 31, 2022     
CSC      
Common Equity Tier 1 Risk-Based Capital$30,590 21.9 %N/A $6,285 4.5 %
Tier 1 Risk-Based Capital40,296 28.9 %N/A 8,379 6.0 %
Total Risk-Based Capital40,376 28.9 %N/A 11,173 8.0 %
Tier 1 Leverage40,296 7.2 %N/A 22,512 4.0 %
Supplementary Leverage Ratio40,296 7.1 %N/A17,004 3.0 %
CSB      
Common Equity Tier 1 Risk-Based Capital$27,296 27.4 %$6,476 6.5 %$4,483 4.5 %
Tier 1 Risk-Based Capital27,296 27.4 %7,970 8.0 %5,978 6.0 %
Total Risk-Based Capital27,370 27.5 %9,963 10.0 %7,970 8.0 %
Tier 1 Leverage27,296 7.3 %18,640 5.0 %14,912 4.0 %
Supplementary Leverage Ratio27,296 7.3 %N/A11,275 3.0 %
(1) Under risk-based capital rules, CSC and CSB are also required to maintain additional capital buffers above the regulatory minimum risk-based capital ratios. As of June 30, 2023, CSC was subject to a stress capital buffer of 2.5%. In addition, CSB is required to maintain a capital conservation buffer of 2.5%. CSC and CSB are also required to maintain a countercyclical capital buffer above the regulatory minimum risk-based capital ratios, which was zero for both periods presented. If a buffer falls below the minimum requirement, CSC and CSB would be subject to increasingly strict limits on capital distributions and discretionary bonus payments to executive officers. At June 30, 2023, the minimum capital ratio requirements for both CSC and CSB, inclusive of their respective buffers, were 7.0%, 8.5%, and 10.5% for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital, respectively.
N/A Not applicable.

Based on its regulatory capital ratios at June 30, 2023, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since June 30, 2023 that management believes have changed CSB’s capital category.

At June 30, 2023, the balance sheets of Charles Schwab Premier Bank, SSB (CSPB) and Charles Schwab Trust Bank (Trust Bank) consisted primarily of investment securities, and the entities held total assets of $29.9 billion and $11.8 billion, respectively. Based on their regulatory capital ratios, at June 30, 2023, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules.
- 65 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Net capital and net capital requirements for CS&Co, TDAC, and TD Ameritrade, Inc., are as follows:
June 30, 2023December 31, 2022
CS&Co
Net capital$5,432 $5,386 
Minimum dollar requirement0.250 0.250 
2% of aggregate debit balances879 778 
Net capital in excess of required net capital$4,553 $4,608 
TDAC
Net capital$4,213 $5,291 
Minimum dollar requirement1.500 1.500 
2% of aggregate debit balances622 626 
Net capital in excess of required net capital$3,591 $4,665 
TD Ameritrade, Inc.
Net capital$689 $806 
Minimum dollar requirement0.250 0.250 
2% of aggregate debit balances— — 
Net capital in excess of required net capital$689 $806 

Pursuant to the SEC’s Customer Protection Rule and other applicable regulations, Schwab had cash and investments segregated for the exclusive benefit of clients at June 30, 2023. The SEC’s Customer Protection Rule requires broker-dealers to segregate client fully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit. Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the condensed consolidated statements of cash flows.


18.    Segment Information
Schwab’s two reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are attributed to the two segments based on which segment services the client.

Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments.
Financial information for the segments is presented in the following table:
Investor ServicesAdvisor ServicesTotal
Three Months Ended June 30,202320222023202220232022
Net Revenues
Net interest revenue$1,705 $1,834 $585 $710 $2,290 $2,544 
Asset management and administration fees841 763 332 289 1,173 1,052 
Trading revenue701 763 102 122 803 885 
Bank deposit account fees140 227 35 125 175 352 
Other156 187 59 73 215 260 
Total net revenues3,543 3,774 1,113 1,319 4,656 5,093 
Expenses Excluding Interest2,191 2,111 774 708 2,965 2,819 
Income before taxes on income$1,352 $1,663 $339 $611 $1,691 $2,274 
- 66 -

THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Investor ServicesAdvisor ServicesTotal
Six Months Ended June 30,202320222023202220232022
Net Revenues
Net interest revenue$3,738 $3,408 $1,322 $1,319 $5,060 $4,727 
Asset management and administration fees1,646 1,544 645 576 2,291 2,120 
Trading revenue1,476 1,607 219 241 1,695 1,848 
Bank deposit account fees239 427 87 219 326 646 
Other307 314 93 110 400 424 
Total net revenues7,406 7,300 2,366 2,465 9,772 9,765 
Expenses Excluding Interest4,424 4,242 1,547 1,410 5,971 5,652 
Income before taxes on income$2,982 $3,058 $819 $1,055 $3,801 $4,113 
- 67 -


THE CHARLES SCHWAB CORPORATION


Item 4.     Controls and Procedures
Evaluation of disclosure controls and procedures: The management of the Company, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2023. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2023.

Changes in internal control over financial reporting: No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) was identified during the quarter ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART  II  -  OTHER  INFORMATION


Item 1.     Legal Proceedings
For a discussion of legal proceedings, see Part I – Item 1 – Note 9.


Item 1A.     Risk Factors

During the first six months of 2023, there have been no material changes to the risk factors in Part I – Item 1A – Risk Factors in the 2022 Form 10-K.


- 68 -


THE CHARLES SCHWAB CORPORATION


Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On July 27, 2022, CSC publicly announced that its Board of Directors terminated its prior repurchase authorization and replaced it with a new authorization to repurchase up to $15.0 billion of common stock. The authorization does not have an expiration date. See also Part I – Item 1 – Note 14.

The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the second quarter of 2023 (in millions, except number of shares, which are in thousands, and per share amounts):
MonthTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramApproximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Program
April:
Share repurchase program— $— — $8,723 
Employee transactions (1)
$52.44 N/AN/A
May:
Share repurchase program— $— — $8,723 
Employee transactions (1)
$50.85 N/AN/A
June:
Share repurchase program— $— — $8,723 
Employee transactions (1)
93 $52.93 N/AN/A
Total:
Share repurchase program— $— — $8,723 
Employee transactions (1)
104 $52.78 N/AN/A
(1) Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. CSC may receive shares delivered or attested to pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options granted under employee stock incentive plans, which are commonly referred to as stock swap exercises.
N/A Not applicable.


Item 3.     Defaults Upon Senior Securities

None.


Item 4.     Mine Safety Disclosures

Not applicable.


Item 5.     Other Information
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement as defined in Item 408 of Regulation S-K.


- 69 -


THE CHARLES SCHWAB CORPORATION


Item 6.     Exhibits
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit
Number
Exhibit 
10.431
31.1 
31.2 
32.1(1)
32.2(1)
101.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.(2)
101.SCHInline XBRL Taxonomy Extension Schema(2)
101.CALInline XBRL Taxonomy Extension Calculation(2)
101.DEFInline XBRL Extension Definition(2)
101.LABInline XBRL Taxonomy Extension Label(2)
101.PREInline XBRL Taxonomy Extension Presentation(2)
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1)Furnished as an exhibit to this Quarterly Report on Form 10-Q.
(2)
Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 are the following materials formatted in Inline XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
 
** Certain confidential information contained in this exhibit has been omitted because it is not material and would be competitively harmful if publicly disclosed.
- 70 -


THE CHARLES SCHWAB CORPORATION



SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  THE CHARLES SCHWAB CORPORATION
  (Registrant)
   
Date:August 8, 2023 /s/ Peter Crawford
  Peter Crawford
  Managing Director and Chief Financial Officer

- 71 -