SCHWAB CHARLES CORP - Quarter Report: 2023 September (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 September 30, 2023


☐			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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock – $.01 par value per share	SCHW	New York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 5.95% Non-Cumulative Preferred Stock, Series D	SCHW PrD	New York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 4.450% Non-Cumulative Preferred Stock, Series J	SCHW PrJ	New 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.

1,771,681,659 shares of $.01 par value Common Stock and 50,893,695 shares of $.01 par value Nonvoting Common Stock outstanding on October 31, 2023

THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2023

Index

Part I - Financial Information

Item 1.

Condensed Consolidated Financial Statements (Unaudited):

Statements of Income

Statements of Comprehensive Income

Balance Sheets

Statements of Stockholders’ Equity

33-34

Statements of Cash Flows

35-36

Notes

37-69

Item 2.

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

1-29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Part II - Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signature

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 $65 trillion, which means the Company’s $7.82 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

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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);

•Expected timing for the TD Ameritrade client transitions; deal-related asset attrition; 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);

•Investments to support growth in our client base (see Overview);

•Our 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 and final 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 the level of interest rates and equity valuations;

•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;

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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.

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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 third quarter and first nine months of 2023 and 2022 are as follows:


	Three Months Ended September 30,						Percent Change		Nine Months Ended September 30,						Percent Change
	2023			2022					2023			2022
Client Metrics
Net new client assets (in billions) (1)	$	48.2		$	114.6		(58)	%	$	270.9		$	278.5		(3)	%
Core net new client assets (in billions)	$	45.7		$	114.6		(60)	%	$	229.6		$	299.3		(23)	%
Client assets (in billions, at quarter end)	$	7,824.5		$	6,644.2		18	%
Average client assets (in billions)	$	8,032.4		$	7,125.9		13	%	$	7,705.4		$	7,385.0		4	%
New brokerage accounts (in thousands)	894			897			—		2,896			3,113			(7)	%
Active brokerage accounts (in thousands, at quarter end)	34,540			33,875			2	%
Assets receiving ongoing advisory services (in billions, at quarter end)	$	3,981.0		$	3,417.5		16	%
Client cash as a percentage of client assets (at quarter end) (2)	10.8		%	12.9		%
Company Financial Information and Metrics
Total net revenues	$	4,606		$	5,500		(16)	%	$	14,378		$	15,265		(6)	%
Total expenses excluding interest	3,223			2,823			14	%	9,194			8,475			8	%
Income before taxes on income	1,383			2,677			(48)	%	5,184			6,790			(24)	%
Taxes on income	258			657			(61)	%	1,162			1,575			(26)	%
Net income	1,125			2,020			(44)	%	4,022			5,215			(23)	%
Preferred stock dividends and other	108			136			(21)	%	299			401			(25)	%
Net income available to common stockholders	$	1,017		$	1,884		(46)	%	$	3,723		$	4,814		(23)	%
Earnings per common share — diluted	$	.56		$	.99		(43)	%	$	2.03		$	2.53		(20)	%
Net revenue change from prior year	(16)		%	20		%			(6)		%	11		%
Pre-tax profit margin	30.0		%	48.7		%			36.1		%	44.5		%
Return on average common stockholders’ equity (annualized)	14		%	25		%			18		%	18		%
Expenses excluding interest as a percentage of average client assets (annualized)	0.16		%	0.16		%			0.16		%	0.15		%
Consolidated Tier 1 Leverage Ratio (at quarter end)	8.2		%	6.8		%
Non-GAAP Financial Measures (3)
Adjusted total expenses (4)	$	2,703		$	2,570				$	8,177		$	7,724
Adjusted diluted EPS	$	.77		$	1.10				$	2.45		$	2.83
Return on tangible common equity	58		%	74		%			66		%	42		%

(1) The third quarter and first nine months of 2023 include inflows of $3.3 billion and $30.1 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB. Also, the first nine months of 2023 include an inflow of $12.0 billion from a mutual fund clearing services client. The third quarter and first nine months of 2023 also include an outflow of $0.8 billion from an international relationship. The first nine 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) Beginning in the third quarter of 2023, adjustments made to GAAP financial measures also include restructuring costs. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

(4) Adjusted total expenses is a non-GAAP financial measure adjusting total expenses excluding interest. See Non-GAAP Financial Measures.

Against a challenging macroeconomic and geopolitical backdrop, Schwab continued to be a trusted partner for investors throughout the third quarter and first nine months of 2023. The Federal Reserve raised the Federal Funds rate again in July, representing the fourth time in 2023 for a total of 100 basis points. Investor sentiment was bearish in the first quarter, particularly following the onset of the banking industry turmoil in March, before turning positive in the second quarter and then declining again into a bearish sentiment in the third quarter. Equity markets declined during the third quarter, though remained positive on the year, with the S&P 500® down 4% in the third quarter and up 12% year-to-date.

Schwab gathered $45.7 billion in core net new assets in the third quarter, bringing our 2023 year-to-date total to $229.6 billion. Total client assets were $7.82 trillion as of September 30, 2023, up 11% from year-end 2022 primarily as a result of asset gathering and market gains, partially offset by some expected deal-related asset attrition from clients originating at TD Ameritrade. Trading volume continued to be lower in the third quarter and throughout the first nine months of 2023 when compared with the same periods in 2022. Clients’ daily average trades (DATs) were 5.2 million and 5.5 million in the third

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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)

quarter and first nine months of 2023, respectively, down 6% and 11% from the respective prior periods. Clients opened 894 thousand and 2.9 million new brokerage accounts in the third quarter and first nine months of 2023, respectively, bringing active brokerage accounts to 34.5 million, at quarter-end, up 2% year-over-year.

Schwab’s net income totaled $1.1 billion and $4.0 billion in the third quarter and first nine months of 2023, respectively, down 44% and 23% from the same periods in 2022. Diluted earnings per share (EPS) was $.56 and $2.03 in the third quarter and first nine months of 2023, respectively, down 43% and 20% from the comparable periods in the prior year. Adjusted diluted EPS (1) was $.77 and $2.45 in the third quarter and first nine months of 2023, respectively, down 30% and 13% from the comparable 2022 periods.

Total net revenues were $4.6 billion and $14.4 billion for the third quarter and first nine months of 2023, respectively, down 16% and 6% from the same periods in 2022. Net interest revenue was $2.2 billion and $7.3 billion in the third quarter and first nine months of 2023, respectively, down 24% and 5% from the same prior-year periods, reflecting the impact of client allocation decisions within a higher interest rate environment. Asset management and administration fees totaled $1.2 billion and $3.5 billion in the third quarter and first nine months of 2023, respectively, rising 17% and 11% from the same periods in 2022, due primarily to growth in money market funds and other proprietary fund products. Trading revenue was $768 million and $2.5 billion in the third quarter and first nine months of 2023, respectively, down 17% and 11% from the comparable 2022 periods primarily related to mix of client trading activity and overall lower trading volume. Bank deposit account fee revenue was $205 million and $531 million in the third quarter and first nine 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 $99.6 billion at September 30, 2023, down 21% from year-end 2022 due primarily to client cash allocation decisions.

Total expenses excluding interest were $3.2 billion and $9.2 billion in the third quarter and first nine months of 2023, respectively, increasing 14% and 8% from the same prior-year periods. These increases were due primarily to restructuring charges in the third quarter of 2023, as well as higher expenses for compensation and benefits and depreciation and amortization, due primarily to growth in headcount and investment in technology to support growth in our client base and TD Ameritrade integration, as well as higher regulatory fees and assessments due to higher Federal Deposit Insurance Corporation (FDIC) assessments. Adjusted total expenses (1) were $2.7 billion and $8.2 billion in the third quarter and first nine months of 2023, respectively, up 5% and 6% from the same periods in 2022. Acquisition and integration-related costs were $106 million and $334 million in the third quarter and first nine months of 2023, respectively, up 5% and 15% from the same periods in 2022 due to higher real estate exit costs incurred primarily in the second quarter of 2023. Amortization of acquired intangible assets was $135 million and $404 million in the third quarter and first nine months of 2023, respectively, down 11% and 12% from the same periods in 2022 as certain assets from the TD Ameritrade acquisition were fully amortized at the beginning of the fourth quarter of 2022. Beginning in the third quarter of 2023, adjusted total expenses (1) also excludes restructuring costs, which were $279 million in the third quarter and first nine months of 2023.

Return on average common stockholders’ equity was 14% and 18% for the third quarter and first nine months of 2023, respectively, down from 25% in the third quarter of 2022 and flat with 18% in the first nine months of 2022. Return on tangible common equity (1) (ROTCE) was 58% and 66% in the third quarter and first nine months of 2023, respectively, down from 74% and up from 42% during the same periods in 2022. These changes reflected lower stockholders’ equity and lower net income in 2023. Stockholders’ equity was lower in the first nine months of 2023 due to a year-over-year decrease in average AOCI driven by unrealized losses on our available for sale (AFS) investment securities 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 in the first nine months of 2023 to maintain capital and liquidity levels to support our growing client base. Total balance sheet assets were $475.2 billion at September 30, 2023, a decrease of 14% from year-end 2022 and 7% during the third quarter. Amid higher market interest rates in the first nine months 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.

(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.

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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)

Apart from an increase in August following the Federal Reserve’s July rate hike, the pace of client cash realignment decisions declined significantly during the second and third quarters of 2023. Net cash flows from our investment portfolio were used to reduce the balance of supplemental borrowings during the third quarter of 2023. Amounts outstanding under FHLB borrowings, other short-term borrowings, and brokered CDs decreased by a net total of $5.4 billion during the third quarter of 2023. In May and August 2023, the Company issued long-term debt of $2.5 billion and $2.4 billion, respectively, which provided incremental liquidity, and the May issuance was also used to help bolster our capital ratios at our banking subsidiaries. Driven by a combination of the Company’s net income and a smaller balance sheet in the first nine months of 2023, our consolidated Tier 1 Leverage Ratio increased to 8.2% as of September 30.

Integration of TD Ameritrade

Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade Holding Corporation, now TD Ameritrade Holding LLC (TDA Holding), and its consolidated subsidiaries (collectively referred to as “TD Ameritrade” or “TDA”). The Company made significant progress in the integration during the first nine months of 2023, including the completion of three client transition groups. We completed our third conversion in September, as we transitioned $1.3 trillion in client assets, including more than 7,000 RIAs and 3.6 million retail brokerage accounts. The Company completed its fourth conversion of 2023 in November and we have now completed the transition of RIAs and nearly 90% of TD Ameritrade client accounts to the Schwab platform. In connection with these transitions, we have experienced some deal-related attrition of client assets from retail accounts and RIAs consistent with our expectations. The Company expects to complete the remaining client transitions from TD Ameritrade to Schwab in a final transition group in the first half of 2024. We continue to 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 duration and complexity of the remaining integration process and the continued uncertainty of the economic environment. More specifically, factors that could cause variability in our expected acquisition and integration-related costs include the level of employee attrition, changes in the scope and cost of technology, the timeline to wind-down the TD Ameritrade broker-dealers, and real estate-related exit cost variability. Many of these factors may continue to cause variability in our expected acquisition and integration-related costs through the remainder of the integration process.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $106 million and $334 million for the third quarter and first nine months of 2023, respectively, and $101 million and $291 million for the third quarter and first nine 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 September 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 has begun to take incremental actions to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. Through these actions, the Company expects to realize at least $500 million of incremental run-rate cost savings in addition to integration synergies. In order to achieve these cost savings, the Company expects to incur total exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $400 million to $500 million, inclusive of costs recognized through September 30, 2023. During the third quarter of 2023, the Company incurred $279 million in exit costs, primarily related to position eliminations. The Company anticipates the remaining costs related to position eliminations will be incurred in the fourth quarter of 2023, and costs related to real estate will be incurred in the fourth quarter of 2023 and during 2024. Refer to Results of Operations – Total Expenses Excluding Interest and Item 1 – Note 10 for additional information.

Current Regulatory and Other Developments

In October 2023, following previous attempts to expand fiduciary regulation for broker-dealers, the U.S. Department of Labor released a proposed rule to significantly broaden the definition of “fiduciary” under the Employee Retirement Income Security

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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)

Act of 1974. Among other requirements, the proposed rule would subject broker-dealers who provide non-discretionary investment advice to retirement plans and accounts to a “best interest” standard. The Company is currently evaluating the impact of the proposed rule.

In October 2023, the Board of Governors of the Federal Reserve System, in collaboration with the Office of the Comptroller of the Currency and the FDIC, issued a final rule that makes extensive revisions to the regulations implementing the Community Reinvestment Act (CRA). These revisions include 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, and requires significant new lending by banks to low-and-moderate income communities. The new rule generally becomes effective on January 1, 2026, with its additional data collection and reporting requirements effective January 1, 2027. The Company is evaluating the impact of the new rule, but does not expect it to have a material impact on the Company’s business, financial condition, or results of operations.

In August 2023, the Board of Governors of the Federal Reserve System, in collaboration with the Office of the Comptroller of the Currency and the FDIC, issued a proposed rulemaking on long-term debt requirements for certain large banking organizations. Among other things, the proposed rule would require CSC to maintain outstanding minimum levels of eligible long-term debt, as defined by the proposed rule, issued externally. The proposed rule would also require our banking subsidiaries to maintain outstanding minimum levels of eligible long-term debt, which our banking subsidiaries would be required to issue internally to CSC. The proposed rule would be phased-in over a three-year transition period. The comment period for the proposed rule ends on November 30, 2023 and the rule proposal is subject to further modification. The Company is currently evaluating the impact of the proposed rule, which would interact with the final provisions of the currently proposed amendments to the regulatory capital rules discussed below.

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 FDIC, issued a notice of proposed rulemaking for amendments to the regulatory capital rules. Among other things, the proposed rules 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 rules was extended and will end on January 16, 2024.

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 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.

- 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)

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.

RESULTS OF OPERATIONS

Total Net Revenues

The following tables present a comparison of revenue by category:


			2023				2022
Three Months Ended September 30,	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Net interest revenue
Interest revenue	20	%	$	4,028	88	%	$	3,357	61	%
Interest expense	N/M		(1,791)		(39)	%	(431)		(8)	%
Net interest revenue	(24)	%	2,237		49	%	2,926		53	%
Asset management and administration fees
Mutual funds, exchange-traded funds (ETFs), and collective trust funds (CTFs)	28	%	666		14	%	520		9	%
Advice solutions	5	%	476		10	%	452		8	%
Other	9	%	82		2	%	75		2	%
Asset management and administration fees	17	%	1,224		26	%	1,047		19	%
Trading revenue
Commissions	(9)	%	394		9	%	435		8	%
Order flow revenue	(25)	%	325		7	%	432		8	%
Principal transactions	(22)	%	49		1	%	63		1	%
Trading revenue	(17)	%	768		17	%	930		17	%
Bank deposit account fees	(50)	%	205		4	%	413		8	%
Other	(7)	%	172		4	%	184		3	%

Total net revenues	(16)	%	$	4,606	100	%	$	5,500	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)


			2023				2022
Nine Months Ended September 30,	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Net interest revenue
Interest revenue	45	%	$	12,148	85	%	$	8,386	55	%
Interest expense	N/M		(4,851)		(34)	%	(733)		(5)	%
Net interest revenue	(5)	%	7,297		51	%	7,653		50	%
Asset management and administration fees
Mutual funds, ETFs, and CTFs	23	%	1,881		13	%	1,524		10	%
Advice solutions	(1)	%	1,393		10	%	1,409		9	%
Other	3	%	241		1	%	234		2	%
Asset management and administration fees	11	%	3,515		24	%	3,167		21	%
Trading revenue
Commissions	(11)	%	1,210		8	%	1,362		9	%
Order flow revenue	(17)	%	1,104		8	%	1,332		9	%
Principal transactions	77	%	149		1	%	84		—
Trading revenue	(11)	%	2,463		17	%	2,778		18	%
Bank deposit account fees	(50)	%	531		4	%	1,059		7	%
Other	(6)	%	572		4	%	608		4	%

Total net revenues	(6)	%	$	14,378	100	%	$	15,265	100	%

N/M Not meaningful. Percent changes greater than 200% are presented as not meaningful.

Net Interest Revenue

Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on cash and cash equivalents, floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, FHLB borrowings, other short-term 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 third 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 eleven times between March 2022 and September 2023 for a total increase of 525 basis points. Long-term rates increased throughout 2022 and the first nine months of 2023, generally at a slower pace, thus leading to an inverted yield curve, though long-term rates increased significantly in the third quarter of 2023.

Schwab’s average interest-earning assets in the third quarter and first nine 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 third 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 has been utilizing temporary supplemental funding beginning in the fourth quarter of 2022 and during the first nine months 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 beginning in the second quarter of 2023 and, apart from an increase in August following the Federal Reserve’s July rate increase, continued to decline during the third quarter of 2023 to its slowest pace since the beginning of the current interest rate tightening cycle.

- 9 -

THE CHARLES SCHWAB CORPORATION

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

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

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


	2023						2022
Three Months Ended September 30,	Average Balance		Interest Revenue/ Expense		Average Yield/Rate		Average Balance		Interest Revenue/ Expense		Average Yield/Rate
Interest-earning assets
Cash and cash equivalents	$	34,391	$	459	5.22	%	$	53,127	$	294	2.16	%
Cash and investments segregated	21,987		285		5.08	%	49,554		214		1.69	%

Receivables from brokerage clients	63,760		1,282		7.87	%	72,751		912		4.91	%
Available for sale securities (1)	129,545		724		2.22	%	273,968		1,161		1.69	%
Held to maturity securities (1)	163,904		706		1.72	%	97,568		345		1.41	%
Bank loans	40,177		426		4.23	%	39,984		300		2.99	%
Total interest-earning assets	453,764		3,882		3.37	%	586,952		3,226		2.17	%
Securities lending revenue			105						124
Other interest revenue			41						7
Total interest-earning assets	$	453,764	$	4,028	3.50	%	$	586,952	$	3,357	2.26	%
Funding sources
Bank deposits	$	290,853	$	911	1.24	%	$	420,132	$	241	0.23	%
Payables to brokerage clients	63,731		66		0.41	%	96,802		41		0.17	%
Other short-term borrowings (2)	7,315		97		5.26	%	708		4		1.95	%
Federal Home Loan Bank borrowings (2,3)	36,287		477		5.18	%	—		—		—
Long-term debt	23,492		193		3.30	%	21,024		131		2.49	%
Total interest-bearing liabilities	421,678		1,744		1.64	%	538,666		417		0.31	%
Non-interest-bearing funding sources	32,086						48,286
Securities lending expense			46						13
Other interest expense			1						1
Total funding sources	$	453,764	$	1,791	1.56	%	$	586,952	$	431	0.29	%
Net interest revenue			$	2,237	1.94	%			$	2,926	1.97	%

(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, FHLB 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.

- 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)


	2023						2022
Nine Months Ended September 30,	Average Balance		Interest Revenue/ Expense		Average Yield/ Rate		Average Balance		Interest Revenue/ Expense		Average Yield/ Rate
Interest-earning assets
Cash and cash equivalents	$	38,700	$	1,419	4.83	%	$	63,598	$	461	0.95	%
Cash and investments segregated	29,752		1,041		4.61	%	50,891		308		0.80	%

Receivables from brokerage clients	61,682		3,533		7.55	%	78,630		2,244		3.76	%
Available for sale securities (1)	143,360		2,340		2.17	%	281,897		3,196		1.51	%
Held to maturity securities (1)	167,405		2,172		1.73	%	100,890		1,062		1.40	%
Bank loans	40,183		1,227		4.08	%	38,238		717		2.50	%
Total interest-earning assets	481,082		11,732		3.23	%	614,144		7,988		1.73	%
Securities lending revenue			341						383
Other interest revenue			75						15
Total interest-earning assets	$	481,082	$	12,148	3.35	%	$	614,144	$	8,386	1.81	%
Funding sources
Bank deposits	$	315,309	$	2,392	1.01	%	$	440,801	$	285	0.09	%
Payables to brokerage clients	68,548		205		0.40	%	101,472		47		0.06	%
Other short-term borrowings (2)	7,286		280		5.13	%	2,656		12		0.60	%
Federal Home Loan Bank borrowings (2,3)	35,896		1,387		5.11	%	—		—		—
Long-term debt	21,685		489		3.01	%	20,673		363		2.34	%
Total interest-bearing liabilities	448,724		4,753		1.41	%	565,602		707		0.17	%
Non-interest-bearing funding sources	32,358						48,542
Securities lending expense			96						28
Other interest expense			2						(2)
Total funding sources	$	481,082	$	4,851	1.35	%	$	614,144	$	733	0.16	%
Net interest revenue			$	7,297	2.00	%			$	7,653	1.65	%

(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, FHLB 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 $689 million, or 24%, and $356 million, or 5%, in the third quarter of 2023 and first nine months of 2023, respectively, compared to the same periods in 2022. These decreases were primarily due to utilization of higher cost supplemental funding sources to support client cash allocations in the rising rate environment, and lower average interest-earning assets, which more than offset the benefits of higher average yields on interest-earning assets. Net premium amortization of investment securities decreased to $222 million and $614 million in the third quarter and first nine months of 2023, respectively, from $295 million and $1.2 billion in the third quarter and first nine months of 2022, respectively, as a result of increases in market interest rates and a smaller investment securities portfolio.

Average interest-earning assets for the third quarter and first nine months of 2023 were lower by 23% and 22%, 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 decreased slightly to 1.94% during the third quarter of 2023 from 1.97% compared to the same period in 2022, as increased utilization of higher cost funding sources to facilitate client cash allocation decisions offset the benefits of higher average yields on interest-earning assets. Net interest margin during the first nine months of 2023 increased to 2.00% from 1.65% in the same period in 2022 as 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 third quarter and first nine months of 2023 relative to the same periods in 2022 of FHLB borrowings, other short-term borrowings, and brokered CDs resulted in higher funding costs. The Company continues to prioritize repayment of the outstanding balances of its supplemental funding sources, and during the third quarter of 2023, the outstanding balance decreased by $5.4 billion. The Company’s use of these supplemental funding sources is dependent on several factors, including the volume and pace of clients’ cash allocation activity, which is driven primarily by changes in market interest rates, as well as asset gathering. While client cash realignment activity has slowed significantly since the second

- 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)

quarter of 2023, continued uncertainty remains regarding the path of market interest rates and client behavior. The Company currently expects its outstanding balances of supplemental funding sources to decrease between now and the end of 2024, with some amount remaining outstanding into 2025. 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 September 30,	2023						2022
	Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee
Schwab money market funds before fee waivers	$	414,074	$	270	0.26	%	$	184,834	$	132	0.28	%
Fee waivers			—						—
Schwab money market funds	414,074		270		0.26	%	184,834		132		0.28	%
Schwab equity and bond funds, ETFs, and CTFs	485,326		99		0.08	%	422,711		89		0.08	%
Mutual Fund OneSource® and other no-transaction-fee (NTF) funds (1)	255,039		170		0.26	%	183,019		139		0.30	%
Other third-party mutual funds and ETFs (1)	632,902		127		0.08	%	747,676		160		0.08	%
Total mutual funds, ETFs, and CTFs (2)	$	1,787,341	666		0.15	%	$	1,538,240	520		0.13	%
Advice solutions (2)
Fee-based	$	468,305	476		0.40	%	$	431,276	452		0.42	%
Non-fee-based	97,957		—		—		85,567		—		—


Total advice solutions	$	566,262	476		0.33	%	$	516,843	452		0.35	%
Other balance-based fees (3)	610,450		64		0.04	%	537,809		58		0.04	%
Other (4)			18						17
Total asset management and administration fees			$	1,224					$	1,047


	2023						2022
Nine Months Ended September 30,	Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee
Schwab money market funds before fee waivers	$	368,788	$	735	0.27	%	$	158,525	$	340	0.29	%
Fee waivers			—						(57)
Schwab money market funds	368,788		735		0.27	%	158,525		283		0.24	%
Schwab equity and bond funds, ETFs, and CTFs	466,995		284		0.08	%	436,928		278		0.09	%
Mutual Fund OneSource® and other NTF funds (1)	235,561		469		0.27	%	196,032		453		0.31	%
Other third-party mutual funds and ETFs (1)	663,577		393		0.08	%	805,204		510		0.08	%
Total mutual funds, ETFs, and CTFs (2)	$	1,734,921	1,881		0.14	%	$	1,596,689	1,524		0.13	%
Advice solutions (2)
Fee-based	$	455,730	1,393		0.41	%	$	446,979	1,409		0.42	%
Non-fee-based	95,951		—		—		87,528		—		—


Total advice solutions	$	551,681	1,393		0.34	%	$	534,507	1,409		0.35	%
Other balance-based fees (3)	588,922		189		0.04	%	573,733		186		0.04	%
Other (4)			52						48
Total asset management and administration fees			$	3,515					$	3,167

(1) The third quarter and first nine months of 2023 and the first nine months of 2022 include transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and other NTF funds.

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

(3) Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.

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

Asset management and administration fees increased by $177 million, or 17%, and $348 million, or 11%, in the third quarter and first nine 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 nine months of 2023, the elimination of fee waivers on those funds as well as higher average client asset balances due to stronger equity markets. Money market fund balances increased in 2023 as clients shifted their cash allocations to higher yielding investment solutions, and money market fund fee waivers were

- 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)

eliminated during 2022, both due primarily to the Federal Reserve’s increases to the federal funds target overnight rate. The increases in asset management and administration fees in the third quarter and first nine months of 2023 were also due to growth in Schwab equity and bond funds, ETFs, and CTFs, partially offset by lower balances of certain third-party mutual funds and ETFs.

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 44% and 42% of the asset management and administration fees earned in the third quarter and first nine months of 2023, respectively, compared with 34% and 32% in the third quarter and first nine 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 September 30,	2023		2022		2023		2022		2023		2022
Balance at beginning of period	$	392,887	$	159,231	$	465,847	$	387,211	$	254,636	$	196,578
Net inflows (outflows)	38,265		51,111		3,010		10,805		(7,060)		(9,600)
Net market gains (losses) and other (1)	5,174		737		(14,763)		(24,272)		40,416		(5,480)
Balance at end of period	$	436,326	$	211,079	$	454,094	$	373,744	$	287,992	$	181,498


	Schwab Money Market Funds				Schwab Equity and Bond Funds, ETFs, and CTFs				Mutual Fund OneSource® and Other NTF funds
Nine Months Ended September 30,	2023		2022		2023		2022		2023		2022
Balance at beginning of period	$	278,926	$	146,509	$	412,942	$	454,864	$	235,738	$	234,940
Net inflows (outflows)	144,108		63,703		15,669		25,950		(18,339)		(28,363)
Net market gains (losses) and other (1)	13,292		867		25,483		(107,070)		70,593		(25,079)
Balance at end of period	$	436,326	$	211,079	$	454,094	$	373,744	$	287,992	$	181,498

(1) Includes $39.8 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and Other NTF Funds for the three and nine months ended September 30, 2023. Includes $14.2 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and Other NTF Funds for the nine months ended September 30, 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 September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
	2023		2022				2023		2022
Commissions	$	394	$	435	(9)	%	$	1,210	$	1,362	(11)	%
Order flow revenue
Options	219		292		(25)	%	751		895		(16)	%
Equities	106		140		(24)	%	353		437		(19)	%
Total order flow revenue	325		432		(25)	%	1,104		1,332		(17)	%
Principal transactions	49		63		(22)	%	149		84		77	%
Total trading revenue	$	768	$	930	(17)	%	$	2,463	$	2,778	(11)	%

- 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)


	Three Months Ended September 30,						Percent Change		Nine Months Ended September 30,						Percent Change
	2023			2022					2023			2022
DATs (in thousands)	5,218			5,523			(6)	%	5,461			6,103			(11)	%
Product as a percentage of DATs
Equities	49		%	50		%			49		%	51		%
Derivatives	24		%	24		%			23		%	23		%
ETFs	19		%	20		%			20		%	20		%
Mutual funds	6		%	5		%			6		%	5		%
Fixed income	2		%	1		%			2		%	1		%

Number of trading days	62.5			64.0			(2)	%	186.5			188.0			(1)	%
Revenue per trade (1)	$	2.35		$	2.63		(11)	%	$	2.42		$	2.42		—

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

Trading revenue decreased $162 million and $315 million in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. This change is primarily due to lower options order flow revenue from changes in the mix of client trading activity and narrower quoted spreads in the options market, and lower equity order flow revenue reflecting a shift toward more low-price securities and lower equity trading activity overall. Additionally, commissions decreased as a result of lower client trading activity and fewer trading days. Partially offsetting the decrease during the first nine months of 2023 compared to the same period in 2022, 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 Second Amended and Restated Insured Deposit Account Agreement (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 September 30,						Percent Change		Nine Months Ended September 30,						Percent Change
	2023			2022					2023			2022
Bank deposit account fees	$	205		$	413		(50)	%	$	531		$	1,059		(50)	%
Average BDA balances	$	101,666		$	148,142		(31)	%	$	107,003		$	152,698		(30)	%
Average net yield	0.79		%	1.09		%			0.66		%	0.92		%
Percentage of average BDA balances designated as:
Fixed-rate balances	91		%	79		%			93		%	78		%
Floating-rate balances	9		%	21		%			7		%	22		%

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.

- 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)

Bank deposit account fees decreased $208 million, or 50%, and $528 million, or 50%, in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The decreases were primarily due to lower average BDA balances, an increase in the amount paid to clients due to higher interest rates, and breakage fees of $97 million incurred during the first quarter of 2023 as a result of ending the other third-party bank arrangements. These factors also contributed to the decrease in average net yield in the third quarter and first nine months of 2023 compared to the same periods in 2022. The decreases in average BDA balances in the third quarter and first nine 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 third quarter of 2023. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of September 30, 2023 were 89% and 11%, respectively.

Other Revenue

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

Other revenue decreased $12 million and $36 million in the third quarter and first nine 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 third quarter and first nine months of 2023 compared to the same periods in 2022, primarily due to a decrease in the SEC fee rate and lower year-to-date options volume. The provision for credit losses on bank loans was lower in the third quarter and first nine months of 2023 compared to the same periods in 2022, as loan loss factors decreased in the third quarter of 2023 while the total balance of first lien residential real estate mortgage loans (First Mortgages) increased slightly compared to year-end 2022. The Company’s provision for credit losses on bank loans in the third quarter and first nine months of 2022 reflected increased loan loss factors driven primarily by higher forecasted interest rates earlier in the Federal Reserve’s monetary tightening, as well as growth in the loan portfolio. In addition, other revenue in the first nine months of 2022 included a gain of $46 million on the sale of Schwab Compliance Technologies, Inc. and certain investments.

Total Expenses Excluding Interest

The following table shows a comparison of expenses excluding interest:


	Three Months Ended September 30,						Percent Change		Nine Months Ended September 30,						Percent Change
	2023			2022					2023			2022
Compensation and benefits
Salaries and wages	$	1,229		$	901		36	%	$	3,162		$	2,630		20	%
Incentive compensation	300			348			(14)	%	951			1,098			(13)	%
Employee benefits and other	241			227			6	%	793			720			10	%
Total compensation and benefits	$	1,770		$	1,476		20	%	$	4,906		$	4,448		10	%
Professional services	275			264			4	%	805			766			5	%
Occupancy and equipment	305			292			4	%	923			855			8	%
Advertising and market development	102			89			15	%	293			296			(1)	%
Communications	151			131			15	%	485			444			9	%
Depreciation and amortization	198			167			19	%	566			476			19	%
Amortization of acquired intangible assets	135			152			(11)	%	404			460			(12)	%
Regulatory fees and assessments	114			65			75	%	277			200			39	%
Other	173			187			(7)	%	535			530			1	%
Total expenses excluding interest	$	3,223		$	2,823		14	%	$	9,194		$	8,475		8	%
Expenses as a percentage of total net revenues
Compensation and benefits	38		%	27		%			34		%	29		%
Advertising and market development	2		%	2		%			2		%	2		%
Full-time equivalent employees (in thousands)
At quarter end	35.9			35.2			2	%
Average	36.1			35.2			3	%	36.0			34.5			4	%

Expenses excluding interest increased by $400 million, or 14%, and $719 million, or 8%, in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. Adjusted total expenses, which excludes acquisition and

- 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)

integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased 5% and 6% in the third quarter and first nine 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. The Company began incurring restructuring costs in the third quarter of 2023 in connection with actions to streamline its operations to prepare for post-integration of TD Ameritrade (see below and Overview – Other for additional information).

Total compensation and benefits expense increased in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily due to restructuring costs recognized during the third quarter of 2023 related to position eliminations, higher employee headcount to support our expanding client base and TDA client account transitions, and annual merit increases. These increases were partially offset by lower incentive compensation. Compensation and benefits included acquisition and integration-related costs of $52 million and $57 million in the third quarter of 2023 and 2022, respectively, and $158 million and $166 million in the first nine months of 2023 and 2022, respectively. Compensation and benefits also included restructuring costs of $276 million in the third quarter and first nine months of 2023.

Professional services expense increased in the third quarter and first nine 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, as well as the TDA integration and client account transitions. Professional services included acquisition and integration-related costs of $37 million and $36 million in the third quarter of 2023 and 2022, respectively, and $111 million and $102 million in the first nine months of 2023 and 2022, respectively.

Occupancy and equipment expense increased in the third quarter and first nine 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 $7 million and $6 million in the third quarter of 2023 and 2022, respectively, and $21 million and $14 million in the first nine months of 2023 and 2022, respectively.

Advertising and market development expense increased in the third quarter of 2023, compared to the same period in 2022, primarily due to higher traditional and digital advertising spending. Advertising and market development expense decreased slightly in the first nine months of 2023, compared to the same period in 2022, primarily due to lower client promotional spending for TD Ameritrade.

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

Depreciation and amortization expense increased in the third quarter and first nine 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 nine 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 third quarter and first nine 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 third quarter and first nine months of 2023 compared to the same periods in 2022, primarily as a result of higher FDIC deposit insurance assessments, reflecting greater use of brokered CDs and a 2-basis-point increase to the FDIC deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023, partially offset by lower assessment bases.

Other expense decreased in the third quarter of 2023 and increased slightly in the first nine months of 2023, compared to the same periods in 2022. The decrease in the third 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 third quarter of 2023 compared to the third quarter of 2022 as a result of a decrease in SEC fee rates. The increase in other expense in the first nine months of 2023 was primarily a result of impairment of leased assets related to facility closures. Other expense included acquisition and integration-related costs of $4 million and $26 million in the third quarter and first nine months of 2023, respectively.

Capital expenditures were $250 million and $193 million in the third quarter of 2023 and 2022, respectively, and $605 million and $741 million for the first nine months of 2023 and 2022, respectively. Capital expenditures increased for the third quarter of

- 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)

2023, primarily due to higher purchased software to enhance our technological infrastructure to support our expanding client base, partially offset by lower integration-related equipment purchases compared to 2022. Capital expenditures in the first nine months of 2023 decreased when compared to heightened integration-related spend in 2022 in preparation for TDA client account transitions, partially offset by higher purchased software. We continue to anticipate capital expenditures for full-year 2023 will be approximately 3-4% of total net revenues.

Taxes on Income

Taxes on income were $258 million and $657 million for the third quarter of 2023 and 2022, respectively, resulting in effective tax rates of 18.7% and 24.5%, respectively. Taxes on income were $1.2 billion and $1.6 billion for the first nine months of 2023 and 2022, respectively, resulting in effective tax rates of 22.4% and 23.2%, respectively. The decrease in the effective tax rates in the third quarter and first nine months of 2023 compared to the same periods in 2022 was primarily related to the recognition of certain tax credits, partially offset by an increase in 2023 state tax expense.

Segment Information

Financial information for our segments is presented in the following tables:


	Investor Services						Advisor Services						Total
Three Months Ended September 30,	Percent Change		2023		2022		Percent Change		2023		2022		Percent Change		2023		2022
Net Revenues
Net interest revenue	(20)	%	$	1,710	$	2,143	(33)	%	$	527	$	783	(24)	%	$	2,237	$	2,926
Asset management and administration fees	16	%	877		755		19	%	347		292		17	%	1,224		1,047
Trading revenue	(16)	%	672		800		(26)	%	96		130		(17)	%	768		930
Bank deposit account fees	(40)	%	157		263		(68)	%	48		150		(50)	%	205		413
Other	(5)	%	144		151		(15)	%	28		33		(7)	%	172		184
Total net revenues	(13)	%	3,560		4,112		(25)	%	1,046		1,388		(16)	%	4,606		5,500
Expenses Excluding Interest	11	%	2,356		2,117		23	%	867		706		14	%	3,223		2,823
Income before taxes on income	(40)	%	$	1,204	$	1,995	(74)	%	$	179	$	682	(48)	%	$	1,383	$	2,677

Net New Client Assets (in billions) (1)	(48)	%	$	28.6	$	55.1	(67)	%	$	19.6	$	59.5	(58)	%	$	48.2	$	114.6


	Investor Services						Advisor Services						Total
Nine Months Ended September 30,	Percent Change		2023		2022		Percent Change		2023		2022		Percent Change		2023		2022
Net Revenues
Net interest revenue	(2)	%	$	5,448	$	5,551	(12)	%	$	1,849	$	2,102	(5)	%	$	7,297	$	7,653
Asset management and administration fees	10	%	2,523		2,299		14	%	992		868		11	%	3,515		3,167
Trading revenue	(11)	%	2,148		2,407		(15)	%	315		371		(11)	%	2,463		2,778
Bank deposit account fees	(43)	%	396		690		(63)	%	135		369		(50)	%	531		1,059
Other	(3)	%	451		465		(15)	%	121		143		(6)	%	572		608
Total net revenues	(4)	%	10,966		11,412		(11)	%	3,412		3,853		(6)	%	14,378		15,265
Expenses Excluding Interest	7	%	6,780		6,359		14	%	2,414		2,116		8	%	9,194		8,475
Income before taxes on income	(17)	%	$	4,186	$	5,053	(43)	%	$	998	$	1,737	(24)	%	$	5,184	$	6,790

Net New Client Assets (in billions) (1)	22	%	$	144.0	$	118.5	(21)	%	$	126.9	$	160.0	(3)	%	$	270.9	$	278.5

(1) In the third quarter and first nine months of 2023, Investor Services includes net inflows of $3.3 billion and $30.1 billion, respectively, from off-platform brokered CDs issued by CSB. Also, in the first nine months of 2023, Investor Services includes an inflow of $12.0 billion from a mutual fund clearing services client. In the first nine months of 2022, Investor Services includes an outflow of $20.8 billion from a mutual fund clearing services client. In the third quarter and first nine months of 2023, Advisor Services includes an outflow of $0.8 billion from an international relationship.

Segment Net Revenues

Investor Services total net revenues decreased by 13% and 4% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022, while Advisor Services total net revenues decreased by 25% and 11% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. Net interest revenue decreased for both segments in the third quarter and first nine months of 2023 due to higher cost funding sources and lower average interest-

- 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)

earning asset balances, as described above. Both segments saw a decrease in bank deposit account fees in the third quarter and first nine months of 2023 due to lower average BDA balances and higher yields paid to clients, as well as, for the first nine months of 2023, breakage fees incurred as a result of ending certain third-party bank arrangements. Trading revenue decreased in the third quarter and first nine months of 2023 for both segments primarily as a result of changes in client trading mix and lower client trading activity as described above. Other revenue decreased in the third quarter and first nine months of 2023 for both segments primarily due to lower exchange processing fees, net losses on sales of AFS securities, and for the first nine months of 2023, gains on the sale of certain investments in 2022, partially offset by lower provision for credit losses on bank loans. These decreases were partially offset by higher asset management and administration fees in both segments in the third quarter and first nine months of 2023, primarily as a result of higher money market fund balances and, for the nine-month period, the elimination of money market fund fee waivers during 2022 and growth in Schwab equity and bond funds, ETFs, and CTFs, partially offset by lower balances of certain third-party funds.

Segment Expenses Excluding Interest

Investor Services total expenses excluding interest increased by 11% and 7% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022, while Advisor Services total expenses excluding interest increased by 23% and 14% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. Both segments saw higher compensation and benefits expenses due to restructuring costs recognized in the third quarter of 2023, increases in headcount to support our expanding client base and TDA client account transitions, and annual merit increases, partially offset by lower incentive compensation. Regulatory fees and assessments increased in both segments in the third quarter and first nine months of 2023 compared to the same periods in 2022, primarily due to higher FDIC deposit insurance assessments described above. 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 nine 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. 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, the effects of which are incorporated into the Company’s net interest revenue and EVE analyses. For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 1 – Note 11.

Net Interest Revenue Simulation

For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulations include all balance sheet interest rate-sensitive assets and liabilities, and include derivative instruments. Key assumptions include the projection of interest rate scenarios with rate floors,

- 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)

rates and balances of non-maturity client cash held on the balance sheet, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans. We use independent third-party models to simulate net interest revenue sensitivity and related analyses. Fixed income analytical vendors provide term structure models, prepayment speed models for mortgage-backed securities and mortgage loans, and cash flow projections based on interest income, contractual maturities, and prepayments.

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 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 September 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:


	September 30, 2023		December 31, 2022
Increase of 200 basis points	9.6	%	7.3	%
Increase of 100 basis points	5.2	%	3.6	%
Increase of 50 basis points	2.8	%	1.7	%
Decrease of 50 basis points	(1.3)	%	(1.5)	%
Decrease of 100 basis points	(3.0)	%	(3.2)	%
Decrease of 200 basis points	(6.8)	%	(6.7)	%

The Company’s simulated incremental increases in market interest rates had a larger impact on net interest revenue as of September 30, 2023 compared to December 31, 2022 primarily due to higher margin loan and cash 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 September 30, 2023 compared to December 31, 2022 primarily due to higher margin loan and cash 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.

- 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 Company’s estimated effective duration of consolidated total assets was approximately 2.5 years at both September 30, 2023 (inclusive of the impact of derivative instruments), and September 30, 2022. The estimated effective duration of our AFS investment securities portfolio was approximately 2.5 years (2.2 years inclusive of the impact of derivative instruments) and 3.3 years as of September 30, 2023 and 2022, respectively. This change in the estimated effective duration of our AFS portfolio was due primarily to the 2022 transfer of securities from the AFS category to the HTM category (see also Item 1 – Note 4). The estimated effective duration for the Company’s total AFS and HTM investment securities portfolio was approximately 4.0 years (3.9 years inclusive of the impact of derivative instruments on AFS securities) and 3.9 years as of September 30, 2023 and 2022, respectively. AFS and HTM securities comprised approximately 57% of the Company’s consolidated total assets as of both September 30, 2023 and 2022. The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both September 30, 2023 and 2022.

Economic Value of Equity Simulation

Management also uses EVE simulations to measure interest rate risk. EVE sensitivity measures the long-term impact of interest rate changes on the net present value of assets and liabilities, and includes the impact of derivative instruments. While EVE does not have a direct accounting relationship, the measure aims to capture a theoretical value of assets and liabilities under a variety of interest rate environments. EVE is calculated by subjecting the balance sheet to hypothetical instantaneous shifts in the level of interest rates. This analysis is highly dependent upon asset and liability assumptions based on historical behaviors. Key assumptions in our EVE calculation include projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, term structure models of interest rates, behavior of non-maturity client cash held on the balance sheet, and pricing assumptions. We use both proprietary and independent third-party models to simulate EVE sensitivity and related analyses. We develop and maintain client credits and deposits run-off models internally based on historical experience and prevailing client cash realignment behaviors. We rely on third-party models for term structure modeling, prepayment speed modeling for mortgage-backed securities and mortgage loans, and cash flow projections based on interest income, contractual maturities, and prepayments.

As interest rates rose through the first nine months of 2023, EVE sensitivity generally trended higher due to a shortening of liability duration. While the Company’s asset duration remained largely stable during the period of rising interest rates, liability duration shortened significantly and is now shorter than asset duration.

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 September 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. Our net interest revenue, EVE, and bank deposit account fee revenue simulations reflect the assumption of non-negative investment yields.

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 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 also continue to 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.

- 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)

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.

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 34.5 million active brokerage accounts. More than 80% of our bank deposits qualified for FDIC insurance as of September 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.

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THE CHARLES SCHWAB CORPORATION

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

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

The following table describes external debt facilities available at September 30, 2023:


Description	Borrower	Outstanding		Available			Maturity of Amounts Outstanding	Weighted-Average Interest Rate on Amounts Outstanding
FHLB secured credit facilities	Banking subsidiaries	$	31,800	$	55,593	(1)	October 2023 - September 2024	5.17%
Federal Reserve discount window	Banking subsidiaries	—		7,225		(1)	N/A	—
Federal Reserve Bank Term Funding Program	Banking subsidiaries	—		40,157		(1)	N/A	—
Repurchase agreements	Banking subsidiaries, CSC	6,515		—		(2)	October 2023 - July 2024	5.34%
Uncommitted, unsecured lines of credit with various external banks	CSC, CS&Co	—		1,767			N/A	—
Unsecured commercial paper	CSC	85		4,915			December 2023	5.65%


Secured uncommitted lines of credit with various external banks	CS&Co	950		—		(3)	November 2023 - January 2024	5.67%
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 September 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’ or CSC’s ability to provide collateral deemed acceptable by each respective counterparty. See Note 12 for additional information.

(3) In the second and third quarter of 2023, CS&Co entered into three secured, uncommitted line of credit agreements with external banks. Secured borrowing capacity is made available based on CS&Co’s ability to provide acceptable collateral to the lenders as determined by the credit agreements.

(4) 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 September 30, 2023, the Company had additional investment securities with a par value of approximately $146 billion or a fair value of approximately $131 billion available to be pledged to obtain additional capacity. These securities could be used to provide additional borrowing capacity of up to $146 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 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 nine months of 2023 and there were no amounts outstanding at September 30, 2023. Beginning in the second quarter of 2023, CSC maintains a standing bilateral repurchase agreement with an external bank. Other than de minimis tests, this facility was not used during the second or third quarter of 2023 and there were no amounts outstanding under this facility at September 30, 2023.

On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program, offering loans through March 11, 2024 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 nine months of 2023.

- 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)

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

In the fourth quarter of 2022 and first nine 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 September 30, 2023:


	Amount Outstanding		Maturity	Weighted-Average Interest Rate
Brokered CDs	$	45,418	November 2023 - April 2025	5.06%

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. The average daily pace of client cash allocations out of our sweep products into higher yielding investment solutions decreased significantly beginning in the second quarter of 2023, and, apart from an increase in August following the Federal Reserve’s July rate increase, continued to decline during the third quarter of 2023 to its slowest pace since the beginning of the current interest rate tightening cycle.

In the third quarter of 2023, the Company’s FHLB borrowings and other short-term borrowings decreased by $9.5 billion as a result of repayments during the period. Bank deposits decreased during the third quarter of 2023 by $20.0 billion, resulting from a decrease of $23.1 billion in deposits swept from brokerage accounts due to client cash allocations, partially offset by a net increase in brokered CDs of $4.1 billion.

During the first nine months of 2023, the Company’s cash and cash equivalents, excluding amounts restricted, decreased by $6.9 billion to $33.3 billion as of September 30, 2023. This decrease was driven by net cash used for financing activities, partially offset by net cash provided by investing activities. Bank deposits decreased by a total of $82.3 billion during the first nine months of 2023; this was driven by a decrease of $116.2 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 $39.4 billion. Offsetting the decrease in bank deposits, investing net cash flows from our AFS and HTM securities totaled $49.2 billion in the first nine months of 2023, and the Company increased its FHLB borrowings and other short-term borrowings by a total of $22.3 billion.

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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 September 30, 2023, and the table below presents information about our average daily LCR:


	Average for the Three Months Ended
	September 30, 2023			June 30, 2023
Total eligible HQLA	$	60,781		$	65,738
Net cash outflows	51,351			50,965
LCR	119		%	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 September 30, 2023.

Long-Term Borrowings

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $24.8 billion and $20.8 billion at September 30, 2023 and December 31, 2022, respectively.

The following table provides information about our Senior Notes outstanding at September 30, 2023:

September 30, 2023

Par
Outstanding

Maturity

Weighted Average
Interest Rate

Moody’s

Standard
& Poor’s

Fitch

CSC Senior Notes

24,562

2024 - 2034

3.12%

A-

TDA Holding Senior Notes

213

2024 - 2029

3.47%

A-

—

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.

New Debt Issuances

The below debt issuances in the first nine months of 2023 were senior unsecured obligations. Additional details are as follows:


Issuance Date	Issuance Amount		Maturity Date	Interest Rate
May 19, 2023	$	1,200	05/19/2029	5.643%	(1)
May 19, 2023	1,300		05/19/2034	5.853%	(1)
August 24, 2023	1,350		08/24/2034	6.136%	(1)
August 24, 2023	1,000		08/24/2026	5.875%

(1) Interest rates presented are those in effect at September 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.

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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)

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 September 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.

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


	September 30, 2023						December 31, 2022
	CSC			CSB				CSC			CSB
Total stockholders’ equity	$	37,784		$	13,669			$	36,608		$	7,664
Less:
Preferred stock	9,191			—				9,706			—
Common Equity Tier 1 Capital before regulatory adjustments	$	28,593		$	13,669			$	26,902		$	7,664
Less:
Goodwill, net of associated deferred tax liabilities	$	11,788		$	13			$	11,816		$	13
Other intangible assets, net of associated deferred tax liabilities	6,739			—				7,079			—
Deferred tax assets, net of valuation allowances and deferred tax liabilities	37			35				37			35
AOCI adjustment (1)	(20,752)			(18,144)				(22,620)			(19,680)
Common Equity Tier 1 Capital	$	30,781		$	31,765			$	30,590		$	27,296
Tier 1 Capital	$	39,972		$	31,765			$	40,296		$	27,296
Total Capital	40,032			31,820				40,376			27,370
Risk-Weighted Assets	129,544			91,481				139,657			99,631
Average Assets with regulatory adjustments	488,627			330,908				562,803			372,802
Total Leverage Exposure	492,284			333,402				566,809			375,846
Common Equity Tier 1 Capital/Risk-Weighted Assets	23.8		%	34.7		%		21.9		%	27.4		%
Tier 1 Capital/Risk-Weighted Assets	30.9		%	34.7		%		28.9		%	27.4		%
Total Capital/Risk-Weighted Assets	30.9		%	34.8		%		28.9		%	27.5		%
Tier 1 Leverage Ratio	8.2		%	9.6		%		7.2		%	7.3		%
Supplementary Leverage Ratio	8.1		%	9.5		%		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 8.2% at September 30, 2023 from 7.5% at June 30, 2023 and 7.2% at year-end 2022. This increase during the third quarter was primarily due to net income during the quarter and a decrease in the Company’s total assets. Total balance sheet assets decreased $36.3 billion, or 7%, during the third quarter of 2023 due

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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)

primarily to a decrease of $32.0 billion, or 8%, 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 third quarter of 2023 at 9.6% primarily as a result of capital contributions from CSC as well as net income.

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 September 30, 2023, our adjusted Tier 1 Leverage Ratio, which reflects the inclusion of AOCI in the ratio, was 4.1% for CSC consolidated and 4.4% for CSB (see Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results). In anticipation of the rules being adopted, the Company is continuing to retain and accrete capital organically well ahead of the proposed transition period.

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 nine 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.

Cash dividends paid and per share amounts, exclusive of amounts related to preferred stock repurchases, for the first nine months of 2023 and 2022 are as follows:


	2023				2022
Nine Months Ended September 30,	Cash Paid		Per Share Amount		Cash Paid		Per Share Amount
Common and Nonvoting Common Stock	$	1,379	$	.75	$	1,179	$	.62
Preferred Stock:
Series A (1)	N/A		N/A		25		63.30
Series D (2)	33		44.64		33		44.64
Series E (3)	N/A		N/A		27		4,544.37
Series F (4)	12		2,500.00		13		2,500.00
Series G (2)	100		4,031.25		101		4,031.25
Series H (2)	68		3,000.00		75		3,000.00
Series I (2)	63		3,000.00		68		3,000.00
Series J (2)	20		33.39		20		33.39
Series K (5)	28		3,750.00		18		2,458.33

(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 September 30, 2023. CSC repurchased 37 million shares of

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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)

its common stock for $2.8 billion during the nine months ended September 30, 2023. As of September 30, 2023, approximately $8.7 billion remained on the new authorization.

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

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 September 30, 2023, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At September 30, 2023, the fair value of these holdings totaled $7.8 billion, with the top three exposures being to issuers and counterparties domiciled in France at $2.0 billion, Canada at $1.5 billion, and the United Kingdom at $908 million. 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 Canada at $1.7 billion. In addition, Schwab had outstanding margin loans to foreign residents of $2.7 billion and $2.5 billion at September 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 nine 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.

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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)

Schwab’s use of non-GAAP measures is reflective of certain adjustments made to GAAP financial measures as described below. Beginning in the third quarter of 2023, these adjustments also include restructuring costs, which the Company began incurring in connection with its previously announced plans to streamline its operations to prepare for post-integration of TD Ameritrade. See Part I – Item 1 – Note 10 for additional information.


Non-GAAP Adjustment or Measure	Definition	Usefulness to Investors and Uses by Management
Acquisition and integration-related costs, amortization of acquired intangible assets and restructuring costs	Schwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, restructuring costs and, where applicable, the income tax effect of these expenses. Adjustments made to exclude amortization of acquired intangible assets are reflective of all acquired intangible assets, which were recorded as part of purchase accounting. These acquired intangible assets contribute to the Company’s revenue generation. Amortization of acquired intangible assets will continue in future periods over their remaining useful lives.	We exclude acquisition and integration-related costs, amortization of acquired intangible assets and restructuring costs for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and is useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods. Costs related to acquisition and integration or restructuring fluctuate based on the timing of acquisitions, integration and restructuring activities, thereby limiting comparability of results among periods, and are not representative of the costs of running the Company’s ongoing business. Amortization of acquired intangible assets is excluded because management does not believe it is indicative of the Company’s underlying operating performance.
Return on tangible common equity	Return on tangible common equity represents annualized adjusted net income available to common stockholders as a percentage of average tangible common equity. Tangible common equity represents common equity less goodwill, acquired intangible assets – net, and related deferred tax liabilities.	Acquisitions typically result in the recognition of significant amounts of goodwill and acquired intangible assets. We believe return on tangible common equity may be useful to investors as a supplemental measure to facilitate assessing capital efficiency and returns relative to the composition of Schwab’s balance sheet.
Adjusted Tier 1 Leverage Ratio	Adjusted Tier 1 Leverage Ratio represents the Tier 1 Leverage Ratio as prescribed by bank regulatory guidance for the consolidated company and for CSB, adjusted to reflect the inclusion of AOCI in the ratio.	Inclusion of the impacts of AOCI in the Company’s Tier 1 Leverage Ratio provides additional information regarding the Company’s current capital position. We believe Adjusted Tier 1 Leverage Ratio may be useful to investors as a supplemental measure of the Company’s capital levels.

The Company also uses adjusted diluted EPS and return on tangible common equity as components of performance criteria for employee bonus and certain executive management incentive compensation arrangements. The Compensation Committee of CSC’s Board of Directors maintains discretion in evaluating performance against these criteria.

The following tables present reconciliations of GAAP measures to non-GAAP measures:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Total expenses excluding interest (GAAP)	$	3,223	$	2,823	$	9,194	$	8,475
Acquisition and integration-related costs (1)	(106)		(101)		(334)		(291)
Amortization of acquired intangible assets	(135)		(152)		(404)		(460)
Restructuring costs (2)	(279)		—		(279)		—
Adjusted total expenses (non-GAAP)	$	2,703	$	2,570	$	8,177	$	7,724

(1) Acquisition and integration-related costs for the three and nine months ended September 30, 2023 primarily consist of $52 million and $158 million of compensation and benefits, $37 million and $111 million of professional services, $7 million and $21 million of occupancy and equipment, and $4 million and $26 million of other. Acquisition and integration-related costs for the three and nine months ended September 30, 2022 primarily consist of $57 million and $166 million of compensation and benefits, $36 million and $102 million of professional services, and $6 million and $14 million of occupancy and equipment.

(2) Restructuring costs for the three and nine months ended September 30, 2023 primarily consist of $276 million of compensation and benefits. There were no restructuring costs for the three and nine months ended September 30, 2022.

- 28 -

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 September 30,									Nine Months Ended September 30,
	2023				2022				2023	2022
	Amount		Diluted EPS		Amount		Diluted EPS			Amount		Diluted EPS		Amount		Diluted EPS
Net income available to common stockholders (GAAP), Earnings per common share — diluted (GAAP)	$	1,017	$	.56	$	1,884	$	.99		$	3,723	$	2.03	$	4,814	$	2.53
Acquisition and integration-related costs	106		.06		101		.05			334		.18		291		.15
Amortization of acquired intangible assets	135		.07		152		.08			404		.22		460		.24
Restructuring costs	279		.15		—		—			279		.15		—		—
Income tax effects (1)	(127)		(.07)		(62)		(.02)			(247)		(.13)		(183)		(.09)
Adjusted net income available to common stockholders (non-GAAP), Adjusted diluted EPS (non-GAAP)	$	1,410	$	.77	$	2,075	$	1.10		$	4,493	$	2.45	$	5,382	$	2.83

(1) The income tax effects of the non-GAAP adjustments are determined using an effective tax rate reflecting the exclusion of non-deductible acquisition costs and are used to present the acquisition and integration-related costs, amortization of acquired intangible assets and restructuring costs on an after-tax basis.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Return on average common stockholders’ equity (GAAP)	14		%	25		%	18		%	18		%
Average common stockholders’ equity	$	28,274		$	30,282		$	27,747		$	36,526
Less: Average goodwill	(11,951)			(11,951)			(11,951)			(11,952)
Less: Average acquired intangible assets — net	(8,457)			(8,999)			(8,589)			(9,151)
Plus: Average deferred tax liabilities related to goodwill and acquired intangible assets — net	1,822			1,848			1,830			1,867
Average tangible common equity	$	9,688		$	11,180		$	9,037		$	17,290
Adjusted net income available to common stockholders (1)	$	1,410		$	2,075		$	4,493		$	5,382
Return on tangible common equity (non-GAAP)	58		%	74		%	66		%	42		%

(1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).


	September 30, 2023
	CSC			CSB
Tier 1 Leverage Ratio (GAAP)	8.2		%	9.6		%
Tier 1 Capital	$	39,972		$	31,765
Plus: AOCI adjustment	(20,752)			(18,144)
Adjusted Tier 1 Capital	19,220			13,621
Average assets with regulatory adjustments	488,627			330,908
Plus: AOCI adjustment	(20,033)			(17,950)
Adjusted average assets with regulatory adjustments	$	468,594		$	312,958
Adjusted Tier 1 Leverage Ratio (non-GAAP)	4.1		%	4.4		%

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.

- 29 -

Part I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Income

(In Millions, Except Per Share Amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net Revenues
Interest revenue	$	4,028	$	3,357	$	12,148	$	8,386
Interest expense	(1,791)		(431)		(4,851)		(733)
Net interest revenue	2,237		2,926		7,297		7,653
Asset management and administration fees (1)	1,224		1,047		3,515		3,167
Trading revenue	768		930		2,463		2,778
Bank deposit account fees	205		413		531		1,059
Other	172		184		572		608

Total net revenues	4,606		5,500		14,378		15,265
Expenses Excluding Interest
Compensation and benefits	1,770		1,476		4,906		4,448
Professional services	275		264		805		766
Occupancy and equipment	305		292		923		855
Advertising and market development	102		89		293		296
Communications	151		131		485		444
Depreciation and amortization	198		167		566		476
Amortization of acquired intangible assets	135		152		404		460
Regulatory fees and assessments	114		65		277		200
Other	173		187		535		530
Total expenses excluding interest	3,223		2,823		9,194		8,475
Income before taxes on income	1,383		2,677		5,184		6,790
Taxes on income	258		657		1,162		1,575
Net Income	1,125		2,020		4,022		5,215
Preferred stock dividends and other	108		136		299		401
Net Income Available to Common Stockholders	$	1,017	$	1,884	$	3,723	$	4,814
Weighted-Average Common Shares Outstanding:
Basic	1,821		1,887		1,825		1,892
Diluted	1,827		1,895		1,832		1,901
Earnings Per Common Shares Outstanding (2):
Basic	$	.56	$	1.00	$	2.04	$	2.54
Diluted	$	.56	$	.99	$	2.03	$	2.53

(1) No fee waivers were recognized for the three and nine months ended September 30, 2023, or for the three months ended September 30, 2022. Includes fee waivers of $57 million for the nine months ended September 30, 2022.

(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.

- 30 -

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(In Millions)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	1,125	$	2,020	$	4,022	$	5,215
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	(720)		(9,493)		446		(29,299)
Reclassification of net unrealized loss transferred to held to maturity	—		—		—		2,429
Other reclassifications included in other revenue	24		16		44		(1)
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	645		83		1,896		297
Other	—		—		(9)		—
Other comprehensive income (loss), before tax	(51)		(9,394)		2,377		(29,003)
Income tax effect	29		2,264		(508)		6,960
Other comprehensive income (loss), net of tax	(22)		(7,130)		1,869		(22,043)
Comprehensive Income (Loss)	$	1,103	$	(5,110)	$	5,891	$	(16,828)

See Notes to Condensed Consolidated Financial Statements.

- 31 -

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Balance Sheets (1)

(In Millions, Except Per Share and Share Amounts)

(Unaudited)


	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	33,251	$	40,195
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $3,010 and $12,159 at September 30, 2023 and December 31, 2022, respectively)	18,576		42,983
Receivables from brokerage clients — net	69,062		66,591
Available for sale securities (amortized cost of $122,072 at September 30, 2023 and $160,162 at December 31, 2022; including assets pledged of $1,773 and $41, respectively)	110,272		147,871
Held to maturity securities (including assets pledged of $5,346 at September 30, 2023 and $4,522 at December 31, 2022)	162,452		173,074
Bank loans — net	40,327		40,505
Equipment, office facilities, and property — net	3,730		3,714
Goodwill	11,951		11,951
Acquired intangible assets — net	8,390		8,789
Other assets	17,193		16,099
Total assets	$	475,204	$	551,772
Liabilities and Stockholders’ Equity
Bank deposits	$	284,408	$	366,724
Payables to brokerage clients	72,818		97,438
Accrued expenses and other liabilities	16,041		13,124
Other short-term borrowings	7,550		4,650
Federal Home Loan Bank borrowings	31,800		12,400
Long-term debt	24,803		20,828
Total liabilities	437,420		515,164
Stockholders’ equity:
Preferred stock — $.01 par value per share; aggregate liquidation preference of $9,329 and $9,850 at September 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 September 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 September 30, 2023 and December 31, 2022	1		1
Additional paid-in capital	27,293		27,075
Retained earnings	33,429		31,066
Treasury stock, at cost — 252,889,055 and 221,033,042 shares at September 30, 2023 and December 31, 2022, respectively	(11,398)		(8,639)
Accumulated other comprehensive income (loss)	(20,752)		(22,621)
Total stockholders’ equity	37,784		36,608
Total liabilities and stockholders’ equity	$	475,204	$	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.

- 32 -

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(In Millions)

(Unaudited)


															Accumulated Other Comprehensive Income (Loss)
	Preferred Stock		Common Stock			Nonvoting Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock, at cost				Total
			Shares	Amount		Shares	Amount
Balance at June 30, 2022	$	10,694	1,995	$	20	79	$	1	$	26,918	$	28,174	$	(5,272)	$	(16,022)	$	44,513
Net income	—		—	—		—	—		—		2,020		—		—		2,020
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		(7,130)		(7,130)


Call of preferred stock	(397)		—	—		—	—		—		(3)		—		—		(400)
Dividends declared on preferred stock	—		—	—		—	—		—		(123)		—		—		(123)
Dividends declared on common stock — $.22 per share	—		—	—		—	—		—		(417)		—		—		(417)
Repurchase of common stock	—		—	—		—	—		—		—		(500)		—		(500)
Repurchase of nonvoting common stock	—		15	—		(15)	—		—		—		(1,000)		—		(1,000)
Conversion of nonvoting common stock to common stock	—		13	—		(13)	—		—		—		—		—		—
Stock option exercises and other	—		—	—		—	—		(12)		—		21		—		9
Share-based compensation	—		—	—		—	—		50		—		—		—		50
Other	—		—	—		—	—		19		—		—		—		19
Balance at September 30, 2022	$	10,297	2,023	$	20	51	$	1	$	26,975	$	29,651	$	(6,751)	$	(23,152)	$	37,041

Balance at June 30, 2023	$	9,191	2,023	$	20	51	$	1	$	27,220	$	32,865	$	(11,420)	$	(20,730)	$	37,147
Net income	—		—	—		—	—		—		1,125		—		—		1,125
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		(22)		(22)



Dividends declared on preferred stock	—		—	—		—	—		—		(103)		—		—		(103)
Dividends declared on common stock — $.25 per share	—		—	—		—	—		—		(458)		—		—		(458)



Stock option exercises and other	—		—	—		—	—		(9)		—		18		—		9
Share-based compensation	—		—	—		—	—		60		—		—		—		60
Other	—		—	—		—	—		22		—		4		—		26
Balance at September 30, 2023	$	9,191	2,023	$	20	51	$	1	$	27,293	$	33,429	$	(11,398)	$	(20,752)	$	37,784

Continued on following page.

- 33 -

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(In Millions)

(Unaudited)

Continued from previous page.


															Accumulated Other Comprehensive Income (Loss)
	Preferred Stock		Common Stock			Nonvoting Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock, at cost				Total
			Shares	Amount		Shares	Amount
Balance at December 31, 2021	$	9,954	1,995	$	20	79	$	1	$	26,741	$	25,992	$	(5,338)	$	(1,109)	$	56,261
Net income	—		—	—		—	—		—		5,215		—		—		5,215
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		(22,043)		(22,043)
Issuance of preferred stock, net	740		—	—		—	—		—		—		—		—		740

Call of preferred stock	(397)		—	—		—	—		—		(3)		—		—		(400)
Dividends declared on preferred stock	—		—	—		—	—		—		(374)		—		—		(374)
Dividends declared on common stock — $.62 per share	—		—	—		—	—		—		(1,179)		—		—		(1,179)
Repurchase of common stock	—		—	—		—	—		—		—		(500)		—		(500)
Repurchase of nonvoting common stock	—		15	—		(15)	—		—		—		(1,000)		—		(1,000)
Conversion of nonvoting common stock to common stock	—		13	—		(13)	—		—		—		—		—		—
Stock option exercises and other	—		—	—		—	—		(68)		—		110		—		42
Share-based compensation	—		—	—		—	—		215		—		—		—		215
Other	—		—	—		—	—		87		—		(23)		—		64
Balance at September 30, 2022	$	10,297	2,023	$	20	51	$	1	$	26,975	$	29,651	$	(6,751)	$	(23,152)	$	37,041

Balance at December 31, 2022	$	9,706	2,023	$	20	51	$	1	$	27,075	$	31,066	$	(8,639)	$	(22,621)	$	36,608
Net income	—		—	—		—	—		—		4,022		—		—		4,022
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		1,869		1,869

Redemption and repurchase of preferred stock, inclusive of tax	(515)		—	—		—	—		—		44		—		—		(471)

Dividends declared on preferred stock	—		—	—		—	—		—		(324)		—		—		(324)
Dividends declared on common stock — $.75 per share	—		—	—		—	—		—		(1,379)		—		—		(1,379)
Repurchase of common stock, inclusive of tax	—		—	—		—	—		—		—		(2,869)		—		(2,869)


Stock option exercises and other	—		—	—		—	—		(110)		—		143		—		33
Share-based compensation	—		—	—		—	—		242		—		—		—		242
Other	—		—	—		—	—		86		—		(33)		—		53
Balance at September 30, 2023	$	9,191	2,023	$	20	51	$	1	$	27,293	$	33,429	$	(11,398)	$	(20,752)	$	37,784

See Notes to the Condensed Consolidated Financial Statements.

- 34 -

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Cash Flows (1)

(in Millions)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash Flows from Operating Activities
Net income	$	4,022	$	5,215
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Share-based compensation	260		281
Depreciation and amortization	566		476
Amortization of acquired intangible assets	404		460
Provision (benefit) for deferred income taxes	5		(57)
Premium amortization, net, on available for sale and held to maturity securities	614		1,163
Other	391		339
Net change in:
Investments segregated and on deposit for regulatory purposes	17,539		(1,774)
Receivables from brokerage clients	(2,502)		16,683
Other assets	202		655
Payables to brokerage clients	(24,620)		(15,659)
Accrued expenses and other liabilities	2,669		(3,618)
Net cash provided by (used for) operating activities	(450)		4,164
Cash Flows from Investing Activities
Purchases of available for sale securities	(775)		(49,897)
Proceeds from sales of available for sale securities	6,385		24,019
Principal payments on available for sale securities	31,593		40,503

Principal payments on held to maturity securities	12,030		12,433
Net change in bank loans	194		(5,653)

Purchases of equipment, office facilities, and property	(637)		(769)
Purchases of FHLB stock	(1,652)		—
Proceeds from sales of FHLB stock	876		—
Purchases of Federal Reserve stock	(212)		(85)
Proceeds from sales of Federal Reserve stock	98		16
Other investing activities	(171)		(59)
Net cash provided by (used for) investing activities	47,729		20,508
Cash Flows from Financing Activities
Net change in bank deposits	(82,316)		(48,063)



Proceeds from FHLB borrowings	41,800		4
Repayments of FHLB borrowings	(22,400)		(4)
Proceeds from other short-term borrowings	14,190		14,999
Repayments of other short-term borrowings	(11,296)		(19,357)
Issuances of long-term debt	4,809		2,971
Repayments of long-term debt	(823)		(1,029)
Net proceeds from preferred stock offerings	—		740
Redemption and repurchase of preferred stock	(467)		—
Dividends paid	(1,703)		(1,559)
Proceeds from stock options exercised	33		42
Repurchases of common stock and nonvoting common stock	(2,842)		(1,455)
Other financing activities	(77)		(53)
Net cash provided by (used for) financing activities	(61,092)		(52,764)
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted	(13,813)		(28,092)
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year	58,720		93,338
Cash and Cash Equivalents, including Amounts Restricted at End of Period	$	44,907	$	65,246

Continued on following page.

- 35 -

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Cash Flows (1)

(in Millions)

(Unaudited)

Continued from previous page.


	Nine Months Ended September 30,
	2023		2022
Supplemental Cash Flow Information
Non-cash investing activity:

Securities transferred from available for sale to held to maturity, at fair value	$	—	$	108,805

Securities matured during the period but settled after period end	$	415	$	—
Changes in accrued equipment, office facilities, and property purchases	$	(32)	$	(28)
Non-cash financing activity:

Common stock repurchased during the period but settled after period end	$	—	$	45
Call of preferred stock	$	—	$	400
Other Supplemental Cash Flow Information:
Cash paid during the period for:
Interest	$	3,851	$	722
Income taxes	$	1,243	$	1,436
Amounts included in the measurement of lease liabilities	$	190	$	162
Leased assets obtained in exchange for new operating lease liabilities	$	88	$	226
Leased assets obtained in exchange for new finance lease liabilities	$	—	$	5

	September 30, 2023		September 30, 2022
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2)
Cash and cash equivalents	$	33,251	$	46,486
Restricted cash and cash equivalents amounts included in cash and investments segregated and on deposit for regulatory purposes	11,656		18,760
Total cash and cash equivalents, including amounts restricted shown in the statement of cash flows	$	44,907	$	65,246

(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.

- 36 -

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

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 nine 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 whether we qualify for and elect to apply hedge accounting and the type of hedging accounting relationship applied. 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

- 37 -

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) or is expected to exceed the amount of the closed portfolio at a future date during the hedge period (i.e., a breach of the hedged layer is anticipated), the PLM hedge must be fully or partially terminated to cure the breach or anticipated 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) that has occurred, 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 recognized financial assets and liabilities are reclassified into interest revenue or interest expense as interest payments are accrued or made. 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 or interest expense 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


Standard	Description	Date of Adoption	Effects 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, 2023	The 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.

- 38 -

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net interest revenue
Cash and cash equivalents	$	459	$	294	$	1,419	$	461
Cash and investments segregated	285		214		1,041		308
Receivables from brokerage clients	1,282		912		3,533		2,244
Available for sale securities	724		1,161		2,340		3,196
Held to maturity securities	706		345		2,172		1,062
Bank loans	426		300		1,227		717
Securities lending revenue	105		124		341		383
Other interest revenue	41		7		75		15
Interest revenue	4,028		3,357		12,148		8,386
Bank deposits	(911)		(241)		(2,392)		(285)
Payables to brokerage clients	(66)		(41)		(205)		(47)
Other short-term borrowings (1)	(97)		(4)		(280)		(12)
Federal Home Loan Bank borrowings (1)	(477)		—		(1,387)		—
Long-term debt	(193)		(131)		(489)		(363)
Securities lending expense	(46)		(13)		(96)		(28)
Other interest expense	(1)		(1)		(2)		2
Interest expense	(1,791)		(431)		(4,851)		(733)
Net interest revenue	2,237		2,926		7,297		7,653
Asset management and administration fees
Mutual funds, ETFs, and CTFs	666		520		1,881		1,524
Advice solutions	476		452		1,393		1,409
Other	82		75		241		234
Asset management and administration fees	1,224		1,047		3,515		3,167
Trading revenue
Commissions	394		435		1,210		1,362
Order flow revenue	325		432		1,104		1,332
Principal transactions	49		63		149		84
Trading revenue	768		930		2,463		2,778
Bank deposit account fees	205		413		531		1,059
Other	172		184		572		608

Total net revenues	$	4,606	$	5,500	$	14,378	$	15,265

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 $563 million and $560 million at September 30, 2023 and December 31, 2022, respectively. Schwab did not have any other significant contract assets as of December 31, 2022.

At September 30, 2023, the Company also had net contract assets of $221 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 September 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.

- 39 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

4. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s AFS and HTM investment securities are as follows:


September 30, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale securities
U.S. agency mortgage-backed securities	$	73,518	$	—	$	8,657	$	64,861
U.S. Treasury securities	23,139		—		1,351		21,788
Asset-backed securities (1)	10,111		—		487		9,624
Corporate debt securities (2)	13,361		—		1,207		12,154
Certificates of deposit	100		—		1		99
Foreign government agency securities	1,034		—		49		985
U.S. state and municipal securities	636		—		81		555
Non-agency commercial mortgage-backed securities	208		—		20		188

Other	22		—		4		18
Unallocated portfolio layer method fair value basis adjustments (3)	(57)		—		(57)		—
Total available for sale securities (4)	$	122,072	$	—	$	11,800	$	110,272
Held to maturity securities
U.S. agency mortgage-backed securities	$	162,452	$	—	$	19,449	$	143,003









Total held to maturity securities	$	162,452	$	—	$	19,449	$	143,003


December 31, 2022	Amortized 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 securities	41,879		—		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 deposit	2,245		—		14		2,231
Foreign government agency securities	1,033		—		64		969
U.S. state and municipal securities	713		—		75		638

Non-agency commercial mortgage-backed securities	473		—		23		450

Other	323		—		8		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 September 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 22% and 18% of the asset-backed securities held as of September 30, 2023 and December 31, 2022, respectively.

(2) As of both September 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. See Notes 2 and 11 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 September 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 pre-tax 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 net income. As of September 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $11.8 billion net of tax effect ($15.6 billion pre-tax).

- 40 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

At September 30, 2023, our banking subsidiaries had pledged investment securities with a value of $68.2 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 $7.2 billion as collateral for this facility at September 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 $40.2 billion as collateral for this facility at September 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 $1.5 billion at September 30, 2023.

At September 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 $5.3 billion, and AFS securities pledged were U.S. agency mortgage-backed securities with an aggregate fair value of $1.8 billion. Securities pledged as collateral under these repurchase agreements may be sold, repledged, or otherwise used by the counterparties. See Notes 8 and 12 for additional information on these repurchase agreements.

At September 30, 2023, our banking subsidiaries had pledged AFS securities with an aggregate fair value of $180 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 months				12 months or longer				Total

September 30, 2023	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale securities
U.S. agency mortgage-backed securities	$	97	$	1	$	64,763	$	8,656	$	64,860	$	8,657
U.S. Treasury securities	1,493		2		20,295		1,349		21,788		1,351
Asset-backed securities	32		—		9,580		487		9,612		487
Corporate debt securities	—		—		12,155		1,207		12,155		1,207
Certificates of deposit	—		—		99		1		99		1
Foreign government agency securities	—		—		985		49		985		49
U.S. state and municipal securities	—		—		555		81		555		81
Non-agency commercial mortgage-backed securities	—		—		188		20		188		20

Other	—		—		18		4		18		4
Total (1)	$	1,622	$	3	$	108,638	$	11,854	$	110,260	$	11,857


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 securities	27,063		716		12,519		1,161		39,582		1,877
Asset-backed securities	6,717		217		6,299		432		13,016		649
Corporate debt securities	8,552		542		3,998		733		12,550		1,275
Certificates of deposit	2,033		10		196		4		2,229		14
Foreign government agency securities	756		50		214		14		970		64
U.S. state and municipal securities	482		31		157		44		639		75
Non-agency commercial mortgage-backed securities	443		23		—		—		443		23
Other	315		8		—		—		315		8
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 $57 million at September 30, 2023.

At September 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 and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises.

- 41 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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 nine months ended September 30, 2023 and the year ended December 31, 2022. None of the Company’s AFS securities held as of September 30, 2023 and December 31, 2022 had an allowance for credit losses. All HTM securities as of September 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 $566 million and $685 million of accrued interest for AFS and HTM securities as of September 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 nine months ended September 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 September 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 2.5 years as of September 30, 2023. Including the impact of the Company’s use of derivative instruments to manage changes in the fair values of our AFS investment portfolio, the effective duration of our total AFS and HTM investments securities as of September 30, 2023 is approximately 3.9 years and for our AFS investment securities is approximately 2.2 years (see Note 11).

The maturities of AFS and HTM investment securities are as follows:


September 30, 2023	Within 1 year		After 1 year through 5 years		After 5 years through 10 years		After 10 years		Total
Available for sale securities
U.S. agency mortgage-backed securities	$	494	$	12,620	$	11,503	$	40,244	$	64,861
U.S. Treasury securities	8,649		13,139		—		—		21,788
Asset-backed securities	—		2,755		1,209		5,660		9,624
Corporate debt securities	2,160		8,514		1,480		—		12,154
Certificates of deposit	99		—		—		—		99
Foreign government agency securities	488		497		—		—		985
U.S. state and municipal securities	—		46		387		122		555
Non-agency commercial mortgage-backed securities	—		—		—		188		188

Other	—		—		—		18		18
Total fair value	$	11,890	$	37,571	$	14,579	$	46,232	$	110,272
Total amortized cost (1)	$	12,128	$	40,565	$	16,667	$	52,769	$	122,129

Held to maturity securities
U.S. agency mortgage-backed securities	$	724	$	6,780	$	36,652	$	98,847	$	143,003









Total fair value	$	724	$	6,780	$	36,652	$	98,847	$	143,003
Total amortized cost	$	749	$	7,343	$	41,217	$	113,143	$	162,452

(1) For purposes of this table, the amortized cost of AFS securities excludes the PLM fair value hedge basis adjustments of $57 million at September 30, 2023.

Proceeds and gross realized gains and losses from sales of AFS investment securities are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,

	2023		2022			2023		2022
Proceeds	$	3,485	$	10,549		$	6,385	$	24,019
Gross realized gains	1		16			1		156
Gross realized losses	25		32			45		155

- 42 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

5. Bank Loans and Related Allowance for Credit Losses

The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows:


September 30, 2023	Current		30-59 days past due		60-89 days past due		>90 days past due and other nonaccrual loans (3)		Total past due and other nonaccrual loans		Total loans		Allowance for credit losses		Total bank loans – net
Residential real estate:
First Mortgages (1,2)	$	26,022	$	25	$	1	$	8	$	34	$	26,056	$	47	$	26,009
HELOCs (1,2)	487		1		—		5		6		493		2		491
Total residential real estate	26,509		26		1		13		40		26,549		49		26,500
Pledged asset lines	13,525		10		2		1		13		13,538		—		13,538
Other	294		—		—		—		—		294		5		289
Total bank loans	$	40,328	$	36	$	3	$	14	$	53	$	40,381	$	54	$	40,327

December 31, 2022
Residential real estate:
First Mortgages (1,2)	$	25,157	$	25	$	2	$	14	$	41	$	25,198	$	66	$	25,132
HELOCs (1,2)	590		2		—		5		7		597		4		593
Total residential real estate	25,747		27		2		19		48		25,795		70		25,725
Pledged asset lines	14,584		4		—		4		8		14,592		—		14,592
Other	191		—		—		—		—		191		3		188
Total bank loans	$	40,522	$	31	$	2	$	23	$	56	$	40,578	$	73	$	40,505

(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $100 million and $98 million at September 30, 2023 and December 31, 2022, respectively.

(2) At both September 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 September 30, 2023 or December 31, 2022.

At September 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
September 30, 2023	First Mortgages		HELOCs		Total residential real estate		Pledged asset lines		Other		Total
Balance at beginning of period	$	68	$	3	$	71	$	—	$	4	$	75
Charge-offs	—		—		—		—		—		—
Recoveries	—		—		—		—		—		—
Provision for credit losses	(21)		(1)		(22)		—		1		(21)
Balance at end of period	$	47	$	2	$	49	$	—	$	5	$	54

September 30, 2022
Balance at beginning of period	$	31	$	3	$	34	$	—	$	3	$	37
Charge-offs	—		—		—		(4)		—		(4)
Recoveries	—		1		1		—		—		1
Provision for credit losses	11		—		11		4		—		15
Balance at end of period	$	42	$	4	$	46	$	—	$	3	$	49

- 43 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


Nine Months Ended
September 30, 2023	First Mortgages		HELOCs		Total residential real estate		Pledged asset lines		Other		Total
Balance at beginning of period	$	66	$	4	$	70	$	—	$	3	$	73
Charge-offs	—		—		—		—		—		—
Recoveries	—		—		—		—		—		—
Provision for credit losses	(19)		(2)		(21)		—		2		(19)
Balance at end of period	$	47	$	2	$	49	$	—	$	5	$	54

September 30, 2022
Balance at beginning of period	$	13	$	2	$	15	$	—	$	3	$	18
Charge-offs	—		—		—		(4)		—		(4)
Recoveries	—		1		1		—		—		1
Provision for credit losses	29		1		30		4		—		34
Balance at end of period	$	42	$	4	$	46	$	—	$	3	$	49

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 September 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. Despite these challenges, management’s macroeconomic outlook reflects a near term continuation of higher interest rates with only a slight increase in unemployment and modest home price depreciation. While higher mortgage rates are softening demand and reducing borrower affordability, constrained housing supply will keep home prices relatively stable. Furthermore, credit quality metrics in the Company’s bank loans portfolio have improved in recent years and remain very strong. As a result of these factors, we decreased projected loss rates at September 30, 2023, as compared to December 31, 2022.

A summary of bank loan-related nonperforming assets is as follows:


	September 30, 2023		December 31, 2022
Nonaccrual loans (1)	$	14	$	23
Other real estate owned (2)	—		2


Total nonperforming assets	$	14	$	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.

- 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 credit quality indicators of the Company’s bank loan portfolio are detailed below:


	First Mortgages Amortized Cost Basis by Origination Year
September 30, 2023	2023			2022			2021			2020			2019			pre-2019			Total First Mortgages			Revolving HELOCs amortized cost basis			HELOCs converted to term loans			Total HELOCs
Origination FICO
<620	$	—		$	3		$	1		$	—		$	—		$	1		$	5		$	—		$	—		$	—
620 – 679	3			27			30			20			2			13			95			—			1			1
680 – 739	243			795			1,177			400			108			206			2,929			53			39			92
≥740	1,951			5,336			10,563			3,618			760			799			23,027			264			136			400
Total	$	2,197		$	6,161		$	11,771		$	4,038		$	870		$	1,019		$	26,056		$	317		$	176		$	493
Origination LTV
≤70%	$	1,481		$	4,561		$	10,197		$	3,357		$	703		$	759		$	21,058		$	282		$	123		$	405
>70% – ≤90%	716			1,600			1,574			681			167			258			4,996			35			52			87
>90% – ≤100%	—			—			—			—			—			2			2			—			1			1
Total	$	2,197		$	6,161		$	11,771		$	4,038		$	870		$	1,019		$	26,056		$	317		$	176		$	493
Updated FICO
<620	$	4		$	10		$	11		$	6		$	2		$	12		$	45		$	2		$	5		$	7
620 – 679	26			68			91			30			11			35			261			6			8			14
680 – 739	259			585			961			329			62			118			2,314			45			30			75
≥740	1,908			5,498			10,708			3,673			795			854			23,436			264			133			397
Total	$	2,197		$	6,161		$	11,771		$	4,038		$	870		$	1,019		$	26,056		$	317		$	176		$	493
Estimated Current LTV (1)
≤70%	$	1,517		$	4,858		$	11,511		$	4,026		$	868		$	1,018		$	23,798		$	315		$	175		$	490
>70% – ≤90%	680			1,283			257			12			2			1			2,235			2			1			3
>90% – ≤100%	—			19			3			—			—			—			22			—			—			—
>100%	—			1			—			—			—			—			1			—			—			—
Total	$	2,197		$	6,161		$	11,771		$	4,038		$	870		$	1,019		$	26,056		$	317		$	176		$	493
Gross charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Percent of Loans on Nonaccrual Status	0.01		%	0.03		%	0.02		%	0.01		%	0.01		%	0.33		%	0.03		%	0.28		%	2.03		%	1.01		%

(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.

- 45 -

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, 2022	2022			2021			2020			2019			pre-2019			Total First Mortgages			Revolving HELOCs amortized cost basis			HELOCs converted to term loans			Total HELOCs
Origination FICO
<620	$	3		$	1		$	—		$	—		$	1		$	5		$	—		$	—		$	—
620 – 679	28			31			21			2			15			97			—			2			2
680 – 739	820			1,224			430			116			243			2,833			59			47			106
≥740	5,593			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%	—			—			—			—			2			2			—			1			1
Total	$	6,444		$	12,293		$	4,270		$	929		$	1,262		$	25,198		$	382		$	215		$	597
Updated FICO
<620	$	11		$	12		$	7		$	2		$	13		$	45		$	2		$	5		$	7
620 – 679	87			127			42			10			43			309			6			10			16
680 – 739	711			1,079			378			89			161			2,418			52			35			87
≥740	5,635			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			1			5			2,408			2			1			3
>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 September 30, 2023, First Mortgage loans of $21.4 billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 27% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 88% of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates.

At September 30, 2023 and December 31, 2022, Schwab had $152 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.

- 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 presents when current outstanding HELOCs will convert to amortizing loans:


September 30, 2023	Balance
Converted to an amortizing loan by period end (1)	$	176
Within 1 year	23
> 1 year – 3 years	39
> 3 years – 5 years	51
> 5 years	204
Total	$	493

(1) Includes $6 million and $15 million of HELOCs converted to amortizing loans during the three and nine months ended September 30, 2023, respectively.

At September 30, 2023, $389 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 September 30, 2023, the borrowers on approximately 59% of HELOC loan balances outstanding only paid the minimum amount due.

6. Variable Interest Entities

As of September 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:


	September 30, 2023						December 31, 2022
	Aggregate assets		Aggregate liabilities		Maximum exposure to loss		Aggregate assets		Aggregate liabilities		Maximum exposure to loss
LIHTC investments (1)	$	1,306	$	744	$	1,306	$	1,094	$	619	$	1,094
Other investments (2)	176		—		218		167		—		215
Total	$	1,482	$	744	$	1,524	$	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 nine months ended September 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.

- 47 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

7. Bank Deposits

Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:


	September 30, 2023		December 31, 2022
Interest-bearing deposits:
Deposits swept from brokerage accounts	$	217,517	$	333,754
Time certificates of deposit (1)	45,418		6,047
Checking	15,560		19,719
Savings and other	4,672		6,098
Total interest-bearing deposits	283,167		365,618
Non-interest-bearing deposits	1,241		1,106
Total bank deposits	$	284,408	$	366,724

(1) Time certificates of deposit consist of brokered CDs. As of September 30, 2023 and 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 September 30, 2023 are as follows:


	Balance
2023	$	5,358
2024	38,422
2025	1,638
Total	$	45,418

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.

- 48 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The following table lists long-term debt by instrument outstanding as of September 30, 2023 and December 31, 2022:


	Date of Issuance	Principal Amount Outstanding
		September 30, 2023		December 31, 2022
CSC Fixed-rate Senior Notes:


2.650% due January 25, 2023	12/07/17	$	—	$	800
3.550% due February 1, 2024	10/31/18	500		500
0.750% due March 18, 2024	03/18/21	1,500		1,500
3.750% due April 1, 2024	09/24/21	350		350
3.000% due March 10, 2025	03/10/15	375		375
4.200% due March 24, 2025	03/24/20	600		600
3.625% due April 1, 2025	09/24/21	418		418
3.850% due May 21, 2025	05/22/18	750		750
3.450% due February 13, 2026	11/13/15	350		350
0.900% due March 11, 2026	12/11/20	1,250		1,250
1.150% due May 13, 2026	05/13/21	1,000		1,000
3.200% due March 2, 2027	03/02/17	650		650
2.450% due March 3, 2027	03/03/22	1,500		1,500
3.300% due April 1, 2027	09/24/21	744		744
3.200% due January 25, 2028	12/07/17	700		700
2.000% due March 20, 2028	03/18/21	1,250		1,250
4.000% due February 1, 2029	10/31/18	600		600
3.250% due May 22, 2029	05/22/19	600		600
2.750% due October 1, 2029	09/24/21	475		475
4.625% due March 22, 2030	03/24/20	500		500
1.650% due March 11, 2031	12/11/20	750		750
2.300% due May 13, 2031	05/13/21	750		750
1.950% due December 1, 2031	08/26/21	850		850
2.900% due March 3, 2032	03/03/22	1,000		1,000
5.875% due August 24, 2026	08/24/23	1,000		—
CSC Floating-rate Senior Notes:

SOFR + 0.500% due March 18, 2024	03/18/21	1,250		1,250
SOFR + 0.520% due May 13, 2026	05/13/21	500		500
SOFR + 1.050% due March 3, 2027	03/03/22	500		500
CSC Fixed-to-Floating rate Senior Notes:
5.643% due May 19, 2029 (1)	05/19/23	1,200		—
5.853% due May 19, 2034 (2)	05/19/23	1,300		—
6.136% due August 24, 2034 (3)	08/24/23	1,350		—
Total CSC Senior Notes		24,562		20,512
TDA Holding Fixed-rate Senior Notes:

3.750% due April 1, 2024	11/01/18	50		50
3.625% due April 1, 2025	10/22/14	82		82
3.300% due April 1, 2027	04/27/17	56		56
2.750% due October 1, 2029	08/16/19	25		25


Total TDA Holding Senior Notes		213		213
Finance lease liabilities		45		68
Unamortized premium — net		98		129
Debt issuance costs		(115)		(94)
Total long-term debt		$	24,803	$	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.

(3) The 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 6.136%, payable semi-annually, until the interest reset date on August 24, 2033. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.010%, payable quarterly.

- 49 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Annual maturities on all long-term debt outstanding at September 30, 2023 are as follows:


	Maturities
2023	$	8
2024	3,675
2025	2,237
2026	4,100
2027	3,450
Thereafter	11,350
Total maturities	24,820
Unamortized premium — net	98
Debt issuance costs	(115)
Total long-term debt	$	24,803

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 $31.8 billion and $12.4 billion outstanding under these facilities as of September 30, 2023 and December 31, 2022, respectively, and these borrowings had a weighted-average interest rate of 5.17% and 4.88%, respectively. As of September 30, 2023 and December 31, 2022, the collateral pledged provided additional borrowing capacity of $55.6 billion and $68.6 billion, respectively.

Other short-term borrowings: Total other short-term borrowings outstanding at September 30, 2023 and December 31, 2022 were $7.6 billion and $4.7 billion, respectively, and had a weighted-average interest rate of 5.39% 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. CSC had $85 million and $250 million outstanding at September 30, 2023 and December 31, 2022, respectively. 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 September 30, 2023 or December 31, 2022. CS&Co also maintains secured, uncommitted lines of credit, under which CS&Co may borrow on a short-term basis and pledge either client margin securities or firm securities as collateral, based on the terms of the agreements, under which there was $950 million outstanding at September 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 September 30, 2023 and December 31, 2022, our collateral pledged provided total borrowing capacity of $7.2 billion and $7.8 billion, respectively, of which no amounts were outstanding at the end of either period.

Beginning in 2023, our banking subsidiaries 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 September 30, 2023, our collateral pledged provided total borrowing capacity of $40.2 billion. There were no borrowings outstanding at September 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 $6.5 billion and $4.4 billion outstanding pursuant to such repurchase agreements at September 30, 2023 and December 31, 2022, respectively. Repurchase agreements outstanding at September 30, 2023 mature between October 2023 and July 2024.

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. There was no balance outstanding at September 30, 2023 or December 31, 2022.

Annual maturities on FHLB borrowings and other short-term borrowings outstanding at September 30, 2023 are as follows:


	2023		2024		Total
FHLB borrowings	$	12,400	$	19,400	$	31,800
Other short-term borrowings	3,148		4,402		7,550
Total	$	15,548	$	23,802	$	39,350

- 50 -

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 $765 million and $1.3 billion during the third quarters of 2023 and 2022, respectively, and $2.4 billion and $6.0 billion during the first nine months of 2023 and 2022, respectively. CSB purchased HELOCs with commitments of $49 million and $92 million during the third quarters of 2023 and 2022, respectively, and $144 million and $252 million during the first nine 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:


	September 30, 2023		December 31, 2022
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit	$	3,247	$	4,533
Commitments to purchase First Mortgage loans	379		492
Total	$	3,626	$	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 nine 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.

- 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 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 and August 2023, Schwab opted to buy down $2.4 billion and $2.1 billion of fixed-rate obligation amounts, respectively, incurring market-based fees of $112 million and $115 million, respectively, which were capitalized as contract assets and included in other assets on the condensed consolidated balance sheet. For additional information on these contract assets, see Note 3.

As of September 30, 2023, the total ending IDA balance was $99.6 billion, of which $88.7 billion was fixed-rate obligation amounts and $10.9 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

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

without merit and have been vigorously contesting the lawsuit. After a first amended complaint was dismissed with 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 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 nine months of 2023, including the completion of three client transition groups. The Company completed its fourth conversion of 2023 in November and expects to complete the remaining client transitions from TD Ameritrade to Schwab in a final transition 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 duration and complexity of the remaining integration process and the continued uncertainty of the economic environment. More specifically, factors that could cause variability in our expected acquisition and integration-related costs include the level of employee attrition, changes in the scope and cost of technology, the timeline to wind-down the TD Ameritrade broker-dealers, and real estate-related exit cost variability. Many of these factors may continue to cause variability in our expected acquisition and integration-related costs through the remainder of the integration process.

Inclusive of costs recognized through September 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 September 30, 2023 and 2022, the Company recognized $16 million and $9 million of acquisition-related exit costs, respectively. During the nine months ended September 30, 2023 and 2022, the Company recognized $56 million and $29 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 15 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 (ASC 420), certain of the costs associated with these activities are accounted for in accordance with ASC 360 Property, Plant and Equipment (ASC 360), ASC 712

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Compensation — Nonretirement Post Employment Benefits (ASC 712), ASC 718 Compensation — Stock Compensation (ASC 718), and ASC 842 Leases (ASC 842).

The following is a summary of the TD Ameritrade integration activity in the Company’s exit and other related liabilities as of September 30, 2023 and activity for the nine months ended September 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)	20		3		23
Costs paid or otherwise settled	(10)		(2)		(12)
Balance at September 30, 2023 (1)	$	46	$	11	$	57

(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 TD Ameritrade integration exit and other related costs recognized in expense for the three and nine months ended September 30, 2023:


	Investor Services						Advisor Services
Three Months Ended September 30,	Employee Compensation and Benefits		Facility Exit Costs (1)		Investor Services Total		Employee Compensation and Benefits		Facility Exit Costs (1)		Advisor Services Total		Total

Compensation and benefits	$	9	$	—	$	9	$	—	$	—	$	—	$	9

Occupancy and equipment	—		3		3		—		—		—		3


Other	—		4		4		—		—		—		4
Total	$	9	$	7	$	16	$	—	$	—	$	—	$	16

	Investor Services						Advisor Services
Nine Months Ended September 30,	Employee Compensation and Benefits		Facility Exit Costs (1)		Investor Services Total		Employee Compensation and Benefits		Facility Exit Costs (1)		Advisor Services Total		Total

Compensation and benefits	$	20	$	—	$	20	$	3	$	—	$	3	$	23

Occupancy and equipment	—		6		6		—		2		2		8


Other	—		18		18		—		7		7		25
Total	$	20	$	24	$	44	$	3	$	9	$	12	$	56

(1) Costs related to facility closures. These costs, which are comprised of impairment and accelerated amortization of right-of-use (ROU) assets, relate to the impact of abandoning leased properties.

The following table summarizes the TD Ameritrade integration exit and other related costs recognized in expense for the three and nine months ended September 30, 2022:


	Investor Services						Advisor Services
Three Months Ended September 30,	Employee Compensation and Benefits		Facility Exit Costs (1)		Investor Services Total		Employee Compensation and Benefits		Facility Exit Costs (1)		Advisor Services Total		Total

Compensation and benefits	$	5	$	—	$	5	$	1	$	—	$	1	$	6
Occupancy and equipment	—		2		2		—		1		1		3
Total	$	5	$	2	$	7	$	1	$	1	$	2	$	9

	Investor Services						Advisor Services
Nine Months Ended September 30,	Employee Compensation and Benefits		Facility Exit Costs (1)		Investor Services Total		Employee Compensation and Benefits		Facility Exit Costs (1)		Advisor Services Total		Total

Compensation and benefits	$	18	$	—	$	18	$	5	$	—	$	5	$	23
Occupancy and equipment	—		4		4		—		2		2		6


Total	$	18	$	4	$	22	$	5	$	2	$	7	$	29

(1) Costs related to facility closures. These costs, which are comprised of accelerated amortization of ROU assets, relate to the impact of abandoning leased properties.

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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 TD Ameritrade integration exit and other related costs incurred from October 6, 2020 through September 30, 2023:


	Investor Services						Advisor Services
	Employee Compensation and Benefits		Facility Exit Costs (1)		Investor Services Total		Employee Compensation and Benefits		Facility Exit Costs (1)		Advisor Services Total		Total
Compensation and benefits	$	243	$	—	$	243	$	64	$	—	$	64	$	307

Occupancy and equipment	—		37		37		—		9		9		46
Depreciation and amortization	—		2		2		—		1		1		3
Professional services	—		1		1		—		—		—		1
Other	—		20		20		—		7		7		27
Total	$	243	$	60	$	303	$	64	$	17	$	81	$	384

(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 has begun to take incremental actions to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. In order to achieve anticipated cost savings through these actions, the Company expects to incur exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $400 million to $500 million inclusive of costs recognized through September 30, 2023. During the three and nine months ended September 30, 2023, the Company recognized $279 million of restructuring-related exit costs. The Company anticipates the remaining costs related to position eliminations will be incurred in the fourth quarter of 2023, and costs related to real estate will be incurred in the fourth quarter of 2023 and during 2024. In addition to ASC 420, certain of the costs associated with these activities are accounted for in accordance with ASC 360, ASC 712, ASC 718, and ASC 842.

The following is a summary of the restructuring activity in the Company’s exit and other related liabilities as of September 30, 2023 and activity for the nine months ended September 30, 2023:



	Investor Services Employee Compensation and Benefits		Advisor Services Employee Compensation and Benefits		Total












Balance at December 31, 2022 (1)	$	—	$	—	$	—

Amounts recognized in expense (2)	202		74		276
Costs paid or otherwise settled	—		—		—
Balance at September 30, 2023 (1)	$	202	$	74	$	276

(1) Included in accrued expenses and other liabilities on the condensed consolidated balance sheets.

(2) Amounts recognized in expense for severance pay and other termination benefits are included in compensation and benefits on the condensed consolidated statements of income.

The following table summarizes the restructuring exit and other related costs recognized in expense for the three and nine months ended September 30, 2023, which represents cumulative costs incurred to date:


	Investor Services						Advisor Services
	Employee Compensation and Benefits		Facility Exit Costs (1)		Investor Services Total		Employee Compensation and Benefits		Facility Exit Costs (1)		Advisor Services Total		Total
Compensation and benefits	$	202	$	—	$	202	$	74	$	—	$	74	$	276

Occupancy and equipment	—		1		1		—		1		1		2


Other	—		1		1		—		—		—		1
Total	$	202	$	2	$	204	$	74	$	1	$	75	$	279

(1) Costs related to facility closures. These costs, which are primarily comprised of accelerated amortization of ROU assets, relate to the impact of abandoning leased properties.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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 September 30, 2023 that were designated as fair value hedges of interest rate risk.

Fair Values of Derivative Instruments

The table below presents the gross fair values of the Company’s interest rate swaps designated as hedging instruments on the condensed consolidated balance sheet:


	September 30, 2023
	Assets		Liabilities
Interest rate swaps (1,2)	$	3	$	—

(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 $301 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:


	September 30, 2023
Amortized cost of hedged AFS securities (1,2)	$	8,589
Cumulative fair value hedging adjustment included in the amortized cost of hedged AFS securities (1,2)	(304)

(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 $2.1 billion, of which $1.6 billion is designated in a portfolio layer hedging relationship. The cumulative basis adjustments associated with these hedging relationships are a reduction of the amortized cost basis of the closed portfolios of $57 million.

(2) Excludes the amortized cost and fair value hedging adjustment of AFS securities for which hedge accounting has been discontinued. The cumulative amount of fair value hedging adjustments remaining for these securities is a reduction of the amortized cost basis of less than $500 thousand, which is recorded in AFS securities on the condensed consolidated balance sheet and amortized to interest revenue as a yield adjustment over the lives of the securities.

- 56 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The 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 September 30,		Nine Months Ended September 30,
	2023			2023
Gain (loss) on fair value hedging relationships recognized in interest revenue:
Hedged items	$	(182)		$	(304)
Derivatives designated as hedging instruments	182			304

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 September 30, 2023 and December 31, 2022 were not subject to master netting arrangements.

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 $853 million and $685 million at September 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.

- 57 -

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
September 30, 2023
Assets
Resale agreements (1)	$	3,010	$	—	$	3,010	$	—	$	(3,010)	(2)	$	—
Securities borrowed (3)	892		—		892		(646)		(244)			2
Interest rate swaps (4)	3		—		3		—		—		(5)	3
Total	$	3,905	$	—	$	3,905	$	(646)	$	(3,254)		$	5
Liabilities

Repurchase agreements (6)	$	6,515	$	—	$	6,515	$	—	$	(6,515)		$	—
Securities loaned (7)	5,878		—		5,878		(646)		(4,721)			511
Secured short-term borrowings (8)	950		—		950		—		(950)			—
Total	$	13,343	$	—	$	13,343	$	(646)	$	(12,186)		$	511

December 31, 2022
Assets
Resale agreements (1)	$	12,159	$	—	$	12,159	$	—	$	(12,159)	(2)	$	—
Securities borrowed (3)	705		—		705		(331)		(366)			8
Total	$	12,864	$	—	$	12,864	$	(331)	$	(12,525)		$	8
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 September 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 $3.1 billion and $12.3 billion, respectively.

(3) Included in other assets on the condensed consolidated balance sheets.

(4) 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.

(5) At September 30, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $180 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 September 30, 2023 and December 31, 2022, the fair value of collateral pledged in connection with repurchase agreements was $7.0 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 September 30, 2023 and December 31, 2022.

(8) Included in other short-term borrowings in the condensed consolidated balance sheets. See below for collateral pledged and Note 8 for additional information.

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:

- 58 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


	September 30, 2023		December 31, 2022
Fair value of client securities available to be pledged	$	90,299	$	86,775
Fair value of securities pledged for:
Fulfillment of requirements with the Options Clearing Corporation (1)	$	15,086	$	11,717
Fulfillment of client short sales	5,363		4,750
Securities lending to other broker-dealers	5,190		3,472
Collateral for secured short-term borrowings	1,066		—
Total collateral pledged to third parties	$	26,705	$	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 $140 million and $160 million at September 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.

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.

- 59 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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 September 30, 2023 or December 31, 2022.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:


September 30, 2023	Level 1		Level 2		Level 3		Balance at Fair Value
Cash equivalents:
Money market funds	$	12,744	$	—	$	—	$	12,744


Total cash equivalents	12,744		—		—		12,744
Investments segregated and on deposit for regulatory purposes:
U.S. Government securities	—		11,368		—		11,368
Certificates of deposit	—		950		—		950
Total investments segregated and on deposit for regulatory purposes	—		12,318		—		12,318
Available for sale securities:
U.S. agency mortgage-backed securities	—		64,861		—		64,861
U.S. Treasury securities	—		21,788		—		21,788
Asset-backed securities	—		9,624		—		9,624
Corporate debt securities	—		12,154		—		12,154
Certificates of deposit	—		99		—		99
Foreign government agency securities	—		985		—		985
U.S. state and municipal securities	—		555		—		555
Non-agency commercial mortgage-backed securities	—		188		—		188


Other	—		18		—		18
Total available for sale securities	—		110,272		—		110,272
Other assets:
Other securities owned at fair value:
Equity, corporate debt, and other securities	877		59		—		936
Mutual funds and ETFs	677		—		—		677
State and municipal debt obligations	—		11		—		11
U.S. Government securities	—		2		—		2
Total other securities owned at fair value	1,554		72		—		1,626
Interest rate swaps	—		3		—		3
Total other assets	1,554		75		—		1,629
Total assets	$	14,298	$	122,665	$	—	$	136,963
Accrued expenses and other liabilities:

Other	$	1,396	$	37	$	—	$	1,433
Total accrued expenses and other liabilities	1,396		37		—		1,433
Total liabilities	$	1,396	$	37	$	—	$	1,433

- 60 -

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, 2022	Level 1		Level 2		Level 3		Balance at Fair Value
Cash equivalents:
Money market funds	$	14,007	$	—	$	—	$	14,007
Commercial paper	—		48		—		48
Total cash equivalents	14,007		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 securities	755		55		—		810
Mutual funds and ETFs	596		—		—		596
State and municipal debt obligations	—		25		—		25
U.S. Government securities	—		1		—		1
Total other securities owned at fair value	1,351		81		—		1,432
Total other assets	1,351		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 liabilities	1,218		43		—		1,261
Total liabilities	$	1,218	$	43	$	—	$	1,261

- 61 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Fair Value of Other Financial Instruments

The following tables present the fair value hierarchy for other financial instruments:


September 30, 2023	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets
Cash and cash equivalents	$	20,507	$	20,507	$	—	$	—	$	20,507
Cash and investments segregated and on deposit for regulatory purposes	6,201		3,201		3,000		—		6,201

Receivables from brokerage clients — net	69,034		—		69,034		—		69,034
Held to maturity securities:
U.S. agency mortgage-backed securities	162,452		—		143,003		—		143,003









Total held to maturity securities	162,452		—		143,003		—		143,003
Bank loans — net:
First Mortgages	26,009		—		22,420		—		22,420
HELOCs	491		—		545		—		545
Pledged asset lines	13,538		—		13,538		—		13,538
Other	289		—		289		—		289
Total bank loans — net	40,327		—		36,792		—		36,792
Other assets	5,105		—		5,105		—		5,105

Liabilities
Bank deposits	$	284,408	$	—	$	284,408	$	—	$	284,408

Payables to brokerage clients	72,818		—		72,818		—		72,818
Accrued expenses and other liabilities	7,061		—		7,061		—		7,061
Other short-term borrowings	7,550		—		7,550		—		7,550
Federal Home Loan Bank borrowings	31,800		—		31,800		—		31,800
Long-term debt	24,758		—		22,632		—		22,632


December 31, 2022	Carrying Amount		Level 1		Level 2		Level 3		Balance 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 — net	66,573		—		66,573		—		66,573
Held to maturity securities:
U.S. agency mortgage-backed securities	173,074		—		158,936		—		158,936








Total held to maturity securities	173,074		—		158,936		—		158,936
Bank loans — net:
First Mortgages	25,132		—		22,201		—		22,201
HELOCs	593		—		657		—		657
Pledged asset lines	14,592		—		14,592		—		14,592
Other	188		—		188		—		188
Total bank loans — net	40,505		—		37,638		—		37,638
Other assets	3,788		—		3,788		—		3,788

Liabilities
Bank deposits	$	366,724	$	—	$	366,724	$	—	$	366,724

Payables to brokerage clients	97,438		—		97,438		—		97,438
Accrued expenses and other liabilities	5,584		—		5,584		—		5,584
Other short-term borrowings	4,650		—		4,650		—		4,650
Federal Home Loan Bank borrowings	12,400		—		12,400		—		12,400
Long-term debt	20,760		—		19,108		—		19,108

- 62 -

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

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 Share							Dividend Rate in Effect at September 30, 2023		Earliest Redemption Date	Date at Which Dividend Rate Resets or Becomes Floating	Reset / Floating Rate	Margin Over Reset / Floating Rate
	Shares Issued and Outstanding (in ones) at				Carrying Value at
	September 30, 2023 (1)	December 31, 2022 (1)			September 30, 2023		December 31, 2022		Issue Date
Fixed-rate:
Series D	750,000	750,000	$	1,000	$	728	$	728	03/07/16	5.950	%	06/01/21	N/A	N/A	N/A
Series J	600,000	600,000	1,000		584		584		03/30/21	4.450	%	06/01/26	N/A	N/A	N/A
Fixed-to-floating rate/Fixed-rate reset:
Series F	4,884	5,000	100,000		481		492		10/31/17	5.000	%	12/01/27	12/01/27	3M LIBOR(4)	2.575	%
Series G (2)	24,580	25,000	100,000		2,428		2,470		04/30/20	5.375	%	06/01/25	06/01/25	5-Year Treasury	4.971	%
Series H (3)	22,267	25,000	100,000		2,200		2,470		12/11/20	4.000	%	12/01/30	12/01/30	10-Year Treasury	3.079	%
Series I (2)	20,554	22,500	100,000		2,030		2,222		03/18/21	4.000	%	06/01/26	06/01/26	5-Year Treasury	3.168	%
Series K (2)	7,500	7,500	100,000		740		740		03/04/22	5.000	%	06/01/27	06/01/27	5-Year Treasury	3.256	%
Total preferred stock	1,429,785	1,435,000			$	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.

- 63 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Dividends declared on the Company’s preferred stock are as follows:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
	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/A		N/A		$	7.7	$	19.43	N/A		N/A		$	18.9	$	47.73
Series D (3)	$	11.2	$	14.88	11.2		14.88		$	33.5	$	44.64	33.5		44.64
Series E (4)	N/A		N/A		7.4		1,251.05		N/A		N/A		27.2		4,544.37
Series F (5)	—		—		—		—		12.2		2,500.00		12.5		2,500.00
Series G (3)	33.0		1,343.75		33.6		1,343.75		99.3		4,031.25		100.8		4,031.25
Series H (3)	22.2		1,000.00		25.0		1,000.00		68.2		3,000.00		75.0		3,000.00
Series I (3)	20.6		1,000.00		22.5		1,000.00		62.5		3,000.00		67.5		3,000.00
Series J (3)	6.7		11.13		6.7		11.13		20.1		33.39		20.1		33.39
Series K (6)	9.3		1,250.00		9.3		1,250.00		28.1		3,750.00		18.4		2,458.33
Total	$	103.0			$	123.4			$	323.9			$	373.9

(1) Excludes $3 million of dividends declared on Series G, H and I, and accrued by stockholders as of the repurchase date. Such dividends are part of the consideration paid upon repurchase of the depositary shares during the nine months ended September 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.

- 64 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

15. Accumulated Other Comprehensive Income

AOCI represents cumulative gains and losses that are not reflected in earnings. AOCI balances and the components of other comprehensive income (loss) are as follows:


	Total AOCI
Balance at June 30, 2022	$	(16,022)
Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $(2,286)	(7,207)

Other reclassifications included in other revenue, net of tax expense (benefit) of $4	12
Held to maturity securities:
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $18	65

Balance at September 30, 2022	$	(23,152)

Balance at June 30, 2023	$	(20,730)
Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $(182)	(538)
Other reclassifications included in other revenue, net of tax expense (benefit) of $6	18
Held to maturity securities:
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $147	498

Balance at September 30, 2023	$	(20,752)


	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 $(7,027)	(22,272)
Net unrealized loss on securities transferred to held to maturity, net of tax benefit of $579	1,850
Other reclassifications included in other revenue (1)	(1)
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 $67	230

Balance at September 30, 2022	$	(23,152)

Balance at December 31, 2022	$	(22,621)

Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $79	367

Other reclassifications included in other revenue, net of tax expense (benefit) of $11	33
Held to maturity securities:

Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $420	1,476
Other, net of tax expense (benefit) of $(2)	(7)
Balance at September 30, 2023	$	(20,752)

(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 September 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $11.8 billion net of tax effect ($15.6 billion pre-tax). See Note 4 for additional discussion on the 2022 transfers of AFS securities to HTM.

- 65 -

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 nine months ended September 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 September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
	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	$	1,094	$	31	$	1,956	$	64	$	3,910	$	112	$	5,014	$	201
Preferred stock dividends and other (1)	(105)		(3)		(132)		(4)		(291)		(8)		(385)		(16)
Net income available to common stockholders	$	989	$	28	$	1,824	$	60	$	3,619	$	104	$	4,629	$	185
Denominator
Weighted-average common shares outstanding — basic	1,770		51		1,827		60		1,774		51		1,819		73
Basic earnings per share	$	.56	$	.56	$	1.00	$	1.00	$	2.04	$	2.04	$	2.54	$	2.54
Diluted earnings per share:
Numerator
Net income available to common stockholders	$	989	$	28	$	1,824	$	60	$	3,619	$	104	$	4,629	$	185
Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares	28		—		60		—		104		—		185		—
Allocation of net income available to common stockholders:	$	1,017	$	28	$	1,884	$	60	$	3,723	$	104	$	4,814	$	185
Denominator
Weighted-average common shares outstanding — basic	1,770		51		1,827		60		1,774		51		1,819		73
Conversion of nonvoting shares to voting shares	51		—		60		—		51		—		73		—
Common stock equivalent shares related to stock incentive plans	6		—		8		—		7		—		9		—
Weighted-average common shares outstanding — diluted (2)	1,827		51		1,895		60		1,832		51		1,901		73
Diluted earnings per share	$	.56	$	.56	$	.99	$	.99	$	2.03	$	2.03	$	2.53	$	2.53

(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 nine months ended September 30, 2023, respectively, and 13 million and 15 million for the three and nine months ended September 30, 2022, respectively.

- 66 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

17. Regulatory Requirements

At September 30, 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:


	Actual				Minimum to be Well Capitalized				Minimum Capital Requirement
September 30, 2023	Amount		Ratio		Amount		Ratio		Amount		Ratio (1)
CSC
Common Equity Tier 1 Risk-Based Capital	$	30,781	23.8	%	N/A				$	5,829	4.5	%
Tier 1 Risk-Based Capital	39,972		30.9	%	N/A				7,773		6.0	%
Total Risk-Based Capital	40,032		30.9	%	N/A				10,364		8.0	%
Tier 1 Leverage	39,972		8.2	%	N/A				19,545		4.0	%
Supplementary Leverage Ratio	39,972		8.1	%	N/A				14,769		3.0	%
CSB
Common Equity Tier 1 Risk-Based Capital	$	31,765	34.7	%	$	5,946	6.5	%	$	4,117	4.5	%
Tier 1 Risk-Based Capital	31,765		34.7	%	7,318		8.0	%	5,489		6.0	%
Total Risk-Based Capital	31,820		34.8	%	9,148		10.0	%	7,318		8.0	%
Tier 1 Leverage	31,765		9.6	%	16,545		5.0	%	13,236		4.0	%





Supplementary Leverage Ratio	31,765		9.5	%	N/A				10,002		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 Capital	40,296		28.9	%	N/A				8,379		6.0	%
Total Risk-Based Capital	40,376		28.9	%	N/A				11,173		8.0	%
Tier 1 Leverage	40,296		7.2	%	N/A				22,512		4.0	%
Supplementary Leverage Ratio	40,296		7.1	%	N/A				17,004		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 Capital	27,296		27.4	%	7,970		8.0	%	5,978		6.0	%
Total Risk-Based Capital	27,370		27.5	%	9,963		10.0	%	7,970		8.0	%
Tier 1 Leverage	27,296		7.3	%	18,640		5.0	%	14,912		4.0	%
Supplementary Leverage Ratio	27,296		7.3	%	N/A				11,275		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 September 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 September 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 September 30, 2023, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since September 30, 2023 that management believes have changed CSB’s capital category.

At September 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 $27.6 billion and $11.4 billion, respectively. Based on their regulatory capital ratios, at September 30, 2023, CSPB and Trust Bank are considered well capitalized under their respective regulatory capital rules.

- 67 -

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:


	September 30, 2023		December 31, 2022
CS&Co
Net capital	$	5,290	$	5,386
Minimum dollar requirement	0.250		0.250
2% of aggregate debit balances	997		778
Net capital in excess of required net capital	$	4,293	$	4,608
TDAC
Net capital	$	4,201	$	5,291
Minimum dollar requirement	1.500		1.500
2% of aggregate debit balances	501		626
Net capital in excess of required net capital	$	3,700	$	4,665
TD Ameritrade, Inc.
Net capital	$	671	$	806
Minimum dollar requirement	0.250		0.250
2% of aggregate debit balances	—		—
Net capital in excess of required net capital	$	671	$	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 September 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 Services				Advisor Services				Total
Three Months Ended September 30,	2023		2022		2023		2022		2023		2022
Net Revenues
Net interest revenue	$	1,710	$	2,143	$	527	$	783	$	2,237	$	2,926
Asset management and administration fees	877		755		347		292		1,224		1,047
Trading revenue	672		800		96		130		768		930
Bank deposit account fees	157		263		48		150		205		413
Other	144		151		28		33		172		184
Total net revenues	3,560		4,112		1,046		1,388		4,606		5,500
Expenses Excluding Interest	2,356		2,117		867		706		3,223		2,823
Income before taxes on income	$	1,204	$	1,995	$	179	$	682	$	1,383	$	2,677

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


	Investor Services				Advisor Services				Total
Nine Months Ended September 30,	2023		2022		2023		2022		2023		2022
Net Revenues
Net interest revenue	$	5,448	$	5,551	$	1,849	$	2,102	$	7,297	$	7,653
Asset management and administration fees	2,523		2,299		992		868		3,515		3,167
Trading revenue	2,148		2,407		315		371		2,463		2,778
Bank deposit account fees	396		690		135		369		531		1,059
Other	451		465		121		143		572		608
Total net revenues	10,966		11,412		3,412		3,853		14,378		15,265
Expenses Excluding Interest	6,780		6,359		2,414		2,116		9,194		8,475
Income before taxes on income	$	4,186	$	5,053	$	998	$	1,737	$	5,184	$	6,790

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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 September 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 September 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 September 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 nine 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.

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 third quarter of 2023 (in millions, except number of shares, which are in thousands, and per share amounts):


Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Program
July:
Share repurchase program	—	$	—	—	$	8,723
Employee transactions (1)	34	$	57.44	N/A	N/A
August:
Share repurchase program	—	$	—	—	$	8,723
Employee transactions (1)	5	$	65.44	N/A	N/A
September
Share repurchase program	—	$	—	—	$	8,723
Employee transactions (1)	64	$	55.32	N/A	N/A
Total:
Share repurchase program	—	$	—	—	$	8,723
Employee transactions (1)	103	$	56.51	N/A	N/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.

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THE CHARLES SCHWAB CORPORATION

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended September 30, 2023, certain of our officers and directors adopted or terminated trading arrangements for the sale of shares of our common stock as follows:

Plans

Action

Date

Rule 10b5-1 (1)

Non-Rule 10b5-1 (2)

Number of Securities to

be Sold (3)

Latest Expiration

John K. Adams, Jr. , Director

Adoption

August 28, 2023

—

15,701

Close of trading on
May 15, 2025

(1) Intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

(2) Not intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

(3) Securities to be sold under the plan represent shares acquired upon the exercise of stock options.

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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
31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2	Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)

32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)

101.INS	Inline 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.SCH	Inline XBRL Taxonomy Extension Schema	(2)

101.CAL	Inline XBRL Taxonomy Extension Calculation	(2)

101.DEF	Inline XBRL Extension Definition	(2)

101.LAB	Inline XBRL Taxonomy Extension Label	(2)

101.PRE	Inline XBRL Taxonomy Extension Presentation	(2)

104	Cover 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 September 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.

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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:	November 8, 2023	/s/ Peter Crawford
		Peter Crawford
		Managing Director and Chief Financial Officer

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