UNITED STATES

SECURITIES  AND  EXCHANGE  COMMISSION

Washington, D.C.  20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 1-9700

THE  CHARLES  SCHWAB  CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	94-3025021
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3000 Schwab Way, Westlake, TX  76262

(Address of principal executive offices and zip code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each 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.

1,817,794,131 shares of $.01 par value Common Stock and 79,293,695 shares of $.01 par value Nonvoting Common Stock outstanding on July 29, 2022

THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2022

 Index

Part I - Financial Information
	Item 1.	Condensed Consolidated Financial Statements (Unaudited):
		Statements of Income	25
		Statements of Comprehensive Income	26
		Balance Sheets	27
		Statements of Stockholders’ Equity	28
		Statements of Cash Flows	29-30
		Notes	31-60
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1-23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	61
Part II - Other Information
	Item 1.	Legal Proceedings	61
	Item 1A.	Risk Factors	61
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
	Item 3.	Defaults Upon Senior Securities	62
	Item 4.	Mine Safety Disclosures	62
	Item 5.	Other Information	62
	Item 6.	Exhibits	63
Signature			64

Part I – FINANCIAL INFORMATION

THE CHARLES SCHWAB CORPORATION

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

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

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

Principal business subsidiaries of CSC include the following:

•Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer;

•TD Ameritrade, Inc., an introducing securities broker-dealer;

•TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.;

•Charles Schwab Bank, SSB (CSB), our principal banking entity; and

•Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries.

Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.

Schwab was founded on the belief that all Americans deserve access to a better investing experience. Although much has changed in the intervening years, our purpose remains clear – to champion every client’s goals with passion and integrity. Guided by this purpose and our vision of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.”

This strategy emphasizes placing clients’ perspectives, needs, and desires at the forefront. Because investing plays a fundamental role in building financial security, we strive to deliver a better investing experience for our clients – individual investors and the people and institutions who serve them – by disrupting longstanding industry practices on their behalf and providing superior service. We also aim to offer a broad range of products and solutions to meet client needs with a focus on transparency, value, and trust. In addition, management works to couple Schwab’s scale and resources with ongoing expense discipline to keep costs low and ensure that products and solutions are affordable as well as responsive to client needs. In combination, these are the key elements of our “no trade-offs” approach to serving investors. We believe that following this strategy is the best way to maximize our market valuation and stockholder returns over time.

Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $60 trillion, which means the Company’s $6.83 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, 2021 (2021 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)

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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)

or 15(d) of the Securities Exchange Act of 1934. In addition, the website also includes the Dodd-Frank stress test results, our regulatory capital disclosures based on Basel III, and our average liquidity coverage ratio (LCR). The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with them.

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “expand,” “aim,” “maintain,” “continue,” “seek,” and other similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are estimates based on the best judgment of Schwab’s senior management. These statements relate to, among other things:

•Maximizing our market valuation and stockholder returns over time; our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I – Item 2);

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

•Expected timing for the TD Ameritrade client conversions; 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, Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);

•Net interest revenue (see Results of Operations);

•Capital expenditures (see Results of Operations);

•The phase-out of the use of LIBOR (see Risk Management);

•Sources of liquidity and capital (see Liquidity Risk and Capital Management);

•The migration of Insured Deposit Account (IDA) agreement balances to our balance sheet (see Capital Management and Commitments and Contingencies in Item 1 – Note 9);

•The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Item 1 – Note 2);

•The likelihood of indemnification and guarantee payment obligations and clients failing to fulfill contractual obligations (see Commitments and Contingencies in Item 1 – Note 9); and

•The impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 9 and Legal Proceedings in Part II – Item 1).

Achievement of the expressed beliefs, objectives, and expectations described in these statements is subject to certain risks and uncertainties that could cause actual results to differ materially from the expressed beliefs, objectives, and expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents incorporated by reference, as of the date of those documents.

Important factors that may cause actual results to differ include, but are not limited to:

•General market conditions, including equity valuations and the level of interest rates;

•The level and mix of client trading activity;

•Our ability to attract and retain clients, develop trusted relationships, and grow client assets;

•Client use of our advisory and lending solutions and other products and services;

•The level of client assets, including cash balances;

•Competitive pressure on pricing, including deposit rates;

•Client sensitivity to rates;

•Regulatory guidance and adverse impacts from new legislation or rulemaking;

•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;

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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)

•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;

•The timing and scope of integration-related and other technology projects;

•Real estate and workforce decisions;

•Migrations of bank deposit account balances (BDA balances);

•Balance sheet positioning relative to changes in interest rates;

•Interest earning asset mix and growth;

•Prepayment levels for mortgage-backed securities;

•Client cash allocations;

•LIBOR trends;

•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 2021 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 second quarter and first six months of 2022 and 2021 are as follows:

	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2022			2021					2022			2021
Client Metrics
Net new client assets (in billions) (1)	$	43.4		$	108.8		(60)	%	$	163.9		$	242.6		(32)	%
Core net new client assets (in billions)	$	64.2		$	108.8		(41)	%	$	184.7		$	257.0		(28)	%
Client assets (in billions, at quarter end)	$	6,832.5		$	7,574.8		(10)	%
Average client assets (in billions)	$	7,262.7		$	7,358.9		(1)	%	$	7,514.6		$	7,155.6		5	%
New brokerage accounts (in thousands)	1,014			1,657			(39)	%	2,216			4,810			(54)	%
Active brokerage accounts (in thousands, at quarter end)	33,896			32,265			5	%
Assets receiving ongoing advisory services (in billions,   at quarter end)	$	3,524.2		$	3,734.4		(6)	%
Client cash as a percentage of client assets (at quarter end)	12.8		%	10.5		%
Company Financial Information and Metrics
Total net revenues	$	5,093		$	4,527		13	%	$	9,765		$	9,242		6	%
Total expenses excluding interest	2,819			2,808			—		5,652			5,563			2	%
Income before taxes on income	2,274			1,719			32	%	4,113			3,679			12	%
Taxes on income	481			454			6	%	918			930			(1)	%
Net income	1,793			1,265			42	%	3,195			2,749			16	%
Preferred stock dividends and other	141			148			(5)	%	265			244			9	%
Net income available to common stockholders	$	1,652		$	1,117		48	%	$	2,930		$	2,505		17	%
Earnings per common share — diluted	$	.87		$	.59		47	%	$	1.54		$	1.32		17	%
Net revenue growth from prior year	13		%	85		%			6		%	82		%
Pre-tax profit margin	44.6		%	38.0		%			42.1		%	39.8		%
Return on average common stockholders’ equity (annualized)	19		%	10		%			15		%	10		%
Expenses excluding interest as a percentage of average client   assets (annualized)	0.16		%	0.15		%			0.15		%	0.16		%
Consolidated Tier 1 Leverage Ratio (at quarter end)	6.4		%	6.4		%
Non-GAAP Financial Measures (2)
Adjusted total expenses (3)	$	2,571		$	2,510				$	5,154		$	4,992
Adjusted diluted EPS	$	.97		$	.70				$	1.74		$	1.55
Return on tangible common equity	45		%	20		%			32		%	21		%

(1) The second quarter and first six months of 2022 include an outflow of $20.8 billion from a mutual fund clearing services client. The first six months of 2021 includes an outflow of $14.4 billion from a mutual fund clearing services client.

(2) See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

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

Schwab’s business momentum remained strong in the first six months of 2022, as we supported our clients amidst increasing challenges in the U.S. economy, including rising inflation and the Federal Reserve’s corresponding aggressive tightening stance, as well as ongoing geopolitical turmoil driven by the war in Ukraine. Equity markets were volatile throughout the first six months of the year, declining significantly from year-end 2021 and entering bear-market territory during the second quarter.

Against this backdrop, clients remained engaged in the first six months of 2022. While year-to-date clients’ daily average trades (DATs) declined 11% from the first half of 2021 as a result of the extraordinary client trading levels seen early in 2021, second quarter DATs were 6.2 million, rising 3% above the second quarter of 2021. Though new brokerage accounts were down from the extraordinary levels in early 2021, clients opened 1.0 million and 2.2 million new brokerage accounts in the second quarter and first six months of 2022, respectively. Active brokerage accounts increased 5% year-over-year to reach 33.9 million at June 30, 2022. Core net new assets totaled $64.2 billion and $184.7 billion in the second quarter and first six months of 2022, respectively, even as these totals were impacted significantly by tax-season outflows experienced in the second quarter. We

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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)

ended the second quarter of 2022 with $6.83 trillion in client assets, down 10% from June 30, 2021, and down 16% from year-end 2021, reflecting the impacts of significant declines in market valuations in the first half of 2022.

Schwab’s financial results for the second quarter and first six months of 2022 reflected the strength of our operating model. Net income totaled $1.8 billion and $3.2 billion in the second quarter and first six months of 2022, respectively, rising 42% and 16% from the comparable periods in 2021. Diluted earnings per share (EPS) totaled $.87 and $1.54 for the second quarter and first six months of 2022, respectively, increasing 47% and 17% from the same periods in the prior year. Adjusted diluted EPS (1), which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, was $.97 and $1.74 in the second quarter and first six months of 2022, respectively, up 39% and 12% from the comparable periods in 2021. Schwab’s financial results for the second quarter of 2021 included a charge of approximately $200 million in other expense regarding a now settled regulatory matter (see Item 1 – Note 9).

Total net revenues were $5.1 billion and $9.8 billion in the second quarter and first half of 2022, respectively, up 13% and 6% from the same periods in the prior year. Net interest revenue was $2.5 billion and $4.7 billion in the second quarter and first half of 2022, respectively, rising 31% and 23% from the same prior year periods as higher market interest rates and growth in interest-earning assets more than offset the impact of decreases in securities lending activity. Asset management and administration fees of $1.1 billion and $2.1 billion in the second quarter and first half of 2022, respectively, were unchanged from the second quarter of 2021 and up 3% from the first half of 2021, as the benefits of lower money market fund fee waivers and growth in proprietary mutual funds and ETFs were largely offset by significant declines in equity market valuations.

Trading revenue was $885 million and $1.8 billion in the second quarter and first six months of 2022, respectively, down 7% and 15% from the same periods in 2021, due primarily to changes in the mix of client activity and, for the year-to-date period, lower DATs relative to the extraordinary client trading seen early in 2021. Bank deposit account fee revenue totaled $352 million and $646 million in the second quarter and first half of 2022, respectively, rising 4% and decreasing 6% from the comparable periods in 2021. BDA balances totaled $155.6 billion at June 30, 2022, down 4% from June 30, 2021 and down 2% from year-end 2021, reflecting migrations to our balance sheet partially offset by growth in client cash balances.

Total expenses excluding interest of $2.8 billion in the second quarter of 2022 increased slightly from the second quarter of 2021, while the year-to-date amount of $5.7 billion increased 2% from the first half of 2021. During the second quarter and first six months of 2022, acquisition and integration-related costs totaled $94 million and $190 million, respectively, and amortization of acquired intangible assets was $154 million and $308 million, respectively. Exclusive of these items, adjusted total expenses (1) were $2.6 billion and $5.2 billion for the second quarter and first half of 2022, respectively, increasing 2% and 3% from the same periods in 2021. The increases in total expenses excluding interest and adjusted total expenses reflect higher compensation and benefits expense and higher occupancy and equipment expense, as we continue to invest in our people and our ability to support current and ongoing growth in our client base. These increases were partially offset by lower other expense, which included a charge of approximately $200 million in the second quarter of 2021 (see Item 1 – Note 9).

Return on average common stockholders’ equity increased to 19% and 15% for the second quarter and first six months of 2022, respectively, compared with 10% in both comparable periods in 2021. Return on tangible common equity (1) (ROTCE) was 45% and 32% in the second quarter and first six months of 2022, respectively, compared with 20% and 21% in the same periods in the prior year. The increases in both return on average common stockholders’ equity and ROTCE in the second quarter and first six months of 2022 were due primarily to lower stockholders’ equity and higher net income. Stockholders’ equity declined in the first six months of 2022 due to a decrease in accumulated other comprehensive income (AOCI) as higher market interest rates resulted in larger unrealized losses on our available for sale (AFS) portfolio.

The Company continued its disciplined approach to balance sheet management in the first six months of the year, including the maintenance of appropriate capital and liquidity to support client activity. Total balance sheet assets were $638 billion at June 30, 2022, down 6% in the second quarter and down 4% from year-end 2021. These decreases were due to several factors, including significant client tax disbursements in April, larger unrealized losses on the AFS portfolio, lower margin loans due to softening investor sentiment, and client cash allocation decisions as interest rates increased. Migrations of Insured Deposit Account (IDA) balances from the TD Depository Institutions to Schwab’s balance sheet totaled $14.6 billion in the first half of 2022. During the first quarter of 2022, we issued $750 million in preferred stock to support balance sheet growth seen early in the year from IDA balance migrations, and we also issued $3.0 billion in senior notes primarily for ongoing liquidity purposes. At June 30, 2022, Schwab’s Tier 1 Leverage Ratio was 6.4%, increasing from 6.2% at year-end 2021.

(1) Adjusted diluted EPS, adjusted total expenses, and return on tangible common equity are non-GAAP financial measures. Please 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)

Integration of TD Ameritrade

Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade Holding Corporation (TDA Holding) and its consolidated subsidiaries (collectively referred to as “TD Ameritrade” or “TDA”). Integration work continued during the first six months of 2022. Based on our current integration plans and expanded scope of technology work, the Company continues to expect to complete client conversions across multiple groups over the course of 2023, ending in the fourth quarter. We also continue to expect to incur total acquisition and integration-related costs and capital expenditures of between $2.0 billion and $2.2 billion.

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

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $94 million and $190 million for the second quarter and first six months of 2022, respectively, and $144 million and $263 million for the second quarter and first six months of 2021, respectively. Over the course of the integration, we continue to expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through June 30, 2022, we have achieved over half of this amount on an annualized run-rate basis. 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 2021 Form 10-K and Item 1 – Note 10 for additional information regarding our integration of TD Ameritrade.

Subsequent Events

On July 27, 2022, CSC publicly announced that its Board of Directors terminated the existing share repurchase authorization and replaced it with a new authorization to repurchase up to $15.0 billion of common stock, and declared a 2 cent, or 10%, increase in the quarterly cash dividend to $.22 per common share. The share repurchase authorization does not have an expiration date. On August 1, 2022, CSC purchased, directly from an affiliate of The Toronto-Dominion Bank (TD Bank), 15 million shares of nonvoting common stock for a total of $1.0 billion, or approximately $66.53 per share. The shares of nonvoting common stock automatically converted into common stock and were purchased under CSC’s new share repurchase authorization. The purchase price paid by CSC was equal to the lowest price per share that the affiliate of TD Bank received in a contemporaneous share sale facilitated by a third-party market maker, which resulted in a purchase price lower than the closing price on August 1, 2022.

In addition, on July 27, 2022, CSC’s Board of Directors appointed Walter W. Bettinger II, Chief Executive Officer of CSC, as Co-Chairman of the Board of Directors, along with Founder and Co-Chairman Charles R. Schwab. Concurrently, CSC’s Board of Directors approved amendments to the CSC bylaws to clarify that there may be more than one named Chairman of the Board.

Current Regulatory Environment and Other Developments

Results of the Federal Reserve’s 2022 Comprehensive Capital Analysis and Review

In June 2022, the Company received the results of the Federal Reserve’s 2022 Comprehensive Capital Analysis and Review (CCAR). These results included the Federal Reserve’s estimate of CSC’s minimum capital ratios under the supervisory severely adverse scenario for the nine-quarter horizon beginning December 31, 2021 and ending March 31, 2024. Based on these results, CSC’s calculated stress capital buffer was below the 2.5% minimum, resulting in a stress capital buffer at the 2.5% floor. This 2.5% stress capital buffer will be applicable beginning October 1, 2022. See Item 1 – Note 16 for additional information regarding our capital requirements.

Federal Deposit Insurance Corporation (FDIC) Assessment Rate Proposal

In June 2022, the FDIC issued a notice of proposed rulemaking that would increase initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023. The proposed change is intended to raise the FDIC’s Deposit Insurance Fund (DIF) reserve ratio to the minimum threshold within the FDIC’s established DIF restoration plan, and would be in effect until the DIF reserve ratio meets the FDIC’s long-term goal of 2%. A 2 basis point increase in the

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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)

initial base deposit insurance assessment rate would result in a corresponding increase in regulatory fees and assessments, as well as a corresponding decrease in bank deposit account fees based on IDA balances. The proposed rule is subject to a comment period which will end August 20, 2022.

RESULTS OF OPERATIONS

Total Net Revenues

The following tables present a comparison of revenue by category:

			2022				2021
Three Months Ended June 30,	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Net interest revenue
Interest revenue	31	%	$	2,710	53	%	$	2,068	46	%
Interest expense	37	%	(166)		(3)	%	(121)		(3)	%
Net interest revenue	31	%	2,544		50	%	1,947		43	%
Asset management and administration fees
Mutual funds, exchange-traded funds (ETFs), and collective trust   funds (CTFs)	7	%	515		10	%	481		11	%
Advice solutions	(6)	%	461		9	%	490		11	%
Other	—		76		2	%	76		1	%
Asset management and administration fees	—		1,052		21	%	1,047		23	%
Trading revenue
Commissions	(8)	%	443		9	%	479		11	%
Order flow revenue	(8)	%	430		8	%	465		10	%
Principal transactions	9%		12		—		11		—
Trading revenue	(7)	%	885		17	%	955		21	%
Bank deposit account fees	4%		352		7	%	337		7	%
Other	8%		260		5	%	241		6	%
Total net revenues	13%		$	5,093	100	%	$	4,527	100	%

			2022				2021
Six Months Ended June 30,	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Net interest revenue
Interest revenue	23%		$	5,029	51	%	$	4,083	44	%
Interest expense	34%		(302)		(3)	%	(225)		(2)	%
Net interest revenue	23	%	4,727		48	%	3,858		42	%
Asset management and administration fees
Mutual funds, ETFs, and CTFs	6%		1,004		10	%	951		10	%
Advice solutions	—		957		10	%	958		10	%
Other	3%		159		2	%	154		2	%
Asset management and administration fees	3	%	2,120		22	%	2,063		22	%
Trading revenue
Commissions	(15)	%	927		9	%	1,093		12	%
Order flow revenue	(15)	%	900		9	%	1,056		11	%
Principal transactions	(5)	%	21		1	%	22		1	%
Trading revenue	(15)	%	1,848		19	%	2,171		24	%
Bank deposit account fees	(6)	%	646		7	%	688		7	%
Other	(8)	%	424		4	%	462		5	%
Total net revenues	6%		$	9,765	100	%	$	9,242	100	%

- 7 -

THE CHARLES SCHWAB CORPORATION

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

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

Net Interest Revenue

Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans.

Interest rates increased significantly from year-end 2021 through June 30, 2022. Short-term rates were near zero until the Federal Reserve began its tightening cycle in March 2022, ultimately increasing the federal funds target overnight rate three times between March and June 2022 for a total increase of 150 basis points, while long-term interest rates increased throughout the first six months of the year. Despite significant seasonal tax-related client cash outflows in the second quarter, Schwab continued to see strength in net new client assets throughout the first six months of 2022, which, along with transfers of BDA balances to the Company’s balance sheet (see Bank Deposit Account Fees), drove growth in Schwab’s interest-earning assets. Partially offsetting this growth, sustained equity market volatility and softening investor sentiment during the second quarter and the first six months of 2022 reduced demand for margin loans, which declined 16% from year-end 2021. In addition, over recent quarters, the Company has increased its cash holdings and reduced the duration of incremental investment securities purchases to provide flexibility to support changes in client cash allocations associated with higher short-term interest rates. These steps also help keep Schwab positioned to benefit from interest rate increases.

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

	2022						2021
Three Months Ended June 30,	Average Balance		Interest Revenue/ Expense		Average Yield/Rate		Average Balance		Interest Revenue/ Expense		Average Yield/Rate
Interest-earning assets
Cash and cash equivalents	$	65,414	$	133	0.81	%	$	41,913	$	9	0.07	%
Cash and investments segregated	51,232		79		0.61	%	41,037		4		0.04	%
Receivables from brokerage clients	79,061		706		3.53	%	75,737		609		3.18	%
Available for sale securities (1,2)	287,313		1,088		1.51	%	344,719		1,103		1.28	%
Held to maturity securities (1,2)	101,752		339		1.33	%	—		—		—
Bank loans	38,831		230		2.38	%	27,234		148		2.18	%
Total interest-earning assets	623,603		2,575		1.64	%	530,640		1,873		1.40	%
Securities lending revenue			130						194
Other interest revenue			5						1
Total interest-earning assets	$	623,603	$	2,710	1.73	%	$	530,640	$	2,068	1.55	%
Funding sources
Bank deposits	$	449,936	$	28	0.03	%	$	368,026	$	13	0.01	%
Payables to brokerage clients	101,784		4		0.02	%	87,367		2		0.01	%
Short-term borrowings	2,587		4		0.69	%	3,245		3		0.33	%
Long-term debt	21,119		124		2.34	%	18,349		97		2.12	%
Total interest-bearing liabilities	575,426		160		0.11	%	476,987		115		0.10	%
Non-interest-bearing funding sources	48,177						53,653
Securities lending expense			8						7
Other interest expense			(2)						(1)
Total funding sources	$	623,603	$	166	0.11	%	$	530,640	$	121	0.09	%
Net interest revenue			$	2,544	1.62	%			$	1,947	1.46	%

- 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)

	2022						2021
Six Months Ended June 30,	Average Balance		Interest Revenue/ Expense		Average Yield/Rate		Average Balance		Interest Revenue/ Expense		Average Yield/Rate
Interest-earning assets
Cash and cash equivalents	$	68,920	$	167	0.48	%	$	40,414	$	16	0.08	%
Cash and investments segregated	51,570		94		0.36	%	44,573		14		0.06	%
Receivables from brokerage clients	81,618		1,332		3.24	%	71,760		1,172		3.25	%
Available for sale securities (1,2)	285,927		2,035		1.42	%	341,500		2,194		1.28	%
Held to maturity securities (1,2)	102,580		717		1.40	%	—		—		—
Bank loans	37,351		417		2.24	%	25,862		287		2.22	%
Total interest-earning assets	627,966		4,762		1.51	%	524,109		3,683		1.40%
Securities lending revenue			259						398
Other interest revenue			8						2
Total interest-earning assets	$	627,966	$	5,029	1.60	%	$	524,109	$	4,083	1.55	%
Funding sources
Bank deposits	$	451,306	$	44	0.02	%	$	365,576	$	26	0.01%
Payables to brokerage clients	103,846		6		0.01	%	87,353		4		0.01%
Short-term borrowings	3,646		8		0.46	%	2,175		3		0.30%
Long-term debt	20,495		232		2.26	%	16,308		182		2.23%
Total interest-bearing liabilities	579,293		290		0.10	%	471,412		215		0.09%
Non-interest-bearing funding sources	48,673						52,697
Securities lending expense			15						12
Other interest expense			(3)						(2)
Total funding sources	$	627,966	$	302	0.10	%	$	524,109	$	225	0.08%
Net interest revenue			$	4,727	1.50	%			$	3,858	1.47%

(1) Amounts have been calculated based on amortized cost. Interest revenue on investment securities is presented net of related premium amortization.

(2) In January 2022, the Company transferred a portion of its investment securities designated as available for sale to the held to maturity category, as described in Item 1 – Note 4.

Net interest revenue increased $597 million, or 31%, and $869 million or 23% in the second quarter and first six months of 2022, respectively, compared to the same periods in 2021. These increases were due primarily to higher average yields on substantially all interest-earning assets as a result of higher market interest rates as well as overall growth in interest-earning assets. Net premium amortization of investment securities decreased to $382 million and $868 million in the second quarter and first six months of 2022, respectively, from $600 million and $1.2 billion in the second quarter and first six months of 2021, respectively. These benefits were partially offset by lower securities lending revenue due to decreased market demand and higher interest expense on higher balances of long-term debt and bank deposits.

Average interest-earning assets for the second quarter and first six months of 2022 were higher by 18% and 20%, respectively, compared to the same periods in 2021. These increases were primarily due to growth in bank deposits and payables to brokerage clients, which resulted from net new client asset inflows as well as transfers of BDA balances to our balance sheet in the second half of 2021 and the first six months of 2022.

Net interest margin increased to 1.62% and 1.50% during the second quarter and first six months of 2022, respectively, from 1.46% and 1.47% during the same periods in 2021. These increases were primarily driven by improved yields on substantially all interest-earning assets as a result of higher market interest rates. Higher interest rates on recent issuances and floating-rate long-term debt balances, as well as higher rates paid on bank deposits, resulted in a slight increase in the yield on total funding sources during the second quarter and first six months of 2022 compared with the same periods in 2021.

- 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)

Asset Management and Administration Fees

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

Three Months Ended June 30,	2022						2021
	Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee
Schwab money market funds before fee waivers	$	146,009	$	106	0.29	%	$	157,057	$	114	0.29	%
Fee waivers			(3)						(85)
Schwab money market funds	$	146,009	103		0.28	%	$	157,057	29		0.07	%
Schwab equity and bond funds, ETFs, and CTFs	431,747		92		0.09	%	415,311		94		0.09	%
Mutual Fund OneSource® and other non-transaction fee funds	192,435		149		0.31	%	228,890		180		0.32	%
Other third-party mutual funds and ETFs	795,727		171		0.09	%	896,236		178		0.08	%
Total mutual funds, ETFs, and CTFs (1)	$	1,565,918	515		0.13	%	$	1,697,494	481		0.11	%
Advice solutions (1)
Fee-based	$	440,336	461		0.42	%	$	448,107	490		0.44	%
Non-fee-based	86,684		—		—		87,857		—		—
Total advice solutions	$	527,020	461		0.35	%	$	535,964	490		0.37	%
Other balance-based fees (2)	566,712		61		0.04	%	605,617		63		0.04	%
Other (3)			15						13
Total asset management and administration fees			$	1,052					$	1,047

Six Months Ended June 30,	2022						2021
	Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee
Schwab money market funds before fee waivers	$	145,371	$	208	0.29	%	$	163,370	$	236	0.29	%
Fee waivers			(57)						(163)
Schwab money market funds	$	145,371	151		0.21	%	$	163,370	73		0.09	%
Schwab equity and bond funds, ETFs, and CTFs	444,036		189		0.09	%	396,296		180		0.09	%
Mutual Fund OneSource