UNITED STATES

SECURITIES  AND  EXCHANGE  COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

or

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

For the transition period from ________ to ________

Commission File Number: 1-9700

THE  CHARLES  SCHWAB  CORPORATION

(Exact name of registrant as specified in its charter)

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

3000 Schwab Way, Westlake, TX  76262

(Address of principal executive offices and zip code)

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

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

Title of each 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.

1,770,219,589 shares of $.01 par value Common Stock and 50,893,695 shares of $.01 par value Nonvoting Common Stock outstanding on July 31, 2023

THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2023

 Index

Part I - Financial Information
	Item 1.	Condensed Consolidated Financial Statements (Unaudited):
		Statements of Income	29
		Statements of Comprehensive Income	30
		Balance Sheets	31
		Statements of Stockholders’ Equity	32
		Statements of Cash Flows	33-34
		Notes	35-67
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1-28
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4.	Controls and Procedures	68
Part II - Other Information
	Item 1.	Legal Proceedings	68
	Item 1A.	Risk Factors	68
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
	Item 3.	Defaults Upon Senior Securities	69
	Item 4.	Mine Safety Disclosures	69
	Item 5.	Other Information	69
	Item 6.	Exhibits	70
Signature			71

Part I – FINANCIAL INFORMATION

THE CHARLES SCHWAB CORPORATION

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

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

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

INTRODUCTION

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

Principal business subsidiaries of CSC include the following:

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

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

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

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

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

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

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

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

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

Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $60 trillion, which means the Company’s $8.02 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.

This Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (2022 Form 10-K).

On our website, https://www.aboutschwab.com, we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC or Commission): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In addition, we post to the website the Dodd-Frank stress test results, our

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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);

•Investments to support growth in the business; business momentum (see Overview);

•Expected timing for the TD Ameritrade client transitions; cost estimates and timing related to the TD Ameritrade integration, including acquisition and integration-related costs and capital expenditures, cost synergies, and exit and other related costs (see Overview and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);

•Our planning to take actions to streamline our operations and expectation to realize at least $500 million of incremental run-rate cost savings and the timing and amount of associated exit and related costs that we will incur (see Overview, Results of Operations, and Exit and Other Related Liabilities in Item 1 – Note 10);

•The expected impact of proposed rules (see Current Regulatory and Other Developments);

•     The adjustment of rates paid on client-related liabilities; outstanding balances and the use of supplemental funding; net interest revenue (see Results of Operations);

•Capital expenditures (see Results of Operations);

•Management of interest rate risk; the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity, and liability and asset duration (see Risk Management);

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

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

•Capital management; the potential migration of insured deposit account balances (IDA balances) to our balance sheet; expectations about capital requirements, including accumulated other comprehensive income (AOCI), and meeting those requirements; plans regarding capital and dividends (see Capital Management and Commitments and Contingencies in Item 1 – Note 9);

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

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

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

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

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

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

•The level and mix of client trading activity;

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

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

•The level of client assets, including cash balances;

•Competitive pressure on pricing, including deposit rates;

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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 second quarter and first six months of 2023 and 2022 are as follows:

	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2023			2022					2023			2022
Client Metrics
Net new client assets (in billions) (1)	$	72.0		$	43.4		66	%	$	222.7		$	163.9		36	%
Core net new client assets (in billions)	$	52.2		$	64.2		(19)	%	$	183.9		$	184.7		—
Client assets (in billions, at quarter end)	$	8,015.8		$	6,832.5		17	%
Average client assets (in billions)	$	7,698.3		$	7,262.7		6	%	$	7,541.8		$	7,514.6		—
New brokerage accounts (in thousands)	960			1,014			(5)	%	2,002			2,216			(10)	%
Active brokerage accounts (in thousands, at quarter end)	34,382			33,896			1	%
Assets receiving ongoing advisory services (in billions,   at quarter end)	$	4,075.3		$	3,524.2		16	%
Client cash as a percentage of client assets (at quarter end) (2)	10.5		%	12.8		%
Company Financial Information and Metrics
Total net revenues	$	4,656		$	5,093		(9)	%	$	9,772		$	9,765		—
Total expenses excluding interest	2,965			2,819			5	%	5,971			5,652			6	%
Income before taxes on income	1,691			2,274			(26)	%	3,801			4,113			(8)	%
Taxes on income	397			481			(17)	%	904			918			(2)	%
Net income	1,294			1,793			(28)	%	2,897			3,195			(9)	%
Preferred stock dividends and other	121			141			(14)	%	191			265			(28)	%
Net income available to common stockholders	$	1,173		$	1,652		(29)	%	$	2,706		$	2,930		(8)	%
Earnings per common share — diluted	$	.64		$	.87		(26)	%	$	1.48		$	1.54		(4)	%
Net revenue change from prior year	(9)		%	13		%			—			6		%
Pre-tax profit margin	36.3		%	44.6		%			38.9		%	42.1		%
Return on average common stockholders’ equity (annualized)	17		%	19		%			20		%	15		%
Expenses excluding interest as a percentage of average client   assets (annualized)	0.15		%	0.16		%			0.16		%	0.15		%
Consolidated Tier 1 Leverage Ratio (at quarter end)	7.5		%	6.4		%
Non-GAAP Financial Measures (3)
Adjusted total expenses (4)	$	2,701		$	2,571				$	5,474		$	5,154
Adjusted diluted EPS	$	.75		$	.97				$	1.68		$	1.74
Return on tangible common equity	62		%	45		%			71		%	32		%

(1) The second quarter and first six months of 2023 include inflows of $7.8 billion and $26.8 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB and includes an inflow of $12.0 billion from a mutual fund clearing services client. The second quarter and first six months of 2022 include an outflow of $20.8 billion from a mutual fund clearing services client.

(2) Client cash as a percentage of client assets excludes brokered CDs issued by CSB.

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

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

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

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

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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)

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

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

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

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

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

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

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

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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)

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

Integration of TD Ameritrade

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

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

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

Other

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

Current Regulatory and Other Developments

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

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

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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)

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

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

•The “Order Competition Rule” would require that, before most individual investors’ orders could be executed internally by a trading center (like wholesaler market makers), those orders must first be exposed to a qualifying order-by-order auction in which both market makers and institutional investors can participate.

•“Regulation Best Execution” would establish an SEC-level best execution standard (in addition to the existing FINRA and MSRB best execution rules) for broker-dealers and require them to establish, maintain, and enforce written policies and procedures addressing how the broker-dealer will comply with the best execution standard and make routing or execution decisions for customer orders. Regulation Best Execution would apply not only to equities, but to all securities.

•Amendments to Rule 605 of Regulation NMS requiring enhanced disclosures of order execution quality for large brokers that handle retail orders.

•A rule to (i) amend minimum pricing increments (or tick sizes) that would apply to both the quoting and trading of NMS stocks, (ii) reduce the exchange access fee caps, and (iii) require transparency of odd-lots.

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

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

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

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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)

RESULTS OF OPERATIONS

Total Net Revenues

The following tables present a comparison of revenue by category:

			2023				2022
Three Months Ended June 30,	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Net interest revenue
Interest revenue	51	%	$	4,104	88	%	$	2,710	53	%
Interest expense	N/M		(1,814)		(39)	%	(166)		(3)	%
Net interest revenue	(10)	%	2,290		49	%	2,544		50	%
Asset management and administration fees
Mutual funds, exchange-traded funds (ETFs), and collective trust   funds (CTFs)	22	%	630		13	%	515		10	%
Advice solutions	1	%	464		10	%	461		9	%
Other	4	%	79		2	%	76		2	%
Asset management and administration fees	12	%	1,173		25	%	1,052		21	%
Trading revenue
Commissions	(11)	%	394		8	%	443		9	%
Order flow revenue	(15)	%	365		8	%	430		8	%
Principal transactions	N/M		44		1	%	12		—
Trading revenue	(9)	%	803		17	%	885		17	%
Bank deposit account fees	(50)	%	175		4	%	352		7	%
Other	(17)	%	215		5	%	260		5	%
Total net revenues	(9)	%	$	4,656	100	%	$	5,093	100	%

			2023				2022
Six Months Ended June 30,	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Net interest revenue
Interest revenue	61	%	$	8,120	83	%	$	5,029	51	%
Interest expense	N/M		(3,060)		(31)	%	(302)		(3)	%
Net interest revenue	7	%	5,060		52	%	4,727		48	%
Asset management and administration fees
Mutual funds, ETFs, and CTFs	21	%	1,215		13	%	1,004		10	%
Advice solutions	(4)	%	917		9	%	957		10	%
Other	—		159		2	%	159		2	%
Asset management and administration fees	8	%	2,291		24	%	2,120		22	%
Trading revenue
Commissions	(12)	%	816		8	%	927		9	%
Order flow revenue	(13)	%	779		8	%	900		9	%
Principal transactions	N/M		100		1	%	21		1	%
Trading revenue	(8)	%	1,695		17	%	1,848		19	%
Bank deposit account fees	(50)	%	326		3	%	646		7	%
Other	(6)	%	400		4	%	424		4	%
Total net revenues	—		$	9,772	100	%	$	9,765	100	%

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

- 8 -

THE CHARLES SCHWAB CORPORATION

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

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

Net Interest Revenue

Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, Federal Home Loan Bank (FHLB) borrowings, other short-term borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities. See also Risk Management – Interest Rate Risk Simulations.

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

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

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

	2023						2022
Three Months Ended June 30, 2023	Average Balance		Interest Revenue/ Expense		Average Yield/Rate		Average Balance		Interest Revenue/ Expense		Average Yield/Rate
Interest-earning assets
Cash and cash equivalents	$	44,683	$	547	4.84	%	$	65,414	$	133	0.81	%
Cash and investments segregated	27,399		324		4.68	%	51,232		79		0.61	%
Receivables from brokerage clients	60,709		1,167		7.60	%	79,061		706		3.53	%
Available for sale securities (1)	145,032		791		2.18	%	287,313		1,088		1.51	%
Held to maturity securities (1)	167,499		720		1.72	%	101,752		339		1.33	%
Bank loans	40,124		410		4.09	%	38,831		230		2.38	%
Total interest-earning assets	485,446		3,959		3.24	%	623,603		2,575		1.64	%
Securities lending revenue			124						130
Other interest revenue			21						5
Total interest-earning assets	$	485,446	$	4,104	3.36	%	$	623,603	$	2,710	1.73	%
Funding sources
Bank deposits	$	312,543	$	863	1.11	%	$	449,936	$	28	0.03	%
Payables to brokerage clients	64,892		64		0.40	%	101,784		4		0.02	%
Other short-term borrowings (2)	7,622		97		5.08	%	2,587		4		0.69	%
Federal Home Loan Bank borrowings (2,3)	46,813		606		5.13	%	—		—		—
Long-term debt	21,237		157		2.95	%	21,119		124		2.34	%
Total interest-bearing liabilities	453,107		1,787		1.57	%	575,426		160		0.11	%
Non-interest-bearing funding sources	32,339						48,177
Securities lending expense			28						8
Other interest expense			(1)						(2)
Total funding sources	$	485,446	$	1,814	1.49	%	$	623,603	$	166	0.11	%
Net interest revenue			$	2,290	1.87	%			$	2,544	1.62	%

- 9 -

THE CHARLES SCHWAB CORPORATION

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

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

	2023						2022
Six Months Ended June 30,	Average Balance		Interest Revenue/ Expense		Average Yield/ Rate		Average Balance		Interest Revenue/ Expense		Average Yield/ Rate
Interest-earning assets
Cash and cash equivalents	$	40,891	$	960	4.67	%	$	68,920	$	167	0.48	%
Cash and investments segregated	33,699		756		4.46	%	51,570		94		0.36	%
Receivables from brokerage clients	60,626		2,251		7.39	%	81,618		1,332		3.24	%
Available for sale securities (1)	150,382		1,616		2.15	%	285,927		2,035		1.42	%
Held to maturity securities (1)	169,184		1,466		1.73	%	102,580		717		1.40	%
Bank loans	40,185		801		4.00	%	37,351		417		2.24	%
Total interest-earning assets	494,967		7,850		3.16	%	627,966		4,762		1.51	%
Securities lending revenue			236						259
Other interest revenue			34						8
Total interest-earning assets	$	494,967	$	8,120	3.27	%	$	627,966	$	5,029	1.60	%
Funding sources
Bank deposits	$	327,739	$	1,481	0.91	%	$	451,306	$	44	0.02	%
Payables to brokerage clients	70,997		139		0.40	%	103,846		6		0.01	%
Other short-term borrowings (2)	7,272		183		5.06	%	3,646		8		0.46	%
Federal Home Loan Bank borrowings (2,3)	35,697		910		5.07	%	—		—		—
Long-term debt	20,766		296		2.85	%	20,495		232		2.26	%
Total interest-bearing liabilities	462,471		3,009		1.31	%	579,293		290		0.10	%
Non-interest-bearing funding sources	32,496						48,673
Securities lending expense			50						15
Other interest expense			1						(3)
Total funding sources	$	494,967	$	3,060	1.24	%	$	627,966	$	302	0.10	%
Net interest revenue			$	5,060	2.03	%			$	4,727	1.50	%

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

(2) Beginning in the first quarter of 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.

(3) Average balance and interest expense were less than $500 thousand in the prior period.

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

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

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

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

- 10 -

THE CHARLES SCHWAB CORPORATION

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

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

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

Asset Management and Administration Fees

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

Three Months Ended June 30,	2023						2022
	Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee
Schwab money market funds before fee waivers	$	375,898	$	252	0.27	%	$	146,009	$	106	0.29	%
Fee waivers			—						(3)
Schwab money market funds	375,898		252		0.27	%	146,009		103		0.28	%
Schwab equity and bond funds, ETFs, and CTFs	465,079		94		0.08	%	431,747		92		0.09	%
Mutual Fund OneSource® and other no-transaction-fee (NTF) funds	229,207		151		0.26	%	192,435		149		0.31	%
Other third-party mutual funds and ETFs	681,486		133		0.08	%	795,727		171		0.09	%
Total mutual funds, ETFs, and CTFs (1)	$	1,751,670	630		0.14	%	$	1,565,918	515		0.13	%
Advice solutions (1)
Fee-based	$	455,859	464		0.41	%	$	440,336	461		0.42	%
Non-fee-based	95,427		—		—		86,684		—		—
Total advice solutions	$	551,286	464		0.34	%	$	527,020	461		0.35	%
Other balance-based fees (2)	594,528		63		0.04	%	566,712		61		0.04	%
Other (3)			16						15
Total asset management and administration fees			$	1,173					$	1,052

	2023					2022
Six Months Ended June 30,	Average Client Assets		Revenue		Average Fee	Average Client Assets		Revenue		Average Fee
Schwab money market funds before fee waivers	$	346,145	$	465	0.27%	$	145,371	$	208	0.29%
Fee waivers			—					(57)
Schwab money market funds	346,145		465		0.27%	145,371		151		0.21%
Schwab equity and bond funds, ETFs, and CTFs	457,830		185		0.08%	444,036		189		0.09%
Mutual Fund OneSource® and other NTF funds (4)	225,822		299		0.27%	202,538		314		0.31%
Other third-party mutual funds and ETFs (4)	678,915		266		0.08%	833,969		350		0.08%
Total mutual funds, ETFs, and CTFs (1)	$	1,708,712	1,215		0.14%	$	1,625,914	1,004		0.12%
Advice solutions (1)
Fee-based	$	449,443	917		0.41%	$	454,830	957		0.42%
Non-fee-based	94,948		—		—	88,509		—		—