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 March 31, 2024

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.

1,777,281,304 shares of $.01 par value Common Stock and 50,893,695 shares of $.01 par value Nonvoting Common Stock outstanding on April 30, 2024

THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2024

 Index

Part I - Financial Information
	Item 1.	Condensed Consolidated Financial Statements (Unaudited):
		Statements of Income	26
		Statements of Comprehensive Income	27
		Balance Sheets	28
		Statements of Stockholders’ Equity	29
		Statements of Cash Flows	30-31
		Notes	32-62
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1-25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4.	Controls and Procedures	63
Part II - Other Information
	Item 1.	Legal Proceedings	63
	Item 1A.	Risk Factors	63
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
	Item 3.	Defaults Upon Senior Securities	64
	Item 4.	Mine Safety Disclosures	64
	Item 5.	Other Information	64
	Item 6.	Exhibits	65
Signature			66

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 $9.12 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, 2023 (2023 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 the Commission.

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

•Integration of Ameritrade, including the timing of client transitions, transition-related attrition, the amount and timing of expense and revenue synergies, and the benefits of the combined platform (see Overview in Part I – Item 2, 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 in Part I – Item 2);

•Our actions to streamline our operations and amount of associated exit and related costs that we will incur (see Overview and Results of Operations in Part I – Item 2, 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 in Part I – Item 2);

•Net interest revenue; the adjustment of rates paid on client-related liabilities; and outstanding balances and the use of supplemental funding (see Results of Operations in Part I – Item 2);

•Capital expenditures (see Results of Operations in Part I – Item 2);

•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 in Part I – Item 2);

•Sources and uses of liquidity and capital (see Liquidity Risk and Capital Management in Part I – Item 2);

•Capital management; the return of capital to stockholders; 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 in Part I – Item 2 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 outcome and 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, equity market valuations and volatility;

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

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

•The level of client assets, including cash balances;

•Client cash allocations and sensitivity to deposit rates;

•Competitive pressure on pricing, including deposit rates;

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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 level and mix of client trading activity, including daily average trades, margin balances, and balance sheet cash;

•Regulatory guidance and adverse impacts from new or changed legislation, rulemaking or regulatory expectations;

•Capital and liquidity needs and management;

•Our ability to manage expenses;

•Our ability to attract and retain talent;

•Our ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance our infrastructure, in a timely and successful manner;

•Our ability to monetize client assets;

•Our ability to support client activity levels;

•Our ability to successfully implement integration plans relating to Ameritrade, including client account transitions;

•The risk that client transitions may not be completed when expected or may result in a negative client experience; expected expense and revenue synergies and other benefits from the Ameritrade acquisition may not be fully realized or may take longer to realize, and integration expense may be higher than expected;

•Increased compensation and other costs due to inflationary pressures;

•Real estate and workforce decisions;

•The timing and scope of technology projects;

•Capital and liquidity needs and management;

•Balance sheet positioning relative to changes in interest rates;

•Interest earning asset mix and growth;

•Our ability to access and use supplemental funding sources;

•Prepayment levels for mortgage-backed securities;

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

•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 2023 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 first quarter of 2024 and 2023 are as follows:

	Three Months Ended March 31,						Percent Change
	2024			2023
Client Metrics
Net new client assets (in billions) (1)	$	88.2		$	150.7		(41)	%
Core net new client assets (in billions)	$	95.6		$	131.7		(27)	%
Client assets (in billions, at quarter end)	$	9,118.4		$	7,580.0		20	%
Average client assets (in billions)	$	8,761.1		$	7,385.4		19	%
New brokerage accounts (in thousands)	1,094			1,042			5	%
Active brokerage accounts (in thousands, at quarter end)	35,301			34,120			3	%
Assets receiving ongoing advisory services (in billions,   at quarter end)	$	4,628.0		$	3,895.5		19	%
Client cash as a percentage of client assets (at quarter end) (2)	10.0		%	11.2		%
Company Financial Information and Metrics
Total net revenues	$	4,740		$	5,116		(7)	%
Total expenses excluding interest	2,942			3,006			(2)	%
Income before taxes on income	1,798			2,110			(15)	%
Taxes on income	436			507			(14)	%
Net income	1,362			1,603			(15)	%
Preferred stock dividends and other	111			70			59	%
Net income available to common stockholders	$	1,251		$	1,533		(18)	%
Earnings per common share — diluted	$	.68		$	.83		(18)	%
Net revenue change from prior year	(7)		%	10		%
Pre-tax profit margin	37.9		%	41.2		%
Return on average common stockholders’ equity (annualized)	15		%	23		%
Expenses excluding interest as a percentage of average client   assets (annualized)	0.14		%	0.17		%
Consolidated Tier 1 Leverage Ratio (at quarter end)	8.8		%	7.1		%
Non-GAAP Financial Measures (3)
Adjusted total expenses (4)	$	2,802		$	2,773
Adjusted diluted EPS	$	.74		$	.93
Return on tangible common equity	39		%	83		%

(1) The first quarter of 2024 and 2023 include net outflows of $7.4 billion and inflows of $19.0 billion, respectively, from off-platform certificates of deposit (CDs) issued by CSB.

(2) Beginning in the third quarter of 2023, client cash as a percentage of client assets excludes brokered CDs issued by CSB. The prior period has been recast to reflect this change.

(3) In the first quarter of 2024, 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.

Further improvements in the macroeconomic environment helped bolster investor sentiment and engagement in the first quarter of 2024. Inflation remained at moderate though persistent levels during the quarter, leading to shifting market expectations around the pace and extent of potential Federal Reserve interest rate reductions. Equity markets had a strong start to the year, with the S&P 500® rising 10% in the first quarter of 2024.

Schwab’s organic asset gathering and equity market gains helped total client assets reach $9.12 trillion as of quarter-end, up 20% from March 31, 2023, as clients entrusted us with core net new assets of $95.6 billion in the first quarter of 2024. As we have experienced over the course of the Ameritrade client account conversions, net new assets in the first quarter of 2024 reflected expected asset attrition from the Ameritrade integration, though the amount of attrition continued to be below amounts anticipated when we announced the acquisition in late 2019. Clients’ daily average trades (DATs) were 6.0 million in the first quarter of 2024, up slightly from the first quarter of the prior year. Clients opened 1.1 million new brokerage accounts in the first quarter of 2024, helping active brokerage accounts rise 3% year-over-year to reach 35.3 million at quarter-end.

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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 financial performance in the first quarter of 2024 reflected the benefits of a supportive macroeconomic backdrop, increased client engagement, and solid organic growth. The Company’s financial results were down relative to the first quarter of 2023, though overall performance improved sequentially from the fourth quarter of 2023 driven by lower interest expense due to reduced supplemental funding, rising equity markets and client engagement, and our late-2023 cost reduction efforts. Net income totaled $1.4 billion in the first quarter of 2024, down 15% from the first quarter of 2023 and up 30% from the fourth quarter of 2023. Diluted earnings per share (EPS) was $.68 in the first quarter of 2024, down 18% from the prior-year first quarter and up 33% from the fourth quarter of 2023. Adjusted diluted EPS (1) was $.74 in the first quarter of 2024, down 20% from the first quarter of 2023 and up 9% from the fourth quarter of 2023.

Total net revenues decreased 7% year-over-year to $4.7 billion during the first quarter of 2024. Net interest revenue was $2.2 billion in the first quarter of 2024, down 19% from the prior year’s first quarter due primarily to greater use of supplemental funding and lower average interest-earning assets, partially offset by higher rates on interest-earning assets. Asset management and administration fees totaled $1.3 billion in the first quarter of 2024, rising 21% from the first quarter of 2023 primarily as a result of growth in money market funds, equity market gains, and growth in advice solutions. Trading revenue declined 8% year-over-year to $817 million in the first quarter of 2024, primarily due to a decrease in order flow revenue, reflecting narrower spreads on options and lower equity volume. Bank deposit account fee revenue was $183 million in the first quarter of 2024, up 21% year-over-year due primarily to $97 million of one-time breakage fees incurred when we ended our arrangements with certain third-party banks in the first quarter of 2023. BDA balances totaled $90.3 billion at March 31, 2024, down 7% from year-end 2023, reflecting client cash allocation decisions.

Total expenses excluding interest were $2.9 billion in the first quarter of 2024, down 2% from the first quarter of 2023, reflecting the benefits of our cost reduction restructuring efforts undertaken in late 2023, which drove year-over-year decreases in compensation and benefits and occupancy and equipment. Partially offsetting these reductions were growth in depreciation and amortization driven by capital expenditures to support the Ameritrade integration and growth of the business, and higher regulatory fees and assessments, which included an incremental Federal Deposit Insurance Corporation (FDIC) special assessment of $25 million (see Current Regulatory and Other Developments). Adjusted total expenses (1) were $2.8 billion, up 1% from the first quarter of 2023 reflecting the above items and lower acquisition and integration-related costs in the first quarter of 2024. Acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs totaled $140 million in the first quarter of 2024, down 40% from the first quarter of 2023.

Return on average common stockholders’ equity was 15% in the first quarter of 2024, down from 23% in the first quarter of 2023. Return on tangible common equity (1) (ROTCE) was 39% in the first quarter of 2024, down from 83% in the first quarter of 2023. These decreases were due primarily to higher average stockholders’ equity and lower year-over-year net income. Average stockholders’ equity was higher in the first quarter of 2024 due to higher average retained earnings due to full-year 2023 and first-quarter 2024 net income, as well as higher average AOCI. The increase in average AOCI was driven by lower unrealized losses on our available for sale (AFS) investment securities portfolio and securities transferred in 2022 from AFS to held to maturity (HTM) (see Item 1 – Note 15).

The Company continued its diligent approach to balance sheet management, seeking to prioritize flexibility. During the first quarter of 2024, total balance sheet assets decreased 5% from year-end 2023 to $468.8 billion. This decrease was driven primarily by lower cash balances. As the pace and amount of client cash realignment continued to decrease, the Company reduced the total outstanding balance of supplemental funding, which includes brokered CDs, Federal Home Loan Bank (FHLB) borrowings, and borrowings under repurchase agreements, by $8.8 billion, or 11%, during the first quarter of 2024. In addition, the Company repaid $3.3 billion in maturing long-term debt during the first quarter of 2024. Supported by net income and a smaller balance sheet, our consolidated Tier 1 Leverage Ratio increased to 8.8% as of March 31, 2024.

(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.

Integration of Ameritrade

Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade Holding Corporation, now Ameritrade Holding LLC (Ameritrade Holding), and its consolidated subsidiaries (collectively referred to as “Ameritrade”). The Company has made significant progress in its integration of Ameritrade. We’ve transitioned approximately $1.6 trillion in client assets across more than 15 million client accounts, including 7,000 RIAs, from Ameritrade to the Schwab platform across four transition groups. In connection with these transitions, we have experienced some related attrition of client assets from retail

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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)

accounts and RIAs, which have been below our initial estimates when we announced the acquisition. The Company expects to complete the remaining client transitions from Ameritrade to Schwab in a final transition group in May 2024.

We continue to expect total acquisition and integration-related costs and capital expenditures will be 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 certain 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 as we prepare for the last transition group and remaining integration work include the level of employee attrition, the complexity to wind-down the operations of the Ameritrade broker-dealers and related technology, and real estate-related exit cost variability.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $38 million and $98 million for the first quarters of 2024 and 2023, 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 March 31, 2024, we have achieved over 80% of this amount on an annualized run-rate basis. The Company expects to realize 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 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7) – Overview in our 2023 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 Ameritrade.

Other

In addition to cost synergies directly related to the integration of Ameritrade, the Company took incremental actions in 2023 to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. Through these actions, the Company has realized approximately $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 $500 million, substantially all of which have been recognized as of March 31, 2024. The Company anticipates the remaining costs, primarily related to real estate, will be incurred 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 April 2024, the U.S. Department of Labor adopted a final rule to significantly broaden the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974. Among other requirements, the rule subjects broker-dealers who provide non-discretionary investment advice to retirement plans and accounts to a “best interest” standard. The rule generally takes effect on September 23, 2024 with a one-year transition period after the effective date for certain provisions. The Company is currently evaluating the impacts and the related implementation and operational issues of the final rule.

In March 2024, the SEC adopted amendments to Rule 605 of Regulation National Market System (NMS) requiring enhanced disclosures of order execution quality for large broker-dealers that handle retail orders. We do not expect the new rule to have a material impact on the Company’s business, financial condition, or results of operations. Three related equity market structure rule proposals released in December 2022 by the SEC remain pending.

In November 2023, the FDIC approved a final special assessment to recover losses incurred by the Deposit Insurance Fund (DIF) to protect uninsured depositors due to the March 2023 closures of two banks, that was subject to potential extension and a potential one-time final special assessment for any shortfall in the DIF. The pre-tax impact of the final rule’s initial assessment to the Company was $172 million, which is tax deductible and was recognized in earnings in the fourth quarter of 2023. The special assessment will be paid over eight quarters which began in the first quarter of 2024. In late February 2024, the FDIC notified banks, including the Company’s banking subsidiaries, that the estimated assessed losses to the DIF increased. Accordingly, during the first quarter of 2024, Schwab recognized a pre-tax charge of $25 million for its estimate of this incremental special assessment, which is tax deductible. This amount remains subject to further adjustment; the FDIC has indicated it will provide any updates to the estimated special assessment applicable to each bank as part of the FDIC’s June 2024 invoices.

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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)

See Part II – Item 7 – Current Regulatory and Other Developments in our 2023 Form 10-K for additional information regarding these and other pending regulatory matters including:

•The U.S. federal banking agencies’ August 2023 proposed rulemaking on long-term debt requirements for certain large banking organizations;

•The U.S. federal banking agencies’ July 2023 notice of proposed rulemaking with amendments to the regulatory capital rules, which, among other things, would require us to include AOCI in regulatory capital and to calculate our risk-weighted assets using a revised risk-based approach, a component of which is based on operational risk; and

•The SEC’s November 2022 proposed rule that would require substantial changes to the liquidity risk management programs for open-end mutual funds other than money market funds and require them to implement “swing pricing” and impose a “hard close” on the acceptance of purchase and redemption orders.

RESULTS OF OPERATIONS

Total Net Revenues

The following tables present a comparison of revenue by category:

			2024				2023
Three Months Ended March 31,	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Net interest revenue
Interest revenue	(2)	%	$	3,941	83	%	$	4,016	78	%
Interest expense	37	%	(1,708)		(36)	%	(1,246)		(24)	%
Net interest revenue	(19)	%	2,233		47	%	2,770		54	%
Asset management and administration fees
Mutual funds, exchange-traded funds (ETFs), and collective trust   funds (CTFs)	30	%	758		16	%	585		11	%
Advice solutions	11	%	503		11	%	453		9	%
Other	9	%	87		2	%	80		2	%
Asset management and administration fees	21	%	1,348		29	%	1,118		22	%
Trading revenue
Commissions	(2)	%	413		9	%	422		8	%
Order flow revenue	(15)	%	352		7	%	414		8	%
Principal transactions	(7)	%	52		1	%	56		1	%
Trading revenue	(8)	%	817		17	%	892		17	%
Bank deposit account fees	21	%	183		4	%	151		3	%
Other	(14)	%	159		3	%	185		4	%
Total net revenues	(7)	%	$	4,740	100	%	$	5,116	100	%

Net Interest Revenue

Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on cash and cash equivalents, floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, FHLB borrowings, other short-term 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.

In response to continued elevated inflation, the Federal Reserve raised the federal funds target overnight rate four times in the first three quarters of 2023 for a total of 100 basis points before holding rates unchanged since July 2023. Short-term rates

- 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)

remained consistent through the first quarter of 2024, as the Federal Reserve maintained the upper bound of the target overnight rate at 5.50%.

Schwab’s average interest-earning assets in the first quarter of 2024 were lower compared with the first quarter of 2023, primarily due to clients’ reallocation of cash from sweep products to higher-yielding investment solutions throughout 2023 and the first quarter of 2024, which resulted primarily from 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 supplemental funding, including drawing upon FHLB secured lending facilities, engaging with external financial institutions in repurchase agreements, and issuing brokered CDs. The average pace of client cash allocation out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second half of 2023, and continued to decrease in the first quarter of 2024.

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

	2024						2023
Three Months Ended March 31,	Average Balance		Interest Revenue/ Expense		Average Yield/Rate		Average Balance		Interest Revenue/ Expense		Average Yield/Rate
Interest-earning assets
Cash and cash equivalents	$	33,791	$	454	5.31	%	$	37,056	$	413	4.46	%
Cash and investments segregated	29,297		388		5.24	%	40,068		432		4.31	%
Receivables from brokerage clients	63,804		1,260		7.81	%	60,543		1,084		7.16	%
Available for sale securities (1)	111,867		594		2.12	%	155,791		825		2.12	%
Held to maturity securities (1)	157,410		690		1.75	%	170,889		746		1.75	%
Bank loans	40,529		440		4.36	%	40,248		391		3.92	%
Total interest-earning assets	436,698		3,826		3.48	%	504,595		3,891		3.09	%
Securities lending revenue			76						112
Other interest revenue			39						13
Total interest-earning assets	$	436,698	$	3,941	3.59	%	$	504,595	$	4,016	3.19	%
Funding sources
Bank deposits	$	274,368	$	921	1.35	%	$	343,105	$	618	0.73	%
Payables to brokerage clients	68,343		73		0.43	%	77,169		75		0.39	%
Other short-term borrowings	7,385		103		5.61	%	6,917		86		5.05	%
Federal Home Loan Bank borrowings	24,857		330		5.27	%	24,458		304		5.05	%
Long-term debt	25,000		224		3.59	%	20,290		139		2.74	%
Total interest-bearing liabilities	399,953		1,651		1.65	%	471,939		1,222		1.05	%
Non-interest-bearing funding sources	36,745						32,656
Securities lending expense			55						22
Other interest expense			2						2
Total funding sources	$	436,698	$	1,708	1.57	%	$	504,595	$	1,246	1.00	%
Net interest revenue			$	2,233	2.02	%			$	2,770	2.19	%

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

Net interest revenue decreased $537 million, or 19%, in the first quarter of 2024 compared to the same period in 2023. This decrease was 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. Average interest-earning assets for the first quarter of 2024 were lower by 13% compared to the same period in 2023. This decrease was primarily due to lower bank deposits as a result of changes in client cash allocations due to higher market interest rates and a smaller investment securities portfolio, partially offset by greater margin loan balances.

Net interest margin decreased to 2.02% in the first quarter of 2024 from 2.19% in the same period in 2023, as the higher rates paid across interest-bearing funding sources more than offset the improved yields on interest-earning assets.

The Company’s higher average balances in the first quarter of 2024 relative to the same period in 2023 of FHLB borrowings, repurchase agreements, and brokered CDs resulted in higher funding costs. The Company prioritizes repayment of the outstanding balances of its supplemental funding sources, and during the first quarter of 2024, the total outstanding balance

- 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)

decreased by $8.8 billion, which helped support a 13-basis-point improvement in net interest margin for the first quarter of 2024 compared with the fourth quarter of 2023. Our use and the financial impacts of such supplemental funding 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 continued to decline from peak levels, uncertainty remains, including in regard to the path of market interest rates and client behavior, which will significantly impact our utilization of supplemental funding sources. The impacts to net interest revenue of using supplemental funding sources also depend on the type of funding source used and levels of interest rates. The Company currently expects its outstanding balances of supplemental funding sources to decrease over time. Certain amounts outstanding at March 31, 2024 will require rollover into new borrowings, the amount and costs of which will depend on the above noted factors. 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 March 31,	2024						2023
	Average Client Assets		Revenue		Average Fee		Average Client Assets		Revenue		Average Fee
Schwab money market funds	$	499,887	$	336	0.27	%	$	316,391	$	213	0.27	%
Schwab equity and bond funds, ETFs, and CTFs	539,661		107		0.08	%	450,581		91		0.08	%
Mutual Fund OneSource® and other no-transaction-fee (NTF) funds	314,576		209		0.27	%	222,437		148		0.27	%
Other third-party mutual funds and ETFs	605,625		106		0.07	%	676,344		133		0.08	%
Total mutual funds, ETFs, and CTFs (1)	$	1,959,749	758		0.16	%	$	1,665,753	585		0.14	%
Advice solutions (1)
Fee-based	$	506,133	503		0.40	%	$	443,027	453		0.41	%
Non-fee-based	106,032		—		—		94,469		—		—
Total advice solutions	$	612,165	503		0.33	%	$	537,496	453		0.34	%
Other balance-based fees (2)	719,447		69		0.04	%	561,788		62		0.04	%
Other (3)			18						18
Total asset management and administration fees			$	1,348					$	1,118

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

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

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

Asset management and administration fees increased by $230 million, or 21%, in the first quarter of 2024 compared to the same period in 2023. This increase was primarily a result of higher balances in Schwab money market funds as clients shifted their cash allocations to higher-yielding investment solutions. The increase was also due to growth in balances in Mutual Fund OneSource® and fee-based advice solutions, as a result of strong equity markets and, for advice solutions, net inflows of client assets.

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 48% and 40% of the asset management and administration fees earned in the first quarter of 2024 and 2023, respectively:

	Schwab Money Market Funds				Schwab Equity and Bond Funds, ETFs, and CTFs				Mutual Fund OneSource® and Other NTF funds
Three Months Ended March 31,	2024		2023		2024		2023		2024		2023
Balance at beginning of period	$	476,409	$	278,926	$	506,149	$	412,942	$	306,222	$	235,738
Net inflows (outflows)	30,940		75,036		7,719		10,344		(4,161)		(4,629)
Net market gains (losses) and other	8,329		3,860		35,022		20,433		27,115		13,153
Balance at end of period	$	515,678	$	357,822	$	548,890	$	443,719	$	329,176	$	244,262

- 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)

Trading Revenue

The following tables present trading revenue, client trading activity, and related information:

	Three Months Ended March 31,				Percent Change
	2024		2023
Commissions	$	413	$	422	(2)	%
Order flow revenue
Options	242		281		(14)	%
Equities	110		133		(17)	%
Total order flow revenue	352		414		(15)	%
Principal transactions	52		56		(7)	%
Total trading revenue	$	817	$	892	(8)	%

	Three Months Ended March 31,						Percent Change
	2024			2023
DATs (in thousands)	5,958			5,895			1	%
Product as a percentage of DATs
Equities	51		%	49		%
Derivatives	22		%	23		%
ETFs	19		%	21		%
Mutual funds	6		%	5		%
Fixed income	2		%	2		%
Number of trading days	61.0			62.0			(2)	%
Revenue per trade (1)	$	2.25		$	2.44		(8)	%

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

Trading revenue decreased $75 million, or 8%, in the first quarter of 2024 compared to the same period in 2023. This change is primarily due to lower options order flow revenue reflecting narrower quoted spreads in the options market, and lower equities order flow revenue reflecting lower equity trading volume overall. Additionally, commissions decreased as a result of changes in the mix of client trading activity and fewer trading days.

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.

In accordance with the Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement) executed on May 4, 2023, cash held in 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. Under the 2023 IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions is 15 basis points. See Item 1 – Note 9 for additional discussion of the 2023 IDA agreement.

- 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)

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 March 31,						Percent Change
	2024			2023
Bank deposit account fees	$	183		$	151		21	%
Average BDA balances	$	92,859		$	115,877		(20)	%
Average net yield	0.78		%	0.52		%
Percentage of average BDA balances designated as:
Fixed-rate balances	88		%	92		%
Floating-rate balances	12		%	8		%

Bank deposit account fees increased $32 million, or 21%, in the first quarter of 2024, compared to the same period in 2023. The increase was primarily due to $97 million of breakage fees incurred that resulted in lower bank deposit account fee revenue in the first quarter of 2023. In addition, the average amount of floating-rate BDA balances increased in the first quarter of 2024 compared to the first quarter of 2023, which contributed to an increase in average net yield. These factors were partially offset by a decrease in average BDA balances in the first quarter of 2024 compared to the same period in 2023, primarily due to client cash allocation decisions in response to higher short-term market interest rates. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of March 31, 2024 were 88% and 12%, 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 $26 million, or 14%, in the first quarter of 2024 compared to the same period in 2023, primarily due to lower exchange processing fees and certain lower service fees, partially offset by lower provision for credit losses on bank loans. Exchange processing fees decreased primarily due to a decrease in the SEC fee rate which became effective in the first quarter of 2023. The provision for credit losses on bank loans was lower in the first quarter of 2024 compared to the same period in 2023, as during the first quarter of 2024, loan loss factors decreased while the total balance of first lien residential real estate mortgage loans (First Mortgages) remained consistent with year-end 2023.

Subsequent to March 31, 2024, the SEC announced that effective May 22, 2024, it would increase its fee rates applicable to most securities transactions from the rate in effect since late February 2023. This change will result in higher exchange processing fees per security transaction in other revenue and a corresponding increase in other expense, resulting in no impact to net income.

- 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)

Total Expenses Excluding Interest

The following table presents a comparison of expenses excluding interest:

	Three Months Ended March 31,						Percent Change
	2024			2023
Compensation and benefits
Salaries and wages	$	854		$	972		(12)	%
Incentive compensation	387			364			6	%
Employee benefits and other	297			302			(2)	%
Total compensation and benefits	$	1,538		$	1,638		(6)	%
Professional services	241			258			(7)	%
Occupancy and equipment	265			299			(11)	%
Advertising and market development	88			88			—
Communications	141			146			(3)	%
Depreciation and amortization	228			177			29	%
Amortization of acquired intangible assets	130			135			(4)	%
Regulatory fees and assessments	125			83			51	%
Other	186			182			2	%
Total expenses excluding interest	$	2,942		$	3,006		(2)	%
Expenses as a percentage of total net revenues
Compensation and benefits	32		%	32		%
Advertising and market development	2		%	2		%
Full-time equivalent employees (in thousands)
At quarter end	32.6			36.0			(9)	%
Average	32.7			35.6			(8)	%

Expenses excluding interest decreased by $64 million, or 2%, in the first quarter of 2024, compared to the same period in 2023. Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased 1% in the first quarter of 2024, compared to the same period in 2023. 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 Ameritrade (see below and Overview – Other for additional information).

Total compensation and benefits expense decreased in the first quarter of 2024 compared to the same period in 2023, primarily due to lower headcount as a result of position eliminations completed in the second half of 2023 as part of restructuring, partially offset by higher incentive compensation and annual merit increases. Compensation and benefits included acquisition and integration-related costs of $17 million and $58 million in the first quarter of 2024 and 2023, respectively. Compensation and benefits also included a $31 million benefit in the first quarter of 2024 primarily due to a change in estimate in restructuring costs.

Professional services expense decreased in the first quarter of 2024 compared to the same period in 2023, primarily due to lower utilization of professional services as we approach the completion of the Ameritrade integration and client account transitions. Professional services included acquisition and integration-related costs of $17 million and $33 million in the first quarter of 2024 and 2023, respectively.

Occupancy and equipment expense decreased in the first quarter of 2024 compared to the same period in 2023, primarily due to lower technology equipment and software costs, as well as lower occupancy costs as a result of facility closures in 2023 related to restructuring and the Ameritrade integration. Occupancy and equipment included restructuring costs of $2 million in the first quarter of 2024 and acquisition and integration-related costs of $4 million in the first quarter of 2023.

Advertising and market development expense in the first quarter of 2024 remained consistent with the same period in 2023.

Communications expense decreased slightly in the first quarter of 2024, compared to the same period in 2023, primarily as a result of certain lower exchange quotation services expenses.

- 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)

Depreciation and amortization expense increased in the first quarter of 2024 compared to the same period in 2023, primarily as a result of higher amortization of purchased and internally developed software, driven by capital expenditures in 2023 and the first three months of 2024 to support the Ameritrade integration and enhance our technological infrastructure to support growth of the business.

Amortization of acquired intangible assets decreased slightly in the first quarter of 2024 compared to the same period in 2023, as certain assets from the Ameritrade acquisition were fully amortized during 2023.

Regulatory fees and assessments increased in the first quarter of 2024 compared to the same period in 2023, primarily as a result of a $25 million incremental FDIC special assessment and higher FDIC deposit insurance assessments, reflecting greater use of brokered CDs, partially offset by a lower assessment base. See Current Regulatory and Other Developments for discussion of the FDIC special assessment.

Other expense increased slightly in the first quarter of 2024 compared to the same period in 2023, primarily due to higher exchange processing fees, partially offset by lower other clearing costs. Exchange processing fees increased in the first quarter of 2024 compared to the first quarter of 2023 as a result of higher trading volumes. Other expense included restructuring costs of $1 million in the first quarter of 2024. Subsequent to March 31, 2024, the SEC announced that effective May 22, 2024, it would increase its fee rates applicable to most securities transactions from the rate in effect since late February 2023. This change will result in higher exchange processing fees per security transaction in other expense and a corresponding increase in other revenue, resulting in no impact to net income.

Capital expenditures were $122 million and $187 million in the first quarter of 2024 and 2023, respectively. Capital expenditures decreased for the first quarter of 2024 compared to the same period in 2023, primarily due to lower purchased and internally developed software as we approach the completion of the Ameritrade integration and client account transitions. We continue to anticipate capital expenditures for full-year 2024 will be approximately 3-5% of total net revenues.

Taxes on Income

Taxes on income were $436 million and $507 million for the first quarter of 2024 and 2023, respectively, resulting in effective tax rates of 24.2% and 24.0%, respectively. The increase in the effective tax rate in the first quarter of 2024 compared to the same period in 2023 was primarily related to the release of tax reserves in the first quarter of 2023 due to the resolution of certain state tax matters and a decrease in equity compensation benefit in the first quarter of 2024. These increases were partially offset by a decrease in state tax expense and the recognition of certain tax credits.

Segment Information

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

	Investor Services						Advisor Services						Total
Three Months Ended March 31,	Percent Change		2024		2023		Percent Change		2024		2023		Percent Change		2024		2023
Net Revenues
Net interest revenue	(14)	%	$	1,742	$	2,033	(33)	%	$	491	$	737	(19)	%	$	2,233	$	2,770
Asset management and administration fees	18	%	947		805		28	%	401		313		21	%	1,348		1,118
Trading revenue	(8)	%	713		775		(11)	%	104		117		(8)	%	817		892
Bank deposit account fees	36	%	135		99		(8)	%	48		52		21	%	183		151
Other	(11)	%	135		151		(29)	%	24		34		(14)	%	159		185
Total net revenues	(5)	%	3,672		3,863		(15)	%	1,068		1,253		(7)	%	4,740		5,116
Expenses Excluding Interest	1	%	2,265		2,233		(12)	%	677		773		(2)	%	2,942		3,006
Income before taxes on income	(14)	%	$	1,407	$	1,630	(19)	%	$	391	$	480	(15)	%	$	1,798	$	2,110
Net New Client Assets (in billions) (1)	(56)	%	$	34.9	$	79.4	(25)	%	$	53.3	$	71.3	(41)	%	$	88.2	$	150.7

(1) In the first quarter of 2024 and 2023, Investor Services includes net outflows of $7.4 billion and inflows of $19.0 billion, respectively, from off-platform brokered CDs issued by CSB.

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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)

Segment Net Revenues

Investor Services total net revenues decreased by 5% in the first quarter of 2024, compared to the same period in 2023, and Advisor Services total net revenues decreased by 15% in the first quarter of 2024, compared to the same period in 2023. Net interest revenue decreased for both segments due to higher cost funding sources and lower average interest-earning asset balances, as described above. Trading revenue decreased for both segments, primarily due to lower payment for order flow and, for Investor Services, lower commissions, as described above. Other revenue decreased for both segments, primarily due to lower exchange processing fees and certain lower service fees, 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, primarily as a result of higher balances in money market funds, and Mutual Fund OneSource® and, additionally for Investor Services, fee-based advice solutions. Bank deposit account fees increased for Investor Services and decreased for Advisor Services. Both segments were impacted by breakage fees incurred in the first quarter of 2023, partially offset by lower average BDA balances in the first quarter of 2024.

Segment Expenses Excluding Interest

Investor Services total expenses excluding interest increased by 1% in the first quarter of 2024, compared to the same period in 2023, while Advisor Services total expenses excluding interest decreased by 12% in the first quarter of 2024, compared to the same period in 2023. Both segments had decreases in compensation and benefits expense primarily due to lower headcount as a result of position eliminations in 2023, partially offset by higher incentive compensation and annual merit increases. Occupancy and equipment expense decreased in both segments, primarily due to lower technology equipment and software costs and lower occupancy costs due to facility closures in 2023 related to restructuring and the Ameritrade integration. Other expense decreased for Advisor Services and increased for Investor Services, primarily due to decreases in exchange processing fees and other clearing costs for Advisor Services and increases in similar fees and costs for Investor Services. Additionally, regulatory fees and assessments increased in both segments, primarily due to higher FDIC assessments, as described above. For Investor Services, depreciation and amortization expense also increased, primarily due to higher amortization of purchased and internally developed software, driven by capital expenditures in 2023 and the first three months of 2024 to enhance our technological infrastructure to support growth of the business.

RISK MANAGEMENT

Schwab’s business activities expose it to a variety of risks, including operational, compliance, credit, market, and liquidity risks. The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational impact.

For a discussion of our risk management programs, see Part II – Item 7 – Risk Management in the 2023 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, 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-

- 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)

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. Consistent with our policies related to the management of interest rate risk, the Company’s net interest revenue sensitivity analysis primarily involves gradual parallel increases/decreases in interest rates over a twelve-month period, though we also regularly simulate the effects of non-parallel shifts and instantaneous shifts of interest rates on net interest revenue.

Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may reprice at different times or by different amounts, and the spread between short- and long-term interest rates. Interest-earning assets include investment securities, margin loans, bank loans, and cash and cash equivalents. These assets are sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment. Because we establish the rates paid on certain brokerage client cash balances and bank deposits and the rates charged on certain margin and bank loans, and control the composition of our investment securities, we have some ability to manage our net interest spread, depending on competitive factors and market conditions. When we have liquidity needs that exceed our primary sources of funding, the Company has needed to utilize higher-cost funding sources, which can reduce net interest margin and net interest revenue.

Higher prevailing short-term interest rates generally improve yields on shorter duration interest-earning assets. During periods of rapidly rising interest rates, clients tend to reallocate cash out of sweep products into higher-yielding, off-balance sheet, fixed income investments and money market funds within Schwab’s product offerings. This can result in lower interest-earning assets and/or may require supplemental funding with higher funding costs, which therefore tend to constrain net interest revenue when interest rates are moving rapidly higher. A decline in short-term interest rates could negatively impact the yield on the Company’s investment and loan portfolios to a greater degree than any offsetting reduction in interest expense from funding sources, compressing net interest margin.

Net interest revenue sensitivity 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.

The following table presents simulated changes to net interest revenue over the next 12 months beginning March 31, 2024 and December 31, 2023 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

	March 31, 2024		December 31, 2023
Increase of 200 basis points	10.0	%	10.8	%
Increase of 100 basis points	5.3	%	5.8	%
Increase of 50 basis points	2.9	%	3.1	%
Decrease of 50 basis points	0.5	%	0.4	%
Decrease of 100 basis points	0.0	%	(0.2)	%
Decrease of 200 basis points	(3.5)	%	(4.2)	%

The Company’s simulated incremental increases and decreases in market interest rates had a smaller impact on net interest revenue as of March 31, 2024 compared to December 31, 2023. This is primarily due to lower cash balances held at March 31, 2024, partially offset by lower interest-bearing deposits, which reduces interest expense in a higher rate environment and reduces interest expense savings in a lower rate environment.

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