Item 1. Condensed Consolidated Financial Statements

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Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Income

(In Millions, Except Per Share Amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net Revenues
Interest revenue	$	4,104	$	2,710	$	8,120	$	5,029
Interest expense	(1,814)		(166)		(3,060)		(302)
Net interest revenue	2,290		2,544		5,060		4,727
Asset management and administration fees (1)	1,173		1,052		2,291		2,120
Trading revenue	803		885		1,695		1,848
Bank deposit account fees	175		352		326		646
Other	215		260		400		424

Total net revenues	4,656		5,093		9,772		9,765
Expenses Excluding Interest
Compensation and benefits	1,498		1,426		3,136		2,972
Professional services	272		258		530		502
Occupancy and equipment	319		294		618		563
Advertising and market development	103		105		191		207
Communications	188		169		334		313
Depreciation and amortization	191		159		368		309
Amortization of acquired intangible assets	134		154		269		308
Regulatory fees and assessments	80		67		163		135
Other	180		187		362		343
Total expenses excluding interest	2,965		2,819		5,971		5,652
Income before taxes on income	1,691		2,274		3,801		4,113
Taxes on income	397		481		904		918
Net Income	1,294		1,793		2,897		3,195
Preferred stock dividends and other	121		141		191		265
Net Income Available to Common Stockholders	$	1,173	$	1,652	$	2,706	$	2,930
Weighted-Average Common Shares Outstanding:
Basic	1,820		1,896		1,827		1,895
Diluted	1,825		1,904		1,834		1,905
Earnings Per Common Shares Outstanding (2):
Basic	$	.64	$	.87	$	1.48	$	1.55
Diluted	$	.64	$	.87	$	1.48	$	1.54

(1) No fee waivers were recognized for the three and six months ended June 30, 2023. Includes fee waivers of $3 million and $57 million for the three and six months ended June 30, 2022, respectively.

(2) The Company has voting and nonvoting common stock outstanding. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class. See Note 16 for additional information.

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(In Millions)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	1,294	$	1,793	$	2,897	$	3,195
Other comprehensive income (loss), before tax:
Change in net unrealized gain (loss) on available for sale securities:
Net unrealized gain (loss) excluding transfers to held to maturity	(683)		(6,671)		1,166		(19,806)
Reclassification of net unrealized loss transferred to held to maturity	—		—		—		2,429
Other reclassifications included in other revenue	11		(5)		20		(17)
Change in net unrealized gain (loss) on held to maturity securities:
Reclassification of net unrealized loss transferred from available for sale	—		—		—		(2,429)
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale	642		122		1,251		214
Other	(1)		—		(9)		—
Other comprehensive income (loss), before tax	(31)		(6,554)		2,428		(19,609)
Income tax effect	(9)		1,577		(537)		4,696
Other comprehensive income (loss), net of tax	(40)		(4,977)		1,891		(14,913)
Comprehensive Income (Loss)	$	1,254	$	(3,184)	$	4,788	$	(11,718)

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Balance Sheets (1)

(In Millions, Except Per Share and Share Amounts)

(Unaudited)


	June 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	47,651	$	40,195
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $5,405 and $12,159 at June 30, 2023 and December 31, 2022, respectively)	25,083		42,983
Receivables from brokerage clients — net	65,162		66,591
Available for sale securities (amortized cost of $136,874 at June 30, 2023 and $160,162 at December 31, 2022; including assets pledged of $28 and $41, respectively)	125,769		147,871
Held to maturity securities (including assets pledged of $8,365 at June 30, 2023 and $4,522 at December 31, 2022)	166,328		173,074
Bank loans — net	40,061		40,505
Equipment, office facilities, and property — net	3,686		3,714
Goodwill	11,951		11,951
Acquired intangible assets — net	8,524		8,789
Other assets	17,290		16,099
Total assets	$	511,505	$	551,772
Liabilities and Stockholders’ Equity
Bank deposits	$	304,414	$	366,724
Payables to brokerage clients	84,795		97,438
Accrued expenses and other liabilities	13,836		13,124
Other short-term borrowings	7,831		4,650
Federal Home Loan Bank borrowings	41,000		12,400
Long-term debt	22,482		20,828
Total liabilities	474,358		515,164
Stockholders’ equity:
Preferred stock — $.01 par value per share; aggregate liquidation preference of $9,328 and $9,850 at June 30, 2023 and December 31, 2022, respectively	9,191		9,706
Common stock — 3 billion shares authorized; $.01 par value per share; 2,023,295,180 shares issued at June 30, 2023 and December 31, 2022	20		20
Nonvoting common stock — 300 million shares authorized; $.01 par value per share; 50,893,695 shares issued at June 30, 2023 and December 31, 2022	1		1
Additional paid-in capital	27,220		27,075
Retained earnings	32,865		31,066
Treasury stock, at cost — 253,803,819 and 221,033,042 shares at June 30, 2023 and December 31, 2022, respectively	(11,420)		(8,639)
Accumulated other comprehensive income (loss)	(20,730)		(22,621)
Total stockholders’ equity	37,147		36,608
Total liabilities and stockholders’ equity	$	511,505	$	551,772

(1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information.

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(In Millions)

(Unaudited)


															Accumulated Other Comprehensive Income (Loss)
	Preferred Stock		Common Stock			Nonvoting Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock, at cost		Total
	Shares		Amount	Shares		Amount
Balance at March 31, 2022	$	10,694	1,995	$	20	79	$	1	$	26,826	$	26,895	$	(5,293)	$	(11,045)	$	48,098
Net income	—		—	—		—	—		—		1,793		—		—		1,793
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		(4,977)		(4,977)



Dividends declared on preferred stock	—		—	—		—	—		—		(133)		—		—		(133)
Dividends declared on common stock — $.20 per share	—		—	—		—	—		—		(381)		—		—		(381)



Stock option exercises and other	—		—	—		—	—		(5)		—		8		—		3
Share-based compensation	—		—	—		—	—		53		—		—		—		53
Other	—		—	—		—	—		44		—		13		—		57
Balance at June 30, 2022	$	10,694	1,995	$	20	79	$	1	$	26,918	$	28,174	$	(5,272)	$	(16,022)	$	44,513

Balance at March 31, 2023	$	9,191	2,023	$	20	51	$	1	$	27,136	$	32,144	$	(11,455)	$	(20,690)	$	36,347
Net income	—		—	—		—	—		—		1,294		—		—		1,294
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		(40)		(40)



Dividends declared on preferred stock	—		—	—		—	—		—		(116)		—		—		(116)
Dividends declared on common stock — $.25 per share	—		—	—		—	—		—		(457)		—		—		(457)



Stock option exercises and other	—		—	—		—	—		(9)		—		14		—		5
Share-based compensation	—		—	—		—	—		53		—		—		—		53
Other	—		—	—		—	—		40		—		21		—		61
Balance at June 30, 2023	$	9,191	2,023	$	20	51	$	1	$	27,220	$	32,865	$	(11,420)	$	(20,730)	$	37,147


															Accumulated Other Comprehensive Income (Loss)
	Preferred Stock		Common Stock			Nonvoting Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock, at cost		Total
	Shares		Amount	Shares		Amount
Balance at December 31, 2021	$	9,954	1,995	$	20	79	$	1	$	26,741	$	25,992	$	(5,338)	$	(1,109)	$	56,261
Net income	—		—	—		—	—		—		3,195		—		—		3,195
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		(14,913)		(14,913)
Issuance of preferred stock, net	740		—	—		—	—		—		—		—		—		740


Dividends declared on preferred stock	—		—	—		—	—		—		(251)		—		—		(251)
Dividends declared on common stock — $.40 per share	—		—	—		—	—		—		(762)		—		—		(762)



Stock option exercises and other	—		—	—		—	—		(56)		—		89		—		33
Share-based compensation	—		—	—		—	—		165		—		—		—		165
Other	—		—	—		—	—		68		—		(23)		—		45
Balance at June 30, 2022	$	10,694	1,995	$	20	79	$	1	$	26,918	$	28,174	$	(5,272)	$	(16,022)	$	44,513

Balance at December 31, 2022	$	9,706	2,023	$	20	51	$	1	$	27,075	$	31,066	$	(8,639)	$	(22,621)	$	36,608
Net income	—		—	—		—	—		—		2,897		—		—		2,897
Other comprehensive income (loss), net of tax	—		—	—		—	—		—		—		—		1,891		1,891

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

Dividends declared on preferred stock	—		—	—		—	—		—		(221)		—		—		(221)
Dividends declared on common stock — $.50 per share	—		—	—		—	—		—		(921)		—		—		(921)
Repurchase of common stock, inclusive of tax	—		—	—		—	—		—		—		(2,869)		—		(2,869)


Stock option exercises and other	—		—	—		—	—		(101)		—		125		—		24
Share-based compensation	—		—	—		—	—		182		—		—		—		182
Other	—		—	—		—	—		64		—		(37)		—		27
Balance at June 30, 2023	$	9,191	2,023	$	20	51	$	1	$	27,220	$	32,865	$	(11,420)	$	(20,730)	$	37,147

See Notes to the Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Cash Flows (1)

(in Millions)

(Unaudited)


	Six Months Ended June 30,
	2023		2022
Cash Flows from Operating Activities
Net income	$	2,897	$	3,195
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Share-based compensation	194		206
Depreciation and amortization	368		309
Amortization of acquired intangible assets	269		308
Provision (benefit) for deferred income taxes	4		(37)
Premium amortization, net, on available for sale and held to maturity securities	392		868
Other	278		187
Net change in:
Investments segregated and on deposit for regulatory purposes	10,832		(10,605)
Receivables from brokerage clients	1,409		14,420
Other assets	(27)		(74)
Payables to brokerage clients	(12,643)		(10,791)
Accrued expenses and other liabilities	588		(2,876)
Net cash provided by (used for) operating activities	4,561		(4,890)
Cash Flows from Investing Activities
Purchases of available for sale securities	—		(46,454)
Proceeds from sales of available for sale securities	2,900		13,470
Principal payments on available for sale securities	20,181		28,533

Principal payments on held to maturity securities	7,672		8,658
Net change in bank loans	413		(4,830)

Purchases of equipment, office facilities, and property	(398)		(537)
Purchases of FHLB stock	(1,562)		—
Proceeds from sales of FHLB stock	82		—
Purchases of Federal Reserve stock	(82)		(85)
Proceeds from sales of Federal Reserve stock	98		4
Other investing activities	(108)		(11)
Net cash provided by (used for) investing activities	29,196		(1,252)
Cash Flows from Financing Activities
Net change in bank deposits	(62,310)		(1,775)



Proceeds from FHLB borrowings	39,200		4
Repayments of FHLB borrowings	(10,600)		(4)
Proceeds from other short-term borrowings	8,114		14,499
Repayments of other short-term borrowings	(4,939)		(18,007)
Issuances of long-term debt	2,478		2,971
Repayments of long-term debt	(815)		(765)
Net proceeds from preferred stock offerings	—		740
Redemption and repurchase of preferred stock	(467)		—
Dividends paid	(1,142)		(1,020)
Proceeds from stock options exercised	24		33
Repurchases of common stock and nonvoting common stock	(2,842)		—
Other financing activities	(71)		(46)
Net cash provided by (used for) financing activities	(33,370)		(3,370)
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted	387		(9,512)
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year	58,720		93,338
Cash and Cash Equivalents, including Amounts Restricted at End of Period	$	59,107	$	83,826

Continued on following page.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Cash Flows (1)

(in Millions)

(Unaudited)

Continued from previous page.


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

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

Changes in accrued equipment, office facilities, and property purchases	$	(43)	$	11




Other Supplemental Cash Flow Information:
Cash paid during the period for:
Interest	$	2,135	$	286
Income taxes	$	876	$	837
Amounts included in the measurement of lease liabilities	$	128	$	106
Leased assets obtained in exchange for new operating lease liabilities	$	40	$	199
Leased assets obtained in exchange for new finance lease liabilities	$	—	$	5

	June 30, 2023		June 30, 2022
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2)
Cash and cash equivalents	$	47,651	$	64,550
Restricted cash and cash equivalents amounts included in cash and investments segregated and on deposit for regulatory purposes	11,456		19,276
Total cash and cash equivalents, including amounts restricted shown in the statement of cash flows	$	59,107	$	83,826

(1) Certain prior period amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information.

(2) For more information on the nature of restrictions on restricted cash and cash equivalents, see Note 17.

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

1. Introduction and Basis of Presentation

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

Principal business subsidiaries of CSC include the following:

Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer;
TD Ameritrade, Inc., an introducing securities broker-dealer;
TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.;
Charles Schwab Bank, SSB (CSB), our principal banking entity; and
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

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

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

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

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

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

2. Summary of Significant Accounting Policies and New Accounting Standards

Derivative Instruments and Hedging Activities

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

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

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

both recorded in interest revenue on the condensed consolidated statement of income. If the hedging relationship is terminated, the basis adjustment remaining on the hedged asset continues to be reported as part of the amortized cost of that asset and is amortized to interest revenue over the remaining life of the asset as a yield adjustment using the effective interest method. The Company does not amortize basis adjustments prior to termination of the hedging relationship.

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

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

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

Adoption of New Accounting Standards


Standard			Description			Date of Adoption			Effects on the Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”			Troubled Debt Restructurings (TDRs) Eliminates the accounting guidance for TDRs. Rather than applying the specific guidance for TDRs, creditors will apply the recognition and measurement guidance for loan refinancings and restructurings to determine whether a modification results in a new loan or a continuation of an existing loan. The guidance requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Vintage Disclosures Requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. Adoption provides for prospective application, with an option to apply the modified retrospective transition method for the change in recognition and measurement of TDRs.			January 1, 2023			The Company adopted this guidance on January 1, 2023 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s financial statements.

New Accounting Standards Not Yet Adopted

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

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

3. Revenue Recognition

Disaggregation of Schwab’s revenue by major source is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net interest revenue
Cash and cash equivalents	$	547	$	133	$	960	$	167
Cash and investments segregated	324		79		756		94
Receivables from brokerage clients	1,167		706		2,251		1,332
Available for sale securities	791		1,088		1,616		2,035
Held to maturity securities	720		339		1,466		717
Bank loans	410		230		801		417
Securities lending revenue	124		130		236		259
Other interest revenue	21		5		34		8
Interest revenue	4,104		2,710		8,120		5,029
Bank deposits	(863)		(28)		(1,481)		(44)
Payables to brokerage clients	(64)		(4)		(139)		(6)
Other short-term borrowings (1)	(97)		(4)		(183)		(8)
Federal Home Loan Bank borrowings (1)	(606)		—		(910)		—
Long-term debt	(157)		(124)		(296)		(232)
Securities lending expense	(28)		(8)		(50)		(15)
Other interest expense	1		2		(1)		3
Interest expense	(1,814)		(166)		(3,060)		(302)
Net interest revenue	2,290		2,544		5,060		4,727
Asset management and administration fees
Mutual funds, ETFs, and CTFs	630		515		1,215		1,004
Advice solutions	464		461		917		957
Other	79		76		159		159
Asset management and administration fees	1,173		1,052		2,291		2,120
Trading revenue
Commissions	394		443		816		927
Order flow revenue	365		430		779		900
Principal transactions	44		12		100		21
Trading revenue	803		885		1,695		1,848
Bank deposit account fees	175		352		326		646
Other	215		260		400		424

Total net revenues	$	4,656	$	5,093	$	9,772	$	9,765

Note: For a summary of revenue provided by our reportable segments, see Note 18. The recognition of revenue is not impacted by the operating segment in which revenue is generated.

(1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information.

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

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

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

- 37 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

4. Investment Securities

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


June 30, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale securities
U.S. agency mortgage-backed securities	$	79,534	$	1	$	7,808	$	71,727
U.S. Treasury securities	30,015		—		1,491		28,524
Asset-backed securities (1)	11,499		—		542		10,957
Corporate debt securities (2)	13,427		—		1,145		12,282
Certificates of deposit	350		—		2		348
Foreign government agency securities	1,034		—		56		978
U.S. state and municipal securities	637		—		65		572
Non-agency commercial mortgage-backed securities	282		—		19		263

Other	122		—		4		118
Unallocated portfolio layer method fair value basis adjustments (3)	(26)		—		(26)		—
Total available for sale securities (4)	$	136,874	$	1	$	11,106	$	125,769
Held to maturity securities
U.S. agency mortgage-backed securities	$	166,328	$	817	$	15,548	$	151,597









Total held to maturity securities	$	166,328	$	817	$	15,548	$	151,597


December 31, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale securities
U.S. agency mortgage-backed securities	$	85,994	$	—	$	8,306	$	77,688
U.S. Treasury securities	41,879		—		1,877		40,002
Asset-backed securities (1)	13,672		—		649		13,023
Corporate debt securities (2)	13,830		—		1,275		12,555

Certificates of deposit	2,245		—		14		2,231
Foreign government agency securities	1,033		—		64		969
U.S. state and municipal securities	713		—		75		638

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

Other	323		—		8		315
Total available for sale securities (4)	$	160,162	$	—	$	12,291	$	147,871
Held to maturity securities
U.S. agency mortgage-backed securities	$	173,074	$	1,442	$	15,580	$	158,936








Total held to maturity securities	$	173,074	$	1,442	$	15,580	$	158,936

(1) Approximately 61% and 57% of asset-backed securities held as of June 30, 2023 and December 31, 2022, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately 19% and 18% of the asset-backed securities held as of June 30, 2023 and December 31, 2022, respectively.

(2) As of both June 30, 2023 and December 31, 2022, approximately 37% of the total AFS in corporate debt securities were issued by institutions in the financial services industry.

(3) Beginning in 2023, this represents the amount of PLM basis adjustments related to AFS securities hedged in a closed portfolio. These amounts are not allocated to individual securities, however the amounts impact the unrealized gains or losses for the individual securities being hedged. See Note 2 for more information on PLM hedge accounting.

(4) Included in cash and cash equivalents on the condensed consolidated balance sheets, but excluded from this table is $48 million of AFS commercial paper as of December 31, 2022 (none as of June 30, 2023). These holdings have maturities of three months or less and an aggregate market value equal to amortized cost.

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

- 38 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

net income. As of June 30, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $12.3 billion net of tax effect ($16.3 billion pretax).

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

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

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

Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, of AFS investment securities are as follows:


	Less than 12 months				12 months or longer				Total

June 30, 2023	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale securities
U.S. agency mortgage-backed securities	$	2,811	$	111	$	68,687	$	7,697	$	71,498	$	7,808
U.S. Treasury securities	2,371		6		26,153		1,485		28,524		1,491
Asset-backed securities	263		2		10,669		540		10,932		542
Corporate debt securities	192		7		12,090		1,138		12,282		1,145
Certificates of deposit	250		—		98		2		348		2
Foreign government agency securities	—		—		978		56		978		56
U.S. state and municipal securities	18		—		554		65		572		65
Non-agency commercial mortgage-backed securities	—		—		263		19		263		19

Other	—		—		118		4		118		4
Total (1)	$	5,905	$	126	$	119,610	$	11,006	$	125,515	$	11,132


December 31, 2022
Available for sale securities
U.S. agency mortgage-backed securities	$	34,938	$	2,025	$	42,558	$	6,281	$	77,496	$	8,306
U.S. Treasury securities	27,063		716		12,519		1,161		39,582		1,877
Asset-backed securities	6,717		217		6,299		432		13,016		649
Corporate debt securities	8,552		542		3,998		733		12,550		1,275
Certificates of deposit	2,033		10		196		4		2,229		14
Foreign government agency securities	756		50		214		14		970		64
U.S. state and municipal securities	482		31		157		44		639		75
Non-agency commercial mortgage-backed securities	443		23		—		—		443		23
Other	315		8		—		—		315		8
Total	$	81,299	$	3,622	$	65,941	$	8,669	$	147,240	$	12,291

(1) For purposes of this table, unrealized losses on AFS securities excludes the PLM fair value hedge basis adjustments of $26 million at June 30, 2023.

At June 30, 2023, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality

- 39 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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

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

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

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


June 30, 2023	Within 1 year		After 1 year through 5 years		After 5 years through 10 years		After 10 years		Total
Available for sale securities
U.S. agency mortgage-backed securities	$	727	$	14,526	$	13,340	$	43,134	$	71,727
U.S. Treasury securities	13,789		14,707		28		—		28,524
Asset-backed securities	31		3,000		1,745		6,181		10,957
Corporate debt securities	1,835		8,259		2,188		—		12,282
Certificates of deposit	348		—		—		—		348
Foreign government agency securities	201		777		—		—		978
U.S. state and municipal securities	—		38		402		132		572
Non-agency commercial mortgage-backed securities	—		—		—		263		263

Other	98		—		—		20		118
Total fair value	$	17,029	$	41,307	$	17,703	$	49,730	$	125,769
Total amortized cost (1)	$	17,276	$	44,216	$	19,887	$	55,521	$	136,900

Held to maturity securities
U.S. agency mortgage-backed securities	$	700	$	6,371	$	38,623	$	105,903	$	151,597









Total fair value	$	700	$	6,371	$	38,623	$	105,903	$	151,597
Total amortized cost	$	716	$	6,808	$	41,871	$	116,933	$	166,328

(1) For purposes of this table, the amortized cost of AFS securities excludes the PLM fair value hedge basis adjustments of $26 million at June 30, 2023.

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


	Three Months Ended June 30,				Six Months Ended June 30,

	2023		2022			2023		2022
Proceeds	$	1,849	$	3,949		$	2,900	$	13,470
Gross realized gains	—		25			—		140
Gross realized losses	11		20			20		123

- 40 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

5. Bank Loans and Related Allowance for Credit Losses

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


June 30, 2023	Current		30-59 days past due		60-89 days past due		>90 days past due and other nonaccrual loans (3)		Total past due and other nonaccrual loans		Total loans		Allowance for credit losses		Total bank loans – net
Residential real estate:
First Mortgages (1,2)	$	25,783	$	12	$	1	$	10	$	23	$	25,806	$	68	$	25,738
HELOCs (1,2)	507		—		1		5		6		513		3		510
Total residential real estate	26,290		12		2		15		29		26,319		71		26,248
Pledged asset lines	13,566		6		—		—		6		13,572		—		13,572
Other	245		—		—		—		—		245		4		241
Total bank loans	$	40,101	$	18	$	2	$	15	$	35	$	40,136	$	75	$	40,061

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

(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $99 million and $98 million at June 30, 2023 and December 31, 2022, respectively.

(2) At both June 30, 2023 and December 31, 2022, 43% of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole.

(3) There were no loans accruing interest that were contractually 90 days or more past due at June 30, 2023 or December 31, 2022.

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

Changes in the allowance for credit losses on bank loans were as follows:


Three Months Ended
June 30, 2023	First Mortgages		HELOCs		Total residential real estate		Pledged asset lines		Other		Total
Balance at beginning of period	$	67	$	4	$	71	$	—	$	3	$	74
Charge-offs	—		—		—		—		—		—
Recoveries	—		—		—		—		—		—
Provision for credit losses	1		(1)		—		—		1		1
Balance at end of period	$	68	$	3	$	71	$	—	$	4	$	75

June 30, 2022
Balance at beginning of period	$	23	$	2	$	25	$	—	$	3	$	28
Charge-offs	—		—		—		—		—		—
Recoveries	—		—		—		—		—		—
Provision for credit losses	8		1		9		—		—		9
Balance at end of period	$	31	$	3	$	34	$	—	$	3	$	37

- 41 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


Six Months Ended
June 30, 2023	First Mortgages		HELOCs		Total residential real estate		Pledged asset lines		Other		Total
Balance at beginning of period	$	66	$	4	$	70	$	—	$	3	$	73
Charge-offs	—		—		—		—		—		—
Recoveries	—		—		—		—		—		—
Provision for credit losses	2		(1)		1		—		1		2
Balance at end of period	$	68	$	3	$	71	$	—	$	4	$	75

June 30, 2022
Balance at beginning of period	$	13	$	2	$	15	$	—	$	3	$	18
Charge-offs	—		—		—		—		—		—
Recoveries	—		—		—		—		—		—
Provision for credit losses	18		1		19		—		—		19
Balance at end of period	$	31	$	3	$	34	$	—	$	3	$	37

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

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

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


	June 30, 2023		December 31, 2022
Nonaccrual loans (1)	$	15	$	23
Other real estate owned (2)	—		2


Total nonperforming assets	$	15	$	25

(1) Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02.

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

Credit Quality

In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following:

Year of origination;
Borrower FICO scores at origination (Origination FICO);
Updated borrower FICO scores (Updated FICO);
Loan-to-value (LTV) ratios at origination (Origination LTV); and
Estimated Current LTV ratios (Estimated Current LTV).

Borrowers’ FICO scores are provided by an independent third-party credit reporting service and generally updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index.

- 42 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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


	First Mortgages Amortized Cost Basis by Origination Year
June 30, 2023	2023			2022			2021			2020			2019			pre-2019			Total First Mortgages			Revolving HELOCs amortized cost basis			HELOCs converted to term loans			Total HELOCs
Origination FICO
<620	$	—		$	2		$	1		$	1		$	—		$	1		$	5		$	—		$	—		$	—
620 – 679	3			27			30			20			2			13			95			—			1			1
680 – 739	177			807			1,193			412			110			215			2,914			53			41			94
≥740	1,319			5,426			10,719			3,689			776			863			22,792			274			144			418
Total	$	1,499		$	6,262		$	11,943		$	4,122		$	888		$	1,092		$	25,806		$	327		$	186		$	513
Origination LTV
≤70%	$	1,017		$	4,638		$	10,343		$	3,425		$	718		$	812		$	20,953		$	288		$	130		$	418
>70% – ≤90%	482			1,624			1,600			697			170			278			4,851			39			55			94
>90% – ≤100%	—			—			—			—			—			2			2			—			1			1
Total	$	1,499		$	6,262		$	11,943		$	4,122		$	888		$	1,092		$	25,806		$	327		$	186		$	513
Updated FICO
<620	$	1		$	13		$	13		$	7		$	2		$	11		$	47		$	2		$	4		$	6
620 – 679	19			85			119			41			11			37			312			5			10			15
680 – 739	170			604			956			344			72			132			2,278			45			28			73
≥740	1,309			5,560			10,855			3,730			803			912			23,169			275			144			419
Total	$	1,499		$	6,262		$	11,943		$	4,122		$	888		$	1,092		$	25,806		$	327		$	186		$	513
Estimated Current LTV (1)
≤70%	$	1,016		$	4,756		$	11,603		$	4,108		$	887		$	1,090		$	23,460		$	322		$	186		$	508
>70% – ≤90%	483			1,484			340			14			1			2			2,324			5			—			5
>90% – ≤100%	—			19			—			—			—			—			19			—			—			—
>100%	—			3			—			—			—			—			3			—			—			—
Total	$	1,499		$	6,262		$	11,943		$	4,122		$	888		$	1,092		$	25,806		$	327		$	186		$	513
Gross charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Percent of Loans on Nonaccrual Status	0.02		%	0.03		%	0.03		%	0.03		%	0.02		%	0.30		%	0.04		%	0.26		%	2.01		%	0.97		%

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

- 43 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


	First Mortgages Amortized Cost Basis by Origination Year
December 31, 2022	2022			2021			2020			2019			pre-2019			Total First Mortgages			Revolving HELOCs amortized cost basis			HELOCs converted to term loans			Total HELOCs
Origination FICO
<620	$	3		$	1		$	—		$	—		$	1		$	5		$	—		$	—		$	—
620 – 679	28			31			21			2			15			97			—			2			2
680 – 739	820			1,224			430			116			243			2,833			59			47			106
≥740	5,593			11,037			3,819			811			1,003			22,263			323			166			489
Total	$	6,444		$	12,293		$	4,270		$	929		$	1,262		$	25,198		$	382		$	215		$	597
Origination LTV
≤70%	$	4,771		$	10,641		$	3,549		$	749		$	940		$	20,650		$	332		$	153		$	485
>70% – ≤90%	1,673			1,652			721			180			320			4,546			50			61			111
>90% – ≤100%	—			—			—			—			2			2			—			1			1
Total	$	6,444		$	12,293		$	4,270		$	929		$	1,262		$	25,198		$	382		$	215		$	597
Updated FICO
<620	$	11		$	12		$	7		$	2		$	13		$	45		$	2		$	5		$	7
620 – 679	87			127			42			10			43			309			6			10			16
680 – 739	711			1,079			378			89			161			2,418			52			35			87
≥740	5,635			11,075			3,843			828			1,045			22,426			322			165			487
Total	$	6,444		$	12,293		$	4,270		$	929		$	1,262		$	25,198		$	382		$	215		$	597
Estimated Current LTV (1)
≤70%	$	4,574		$	11,751		$	4,255		$	928		$	1,257		$	22,765		$	380		$	214		$	594
>70% – ≤90%	1,845			542			15			1			5			2,408			2			1			3
>90% – ≤100%	25			—			—			—			—			25			—			—			—
>100%	—			—			—			—			—			—			—			—			—
Total	$	6,444		$	12,293		$	4,270		$	929		$	1,262		$	25,198		$	382		$	215		$	597
Percent of Loans on Nonaccrual Status	0.02		%	0.03		%	0.09		%	0.02		%	0.43		%	0.06		%	0.34		%	1.90		%	0.84		%

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

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

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

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

- 44 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The following table presents when current outstanding HELOCs will convert to amortizing loans:


June 30, 2023	Balance
Converted to an amortizing loan by period end (1)	$	186
Within 1 year	24
> 1 year – 3 years	42
> 3 years – 5 years	53
> 5 years	208
Total	$	513

(1) Includes $5 million and $11 million of HELOCs converted to amortizing loans during the three and six months ended June 30, 2023, respectively.

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

6. Variable Interest Entities

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

Aggregate assets, liabilities, and maximum exposure to loss

The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below:


	June 30, 2023						December 31, 2022
	Aggregate assets		Aggregate liabilities		Maximum exposure to loss		Aggregate assets		Aggregate liabilities		Maximum exposure to loss
LIHTC investments (1)	$	1,201	$	697	$	1,201	$	1,094	$	619	$	1,094
Other investments (2)	182		—		225		167		—		215
Total	$	1,383	$	697	$	1,426	$	1,261	$	619	$	1,309

(1) Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets.

(2) Other investments include non-LIHTC CRA investments that are accounted for as loans at amortized cost, equity method investments, AFS securities, or using the adjusted cost method. Aggregate assets are included in AFS securities, bank loans – net, or other assets on the condensed consolidated balance sheets.

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

- 45 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

7. Bank Deposits

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


	June 30, 2023		December 31, 2022
Interest-bearing deposits:
Deposits swept from brokerage accounts	$	240,575	$	333,754
Time certificates of deposit (1)	41,368		6,047
Checking	16,347		19,719
Savings and other	5,055		6,098
Total interest-bearing deposits	303,345		365,618
Non-interest-bearing deposits	1,069		1,106
Total bank deposits	$	304,414	$	366,724

(1) Time certificates of deposit consist of brokered CDs. As of June 30, 2023, uninsured time CDs totaled $178 million. As of December 31, 2022, there were no time deposits that were in excess of FDIC insurance limits or otherwise uninsured.

Annual maturities on time certificates of deposit outstanding at June 30, 2023 are as follows:


	Balance
2023	$	9,615
2024	30,115
2025	1,638
Total	$	41,368

8. Borrowings

CSC Senior Notes

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

TDA Holding Senior Notes

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

- 46 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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


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


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

SOFR + 0.500% due March 18, 2024	03/18/21	1,250		1,250
SOFR + 0.520% due May 13, 2026	05/13/21	500		500
SOFR + 1.050% due March 3, 2027	03/03/22	500		500
CSC Fixed-to-Floating rate Senior Notes:
5.643% due May 19, 2029 (1)	05/19/23	1,200		—
5.853% due May 19, 2034 (2)	05/19/23	1,300		—
Total CSC Senior Notes		22,212		20,512
TDA Holding Fixed-rate Senior Notes:

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


Total TDA Holding Senior Notes		213		213
Finance lease liabilities		52		68
Unamortized premium — net		109		129
Debt issuance costs		(104)		(94)
Total long-term debt		$	22,482	$	20,828

(1) The 2029 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.643%, payable semi-annually, until the interest reset date on May 19, 2028. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.210%, payable quarterly.

(2) The 2034 fixed-to-floating rate Senior Notes bear interest at a fixed rate of 5.853%, payable semi-annually, until the interest reset date on May 19, 2033. On and after this date, these notes will bear interest at an annual floating rate of SOFR plus 2.500%, payable quarterly.

- 47 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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


	Maturities
2023	$	15
2024	3,675
2025	2,237
2026	3,100
2027	3,450
Thereafter	10,000
Total maturities	22,477
Unamortized premium — net	109
Debt issuance costs	(104)
Total long-term debt	$	22,482

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

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

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

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

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

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

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

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


	2023		2024		Total
FHLB borrowings	$	24,200	$	16,800	$	41,000
Other short-term borrowings	6,625		1,206		7,831
Total	$	30,825	$	18,006	$	48,831

- 48 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

9. Commitments and Contingencies

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

The Company’s commitments to extend credit on lines of credit and to purchase First Mortgages are as follows:


	June 30, 2023		December 31, 2022
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit	$	3,674	$	4,533
Commitments to purchase First Mortgage loans	481		492
Total	$	4,155	$	5,025

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

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

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

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

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

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

- 49 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The 2023 IDA agreement eliminates the requirement of the 2019 IDA agreement that at least 80% of the IDA balances be designated as fixed-rate obligation amounts. Designation of deposit balances for investment in fixed- or floating-rate instruments under the 2023 IDA agreement is now at Schwab’s sole discretion with certain limitations on the amount of fixed-rate obligation amounts.

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

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

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

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

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

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

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

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

- 50 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

leave to amend, plaintiffs filed a second amended complaint on August 14, 2017. Defendants again moved to dismiss, and in a decision issued December 5, 2017, the court denied the motion. Plaintiffs filed a motion for class certification on April 30, 2021, and in a decision on October 27, 2021, the court denied the motion and held that certification of a class action is inappropriate. Plaintiffs sought review of the order denying class certification by the U.S. Court of Appeals, 9th Circuit, which was denied. On September 23, 2022, plaintiffs filed a renewed motion for class certification and defendants moved to compel plaintiffs’ case to arbitration. On February 2, 2023, the court granted defendants’ motion, stayed the case pending the outcome of arbitration, and denied plaintiffs’ renewed motion for class certification as moot.

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

10. Exit and Other Related Liabilities

Integration of TD Ameritrade

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

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

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

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

- 51 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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



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












Balance at December 31, 2022 (1)	$	36	$	10	$	46

Amounts recognized in expense (2)	11		3		14
Costs paid or otherwise settled	(4)		(1)		(5)
Balance at June 30, 2023 (1)	$	43	$	12	$	55

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

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

The following table summarizes the exit and other related costs recognized in expense for the three and six months ended June 30, 2023:


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

Compensation and benefits	$	3	$	—	$	3	$	1	$	—	$	1	$	4

Occupancy and equipment	—		3		3		—		2		2		5


Other	—		14		14		—		7		7		21
Total	$	3	$	17	$	20	$	1	$	9	$	10	$	30

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

Compensation and benefits	$	11	$	—	$	11	$	3	$	—	$	3	$	14

Occupancy and equipment	—		3		3		—		2		2		5


Other	—		14		14		—		7		7		21
Total	$	11	$	17	$	28	$	3	$	9	$	12	$	40

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

The following table summarizes the exit and other related costs recognized in expense for the three and six months ended June 30, 2022:


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

Compensation and benefits	$	5	$	—	$	5	$	2	$	—	$	2	$	7
Occupancy and equipment	—		1		1		—		—		—		1
Total	$	5	$	1	$	6	$	2	$	—	$	2	$	8

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

Compensation and benefits	$	13	$	—	$	13	$	4	$	—	$	4	$	17
Occupancy and equipment	—		2		2		—		1		1		3


Total	$	13	$	2	$	15	$	4	$	1	$	5	$	20

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

- 52 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The following table summarizes the exit and other related costs incurred from October 6, 2020 through June 30, 2023:


	Investor Services						Advisor Services
	Employee Compensation and Benefits		Facility Exit Costs (1)		Investor Services Total		Employee Compensation and Benefits		Facility Exit Costs (1)		Advisor Services Total		Total
Compensation and benefits	$	234	$	—	$	234	$	64	$	—	$	64	$	298

Occupancy and equipment	—		34		34		—		9		9		43
Depreciation and amortization	—		2		2		—		1		1		3
Professional services	—		1		1		—		—		—		1
Other	—		16		16		—		7		7		23
Total	$	234	$	53	$	287	$	64	$	17	$	81	$	368

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

Other

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

11. Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

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

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

Fair Value Hedges of Interest Rate Risk

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

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

- 53 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Fair Values of Derivative Instruments

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


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

(1) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheet.

(2) Includes a $121 million reduction of derivative assets related to variation margin settlements on derivatives cleared through CCPs. Settlements on derivative positions cleared through CCPs are reflected as reductions to the associated derivative asset and liability balances.

Effects of Fair Value Hedge Accounting

The following amounts were recorded in AFS securities on the condensed consolidated balance sheet related to fair value hedges:


	June 30, 2023
Carrying amount of hedged AFS securities (1,2)	$	8,863
Cumulative fair value hedging adjustment included in the carrying amount of hedged AFS securities (1,2)	(122)

(1) Includes the amortized cost basis of closed portfolios of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. The amortized cost basis of the closed portfolios used in these hedging relationships is $1.6 billion and the notional amount of the designated hedged items is $1.6 billion. The cumulative basis adjustments associated with these hedges is an unrealized loss of $26 million.

(2) Excludes the carrying amount and fair value hedging adjustment of AFS securities for which hedge accounting has been discontinued. The cumulative amount of fair value hedging adjustments remaining for these securities is an unrealized loss of less than $500 thousand, which is recorded in AFS securities on the condensed consolidated balance sheet.

The table below presents the effect of the Company’s interest rate swaps designated as fair value hedges on the condensed consolidated statement of income:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023			2023
Gain (loss) on fair value hedging relationships recognized in interest revenue:
Hedged items	$	(126)		$	(122)
Derivatives designated as hedging instruments	126			122

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

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

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

- 54 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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

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

- 55 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The following table presents information about our interest rate swaps, resale agreements, securities lending, and other activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities.


	Gross Assets/ Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in the Condensed Consolidated Balance Sheets		Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets					Net Amount
			Counterparty Offsetting		Collateral
June 30, 2023
Assets
Interest rate swaps (1,3)	$	1	$	—	$	1	$	—	$	—	(5)	$	1
Resale agreements (1)	5,405		—		5,405		—		(5,405)		(2)	—
Securities borrowed (4)	1,349		—		1,349		(907)		(439)			3
Total	$	6,755	$	—	$	6,755	$	(907)	$	(5,844)		$	4
Liabilities

Repurchase agreements (6)	$	7,831	$	—	$	7,831	$	—	$	(7,831)		$	—
Securities loaned (7)	4,612		—		4,612		(907)		(3,200)			505
Total	$	12,443	$	—	$	12,443	$	(907)	$	(11,031)		$	505

December 31, 2022
Assets
Resale agreements (1)	$	12,159	$	—	$	12,159	$	—	$	(12,159)	(2)	$	—
Securities borrowed (4)	705		—		705		(331)		(366)			8
Total	$	12,864	$	—	$	12,864	$	(331)	$	(12,525)		$	8
Liabilities
Repurchase agreements (6)	$	4,402	$	—	$	4,402	$	—	$	(4,402)		$	—
Securities loaned (7)	4,200		—		4,200		(331)		(3,313)			556
Total	$	8,602	$	—	$	8,602	$	(331)	$	(7,715)		$	556

(1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets.

(2) Actual collateral was greater than or equal to the value of the related assets. At June 30, 2023 and December 31, 2022, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $5.5 billion and $12.3 billion, respectively.

(3) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. Derivative asset and liability positions are inclusive of variation margin settlements cleared through CCPs which are reflected as reductions to the associated derivative asset and liability balances. See Note 11 for additional information.

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

(5) At June 30, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $178 million. See Notes 4 and 11 for additional information.

(6) Included in other short-term borrowings in the condensed consolidated balance sheets. Actual collateral was greater than or equal to the value of the related liabilities. At June 30, 2023 and December 31, 2022, the fair value of collateral pledged in connection with repurchase agreements was $8.4 billion and $4.6 billion, respectively. See Note 8 for additional information.

(7) Included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at June 30, 2023 and December 31, 2022.

Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged to third parties under such regulations and from securities borrowed transactions:


	June 30, 2023		December 31, 2022
Fair value of client securities available to be pledged	$	86,977	$	86,775
Fair value of securities pledged for:
Fulfillment of requirements with the Options Clearing Corporation (1)	$	15,847	$	11,717
Fulfillment of client short sales	7,447		4,750
Securities lending to other broker-dealers	3,900		3,472

Total collateral pledged to third parties	$	27,194	$	19,939

Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $195 million and $160 million at June 30, 2023 and December 31, 2022, respectively.

(1) Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.

- 56 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

13. Fair Values of Assets and Liabilities

Assets and liabilities measured at fair value on a recurring basis

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

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

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

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

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

- 57 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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


June 30, 2023	Level 1		Level 2		Level 3		Balance at Fair Value
Cash equivalents:
Money market funds	$	14,361	$	—	$	—	$	14,361


Total cash equivalents	14,361		—		—		14,361
Investments segregated and on deposit for regulatory purposes:
U.S. Government securities	—		14,230		—		14,230
Certificates of deposit	—		1,098		—		1,098
Total investments segregated and on deposit for regulatory purposes	—		15,328		—		15,328
Available for sale securities:
U.S. agency mortgage-backed securities	—		71,727		—		71,727
U.S. Treasury securities	—		28,524		—		28,524
Asset-backed securities	—		10,957		—		10,957
Corporate debt securities	—		12,282		—		12,282
Certificates of deposit	—		348		—		348
Foreign government agency securities	—		978		—		978
U.S. state and municipal securities	—		572		—		572
Non-agency commercial mortgage-backed securities	—		263		—		263


Other	—		118		—		118
Total available for sale securities	—		125,769		—		125,769
Other assets:
Other securities owned at fair value:
Equity, corporate debt, and other securities	880		67		—		947
Mutual funds and ETFs	695		—		—		695
State and municipal debt obligations	—		23		—		23
U.S. Government securities	—		2		—		2
Total other securities owned at fair value	1,575		92		—		1,667
Interest rate swaps	—		1		—		1
Total other assets	1,575		93		—		1,668
Total assets	$	15,936	$	141,190	$	—	$	157,126
Accrued expenses and other liabilities:

Other	$	1,428	$	46	$	—	$	1,474
Total accrued expenses and other liabilities	1,428		46		—		1,474
Total liabilities	$	1,428	$	46	$	—	$	1,474

- 58 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


December 31, 2022	Level 1		Level 2		Level 3		Balance at Fair Value
Cash equivalents:
Money market funds	$	14,007	$	—	$	—	$	14,007
Commercial paper	—		48		—		48
Total cash equivalents	14,007		48		—		14,055
Investments segregated and on deposit for regulatory purposes:
U.S. Government securities	—		23,645		—		23,645
Certificates of deposit	—		1,000		—		1,000
Total investments segregated and on deposit for regulatory purposes	—		24,645		—		24,645
Available for sale securities:
U.S. agency mortgage-backed securities	—		77,688		—		77,688
U.S. Treasury securities	—		40,002		—		40,002
Asset-backed securities	—		13,023		—		13,023
Corporate debt securities	—		12,555		—		12,555
Certificates of deposit	—		2,231		—		2,231
Foreign government agency securities	—		969		—		969
U.S. state and municipal securities	—		638		—		638
Non-agency commercial mortgage-backed securities	—		450		—		450

Other	—		315		—		315
Total available for sale securities	—		147,871		—		147,871
Other assets:
Other securities owned at fair value:
Equity, corporate debt, and other securities	755		55		—		810
Mutual funds and ETFs	596		—		—		596
State and municipal debt obligations	—		25		—		25
U.S. Government securities	—		1		—		1
Total other securities owned at fair value	1,351		81		—		1,432
Total other assets	1,351		81		—		1,432
Total assets	$	15,358	$	172,645	$	—	$	188,003
Accrued expenses and other liabilities:
Other	$	1,218	$	43	$	—	$	1,261
Total accrued expenses and other liabilities	1,218		43		—		1,261
Total liabilities	$	1,218	$	43	$	—	$	1,261

- 59 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Fair Value of Other Financial Instruments

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


June 30, 2023	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets
Cash and cash equivalents	$	33,290	$	33,290	$	—	$	—	$	33,290
Cash and investments segregated and on deposit for regulatory purposes	9,708		4,314		5,394		—		9,708

Receivables from brokerage clients — net	65,147		—		65,147		—		65,147
Held to maturity securities:
U.S. agency mortgage-backed securities	166,328		—		151,597		—		151,597









Total held to maturity securities	166,328		—		151,597		—		151,597
Bank loans — net:
First Mortgages	25,738		—		22,625		—		22,625
HELOCs	510		—		558		—		558
Pledged asset lines	13,572		—		13,572		—		13,572
Other	241		—		241		—		241
Total bank loans — net	40,061		—		36,996		—		36,996
Other assets	5,420		—		5,420		—		5,420

Liabilities
Bank deposits	$	304,414	$	—	$	304,414	$	—	$	304,414

Payables to brokerage clients	84,795		—		84,795		—		84,795
Accrued expenses and other liabilities	5,987		—		5,987		—		5,987
Other short-term borrowings	7,831		—		7,831		—		7,831
Federal Home Loan Bank borrowings	41,000		—		41,000		—		41,000
Long-term debt	22,430		—		20,553		—		20,553


December 31, 2022	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets
Cash and cash equivalents	$	26,140	$	26,140	$	—	$	—	$	26,140
Cash and investments segregated and on deposit for regulatory purposes	18,288		6,156		12,132		—		18,288

Receivables from brokerage clients — net	66,573		—		66,573		—		66,573
Held to maturity securities:
U.S. agency mortgage-backed securities	173,074		—		158,936		—		158,936








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

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

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

- 60 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

14. Stockholders’ Equity

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

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

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

The Company’s preferred stock issued and outstanding is as follows:


			Liquidation Preference Per Share							Dividend Rate in Effect at June 30, 2023		Earliest Redemption Date	Date at Which Dividend Rate Resets or Becomes Floating	Reset / Floating Rate	Margin Over Reset / Floating Rate
	Shares Issued and Outstanding (in ones) at		Carrying Value at
	June 30, 2023 (1)	December 31, 2022 (1)	June 30, 2023		December 31, 2022		Issue Date
Fixed-rate:
Series D	750,000	750,000	$	1,000	$	728	$	728	03/07/16	5.950	%	06/01/21	N/A	N/A	N/A
Series J	600,000	600,000	1,000		584		584		03/30/21	4.450	%	06/01/26	N/A	N/A	N/A
Fixed-to-floating-rate/Fixed-rate reset:
Series F	4,883	5,000	100,000		481		492		10/31/17	5.000	%	12/01/27	12/01/27	3M LIBOR(4)	2.575	%
Series G (2)	24,580	25,000	100,000		2,428		2,470		04/30/20	5.375	%	06/01/25	06/01/25	5-Year Treasury	4.971	%
Series H (3)	22,267	25,000	100,000		2,200		2,470		12/11/20	4.000	%	12/01/30	12/01/30	10-Year Treasury	3.079	%
Series I (2)	20,554	22,500	100,000		2,030		2,222		03/18/21	4.000	%	06/01/26	06/01/26	5-Year Treasury	3.168	%
Series K (2)	7,500	7,500	100,000		740		740		03/04/22	5.000	%	06/01/27	06/01/27	5-Year Treasury	3.256	%
Total preferred stock	1,429,784	1,435,000			$	9,191	$	9,706

(1) Represented by depositary shares.

(2) The dividend rate for Series G, Series I, and Series K resets on each five-year anniversary from the first reset date.

(3) The dividend rate for Series H resets on each ten-year anniversary from the first reset date.

(4) The reset/floating rate for Series F will be determined by the calculation agent prior to the commencement of the floating rate period using what the calculation agent determines to be the industry-accepted substitute or successor base rate to LIBOR.

N/A Not applicable.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2023				2022				2023				2022
	Total Declared		Per Share Amount		Total Declared		Per Share Amount		Total Declared (1)		Per Share Amount		Total Declared		Per Share Amount
Series A (2)	N/A		N/A		$	6.2	$	15.60	N/A		N/A		$	11.2	$	28.30
Series D (3)	$	11.1	$	14.88	11.1		14.88		$	22.3	$	29.76	22.3		29.76
Series E (4)	N/A		N/A		5.9		980.82		N/A		N/A		19.8		3,293.32
Series F (5)	12.2		2,500.00		12.5		2,500.00		12.2		2,500.00		12.5		2,500.00
Series G (3)	33.1		1,343.75		33.6		1,343.75		66.3		2,687.50		67.2		2,687.50
Series H (3)	22.3		1,000.00		25.0		1,000.00		46.0		2,000.00		50.0		2,000.00
Series I (3)	20.6		1,000.00		22.5		1,000.00		41.9		2,000.00		45.0		2,000.00
Series J (3)	6.7		11.13		6.7		11.13		13.4		22.26		13.4		22.26
Series K (6)	9.5		1,250.00		9.1		1,208.33		18.8		2,500.00		9.1		1,208.33
Total	$	115.5			$	132.6			$	220.9			$	250.5

(1) Excludes $3 million of dividends declared on Series G, H and I, and accrued by stockholders as of the repurchase date. Such dividends are part of the consideration paid upon repurchase of the depositary shares during the six months ended June 30, 2023.

(2) Series A was redeemed on November 1, 2022. Prior to redemption, dividends were paid semi-annually until February 1, 2022 and quarterly thereafter. The final dividend was paid on November 1, 2022.

(3) Dividends paid quarterly.

(4) Series E was redeemed on December 1, 2022. Prior to redemption, dividends were paid semi-annually until March 1, 2022 and quarterly thereafter. The final dividend was paid on December 1, 2022.

(5) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter.

(6) Series K was issued on March 4, 2022. Dividends are paid quarterly, and the first dividend was paid on June 1, 2022.

N/A Not applicable.

15. Accumulated Other Comprehensive Income

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


	Total AOCI
Balance at March 31, 2022	$	(11,045)
Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $(1,604)	(5,067)

Other reclassifications included in other revenue, net of tax expense (benefit) of $(1)	(4)
Held to maturity securities:
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $28	94

Balance at June 30, 2022	$	(16,022)

Balance at March 31, 2023	$	(20,690)
Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $(160)	(523)
Other reclassifications included in other revenue, net of tax expense (benefit) of $3	8
Held to maturity securities:
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $166	476
Other (1)	(1)
Balance at June 30, 2023	$	(20,730)

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


	Total AOCI
Balance at December 31, 2021	$	(1,109)

Available for sale securities:
Net unrealized gain (loss), excluding transfers to held to maturity, net of tax expense (benefit) of $(4,741)	(15,065)
Net unrealized loss on securities transferred to held to maturity, net of tax benefit of $579	1,850
Other reclassifications included in other revenue, net of tax expense (benefit) of $(4)	(13)
Held to maturity securities:
Net unrealized loss on securities transferred from available for sale, net of tax benefit of $579	(1,850)
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $49	165

Balance at June 30, 2022	$	(16,022)

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

Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $261	905

Other reclassifications included in other revenue, net of tax expense (benefit) of $5	15
Held to maturity securities:

Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $273	978
Other, net of tax expense (benefit) of $(2)	(7)
Balance at June 30, 2023	$	(20,730)

(1) Tax expense (benefit) was less than $1 million.

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

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

16. Earnings Per Common Share

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

EPS under the basic and diluted computations for both common stock and nonvoting common stock are as follows:


	Three Months Ended June 30,								Six Months Ended June 30,
	2023				2022				2023				2022
	Common Stock		Nonvoting Common Stock		Common Stock		Nonvoting Common Stock		Common Stock		Nonvoting Common Stock		Common Stock		Nonvoting Common Stock
Basic earnings per share:
Numerator
Net income	$	1,258	$	36	$	1,718	$	75	$	2,817	$	80	$	3,062	$	133
Preferred stock dividends and other (1)	(118)		(3)		(135)		(6)		(186)		(5)		(254)		(11)
Net income available to common stockholders	$	1,140	$	33	$	1,583	$	69	$	2,631	$	75	$	2,808	$	122
Denominator
Weighted-average common shares outstanding — basic	1,769		51		1,817		79		1,776		51		1,816		79
Basic earnings per share	$	.64	$	.64	$	.87	$	.87	$	1.48	$	1.48	$	1.55	$	1.55
Diluted earnings per share:
Numerator
Net income available to common stockholders	$	1,140	$	33	$	1,583	$	69	$	2,631	$	75	$	2,808	$	122
Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares	33		—		69		—		75		—		122		—
Allocation of net income available to common stockholders:	$	1,173	$	33	$	1,652	$	69	$	2,706	$	75	$	2,930	$	122
Denominator
Weighted-average common shares outstanding — basic	1,769		51		1,817		79		1,776		51		1,816		79
Conversion of nonvoting shares to voting shares	51		—		79		—		51		—		79		—
Common stock equivalent shares related to stock incentive plans	5		—		8		—		7		—		10		—
Weighted-average common shares outstanding — diluted (2)	1,825		51		1,904		79		1,834		51		1,905		79
Diluted earnings per share	$	.64	$	.64	$	.87	$	.87	$	1.48	$	1.48	$	1.54	$	1.54

(1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.

(2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 15 million and 18 million for the three and six months ended June 30, 2023, respectively, and 13 million and 14 million for the three and six months ended June 30, 2022, respectively.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

17. Regulatory Requirements

At June 30, 2023, CSC and its banking subsidiaries met all of their respective capital requirements. Regulatory capital and ratios for CSC (consolidated) and CSB are as follows:


	Actual				Minimum to be Well Capitalized				Minimum Capital Requirement
June 30, 2023	Amount		Ratio		Amount		Ratio		Amount		Ratio (1)
CSC
Common Equity Tier 1 Risk-Based Capital	$	29,999	22.6	%	N/A				$	5,976	4.5	%
Tier 1 Risk-Based Capital	39,190		29.5	%	N/A				7,967		6.0	%
Total Risk-Based Capital	39,272		29.6	%	N/A				10,623		8.0	%
Tier 1 Leverage	39,190		7.5	%	N/A				20,824		4.0	%
Supplementary Leverage Ratio	39,190		7.5	%	N/A				15,737		3.0	%
CSB
Common Equity Tier 1 Risk-Based Capital	$	31,556	33.5	%	$	6,128	6.5	%	$	4,243	4.5	%
Tier 1 Risk-Based Capital	31,556		33.5	%	7,542		8.0	%	5,657		6.0	%
Total Risk-Based Capital	31,632		33.6	%	9,428		10.0	%	7,542		8.0	%
Tier 1 Leverage	31,556		8.9	%	17,820		5.0	%	14,256		4.0	%





Supplementary Leverage Ratio	31,556		8.8	%	N/A				10,778		3.0	%

December 31, 2022
CSC
Common Equity Tier 1 Risk-Based Capital	$	30,590	21.9	%	N/A				$	6,285	4.5	%
Tier 1 Risk-Based Capital	40,296		28.9	%	N/A				8,379		6.0	%
Total Risk-Based Capital	40,376		28.9	%	N/A				11,173		8.0	%
Tier 1 Leverage	40,296		7.2	%	N/A				22,512		4.0	%
Supplementary Leverage Ratio	40,296		7.1	%	N/A				17,004		3.0	%
CSB
Common Equity Tier 1 Risk-Based Capital	$	27,296	27.4	%	$	6,476	6.5	%	$	4,483	4.5	%
Tier 1 Risk-Based Capital	27,296		27.4	%	7,970		8.0	%	5,978		6.0	%
Total Risk-Based Capital	27,370		27.5	%	9,963		10.0	%	7,970		8.0	%
Tier 1 Leverage	27,296		7.3	%	18,640		5.0	%	14,912		4.0	%
Supplementary Leverage Ratio	27,296		7.3	%	N/A				11,275		3.0	%

(1) Under risk-based capital rules, CSC and CSB are also required to maintain additional capital buffers above the regulatory minimum risk-based capital ratios. As of June 30, 2023, CSC was subject to a stress capital buffer of 2.5%. In addition, CSB is required to maintain a capital conservation buffer of 2.5%. CSC and CSB are also required to maintain a countercyclical capital buffer above the regulatory minimum risk-based capital ratios, which was zero for both periods presented. If a buffer falls below the minimum requirement, CSC and CSB would be subject to increasingly strict limits on capital distributions and discretionary bonus payments to executive officers. At June 30, 2023, the minimum capital ratio requirements for both CSC and CSB, inclusive of their respective buffers, were 7.0%, 8.5%, and 10.5% for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital, respectively.

N/A Not applicable.

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

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

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

Net capital and net capital requirements for CS&Co, TDAC, and TD Ameritrade, Inc., are as follows:


	June 30, 2023		December 31, 2022
CS&Co
Net capital	$	5,432	$	5,386
Minimum dollar requirement	0.250		0.250
2% of aggregate debit balances	879		778
Net capital in excess of required net capital	$	4,553	$	4,608
TDAC
Net capital	$	4,213	$	5,291
Minimum dollar requirement	1.500		1.500
2% of aggregate debit balances	622		626
Net capital in excess of required net capital	$	3,591	$	4,665
TD Ameritrade, Inc.
Net capital	$	689	$	806
Minimum dollar requirement	0.250		0.250
2% of aggregate debit balances	—		—
Net capital in excess of required net capital	$	689	$	806

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

18. Segment Information

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

Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments.

Financial information for the segments is presented in the following table:


	Investor Services				Advisor Services				Total
Three Months Ended June 30,	2023		2022		2023		2022		2023		2022
Net Revenues
Net interest revenue	$	1,705	$	1,834	$	585	$	710	$	2,290	$	2,544
Asset management and administration fees	841		763		332		289		1,173		1,052
Trading revenue	701		763		102		122		803		885
Bank deposit account fees	140		227		35		125		175		352
Other	156		187		59		73		215		260
Total net revenues	3,543		3,774		1,113		1,319		4,656		5,093
Expenses Excluding Interest	2,191		2,111		774		708		2,965		2,819
Income before taxes on income	$	1,352	$	1,663	$	339	$	611	$	1,691	$	2,274

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)


	Investor Services				Advisor Services				Total
Six Months Ended June 30,	2023		2022		2023		2022		2023		2022
Net Revenues
Net interest revenue	$	3,738	$	3,408	$	1,322	$	1,319	$	5,060	$	4,727
Asset management and administration fees	1,646		1,544		645		576		2,291		2,120
Trading revenue	1,476		1,607		219		241		1,695		1,848
Bank deposit account fees	239		427		87		219		326		646
Other	307		314		93		110		400		424
Total net revenues	7,406		7,300		2,366		2,465		9,772		9,765
Expenses Excluding Interest	4,424		4,242		1,547		1,410		5,971		5,652
Income before taxes on income	$	2,982	$	3,058	$	819	$	1,055	$	3,801	$	4,113

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THE CHARLES SCHWAB CORPORATION

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