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UNITED STATES
SECURITIES  AND  EXCHANGE  COMMISSION
Washington, D.C.  20549

FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number: 1-9700

THE  CHARLES  SCHWAB  CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
94-3025021
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

3000 Schwab Way, Westlake, TX  76262
(Address of principal executive offices and zip code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock – $.01 par value per shareSCHWNew York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 5.95% Non-Cumulative Preferred Stock, Series DSCHW PrDNew York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in a share of 4.450% Non-Cumulative Preferred Stock, Series JSCHW PrJNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒                        Accelerated filer ☐
Non-accelerated filer ☐                        Smaller reporting company ☐         
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,769,142,212 shares of $.01 par value Common Stock and 50,893,695 shares of $.01 par value Nonvoting Common Stock outstanding on April 28, 2023


THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2023



 Index
 
 
    
Item 1. 
    
  
  
  
  29-30
  31-62
    
Item 2. 1-23
    
Item 3. 
    
Item 4. 
    
  
    
Item 1. 
    
Item 1A. 
    
Item 2. 
   
Item 3. 
    
Item 4. 
    
Item 5. 
    
Item 6. 
    
 
  




Part I – FINANCIAL INFORMATION

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)



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

INTRODUCTION

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

Principal business subsidiaries of CSC include the following:

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

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

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

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

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

Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $60 trillion, which means the Company’s $7.58 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.

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

On our website, https://www.aboutschwab.com, we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC or Commission): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a)
- 1 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

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

FORWARD-LOOKING STATEMENTS

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

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

•Maximizing our market valuation and stockholder returns over time; our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I – Item 2);
•Business momentum; investments to support growth in our client base; capital return (see Overview);
•Expected timing for the TD Ameritrade client transitions; cost estimates and timing related to the TD Ameritrade integration, including acquisition and integration-related costs and capital expenditures, cost synergies, and exit and other related costs (see Overview and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);
•The expected impact of proposed rules (see Current Regulatory and Other Developments);
•     The adjustment of rates paid on client-related liabilities; the use and balances of supplemental funding; net interest revenue (see Results of Operations);
•Capital expenditures (see Results of Operations);
•Management of interest rate risk; the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity, and liability and asset duration (see Risk Management);
•The phase-out of the use of LIBOR (see Risk Management);
•Sources and uses of liquidity and capital (see Liquidity Risk and Capital Management);
•Capital management; the potential migration of insured deposit account balances (IDA balances) to our balance sheet; expectations about capital requirements, including accumulated other comprehensive income (AOCI); plans regarding capital and dividends (see Capital Management and Commitments and Contingencies in Item 1 – Note 9);
•The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Item 1 – Note 2);
•The likelihood of indemnification and guarantee payment obligations and clients failing to fulfill contractual obligations (see Commitments and Contingencies in Item 1 – Note 9); and
•The impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 9 and Legal Proceedings in Part II – Item 1).

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

Important factors that may cause actual results to differ include, but are not limited to:
•General market conditions, including equity valuations and the level of interest rates;
•The level and mix of client trading activity;
•Our ability to attract and retain clients, develop trusted relationships, and grow client assets;
•Client use of our advisory and lending solutions and other products and services;
•The level of client assets, including cash balances;
•Competitive pressure on pricing, including deposit rates;
•Client sensitivity to rates;
•Regulatory guidance and adverse impacts from new or changed legislation, rulemaking, or regulatory expectations;
•Capital and liquidity needs and management;
•Our ability to manage expenses;
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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

•Our ability to attract and retain talent;
•Our ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance our infrastructure, in a timely and successful manner;
•Our ability to monetize client assets;
•Our ability to support client activity levels;
•The risk that expected cost synergies and other benefits from the TD Ameritrade acquisition may not be fully realized or may take longer to realize than expected and that integration-related expenses may be higher than expected;
•Increased compensation and other costs due to inflationary pressures;
•The timing and scope of integration-related and other technology projects;
•Real estate and workforce decisions;
•Client cash allocations;
•Migrations of bank deposit account balances (BDA balances);
•Balance sheet positioning relative to changes in interest rates;
•Interest-earning asset mix and growth;
•Our ability to access and use supplemental funding sources;
•Prepayment levels for mortgage-backed securities;
•LIBOR trends;
•Adverse developments in litigation or regulatory matters and any related charges; and
•Potential breaches of contractual terms for which we have indemnification and guarantee obligations.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in Part I – Item 1A – Risk Factors in the 2022 Form 10-K.



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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

OVERVIEW
Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the first quarter of 2023 and 2022 are as follows:
Three Months Ended
March 31,		Percent
Change
20232022
Client Metrics   
Net new client assets (in billions) (1)
$150.7 $120.5 25 %
Core net new client assets (in billions)$131.7 $120.5 9 %
Client assets (in billions, at quarter end)$7,580.0 $7,862.1 (4)%
Average client assets (in billions)$7,385.4 $7,766.4 (5)%
New brokerage accounts (in thousands)1,042 1,202 (13)%
Active brokerage accounts (in thousands, at quarter end)34,120 33,577 2 %
Assets receiving ongoing advisory services (in billions,
  at quarter end)		$3,895.5 $3,943.5 (1)%
Client cash as a percentage of client assets (at quarter end)11.6 %11.4 % 
Company Financial Information and Metrics   
Total net revenues$5,116 $4,672 10 %
Total expenses excluding interest3,006 2,833 6 %
Income before taxes on income2,110 1,839 15 %
Taxes on income507 437 16 %
Net income1,603 1,402 14 %
Preferred stock dividends and other70 124 (44)%
Net income available to common stockholders$1,533 $1,278 20 %
Earnings per common share — diluted$.83 $.67 24 %
Net revenue growth from prior year10 %(1)% 
Pre-tax profit margin41.2 %39.4 % 
Return on average common stockholders’ equity (annualized)23 %12 % 
Expenses excluding interest as a percentage of average client
  assets (annualized)		0.17 %0.15 %
Consolidated Tier 1 Leverage Ratio (at quarter end)7.1 %6.1 %
Non-GAAP Financial Measures (2)
Adjusted total expenses (3)
$2,773 $2,583 
Adjusted diluted EPS$.93 $.77 
Return on tangible common equity83 %26 %
(1) The first quarter of 2023 includes inflows of $19.0 billion from off-platform certificates of deposit (CDs) issued by CSB.
(2) See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
(3) Adjusted total expenses is a non-GAAP financial measure adjusting total expenses excluding interest. See Non-GAAP Financial Measures.

The first quarter of 2023 presented a mixed macroeconomic background for our clients. While equity markets increased from year-end 2022 levels, investor sentiment remained bearish, especially following the onset of the banking industry turmoil in early March. Fixed income markets also reflected growing fears of an economic downturn as the 10-year U.S. Treasury yield declined approximately 50 basis points from its intra-quarter peak to end March just under 3.50%. The Federal Reserve continued its monetary tightening cycle, increasing the Federal Funds rate twice for a total of 50 basis points in the first quarter of 2023.

Throughout this environment, Schwab remained a trusted partner to investors. Core net new assets totaled $131.7 billion in the first quarter of 2023, representing an annualized organic growth rate of over 7%, and total client assets were $7.58 trillion at March 31, 2023, up 8% from year-end 2022. Clients’ daily average trades (DATs) were 5.9 million in the first quarter of 2023, down 10% from the prior year amid softer investor sentiment. Clients opened 1.0 million new brokerage accounts in the first quarter of 2023, bringing active brokerage accounts to 34.1 million at quarter-end, up 2% year-over-year.

Schwab’s financial results in the first quarter of 2023 reflected the Company’s sustained business momentum and the benefits of rising interest rates, partially offset by clients’ asset allocation decisions. Net income totaled $1.6 billion in the first quarter of 2023, rising 14% from the first quarter of 2022, and the Company produced diluted earnings per common share (EPS) of $.83,
- 4 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

up 24% from the first quarter of 2022. Adjusted diluted EPS (1), which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and related income tax effects, was $.93, increasing 21% from the first quarter of 2022.

Total net revenues rose 10% year-over-year to $5.1 billion in the first quarter of 2023. Net interest revenue increased to $2.8 billion, up 27% from the first quarter of 2022 as higher yields on interest-earning assets more than offset higher funding costs and lower average interest-earning assets. Asset management and administration fees totaled $1.1 billion in the first quarter of 2023, rising 5% year-over-year as growth in money market funds and the elimination of fee waivers more than offset lower average client asset balances due to declines in equity markets relative to the first quarter of 2022. Trading revenue was $892 million in the first quarter of 2023, decreasing 7% year-over-year due primarily to lower trading volume and changes in mix of client trading activity. Bank deposit account fee revenue was $151 million in the first quarter of 2023, down 49% due in part to $97 million in one-time breakage fees relating to ending our arrangements with certain third-party banks (see Results of Operations – Bank Deposit Account Fees). BDA balances totaled $106.5 billion at March 31, 2023, down 16% from year-end 2022 due primarily to client cash allocation decisions.

Total expenses excluding interest were $3.0 billion in the first quarter of 2023, increasing 6% from the first quarter of 2022. Adjusted total expenses (1) were $2.8 billion, increasing 7% from the first quarter of 2022. These increases reflected higher compensation and benefits expense, higher occupancy and equipment expense, and higher depreciation and amortization expense, as we continued to invest in our people and technology to support ongoing growth in our client base. Acquisition and integration-related costs and amortization of acquired intangible assets were $98 million and $135 million, respectively, in the first quarter of 2023, up 2% and down 12%, respectively, from the first quarter of 2022. Amortization of acquired intangible assets decreased as certain assets from the TDA acquisition were fully amortized by the beginning of the fourth quarter of 2022.

Return on average common stockholders’ equity increased to 23% in the first quarter of 2023 compared with 12% in the first quarter of 2022. Return on tangible common equity (1) (ROTCE) was 83% in the first quarter of 2023 compared with 26% in the first quarter of 2022. The increases in both return on average common stockholders’ equity and ROTCE were due primarily to lower stockholders’ equity and higher net income. Stockholders’ equity was lower in the first quarter of 2023 due to a year-over-year decrease in AOCI, as higher market interest rates resulted in larger unrealized losses on our available for sale (AFS) portfolio in the first quarter of 2023 compared with the first quarter of 2022.

The Company continued its diligent approach to balance sheet management in the first quarter of 2023 to maintain capital and liquidity required to support Schwab’s long-term growth. Total balance sheet assets decreased 3% from year-end 2022 to March 31, 2023. With further increases in market interest rates in the first quarter of 2023 as the Federal Reserve continued its monetary tightening cycle, clients allocated more assets to higher yielding cash and fixed income alternatives. To facilitate these client cash movements and help build available cash, the Company utilized additional temporary funding sources including Federal Home Loan Bank (FHLB) borrowings and issuances of brokered CDs during the first quarter of 2023.

During the first quarter of 2023, we increased our quarterly common dividend by 14% to $.25 per share, and returned capital via common and preferred stock repurchases, which totaled $2.8 billion and $467 million, respectively, during the first quarter of 2023. Inclusive of these actions, the Company’s Tier 1 Leverage Ratio finished the first quarter of 2023 at 7.1%. The Company suspended its active share repurchase program during the first quarter of 2023 in light of anticipated changes to regulatory expectations and capital requirements, though opportunistic capital return remains an important component of our ‘through the cycle’ financial formula.

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

Integration of TD Ameritrade

Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade Holding Corporation (TDA Holding) and its consolidated subsidiaries (collectively referred to as “TD Ameritrade” or “TDA”). Integration work continued during the first three months of 2023, including the completion of the first client transition group in February 2023. The Company expects to complete most remaining client transitions from TD Ameritrade to Schwab across multiple groups over the course of 2023, with the transition of a small client group in the first half of 2024. We expect to incur total acquisition and integration-related costs and capital expenditures of between $2.4 billion and $2.5 billion.

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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

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

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $98 million and $96 million for the first quarters of 2023 and 2022, respectively. Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through March 31, 2023, we have achieved approximately 75% of this amount on an annualized run-rate basis. The Company expects to realize the vast majority of the remaining estimated cost synergies by the end of 2024, with anticipated full year synergy realization beginning in 2025. Estimated timing and amounts of synergy realization are subject to change as we progress in the integration. Refer to Part II – Item 7 – Overview in our 2022 Form 10-K, Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 1 – Note 10 for additional information regarding our integration of TD Ameritrade.

Subsequent Events

On May 4, 2023, the Company executed a Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement) with TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions) that replaces and supersedes the previous amended and restated insured deposit account agreement dated November 24, 2019 that became effective October 6, 2020, as amended (the 2019 IDA agreement, and together with the 2023 IDA agreement, the IDA agreements). In accordance with the IDA agreements, cash held in eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions. Schwab provides recordkeeping and support services to the TD Depository Institutions with respect to the deposit accounts for which Schwab receives an aggregate monthly fee. Under the 2023 IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions remains at 15 basis points, as it was in the 2019 IDA agreement.

As the 2023 IDA agreement was entered into on May 4, 2023, the results included in this Quarterly Report on Form 10-Q are pursuant to the 2019 IDA agreement. Disclosures regarding the Company’s future obligations reflect the terms of the 2023 IDA agreement.

See Capital Management and Commitments and Contingencies in Item 1 – Note 9 for additional information on the IDA agreements.

Current Regulatory and Other Developments

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

•The “Order Competition Rule” would require that, before most individual investors’ orders could be executed internally by a trading center (like wholesaler market makers), those orders must first be exposed to a qualifying order-by-order auction in which both market makers and institutional investors can participate.
•“Regulation Best Execution” would establish an SEC-level best execution standard (in addition to the existing FINRA and MSRB best execution rules) for broker-dealers and require them to establish, maintain, and enforce written policies and procedures addressing how the broker-dealer will comply with the best execution standard and make routing or execution decisions for customer orders. Regulation Best Execution would apply not only to equities, but to all securities.
•Amendments to Rule 605 of Regulation NMS requiring enhanced disclosures of order execution quality for large brokers that handle retail orders.
•A rule to (i) amend minimum pricing increments (or tick sizes) that would apply to both the quoting and trading of NMS stocks, (ii) reduce the exchange access fee caps, and (iii) require transparency of odd-lots.

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

- 6 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

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

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

RESULTS OF OPERATIONS

Total Net Revenues

The following table presents a comparison of revenue by category:
 20232022
Three Months Ended March 31,Percent
Change		Amount% of
Total Net
Revenues		Amount% of
Total Net
Revenues
Net interest revenue
Interest revenue73 %$4,016 78 %$2,319 50 %
Interest expenseN/M(1,246)(24)%(136)(3)%
Net interest revenue27 %2,770 54 %2,183 47 %
Asset management and administration fees   
Mutual funds, exchange-traded funds (ETFs), and collective trust
  funds (CTFs)		20 %585 11 %489 10 %
Advice solutions(9)%453 9 %496 11 %
Other(4)%80 2 %83 2 %
Asset management and administration fees5 %1,118 22 %1,068 23 %
Trading revenue  
Commissions(13)%422 8 %484 10 %
Order flow revenue(12)%414 8 %470 10 %
Principal transactionsN/M56 1 %9 — 
Trading revenue(7)%892 17 %963 20 %
Bank deposit account fees(49)%151 3 %294 6 %
Other13 %185 4 %164 4 %
Total net revenues10 %$5,116 100 %$4,672 100 %
N/M Not meaningful. Percent changes greater than 200% are presented as not meaningful.

Net Interest Revenue

Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-
- 7 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, FHLB borrowings, other short-term borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities. See also Risk Management – Interest Rate Risk Simulations.

Interest rates increased significantly beginning late in the first quarter of 2022 through the first quarter of 2023. Short-term rates were near zero until the Federal Reserve began its aggressive tightening cycle in March 2022 in response to rising inflation, ultimately increasing the federal funds target overnight rate nine times between March 2022 and March 2023 for a total increase of 475 basis points. Long-term interest rates increased throughout 2022 and the first three months of 2023, though at a slower pace, leading to an inverted yield curve.

Schwab’s average interest-earning assets in the first quarter of 2023 were lower compared with the first quarter of 2022 due primarily to client cash allocation movement to higher yielding investment solutions beginning in the second quarter of 2022 through the first quarter of 2023, which resulted primarily from the rapid increases to the federal funds overnight rate. These changes in client cash allocations reduced average balances of bank deposits and payables to brokerage clients. To support this client cash allocation activity, the Company utilized temporary supplemental funding in the fourth quarter of 2022 and first quarter of 2023, including drawing upon FHLB secured lending facilities and issuing brokered CDs.

The following table presents net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:
20232022
Three Months Ended March 31,Average BalanceInterest Revenue/ ExpenseAverage Yield/RateAverage BalanceInterest Revenue/ ExpenseAverage Yield/Rate
Interest-earning assets      
Cash and cash equivalents$37,056 $413 4.46 %$72,465 $34 0.19 %
Cash and investments segregated40,068 432 4.31 %51,913 15 0.11 %
Receivables from brokerage clients60,543 1,084 7.16 %84,204 626 2.97 %
Available for sale securities (1)
155,791 825 2.12 %284,526 947 1.33 %
Held to maturity securities (1)
170,889 746 1.75 %103,416 378 1.46 %
Bank loans40,248 391 3.92 %35,852 187 2.10 %
Total interest-earning assets504,595 3,891 3.09 %632,376 2,187 1.38 %
Securities lending revenue112 129 
Other interest revenue 13 3 
Total interest-earning assets $504,595 $4,016 3.19 %$632,376 $2,319 1.47 %
Funding sources
Bank deposits$343,105 $618 0.73 %$452,692 $16 0.01 %
Payables to brokerage clients77,169 75 0.39 %105,929 2 0.01 %
Other short-term borrowings (2)
6,917 86 5.05 %4,717 4 0.33 %
Federal Home Loan Bank borrowings (2,3)
24,458 304 5.05 %— — — 
Long-term debt20,290 139 2.74 %19,864 108 2.18 %
Total interest-bearing liabilities471,939 1,222 1.05 %583,202 130 0.09 %
Non-interest-bearing funding sources
32,656 49,174 
Securities lending expense
22 7 
Other interest expense
2 (1)
Total funding sources $504,595 $1,246 1.00 %$632,376 $136 0.09 %
Net interest revenue$2,770 2.19 %$2,183 1.38 %
(1) Amounts have been calculated based on amortized cost. Interest revenue on investment securities is presented net of related premium amortization.
(2) Beginning in the first quarter of 2023, Federal Home Loan Bank borrowings are presented separately from other short-term borrowings. Prior period amounts have been reclassified to reflect this change.
(3) Average balance and interest expense was less than $500 thousand in the prior period.
- 8 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Net interest revenue increased $587 million, or 27%, in the first quarter of 2023 compared to the same period in 2022. This increase was due primarily to higher average yields on interest-earning assets as a result of higher market interest rates. With the increases in market interest rates, net premium amortization of investment securities decreased to $185 million in the first quarter of 2023 from $486 million in the first quarter of 2022. These benefits were partially offset by higher rates paid on funding sources, increased usage of FHLB borrowings, other short-term borrowings, and brokered CDs to support client cash allocations in the rising rate environment, and lower balances of interest-earning assets.

Average interest-earning assets for the first quarter of 2023 were lower by 20% compared to the same period in 2022. This decrease was primarily due to lower bank deposits and payables to brokerage clients as a result of changes in client cash allocations due to higher market interest rates.

Net interest margin increased to 2.19% during the first quarter of 2023 from 1.38% during the same period in 2022. Higher market interest rates improved yields on interest-earning assets, which more than offset the higher rates paid across interest-bearing funding sources.

The Company’s higher average balances in the first quarter of 2023 of FHLB borrowings, other short-term borrowings, and brokered CDs resulted in higher funding costs. The Company expects to continue using these temporary funding sources to support clients’ cash allocation movement, with balances of supplemental funding sources expected to peak in 2023 and then decrease in 2024, with a limited portion remaining outstanding in early 2025. The usage of these higher-cost funding sources is expected to reduce net interest revenue in coming quarters. See also Risk Management – Liquidity Risk, Item 1 – Note 7 Bank Deposits, and Item 1 – Note 8 Borrowings for additional information on these and other funding sources.

Asset Management and Administration Fees

The following table presents asset management and administration fees, average client assets, and average fee yields:
Three Months Ended March 31,20232022
Average
Client
Assets		RevenueAverage
Fee		Average
Client
Assets		RevenueAverage
Fee
Schwab money market funds before fee waivers$316,391 $213 0.27 %$144,732 $102 0.29 %
Fee waivers— (54)
Schwab money market funds316,391 213 0.27 %144,732 48 0.13 %
Schwab equity and bond funds, ETFs, and CTFs450,581 91 0.08 %456,326 97 0.09 %
Mutual Fund OneSource® and other no-transaction-fee (NTF) funds (1)
222,437 148 0.27 %212,641 165 0.31 %
Other third-party mutual funds and ETFs (1)
676,344 133 0.08 %872,212 179 0.08 %
Total mutual funds, ETFs, and CTFs (2)
$1,665,753 585 0.14 %$1,685,911 489 0.12 %
Advice solutions (2)
Fee-based$443,027 453 0.41 %$469,325 496 0.43 %
Non-fee-based94,469 — — 90,335 — — 
Total advice solutions$537,496 453 0.34 %$559,660 496 0.36 %
Other balance-based fees (3)
561,788 62 0.04 %616,679 67 0.04 %
Other (4)
18 16 
Total asset management and administration fees$1,118 $1,068 
(1) The first quarter of 2022 includes transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and other NTF funds.
(2) Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above.
(3) Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.
(4) Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

Asset management and administration fees increased by $50 million, or 5%, in the first quarter of 2023 compared to the same period in 2022. The increase in the first quarter of 2023 was primarily a result of higher balances in Schwab money market funds and the elimination of fee waivers on those funds. Money market fund balances increased as clients shifted their cash allocations to higher yielding investment solutions, and money market fund fee waivers were eliminated during 2022 as a result of the Federal Reserve’s increases to the federal funds target overnight rate. These increases were partially offset by lower balances in other third-party mutual funds and advice solutions, primarily due to equity market weakness, which negatively impacted client asset valuations since the first quarter of 2022.

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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource® and other NTF funds. These funds generated 40% and 29% of the asset management and administration fees earned in the first quarter of 2023 and 2022, respectively:
Schwab Money
Market Funds		Schwab Equity and
Bond Funds, ETFs, and CTFs
Mutual Fund OneSource®
and Other NTF funds
Three Months Ended March 31,202320222023202220232022
Balance at beginning of period$278,926 $146,509 $412,942 $454,864 $235,738 $234,940 
Net inflows (outflows)75,036 (3,420)10,344 9,461 (4,629)(8,556)
Net market gains (losses) and other (1)
3,860 16 20,433 (20,048)13,153 9,081 
Balance at end of period$357,822 $143,105 $443,719 $444,277 $244,262 $235,465 

(1) Includes $14.2 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and Other NTF Funds in 2022.
Trading Revenue

Trading revenue includes commissions, order flow revenue, and principal transaction revenues. Commission revenue is affected by volume and mix of trades executed. Order flow revenue is comprised of payments received from trade execution venues to which our broker-dealer subsidiaries send equity and option orders. Order flow revenue is affected by volume and mix of client trades, as well as pricing received from trade execution venues. Principal transaction revenue is recognized primarily as a result of accommodating clients’ fixed income trading activity, and includes adjustments to the fair value of securities positions held to facilitate such client trading activity. Principal transactions revenue also includes unrealized gains and losses on cash and investments segregated for regulatory purposes.

The following tables present trading revenue, trade details, and related information:
Three Months Ended
March 31,		Percent
Change
20232022
Commissions$422 $484 (13)%
Order flow revenue
Options281 317 (11)%
Equities133 153 (13)%
Total order flow revenue414 470 (12)%
Principal transactions56 9 N/M
Total trading revenue$892 $963 (7)%
N/M Not meaningful. Percent changes greater than 200% are presented as not meaningful.

Three Months Ended
March 31,		Percent
Change
20232022
Clients' daily average trades (DATs) (in thousands)5,895 6,578 (10)%
Product as a percentage of DATs
Equities49 %52 %
Derivatives23 %23 %
ETFs21 %19 %
Mutual funds5 %5 %
Fixed Income2 %1 %
Number of trading days62.0 62.0 — 
Revenue per trade (1)
$2.44 $2.36 3% 
(1) Revenue per trade is calculated as trading revenue divided by DATs multiplied by the number of trading days.

- 10 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Trading revenue decreased $71 million in the first quarter of 2023 compared to the same period in 2022, primarily due to a decrease in commissions revenue resulting from lower client trading activity as well as changes in the mix of activity toward more ETFs and fewer single stocks. Additionally, order flow revenue decreased due to a shift in the mix of client trading activity toward more lower-dollar equity trades and index options and futures and fewer single stocks. Partially offsetting these decreases, principal transactions revenue increased as a result of higher volume in fixed income trading and higher market interest rates.

Bank Deposit Account Fees

The Company earns bank deposit account fee revenue from the TD Depository Institutions. These fees are affected by changes in interest rates and the composition of balances designated as fixed- and floating-rate obligation amounts.

The following table presents bank deposit account fee revenue, average BDA balances, average net yield, and average balances earning fixed- and floating-rate yields:
Three Months Ended
March 31,		Percent Change
20232022
Bank deposit account fees$151 $294 (49)%
Average BDA balances$115,877 $155,809 (26)%
Average net yield0.52 %0.75 %
Percentage of average BDA balances designated as:
Fixed-rate balances92 %77 %
Floating-rate balances8 %23 %

In January 2023, the Company ended its arrangements with other third-party banks to simplify bank sweep operations ahead of the first TD Ameritrade client transition group in February 2023. In addition, the FDIC implemented a 2-basis-point increase to the initial base deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023. This increase in the FDIC’s deposit insurance assessment results in a decrease to bank deposit account fee revenue, dependent on BDA balance levels.

Bank deposit account fees decreased $143 million, or 49%, in the first quarter of 2023 compared to the same period in 2022, primarily due to breakage fees of $97 million incurred as a result of ending the other third-party bank arrangements, the decrease in average floating-rate BDA balances, and an increase in the amount paid to clients due to higher interest rates. These factors contributed to the decrease in average net yield in the first quarter of 2023 compared to the same period in 2022. The decrease in average BDA balances in the first quarter of 2023 compared with the first quarter of 2022 was primarily due to client cash allocation decisions in response to rising short-term market interest rates throughout 2022 and into the first quarter of 2023. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of March 31, 2023 were 98% and 2%, respectively.

See also Capital Management and Item 1 – Note 9 for discussion of the IDA agreements and the potential to move IDA balances to Schwab’s balance sheet.

Other Revenue

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

Other revenue increased $21 million in the first quarter of 2023 compared to the same period in 2022, primarily due to higher exchange processing fees and lower provision for credit losses on bank loans. Exchange processing fees increased as a result of higher average SEC fee rates. The provision for credit losses on bank loans was lower in the first quarter of 2023 compared with the first quarter of 2022, as during the first quarter of 2023, loan loss factors and the total balance of first lien residential real estate mortgage loans (First Mortgages) remained consistent with year-end 2022. The Company’s provision for credit losses on bank loans in the first quarter of 2022 reflected increased loan loss factors driven primarily by higher forecasted interest rates at the start of the Federal Reserve’s monetary tightening, as well as growth in the loan portfolio.
- 11 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Effective February 27, 2023, the SEC decreased its exchange processing fee rates by approximately 65% from the rate in effect since May 2022. This change will result in lower exchange processing fees per security transaction in other revenue and a corresponding decrease in other expense for the remainder of the year, resulting in no impact to net income.

Total Expenses Excluding Interest

The following table shows a comparison of expenses excluding interest:
Three Months Ended
March 31,		Percent
Change
20232022
Compensation and benefits
Salaries and wages$972 $853 14 %
Incentive compensation364 417 (13)%
Employee benefits and other302 276 9 %
Total compensation and benefits$1,638 $1,546 6 %
Professional services258 244 6 %
Occupancy and equipment299 269 11 %
Advertising and market development88 102 (14)%
Communications146 144 1 %
Depreciation and amortization177 150 18 %
Amortization of acquired intangible assets135 154 (12)%
Regulatory fees and assessments83 68 22 %
Other182 156 17 %
Total expenses excluding interest$3,006 $2,833 6 %
Expenses as a percentage of total net revenues
Compensation and benefits32 %33 %
Advertising and market development2 %2 %
Full-time equivalent employees (in thousands)
At quarter end36.034.25 %
Average35.633.95 %

Expenses excluding interest increased by $173 million or 6% in the first quarter of 2023, compared to the same period in 2022. Adjusted total expenses, which excludes acquisition and integration-related costs and amortization of acquired intangible assets, increased 7% in the first quarter of 2023, compared to the same period in 2022. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

Total compensation and benefits increased in the first quarter of 2023 compared to the same period in 2022, primarily due to growth in employee headcount to support our expanding client base and TDA client account transitions, as well as annual merit increases. These increases were partially offset by lower incentive compensation. Compensation and benefits included acquisition and integration-related costs of $58 million and $56 million in the first quarter of 2023 and 2022, respectively.

Professional services expense increased in the first quarter of 2023 compared to the same period in 2022, primarily due to increased utilization of technology-related and other professional services to support overall growth of the business and enhancement to technological infrastructure to support our expanding client base, as well as the TDA integration and client account transitions. Professional services included acquisition and integration-related costs of $33 million and $31 million in the first quarter of 2023 and 2022, respectively.

Occupancy and equipment expense increased in the first quarter of 2023 compared to the same period in 2022, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade. Occupancy and equipment included acquisition and integration-related costs of $4 million in both the first quarter of 2023 and 2022.
- 12 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Advertising and market development expense decreased in the first quarter of 2023 compared to the same period in 2022, primarily due to lower media advertising spending as well as decreases in spending for marketing communications for TD Ameritrade.

Depreciation and amortization expense increased in the first quarter of 2023 compared to the same period in 2022, primarily as a result of higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2022 and the first quarter of 2023 to support the TDA integration and enhance our technological infrastructure to support growth of the business.

Amortization of acquired intangible assets decreased in the first quarter of 2023 compared to the same period in 2022, as certain assets from the TDA acquisition were fully amortized by the beginning of the fourth quarter of 2022.

Regulatory fees and assessments increased in the first quarter of 2023 compared to the same period in 2022, primarily as a result of a 2-basis-point increase to the FDIC deposit insurance assessment rate, which became effective for the first quarterly assessment period in 2023, and other regulatory assessments due to growth in employee headcount and overall growth of the business.

Other expense increased in the first quarter of 2023 compared to the same period in 2022, primarily as a result of higher exchange processing fees, partially offset by lower other clearing charges. Exchange processing fees increased due to higher SEC fee rates in effect during the first quarter of 2023 compared to those in effect during the first quarter of 2022. Effective February 27, 2023, the SEC decreased its exchange processing fee rates by approximately 65% from the rate in effect since May 2022. This change will result in lower exchange processing fees per security transaction in other expense and a corresponding decrease in other revenue for the remainder of the year, resulting in no impact to net income.

Capital expenditures were $187 million and $209 million in the first quarter of 2023 and 2022, respectively. Capital expenditures decreased when compared to heightened integration-related spend in 2022 in preparation for TDA client account transitions. These decreases were partially offset by higher purchased software to enhance our technological infrastructure to support greater capacity for our expanding client base. We continue to anticipate capital expenditures for full-year 2023 will be approximately 3-4% of total net revenues.

Taxes on Income

Taxes on income were $507 million and $437 million for the first quarters of 2023 and 2022, respectively, resulting in effective income tax rates on income before taxes of 24.0% and 23.8%, respectively. The increase in the effective tax rate in the first quarter of 2023 compared to the same period in 2022 was primarily related to increased state tax expense and a decrease in equity compensation deduction benefits in 2023. Partially offsetting the increases in the effective tax rate from these items was the reversal of tax reserves due to the resolution of certain state tax matters during the first quarter of 2023.

Segment Information

Financial information for our segments is presented in the following tables:
Investor ServicesAdvisor ServicesTotal
Three Months Ended March 31,Percent Change20232022Percent Change20232022Percent Change20232022
Net Revenues         
Net interest revenue29 %$2,033 $1,574 21 %$737 $609 27 %$2,770 $2,183 
Asset management and administration fees3 %805 781 9 %313 287 5 %1,118 1,068 
Trading revenue(8)%775 844 (2)%117 119 (7)%892 963 
Bank deposit account fees(51)%99 200 (45)%52 94 (49)%151 294 
Other19 %151 127 (8)%34 37 13 %185 164 
Total net revenues10 %3,863 3,526 9 %1,253 1,146 10 %5,116 4,672 
Expenses Excluding Interest5 %2,233 2,131 10 %773 702 6 %3,006 2,833 
Income before taxes on income17 %$1,630 $1,395 8 %$480 $444 15 %$2,110 $1,839 
Net New Client Assets (in billions) (1)
45 %$79.4 $54.6 8 %$71.3 $65.9 25 %$150.7 $120.5 
(1) In the first quarter of 2023, Investor Services includes inflows of $19.0 billion from off-platform CDs issued by CSB.
- 13 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Segment Net Revenues

Investor Services and Advisor Services total net revenues increased by 10% and 9%, respectively, in the first quarter of 2023 compared to the same quarter in 2022. Investor Services and Advisor Services growth was primarily driven by increases in net interest revenue as described above. Asset management and administration fees increased for both segments, primarily as a result of higher money market fund balances and the elimination of money market fund fee waivers since the first quarter of 2022. Other revenue increased for Investor Services due to higher exchange processing fees and a lower provision for credit losses on bank loans. Both segments saw a decrease in bank deposit account fees in the first quarter of 2023 due to several factors including breakage fees incurred as a result of ending certain third-party bank arrangements, lower average BDA balances, and higher yields paid to clients. Trading revenue also decreased for both segments due primarily to lower client trading activity and changes in client trading mix, resulting in lower commissions and order flow revenue.

Segment Expenses Excluding Interest

Investor Services total expenses excluding interest increased by 5% in the first quarter of 2023 compared to the same quarter in 2022, while Advisor Services total expenses excluding interest increased by 10% in the first quarter of 2023 compared to the same quarter in 2022. Both segments saw higher compensation and benefits expenses due to increases in headcount to support our expanding client base and TDA client account transitions, and annual merit increases, partially offset by lower incentive compensation. Occupancy and equipment expenses increased in both segments, primarily due to an increase in software maintenance and other agreements as well as other technology equipment costs to support growth of the business and the integration of TD Ameritrade. Depreciation and amortization increased for both segments primarily due to higher amortization of purchased and internally developed software and higher depreciation of hardware, driven by capital expenditures in 2022 and the first quarter of 2023 to enhance our technological infrastructure to support growth of the business. Regulatory fees and assessments increased in both segments in the first quarter of 2023 compared to the same quarter in 2022, primarily due to the FDIC deposit insurance assessment rate increase described above. Both segments also saw higher other expenses, primarily as a result of increased exchange processing fees. These increases were partially offset by lower amortization of acquired intangible assets as certain assets from the TDA acquisition became fully amortized in 2022.

RISK MANAGEMENT

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

For a discussion of our risk management programs, see Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2022 Form 10-K.

Market Risk

Market risk is the potential for changes in earnings or the value of financial instruments held by Schwab as a result of fluctuations in interest rates, equity prices, or market conditions. Schwab is exposed to market risk primarily from changes in interest rates within our interest-earning assets relative to changes in the costs of funding sources that finance these assets.

To manage interest rate risk, we have established policies and procedures, which include setting limits on net interest revenue risk and economic value of equity (EVE) risk. To remain within these limits, we manage the maturity, repricing, and cash flow characteristics of the investment portfolios. Management monitors established guidelines to stay within the Company’s risk appetite. In 2023, the Company began to utilize interest rate swap derivative instruments to assist with managing interest rate risk. For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 1 – Note 11.

Interest Rate Risk Simulations

Net Interest Revenue Simulation

For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulations include all balance sheet interest rate-sensitive assets and liabilities. Key assumptions include the projection of interest rate scenarios with rate floors, rates and balances of non-maturity
- 14 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

client cash held on the balance sheet, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans.

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

Net interest revenue sensitivity analysis assumes the asset and liability structure of the consolidated balance sheet would not be changed as a result of the simulated changes in interest rates. While this approach is useful to isolate the impact of changes in interest rates on a statically-sized asset and liability structure, it does not capture changes to client cash allocations. We conduct simulations on EVE to capture the impact of client cash allocation changes on our balance sheet. As we actively manage the consolidated balance sheet and interest rate exposure, we have taken and would typically seek to take steps to manage additional interest rate exposure that could result from changes in the interest rate environment.

Higher short-term interest rates would generally positively impact net interest margin as yields on interest-earning assets are expected to rise faster than the cost of funding sources. If the cost of funding sources is greater than the increased revenue from repricing assets, however, net interest margin can be reduced. A decline in short-term interest rates could negatively impact the yield on the Company’s investment and loan portfolios to a greater degree than any offsetting reduction in interest expense from funding sources, compressing net interest margin.

The following table shows simulated changes to net interest revenue over the next 12 months beginning March 31, 2023 and December 31, 2022 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:
March 31, 2023December 31, 2022
Increase of 200 basis points9.7 %7.3 %
Increase of 100 basis points5.0 %3.6 %
Increase of 50 basis points2.5 %1.7 %
Decrease of 50 basis points(2.7)%(1.5)%
Decrease of 100 basis points(4.4)%(3.2)%
Decrease of 200 basis points(7.9)%(6.7)%

The Company’s simulated incremental increases in market interest rates had a larger impact on net interest revenue as of March 31, 2023 compared to December 31, 2022 primarily due to higher cash balances, which was partially offset by an increased allocation to FHLB borrowings and other short-term borrowings across the Company’s banking subsidiaries. Simulated incremental decreases in market interest rates had a larger impact on net interest revenue as of March 31, 2023 compared to December 31, 2022 primarily due to higher cash balances, while increased allocation to shorter-term liabilities contributed to lower interest expense in a lower rate environment.

In addition to measuring the effect of gradual parallel increases or decreases in current interest rates, we regularly simulate the effects of non-parallel shifts and instantaneous shifts of interest rates on net interest revenue.

Bank Deposit Account Fees Simulation

Consistent with the presentation on the consolidated statement of income, the sensitivity of bank deposit account fee revenue to interest rate changes is assessed separately from the net interest revenue simulation described above. As of March 31, 2023 and December 31, 2022, simulated changes in bank deposit account fee revenue from gradual changes in market interest rates relative to prevailing market rates, under the interest rate scenarios described above for net interest revenue, did not have a significant impact on the Company’s total net revenues.
- 15 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Economic Value of Equity Simulation

Management also uses EVE simulations to measure interest rate risk. EVE sensitivity measures the long-term impact of interest rate changes on the net present value of assets and liabilities. EVE is calculated by subjecting the balance sheet to hypothetical instantaneous shifts in the level of interest rates. This analysis is highly dependent upon asset and liability assumptions based on historical behaviors as well as our expectations of the economic environment. Key assumptions in our EVE calculation include projection of interest rate scenarios with rate floors, prepayment speeds of mortgage-related investments, term structure models of interest rates, behavior of non-maturity client cash held on the balance sheet, and pricing assumptions. Our net interest revenue, bank deposit account fee revenue, and EVE simulations reflect the assumption of non-negative investment yields.

Effective Duration

Effective duration measures price sensitivity relative to a change in prevailing interest rates, taking account of amortizing cash flows and prepayment optionality for mortgage-related securities and loans. Duration is measured in years and commonly interpreted as the average timing of principal and interest cash flows. We seek to manage the Company’s asset duration in relation to management’s estimate of the Company’s liability duration. The Company’s liability duration is impacted by the composition of funding sources, and typically decreases in periods of rising market interest rates and increases in periods of declining market interest rates. The estimated effective duration for the Company’s total AFS and held to maturity (HTM) investment securities portfolio was approximately 4.0 years and 4.6 years as of March 31, 2023 and 2022, respectively. AFS and HTM securities comprised approximately 58% and 55% of the Company’s consolidated total assets as of March 31, 2023 and 2022, respectively. The estimated effective duration of the remaining balance sheet assets in aggregate was less than one year as of both March 31, 2023 and 2022. The Company’s estimated effective duration of consolidated total assets was approximately 2.6 years at March 31, 2023 and approximately 2.7 years at March 31, 2022.

Phase-out of LIBOR

The Company has made significant progress to prepare for the phasing-out of LIBOR, as described in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management in the 2022 Form 10-K, and additional transition efforts to prepare for the phasing-out of LIBOR are ongoing.

Liquidity Risk

Liquidity risk is the potential that Schwab will be unable to sell assets or meet cash flow obligations when they come due without incurring unacceptable losses.

Due to its role as a source of financial strength, CSC’s liquidity needs are primarily driven by the liquidity and capital needs of: CS&Co, TD Ameritrade, Inc., and TDAC, our principal broker-dealer subsidiaries; the capital needs of the banking subsidiaries; principal and interest due on corporate debt; dividend payments on CSC’s preferred stock; and returns of capital to common stockholders. The liquidity needs of our broker-dealer subsidiaries are primarily driven by client activity including trading and margin lending activities and capital expenditures. The capital needs of the banking subsidiaries are primarily driven by client deposit levels and other borrowings. We have established liquidity policies to support the successful execution of business strategies, while ensuring ongoing and sufficient liquidity to meet operational needs and satisfy applicable regulatory requirements under both normal and stressed conditions. We seek to maintain client confidence in the balance sheet and the safety of client assets by maintaining liquidity and diversity of funding sources to allow the Company to meet its obligations. To this end, we have established limits and contingency funding plans to support liquidity levels during both business as usual and stressed conditions.

We employ a variety of metrics to monitor and manage liquidity. We conduct regular liquidity stress testing to develop a view of liquidity risk exposures and to ensure our ability to maintain sufficient liquidity during market-related or company-specific liquidity stress events. Liquidity sources are also tested periodically and results are reported to the Financial Risk Oversight Committee. A number of early warning indicators are monitored to help identify emerging liquidity stresses in the market or within the organization and are reviewed with management periodically.

- 16 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Funding Sources

Schwab’s primary source of funds is cash generated by client activity which includes bank deposits and cash balances in client brokerage accounts. These funds are used to purchase investment securities and extend loans to clients. Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, FHLB borrowings, issuance of CDs, cash provided by securities issuances by CSC in the capital markets, and other facilities described below.

To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments. For unanticipated liquidity needs, we also maintain a buffer of highly liquid investments, including U.S. Treasury securities.

Our clients’ bank deposits and cash balances in brokerage accounts primarily originate from our 34.1 million active brokerage accounts. More than 80% of our bank deposits qualified for FDIC insurance as of March 31, 2023. Our clients’ allocation of cash held on our balance sheet is sensitive to interest rate levels, with clients typically increasing their utilization of investment cash solutions such as purchased money market funds and certain fixed income products when those yields are higher than those of cash sweep features.

Schwab’s need for borrowings from external debt facilities arises primarily from timing differences between cash flow requirements, including in the event the outflow of client cash from the balance sheet is greater than cash flows from operations and investment securities and bank loans; payments on interest-earning investments; movements of cash to meet regulatory brokerage client cash segregation requirements; and general corporate purposes. We maintain policies and procedures necessary to access funding, and test borrowing procedures on a periodic basis. Rollover risk is the risk that we will not be able to refinance or payoff borrowings as they mature. We manage rollover risk on borrowings, taking into account expected principal paydowns on our investment and loan portfolios along with expected deposit flows.

The following table describes external debt facilities available at March 31, 2023:
DescriptionBorrowerOutstandingAvailableMaturity of Amounts OutstandingWeighted-Average Interest Rate on Amounts Outstanding
FHLB secured credit facilitiesBanking subsidiaries$45,600 $35,501 
(1)
April 2023 - August 20245.16%
Federal Reserve discount windowBanking subsidiaries— 9,398 
(1)
N/A—
Federal Reserve Bank Term Funding ProgramBanking subsidiaries— 42,655 
(1)
N/A—
Repurchase agreementsBanking subsidiaries6,822 — 
(2)
August 2023 - January 20245.00%
Uncommitted, unsecured lines of credit with
  various external banks		CSC, CS&Co— 1,607 N/A—
Unsecured commercial paper CSC250 4,750 April 20234.74%
Secured uncommitted lines of credit with various
  external banks		TDAC— — 
(3)
N/A—
(1) Amounts shown as available from the FHLB and Federal Reserve facilities represent remaining capacity based on assets pledged as of March 31, 2023. Incremental borrowing capacity may be made available by pledging additional assets, subject to applicable facility terms. See below and Note 8 for additional information.
(2) Secured borrowing capacity is made available based on the banking subsidiaries’ ability to provide collateral deemed acceptable by each respective counterparty. See Note 12 for additional information.
(3) Secured borrowing capacity is made available based on TDAC’s ability to provide acceptable collateral to the lenders as determined by the credit agreements.
N/A Not applicable.

Available borrowing capacity from the FHLB and Federal Reserve facilities maintained by our banking subsidiaries is dependent on the value of assets pledged and the terms of the borrowing arrangements. As of March 31, 2023, the Company had additional investment securities with a par value of approximately $188 billion or a fair value of approximately $173 billion available to be pledged to obtain additional capacity. These securities could be used to provide additional borrowing capacity of up to $188 billion, dependent on the facility utilized. Additional details regarding availability and use of these facilities is described below.

- 17 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Amounts available under secured credit facilities with the FHLB are dependent on the value of our First Mortgages, home equity lines of credit (HELOCs), and the fair value of certain of our investment securities that are pledged as collateral. These credit facilities are also available as backup financing in the event the outflow of client cash from the banking subsidiaries’ respective balance sheets is greater than maturities and paydowns on investment securities and bank loans. CSC’s banking subsidiaries must each maintain positive tangible capital, as defined by the Federal Housing Finance Agency, in order to place new draws upon these credit facilities, and the Company manages capital with consideration of minimum tangible capital ratios at our banking subsidiaries. Tangible capital pursuant to the requirements of the FHLB borrowing facilities for our banking subsidiaries is common equity less goodwill and intangible assets.

Our banking subsidiaries also have access to short-term secured funding through the Federal Reserve discount window. Amounts available under the Federal Reserve discount window are dependent on the fair value of certain investment securities that are pledged as collateral. Our banking subsidiaries may also engage with external financial institutions in repurchase agreements collateralized by investment securities as another source of short-term liquidity. Our banking subsidiaries are also counterparties to the standing repo facility with the Federal Reserve Bank of New York.

On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program, offering loans of up to one year in length to eligible financial institutions with U.S. Treasury securities, agency debt, mortgage-backed securities, and other qualifying assets pledged as collateral. Borrowing capacity available under this program is dependent upon the par value of the investment securities that are pledged as collateral. The Company is eligible to obtain advances under this program. This facility was not used during the first quarter of 2023.

CSC’s ratings for Commercial Paper Notes were P1 by Moody’s Investor Service (Moody’s), A1 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch) at March 31, 2023 and December 31, 2022. Subsequent to March 31, 2023, Standard & Poor’s downgraded its rating from A1 to A2 for CSC’s Commercial Paper Notes and affirmed its outlook remained stable. Also subsequent to March 31, 2023, Moody’s affirmed its rating of P1 for CSC and changed its outlook from positive to stable.

CSC also has a universal automatic shelf registration statement on file with the SEC, which enables it to issue debt, equity, and other securities.

CS&Co maintains uncommitted, unsecured bank credit lines with a group of banks as a source of short-term liquidity, which can also be accessed by CSC. TDAC maintains secured uncommitted lines of credit, under which TDAC borrows on either a demand or short-term basis and pledges client margin securities as collateral.

In the fourth quarter of 2022 and first quarter of 2023, CSB issued brokered CDs as a supplemental funding source. The following table provides information about CDs issued by CSB and outstanding as of March 31, 2023:
Amount OutstandingMaturityWeighted-Average Interest Rate
Brokered CDs$30,745 July 2023 - March 20254.96%

Cash Flow Activity

As a result of rapidly increasing short-term interest rates beginning in 2022, the Company saw an increase in the pace at which clients moved certain cash balances out of our sweep features and into higher yielding alternatives. As a result of these outflows, our banking subsidiaries have supplemented excess cash on hand and cash generated by maturities and paydowns on our investment securities portfolios with fixed- and floating-rate FHLB advances, repurchase agreements, and issuances of brokered CDs. The Company expects to use these types of temporary supplemental funding until the Company’s primary sources of liquidity are again greater than any outflows associated with client cash allocation decisions.

During the first quarter of 2023, the Company’s cash and cash equivalents, excluding amounts restricted, increased by $9.0 billion to $49.2 billion as of March 31, 2023. This increase was driven by net cash provided by investing and operating activities, partially offset by net cash used for financing activities. Bank deposits decreased by a total of $41.0 billion during the first quarter of 2023; this was driven by a decrease of $63.7 billion in deposits swept from brokerage accounts due primarily to clients’ cash allocation decisions described above, partially offset by a net increase in brokered CDs of $24.7 billion. Offsetting the decrease in bank deposits, investing cash flows from our AFS and HTM securities totaled $12.0 billion in the first quarter of 2023, and the Company increased its FHLB borrowings and other short-term borrowings by a total of $35.6 billion.
- 18 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

Subsequent to March 31, 2023, the Company’s banking subsidiaries had drawn an additional $3.0 billion of FHLB advances. The current average interest on these advances was 4.96%, with the earliest maturity occurring in May 2024. Our banking subsidiaries also borrowed an additional $1.0 billion under repurchase agreements with external financial institutions subsequent to March 31, 2023. The current average interest rate on these repurchase borrowings was 5.05% with the earliest maturity occurring in April 2024. The Company also issued $6.8 billion of brokered CDs subsequent to March 31, 2023 at a weighted average interest rate of 4.97%, with the earliest maturity occurring in April 2024.

Liquidity Coverage Ratio

Schwab is subject to the full LCR rule, which requires the Company to hold high quality liquid assets (HQLA) in an amount equal to at least 100% of the Company’s projected net cash outflows over a prospective 30-calendar-day period of acute liquidity stress, calculated on each business day. See Part I – Item 1 – Business – Regulation in the 2022 Form 10-K for additional information. The Company was in compliance with the LCR rule at March 31, 2023, and the table below presents information about our average daily LCR:
Average for the Three Months Ended
March 31, 2023December 31, 2022
Total eligible HQLA$80,128 $93,986 
Net cash outflows$62,163 $76,754 
LCR129 %123 %

To support growth in margin loan balances at our broker-dealer subsidiaries while meeting our LCR requirements, the Company may issue commercial paper or draw on secured lines of credit, in addition to capital markets issuances.

Long-Term Borrowings

The Company’s long-term debt is primarily comprised of Senior Notes and totaled $20.0 billion and $20.8 billion at March 31, 2023 and December 31, 2022, respectively.

The following table provides information about our Senior Notes outstanding at March 31, 2023:
March 31, 2023Par
Outstanding		MaturityWeighted Average
Interest Rate		Moody’sStandard
& Poor’s		Fitch
CSC Senior Notes$19,712 2024 - 20322.44%A2AA
TDA Holding Senior Notes$213 2024 - 20293.47%A2A—

Subsequent to March 31, 2023, Standard & Poor’s downgraded CSC’s and TDA Holding’s long-term issuer credit and senior unsecured debt ratings from A to A-, and affirmed its outlook remained stable. Also subsequent to March 31, 2023, Moody’s affirmed its rating of A2 for CSC and TDA Holding and changed its outlook from positive to stable.
Schwab additionally enters into guarantees and other similar arrangements in the ordinary course of business. For information on these arrangements, see Item 1 – Notes 5, 6, 8, 9, and 12.

Additional information regarding our sources and uses of liquidity and management of liquidity risk is included in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk in our 2022 Form 10-K. See also Item 1 – Condensed Consolidated Statements of Cash Flows, Item 1 – Note 7 for the Company’s bank deposits, Item 1 – Note 8 for the Company’s debt and borrowing facilities, and Item 1 – Note 14 for equity outstanding balances and activity.

CAPITAL MANAGEMENT

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including balance sheet growth over time, management of the IDA agreements inclusive of potential migration of IDA balances (see further discussion below), providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries. Schwab also seeks to return excess capital to stockholders. We may return excess capital through such activities as
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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

dividends, repurchases of common shares, preferred stock redemptions, and repurchases of our preferred stock represented by depositary shares. Schwab’s primary sources of capital are funds generated by the operations of subsidiaries and securities issuances by CSC in the capital markets. To ensure that Schwab has sufficient capital to absorb unanticipated losses or declines in asset values, we have adopted a policy to remain well capitalized even in stressed scenarios.

Regulatory Capital Requirements

CSC and certain subsidiaries including our banking and broker-dealer subsidiaries are subject to various capital requirements set by regulatory agencies as discussed in further detail in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Management of the 2022 Form 10-K and in Item 1 – Note 17. As of March 31, 2023, CSC and our banking subsidiaries are considered well capitalized, and CS&Co, TDAC, and TD Ameritrade, Inc. are in compliance with their respective net capital requirements.

The following table details the capital ratios for CSC consolidated and CSB:
March 31, 2023December 31, 2022
CSCCSBCSCCSB
Total stockholders’ equity$36,347 $9,777 $36,608 $7,664 
Less:
Preferred stock9,191 — 9,706 — 
Common Equity Tier 1 Capital before regulatory adjustments$27,156 $9,777 $26,902 $7,664 
Less:
Goodwill, net of associated deferred tax liabilities$11,816 $13 $11,816 $13 
Other intangible assets, net of associated deferred tax liabilities6,967 — 7,079 — 
Deferred tax assets, net of valuation allowances and deferred tax liabilities37 35 37 35 
AOCI adjustment (1)
(20,690)(17,965)(22,620)(19,680)
Common Equity Tier 1 Capital$29,026 $27,694 $30,590 $27,296 
Tier 1 Capital$38,217 $27,694 $40,296 $27,296 
Total Capital38,299 27,769 40,376 27,370 
Risk-Weighted Assets135,865 96,395 139,657 99,631 
Total Leverage Exposure544,266 364,578 566,809 375,846 
Common Equity Tier 1 Capital/Risk-Weighted Assets21.4 %28.7 %21.9 %27.4 %
Tier 1 Capital/Risk-Weighted Assets28.1 %28.7 %28.9 %27.4 %
Total Capital/Risk-Weighted Assets28.2 %28.8 %28.9 %27.5 %
Tier 1 Leverage Ratio7.1 %7.7 %7.2 %7.3 %
Supplementary Leverage Ratio7.0 %7.6 %7.1 %7.3 %
(1) Changes in market interest rates can result in unrealized gains or losses on AFS securities, which are included in AOCI. As a Category III banking organization, CSC has elected to exclude AOCI from regulatory capital.

The Company’s consolidated Tier 1 Leverage Ratio decreased slightly to 7.1% at March 31, 2023 from 7.2% at year-end 2022. This decrease was primarily due to repurchases of $2.8 billion of common stock and $467 million of preferred stock, higher common stock dividends, and a decrease of $51 billion, or 11%, in total bank deposits and payables to brokerage clients due to client cash allocation decisions resulting from the rising interest rate environment. These factors were largely offset by first quarter 2023 net income. CSB’s Tier 1 Leverage Ratio increased from year-end 2022, ending the first quarter of 2023 at 7.7%.

The Company suspended repurchase activity during the first quarter of 2023. In light of anticipated changes to regulatory expectations and capital requirements that could require Schwab and other firms to include AOCI in regulatory capital, the Company currently plans to accrete and retain capital and does not plan to resume repurchases until there is more regulatory clarity.

IDA Agreement

Certain brokerage client deposits are swept off-balance sheet to the TD Depository Institutions pursuant to the IDA agreements. During the first quarter of 2023, Schwab did not move IDA balances to its balance sheet. The Company’s overall capital management strategy includes supporting migration of IDA balances in future periods as available pursuant to the terms of the 2023 IDA agreement. The Company’s ability to migrate these balances to its balance sheet is dependent upon multiple factors
- 20 -
THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

including having sufficient capital levels to sustain these incremental deposits. See Item 1 – Note 9 for further information on the IDA agreements.

Dividends

On January 26, 2023, the Board of Directors of CSC declared a three cent, or 14%, increase in the quarterly cash dividend to $.25 per common share.

Cash dividends paid and per share amounts, exclusive of amounts related to preferred stock repurchases, for the first three months of 2023 and 2022 are as follows:
20232022
Three Months Ended March 31,Cash PaidPer Share
Amount		Cash PaidPer Share
Amount
Common and Nonvoting Common Stock$463 $.25 $381 $.20 
Preferred Stock:
Series A (1)
N/AN/A14 35.00 
Series D (2)
11 14.88 11 14.88 
Series E (3)
N/AN/A14 2,312.50 
Series F (4)
— — — — 
Series G (2)
33 1,343.75 34 1,343.75 
Series H (2)
24 1,000.00 25 1,000.00 
Series I (2)
21 1,000.00 23 1,000.00 
Series J (2)
7 11.13 7 11.13 
Series K (5)
9 1,250.00 N/AN/A
(1) Series A was redeemed on November 1, 2022. Prior to redemption, dividends were paid semi-annually until February 1, 2022 and quarterly thereafter. The final dividend was paid on November 1, 2022.
(2) Dividends paid quarterly.
(3) Series E was redeemed on December 1, 2022. Prior to redemption, dividends were paid semi-annually until March 1, 2022 and quarterly thereafter. The final dividend was paid on December 1, 2022.
(4) Dividends paid semi-annually until December 1, 2027 and quarterly thereafter.
(5) Series K was issued on March 4, 2022. Dividends are paid quarterly, and the first dividend was paid on June 1, 2022.
N/A Not applicable.

Share Repurchases

On July 27, 2022, CSC publicly announced that its Board of Directors approved a new 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. CSC repurchased 37 million shares of its common stock for $2.8 billion during the three months ended March 31, 2023. As of March 31, 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 three months ended March 31, 2022.

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 three months ended March 31, 2023. The repurchase prices are inclusive of $3 million of dividends accrued by the stockholders as of the repurchase date.

Beginning in 2023, share repurchases, net of issuances, are subject to a nondeductible 1% excise tax which was recognized as a direct and incremental cost associated with these transactions. For repurchases of common stock, the tax is recorded as part of the cost basis of the treasury stock repurchased, resulting in no impact to the condensed consolidated statement of income. For repurchases of preferred stock, the tax impact is included within preferred stock dividends and other on the condensed consolidated statement of income.

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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

OTHER

Foreign Exposure
At March 31, 2023, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At March 31, 2023, the fair value of these holdings totaled $11.2 billion, with the top three exposures being to issuers and counterparties domiciled in France at $3.1 billion, the United Kingdom at $1.8 billion, and Canada at $1.7 billion. At December 31, 2022, the fair value of these holdings totaled $16.4 billion, with the top three exposures being to issuers and counterparties domiciled in France at $5.1 billion, the United Kingdom at $4.8 billion, and Canada at $1.7 billion. In addition, Schwab had outstanding margin loans to foreign residents of $2.5 billion at both March 31, 2023 and December 31, 2022.

CRITICAL ACCOUNTING ESTIMATES

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2022 Form 10-K. There have been no changes to critical accounting estimates during the first three months of 2023.

NON-GAAP FINANCIAL MEASURES

In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S. (GAAP), Management’s Discussion and Analysis of Financial Condition and Results of Operations contain references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide useful supplemental information about the financial performance of the Company, and facilitate meaningful comparison of Schwab’s results in the current period to both historic and future results. These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may not be comparable to non-GAAP financial measures presented by other companies.

Schwab’s use of non-GAAP measures is reflective of certain adjustments made to GAAP financial measures as described below.
Non-GAAP Adjustment or MeasureDefinitionUsefulness to Investors and Uses by Management
Acquisition and integration-related costs and amortization of acquired intangible assetsSchwab adjusts certain GAAP financial measures to exclude the impact of acquisition and integration-related costs incurred as a result of the Company’s acquisitions, amortization of acquired intangible assets, and, where applicable, the income tax effect of these expenses.

Adjustments made to exclude amortization of acquired intangible assets are reflective of all acquired intangible assets, which were recorded as part of purchase accounting. These acquired intangible assets contribute to the Company’s revenue generation. Amortization of acquired intangible assets will continue in future periods over their remaining useful lives.		We exclude acquisition and integration-related costs and amortization of acquired intangible assets for the purpose of calculating certain non-GAAP measures because we believe doing so provides additional transparency of Schwab’s ongoing operations, and is useful in both evaluating the operating performance of the business and facilitating comparison of results with prior and future periods.

Acquisition and integration-related costs fluctuate based on the timing of acquisitions and integration activities, thereby limiting comparability of results among periods, and are not representative of the costs of running the Company’s ongoing business. Amortization of acquired intangible assets is excluded because management does not believe it is indicative of the Company’s underlying operating performance.
Return on tangible common equityReturn on tangible common equity represents annualized adjusted net income available to common stockholders as a percentage of average tangible common equity. Tangible common equity represents common equity less goodwill, acquired intangible assets – net, and related deferred tax liabilities.Acquisitions typically result in the recognition of significant amounts of goodwill and acquired intangible assets. We believe return on tangible common equity may be useful to investors as a supplemental measure to facilitate assessing capital efficiency and returns relative to the composition of Schwab’s balance sheet.

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

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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)

The following tables present reconciliations of GAAP measures to non-GAAP measures:
Three Months Ended
March 31,
20232022
Total expenses excluding interest (GAAP)$3,006 $2,833 
Acquisition and integration-related costs (1)
(98)(96)
Amortization of acquired intangible assets(135)(154)
Adjusted total expenses (non-GAAP)$2,773 $2,583 
(1) Acquisition and integration-related costs for the three months ended March 31, 2023 primarily consist of $58 million of compensation and benefits, $33 million of professional services, and $4 million of occupancy and equipment. Acquisition and integration-related costs for the three months ended March 31, 2022 primarily consist of $56 million of compensation and benefits, $31 million of professional services, and $4 million of occupancy and equipment.

Three Months Ended
March 31,
20232022
AmountDiluted EPSAmountDiluted EPS
Net income available to common stockholders (GAAP),
  Earnings per common share — diluted (GAAP)		$1,533 $.83 $1,278 $.67 
Acquisition and integration-related costs98 .05 96 .05 
Amortization of acquired intangible assets135 .07 154 .08 
Income tax effects (1)
(56)(.02)(61)(.03)
Adjusted net income available to common stockholders
  (non-GAAP), Adjusted diluted EPS (non-GAAP)		$1,710 $.93 $1,467 $.77 
(1) The income tax effects of the non-GAAP adjustments are determined using an effective tax rate reflecting the exclusion of non-deductible acquisition costs and are used to present the acquisition and integration-related costs and amortization of acquired intangible assets on an after-tax basis.

Three Months Ended
March 31,
20232022
Return on average common stockholders’ equity (GAAP)23 %12 %
Average common stockholders’ equity$27,028 $41,856 
Less: Average goodwill(11,951)(11,952)
Less: Average acquired intangible assets — net(8,724)(9,303)
Plus: Average deferred tax liabilities related to goodwill and
acquired intangible assets — net		1,842 1,886 
Average tangible common equity$8,195 $22,487 
Adjusted net income available to common stockholders (1)
$1,710 $1,467 
Return on tangible common equity (non-GAAP)83 %26 %
(1) See table above for the reconciliation of net income available to common stockholders to adjusted net income available to common stockholders (non-GAAP).


- 23 -

THE CHARLES SCHWAB CORPORATION


Item 3. Quantitative and Qualitative Disclosures About Market Risk

For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2.

- 24 -

Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Income
(In Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31,
20232022
Net Revenues
Interest revenue$4,016 $2,319 
Interest expense(1,246)(136)
Net interest revenue2,770 2,183 
Asset management and administration fees (1)
1,118 1,068 
Trading revenue892 963 
Bank deposit account fees151 294 
Other185 164 
Total net revenues5,116 4,672 
Expenses Excluding Interest
Compensation and benefits1,638 1,546 
Professional services258 244 
Occupancy and equipment299 269 
Advertising and market development88 102 
Communications146 144 
Depreciation and amortization177 150 
Amortization of acquired intangible assets135 154 
Regulatory fees and assessments83 68 
Other182 156 
Total expenses excluding interest3,006 2,833 
Income before taxes on income2,110 1,839 
Taxes on income507 437 
Net Income1,603 1,402 
Preferred stock dividends and other70 124 
Net Income Available to Common Stockholders$1,533 $1,278 
Weighted-Average Common Shares Outstanding:
Basic1,834 1,894 
Diluted1,842 1,905 
Earnings Per Common Shares Outstanding (2):
Basic$.84 $.67 
Diluted$.83 $.67 
(1) No fee waivers were recognized for the three months ended March 31, 2023. Includes fee waivers of $54 million for the three months ended March 31, 2022.
(2) The Company has voting and nonvoting common stock outstanding. As the participation rights, including dividend and liquidation rights, are identical between the voting and nonvoting stock classes, basic and diluted earnings per share are the same for each class. See Note 16 for additional information.

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In Millions)
(Unaudited)

Three Months Ended
March 31,
20232022
Net income$1,603 $1,402 
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 maturity1,849 (13,135)
Reclassification of net unrealized loss transferred to held to maturity— 2,429 
Other reclassifications included in other revenue9 (12)
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		609 92 
Other(8)— 
Other comprehensive income (loss), before tax2,459 (13,055)
Income tax effect(528)3,119 
Other comprehensive income (loss), net of tax1,931 (9,936)
Comprehensive Income (Loss)$3,534 $(8,534)

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)

March 31, 2023December 31, 2022
Assets  
Cash and cash equivalents$49,162 $40,195 
Cash and investments segregated and on deposit for regulatory purposes (including resale
  agreements of $4,920 and $12,159 at March 31, 2023 and December 31, 2022,
  respectively)
31,037 42,983 
Receivables from brokerage clients — net63,187 66,591 
Available for sale securities (amortized cost of $151,767 at March 31, 2023 and
  $160,162 at December 31, 2022; including assets pledged of $279 and $41, respectively)
141,334 147,871 
Held to maturity securities (including assets pledged of $6,821 at March 31, 2023
 and $4,522 at December 31, 2022)
169,911 173,074 
Bank loans — net39,964 40,505 
Equipment, office facilities, and property — net3,716 3,714 
Goodwill11,951 11,951 
Acquired intangible assets — net8,659 8,789 
Other assets16,631 16,099 
Total assets$535,552 $551,772 
Liabilities and Stockholders’ Equity  
Bank deposits$325,745 $366,724 
Payables to brokerage clients87,553 97,438 
Accrued expenses and other liabilities13,220 13,124 
Other short-term borrowings7,071 4,650 
Federal Home Loan Bank borrowings45,600 12,400 
Long-term debt20,016 20,828 
Total liabilities499,205 515,164 
Stockholders’ equity:  
Preferred stock — $.01 par value per share; aggregate liquidation preference of $9,502
  and $9,850 at March 31, 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 March 31, 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 March 31, 2023 and December 31, 2022
1 1 
Additional paid-in capital27,136 27,075 
Retained earnings32,144 31,066 
Treasury stock, at cost — 255,459,169 and 221,033,042 shares at March 31, 2023
  and December 31, 2022, respectively
(11,455)(8,639)
Accumulated other comprehensive income (loss)(20,690)(22,621)
Total stockholders’ equity36,347 36,608 
Total liabilities and stockholders’ equity$535,552 $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 StockCommon StockNonvoting
Common Stock		Additional Paid-in CapitalRetained EarningsTreasury Stock,
at cost		Total
SharesAmountSharesAmount
Balance at December 31, 2021$9,954 1,995 $20 79 $1 $26,741 $25,992 $(5,338)$(1,109)$56,261 
Net income— — — — — — 1,402 — — 1,402 
Other comprehensive income (loss), net of tax— — — — — — — — (9,936)(9,936)
Issuance of preferred stock, net740 — — — — — — — — 740 
Dividends declared on preferred stock— — — — — — (118)— — (118)
Dividends declared on common stock — $.20
  per share
— — — — — — (381)— — (381)
Stock option exercises and other— — — — — (51)— 81 — 30 
Share-based compensation— — — — — 112 — — — 112 
Other— — — — — 24 — (36)— (12)
Balance at March 31, 2022$10,694 1,995 $20 79 $1 $26,826 $26,895 $(5,293)$(11,045)$48,098 
Balance at December 31, 2022$9,706 2,023 $20 51 $1 $27,075 $31,066 $(8,639)$(22,621)$36,608 
Net income— — — — — — 1,603 — — 1,603 
Other comprehensive income (loss), net of tax— — — — — — — — 1,931 1,931 
Redemption and repurchase of preferred stock, inclusive of tax(515)— — — — — 44 — — (471)
Dividends declared on preferred stock— — — — — — (105)— — (105)
Dividends declared on common stock — $.25
  per share
— — — — — — (464)— — (464)
Repurchase of common stock, inclusive of tax— — — — — — — (2,869)— (2,869)
Stock option exercises and other— — — — — (92)— 111 — 19 
Share-based compensation— — — — — 129 — — — 129 
Other— — — — — 24 — (58)— (34)
Balance at March 31, 2023$9,191 2,023 $20 51 $1 $27,136 $32,144 $(11,455)$(20,690)$36,347 

See Notes to the Condensed Consolidated Financial Statements.
- 28 -

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows (1)
(in Millions)
(Unaudited)

Three Months Ended
March 31,
20232022
Cash Flows from Operating Activities  
Net income$1,603 $1,402 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:  
Share-based compensation134 144 
Depreciation and amortization177 150 
Amortization of acquired intangible assets135 154 
Provision (benefit) for deferred income taxes3 (19)
Premium amortization, net, on available for sale and held to maturity securities185 486 
Other132 98 
Net change in:  
Investments segregated and on deposit for regulatory purposes13,690 (4,628)
Receivables from brokerage clients3,395 6,487 
Other assets212 (59)
Payables to brokerage clients(9,885)(364)
Accrued expenses and other liabilities(4)(798)
Net cash provided by (used for) operating activities9,777 3,053 
Cash Flows from Investing Activities  
Purchases of available for sale securities— (30,710)
Proceeds from sales of available for sale securities1,051 9,521 
Principal payments on available for sale securities7,312 16,892 
Principal payments on held to maturity securities3,613 3,505 
Net change in bank loans521 (2,493)
Purchases of equipment, office facilities, and property(159)(296)
Purchases of FHLB stock(1,439)— 
Proceeds from sales of FHLB stock82 — 
Purchases of Federal Reserve stock— (27)
Proceeds from sales of Federal Reserve stock98 — 
Other investing activities(50)(34)
Net cash provided by (used for) investing activities11,029 (3,642)
Cash Flows from Financing Activities  
Net change in bank deposits(40,979)22,049 
Proceeds from FHLB borrowings36,200 3 
Repayments of FHLB borrowings(3,000)(3)
Proceeds from other short-term borrowings3,657 2,467 
Repayments of other short-term borrowings(1,241)(3,090)
Issuances of long-term debt— 2,971 
Repayments of long-term debt(808)(7)
Net proceeds from preferred stock offerings— 740 
Redemption and repurchase of preferred stock(467)— 
Dividends paid(568)(509)
Proceeds from stock options exercised19 30 
Repurchases of common stock and nonvoting common stock(2,842)— 
Other financing activities(67)(42)
Net cash provided by (used for) financing activities(10,096)24,609 
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted10,710 24,020 
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year58,720 93,338 
Cash and Cash Equivalents, including Amounts Restricted at End of Period$69,430 $117,358 

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.
Three Months Ended
March 31,
20232022
Supplemental Cash Flow Information  
Non-cash investing activity:
Securities transferred from available for sale to held to maturity, at fair value$— $108,805 
Securities purchased during the period but settled after period end$— $15 
Changes in accrued equipment, office facilities, and property purchases$28 $(87)
Other Supplemental Cash Flow Information:
Cash paid during the period for:  
Interest$923 $153 
Income taxes$40 $50 
Amounts included in the measurement of lease liabilities $63 $53 
Leased assets obtained in exchange for new operating lease liabilities $12 $140 
Leased assets obtained in exchange for new finance lease liabilities$— $5 
March 31, 2023March 31, 2022
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2)
Cash and cash equivalents$49,162 $91,126 
Restricted cash and cash equivalents amounts included in cash and investments segregated
  and on deposit for regulatory purposes		20,268 26,232 
Total cash and cash equivalents, including amounts restricted shown in the
  statement of cash flows		$69,430 $117,358 
(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.

- 30 -
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 Note 2 in the 2022 Form 10-K. There have been no significant changes to these accounting policies during the first three 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.

- 31 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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 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

StandardDescriptionDate of AdoptionEffects 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, 2023The 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.
- 32 -
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
Disaggregated Revenue
Disaggregation of Schwab’s revenue by major source is as follows:
Three Months Ended
March 31,
20232022
Net interest revenue
Cash and cash equivalents$413 $34 
Cash and investments segregated432 15 
Receivables from brokerage clients1,084 626 
Available for sale securities 825 947 
Held to maturity securities746 378 
Bank loans391 187 
Securities lending revenue112 129 
Other interest revenue13 3 
Interest revenue4,016 2,319 
Bank deposits(618)(16)
Payables to brokerage clients(75)(2)
Other short-term borrowings (1)
(86)(4)
Federal Home Loan Bank borrowings (1)
(304)— 
Long-term debt(139)(108)
Securities lending expense(22)(7)
Other interest expense(2)1 
Interest expense(1,246)(136)
Net interest revenue2,770 2,183 
Asset management and administration fees
Mutual funds, ETFs, and CTFs585 489 
Advice solutions453 496 
Other80 83 
Asset management and administration fees1,118 1,068 
Trading revenue
Commissions422 484 
Order flow revenue414 470 
Principal transactions56 9 
Trading revenue892 963 
Bank deposit account fees151 294 
Other 185 164 
Total net revenues$5,116 $4,672 
(1) Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 1 for additional information.

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.

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 $616 million and $560 million at March 31, 2023 and December 31, 2022, respectively. Schwab did not have any other significant contract assets or contract liability balances as of March 31, 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.
- 33 -
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:
March 31, 2023Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
Available for sale securities    
U.S. agency mortgage-backed securities$82,774 $1 $7,228 $75,547 
U.S. Treasury securities39,316 — 1,454 37,862 
Asset-backed securities (1)
12,375 — 536 11,839 
Corporate debt securities (2)
13,615 — 1,076 12,539 
Certificates of deposit1,445 — 7 1,438 
Foreign government agency securities1,033 — 51 982 
U.S. state and municipal securities646 — 58 588 
Non-agency commercial mortgage-backed securities341 — 20 321 
Other222 — 4 218 
Total available for sale securities (3)
$151,767 $1 $10,434 $141,334 
Held to maturity securities    
U.S. agency mortgage-backed securities$169,911 $2,525 $13,570 $158,866 
Total held to maturity securities$169,911 $2,525 $13,570 $158,866 
December 31, 2022Amortized
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 securities41,879 — 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 deposit2,245 — 14 2,231 
Foreign government agency securities1,033 — 64 969 
U.S. state and municipal securities713 — 75 638 
Non-agency commercial mortgage-backed securities473 — 23 450 
Other323 — 8 315 
Total available for sale securities (3)
$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 59% and 57% of asset-backed securities held as of March 31, 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 18% of the asset-backed securities held at both March 31, 2023 and December 31, 2022.
(2) As of March 31, 2023 and December 31, 2022, approximately 36% and 37%, respectively, of the total AFS in corporate debt securities were issued by institutions in the financial services industry.
(3) 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 March 31, 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
- 34 -
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 March 31, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $12.8 billion net of tax effect ($16.9 billion pretax).

At March 31, 2023, our banking subsidiaries had pledged investment securities with a value of $62.7 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 $9.4 billion as collateral for this facility at March 31, 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 $42.7 billion as collateral for this facility at March 31, 2023. The Company also pledges investment securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $1.7 billion at March 31, 2023.

At March 31, 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 $6.8 billion, and AFS securities pledged were U.S. Treasury securities with an aggregate fair value of $279 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 March 31, 2023, our banking subsidiaries had pledged AFS securities with an aggregate fair value of $85 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.
- 35 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, of AFS investment securities are as follows:
Less than 12 months12 months or longerTotal
March 31, 2023Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
Available for sale securities      
U.S. agency mortgage-backed securities$10,049 $273 $65,268 $6,955 $75,317 $7,228 
U.S. Treasury securities13,096 77 24,765 1,377 37,861 1,454 
Asset-backed securities1,272 17 10,551 519 11,823 536 
Corporate debt securities1,170 29 11,369 1,047 12,539 1,076 
Certificates of deposit843 2 595 5 1,438 7 
Foreign government agency securities— — 982 51 982 51 
U.S. state and municipal securities56 1 525 57 581 58 
Non-agency commercial mortgage-backed securities227 3 94 17 321 20 
Other20 2 198 2 218 4 
Total$26,733 $404 $114,347 $10,030 $141,080 $10,434 
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 securities27,063 716 12,519 1,161 39,582 1,877 
Asset-backed securities6,717 217 6,299 432 13,016 649 
Corporate debt securities8,552 542 3,998 733 12,550 1,275 
Certificates of deposit2,033 10 196 4 2,229 14 
Foreign government agency securities756 50 214 14 970 64 
U.S. state and municipal securities482 31 157 44 639 75 
Non-agency commercial mortgage-backed securities443 23 — — 443 23 
Other315 8 — — 315 8 
Total$81,299 $3,622 $65,941 $8,669 $147,240 $12,291 
At March 31, 2023, substantially all rated securities in the investment portfolios were investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises.

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 three months ended March 31, 2023 and the year ended December 31, 2022. None of the Company’s AFS securities held as of March 31, 2023 and December 31, 2022 had an allowance for credit losses. All HTM securities as of March 31, 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 $621 million and $685 million of accrued interest for AFS and HTM securities as of March 31, 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 three months ended March 31, 2023, or for the year ended December 31, 2022.

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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)
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 March 31, 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 March 31, 2023.

The maturities of AFS and HTM investment securities are as follows:
March 31, 2023Within
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$1,010 $14,534 $14,281 $45,722 $75,547 
U.S. Treasury securities20,865 16,437 560 — 37,862 
Asset-backed securities2 3,388 1,717 6,732 11,839 
Corporate debt securities1,331 8,592 2,616 — 12,539 
Certificates of deposit1,438 — — — 1,438 
Foreign government agency securities200 782 — — 982 
U.S. state and municipal securities6 38 409 135 588 
Non-agency commercial mortgage-backed securities— — — 321 321 
Other 198 — — 20 218 
Total fair value$25,050 $43,771 $19,583 $52,930 $141,334 
Total amortized cost$25,321 $46,299 $21,769 $58,378 $151,767 
Held to maturity securities     
U.S. agency mortgage-backed securities$417 $6,194 $39,741 $112,514 $158,866 
Total fair value$417 $6,194 $39,741 $112,514 $158,866 
Total amortized cost$425 $6,601 $42,146 $120,739 $169,911 

Proceeds and gross realized gains and losses from sales of AFS investment securities are as follows:
Three Months Ended
March 31,
20232022
Proceeds$1,051 $9,521 
Gross realized gains— 115 
Gross realized losses9 103 


- 37 -
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:
March 31, 2023Current30-59 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)
$25,435 $23 $— $13 $36 $25,471 $67 $25,404 
HELOCs (1,2)
552 1 — 5 6 558 4 554 
Total residential real estate25,987 24 — 18 42 26,029 71 25,958 
Pledged asset lines13,798 3 — — 3 13,801 — 13,801 
Other208 — — — — 208 3 205 
Total bank loans$39,993 $27 $— $18 $45 $40,038 $74 $39,964 
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 estate25,747 27 2 19 48 25,795 70 25,725 
Pledged asset lines14,584 4 — 4 8 14,592 — 14,592 
Other191 — — — — 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 March 31, 2023 and December 31, 2022, respectively.
(2) At March 31, 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 March 31, 2023 or December 31, 2022.

At March 31, 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
March 31, 2023First MortgagesHELOCsTotal residential real estatePledged asset linesOtherTotal
Balance at beginning of period$66 $4 $70 $— $3 $73 
Charge-offs— — — — — — 
Recoveries— — — — — — 
Provision for credit losses1 — 1 — — 1 
Balance at end of period$67 $4 $71 $— $3 $74 
March 31, 2022
Balance at beginning of period$13 $2 $15 $— $3 $18 
Charge-offs— — — — — — 
Recoveries— — — — — — 
Provision for credit losses10 — 10 — — 10 
Balance at end of period$23 $2 $25 $— $3 $28 

- 38 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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 March 31, 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. Management’s macroeconomic outlook reflects a near term increase in unemployment coupled with home price depreciation, which combined with rising mortgage rates, have softened demand and reduced borrower affordability. Despite these changes to the macroeconomic outlook, projections of loss rates have remained relatively stable at March 31, 2023, compared to December 31, 2022, due to strong credit quality characteristics of the Company’s bank loans portfolio.

A summary of bank loan-related nonperforming assets is as follows:
March 31, 2023December 31, 2022
Nonaccrual loans (1)
$18 $23 
Other real estate owned (2)
— 2 
Total nonperforming assets$18 $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.

- 39 -
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
March 31, 202320232022202120202019pre-2019Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
Origination FICO
<620$— $3 $1 $1 $— $1 $6 $— $— $— 
620 – 679— 28 31 20 2 14 95 — 2 2 
680 – 73975 819 1,211 419 112 227 2,863 58 44 102 
≥740604 5,517 10,896 3,761 798 931 22,507 297 157 454 
Total$679 $6,367 $12,139 $4,201 $912 $1,173 $25,471 $355 $203 $558 
Origination LTV
≤70%$474 $4,712 $10,507 $3,492 $736 $868 $20,789 $311 $143 $454 
>70% – ≤90%205 1,655 1,632 709 176 303 4,680 44 59 103 
>90% – ≤100%— — — — — 2 2 — 1 1 
Total$679 $6,367 $12,139 $4,201 $912 $1,173 $25,471 $355 $203 $558 
Updated FICO
<620$— $10 $16 $7 $2 $11 $46 $1 $5 $6 
620 – 6795 90 115 32 12 37 291 6 10 16 
680 – 73970 613 952 329 74 142 2,180 49 30 79 
≥740604 5,654 11,056 3,833 824 983 22,954 299 158 457 
Total$679 $6,367 $12,139 $4,201 $912 $1,173 $25,471 $355 $203 $558 
Estimated Current LTV (1)
≤70%$474 $4,417 $11,460 $4,181 $911 $1,170 $22,613 $351 $202 $553 
>70% – ≤90%205 1,896 679 20 1 3 2,804 4 1 5 
>90% – ≤100%— 50 — — — — 50 — — — 
>100%— 4 — — — — 4 — — — 
Total$679 $6,367 $12,139 $4,201 $912 $1,173 $25,471 $355 $203 $558 
Gross charge-offs$— $— $— $— $— $— $— $— $— $— 
Percent of Loans on
  Nonaccrual Status		0.02 %0.03 %0.02 %0.05 %0.03 %0.53 %0.05 %0.30 %1.89 %0.90 %
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.



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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)
First Mortgages Amortized Cost Basis by Origination Year
December 31, 20222022202120202019pre-2019Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
Origination FICO
<620$3 $1 $— $— $1 $5 $— $— $— 
620 – 67928 31 21 2 15 97 — 2 2 
680 – 739820 1,224 430 116 243 2,833 59 47 106 
≥7405,593 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 – 67987 127 42 10 43 309 6 10 16 
680 – 739711 1,079 378 89 161 2,418 52 35 87 
≥7405,635 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 March 31, 2023, First Mortgage loans of $20.8 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 28% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 93% 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 March 31, 2023 and December 31, 2022, Schwab had $139 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.

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THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following table presents HELOCs converted to amortizing loans during each period presented:
Three Months Ended
March 31,
20232022
HELOCs converted to amortizing loans$7 $2 

The following table presents when current outstanding HELOCs will convert to amortizing loans:
March 31, 2023Balance
Converted to an amortizing loan by period end$203 
Within 1 year29 
> 1 year – 3 years45 
> 3 years – 5 years57 
> 5 years224 
Total$558 

At March 31, 2023, $435 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 March 31, 2023, the borrowers on approximately 57% of HELOC loan balances outstanding only paid the minimum amount due.


6.    Variable Interest Entities
As of March 31, 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:
March 31, 2023December 31, 2022
Aggregate
assets		Aggregate
liabilities		Maximum
exposure
to loss		Aggregate
assets		Aggregate
liabilities		Maximum
exposure
to loss
LIHTC investments (1)
$1,092 $614 $1,092 $1,094 $619 $1,094 
Other investments (2)
181 — 216 167 — 215 
Total$1,273 $614 $1,308 $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 three months ended March 31, 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.


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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)
7.    Bank Deposits

Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:
March 31, 2023December 31, 2022
Interest-bearing deposits:  
Deposits swept from brokerage accounts$270,049 $333,754 
Time certificates of deposit (1)
30,745 6,047 
Checking18,218 19,719 
Savings and other5,625 6,098 
Total interest-bearing deposits324,637 365,618 
Non-interest-bearing deposits1,108 1,106 
Total bank deposits$325,745 $366,724 
(1) Time certificates of deposit consist of brokered CDs. As of March 31, 2023, uninsured time CDs totaled $338 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 March 31, 2023 are as follows:
Balance
2023$9,776 
202420,354 
2025615 
Total$30,745 

Subsequent to March 31, 2023, the Company issued an additional $6.8 billion of brokered CDs.


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.

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.













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THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following table lists long-term debt by instrument outstanding as of March 31, 2023 and December 31, 2022:
Date of IssuancePrincipal Amount Outstanding
March 31, 2023December 31, 2022
CSC Fixed-rate Senior Notes:
2.650% due January 25, 2023
12/07/17$— $800 
3.550% due February 1, 2024
10/31/18500 500 
0.750% due March 18, 2024
03/18/211,500 1,500 
3.750% due April 1, 2024
09/24/21350 350 
3.000% due March 10, 2025
03/10/15375 375 
4.200% due March 24, 2025
03/24/20600 600 
3.625% due April 1, 2025
09/24/21418 418 
3.850% due May 21, 2025
05/22/18750 750 
3.450% due February 13, 2026
11/13/15350 350 
0.900% due March 11, 2026
12/11/201,250 1,250 
1.150% due May 13, 2026
05/13/211,000 1,000 
3.200% due March 2, 2027
03/02/17650 650 
2.450% due March 3, 2027
03/03/221,500 1,500 
3.300% due April 1, 2027
09/24/21744 744 
3.200% due January 25, 2028
12/07/17700 700 
2.000% due March 20, 2028
03/18/211,250 1,250 
4.000% due February 1, 2029
10/31/18600 600 
3.250% due May 22, 2029
05/22/19600 600 
2.750% due October 1, 2029
09/24/21475 475 
4.625% due March 22, 2030
03/24/20500 500 
1.650% due March 11, 2031
12/11/20750 750 
2.300% due May 13, 2031
05/13/21750 750 
1.950% due December 1, 2031
08/26/21850 850 
2.900% due March 3, 2032
03/03/221,000 1,000 
CSC Floating-rate Senior Notes:
SOFR + 0.500% due March 18, 2024
03/18/211,250 1,250 
SOFR + 0.520% due May 13, 2026
05/13/21500 500 
SOFR + 1.050% due March 3, 2027
03/03/22500 500 
Total CSC Senior Notes19,712 20,512 
TDA Holding Fixed-rate Senior Notes:
3.750% due April 1, 2024
11/01/1850 50 
3.625% due April 1, 2025
10/22/1482 82 
3.300% due April 1, 2027
04/27/1756 56 
2.750% due October 1, 2029
08/16/1925 25 
Total TDA Holding Senior Notes213 213 
Finance lease liabilities60 68 
Unamortized premium — net119 129 
Debt issuance costs(88)(94)
Total long-term debt$20,016 $20,828 



- 44 -
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 March 31, 2023 are as follows:
Maturities
2023$23 
20243,675 
20252,237 
20263,100 
20273,450 
Thereafter7,500 
Total maturities19,985 
Unamortized premium — net119 
Debt issuance costs(88)
Total long-term debt$20,016 

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 $45.6 billion and $12.4 billion outstanding under these facilities as of March 31, 2023 and December 31, 2022, respectively, and these borrowings had a weighted-average interest rate of 5.16% and 4.88%, respectively. As of March 31, 2023 and December 31, 2022, the collateral pledged provided additional borrowing capacity of $35.5 billion and $68.6 billion, respectively.

Other short-term borrowings: Total other short-term borrowings outstanding at March 31, 2023 and December 31, 2022 were $7.1 billion and $4.7 billion, respectively, and had a weighted-average interest rate of 4.99% and 4.97%, respectively. Additional information regarding our other short-term borrowings facilities is described below.

CSC has the ability to issue up to $5.0 billion of commercial paper notes with maturities of up to 270 days. CSC had $250 million outstanding at both March 31, 2023 and December 31, 2022. CSC and CS&Co also have access to uncommitted lines of credit with external banks with total borrowing capacity of $1.6 billion; no amounts were outstanding as of March 31, 2023 or December 31, 2022.

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 March 31, 2023 and December 31, 2022, our collateral pledged provided total borrowing capacity of $9.4 billion and $7.8 billion, respectively, of which no amounts were outstanding at the end of either period.

Beginning in the first quarter of 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 March 31, 2023, our collateral pledged provided total borrowing capacity of $42.7 billion. There were no borrowings outstanding at March 31, 2023.

Our banking subsidiaries may engage with external financial institutions in repurchase agreements collateralized by investment securities as another source of short-term liquidity. The Company had $6.8 billion and $4.4 billion outstanding pursuant to such repurchase agreements at March 31, 2023 and December 31, 2022, respectively. Repurchase agreements outstanding at March 31, 2023 mature between August 2023 and January 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 March 31, 2023 or December 31, 2022.

Annual maturities on FHLB borrowings and other short-term borrowings outstanding at March 31, 2023 are as follows:
20232024Total
FHLB borrowings$31,800 $13,800 $45,600 
Other short-term borrowings6,875 196 7,071 
Total$38,675 $13,996 $52,671 
- 45 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
Subsequent to March 31, 2023, the Company’s banking subsidiaries had drawn an additional $3.0 billion of FHLB advances and borrowed an additional $1.0 billion under repurchase agreements with external financial institutions.


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 $723 million and $2.7 billion during the first quarters of 2023 and 2022, respectively. CSB purchased HELOCs with commitments of $43 million and $90 million during the first quarters of 2023 and 2022, respectively.

The Company’s commitments to extend credit on lines of credit and to purchase First Mortgages are as follows:
March 31, 2023December 31, 2022
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit$4,041 $4,533 
Commitments to purchase First Mortgage loans579 492 
Total$4,620 $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 IDA agreements, 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 quarter 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, 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. During this period, Schwab must maintain minimum balances
- 46 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
above the total of then-outstanding unmatured fixed-rate obligation amounts, with a maximum of $30 billion above this total amount.
•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.

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.

As of March 31, 2023, the total ending IDA balance was $106.5 billion, of which $104.3 billion was fixed-rate obligation amounts and $2.2 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
- 47 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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 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

The Company completed its acquisition of TD Ameritrade effective October 6, 2020 and integration work continued during the first three months of 2023, including completion of the first client transition group in February 2023. The Company expects to complete most remaining client transitions from TD Ameritrade to Schwab across multiple groups over the course 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 March 31, 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 March 31, 2023 and 2022, the Company recognized $10 million and $12 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 21 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.
- 48 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
The following is a summary of the activity in the Company’s exit and other related liabilities as of March 31, 2023 and activity for the three months ended March 31, 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)
8 2 10 
Costs paid or otherwise settled(2)— (2)
Balance at March 31, 2023 (1)
$42 $12 $54 
(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 months ended March 31, 2023:
Investor ServicesAdvisor Services
Three Months Ended March 31Employee Compensation and BenefitsFacility Exit CostsInvestor Services TotalEmployee Compensation and BenefitsFacility Exit CostsAdvisor Services TotalTotal
Compensation and benefits$8 $— $8 $2 $— $2 $10 
Total$8 $— $8 $2 $— $2 $10 

The following table summarizes the exit and other related costs recognized in expense for the three months ended March 31, 2022:

Investor ServicesAdvisor Services
Three Months Ended March 31Employee Compensation and Benefits
Facility Exit Costs (1)
Investor Services TotalEmployee Compensation and Benefits
Facility Exit Costs (1)
Advisor Services TotalTotal
Compensation and benefits$8 $— $8 $2 $— $2 $10 
Occupancy and equipment— 1 1 — 1 1 2 
Total$8 $1 $9 $2 $1 $3 $12 
(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.

The following table summarizes the exit and other related costs incurred from October 6, 2020 through March 31, 2023:
Investor ServicesAdvisor Services
Employee Compensation and Benefits
Facility Exit Costs (1)
Investor Services TotalEmployee Compensation and Benefits
Facility Exit Costs (1)
Advisor Services TotalTotal
Compensation and benefits$231 $— $231 $63 $— $63 $294 
Occupancy and equipment— 31 31 — 7 7 38 
Depreciation and amortization— 2 2 — 1 1 3 
Professional services— 1 1 — — — 1 
Other— 2 2 — — — 2 
Total$231 $36 $267 $63 $8 $71 $338 
(1) Costs related to facility closures. These costs, which are primarily comprised of accelerated amortization of ROU assets and accelerated depreciation of fixed assets, relate to the impact of abandoning leased and other properties.


- 49 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
11.    Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

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

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

Fair Value Hedges of Interest Rate Risk

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

The Company had outstanding interest rate swaps with aggregate notional amounts of $3.9 billion at March 31, 2023 that were designated as fair value hedges of interest rate risk.

Fair Values of Derivative Instruments

The table below presents the gross fair values of the Company’s interest rate swaps designated as hedging instruments on the condensed consolidated balance sheet:
March 31, 2023
AssetsLiabilities
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 $5 million and $7 million reduction of derivative assets and derivative liabilities, respectively, 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:
March 31, 2023
Carrying amount of hedged AFS securities (1)
$3,988 
Cumulative fair value hedging adjustment included in the carrying amount of hedged AFS securities (1)
4 
(1) 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 March 31,
2023
Gain (loss) on fair value hedging relationships recognized in interest revenue:
Hedged items$4 
Derivatives designated as hedging instruments(4)
- 50 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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 March 31, 2023 and December 31, 2022 were not subject to master netting arrangements.

Securities lending: Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. In addition, most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $1.1 billion and $685 million at March 31, 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’s banking subsidiaries sell securities and agree 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.
- 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 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
March 31, 2023
Assets      
Resale agreements (1)
$4,920 $— $4,920 $— $(4,920)
(2)
$— 
Securities borrowed (3)
1,098 — 1,098 (674)(424)— 
Total$6,018 $— $6,018 $(674)$(5,344)$— 
Liabilities      
Interest rate swaps (4)
$1 $— $1 $— $(1)
(5)
$— 
Repurchase agreements (6)
6,822 — 6,822 — (6,822)— 
Securities loaned (7)
4,166 — 4,166 (674)(2,998)494 
Total$10,989 $— $10,989 $(674)$(9,821)$494 
December 31, 2022      
Assets      
Resale agreements (1)
$12,159 $— $12,159 $— $(12,159)
(2)
$— 
Securities borrowed (3)
705 — 705 (331)(366)8 
Total$12,864 $— $12,864 $(331)$(12,525)$8 
Liabilities      
Repurchase agreements (6)
$4,402 $— $4,402 $— $(4,402)$— 
Securities loaned (7)
4,200 — 4,200 (331)(3,313)556 
Total$8,602 $— $8,602 $(331)$(7,715)$556 
(1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets.
(2) Actual collateral was greater than or equal to the value of the related assets. At March 31, 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 $5.0 billion and $12.3 billion, respectively.
(3) Included in other assets on the condensed consolidated balance sheets.
(4) Derivative assets are included in other assets and derivative liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. Derivative asset and liability positions are inclusive of variation margin settlements cleared through CCPs which are reflected as reductions to the associated derivative asset and liability balances. See Note 11 for additional information.
(5) Actual collateral was greater than or equal to the value of the related liabilities. At March 31, 2023, the fair value of initial margin pledged as collateral related to interest rate swaps was $85 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 March 31, 2023 and December 31, 2022, the fair value of collateral pledged in connection with repurchase agreements was $7.3 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 March 31, 2023 and December 31, 2022.

- 52 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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:
March 31, 2023December 31, 2022
Fair value of client securities available to be pledged$83,771 $86,775 
Fair value of securities pledged for:
Fulfillment of requirements with the Options Clearing Corporation (1)
$13,023 $11,717 
Fulfillment of client short sales6,589 4,750 
Securities lending to other broker-dealers3,486 3,472 
Total collateral pledged to third parties$23,098 $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 $178 million and $160 million at March 31, 2023 and December 31, 2022, respectively.
(1)     Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.


13.    Fair Values of Assets and Liabilities

Assets and liabilities measured at fair value on a recurring basis

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

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

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

The fair values of interest rate swaps are based on market observable interest rate yield curves. Fair value measurements are priced considering the coupon rate of the fixed leg of the contract and the variable coupon rate on the floating leg of the contract.
- 53 -
THE CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)
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 March 31, 2023 or December 31, 2022.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:
March 31, 2023Level 1Level 2Level 3Balance at
Fair Value
Cash equivalents:
Money market funds$15,027 $— $— $15,027 
Total cash equivalents15,027 — — 15,027 
Investments segregated and on deposit for regulatory purposes:
U.S. Government securities— 19,519 — 19,519 
Certificates of deposit— 1,100 — 1,100 
Total investments segregated and on deposit for regulatory purposes— 20,619 — 20,619 
Available for sale securities:
U.S. agency mortgage-backed securities— 75,547 — 75,547 
U.S. Treasury securities— 37,862 — 37,862 
Asset-backed securities— 11,839 — 11,839 
Corporate debt securities— 12,539 — 12,539 
Certificates of deposit— 1,438 — 1,438 
Foreign government agency securities— 982 — 982 
U.S. state and municipal securities— 588 — 588 
Non-agency commercial mortgage-backed securities— 321 — 321 
Other— 218 — 218 
Total available for sale securities— 141,334 — 141,334 
Other assets:
Other securities owned at fair value:
Equity, corporate debt, and other securities809 64 — 873 
Mutual funds and ETFs650 — — 650 
State and municipal debt obligations— 19 — 19 
U.S. Government securities— 2 — 2 
Total other securities owned at fair value1,459 85 — 1,544 
Total other assets1,459 85 — 1,544 
Total assets$16,486 $162,038 $— $178,524 
Accrued expenses and other liabilities:
Interest rate swaps$— $1 $— $1 
Other1,318 45 — 1,363 
Total accrued expenses and other liabilities1,318 46 — 1,364 
Total liabilities$1,318 $46 $— $1,364 
- 54 -
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, 2022Level 1Level 2Level 3Balance at
Fair Value
Cash equivalents:
Money market funds$14,007 $— $— $14,007 
Commercial paper— 48 — 48 
Total cash equivalents14,007 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 securities755 55 — 810 
Mutual funds and ETFs596 — — 596 
State and municipal debt obligations— 25 — 25 
U.S. Government securities— 1 — 1 
Total other securities owned at fair value1,351 81 — 1,432 
Total other assets1,351 81 — 1,432 
Total assets $15,358 $172,645 $— $188,003 
Accrued expenses and other liabilities$1,218 $43 $— $1,261 
Total liabilities$1,218 $43 $— $1,261 










- 55 -
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:
March 31, 2023Carrying
Amount		Level 1Level 2Level 3Balance at
Fair Value
Assets     
Cash and cash equivalents$34,135 $34,135 $— $— $34,135 
Cash and investments segregated and on deposit for
  regulatory purposes		10,369 5,459 4,910 — 10,369 
Receivables from brokerage clients — net63,174 — 63,174 — 63,174 
Held to maturity securities:  
U.S. agency mortgage-backed securities169,911 — 158,866 — 158,866 
Total held to maturity securities169,911 — 158,866 — 158,866 
Bank loans — net:     
First Mortgages25,404 — 22,519 — 22,519 
HELOCs554 — 607 — 607 
Pledged asset lines13,801 — 13,801 — 13,801 
Other205 — 205 — 205 
Total bank loans — net39,964 — 37,132 — 37,132 
Other assets5,048 — 5,048 — 5,048 
Liabilities     
Bank deposits$325,745 $— $325,745 $— $325,745 
Payables to brokerage clients87,553 — 87,553 — 87,553 
Accrued expenses and other liabilities5,760 — 5,760 — 5,760 
Other short-term borrowings7,071 — 7,071 — 7,071 
Federal Home Loan Bank borrowings45,600 — 45,600 — 45,600 
Long-term debt19,956 — 18,035 — 18,035 
- 56 -
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, 2022Carrying
Amount		Level 1Level 2Level 3Balance 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 — net66,573 — 66,573 — 66,573 
Held to maturity securities:    
U.S. agency mortgage-backed securities173,074 — 158,936 — 158,936 
Total held to maturity securities173,074 — 158,936 — 158,936 
Bank loans — net:     
First Mortgages25,132 — 22,201 — 22,201 
HELOCs593 — 657 — 657 
Pledged asset lines14,592 — 14,592 — 14,592 
Other188 — 188 — 188 
Total bank loans — net40,505 — 37,638 — 37,638 
Other assets3,788 — 3,788 — 3,788 
Liabilities     
Bank deposits$366,724 $— $366,724 $— $366,724 
Payables to brokerage clients97,438 — 97,438 — 97,438 
Accrued expenses and other liabilities5,584 — 5,584 — 5,584 
Other short-term borrowings4,650 — 4,650 — 4,650 
Federal Home Loan Bank borrowings12,400 — 12,400 — 12,400 
Long-term debt20,760 — 19,108 — 19,108 
- 57 -
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. CSC repurchased 37 million shares of its common stock for $2.8 billion during the three months ended March 31, 2023. As of March 31, 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 three months ended March 31, 2022.

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 three months ended March 31, 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 ShareDividend Rate in Effect at March 31, 2023Earliest Redemption DateDate at Which Dividend Rate Resets or Becomes FloatingReset / Floating RateMargin Over Reset / Floating Rate
Shares Issued and Outstanding (in ones) atCarrying Value at
March 31, 2023 (1,2)
December 31, 2022 (1)
March 31, 2023December 31, 2022Issue Date
Fixed-rate:
Series D750,000 750,000 $1,000 $728 $728 03/07/165.950 %06/01/21N/AN/AN/A
Series J600,000 600,000 1,000 584 584 03/30/214.450 %06/01/26N/AN/AN/A
Fixed-to-floating-rate/Fixed-rate reset:
Series F4,958 5,000 100,000 481 492 10/31/175.000 %12/01/2712/01/273M LIBOR2.575 %
Series G (3)
24,730 25,000 100,000 2,428 2,470 04/30/205.375 %06/01/2506/01/25
5-Year Treasury
4.971 %
Series H (4)
23,336 25,000 100,000 2,200 2,470 12/11/204.000 %12/01/3012/01/30
10-Year Treasury
3.079 %
Series I (3)
20,997 22,500 100,000 2,030 2,222 03/18/214.000 %06/01/2606/01/26
5-Year Treasury
3.168 %
Series K (3)
7,500 7,500 100,000 740 740 03/04/225.000 %06/01/2706/01/27
5-Year Treasury
3.256 %
Total preferred
  stock		1,431,521 1,435,000 $9,191 $9,706  
(1) Represented by depositary shares.
(2) Includes depositary shares repurchased and in-process of transfer with the Company’s transfer agent. As of March 31, 2023, the Company had 7,500 depositary shares of Series F, 15,000 depositary shares of Series G, 106,829 depositary shares of Series H, and 44,228 depositary shares of Series I repurchased and in-process of transfer. These depositary shares were transferred on April 4, 2023.
(3) The dividend rate for Series G, Series I, and Series K resets on each five-year anniversary from the first reset date.
(4) The dividend rate for Series H resets on each ten-year anniversary from the first reset date.
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 March 31,
20232022
Total
Declared (1)
Per Share
Amount		Total
Declared		Per Share
Amount
Series A (2)
N/AN/A$5.0 $12.70 
Series D (3)
$11.2 $14.88 11.2 14.88 
Series E (4)
N/AN/A13.9 2,312.50 
Series F (5)
— — — — 
Series G (3)
33.2 1,343.75 33.6 1,343.75 
Series H (3)
23.7 1,000.00 25.0 1,000.00 
Series I (3)
21.3 1,000.00 22.5 1,000.00 
Series J (3)
6.7 11.13 6.7 11.13 
Series K (6)
9.3 1,250.00 N/AN/A
Total$105.4 $117.9 
(1) Excludes $3 million of dividends declared on Series G, H and I, and accrued by stockholders as of the repurchase date. Such dividends are part of the consideration paid upon repurchase of the depositary shares.
(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 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 $(3,137)
(9,998)
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 $(3)
(9)
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 $21
71 
Balance at March 31, 2022$(11,045)
Balance at December 31, 2022$(22,621)
Available for sale securities:
Net unrealized gain (loss), net of tax expense (benefit) of $421
1,428 
Other reclassifications included in other revenue, net of tax expense (benefit) of $2
7 
Held to maturity securities:
Amortization of amounts previously recorded upon transfer from available for sale, net of tax expense (benefit) of $107
502 
Other, net of tax expense (benefit) of $(2)
(6)
Balance at March 31, 2023$(20,690)

In 2022, the Company transferred a portion of its AFS securities to the HTM category. As of March 31, 2023, the total remaining unamortized loss on these securities transferred to HTM included in AOCI was $12.8 billion net of tax effect ($16.9 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 months ended March 31, 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 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
March 31,
20232022
Common
Stock		Nonvoting
Common Stock 		Common
Stock		Nonvoting
Common Stock
Basic earnings per share:
Numerator
Net income$1,559 $44 $1,344 $58 
Preferred stock dividends and other (1)
(68)(2)(119)(5)
Net income available to common stockholders$1,491 $42 $1,225 $53 
Denominator
Weighted-average common shares outstanding — basic1,783 51 1,815 79 
Basic earnings per share$.84 $.84 $.67 $.67 
Diluted earnings per share:
Numerator
Net income available to common stockholders$1,491 $42 $1,225 $53 
Reallocation of net income available to common stockholders as a result of conversion of nonvoting to voting shares42 — 53 — 
Allocation of net income available to common stockholders:$1,533 $42 $1,278 $53 
Denominator
Weighted-average common shares outstanding — basic1,783 51 1,815 79 
Conversion of nonvoting shares to voting shares51 — 79 — 
Common stock equivalent shares related to stock incentive plans8 — 11 — 
Weighted-average common shares outstanding — diluted (2)
1,842 51 1,905 79 
Diluted earnings per share$.83 $.83 $.67 $.67 
(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 16 million and 14 million for the three months ended March 31, 2023 and 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 March 31, 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:
ActualMinimum to be
Well Capitalized		Minimum Capital Requirement
March 31, 2023AmountRatioAmountRatioAmount
Ratio (1)
CSC      
Common Equity Tier 1 Risk-Based Capital$29,026 21.4 %N/A $6,114 4.5 %
Tier 1 Risk-Based Capital38,217 28.1 %N/A 8,152 6.0 %
Total Risk-Based Capital38,299 28.2 %N/A 10,869 8.0 %
Tier 1 Leverage38,217 7.1 %N/A 21,606 4.0 %
Supplementary Leverage Ratio38,217 7.0 %N/A16,328 3.0 %
CSB  
Common Equity Tier 1 Risk-Based Capital$27,694 28.7 %$6,266 6.5 %$4,338 4.5 %
Tier 1 Risk-Based Capital27,694 28.7 %7,712 8.0 %5,784 6.0 %
Total Risk-Based Capital27,769 28.8 %9,640 10.0 %7,712 8.0 %
Tier 1 Leverage27,694 7.7 %18,080 5.0 %14,464 4.0 %
Supplementary Leverage Ratio27,694 7.6 %N/A10,937 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 Capital40,296 28.9 %N/A 8,379 6.0 %
Total Risk-Based Capital40,376 28.9 %N/A 11,173 8.0 %
Tier 1 Leverage40,296 7.2 %N/A 22,512 4.0 %
Supplementary Leverage Ratio40,296 7.1 %N/A17,004 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 Capital27,296 27.4 %7,970 8.0 %5,978 6.0 %
Total Risk-Based Capital27,370 27.5 %9,963 10.0 %7,970 8.0 %
Tier 1 Leverage27,296 7.3 %18,640 5.0 %14,912 4.0 %
Supplementary Leverage Ratio27,296 7.3 %N/A11,275 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 March 31, 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 March 31, 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 March 31, 2023, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since March 31, 2023 that management believes have changed CSB’s capital category.

At March 31, 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 $32.1 billion and $11.8 billion, respectively. Based on their regulatory capital ratios, at March 31, 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:
March 31, 2023December 31, 2022
CS&Co
Net capital$5,422 $5,386 
Minimum dollar requirement0.250 0.250 
2% of aggregate debit balances773 778 
Net capital in excess of required net capital$4,649 $4,608 
TDAC
Net capital$4,670 $5,291 
Minimum dollar requirement1.500 1.500 
2% of aggregate debit balances627 626 
Net capital in excess of required net capital$4,043 $4,665 
TD Ameritrade, Inc.
Net capital$792 $806 
Minimum dollar requirement0.250 0.250 
2% of aggregate debit balances— — 
Net capital in excess of required net capital$792 $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 March 31, 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 ServicesAdvisor ServicesTotal
Three Months Ended March 31,202320222023202220232022
Net Revenues
Net interest revenue$2,033 $1,574 $737 $609 $2,770 $2,183 
Asset management and administration fees805 781 313 287 1,118 1,068 
Trading revenue775 844 117 119 892 963 
Bank deposit account fees99 200 52 94 151 294 
Other151 127 34 37 185 164 
Total net revenues3,863 3,526 1,253 1,146 5,116 4,672 
Expenses Excluding Interest2,233 2,131 773 702 3,006 2,833 
Income before taxes on income$1,630 $1,395 $480 $444 $2,110 $1,839 
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THE CHARLES SCHWAB CORPORATION


Item 4.     Controls and Procedures
Evaluation of disclosure controls and procedures: The management of the Company, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2023. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2023.

Changes in internal control over financial reporting: No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) was identified during the quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART  II  -  OTHER  INFORMATION


Item 1.     Legal Proceedings
For a discussion of legal proceedings, see Part I – Item 1 – Note 9.


Item 1A.     Risk Factors

During the first three months of 2023, there have been no material changes to the risk factors in Part I – Item 1A – Risk Factors in the 2022 Form 10-K.


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THE CHARLES SCHWAB CORPORATION


Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On July 27, 2022, CSC publicly announced that its Board of Directors terminated its prior repurchase authorization and replaced it with a new authorization to repurchase up to $15.0 billion of common stock. The authorization does not have an expiration date. See also Part I – Item 1 – Note 14.

The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the first quarter of 2023 (in millions, except number of shares, which are in thousands, and per share amounts):
MonthTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramApproximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Program
January:
Share repurchase program11,025 $78.28 11,025 $10,702 
Employee transactions (1)
18 $82.95 N/AN/A
February:
Share repurchase program18,858 $79.58 18,858 $9,201 
Employee transactions (1)
6 $79.68 N/AN/A
March:
Share repurchase program6,628 $72.08 6,628 $8,723 
Employee transactions (1)
850 $76.82 N/AN/A
Total:
Share repurchase program36,511 $77.82 36,511 $8,723 
Employee transactions (1)
874 $76.97 N/AN/A
(1) Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. CSC may receive shares delivered or attested to pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options granted under employee stock incentive plans, which are commonly referred to as stock swap exercises.
N/A Not applicable.


Item 3.     Defaults Upon Senior Securities

None.


Item 4.     Mine Safety Disclosures

Not applicable.


Item 5.     Other Information
None.


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THE CHARLES SCHWAB CORPORATION


Item 6.     Exhibits
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit
Number		Exhibit 
10.431
31.1 
31.2 
32.1(1)
32.2(1)
101.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.(2)
101.SCHInline XBRL Taxonomy Extension Schema(2)
101.CALInline XBRL Taxonomy Extension Calculation(2)
101.DEFInline XBRL Extension Definition(2)
101.LABInline XBRL Taxonomy Extension Label(2)
101.PREInline XBRL Taxonomy Extension Presentation(2)
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1)Furnished as an exhibit to this Quarterly Report on Form 10-Q.
(2)
Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 are the following materials formatted in Inline XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
 
** Certain confidential information contained in this exhibit has been omitted because it is not material and would be competitively harmful if publicly disclosed.
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THE CHARLES SCHWAB CORPORATION



SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  THE CHARLES SCHWAB CORPORATION
  (Registrant)
   
Date:May 8, 2023 /s/ Peter Crawford
  Peter Crawford
  Managing Director and Chief Financial Officer

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