SCHWAB CHARLES CORP

Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. We believe that metrics relating to net new and total client assets, as well as client cash levels and utilization of advisory services, offer perspective on our business momentum and client engagement. Data on new and total client brokerage accounts provides additional perspective on our ability to attract and retain new business. Total net revenue growth, pre-tax profit margin, EPS, return on average common stockholders’ equity, and the Consolidated Tier 1 Leverage Ratio provide broad indicators of Schwab’s overall financial health, operating efficiency, and ability to generate acceptable returns. Total expenses excluding interest as a percentage of average client assets is a measure of operating efficiency.

Results for the years ended December 31, 2023, 2022, and 2021 are as follows:

(1) 2023 includes net inflows of $32.5 billion from off-platform brokered CDs issued by CSB and $12.0 billion from a mutual fund clearing services client and outflows of $13.0 billion from an international relationship. 2022 includes outflows of $20.8 billion from certain mutual fund clearing services clients. 2021 includes outflows of $42.0 billion from certain mutual fund clearing services clients.

(2)Beginning in 2023, client cash as a percentage of client assets excludes brokered CDs issued by CSB. Prior periods have been recast to reflect this change.

(3)Beginning in 2023, adjustments made to GAAP financial measures also include restructuring costs. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

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

2023 Compared to 2022

Through an uneven environment in 2023, with shifting views on the trajectory of the U.S. economy, persistent geopolitical unrest, and turmoil beginning early in the year within the banking sector, our “no trade-offs” value proposition continued to

• 30 - resonate with investors. The Federal Reserve raised the Federal Funds rate four times in the first three quarters of 2023 for a total of 100 basis points before holding rates unchanged since July. Although equity markets were volatile during 2023,

ultimate returns were strong with the S&P 500® rising 24% and the NASDAQ Composite® increasing 43%. Investor sentiment was also volatile throughout 2023; strongly bearish in the first quarter before recovering in the second, then declining again in the third quarter. Investor sentiment recovered significantly in the fourth quarter to end the year with a solid bullish viewpoint.

Despite this mixed sentiment, our clients remained engaged with the markets and with Schwab. Clients entrusted us with $305.7 billion in core net new assets in 2023. Total client assets reached $8.52 trillion as of December 31, 2023, rising 21% from year-end 2022 as a result of asset gathering and market gains, partially offset by some expected deal-related attrition from clients originating at TD Ameritrade. Trading volume declined somewhat from the prior year, as DATs were 5.4 million in 2023, down 9% from 2022. Clients opened 3.8 million new brokerage accounts, bringing active brokerage accounts to 34.8 million at year-end, up 3% year-over-year. Clients sought to take advantage of higher market interest rates in 2023, and we saw significant client cash reallocation from our sweep products into higher-yielding alternatives offered by Schwab. While bank sweep deposits and payables to brokerage clients decreased by a total of $126.1 billion during 2023, client assets invested in Schwab’s proprietary money market funds and fixed income securities increased by a total of $383.8 billion.

Schwab’s financial performance during 2023 reflected the challenges of navigating a market environment shaped by the Federal Reserve’s interest rate tightening policy and the follow-on effects stemming from the regional banking crisis beginning in March. Schwab’s net income totaled $5.1 billion in 2023 and diluted EPS was $2.54, down 29% and 27%, respectively, from the prior year. Adjusted diluted EPS(1) was $3.13 in 2023, down 20% from $3.90 in 2022.

Total net revenues were $18.8 billion in 2023, down 9% from the prior year as client cash realignment activity impacted our net interest revenue. Net interest revenue was $9.4 billion in 2023, down 12% from the prior year, as the benefits of rising rates were more than offset by increased utilization of higher-cost supplemental funding and lower interest-earning assets. Asset management and administration fees totaled $4.8 billion in 2023, rising 13% from 2022, primarily as a result of growth in money market funds, as well as improvement in equity markets and growth in our other proprietary fund products, partially offset by lower balances of certain third-party funds. Trading revenue was $3.2 billion in 2023, down 12% from 2022, due primarily to mix of client trading activity and overall lower trading volume. Bank deposit account fee revenue was $705 million in 2023, down 50% from the prior year due to lower average BDA balances and lower net yields, as well as $97 million in one-time breakage fees related to ending our arrangements with certain third-party banks in the first quarter of 2023. BDA balances totaled $97.5 billion at December 31, 2023, down 23% from year-end 2022 due primarily to client cash allocation decisions.

Total expenses excluding interest were $12.5 billion in 2023, increasing 10% from 2022. This increase was due primarily to restructuring charges incurred in the second half of 2023, higher regulatory fees and assessments due primarily to an increase in FDIC assessments including the recognition of a $172 million special assessment in the fourth quarter, as well as higher expenses for compensation and benefits and depreciation and amortization, due primarily to growth in average headcount and investment in technology to support growth in our client base and the TD Ameritrade integration. Adjusted total expenses(1) were $11.0 billion in 2023, higher by 6% from 2022. Acquisition and integration-related costs were $401 million in 2023, up 2% from 2022, and amortization of acquired intangibles was $534 million, down 10% from 2022 as certain assets from the TD Ameritrade acquisition were fully amortized beginning in the fourth quarter of 2022. Beginning in the third quarter of 2023, adjusted total expenses(1) also excludes restructuring costs, which totaled $495 million in 2023, related to efforts to achieve run-rate cost savings in preparation for post-integration of TD Ameritrade.

Return on average common stockholders’ equity was 16% for 2023, down from 18% in 2022. Return on tangible common equity(1) (ROTCE) was 54% in 2023, up from 42% in 2022. These changes primarily reflected lower average stockholders’ equity and lower net income in 2023. Average stockholders’ equity was lower in 2023 due to a year-over-year decrease in average AOCI driven by unrealized losses on our AFS investment securities portfolio and securities transferred from AFS to HTM in 2022 (see Item 8 – Note 5).

Throughout 2023, the Company continued its diligent approach to balance sheet management and sought to prioritize flexibility. During 2023, we issued $6.2 billion in senior notes to prepare for upcoming maturities as well as provide additional liquidity during the larger TD Ameritrade conversion weekends. Total balance sheet assets decreased 11% from year-end 2022 to $493.2 billion at December 31, 2023, due primarily to client cash realignment amid the higher interest rate environment. To assist in facilitating these client cash movements from sweep products to high-yielding cash and fixed income alternatives, the

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

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Company utilized supplemental funding sources, including FHLB borrowings and issuances of brokered CDs. As realignment activity significantly decreased in the second half of the year, by year-end, we reduced the total outstanding balance of such supplemental sources by approximately 18% from the peak balances reached in May 2023. Driven by a combination of the Company’s net income and also a smaller balance sheet in 2023, our consolidated Tier 1 Leverage Ratio increased to 8.5% as of year-end.

2022 Compared to 2021

Schwab’s 2022 financial results reflected strong performance against a challenging economic backdrop. Our clients faced a very difficult environment throughout the year, encountering inflation and global economic concerns, with Russia’s invasion of Ukraine exacerbating the impact. Equity markets suffered their worst year since 2008, with the S&P 500® and NASDAQ Composite® contracting 19% and 33%, respectively, in 2022, while investor sentiment remained bearish throughout the year. At the same time, the Federal Reserve raised short-term rates at the fastest pace in 40 years, ultimately increasing the Fed Funds rate seven times to reach an upper bound of 4.50% in December. Additionally, uncertainty around future macroeconomic growth increased in the second half of the year, weighing on longer-term rates and leading to an inverted yield curve.

Through these challenges, clients continued to turn to Schwab for help in achieving their financial goals. Core net new assets in 2022 totaled $427.7 billion, representing an organic growth rate of 5%, which included significant tax-related outflows in April. Total client assets were $7.05 trillion at December 31, 2022, down 13% from year-end 2021, as market value declines of approximately $1.5 trillion in client assets more than offset the Company’s continued asset gathering during the year. DATs in 2022 were 5.9 million, down 9% from the prior year, as trading volume subsided from the extraordinary levels seen in 2021. New brokerage accounts were also down from the prior year, as clients opened 4.0 million new brokerage accounts in 2022; active brokerage accounts totaled 33.8 million at December 31, 2022, up 2% from year-end 2021.

Schwab’s financial performance in 2022 reflected the resiliency of our diversified financial model in a challenging macroeconomic environment and impacts from higher market interest rates. Net income totaled $7.2 billion in 2022 and diluted EPS was $3.50, representing year-over-year growth of 23% and 24%, respectively. Adjusted diluted EPS(1) was $3.90 in 2022, up from $3.25 in 2021.

Total net revenues rose 12% year-over-year to $20.8 billion in 2022. Net interest revenue increased to $10.7 billion, rising 33% from 2021 as significantly higher market rates more than offset the impact of balance sheet contraction due to client cash allocation decisions. Asset management and administration fees totaled $4.2 billion in 2022, down 1% year-over-year as lower market valuations throughout the year offset the benefit of lower money market fund fee waivers. Trading revenue declined by 12% to $3.7 billion in 2022, due to lower DATs relative to the extraordinary trading volume seen in 2021 and changes in mix of client trading activity. Bank deposit account fee revenue was $1.4 billion in 2022, up 7% from 2021 as higher average net yields more than offset lower average BDA balances. BDA balances totaled $126.6 billion at December 31, 2022, down 20% from year-end 2021, reflecting client cash allocation decisions and migrations to our balance sheet.

Total expenses excluding interest amounted to $11.4 billion in 2022, increasing 5% from 2021, and adjusted total expenses(1) were $10.4 billion, up 7% from the prior year. These increases reflected higher compensation and benefits expense and higher occupancy and equipment expense, as we continued to invest in our people and technology to support ongoing growth in our client base. These increases were partially offset by lower other expense, which included a charge of approximately $200 million in 2021 for a regulatory matter settled in 2022. Acquisition and integration-related costs and amortization of acquired intangibles were $392 million and $596 million, respectively, in 2022, compared with $468 million and $615 million, respectively, in 2021.

Return on average common stockholders’ equity grew to 18% in 2022 from 11% in 2021, while ROTCE(1) increased to 42% in 2022 compared with 22% in 2021. The increases in both return on average common stockholders’ equity and ROTCE were due primarily to lower stockholders’ equity and growth in net income. Stockholders’ equity declined in 2022 primarily due to a significant decrease in AOCI, as higher market interest rates resulted in larger unrealized losses on our AFS investment securities portfolio. In January and November 2022, the Company transferred $108.8 billion and $79.8 billion, respectively, of investment securities from the AFS category to the HTM category (see Capital Management and Item 8 – Note 5).

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

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The Company continued its diligent approach to balance sheet management in 2022, maintaining appropriate capital and liquidity to support client activity and returning excess capital to stockholders. As market rates rose from near-zero levels at the

beginning of the year, clients allocated a growing portion of their assets to higher-yielding cash and fixed income alternatives.

Total balance sheet assets decreased 17% year-over-year to $551.8 billion at December 31, 2022 as a result of these client cash allocation decisions and unrealized losses on AFS securities, both resulting primarily from higher market interest rates. To facilitate these client cash movements, we took steps to enhance our liquidity by limiting new portfolio investments to help build available cash and utilizing supplemental funding sources including FHLB advances and brokered CDs.

We increased our common stock dividend by 22% during 2022, and implemented a $15 billion share repurchase authorization in July. Repurchases under this new authorization totaled 47 million shares for $3.4 billion in 2022. The Company issued $750 million in preferred stock in the first quarter of 2022, and redeemed a total of $1.0 billion of preferred stock during the second half of the year. Inclusive of these actions, the Company’s Tier 1 Leverage Ratio finished the year at 7.2%.

Integration of TD Ameritrade

The Company has made significant progress in its integration of TD Ameritrade. Over the course of 2023, the Company transitioned approximately $1.6 trillion in client assets across more than 15 million client accounts, including 7,000 RIAs, from TD Ameritrade to the Schwab platform across four transition groups. The Company has now completed the transition of RIAs and approximately 90% of all TD Ameritrade client accounts. In connection with the completed 2023 transitions, we have experienced some deal-related attrition of client assets from retail accounts and RIAs, which have been below our initial estimates when we announced the acquisition. The Company expects to complete the remaining client transitions from TD Ameritrade to Schwab in a final transition group in May 2024.

The Company continues to expect total acquisition and integration-related costs and capital expenditures will be between $2.4 billion and $2.5 billion. The Company’s estimates of the nature, amounts, and timing of recognition of acquisition and integration-related costs remain subject to change based on certain factors, including the duration and complexity of the remaining integration process and the continued uncertainty of the economic environment. More specifically, factors that could cause variability in our expected acquisition and integration-related costs as we prepare for the last transition group and remaining integration work include the level of employee attrition, the complexity to wind-down the operations of the TD Ameritrade broker-dealers and related technology, and real estate-related exit cost variability.

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $401 million, $392 million, and $468 million in 2023, 2022, and 2021, respectively, and the Company expects to incur acquisition and integration-related costs of approximately $200 million in 2024. Over the course of the integration, we continue to expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through December 31, 2023, we have achieved approximately 80% of this amount on an annualized run-rate basis. The Company expects to achieve the vast majority of the remaining estimated cost synergies by the end of 2024, with anticipated full year synergy realization beginning in 2025. The estimated timing and amounts of synergy realization remain subject to change as we progress through the remaining stages of the integration. See also Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 8 – Note 15.

Other

In addition to cost synergies directly related to the integration of TD Ameritrade, the Company has taken incremental actions to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. Through these actions, the Company expects to realize at least $500 million of incremental run-rate cost savings in addition to integration synergies. In order to achieve these cost savings, the Company expects to incur total exit and related costs, primarily related to employee compensation and benefits and facility exit costs of approximately $500 million, inclusive of costs recognized through December 31, 2023 of $495 million. The Company anticipates the remaining costs, primarily related to real estate, will be incurred during 2024. Refer to Results of Operations – Total Expenses Excluding Interest and Item 8 – Note 15 for additional information.

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