SCHWAB CHARLES CORP

Previous wording

Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $65 trillion, which means the Company’s $9.12 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.

Current wording

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 $70 trillion, which means the Company’s $9.41 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.

Previous wording

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

Current wording

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)

Previous wording

1 - regulatory capital disclosures based on Basel III, our average liquidity coverage ratio (LCR), and our average net stable funding ratio (NSFR). The SEC maintains a website athttps://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with the Commission.

Current wording

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

Previous wording

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.

Current wording

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,” “prioritize,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “maintain,” “continue,” “seek,” and other similar expressions. In addition, any statements that refer to expectations, strategy, objectives, projections, or other characterizations of future events or circumstances are forward-looking statements.

Previous wording

•Integration of Ameritrade, including the timing of client transitions, transition-related attrition, the amount and timing of expense and revenue synergies, and the benefits of the combined platform (see Overview in Part I – Item 2, and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);

Current wording

•Integration of Ameritrade, expected levels of attrition, and expense and revenue synergies (see Overview in Part I – Item 2, and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);

Previous wording

•Our actions to streamline our operations and amount of associated exit and related costs that we will incur (see Overview and Results of Operations in Part I – Item 2, and Exit and Other Related Liabilities in Item 1 – Note 10);

Current wording

•Exit and related costs associated with our actions to streamline operations (see Overview and Results of Operations in Part I – Item 2, and Exit and Other Related Liabilities in Item 1 – Note 10);

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

•Capital management; the return of capital to stockholders; potential migration of insured deposit account balances (IDA balances) to our balance sheet; expectations about capital requirements, including accumulated other comprehensive income (AOCI), and meeting those requirements; plans regarding capital and dividends (see Capital Management in Part I – Item 2 and Commitments and Contingencies in Item 1 – Note 9);

Current wording

•Capital management; potential migration of insured deposit account balances (IDA balances) to our balance sheet; capital accretion; expectations about capital requirements, including accumulated other comprehensive income (AOCI); long-term operating objective; and uses of capital and return of excess capital to stockholders (see Capital Management in Part I – Item 2 and Commitments and Contingencies in Item 1 – Note 9);

Previous wording

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

Current wording

•Our ability to successfully implement integration plans relating to Ameritrade;

Previous wording

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

Current wording

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

Previous wording

•Increased compensation and other costs due to inflationary pressures;

Current wording

•Increased compensation and other costs;

Previous wording

Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the first quarter of 2024 and 2023 are as follows:

Current wording

Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the second quarter and first six months of 2024 and 2023 are as follows:

Previous wording

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

Current wording

(1) The second quarter and first six months of 2024 include net inflows of $2.7 billion and net outflows of $4.7 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB. Also in the second quarter and first six months of 2024, this includes an inflow of $10.3 billion from a mutual fund clearing services client. The second quarter and first six months of 2023 includes inflows of $7.8 billion and $26.8 billion, respectively, from off-platform brokered CDs issued by CSB. Also in the second quarter and first six months of 2023, this includes an inflow of $12.0 billion from a mutual fund clearing services client.

Previous wording

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

Current wording

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

Previous wording

(3) In the first quarter of 2024, adjustments made to GAAP financial measures also include restructuring costs. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.

Current wording

(3) Beginning in July 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.

Previous wording

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

Current wording

Total net revenues increased 1% year-over-year to $4.7 billion in the second quarter, bringing the year-to-date total to $9.4 billion, down 3% from the first half of 2023. Net interest revenue was $2.2 billion and $4.4 billion in the second quarter and first six months of 2024, respectively, down 6% and 13% from the comparable periods in 2023, due primarily to lower balances of interest-earning assets and higher interest rates paid on funding sources, partially offset by higher yields on interest-earning assets and increased margin and bank lending. Asset management and administration fees totaled $1.4 billion and $2.7 billion in the second quarter and first six months of 2024, respectively, rising 18% and 19% from the comparable 2023 periods primarily as a result of growth in money market funds, equity market gains, and growth in advice solutions. Trading revenue was $777 million and $1.6 billion in the second quarter and first six months of 2024, respectively, down 3% and 6% from the same periods in 2023, due to lower commissions and order flow revenue as a result of changes in mix. Bank deposit account fee revenue was $153 million in the second quarter of 2024, down 13% year-over-year primarily due to lower average BDA balances. For the first six months of 2024, bank deposit account fee revenue was up 3% from the prior-year period due primarily to $97 million of one-time breakage fees incurred in 2023. BDA balances totaled $84.5 billion at June 30, 2024, down 13% from year-end 2023, reflecting client cash allocation decisions.

Previous wording

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

Current wording

Total expenses excluding interest were $2.9 billion and $5.9 billion in the second quarter and first six months of 2024, respectively, lower by 1% from both comparable periods in the prior year, reflecting lower acquisition and integration-related costs, as well as the benefits of our cost reduction restructuring efforts undertaken in late 2023, which helped drive year-over-year decreases in compensation and benefits and occupancy and equipment. Partially offsetting these reductions were growth in depreciation and amortization driven by capital expenditures to support the Ameritrade integration and growth of the business, higher other expenses inclusive of $43 million in regulatory accruals (see Results of Operations – Expenses Excluding Interest and Item 1 – Note 9) and higher exchange processing fees due primarily to the SEC’s May 2024 fee rate increase, and higher regulatory fees and assessments, reflecting incremental Federal Deposit Insurance Corporation (FDIC) special assessments of $5 million and $30 million in the second quarter and first six months of 2024, respectively (see Current Regulatory and Other Developments). Adjusted total expenses(1) were $2.8 billion and $5.6 billion in the second quarter and first six months of 2024, respectively, up 2% from both comparable prior-year periods. Acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs totaled $175 million and $315 million in the second quarter and first six months of 2024, respectively, down 34% and 37% from the comparable periods in 2023.

Previous wording

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

Current wording

Return on average common stockholders’ equity was 14% and 15% for the second quarter and first six months of 2024, respectively, down from 17% and 20% from the same prior-year periods. Return on tangible common equity(1) (ROTCE) was 34% and 36% in the second quarter and first six months of 2024, respectively, down from 62% and 71% in the same periods in 2023. These decreases were due primarily to higher average stockholders’ equity for both the second quarter and year-to-date periods, and for the year-to-date period, lower net income. Average stockholders’ equity was higher in the second quarter and first six months of 2024 due to higher average retained earnings driven by net income for full-year 2023 and the second quarter and first half of 2024, as well as higher average AOCI. The increase in average AOCI was driven by lower unrealized losses on our available for sale (AFS) investment securities portfolio and securities transferred in 2022 from AFS to held to maturity (HTM) (see Item 1 – Note 15).

Previous wording

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

Current wording

The Company continued its diligent approach to balance sheet management, seeking to prioritize flexibility. Total balance sheet assets decreased 4% during the second quarter, and decreased 9% from year-end 2023 to June 30, 2024. These decreases were driven primarily by lower bank deposits, which reflected client cash reallocation into higher-yielding investment cash alternatives, strong client engagement in the equity markets, and seasonal tax payments in the second quarter. Total outstanding balances of supplemental funding, which included brokered CDs of $40.3 billion, Federal Home Loan Bank (FHLB) borrowings of $24.4 billion, and borrowings under repurchase agreements of $9.0 billion, increased in aggregate by $2.9 billion, or 4%, during the second quarter of 2024 due primarily to margin loan growth, though the outstanding balance of

Previous wording

(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.

Current wording

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

Previous wording

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $38 million and $98 million for the first quarters of 2024 and 2023, respectively. Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through March 31, 2024, we have achieved over 80% of this amount on an annualized run-rate basis. The Company expects to realize the remaining estimated cost synergies by the end of 2024, with anticipated full year synergy realization beginning in 2025. Estimated timing and amounts of synergy realization are subject to change as we progress in the integration. Refer to Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7) – Overview in our 2023 Form 10-K, Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 1 – Note 10 for additional information regarding our integration of Ameritrade.

Current wording

Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $36 million and $74 million for the second quarter and first six months of 2024, respectively, and $130 million and $228 million for the second quarter and first six months of 2023, respectively. Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through June 30, 2024, we have achieved approximately 90% of this amount on an annualized run-rate basis. The Company expects to realize the remaining estimated cost synergies by the end of 2024, with anticipated full year synergy realization beginning in 2025. Estimated timing and amounts of costs incurred and synergy realization are subject to change as we work to complete the integration. Refer to Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7) – Overview in our 2023 Form 10-K, Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 1 – Note 10 for additional information regarding our integration of Ameritrade.

Previous wording

In addition to cost synergies directly related to the integration of Ameritrade, the Company took incremental actions in 2023 to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. Through these actions, the Company has realized approximately $500 million of incremental run-rate cost savings in addition to integration synergies. In order to achieve these cost savings, the Company expects to incur total exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $500 million, substantially all of which have been recognized as of March 31, 2024. The Company anticipates the remaining costs, primarily related to real estate, will be incurred during 2024. Refer to Results of Operations – Total Expenses Excluding Interest and Item 1 – Note 10 for additional information.

Current wording

In addition to cost synergies directly related to the integration of Ameritrade, the Company took incremental actions in 2023 to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. Through these actions, the Company has realized approximately $500 million of incremental run-rate cost savings in addition to integration synergies. In order to achieve these cost savings, the Company expects to incur total exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $500 million, substantially all of which have been recognized as of June 30, 2024. Refer to Results of Operations – Total Expenses Excluding Interest and Item 1 – Note 10 for additional information.

Previous wording

In April 2024, the U.S. Department of Labor adopted a final rule to significantly broaden the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974. Among other requirements, the rule subjects broker-dealers who provide non-discretionary investment advice to retirement plans and accounts to a “best interest” standard. The rule generally takes effect on September 23, 2024 with a one-year transition period after the effective date for certain provisions. The Company is currently evaluating the impacts and the related implementation and operational issues of the final rule.

Current wording

In April 2024, the U.S. Department of Labor adopted a final rule to significantly broaden the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974. Among other requirements, the rule, in conjunction with associated prohibited transaction exemptions (PTEs), subjects broker-dealers who provide non-discretionary investment advice to retirement plans and accounts to a “best interest” standard. The rule was scheduled to take effect September 23, 2024, with a one-year transition period for certain PTE provisions. On July 25 and 26, 2024, federal district court judges in two separate industry lawsuits seeking to vacate the rule stayed effectiveness of the rule pending resolution of litigation.

Previous wording

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

Current wording

6 - and a potential one-time final special assessment for any shortfall in the DIF. The pre-tax impact of the final rule’s initial assessment to the Company was $172 million, which was tax deductible and was recognized in earnings in the fourth quarter of 2023. In late February 2024, the FDIC notified banks, including the Company’s banking subsidiaries, that the estimated assessed losses to the DIF increased. Accordingly, during the first quarter of 2024, Schwab recognized a pre-tax charge of $25 million for its estimate of this incremental special assessment, which is tax deductible. During the second quarter of 2024, the Company recognized an additional pre-tax charge of $5 million based on the FDIC’s June 2024 invoices, resulting in a year-to-date total of $30 million. The Company paid its first amount on the special assessment in the second quarter of 2024 and expects the remaining collection period to be the next two years. The FDIC has indicated that its special assessments and related collection period remain subject to further refinement.

Previous wording

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

Current wording

In response to inflation, the Federal Reserve raised the federal funds target overnight rate four times in the first three quarters of 2023 for a total of 100 basis points before holding rates unchanged since July 2023. Short-term rates remained consistent through the first six months of 2024, as the Federal Reserve maintained the upper bound of the target overnight rate at 5.50%.

Previous wording

Schwab’s average interest-earning assets in the first quarter of 2024 were lower compared with the first quarter of 2023, primarily due to clients’ reallocation of cash from sweep products to higher-yielding investment solutions throughout 2023 and the first quarter of 2024, which resulted primarily from increases to the federal funds overnight rate. These changes in client cash allocations reduced average balances of bank deposits and payables to brokerage clients. To support this client cash allocation activity, the Company has been utilizing supplemental funding, including drawing upon FHLB secured lending facilities, engaging with external financial institutions in repurchase agreements, and issuing brokered CDs. The average pace of client cash allocation out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second half of 2023, and continued to decrease in the first quarter of 2024.

Current wording

Schwab’s average interest-earning assets in the second quarter and first six months of 2024 were lower compared with the same periods in 2023, reflecting clients’ reallocation of cash from sweep products to higher-yielding investment solutions particularly throughout 2023, which resulted from the higher interest rate environment. In the first six months of 2024, the Company saw additional reduction of sweep cash, which also reflected strong client engagement in the equity markets and seasonal tax payments in the second quarter. These changes in client cash reduced average balances of bank deposits during the second quarter and first six months of 2024, and payables to brokerage clients during the first six months of 2024. To support client cash allocation activity that resulted from the higher interest rate environment, the Company has been utilizing supplemental funding, including drawing upon FHLB secured lending facilities, engaging with external financial institutions in repurchase agreements, and issuing brokered CDs. The average pace of client cash allocation out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second half of 2023, and continued to decrease in the first half of 2024 from peak levels seen in mid-2023.

Previous wording

Net interest revenue decreased $537 million, or 19%, in the first quarter of 2024 compared to the same period in 2023. This decrease was primarily due to utilization of higher cost supplemental funding sources to support client cash allocations in the rising rate environment, and lower average interest-earning assets, which more than offset the benefits of higher average yields on interest-earning assets. Average interest-earning assets for the first quarter of 2024 were lower by 13% compared to the same period in 2023. This decrease was primarily due to lower bank deposits as a result of changes in client cash allocations due to higher market interest rates and a smaller investment securities portfolio, partially offset by greater margin loan balances.

Current wording

Net interest revenue decreased $132 million, or 6%, and $669 million, or 13%, in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023. These decreases were primarily due to lower average interest-earning assets and, for the year-to-date period, utilization of higher cost supplemental funding sources to support client cash allocations in the elevated rate environment. Average interest-earning assets for both the second quarter and first six months of 2024 were lower by 14% compared to the same periods in 2023. These decreases were due primarily to lower bank sweep deposits as a result of client cash reallocation into higher-yielding investment cash alternatives and fixed income investments. Maturities and paydowns on the AFS and HTM investment securities portfolio supported reductions in bank sweep deposits, and, for the second quarter, lower year-over-year balances of supplemental funding sources.

Previous wording

8 - decreased by $8.8 billion, which helped support a 13-basis-point improvement in net interest margin for the first quarter of 2024 compared with the fourth quarter of 2023. Our use and the financial impacts of such supplemental funding is dependent on several factors, including the volume and pace of clients’ cash allocation activity, which is driven primarily by changes in market interest rates, as well as asset gathering. While client cash realignment activity has continued to decline from peak levels, uncertainty remains, including in regard to the path of market interest rates and client behavior, which will significantly impact our utilization of supplemental funding sources. The impacts to net interest revenue of using supplemental funding sources also depend on the type of funding source used and levels of interest rates. The Company currently expects its outstanding balances of supplemental funding sources to decrease over time. Certain amounts outstanding at March 31, 2024 will require rollover into new borrowings, the amount and costs of which will depend on the above noted factors. See also Risk Management – Liquidity Risk, Item 1 – Note 7 Bank Deposits, and Item 1 – Note 8 Borrowings for additional information on these and other funding sources.

Current wording

The Company’s average balances of FHLB borrowings and brokered CDs were lower in the second quarter of 2024 compared to the same period in 2023, which helped support a 16-basis-point improvement in net interest margin for the second quarter of 2024 compared with the same period in 2023. The Company continues to prioritize repayment of the outstanding balances of its supplemental funding sources. The total outstanding balance of supplemental funding sources increased by $2.9 billion during the second quarter of 2024 as client cash was retained on the Company’s broker-dealer to support higher levels of margin lending activity, though the outstanding balance of supplemental funding of $73.7 billion as of June 30, 2024 was lower by $5.9 billion, or 7%, from year-end 2023. Our use and the financial impacts of such supplemental funding is dependent on several factors, including the volume and pace of clients’ cash allocation activity, which is driven primarily by changes in market interest rates, clients’ margin lending activity, as well as asset gathering and the level of maturities and paydowns on our investment securities portfolios. While client cash realignment activity has continued to decline from peak levels, uncertainty remains, including in regard to the path of market interest rates and client behavior, which will significantly impact our utilization of supplemental funding sources. The impacts to net interest revenue of using supplemental funding sources also depend on the type of funding source used, levels of interest rates, and the use of proceeds. The Company currently expects its

Previous wording

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

Current wording

Asset management and administration fees increased by $210 million, or 18%, and $440 million, or 19%, in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023. These increases were primarily a result of higher balances in Schwab money market funds as clients shifted their cash allocations to higher-yielding investment solutions. These increases were also due to growth in balances in Mutual Fund OneSource® and fee-based advice solutions, as a result of strong equity markets and, for advice solutions, net inflows of client assets.

Previous wording

The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource®and other NTF funds. These funds generated 48% and 40% of the asset management and administration fees earned in the first quarter of 2024 and 2023, respectively:

Current wording

The following tables present 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 49% of the asset management and administration fees earned in both the second quarter and first six months of 2024, compared with 42% and 41% in the second quarter and first six months of 2023, respectively:

Previous wording

Bank deposit account fees increased $32 million, or 21%, in the first quarter of 2024, compared to the same period in 2023. The increase was primarily due to $97 million of breakage fees incurred that resulted in lower bank deposit account fee revenue in the first quarter of 2023. In addition, the average amount of floating-rate BDA balances increased in the first quarter of 2024 compared to the first quarter of 2023, which contributed to an increase in average net yield. These factors were partially offset by a decrease in average BDA balances in the first quarter of 2024 compared to the same period in 2023, primarily due to client cash allocation decisions in response to higher short-term market interest rates. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of March 31, 2024 were 88% and 12%, respectively.

Current wording

In addition, the average amount of floating-rate BDA balances increased in the second quarter and first six months of 2024 compared to the same periods in 2023, which contributed to an increase in average net yield. These factors were partially offset by a decrease in average BDA balances in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to client cash allocation decisions in response to higher short-term market interest rates. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of June 30, 2024 were 89% and 11%, respectively.

Previous wording

Other revenue decreased $26 million, or 14%, in the first quarter of 2024 compared to the same period in 2023, primarily due to lower exchange processing fees and certain lower service fees, partially offset by lower provision for credit losses on bank loans. Exchange processing fees decreased primarily due to a decrease in the SEC fee rate which became effective in the first quarter of 2023. The provision for credit losses on bank loans was lower in the first quarter of 2024 compared to the same period in 2023, as during the first quarter of 2024, loan loss factors decreased while the total balance of first lien residential real estate mortgage loans (First Mortgages) remained consistent with year-end 2023.

Current wording

Other revenue increased $4 million, or 2%, and decreased $22 million, or 6%, in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023. The increase in the second quarter of 2024 was primarily due to higher exchange processing fees and lower provision for credit losses on bank loans, partially offset by certain lower service and other fees. The decrease in the first six months of 2024 was primarily due to certain lower service and other fees, partially offset by lower provision for credit losses on bank loans. Exchange processing fees increased in the second quarter of 2024 due to higher SEC fee rates compared to the second quarter of 2023. Effective May 22, 2024, the SEC increased its fee rates applicable to most securities transactions from the rate in effect since late February 2023. This change will result in higher exchange processing fees per security transaction in other revenue and a corresponding increase in other expense, resulting in no impact to net income. The provision for credit losses on bank loans was lower in the second quarter and the first six months of 2024 compared to the same periods in 2023, due to lower loan loss factors while the total balance of first lien residential real estate mortgage loans (First Mortgages) remained largely consistent with year-end 2023.

Previous wording

Expenses excluding interest decreased by $64 million, or 2%, in the first quarter of 2024, compared to the same period in 2023. Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased 1% in the first quarter of 2024, compared to the same period in 2023. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results. The Company began incurring restructuring costs in the third quarter of 2023 in connection with actions to streamline its operations to prepare for post-integration of Ameritrade (see below and Overview – Other for additional information).

Current wording

Expenses excluding interest decreased by $22 million, or 1%, and $86 million, or 1%, in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023. Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased 2% in the second quarter and first six months of 2024, compared to the same periods in 2023. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results. The Company began incurring restructuring costs in the third quarter of 2023 in connection with actions to streamline its operations to prepare for post-integration of Ameritrade (see below and Overview – Other for additional information).

Previous wording

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

Current wording

Total compensation and benefits expense decreased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to lower headcount as a result of position eliminations completed in the second half of 2023 as part of restructuring, partially offset by higher incentive compensation and annual merit increases. Compensation and benefits included acquisition and integration-related costs of $18 million and $48 million in the second quarter of 2024 and 2023, respectively, and $35 million and $106 million in the first six months of 2024 and 2023, respectively. Compensation and benefits also included a $3 million and $34 million benefit in the second quarter and first six months of 2024, respectively, due to a change in estimated restructuring costs.

Previous wording

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

Current wording

Professional services expense decreased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to lower utilization of professional services as we completed Ameritrade client account transitions in the second quarter of 2024, and approach the completion of the overall Ameritrade integration. Professional services included acquisition and integration-related costs of $12 million and $41 million in the second quarter of 2024 and 2023, respectively, and $29 million and $74 million in the first six months of 2024 and 2023, respectively.

Previous wording

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

Current wording

Occupancy and equipment expense decreased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to lower technology equipment and software costs, lower property tax expense, and lower occupancy costs as a result of facility closures in 2023 related to restructuring and the Ameritrade integration. Occupancy and equipment included restructuring costs of $1 million and $3 million in the second quarter and first six months of 2024, respectively.

Previous wording

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

Current wording

Advertising and market development expense increased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to higher client promotional spending.

Previous wording

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

Current wording

Communications expense decreased in the second quarter and first six months of 2024, compared to the same periods in 2023, primarily as a result of lower exchange quotation services expenses.

Previous wording

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

Current wording

Depreciation and amortization expense increased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily as a result of higher amortization of purchased and internally developed software, driven by capital expenditures in 2023 and the first six months of 2024 to support the Ameritrade integration and enhance our technological infrastructure to support growth of the business. Depreciation and amortization expense included acquisition and integration-related costs of $5 million in the second quarter and first six months of 2024.