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,June 30, 2018

Commission File Number: 1-9700

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

211 Main Street, San Francisco, CA  94105
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:  (415) 667-7000

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.
Large accelerated filer ☒Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
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.
1,349,185,0401,351,062,783 shares of $.01 par value Common Stock Outstanding on April 30,July 31, 2018


THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q
For the Quarter Ended March 31,June 30, 2018



 Index

Part I - Financial Information
  
   
     
 Item 1.
Condensed Consolidated Financial Statements (Unaudited):
  
     
  
Statements of Income
 
1518
  
Statements of Comprehensive Income
 
1619
  
Balance Sheets
 
1720
  
Statements of Stockholders’ Equity
 
1821
  
Statements of Cash Flows
 19-2022-23
  
Notes
 21-5124-54
     
 Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 1-141-16
     
 Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
1417
     
 Item 4.
Controls and Procedures
 52
55
     
Part II - Other Information
  
     
 Item 1.
Legal Proceedings
 
5256
     
 Item 1A.
Risk Factors
 
5256
     
 Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
5256
     
 Item 3.
Defaults Upon Senior Securities
 53
56
     
 Item 4.
Mine Safety Disclosures
 
5356
     
 Item 5.
Other Information
 
5356
     
 Item 6.
Exhibits
 
5457
     
Signature
 
5558
   






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 engaged, through its subsidiaries (collectively referred to as “Schwab” or the “Company”), in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.

Significant business subsidiaries of CSC include the following:

Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
Charles Schwab Bank (CSB), a federal savings bank; and
•
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and 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 and banking 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 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 the aspiration of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.”

Under this approach, our strategic goals are focused on puttingThis 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 value.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. Finally, we seekIn 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 $30$45 trillion, which means the Company’s $3.31$3.40 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, 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, 2017 (2017 Form 10-K).

On our website, www.aboutschwab.com, we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC): 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


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)


Act of 1934. The SEC maintains a website at www.sec.gov that contains reports, proxy, and other information that we file electronically with the SEC.



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)


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,” 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:
Schwab seeking to maximize itsMaximizing 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, generates earnings growth and builds stockholder value (see Introduction in Part I, Item 2);
Ongoing investments to fuel growth (see Overview);
Capital expenditures in 2018 (see Results of Operations);
Consolidated balance sheet assets remaining above $250 billion (see Risk Management and Capital Management);
The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Part I, Item 1, Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 2);
The likelihood of indemnification and guarantee payment 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 the level of interest rates, equity valuations, and trading activity;
Our ability to attract and retain clients, develop trusted relationships, and grow client assets;
Client use of our investment advisory servicesadvice solutions and other products and services;
The level of client assets, including cash balances;
Competitive pressure on pricing, including deposit rates;
Client sensitivity to interest rates;
Regulatory guidance;
Timing and amount and impact of migrationtransfers of certain balances from sweep money market funds into bank sweep deposits;
Capital and liquidity needs and management;
Our ability to manage expenses;
Our ability to develop and launch new products, services, infrastructure, and capabilities in a timely and successful manner;
The effect of adverse developments in litigation or regulatory matters and the extent of 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 2017 Form 10-K.




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 second quarters and first quarterssix months of 2018 and 2017 are:
Three Months Ended
March 31,		 Percent
Change		Three Months Ended
June 30,		 Percent
Change		 Six Months Ended
June 30,		Percent
Change
2018 2017 2018 2017 2018 2017
Client Metrics:               
Net new client assets (in billions) (1)
$(18.8) $38.9
 (148)%$43.9
 $64.5
 (32)% $25.1
 $103.4
(76)%
Core net new client assets (in billions)$65.6
 $38.9
 69 %$53.4
 $46.2
 16 % $119.0
 $85.1
40 %
Client assets (in billions, at quarter end)$3,305.4
 $2,922.5
 13 %$3,397.0
 $3,040.6
 12 %     
Average client assets (in billions)$3,382.1
 $2,871.9
 18 %$3,370.4
 $2,979.2
 13 % $3,376.2
 $2,925.5
15 %
New brokerage accounts (in thousands)443
 362
 22 %384
 357
 8 % 827
 719
15 %
Active brokerage accounts (in thousands, at quarter end)11,005
 10,320
 7 %11,202
 10,487
 7 %     
Assets receiving ongoing advisory services (in billions, at quarter end)$1,717.6
 $1,481.8
 16 %$1,768.7
 $1,539.8
 15 %     
Client cash as a percentage of client assets (at quarter end)11.0% 12.4%  
10.7% 11.5%  
     
Company Financial Metrics: 
  
  
 
  
  
     
Total net revenues$2,398
 $2,081
 15 %$2,486
 $2,130
 17 % $4,884
 $4,211
16 %
Total expenses excluding interest1,396
 1,238
 13 %1,355
 1,221
 11 % 2,751
 2,459
12 %
Income before taxes on income1,002
 843
 19 %1,131
 909
 24 % 2,133
 1,752
22 %
Taxes on income219
 279
 (22)%265
 334
 (21)% 484
 613
(21)%
Net income$783
 $564
 39 %866
 575
 51 % 1,649
 1,139
45 %
Preferred stock dividends and other37
 39
 (5)%53
 45
 18 % 90
 84
7 %
Net income available to common stockholders$746
 $525
 42 %$813
 $530
 53 % $1,559
 $1,055
48 %
Earnings per common share — diluted
$.55
 $.39
 41 %$.60
 $.39
 54 % $1.14
 $.78
46 %
Net revenue growth from prior year15% 18%  
17% 17%  
 16% 17% 
Pre-tax profit margin41.8% 40.5%  
45.5% 42.7%  
 43.7% 41.6% 
Return on average common stockholders’ equity18% 15%  
19% 15%  
 19% 15% 
Expenses excluding interest as a percentage of average client assets (annualized)0.17% 0.18%  0.16% 0.16%   0.16% 0.17% 
Consolidated Tier 1 Leverage Ratio (at quarter end)7.5% 7.1%  7.6% 7.4%       
(1) The three months ended March 31, 2018 includesIncludes outflows of $84.4$9.5 billion and $93.9 billion in the second quarter and first six months of 2018, respectively, from certain mutual fund clearing services clients.

Net income grew 51% and 45% for the second quarter and first quartersix months of 2018, grew 39% fromrespectively, compared to the same periodperiods in 2017, driven primarily by sustained business momentum, higher interest rates, and lower corporate income taxes. Total net revenues rose 15%17% and 16% in the second quarter and first six months of 2018, respectively, compared to the same periods in 2017, primarily due to increases in all major sources ofhigher net interest revenue as a result of strong organic growth,higher interest rates and larger client engagement, and the economic environment.cash sweep balances. Total expenses excluding interest grew 13%,11% and 12% during the second quarter and first six months of 2018, respectively, compared to the same periods in 2017, reflecting higher spending to support the expanding investorclient base and higher client assets, as well as a $15 million charge associated with unsecured client margin losses in volatility-related products during early February.ongoing investments to fuel growth. Altogether, we achieved a 240570 basis point gap between revenue and expense growth, which resulted in a 41.8%45.5% and 43.7% pre-tax profit margin; combined with a lowermargin for the second quarter and first six months of 2018, respectively, compared to the same periods in 2017.

Taxes on income decreased 21% for both the second quarter and first six months of 2018 resulting in effective tax rates of 23.4% and 22.7% for the second quarter and first six months of 2018, respectively. The reduction in taxes on income was due to the Tax Act of 2017, which lowered the federal corporate income tax rate of 21.9%, wefrom 35% to 21% effective January 1, 2018.

We delivered net income of $783$866 million and $1.6 billion for the second quarter and first quartersix months of 2018, respectively, up $219$291 million and $510 million from a year ago.ago, lifting our return on equity to 19% for the second quarter and first six months of 2018 compared to 15% for the same periods in 2017.


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)


During the firstsecond quarter of 2018, clients opened 443,000384,000 new brokerage accounts, helping to bring active brokerage accounts to 11.011.2 million at March 31,June 30, 2018. Excluding planned mutual funding clearing outflows of $84.4$9.5 billion, core net new assets gathered during the firstsecond quarter of 2018 were $65.6$53.4 billion, compared to $38.9$46.2 billion for the same period a year ago. Client engagement remained strong during the firstsecond quarter of 2018, with daily average revenue trades rising 46%21% from the same period in 2017.

Effective balance sheet management remains an essential element of our financial discipline. In the second quarter, we issued $1.95 billion of Senior Notes, which we used to redeem $275 million of maturing debt and maintain appropriate liquidity given the growth we’re achieving. We also transferred approximately $25an additional $20 billion in the second quarter of 2018 from sweep money market funds to bank sweep deposits, and paid off $15bringing the total year-to-date transferred amount to $45 billion. As anticipated, we crossed the $250 billion asset threshold for heightened regulatory requirements during the second quarter of 2018, ending with $262 billion in borrowings from the Federal Home Loan Bank. The net effect of these moves and client activity lifted ourtotal consolidated balance sheet assets to $248 billion at March 31,June 30, 2018. Our financial results, combined with the benefits of the Tax Cuts and Jobs Act (Tax Act), lifted our first quarter return on equity to 18% compared to 15% for the same period in 2017.







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)


RESULTS OF OPERATIONS

Total Net Revenues

Total net revenues grew 15% during the first quarterThe following tables present a comparison of 2018 compared to the same period in 2017, reflecting increases in all major sources of revenue.revenue by category:
Three Months Ended March 31,   2018 2017
 Percent
Change		 Amount % of
Total Net
Revenues		 Amount % of
Total Net
Revenues		   2018 2017
Three Months Ended June 30, Percent
Change		 Amount % of
Total Net
Revenues		 Amount % of
Total Net
Revenues
Net interest revenue                    
Interest revenue 35 % $1,421
 59 % $1,055
 51 % 41 % $1,590
 64 % $1,127
 52 %
Interest expense 187 % (158) (6)% (55) (3)% 147 % (183) (7)% (74) (3)%
Net interest revenue 26 % 1,263
 53 % 1,000
 48 % 34 % 1,407
 57 % 1,053
 49 %
Asset management and administration fees                    
Mutual funds and ETF service fees (3)% 493
 21 % 506
 24 % (11)% 458
 19 % 513
 24 %
Advice Solutions 16 % 282
 12 % 244
 12 %
Advice solutions 11 % 283
 11 % 256
 12 %
Other 4 % 76
 3 % 73
 4 % (4)% 73
 3 % 76
 4 %
Asset management and administration fees 3 % 851
 36 % 823
 40 % (4)% 814
 33 % 845
 40 %
Trading revenue                    
Commissions 6 % 189
 7 % 178
 8 % 11 % 157
 6 % 142
 6 %
Principal transactions (14)% 12
 1 % 14
 1 % 53 % 23
 1 % 15
 1 %
Trading revenue 5 % 201
 8 % 192
 9 % 15 % 180
 7 % 157
 7 %
Other 26 % 83
 3 % 66
 3 % 13 % 85
 3 % 75
 4 %
Total net revenues 15 % $2,398
 100 % $2,081
 100 % 17 % $2,486
 100 % $2,130
 100 %
    2018 2017
Six Months Ended June 30, Percent
Change		 Amount % of
Total Net
Revenues		 Amount % of
Total Net
Revenues
Net interest revenue          
     Interest revenue 38 % $3,011
 62 % $2,182
 52 %
     Interest expense 164 % (341) (7)% (129) (3)%
Net interest revenue 30 % 2,670
 55 % 2,053
 49 %
Asset management and administration fees  
  
  
  
  
     Mutual funds and ETF service fees (7)% 951
 19 % 1,019
 24 %
     Advice solutions 13 % 565
 12 % 500
 12 %
     Other —
 149
 3 % 149
 4 %
Asset management and administration fees —
 1,665
 34 % 1,668
 40 %
Trading revenue          
     Commissions 8 % 346
 7 % 320
 7 %
     Principal transactions 21 % 35
 1 % 29
 1 %
Trading revenue 9 % 381
 8 % 349
 8 %
Other 19 % 168
 3 % 141
 3 %
Total net revenues 16 % $4,884
 100 % $4,211
 100 %



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

The following table presentstables present net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:
  2018 2017
Three Months Ended June 30, 
Average
Balance
 
Interest
Revenue/
Expense
 
Average
Yield/
Rate
 Average
Balance		 Interest
Revenue/
Expense		 Average
Yield/
Rate
Interest-earning assets:            
Cash and cash equivalents $12,764
 $57
 1.80% $8,562
 $22
 1.03%
Cash and investments segregated 11,825
 50
 1.68% 19,703
 41
 0.83%
Broker-related receivables 378
 2
 1.58% 435
 1
 0.68%
Receivables from brokerage clients 19,775
 204
 4.09% 15,827
 138
 3.50%
Available for sale securities (1)
 52,682
 291
 2.19% 48,154
 177
 1.47%
Held to maturity securities 129,825
 812
 2.49% 107,378
 600
 2.24%
Bank loans 16,530
 138
 3.32% 15,701
 115
 2.94%
  Total interest-earning assets 243,779
 1,554
 2.54% 215,760
 1,094
 2.03%
Other interest revenue   36
     33
  
Total interest-earning assets $243,779
 $1,590
 2.60% $215,760
 $1,127
 2.10%
Funding sources:            
Bank deposits $193,029
 $117
 0.24% $163,711
 $30
 0.07%
Payables to brokerage clients 21,729
 14
 0.26% 26,125
 3
 0.05%
Short-term borrowings 1,429
 7
 1.94% 1,393
 3
 0.86%
Long-term debt 4,961
 43
 3.47% 3,518
 31
 3.53%
  Total interest-bearing liabilities 221,148
 181
 0.33% 194,747
 67
 0.14%
Non-interest-bearing funding sources 22,631
     21,013
    
Other interest expense   2
     7
  
Total funding sources $243,779
 $183
 0.30% $215,760
 $74
 0.14%
Net interest revenue   $1,407
 2.30%   $1,053
 1.96%
Three Months Ended March 31, 2018 2017
 
Average
Balance
 
Interest
Revenue/
Expense
 
Average
Yield/
Rate
 Average
Balance		 Interest
Revenue/
Expense		 Average
Yield/
Rate		 2018 2017
Six Months Ended June 30, Average
Balance		 Interest
Revenue/
Expense		 Average
Yield/
Rate		 Average
Balance		 Interest
Revenue/
Expense		 Average
Yield/
Rate
Interest-earning assets:                        
Cash and cash equivalents $17,084
 $66
 1.53% $9,047
 $17
 0.76% $14,912
 $123
 1.65% $8,803
 $39
 0.89%
Cash and investments segregated 13,969
 48
 1.37% 21,820
 35
 0.65% 12,891
 98
 1.51% 20,755
 76
 0.74%
Broker-related receivables (1)
 287
 1
 1.32% 388
 —
 0.55% 333
 3
 1.47% 412
 1
 0.62%
Receivables from brokerage clients 18,872
 179
 3.79% 15,245
 126
 3.35% 19,326
 383
 3.95% 15,537
 264
 3.43%
Available for sale securities (2)(1)
 50,371
 240
 1.91% 71,430
 251
 1.43% 51,533
 531
 2.06% 59,728
 428
 1.45%
Held to maturity securities 121,412
 721
 2.38% 83,368
 485
 2.36% 125,641
 1,533
 2.44% 95,439
 1,085
 2.29%
Bank loans 16,456
 130
 3.19% 15,527
 110
 2.87% 16,493
 268
 3.25% 15,615
 225
 2.91%
Total interest-earning assets 238,451
 1,385
 2.33% 216,825
 1,024
 1.92% 241,129
 2,939
 2.43% 216,289
 2,118
 1.97%
Other interest revenue   36
     31
     72
     64
  
Total interest-earning assets $238,451
 $1,421
 2.39% $216,825
 $1,055
 1.97% $241,129
 $3,011
 2.49% $216,289
 $2,182
 2.03%
Funding sources:                        
Bank deposits $176,988
 $64
 0.15% $163,682
 $19
 0.05% $185,052
 $181
 0.20% $163,696
 $49
 0.06%
Payables to brokerage clients 22,469
 7
 0.14% 27,666
 2
 0.03% 22,097
 21
 0.20% 26,892
 5
 0.04%
Short-term borrowings 12,170
 47
 1.55% 1,332
 2
 0.61% 6,770
 54
 1.59% 1,363
 5
 0.74%
Long-term debt 4,392
 37
 3.37% 3,090
 28
 3.67% 4,678
 80
 3.42% 3,305
 59
 3.60%
Total interest-bearing liabilities 216,019
 155
 0.29% 195,770
 51
 0.11% 218,597
 336
 0.31% 195,256
 118
 0.12%
Non-interest-bearing funding sources 22,432
     21,055
     22,532
     21,033
    
Other interest expense   3
     4
     5
     11
  
Total funding sources $238,451
 $158
 0.27% $216,825
 $55
 0.10% $241,129
 $341
 0.28% $216,289
 $129
 0.12%
Net interest revenue   $1,263
 2.12%   $1,000
 1.87%   $2,670
 2.21%   $2,053
 1.91%
(1)Interest revenue or expense was less than $500,000 in the period or periods presented.
(2) Amounts have been calculated based on amortized cost.


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 $263$354 million, or 26%34%, and $617 million, or 30%, in the second quarter and first quartersix months of 2018, respectively, compared to the same periodperiods in 2017, primarily due to higher interest rates and growth in interest-earning assets. 
Our net interest margin improved to 2.12%2.30% and 2.21% during the second quarter and first quartersix months of 2018, respectively, up from 1.87% a year earlier1.96% and 1.91% during the same periods in 2017, primarily as a result of the Federal Reserve’sReserve System’s (Federal Reserve) 2017 and March and June 2018 interest rate hikes, partially offset by higher interest rates paid on bank deposits and short-term borrowings.other interest-bearing liabilities.
InDuring the second quarter and the first quartersix months of 2018, average interest earning assets grew 10%13% and 11%, respectively, compared to the same periodperiods in 2017. This increase was driven byThese increases reflect higher bank deposits due to transfers from net client flows and bulk transfers,sweep money market funds to bank sweep balances, as well as other client-related deposit inflows and higher short-term borrowings.borrowings, partially offset by client purchases of other assets.

In addition to issuing the Senior Notes, we utilized Federal Home Loan Bank (FHLB) advances during the first half of 2018 to provide temporary funding for additional investments ahead of deposit growth. The FHLB advances matured by June 30, 2018.




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)


Asset Management and Administration Fees

The following table presentstables present asset management and administration fees, average client assets, and average fee yields:
Three Months Ended March 31,2018 2017
Average
Client
Assets
 Revenue 
Average
Fee
 Average
Client
Assets		 Revenue Average
Fee
Three Months Ended June 30,2018 2017
Average
Client
Assets
 Revenue 
Average
Fee
 Average
Client
Assets		 Revenue Average
Fee
Schwab money market funds before fee waivers$156,362
 $182
 0.47% $162,789
 $231
 0.58%$139,968
 $147
 0.42% $158,974
 $224
 0.57%
Fee waivers  —
     (8)    —
     (1)  
Schwab money market funds156,362
 182
 0.47% 162,789
 223
 0.56%139,968
 147
 0.42% 158,974
 223
 0.56%
Schwab equity and bond funds and ETFs196,950
 63
 0.13% 140,054
 55
 0.16%203,179
 65
 0.13% 151,825
 52
 0.14%
Mutual Fund OneSource® and other NTF funds
222,669
 178
 0.32% 202,416
 170
 0.34%
Mutual Fund OneSource® and other non-transaction
fee funds
217,867
 175
 0.32% 220,680
 179
 0.33%
Other third-party mutual funds and ETFs (1)
319,722
 70
 0.09% 272,626
 58
 0.09%325,061
 71
 0.09% 271,503
 59
 0.09%
Total mutual funds and ETFs (2)
$895,703
 493
 0.22% $777,885
 506
 0.26%$886,075
 458
 0.21% $802,982
 513
 0.26%
Advice solutions (2) :
                      
Fee-based$224,760
 282
 0.51% $191,775
 244
 0.52%$225,879
 283
 0.50% $199,879
 256
 0.51%
Non-fee-based59,762
 —
 —
 42,722
 —
 —
62,109
 —
 —
 46,882
 —
 —
Total advice solutions$284,522
 282
 0.40% $234,497
 244
 0.42%$287,988
 283
 0.39% $246,761
 256
 0.41%
Other balance-based fees (3)
426,012
 66
 0.06% 388,739
 61
 0.06%387,727
 62
 0.06% 406,307
 64
 0.06%
Other (4)
  10
     12
    11
     12
  
Total asset management and administration fees  $851
     $823
    $814
     $845
  
 2018 2017
Six Months Ended June 30,Average
Client
Assets		 Revenue Average
Fee		 Average
Client
Assets		 Revenue Average
Fee
Schwab money market funds before fee waivers$148,165
 $329
 0.45% $160,881
 $455
 0.57%
Fee waivers  —
     (9)  
Schwab money market funds148,165
 329
 0.45% 160,881
 446
 0.56%
Schwab equity and bond funds and ETFs199,519
 128
 0.13% 145,363
 107
 0.15%
Mutual Fund OneSource® and other non-transaction
fee funds
220,268
 353
 0.32% 211,548
 349
 0.33%
Other third-party mutual funds and ETFs (1)
322,391
 141
 0.09% 272,065
 117
 0.09%
      Total mutual funds and ETFs (2)
$890,343
 951
 0.22% $789,857
 1,019
 0.26%
Advice solutions (2) :
           
Fee-based$225,320
 565
 0.51% $195,823
 500
 0.51%
Non-fee-based60,964
 —
 —
 44,801
 —
 —
      Total advice solutions$286,284
 565
 0.40% $240,624
 500
 0.42%
Other balance-based fees (3)
406,869
 128
 0.06% 397,523
 125
 0.06%
Other (4)
  21
     24
  
Total asset management and administration fees  $1,665
     $1,668
  
(1) Includes Schwab ETF OneSource™.
(2) Beginning in the fourth quarter of 2017, a change was made to add non-fee basednon-fee-based average assets from managed portfolios. Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above. Prior periods have been adjusted to accommodate this change.
(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 increaseddecreased by $28$31 million, or 3%4%, and $3 million, or 0.2%, in the second quarter and first quartersix months of 2018, respectively, compared to the same periodperiods in 2017,2017. The decreases were due to growing balances in advised solutions, equity and bond funds, and ETFs, partially offset by lower money market fund revenue as a result of bulk transfers to bank sweep, depositsclient asset allocation choices, and our 2017 fee reductionsreductions. Part of the declines were offset by revenue from growing asset balances in the fourth quarteradvice solutions, equity and bond funds, and ETFs.



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of 2017.Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


The following table presentstables present a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds and exchange-traded funds (ETFs), and Mutual Fund OneSource® and other non-transaction fee (NTF) funds. These funds generated 50%48% and 49% of the asset management and administration fees earned during the second quarter and first quartersix months of 2018, respectively, compared to 54% for the same periodperiods in 2017:
 Schwab Money
Market Funds		 Schwab Equity and
Bond Funds and ETFs		 
Mutual Fund OneSource®
and Other NTF Funds
 Schwab Money
Market Funds		 Schwab Equity and
Bond Funds and ETFs		 
Mutual Fund OneSource®
and Other NTF funds
Three Months Ended March 31, 2018 2017 2018 2017 2018 2017
Three Months Ended June 30, 2018 2017 2018 2017 2018 2017
Balance at beginning of period $163,650
 $163,495
 $181,608
 $125,813
 $225,202
 $198,924
 $144,995
 $162,887
 $187,930
 $139,412
 $221,614
 $204,887
Net inflows (outflows) (19,122) (724) 8,646
 7,175
 (4,929) (4,590) (11,319) (6,861) 9,625
 8,086
 (13,348) (5,648)
Net market gains (losses) and other(1) 467
 116
 (2,324) 6,424
 1,341
 10,553
 490
 160
 3,806
 3,838
 4,247
 25,510
Balance at end of period $144,995
 $162,887
 $187,930
 $139,412
 $221,614
 $204,887
 $134,166
 $156,186
 $201,361
 $151,336
 $212,513
 $224,749
  Schwab Money
Market Funds		 Schwab Equity and
Bond Funds and ETFs		 
Mutual Fund OneSource®
and Other NTF funds
Six Months Ended June 30, 2018 2017 2018 2017 2018 2017
Balance at beginning of period $163,650
 $163,495
 $181,608
 $125,813
 $225,202
 $198,924
Net inflows (outflows) (30,441) (7,585) 18,271
 15,261
 (18,277) (10,239)
Net market gains (losses) and other (1)
 957
 276
 1,482
 10,262
 5,588
 36,064
Balance at end of period $134,166
 $156,186
 $201,361
 $151,336
 $212,513
 $224,749


(1) Includes net inflows from other third-party mutual funds to Mutual Fund OneSource® in the second quarter of 2017.

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


Trading Revenue
The following table presents trading revenue and the related drivers:
Three Months Ended
March 31,		 Percent
Change		Three Months Ended
June 30,		 Percent
Change		 Six Months Ended
June 30,		 Percent
Change
2018 2017 2018 2017 2018 2017 
Daily average revenue trades (DARTs) (in thousands)462
 317
 46 %376
 311
 21 % 418
 314
 33 %
Clients’ daily average trades (in thousands)812
 585
 39 %704
 589
 20 % 757
 587
 29 %
Number of trading days61.0
 62.0
 (2)%64.0
 63.0
 2 % 125.0
 125.0
 —
Daily average revenue per revenue trade$7.24
 $9.84
 (26)%$7.30
 $7.96
 (8)% $7.27
 $8.91
 (18)%
Trading revenue$201
 $192
 5 %$180
 $157
 15 % $381
 $349
 9 %
DART volumes increased 46%21% and 33% in the second quarter and first quartersix months of 2018, respectively, compared to the prior year. This led to an increase in trading revenue of 5%$23 million, or 15%, and $32 million, or 9%, in the second quarter and first six months of 2018, respectively, compared to the same periods in 2017, as the volume growth more than offset Schwab’s commission pricing reductions implemented in the first quarter of 2017. AtDuring that time, Schwab announced two trading price reductions which lowered standard equity, ETF, and option trade commissions from $8.95 to $4.95 and lowered the per contract option fee from $.75 to $.65.

Other Revenue

Other revenue includes order flow revenue, other service fees, software fees from our portfolio management solutions, exchange processing fees, and non-recurring gains. Order flow revenue was $38$33 million and $27$26 million during the firstsecond quarters of 2018 and 2017, respectively, and $71 million and $53 million during the first six months of 2018 and 2017, respectively. These increases were primarily due to higher rates on certain types of orders and higher volume of trades.



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


Total Expenses Excluding Interest
The following table shows a comparison of expenses excluding interest:

 Three Months Ended March 31, Percent
Change		 Three Months Ended June 30, Percent
Change		 Six Months Ended June 30, Percent
Change

 2018 2017  2018 2017 2018 2017 
Compensation and benefits                  
Salaries and wages $411
 $367
 12% $419
 $371
 13% $830
 $738
 12%
Incentive compensation 212
 202
 5% 210
 191
 10% 422
 393
 7%
Employee benefits and other 147
 132
 11% 116
 101
 15% 263
 233
 13%
Total compensation and benefits $770
 $701
 10% $745
 $663
 12% $1,515
 $1,364
 11%
Professional services 156
 133
 17% 156
 144
 8% 312
 277
 13%
Occupancy and equipment 122
 105
 16% 122
 107
 14% 244
 212
 15%
Advertising and market development 73
 71
 3% 77
 71
 8% 150
 142
 6%
Communications 62
 57
 9% 58
 58
 —
 120
 115
 4%
Depreciation and amortization 73
 65
 12% 75
 66
 14% 148
 131
 13%
Regulatory fees and assessments 51
 44
 16% 50
 46
 9% 101
 90
 12%
Other 89
 62
 44% 72
 66
 9% 161
 128
 26%
Total expenses excluding interest $1,396
 $1,238
 13% $1,355
 $1,221
 11% $2,751
 $2,459
 12%
Expenses as a percentage of total net revenues:                  
Compensation and benefits 32% 34% 
 30% 31%   31% 32%  
Advertising and market development 3% 3% 
 3% 3%   3% 3%  
Full-time equivalent employees (in thousands):                  
At quarter end 18.2
 16.5
 10% 18.7
 16.9
 11%      
Average 18.0
 16.5
 9% 18.4
 16.7
 10% 18.2
 16.6
 10%
Total compensation and benefits increased in the second quarter and first quartersix months of 2018 compared to the same periodperiods in 2017, primarily due to an increase in employee headcount to support our expanding customer base as well as annual salary increases.client base.

Professional services expense increased in the second quarter and first quartersix months of 2018 compared to the same periodperiods in 2017, primarily due to an increase in asset management and administration relatedadministration-related expenses resulting from growth in the Schwab Funds® and Schwab ETFs™ and higher spending on technology projects.
Occupancy and equipment expense increased in the second quarter and first quartersix months of 2018 compared to the same periodperiods in 2017, primarily due to an increase in software maintenance expenses and additional licenses to support growth in the business.
Depreciation and amortization expenses grew in the second quarter and first quartersix months of 2018 compared to the same periodperiods in 2017, primarily due to higher amortization of internally developed software associated with our investmentcontinued investments in software and technology enhancements.
Regulatory fees and assessments increased in the second quarter and first quartersix months of 2018 compared to the same periodperiods in 2017, primarily due to an increase in Federal Deposit Insurance Corporation (FDIC) insurance assessments, which rose as a result of higher average assets.

Other expenses increased in the first six months of 2018 compared to the same period in 2017, primarily due to a $15 million charge in the first quarter of 2018 associated with unsecured client margin losses in volatility-related products and other miscellaneous expense growth related to the expanding client base.

Capital expenditures were $126 million and $261 million in the second quarter and first six months of 2018, respectively, compared with $86 million and $153 million in the second quarter and first six months of 2017, respectively. The increases in the second quarter and year-to-date capital expenditures from the same periods in 2017 were due primarily to our office campus


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 expenses increased in the first quarter of 2018 compared to the same period in 2017, primarily due to a $15 million charge associated with unsecured client margin losses in volatility-related products and other miscellaneous expense growth related to the growing client asset base.

Capital expenditures were $135 million and $67 million in the first quarters of 2018 and 2017, respectively. The increase in capital expenditures from the prior year was due to our office campus expansion in the U.S. and investments in technology projects. As we continue to pursue our geographic strategy, we anticipate increasing capital expenditures for full-year 2018 from our typical range of 3-5% of total net revenues to approximately 6-7%.

Taxes on Income

Taxes on income were $219$265 million and $279$334 million for the firstsecond quarters of 2018 and 2017, respectively, resulting in effective income tax rates on income before taxes of 21.9%23.4% and 33.1%36.7%, respectively. Taxes on income were $484 million and $613 million for the first six months of 2018 and 2017, respectively, resulting in effective income tax rates on income before taxes of 22.7% and 35.0%, respectively. The decrease in the effective tax rate was primarily due to the Tax Act which was signed into law on December 22, 2017. Among other things, the Tax Act lowered the federal corporate income tax rate from 35% to 21%, effective for tax years including or commencing January 1, 2018.

Segment Information

Financial information for our segments is presented in the following table:tables:
 Investor Services Advisor Services Total Investor Services Advisor Services Total
Three Months Ended March 31, 
Percent
Change
 2018 2017 Percent
Change		 2018 2017 Percent
Change		 2018 2017
Net Revenues                  
Three Months Ended June 30, 
Percent
Change
 2018 2017 Percent
Change		 2018 2017 Percent
Change		 2018 2017
Net Revenues:                  
Net interest revenue 27% $957
 $753
 24% $306
 $247
 26% $1,263
 $1,000
 34 % $1,063
 $795
 33 % $344
 $258
 34 % $1,407
 $1,053
Asset management and administration fees 5% 593
 566
 —
 258
 257
 3% 851
 823
 (2)% 569
 582
 (7)% 245
 263
 (4)% 814
 845
Trading revenue 7% 127
 119
 1% 74
 73
 5% 201
 192
 17 % 115
 98
 10 % 65
 59
 15 % 180
 157
Other 28% 64
 50
 19% 19
 16
 26% 83
 66
 18 % 65
 55
 —
 20
 20
 13 % 85
 75
Total net revenues 17% 1,741
 1,488
 11% 657
 593
 15% 2,398
 2,081
 18 % 1,812
 1,530
 12 % 674
 600
 17 % 2,486
 2,130
Expenses Excluding Interest 12% 1,042
 930
 15% 354
 308
 13% 1,396
 1,238
 11 % 1,012
 914
 12 % 343
 307
 11 % 1,355
 1,221
Income before taxes on income 25% $699
 $558
 6% $303
 $285
 19% $1,002
 $843
 30 % $800
 $616
 13 % $331
 $293
 24 % $1,131
 $909
  Investor Services Advisor Services Total
Six Months Ended June 30, Percent Change 2018 2017 Percent Change 2018 2017 Percent Change 2018 2017
Net Revenues:                  
Net interest revenue 30% $2,020
 $1,548
 29 % $650
 $505
 30 % $2,670
 $2,053
Asset management and administration fees 1% 1,162
 1,148
 (3)% 503
 520
 —
 1,665
 1,668
Trading revenue 12% 242
 217
 5 % 139
 132
 9 % 381
 349
Other 23% 129
 105
 8 % 39
 36
 19 % 168
 141
Total net revenues 18% 3,553
 3,018
 12 % 1,331
 1,193
 16 % 4,884
 4,211
Expenses Excluding Interest 11% 2,054
 1,844
 13 % 697
 615
 12 % 2,751
 2,459
Income before taxes on income 28% $1,499
 $1,174
 10 % $634
 $578
 22 % $2,133
 $1,752

Investor Services

Total net revenues rose by 17%18% in both the second quarter and first quartersix months of 2018 compared to the same period in 2017, primarily due to increases in net interest revenue and asset management and administration fees. Net interest revenue increased primarily due to higher net interest margins and higher interest-earning assets. Asset management and administration fees increased primarily due to higher client assets enrolled in advisory solutions partially offset by lower money market fund revenue.

Expenses excluding interest increased by 12% in the first quarter of 2018 compared to the same period in 2017, due to higher compensation and benefits, technology project spend, and asset management and administration related expenses to support our expanding client and asset base.
Advisor Services
Total net revenues rose by 11% in the first quarter of 2018 compared to the same periodperiods in 2017, primarily due to an increase in net interest revenue. Net interest revenue increased primarily due to higher net interest margins and higher interest-earning assets.

Expenses excluding interest increased by 15%11% in both the second quarter and first quartersix months of 2018 compared to the same periodperiods in 2017, primarily due to higher compensation and benefits, technology project spend, and asset management and administration relatedadministration-related expenses to support our expanding client and asset base.




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)


Advisor Services
Total net revenues rose by 12% in both the second quarter and first six months of 2018 compared to the same periods in 2017, primarily due to an increase in net interest revenue, partially offset by lower asset management and administration fees. Net interest revenue increased due to higher net interest margins and higher interest-earning assets. Asset management and administration fees decreased primarily due to lower money market fund revenue as a result of transfers to bank sweep, client asset allocation choices, and our 2017 fee reductions.

Expenses excluding interest increased by 12% and 13% in the second quarter and first six months of 2018, respectively, compared to the same periods in 2017, primarily due to higher compensation and benefits, technology project spend, and asset management and administration-related expenses to support our expanding client base.


RISK MANAGEMENT

Schwab’s business activities expose us to a variety of risks, including operational, credit, market, liquidity, and compliance risk. 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 Item 7 – Risk Management in the 2017 Form 10-K.

Net Interest Revenue Simulation

For Schwab’s net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulation includes all interest-sensitive assets and liabilities. Key variables in the simulation include the repricing of financial instruments, prepayment, reinvestment, and product pricing assumptions. The simulations involve assumptions that are inherently uncertain and, as a result, cannot precisely estimate net interest revenue or predict the impact of changes in interest rates on net interest revenue. Actual results may differ from simulated results due to balance growth or decline and the timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and management strategies, including changes in asset and liability mix.

If our guidelines for net interest revenue sensitivity are breached, management must report the breach to the Financial Risk Oversight Committee and establish a plan to address the interest rate risk. There were no breaches of Schwab’s net interest revenue sensitivity risk limits during the threesix months ended March 31,June 30, 2018, or year ended December 31, 2017.

As represented by the simulations presented below, our investment strategy is structured to produce an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall.

The simulations in the following table assume that the asset and liability structure of the consolidated balance sheets would not be changed as a result of the simulated changes in interest rates. As we actively manage the consolidated balance sheets and interest rate exposure, in all likelihood we would take steps to manage additional interest rate exposure that could result from changes in the interest rate environment. The following table shows the simulated net interest revenue change over the next 12 months beginning March 31,June 30, 2018 and December 31, 2017 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

 March 31, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Increase of 100 basis points 3.5 % 3.3 % 3.1 % 3.3 %
Decrease of 100 basis points (5.2)% (6.2)% (4.8)% (6.2)%
The change in net interest revenue sensitivities as of March 31,June 30, 2018 reflects the increase in interest rates across all maturities.



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)


Liquidity Risk

Schwab’s primary source of funds is cash generated by client activity: 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, and cash provided by external debt or equity financing.
 
To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments. For unanticipated liquidity needs, a buffer of highly liquid investments, currently comprised of U.S. Treasury notes, is also maintained.

In addition to internal sources of liquidity, Schwab has access to external funding. The following table describes external debt facilities available at March 31,June 30, 2018:
DescriptionBorrower Outstanding AvailableBorrower Outstanding Available
Committed, unsecured credit facility with various external banksCSC $—
 $750
CSC $—
 $750
Uncommitted, unsecured lines of credit with various external banksCSC, CS&Co —
 1,199
CSC, CS&Co —
 1,432
Federal Reserve Bank discount window (1)
CSB —
 2,456
CSB —
 2,455
Federal Home Loan Bank secured credit facility (2)
CSB —
 31,369
CSB —
 30,323
Unsecured commercial paper (3)
CSC —
 750
CSC —
 750
(1) Amounts available are dependent on the fair value of certain investment securities that are pledged as collateral.
(2) Amounts available are dependent on the amount of first lien residential real estate mortgage loans (First Mortgages), home equity lines of credit (HELOCs), and the fair value of certain investment securities that are pledged as collateral.
(3) CSC has authorization from its Board of Directors to issue Commercial Paper Notes to not exceed $1.5 billion. Management has set a current limit not to exceed the amount of the committed, unsecured credit facility.

CSC’s ratings for Commercial Paper Notes are 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).
Borrowings
The following are details of the Senior Notes and short-term borrowings:
March 31, 2018Par
Outstanding		 MaturityWeighted Average
Interest Rate		Moody’sStandard
& Poor’s		Fitch
June 30, 2018Par
Outstanding		 MaturityWeighted Average
Interest Rate		Moody’sStandard
& Poor’s		Fitch
Senior Notes(1)$4,106
 2018 - 20283.24% fixedA2AA$5,781
 2020 - 20283.31%A2AA
Short-term borrowings$—
 N/AN/AN/A$—
 N/AN/AN/A
(1) Amounts include $600 million Senior Notes with a quarterly variable interest rate equal to the three-month LIBOR plus 0.32%.
N/A Not applicable.

New Debt Issuances

All debt issuances in 2018 were senior unsecured obligations with interest payable quarterly or semi-annually. Additional details are as follows:
Issuance Date
Issuance
Amount
Maturity
Date
Interest
Rate
Interest
Payable
May 22, 2018$600
5/21/2021Three-month LIBOR + 0.32%Quarterly
May 22, 2018$600
5/21/20213.25%Semi-annually
May 22, 2018$750
5/21/20253.85%Semi-annually

Schwab is subject to, and was in compliance with, the modified liquidity coverage ratio (LCR) rule at March 31,June 30, 2018. Schwab expects consolidated balance sheet assets to remain above $250 billion in 2018, and as a result, would become subject to the full LCR rule in 2019.


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)



CAPITAL MANAGEMENT

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including anticipated balance sheet growth, 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’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.



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


Regulatory Capital Requirements

CSC and CSB are subject to various capital requirements set by regulatory agencies as discussed in further detail in the 2017 Form 10-K and in Item 1 – Note 16. As of March 31,June 30, 2018, CSC and CSB are considered well capitalized.

The following table details CSC’s consolidated and CSB’s capital ratios as of March 31,June 30, 2018 and December 31, 2017:
 March 31, 2018 December 31, 2017June 30, 2018 December 31, 2017
 CSC CSB CSC CSBCSC CSB CSC CSB
Total stockholders’ equity $19,330
 $13,859
 $18,525
 $13,224
$20,097
 $14,352
 $18,525
 $13,224
Less:               
Preferred stock 2,793
 —
 2,793
 —
2,793
 —
 2,793
 —
Common Equity Tier 1 Capital before regulatory adjustments $16,537
 $13,859
 $15,732
 $13,224
$17,304
 $14,352
 $15,732
 $13,224
Less:               
Goodwill, net of associated deferred tax liabilities $1,191
 $13
 $1,191
 $13
$1,191
 $13
 $1,191
 $13
Other intangible assets, net of associated deferred tax liabilities 69
 —
 61
 —
61
 —
 61
 —
Deferred tax assets, net of valuation allowances and deferred tax liabilities 2
 —
 2
 —
2
 —
 2
 —
AOCI adjustment (1)
 (260) (247) (152) (144)(278) (260) (152) (144)
Common Equity Tier 1 Capital  $15,535
 $14,093
 $14,630
 $13,355
$16,328
 $14,599
 $14,630
 $13,355
Tier 1 Capital $18,328
 $14,093
 $17,423
 $13,355
$19,121
 $14,599
 $17,423
 $13,355
Total Capital 18,372
 14,121
 17,452
 13,382
19,149
 14,626
 17,452
 13,382
Risk-Weighted Assets 78,610
 68,226
 75,866
 66,519
84,723
 72,692
 75,866
 66,519
Common Equity Tier 1 Capital/Risk-Weighted Assets 19.8% 20.7% 19.3% 20.1%19.3% 20.1% 19.3% 20.1%
Tier 1 Capital/Risk-Weighted Assets 23.3% 20.7% 23.0% 20.1%22.6% 20.1% 23.0% 20.1%
Total Capital/Risk-Weighted Assets 23.4% 20.7% 23.0% 20.1%22.6% 20.1% 23.0% 20.1%
Tier 1 Leverage Ratio 7.5% 7.0% 7.6% 7.1%7.6% 7.2% 7.6% 7.1%
(1) CSC and CSB have elected to opt out of the requirement to include most components of accumulated other comprehensive income (AOCI) in Common Equity Tier 1 Capital. Schwab expects consolidated balance sheet assets to remain above $250 billion in 2018, and as a result, would no longer exclude AOCI from regulatory capital beginning in 2019.

CSB is also subject to regulatory requirements that restrict and govern the terms of affiliate transactions. In addition, CSB is required to provide notice to, and may be required to obtain approval from, the Office of the Comptroller of the Currency and the Federal Reserve to declare dividends to CSC.

Schwab’s primary broker-dealer subsidiary, CS&Co, is subject to regulatory requirements of the Uniform Net Capital Rule. At March 31,June 30, 2018, CS&Co exceeded its net capital requirements.

In addition to the capital requirements above, Schwab’s subsidiaries are subject to other regulatory requirements intended to ensure financial soundness and liquidity. See Item 1 – Note 16 for additional information on the components of stockholders’ equity and information on the capital requirements of significant subsidiaries.



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

On JanuaryJuly 25, 2018, the Board of Directors of the Company declared a twothree cent, or 25%30%, increase in the quarterly cash dividend to $.10$.13 per common share.

Cash dividends paid and per share amounts for the first threesix months of 2018 and 2017 are as follows:
Three Months Ended March 31, 2018 2017
 Cash Paid Per Share
Amount		 Cash Paid Per Share
Amount		 2018 2017
Six Months Ended June 30, Cash Paid Per Share
Amount		 Cash Paid Per Share
Amount
Common Stock $136
 $.10
 $108
 $.08
 $271
 $.20
 $215
 $.16
Series A Preferred Stock (1)
 14
 35.00
 14
 35.00
 14
 35.00
 14
 35.00
Series B Preferred Stock (2,5)
 N/A
 N/A
 7
 15.00
 N/A
 N/A
 15
 30.00
Series C Preferred Stock (2)
 9
 15.00
 9
 15.00
 18
 30.00
 18
 30.00
Series D Preferred Stock (2)
 11
 14.88
 11
 14.88
 22
 29.76
 22
 29.76
Series E Preferred Stock (3)
 14
 2,312.50
 9
 1,554.51
 14
 2,312.50
 9
 1,554.51
Series F Preferred Stock (4)
 N/A
 N/A
 N/A
 N/A
 15
 2,930.56
 N/A
 N/A
(1) Dividends paid semi-annually until February 1, 2022 and quarterly thereafter.
(2) Dividends paid quarterly.
(3) Dividends paid semi-annually until March 1, 2022 and quarterly thereafter.
(4) Series F Preferred Stock was issued on October 31, 2017. Dividends paid semi-annually beginning on June 1, 2018 until December 1, 2027, and quarterly thereafter.
(5) Series B Preferred Stock was redeemed on December 1, 2017.
N/A Not applicable.


OTHER

Foreign Holdings
At March 31,June 30, 2018, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At March 31,June 30, 2018, the fair value of these holdings totaled $6.8$7.2 billion, with the top three exposures being to issuers and counterparties domiciled in Sweden at $2.0 billion, France at $2.4 billion, Sweden at $1.9$1.5 billion, and Canada at $0.6$1.0 billion. Our holdings of securities issued by agencies of foreign governments are explicitly guaranteed by the governments of the issuing agencies.
In addition to the direct holdings in foreign companies and securities issued by foreign government agencies, Schwab has indirect exposure to foreign countries through its investments in CSIM money market funds (collectively, the Funds) resulting from brokerage clearing activities. At March 31,June 30, 2018, Schwab had $59$42 million in investments in these Funds. Certain of the Funds’ positions include certificates of deposit, time deposits, commercial paper, and corporate debt securities issued by counterparties in foreign countries. Additionally, at March 31,June 30, 2018, Schwab had outstanding margin loans to foreign residents of $880$532 million.

Off-Balance Sheet Arrangements
Schwab enters into various off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of its clients. These arrangements include firm commitments to extend credit. Additionally, Schwab enters into guarantees and other similar arrangements in the ordinary course of business. For information on each of these arrangements, see Item 1 – Note 5, Note 6, Note 8, Note 9, and Note 10, and Item 8 – Note 13 in the 2017 Form 10-K.




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)


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 2017 Form 10-K. There have been no changes to critical accounting estimates during the first threesix months of 2018.



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.



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

 2018 2017 2018 2017 2018 2017
Net Revenues  
  
         
Interest revenue $1,421
 $1,055
  $1,590
 $1,127
  $3,011
 $2,182
Interest expense (158) (55)  (183) (74) (341) (129)
Net interest revenue 1,263
 1,000
  1,407
 1,053
 2,670
 2,053
Asset management and administration fees 851
 823
  814
 845
  1,665
 1,668
Trading revenue 201
 192
  180
 157
 381
 349
Other 83
 66
  85
 75
 168
 141
Total net revenues 2,398
 2,081
  2,486
 2,130
 4,884
 4,211
Expenses Excluding Interest             
Compensation and benefits 770
 701
  745
 663
  1,515
 1,364
Professional services 156
 133
  156
 144
  312
 277
Occupancy and equipment 122
 105
  122
 107
  244
 212
Advertising and market development 73
 71
  77
 71
  150
 142
Communications 62
 57
  58
 58
  120
 115
Depreciation and amortization 73
 65
  75
 66
  148
 131
Regulatory fees and assessments 51
 44
 50
 46
 101
 90
Other 89
 62
  72
 66
  161
 128
Total expenses excluding interest 1,396
 1,238
  1,355
 1,221
  2,751
 2,459
Income before taxes on income 1,002
 843
  1,131
 909
  2,133
 1,752
Taxes on income 219
 279
  265
 334
  484
 613
Net Income 783
 564
  866
 575
  1,649
 1,139
Preferred stock dividends and other 37
 39
  53
 45
  90
 84
Net Income Available to Common Stockholders $746
 $525
  $813
 $530
  $1,559
 $1,055
Weighted-Average Common Shares Outstanding:            
Basic 1,347
 1,336
  1,350
 1,338
  1,349
 1,337
Diluted 1,362
 1,351
 1,364
 1,351
 1,363
 1,351
Earnings Per Common Share:    
Earnings Per Common Shares Outstanding:        
Basic $.55
 $.39
  $.60
 $.40
  $1.16
 $.79
Diluted $.55
 $.39
  $.60
 $.39
  $1.14
 $.78
Dividends Declared Per Common Share $.10
 $.08
 $.10
 $.08
 $.20
 $.16

See Notes to Condensed Consolidated Financial Statements.



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


 Three Months Ended
March 31,		 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017 2018 2017
Net Income $783
 $564
 $866
 $575
 $1,649
 $1,139
Other comprehensive income (loss), before tax:  
  
  
  
  
  
Change in net unrealized gain (loss) on available for sale securities:  
  
  
  
  
  
Net unrealized gain (loss) (108) 52
 (33) 29
 (141) 81
Reclassification of net unrealized loss transferred to held to maturity —
 227
 —
 —
 —
 227
Other reclassifications included in other revenue —
 (1) —
 (6) —
 (7)
Change in net unrealized gain (loss) on held to maturity securities:            
Reclassification of net unrealized loss transferred from available for sale —
 (227) —
 —
 —
 (227)
Amortization of amounts previously recorded upon transfer from available for sale 9
 2
 9
 9
 18
 11
Other —
 (3) —
 —
 —
 (3)
Other comprehensive income (loss), before tax (99) 50
 (24) 32
 (123) 82
Income tax effect 24
 (19) 6
 (12) 30
 (31)
Other comprehensive income (loss), net of tax (75) 31
 (18) 20
 (93) 51
Comprehensive Income $708
 $595
 $848
 $595
 $1,556
 $1,190

See Notes to Condensed Consolidated Financial Statements.



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Balance Sheets
(In Millions, Except Per Share and Share Amounts)
(Unaudited)


March 31, 2018December 31, 2017June 30, 2018 December 31, 2017
Assets    
Cash and cash equivalents$14,145
$14,217
$13,250
 $14,217
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $4,434 at March 31, 2018 and $6,596 at December 31, 2017)12,823
15,139
Cash and investments segregated and on deposit for regulatory purposes (including resale
agreements of $5,391 at June 30, 2018 and $6,596 at December 31, 2017)		11,012
 15,139
Receivables from brokers, dealers, and clearing organizations894
649
1,025
 649
Receivables from brokerage clients — net21,153
20,576
22,351
 20,576
Other securities owned — at fair value500
539
525
 539
Available for sale securities51,827
49,995
55,522
 49,995
Held to maturity securities (fair value — $123,463 at March 31, 2018 and $120,373 at
December 31, 2017)
125,683
120,926
Held to maturity securities (fair value — $133,992 at June 30, 2018 and $120,373 at
December 31, 2017)		136,792
 120,926
Bank loans — net16,389
16,478
16,569
 16,478
Equipment, office facilities, and property — net1,540
1,471
1,599
 1,471
Goodwill1,227
1,227
1,227
 1,227
Intangible assets — net101
108
93
 108
Other assets2,038
1,949
1,917
 1,949
Total assets$248,320
$243,274
$261,882
 $243,274
Liabilities and Stockholders’ Equity  
   
Bank deposits$190,184
$169,656
$199,922
 $169,656
Payables to brokers, dealers, and clearing organizations1,122
1,287
3,319
 1,287
Payables to brokerage clients31,088
31,243
30,347
 31,243
Accrued expenses and other liabilities2,468
2,810
2,408
 2,810
Short-term borrowings—
15,000
—
 15,000
Long-term debt4,128
4,753
5,789
 4,753
Total liabilities228,990
224,749
241,785
 224,749
Stockholders’ equity:  
   
Preferred stock — $.01 par value per share; aggregate liquidation preference
of $2,850 at March 31, 2018 and December 31, 2017
2,793
2,793
Preferred stock — $.01 par value per share; aggregate liquidation preference
of $2,850 at June 30, 2018 and December 31, 2017
2,793
 2,793
Common stock — 3 billion shares authorized; $.01 par value per share; 1,487,543,446
shares issued		15
15
15
 15
Additional paid-in capital4,397
4,353
4,447
 4,353
Retained earnings15,222
14,408
15,903
 14,408
Treasury stock, at cost — 139,326,005 shares at March 31, 2018 and
142,210,890 shares at December 31, 2017		(2,837)(2,892)
Treasury stock, at cost — 136,568,138 shares at June 30, 2018 and 142,210,890
shares at December 31, 2017		(2,783) (2,892)
Accumulated other comprehensive income (loss)(260)(152)(278) (152)
Total stockholders’ equity19,330
18,525
20,097
 18,525
Total liabilities and stockholders’ equity$248,320
$243,274
$261,882
 $243,274

See Notes to Condensed Consolidated Financial Statements.



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity
(In Millions)
(Unaudited)


             Accumulated Other Comprehensive Income (Loss)               Accumulated Other Comprehensive Income (Loss)  
 Preferred Stock Common stock Additional Paid-in Capital Retained Earnings Treasury Stock,
at cost		 Total Preferred Stock Common stock Additional Paid-in Capital Retained Earnings Treasury Stock,
at cost		 Total
 Shares Amount Accumulated Other Comprehensive Income (Loss) Shares Amount Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2016 $2,783
 1,488
 $15
 $4,267
 $12,649
 $(3,130) $(163)$16,421
 $2,783
 1,488
 $15
 $4,267
 $12,649
 $(3,130) $(163)$16,421
Net income —
 —
 —
 —
 564
 —
 —
564
 —
 —
 —
 —
 1,139
 —
 —
1,139
Other comprehensive income (loss), net of tax —
 —
 —
 —
 —
 —
 31
 31
 —
 —
 —
 —
 —
 —
 51
 51
Dividends declared on preferred stock —
 —
 —
 —
 (37) —
 —
 (37) —
 —
 —
 —
 (78) —
 —
 (78)
Dividends declared on common stock —
 —
 —
 —
 (107) —
 —
 (107) —
 —
 —
 —
 (215) —
 —
 (215)
Stock option exercises and other —
 —
 —
 (23) —
 81
 —
 58
 —
 —
 —
 (26) —
 98
 —
 72
Share-based compensation and related tax effects —
 —
 —
 49
 —
 —
 —
 49
 —
 —
 —
 79
 —
 —
 —
 79
Other —
 —
 —
 7
 —
 (4) —
 3
 —
 —
 —
 16
 —
 4
 —
 20
Balance at March 31, 2017 $2,783
 1,488
 $15
 $4,300
 $13,069
 $(3,053) $(132) $16,982
Balance at June 30, 2017 $2,783
 1,488
 $15
 $4,336
 $13,495
 $(3,028) $(112) $17,489
                                
Balance at December 31, 2017 $2,793
 1,488
 $15
 $4,353
 $14,408
 $(2,892) $(152) $18,525
 $2,793
 1,488
 $15
 $4,353
 $14,408
 $(2,892) $(152) $18,525
Adoption of accounting standards (Note 2) —
 —
 —
 —
 200
 —
 (33) 167
 —
 —
 —
 —
 200
 —
 (33) 167
Net income —
 —
 —
 —
 783
 —
 —
 783
 —
 —
 —
 —
 1,649
 —
 —
 1,649
Other comprehensive income (loss), net of tax —
 —
 —
 —
 —
 —
 (75) (75) —
 —
 —
 —
 —
 —
 (93) (93)
Dividends declared on preferred stock —
 —
 —
 —
 (34) —
 —
 (34) —
 —
 —
 —
 (83) —
 —
 (83)
Dividends declared on common stock —
 —
 —
 —
 (135) —
 —
 (135) —
 —
 —
 —
 (271) —
 —
 (271)
Stock option exercises and other —
 —
 —
 (12) —
 61
 —
 49
 —
 —
 —
 (8) —
 107
 —
 99
Share-based compensation and related tax effects —
 —
 —
 47
 —
 —
 —
 47
 —
 —
 —
 78
 —
 —
 —
 78
Other —
 —
 —
 9
 —
 (6) —
 3
 —
 —
 —
 24
 —
 2
 —
 26
Balance at March 31, 2018 $2,793
 1,488
 $15
 $4,397
 $15,222
 $(2,837) $(260) $19,330
Balance at June 30, 2018 $2,793
 1,488
 $15
 $4,447
 $15,903
 $(2,783) $(278) $20,097

See Notes to Condensed Consolidated Financial Statements.



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


 Three Months Ended
March 31,		 Six Months Ended
June 30,
 2018 
2017 (1)
 2018 
2017 (1)
Cash Flows from Operating Activities  
    
  
Net income $783
 $564
 $1,649
 $1,139
Adjustments to reconcile net income to net cash provided by (used for) operating activities:  
    
  
Share-based compensation 50
 52
 83
 84
Depreciation and amortization 73
 65
 148
 131
Premium amortization, net, on available for sale securities and held to maturity securities 96
 72
 187
 148
Other 36
 12
 77
 19
Net change in:  
  
  
  
Investments segregated and on deposit for regulatory purposes 853
 (550) 4,852
 2,324
Receivables from brokers, dealers, and clearing organizations (245) 11
 (375) (180)
Receivables from brokerage clients (595) 424
 (1,796) (841)
Other securities owned 39
 (115) 14
 (11)
Other assets (16) 4
 (124) (50)
Payables to brokers, dealers, and clearing organizations (325) (346) (45) (473)
Payables to brokerage clients (155) (1,627) (896) (2,855)
Accrued expenses and other liabilities (346) (143) (394) (293)
Net cash provided by (used for) operating activities 248
 (1,577) 3,380
 (858)
Cash Flows from Investing Activities        
Purchases of available for sale securities (4,631) (1,992) (11,961) (3,077)
Proceeds from sales of available for sale securities —
 1,064
 115
 5,485
Principal payments on available for sale securities 2,695
 3,067
 6,957
 4,698
Purchases of held to maturity securities (8,235) (9,301) (22,212) (12,309)
Principal payments on held to maturity securities 3,548
 1,731
 7,474
 4,469
Net change in bank loans 74
 (134) (110) (418)
Purchases of equipment, office facilities, and property (122) (80) (253) (164)
Purchases of Federal Home Loan Bank stock (141) (87)
Proceeds from sales of Federal Home Loan Bank stock 172
 64
 528
 100
Other investing activities (40) (6) (51) (14)
Net cash provided by (used for) investing activities (6,539) (5,587) (19,654) (1,317)
Cash Flows from Financing Activities        
Net change in bank deposits 20,528
 3,435
 30,266
 (1,154)
Net change in short-term borrowings (15,000) 600
 (15,000) 300
Issuance of long-term debt —
 643
 1,936
 643
Repayment of long-term debt (627) (2) (904) (4)
Dividends paid (184) (158) (354) (293)
Proceeds from stock options exercised and other 49
 58
 99
 71
Other financing activities (10) (8) (11) (8)
Net cash provided by (used for) financing activities 4,756
 4,568
 16,032
 (445)
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted (1,535) (2,596) (242) (2,620)
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Period 19,160
 17,873
 19,160
 17,873
Cash and Cash Equivalents, including Amounts Restricted at End of Period $17,625
 $15,277
 $18,918
 $15,253
(1)Adjusted for the retrospective adoption of ASU 2016-18. See Note 2.

Continued on following page










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


Continued from previous page
 Three Months Ended
March 31,		 Six Months Ended
June 30,
 2018 
2017 (1)
 2018 
2017 (1)
Supplemental Cash Flow Information        
Cash paid during the period for:        
Interest $169
 $75
 $305
 $117
Income taxes $3
 $8
 $482
 $597
Non-cash investing activity:        
Securities purchased during the period but settled after period end $160
 $581
 $2,077
 $—
        
 March 31, 2018 March 31, 2017 June 30, 2018 June 30, 2017
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2)
        
Cash and cash equivalents $14,145
 $9,475
 $13,250
 $9,575
Restricted cash and cash equivalents amounts included in Cash and investments segregated and on deposit for regulatory purposes 3,480
 5,802
Restricted cash and cash equivalents amounts included in cash and investments segregated
and on deposit for regulatory purposes		 5,668
 5,678
Total cash and cash equivalents, including amounts restricted shown in the
statement of cash flows		 $17,625
 $15,277
 $18,918
 $15,253
(1) Adjusted for the retrospective adoption of ASU 2016-18. See Note 2.
(2) For more information on the nature of restrictions on restricted cash and cash equivalents see Note 16.

See Notes to Condensed Consolidated Financial Statements.


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 engaged, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.
Significant business subsidiaries of CSC include the following:

Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
Charles Schwab Bank (CSB), a federal savings bank; and
•
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and 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 generally accepted accounting principles in the U.S. (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 2017 Form 10-K.
The significant accounting policies are included in Note 2 in the 2017 Form 10-K. There have been no significant changes to these accounting policies during the first threesix months of 2018, except as described in Note 2 below.
Principles of Consolidation
Schwab evaluates all entities in which it has financial interests for consolidation, except for money market funds, which are specifically excluded from consolidation guidance. When an entity is evaluated for consolidation, Schwab determines whether its interest in the entity constitutes a controlling financial interest under either the variable interest entity (VIE) model or a voting interest entity (VOE) model. In evaluating whether Schwab’s interest in a VIE is a controlling financial interest, we consider whether our involvement, in the context of the design, purpose, and risks of the VIE, as well as any involvement of related parties, provides us with (i) the power to direct the most significant activities of the VIE, and (ii) the obligation to absorb losses or receive benefits that are significant to the VIE. If both of these conditions exist, then Schwab would be the primary beneficiary of that VIE, and consolidate it. Based upon the assessments for all of our interests in VIEs, there are no cases where Schwab is the primary beneficiary; therefore, we are not required to consolidate any VIEs. Schwab consolidates all VOEs in which it has majority-voting interests.
Investments in entities in which Schwab does not have a controlling financial interest are accounted for under the equity method of accounting when we have the ability to exercise significant influence over operating and financing decisions of the entity. Investments in entities for which Schwab does not have the ability to exercise significant influence are generally carried at cost and adjusted for impairment and observable price changes of the identical or similar investments of the same issuer (adjusted cost method), except for certain investments in qualified affordable housing projects which are accounted for under the proportional amortization method. All equity method, adjusted cost method, and proportional amortization method investments are included in other assets on the condensed consolidated balance sheets.




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

2.    New Accounting Standards

Adoption of New Accounting Standards

StandardDescriptionDate of AdoptionEffects on the Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606)” and related ASUsClarifies that revenue from contracts with clients should be recognized in a manner that depicts the timing of the related transfer of goods or performance of services at an amount that reflects the expected consideration.

Adoption allows either full or modified retrospective transition. Full retrospective transition required a cumulative effect adjustment to retained earnings as of the earliest comparative period presented. Modified retrospective transition required a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance.		January 1, 2018The guidance does not apply to revenue earned from the Company’s loans and securities. Accordingly, net interest revenue was not impacted. The primary impact for the Company was the capitalization on the consolidated balance sheets of sales commissions paid to employees for obtaining new contracts with clients. These capitalized costs resulted in an asset of $219 million and a related deferred tax liability of $52 million upon adoption. The asset is being amortized to expense over time as the related revenues are recognized.

The Company adopted the revenue recognition guidance using the modified retrospective method for all contracts that were not completed as of January 1, 2018. Further details of the impact of adoption are included below in this Note as well as in Note 3.
ASU 2016-01, “Financial Instruments -– Overall (Subtopic 825-10)” and ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments -– Overall (Subtopic 825-10)”Requires: (i) equity investments to be measured at fair value, with changes in fair value recognized in net income, unless the equity method is applied or the equity investments do not have readily determinable fair values in which case a practical alternative may be elected; (ii) use of an exit price when measuring the fair value of financial instruments for disclosures; (iii) separate presentation of financial assets and liabilities by measurement category and form of instrument on the balance sheet or in the accompanying notes.

Adoption requires a cumulative effect adjustment to the balance sheet as of the beginning of the year of initial application, except for certain changes that require prospective adoption.		January 1, 2018The Company adopted this guidance on a prospective basis for its equity securities that do not have readily determinable fair values. No other significant changes resulted from adoption. Therefore, there was no material impact on the Company’s financial statements.

The Company elected to use the alternative to fair value measurement for its equity securities that do not have readily determinable fair values. These equity securities will be adjusted for impairment and observable price changes of the identical or similar investments of the same issuer, as applicable. Schwab refers to this approach as the adjusted cost method. This method was applied to an immaterial amount of community reinvestment actCommunity Reinvestment Act (CRA) investments included in Otherother assets on the consolidated balance sheets.
    

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

    
StandardDescriptionDate of AdoptionEffects on the Financial Statements or Other Significant Matters
ASU 2016-18, “Statement of Cash Flows (Topic 230) -– Restricted Cash a Consensus of the Emerging Issues Task Force”Requires that the statement of cash flows explain the change during the period in the total cash and cash equivalents, including restricted cash and cash equivalents.

Adoption requires retrospective presentation of the statement of cash flows to include restricted cash and cash equivalents in the beginning and ending amounts.		January 1, 2018The Company adopted this guidance on a retrospective basis. The Company has significant amounts of restricted cash and cash equivalents due to its business as a broker-dealer.

As a result of the adoption, changes in restricted cash and cash equivalents included within Cashcash and investments segregated and on deposit for regulatory purposes in the consolidated balance sheets are now presented with changes in cash and cash equivalents throughout the consolidated statements of cash flows. The amount of restricted cash and cash equivalents is included in a separate table in the consolidated statements of cash flows.
ASU 2018-02, “Income Statement-ReportingStatement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”Permits reclassification of the impacts on certain tax affected items included in AOCI that were adjusted through income from continuing operations rather than AOCI upon the effective date of the Tax Act.

Adoption provides for retrospective adoption to all periods presented and impacted by the Tax Act or as of the beginning of the period of adoption.		January 1, 2018The Company early adopted this guidance as of the beginning of the quarter. The Company elected to reclassify the income tax effects of the Tax Act from items in AOCI into retained earnings.

Adoption resulted in a reduction in AOCI and a corresponding increase in retained earnings of $33 million.

New Accounting Standards Not Yet Adopted

StandardDescriptionRequired Date of AdoptionEffects on the Financial Statements or Other Significant Matters
ASU 2016-02, “Leases (Topic 842)”Amends the accounting for leases by lessees and lessors. The primary change from the new guidance is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. Additional changes include accounting for lease origination and executory costs, required lessee reassessments during the lease term due to changes in circumstances, and expanded lease disclosures.

Adoption requires modified retrospective transition as of the beginning of the earliest comparative period presented in the financial statements in which the entity first applies the new standard. Certain transition relief is permitted if elected by the entity.		January 1, 2019
The Company does not expect this guidance will have a material impact on its earnings per common share (EPS), but it will result in a gross up of the consolidated balance sheets due to recognition of right-of-use assets and lease liabilities based on the present value of remaining operating lease payments (see Note 13 in the 2017 10-K for the undiscounted rental commitments for operating leases).

The Company is evaluating its adoption method due to a recently proposed ASU that provides an alternative adoption method. The Company is refining its methodology to estimate the right of use assets and lease liabilities and working on system updates to apply the lease accounting changes. The full population of contracts that may be subject to balance sheet recognition is still being evaluated, and is nearly complete. The Company has further work to perform related to disclosures.
    

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

    
StandardDescriptionRequired Date of AdoptionEffects on the Financial Statements or Other Significant Matters
ASU 2016-13, “Financial Instruments -– Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”Provides guidance for recognizing impairment of most debt instruments measured at amortized cost, including loans and held to maturity (HTM) debt securities. Requires estimating current expected credit losses (CECL) over the remaining life of an instrument or a portfolio of instruments with similar risk characteristics based on relevant information about past events, current conditions, and reasonable forecasts. The initial estimate of, and the subsequent changes in, CECL will be recognized as credit loss expense through current earnings and will be reflected as an allowance for credit losses offsetting the carrying value of the financial instrument(s) on the balance sheet. Amends the OTTI model for available for sale (AFS) debt securities by requiring the use of an allowance, rather than directly reducing the carrying value of the security, and eliminating consideration of the length of time such security has been in an unrealized loss position as a factor in concluding whether a credit loss exists.

Adoption requires a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the entity applies the new guidance except that a prospective transition is required for AFS debt securities for which an OTTI has been recognized prior to the effective date.		January 1, 2020 (early adoption permitted)The Company is currently evaluating the impact of this guidance on its financial statements, including EPS. Initial implementation work performed to date has focused on evaluating the Company’s impacted assets, including loans and investment securities. The Company has also been evaluating its current data and system capabilities and considering additional data sources and system enhancements. Additional work to be completed includes an in-depth analysis for each impacted asset type, selection of methods, and changes to policies and procedures.
ASU 2017-08, “Receivables -– Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”Shortens the amortization period for the premium on certain callable debt securities to the earliest call date. The amendments are applicable to any purchased individual debt security with an explicit and noncontingent call feature with a fixed price on a preset date. ASU 2017-08 does not impact the accounting for callable debt securities held at a discount.

Adoption requires modified retrospective transition as of the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings.		January 1, 2019 (early adoption permitted)
TheWhile still under evaluation, the Company is currently evaluating the impact of adoptingdoes not expect this guidance will have a material impact on its financial statements, including EPS.


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

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09, “Revenue – Revenue from Contracts with CustomersCustomers” and ASU 2018-02, “Other Comprehensive Income – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” were as follows:
  Balance at
December 31, 2017		 Adjustments Due to ASU 2014-09 Adjustments Due to ASU 2018-02 Balance at
January 1, 2018
Assets        
Other assets (1)
 $1,949
 $167
 $—
 $2,116
Stockholders’ Equity
        
Retained earnings 14,408
 167
 33
 14,608
Accumulated other comprehensive income (152) —
 (33) (185)
(1) Adjustment is comprised of an increase in capitalized contract costs of $219 million, partially offset by an increase in deferred tax liabilities of $52 million.

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our condensed consolidated statement of income and condensed consolidated balance sheet were as follows:
 Three Months Ended March 31, 2018 Three Months Ended June 30, 2018
Statement of Income As Reported Balances Without Adoption of ASU 2014-09 Effect of Change
Higher/(Lower)		 As Reported Balances Without Adoption of ASU 2014-09 Effect of Change
Higher/(Lower)
Expenses Excluding Interest            
Compensation and benefits $770
 $781
 $(11) $745
 $754
 $(9)
Taxes on income 219
 216
 3
 265
 263
 2
Net Income 783
 775
 8
 866
 859
 7

  As of March 31, 2018
Balance Sheet As Reported Balances Without Adoption of ASU 2014-09 Effect of Change
Higher/(Lower)
Assets      
Other assets (1)
 $2,038
 $1,863
 $175
Stockholders’ Equity      
Retained earnings 15,222
 15,047
 175
  Six Months Ended June 30, 2018
Statement of Income As Reported Balances Without Adoption of ASU 2014-09 Effect of Change
Higher/(Lower)
Expenses Excluding Interest      
Compensation and benefits $1,515
 $1,535
 $(20)
Taxes on income 484
 479
 5
Net Income 1,649
 1,634
 15

  As of June 30, 2018
Balance Sheet As Reported Balances Without Adoption of ASU 2014-09 Effect of Change
Higher/(Lower)
Assets      
Other assets (1)
 $1,917
 $1,735
 $182
Stockholders’ Equity      
Retained earnings 15,903
 15,721
 182
(1) Adjustment is comprised of an increase in capitalized contract costs of $230$239 million, partially offset by an increase in deferred tax liabilities of $55$57 million.



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,		Three Months Ended
June 30,		Six Months Ended
June 30,
 2018 20172018 2017 20182017
Net interest revenue         
Interest revenue $1,421
 $1,055
$1,590
 $1,127
 $3,011
$2,182
Interest expense (158) (55)(183) (74) (341)(129)
Net interest revenue 1,263
 1,000
1,407
 1,053
 2,670
2,053
Asset management and administration fees     
  
  
Mutual funds and ETF service fees 493
 506
458
 513
 951
1,019
Advice Solutions 282
 244
Advice solutions283
 256
 565
500
Other 76
 73
73
 76
 149
149
Asset management and administration fees 851
 823
814
 845
 1,665
1,668
Trading revenue       
  
Commissions 189
 178
157
 142
 346
320
Principal transactions 12
 14
23
 15
 35
29
Trading revenue 201
 192
180
 157
 381
349
Other 83
 66
85
 75
 168
141
Total net revenues $2,398
 $2,081
$2,486
 $2,130
 $4,884
$4,211
For a summary of revenue provided by our reportable segments, see Note 17. The recognition of revenue is not impacted by the operating segment in which revenue is generated. Schwab does not have any significant contract balances as of March 31, 2018.
Net interest revenue
Net interest revenue, which is generated from financial instruments covered by various other areas of GAAP, is not within the scope of ASU 2014-09,Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers (ASC 606), and is included in the table above in order to reconcile to total net revenues per the condensed consolidated statement of income. Net interest revenue is the difference between interest generated on interest earning assets and interest paid on funding sources. Our primary interest earning assets include cash and cash equivalents; segregated cash and investments; margin loans, which constitute the majority of receivables from brokerage clients; investment securities; and bank loans. Revenue on interest earning assets is affected by various factors, such as the composition of assets, prevailing interest rates at the time of origination or purchase, changes in interest rates on floating rate securities, and changes in prepayment levels for mortgage related securities and loans. Fees earned on securities borrowing and lending activities, which are conducted by CS&Co on assets held in client brokerage accounts, are included in other interest revenue and expense.

Asset management and administration fees

The majority of asset management and administration fees are generated through our proprietary and third-party mutual fund and ETF offerings, as well as fee-based advisory solutions. Mutual fund and ETF service fees are charged for investment management, shareholder, and administration services provided to Schwab Funds® and Schwab ETFs™, as well as recordkeeping, shareholder, and administration services provided to third-party funds. Advice Solutionssolutions fees are charged for brokerage and asset management services provided to Advice Solutionsadvice solutions clients. Both Mutualmutual fund and ETF service fees and Advice Solutionadvice solutions fees are earned and recognized over time. Fees are generally based on a percentage of the daily value of assets under management and are collected on a monthly or quarterly basis.


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

Trading revenue

Substantially all trading revenue is generated through commissions earned for executing trades for clients in individual equities, options, fixed income securities, and certain third-party mutual funds and ETFs. This revenue is earned and collected at a point-in-time which is consistent withwhen the timing that the trade execution servicestrades are performed.executed.

Other revenue
Other revenue includes order flow revenue, other service fees, software fees from our portfolio management solutions, exchange processing fees, and nonrecurring gains. Generally, the most significant portion of other revenue is order flow revenue, which are payments received from execution venues to which CS&Co sends equity and option orders. Order flow revenue is recognized at the point-in-time that the trades are executed.

Capitalized contract costs
Deferred contract costs relate to sales commissions paid to employees for obtaining contracts with clients and are included in Otherother assets inon the condensed consolidated balance sheets. These costs are amortized to expense on a straight-line basis over a period that is consistent with how the related revenue is recognized. At March 31,June 30, 2018 and January 1, 2018, we had $230$239 million and $219 million of deferred contract costs, respectively. Amortization expense related to deferred contract costs was $11 million and $22 million for the second quarter and first quartersix months of 2018, respectively, which was recorded in Compensationcompensation and benefits expense.expense on the condensed consolidated statements of income.

Contract balances
Receivables from contracts with customers within the scope of ASC 606 were $353 million at January 1, 2018 and $352 million at June 30, 2018 and were recorded in other assets on the condensed consolidated balance sheets. Schwab does not have any other significant contract assets or contract liability balances as of June 30, 2018 and January 1, 2018.

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.


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 AFS and HTM securities are as follows:
March 31, 2018 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
June 30, 2018 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Available for sale securities:                
U.S. agency mortgage-backed securities $21,077
 $49
 $65
 $21,061
 $22,977
 $50
 $80
 $22,947
U.S. Treasury securities 10,964
 —
 137
 10,827
 11,012
 —
 153
 10,859
Asset-backed securities (1)
 9,622
 25
 11
 9,636
 10,710
 20
 10
 10,720
Corporate debt securities (2)
 6,546
 12
 6
 6,552
 6,187
 11
 7
 6,191
Certificates of deposit 1,790
 2
 1
 1,791
 2,690
 3
 1
 2,692
U.S. agency notes 1,565
 —
 8
 1,557
 1,530
 —
 6
 1,524
Commercial paper (2)
 315
 —
 —
 315
 505
 —
 —
 505
Foreign government agency securities 50
 —
 2
 48
 50
 —
 2
 48
Non-agency commercial mortgage-backed securities 40
 —
 —
 40
 36
 —
 —
 36
Total available for sale securities $51,969
 $88
 $230
 $51,827
 $55,697
 $84
 $259
 $55,522
Held to maturity securities:                
U.S. agency mortgage-backed securities $103,967
 $82
 $2,377
 $101,672
 $113,106
 $55
 $2,907
 $110,254
Asset-backed securities (1)
 14,625
 126
 7
 14,744
 16,356
 125
 10
 16,471
Corporate debt securities (2)
 4,340
 8
 44
 4,304
 4,550
 9
 55
 4,504
U.S. state and municipal securities 1,245
 20
 3
 1,262
 1,242
 18
 3
 1,257
Non-agency commercial mortgage-backed securities 1,033
 3
 19
 1,017
 1,065
 2
 23
 1,044
U.S. Treasury securities 223
 —
 8
 215
 223
 —
 9
 214
Certificates of deposit 200
 —
 —
 200
 200
 —
 —
 200
Foreign government agency securities 50
 —
 1
 49
 50
 —
 2
 48
Total held to maturity securities $125,683
 $239
 $2,459
 $123,463
 $136,792
 $209
 $3,009
 $133,992
December 31, 2017        
Available for sale securities:         
U.S. agency mortgage-backed securities $20,915
 $53
 $39
 $20,929
U.S. Treasury securities 9,583
 —
 83
 9,500
Asset-backed securities (1)
 9,019
 34
 6
 9,047
Corporate debt securities (2)
 6,154
 16
 1
 6,169
Certificates of deposit 2,040
 2
 1
 2,041
U.S. agency notes 1,914
 —
 8
 1,906
Commercial paper (2)
 313
 —
 —
 313
Foreign government agency securities 51
 —
 1
 50
Non-agency commercial mortgage-backed securities 40
 —
 —
 40
     Total available for sale securities $50,029
 $105
 $139
 $49,995
Held to maturity securities:        
U.S. agency mortgage-backed securities $101,197
 $290
 $1,034
 $100,453
Asset-backed securities (1)
 12,937
 127
 2
 13,062
Corporate debt securities (2)
 4,078
 13
 5
 4,086
U.S. state and municipal securities 1,247
 57
 —
 1,304
Non-agency commercial mortgage-backed securities 994
 10
 5
 999
U.S. Treasury securities 223
 —
 3
 220
Certificates of deposit 200
 —
 —
 200
Foreign government agency securities 50
 —
 1
 49
     Total held to maturity securities $120,926
 $497
 $1,050
 $120,373
(1) Approximately 40%36% and 42% of Asset-backedasset-backed securities held as of March 31,June 30, 2018 and December 31, 2017, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately 42%46% and 40% of the asset-backed securities held as of March 31,June 30, 2018 and December 31, 2017, respectively.
(2) As of March 31,June 30, 2018 and December 31, 2017, approximately 38%35% and 41%, respectively, of the total AFS and HTM investments in Corporatecorporate debt securities and Commercialcommercial paper were issued by institutions in the financial services industry. Approximately 21% and 22% of the holdings of these securities were issued by institutions in the information technology industry as of both March 31,June 30, 2018 and December 31, 2017.2017, respectively.


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


At March 31,June 30, 2018, CSB had pledged securities with a fair value of $23.0$21.9 billion as collateral to secure borrowing capacity on a secured credit facility with the Federal Home Loan Bank of San Francisco (FHLB)FHLB (see Note 8). CSB also pledges certain investment securities as collateral to secure borrowing capacity at the Federal Reserve Bank discount window, and had pledged securities with a fair value of $2.5 billion as collateral for this facility at March 31,June 30, 2018. CSB also pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $906$900 million at March 31,June 30, 2018.


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, are as follows:
Less than 12 months    Less than 12 months    
12 months or longer Total12 months or longer Total
March 31, 2018Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
June 30, 2018Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
Available for sale securities:                      
U.S. agency mortgage-backed securities$6,308
 $52
 $2,339
 $13
 $8,647
 $65
$7,861
 $68
 $1,732
 $12
 $9,593
 $80
U.S. Treasury securities5,522
 45
 5,305
 92
 10,827
 137
5,639
 62
 4,556
 91
 10,195
 153
Asset-backed securities1,594
 7
 422
 4
 2,016
 11
2,495
 7
 348
 3
 2,843
 10
Corporate debt securities1,503
 6
 20
 —
 1,523
 6
2,163
 7
 20
 —
 2,183
 7
Certificates of deposit1,019
 1
 —
 —
 1,019
 1
549
 1
 —
 —
 549
 1
U.S. agency notes—
 —
 1,557
 8
 1,557
 8
195
 —
 1,114
 6
 1,309
 6
Foreign government agency securities48
 2
 —
 —
 48
 2
49
 2
 —
 —
 49
 2
Total$15,994
 $113
 $9,643
 $117
 $25,637
 $230
$18,951
 $147
 $7,770
 $112
 $26,721
 $259
Held to maturity securities: 
  
  
  
  
  
 
  
  
  
  
  
U.S. agency mortgage-backed securities$60,892
 $1,166
 $24,742
 $1,211
 $85,634
 $2,377
$68,494
 $1,539
 $24,984
 $1,368
 $93,478
 $2,907
Asset-backed securities1,249
 7
 100
 —
 1,349
 7
2,097
 10
 25
 —
 2,122
 10
Corporate debt securities2,743
 44
 —
 —
 2,743
 44
2,637
 55
 —
 —
 2,637
 55
U.S. state and municipal securities96
 3
 —
 —
 96
 3
118
 3
 —
 —
 118
 3
Non-agency commercial mortgage-backed securities764
 19
 —
 —
 764
 19
902
 23
 —
 —
 902
 23
U.S. Treasury securities215
 8
 —
 —
 215
 8
214
 9
 —
 —
 214
 9
Foreign government agency securities49
 1
 —
 —
 49
 1
48
 2
 —
 —
 48
 2
Total$66,008
 $1,248
 $24,842
 $1,211
 $90,850
 $2,459
$74,510
 $1,641
 $25,009
 $1,368
 $99,519
 $3,009
Total securities with unrealized losses (1)
$82,002
 $1,361
 $34,485
 $1,328
 $116,487
 $2,689
$93,461
 $1,788
 $32,779
 $1,480
 $126,240
 $3,268
December 31, 2017           
Available for sale securities:            
U.S. agency mortgage-backed securities$5,696
 $21
 $2,548
 $18
 $8,244
 $39
U.S. Treasury securities4,625
 11
 4,875
 72
 9,500
 83
Asset-backed securities904
 3
 424
 3
 1,328
 6
Corporate debt securities736
 1
 120
 —
 856
 1
Certificates of deposit799
 1
 —
 —
 799
 1
U.S. agency notes99
 —
 1,807
 8
 1,906
 8
Foreign government agency securities50
 1
 —
 —
 50
 1
Total$12,909
 $38
 $9,774
 $101
 $22,683
 $139
Held to maturity securities: 
  
  
  
  
  
U.S. agency mortgage-backed securities$42,102
 $310
 $24,753
 $724
 $66,855
 $1,034
Asset-backed securities1,124
 2
 72
 —
 1,196
 2
Corporate debt securities1,078
 5
 —
 —
 1,078
 5
Non-agency commercial mortgage-backed securities607
 5
 —
 —
 607
 5
U.S. Treasury securities220
 3
 —
 —
 220
 3
Foreign government agency securities49
 1
 —
 —
 49
 1
Total$45,180
 $326
 $24,825
 $724
 $70,005
 $1,050
Total securities with unrealized losses (2)
$58,089
 $364
 $34,599
 $825
 $92,688
 $1,189
(1) The number of investment positions with unrealized losses totaled 314332 for AFS securities and 1,3531,543 for HTM securities.
(2) The number of investment positions with unrealized losses totaled 251 for AFS securities and 938 for HTM securities.


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

At March 31,June 30, 2018, substantially all securities in the investment portfolios were rated 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.
Management evaluates whether investment securities are other-than-temporarily impaired (OTTI) on a quarterly basis as described in Note 2 in the 2017 Form 10-K. No amounts were recognized as OTTI in earnings or other comprehensive income in 2018 or 2017. As of March 31,June 30, 2018 and December 31, 2017, Schwab did not hold any securities on which OTTI was previously recognized.

The maturities of AFS and HTM securities are as follows:
March 31, 2018 Within
1 year		 After 1 year
through
5 years		 After 5 years
through
10 years		 After
10 years		 Total
June 30, 2018 Within
1 year		 After 1 year
through
5 years		 After 5 years
through
10 years		 After
10 years		 Total
Available for sale securities:                    
U.S. agency mortgage-backed securities (1)
 $35
 $3,454
 $7,846
 $9,726
 $21,061
 $93
 $3,664
 $9,498
 $9,692
 $22,947
U.S. Treasury securities 2,441
 8,386
 —
 —
 10,827
 3,194
 7,665
 —
 —
 10,859
Asset-backed securities 250
 7,844
 959
 583
 9,636
 250
 8,909
 1,006
 555
 10,720
Corporate debt securities 3,183
 3,369
 —
 —
 6,552
 2,253
 3,938
 —
 —
 6,191
Certificates of deposit 772
 1,019
 —
 —
 1,791
 672
 2,020
 —
 —
 2,692
U.S. agency notes 1,310
 247
 —
 —
 1,557
 861
 663
 —
 —
 1,524
Commercial paper 315
 —
 —
 —
 315
 505
 —
 —
 —
 505
Foreign government agency securities —
 48
 —
 —
 48
 —
 48
 —
 —
 48
Non-agency commercial mortgage-backed securities (1)
 —
 —
 —
 40
 40
 —
 —
 —
 36
 36
Total fair value $8,306
 $24,367
 $8,805
 $10,349
 $51,827
 $7,828
 $26,907
 $10,504
 $10,283
 $55,522
Total amortized cost $8,315
 $24,480
 $8,819
 $10,355
 $51,969
 $7,836
 $27,038
 $10,533
 $10,290
 $55,697
Held to maturity securities:                    
U.S. agency mortgage-backed securities (1)
 $418
 $13,032
 $30,343
 $57,879
 $101,672
 $322
 $13,730
 $31,739
 $64,463
 $110,254
Asset-backed securities —
 1,046
 7,356
 6,342
 14,744
 —
 1,083
 8,978
 6,410
 16,471
Corporate debt securities 351
 3,368
 585
 —
 4,304
 393
 3,543
 568
 —
 4,504
U.S. state and municipal securities —
 —
 173
 1,089
 1,262
 —
 —
 180
 1,077
 1,257
Non-agency commercial mortgage-backed securities (1)
 —
 355
 —
 662
 1,017
 —
 354
 —
 690
 1,044
U.S. Treasury securities —
 —
 215
 —
 215
 —
 —
 214
 —
 214
Certificates of deposit —
 200
 —
 —
 200
 —
 200
 —
 —
 200
Foreign government agency securities —
 49
 —
 —
 49
 —
 48
 —
 —
 48
Total fair value $769
 $18,050
 $38,672
 $65,972
 $123,463
 $715
 $18,958
 $41,679
 $72,640
 $133,992
Total amortized cost $771
 $18,270
 $39,171
 $67,471
 $125,683
 $716
 $19,252
 $42,448
 $74,376
 $136,792
(1) Mortgage-backed securities have been allocated to maturity groupings based on final contractual maturities. Actual maturities will differ from final contractual maturities because borrowers on a certain portion of loans underlying these securities have the right to prepay their obligations.

Proceeds and gross realized gains and losses from sales of AFS securities are as follows:
 Three Months Ended
March 31,		 Three Months Ended
June 30,		 Six Months Ended
June 30,
  
 2018 2017 2018 2017 2018 2017
Proceeds $—
 $1,064
 $115
 $4,421
 $115
 $5,485
Gross realized gains —
 1
 —
 6
 —
 7



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 Loan Losses
The composition of bank loans and delinquency analysis by loan type is as follows:
March 31, 2018Current30-59 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 loan
losses		Total
bank
loans - net
June 30, 2018Current30-59 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 loan
losses
Total
bank
loans – net
First Mortgages (1,2)
$10,041
$15
$3
$19
$37
$10,078
$17
$10,061
$10,126
$15
$2
$15
$32
$10,158
$17
$10,141
HELOCs (1,2)
1,781
4
1
10
15
1,796
7
1,789
1,686
2
1
9
12
1,698
7
1,691
Pledged asset lines4,360
1
1
—
2
4,362
—
4,362
4,558
11
1
—
12
4,570
—
4,570
Other180
—
—
—
—
180
3
177
169
—
—
—
—
169
2
167
Total bank loans$16,362
$20
$5
$29
$54
$16,416
$27
$16,389
$16,539
$28
$4
$24
$56
$16,595
$26
$16,569
  
December 31, 2017  
First Mortgages (1,2)
$9,983
$14
$2
$17
$33
$10,016
$16
$10,000
$9,983
$14
$2
$17
$33
$10,016
$16
$10,000
HELOCs (1,2)
1,928
—
3
12
15
1,943
8
1,935
1,928
—
3
12
15
1,943
8
1,935
Pledged asset lines4,361
4
4
—
8
4,369
—
4,369
4,361
4
4
—
8
4,369
—
4,369
Other176
—
—
—
—
176
2
174
176
—
—
—
—
176
2
174
Total bank loans$16,448
$18
$9
$29
$56
$16,504
$26
$16,478
$16,448
$18
$9
$29
$56
$16,504
$26
$16,478
(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $75$74 million and $77 million at March 31,June 30, 2018 and December 31, 2017, respectively.
(2) At March 31,June 30, 2018 and December 31, 2017, 47% and 48%, respectively, 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,June 30, 2018 or December 31, 2017.

At March 31,June 30, 2018, CSB had pledged $11.1 billion of First Mortgages and HELOCs as collateral to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8).

Substantially all of the bank loans were collectively evaluated for impairment at March 31,June 30, 2018 and December 31, 2017.

Changes in the allowance for loan losses were as follows:
 March 31, 2018 March 31, 2017
Three Months Ended June 30, 2018 June 30, 2017
 First Mortgages HELOCs Other 
Total (1)
 First Mortgages HELOCs Other 
Total (1)
 First Mortgages HELOCs Other 
Total (1)
 First Mortgages HELOCs Other 
Total (1)
Balance at beginning of period $16
 $8
 $2
 $26
 $17
 $8
 $1
 $26
 $17
 $7
 $3
 $27
 $17
 $8
 $1
 $26
Charge-offs —
 —
 (1) (1) (1) (1) —
 (2)
Recoveries —
 1
 —
 1
 1
 1
 —
 2
Provision for loan losses 1
 (1) 1
 1
 —
 —
 —
 —
 —
 (1) —
 (1) —
 —
 —
 —
Balance at end of period $17
 $7
 $3
 $27
 $17
 $8
 $1
 $26
 $17
 $7
 $2
 $26
 $17
 $8
 $1
 $26
Six Months Ended June 30, 2018 June 30, 2017

 First Mortgages HELOCs Other 
Total (1)
 First Mortgages HELOCs Other 
Total (1)
Balance at beginning of period $16
 $8
 $2
 $26
 $17
 $8
 $1
 $26
Charge-offs —
 —
 (1) (1) (1) (1) —
 (2)
Recoveries —
 1
 —
 1
 1
 1
 —
 2
Provision for loan losses 1
 (2) 1
 —
 —
 —
 —
 —
Balance at end of period $17
 $7
 $2
 $26
 $17
 $8
 $1
 $26
(1) All pledged asset lines (PALs) were fully collateralized by securities with fair values in excess of borrowings at March 31,June 30, 2018 and December 31, 2017.

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

A summary of impaired bank loan related assets is as follows:
 March 31, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Nonaccrual loans (1)
 $29
 $28
 $24
 $28
Other real estate owned (2)
 2
 3
 2
 3
Total nonperforming assets 31
 31
 26
 31
Troubled debt restructurings 8
 11
 6
 11
Total impaired assets $39
 $42
 $32
 $42
(1) Nonaccrual loans include nonaccrual troubled debt restructurings.
(2) Included in Otherother 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 were last updated in MarchJune 2018. 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 estimated by reference to a home price appreciation index.


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:
March 31, 2018 Balance Weighted Average
Updated FICO		 
Utilization
Rate (1)  
 Percent of
Loans that are on
Nonaccrual Status
June 30, 2018 Balance Weighted Average
Updated FICO		 
Utilization
Rate (1)  
 Percent of
Loans that are on
Nonaccrual Status
First Mortgages:                
Estimated Current LTV                
<70%
 $9,114
 778
 N/A
 0.08% $9,287
 776
 N/A
 0.06%
>70% – <90%
 955
 770
 N/A
 0.58% 865
 770
 N/A
 0.42%
>90% – <100%
 6
 713
 N/A
 6.11% 4
��696
 N/A
 8.72%
>100% 3
 738
 N/A
 7.67% 2
 729
 N/A
 10.14%
Total $10,078
 777
 N/A
 0.13% $10,158
 776
 N/A
 0.10%
HELOCs:                
Estimated Current LTV (2)
                
<70%
 $1,639
 773
 31% 0.17% $1,580
 772
 31% 0.11%
>70% – <90%
 139
 757
 45% 0.86% 105
 754
 48% 1.04%
>90% – <100%
 11
 746
 68% 1.47% 8
 741
 72% 2.39%
>100% 7
 714
 72% 8.46% 5
 714
 76% 2.03%
Total $1,796
 771
 32% 0.26% $1,698
 771
 31% 0.19%
Pledged asset lines:      
  
      
  
Weighted-Average LTV (2)
      
  
      
  
=70% $4,362
 767
 39% —
 $4,570
 766
 38% —
December 31, 2017 Balance Weighted Average
Updated FICO		 
Utilization
Rate (1)  
 Percent of
Loans that are on
Nonaccrual Status
First Mortgages:        
Estimated Current LTV        
  <70%
 $9,046
 775
 N/A 
 0.09%
  >70% – <90%
 961
 769
 N/A 
 0.46%
  >90% – <100%
 5
 714
 N/A 
 10.49%
  >100% 4
 713
 N/A 
 6.23%
Total $10,016
 775
 N/A 
 0.14%
HELOCs:        
Estimated Current LTV (2)
        
  <70%
 $1,773
 772
 32% 0.18%
  >70% – <90%
 148
 755
 47% 0.84%
  >90% – <100%
 14
 742
 64% 2.85%
  >100% 8
 718
 72% 4.91%
Total $1,943
 770
 33% 0.27%
Pledged asset lines:        
Weighted-Average LTV (2)
        
=70% $4,369
 765
 41% —
(1) The Utilization Rate is calculated using the outstanding balance divided by the associated total line of credit.
(2) Represents the LTV for the full line of credit (drawn and undrawn).
N/A Not applicable.

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

March 31, 2018 First Mortgages HELOCs
June 30, 2018 First Mortgages HELOCs
Year of origination    
    
Pre-2014 $2,570
 $1,364
 $2,313
 $1,252
2014 499
 105
 461
 99
2015 1,167
 115
 1,121
 113
2016 2,813
 101
 2,734
 101
2017 2,556
 97
 2,484
 101
2018 473
 14
 1,045
 32
Total $10,078
 $1,796
 $10,158
 $1,698
Origination FICO  
  
  
  
<620 $6
 $1
 $5
 $—
620 – 679 90
 9
 84
 9
680 – 739 1,564
 339
 1,574
 321
>740
 8,418
 1,447
 8,495
 1,368
Total $10,078
 $1,796
 $10,158
 $1,698
Origination LTV        
<70%
 $7,627
 $1,257
 $7,677
 $1,194
>70% – <90%
 2,445
 530
 2,476
 496
>90% – <100%
 6
 9
 5
 8
Total $10,078
 $1,796
 $10,158
 $1,698

December 31, 2017 First Mortgages HELOCs
Year of origination    
Pre-2014 $2,804
 $1,496
2014 530
 116
2015 1,218
 128
2016 2,886
 111
2017 2,578
 92
Total $10,016
 $1,943
Origination FICO  
  
  <620 $6
 $1
620 – 679 89
 10
680 – 739 1,569
 365
  >740
 8,352
 1,567
Total $10,016
 $1,943
Origination LTV  
  
  <70%
 $7,569
 $1,360
  >70% – <90%
 2,441
 574
  >90% – <100%
 6
 9
Total $10,016
 $1,943
At March 31,June 30, 2018, First Mortgage loans of $9.1$9.2 billion had adjustable interest rates. These mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 33%32% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 60%63% 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.

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

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. HELOCs that convert to an amortizing loan may experience higher delinquencies, and higher loss rates, than those in the initial draw period. The allowance for loan loss methodology takes this increased inherent risk into consideration. 
The following table presents when current outstanding HELOCs will convert to amortizing loans:
March 31, 2018 Balance
June 30, 2018 Balance
Converted to an amortizing loan by period end $451
 $537
Within 1 year 495
 342
> 1 year – 3 years 168
 152
> 3 years – 5 years 145
 155
> 5 years 537
 512
Total $1,796
 $1,698
At March 31,June 30, 2018, $1.4 billion 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,June 30, 2018, the borrowers on approximately 36%49% of HELOC loan balances outstanding only paid the minimum amount due.


6.    Variable Interest Entities
As of March 31,June 30, 2018 and December 31, 2017, all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s Community Reinvestment Act-related investments and most of those related to LIHTCLow-Income Housing Tax Credit (LIHTC) investments. As part of CSB’s community reinvestment initiatives, CSB invests with other institutional investors in funds that make equity investments in multifamily affordable housing properties. CSB receives tax credits and other tax benefits for these investments. CSB’s LIHTC investments are accounted for using the proportional amortization method, which amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is included in taxes on income on the consolidated statements of income.
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 as to which we have concluded it is not the primary beneficiary, are summarized in the table below:
 March 31, 2018 December 31, 2017 June 30, 2018 December 31, 2017
 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss		 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss		 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss		 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss
LIHTC investments (1)
 $340
 $217
 $340
 $304
 $203
 $304
 $339
 $208
 $339
 $304
 $203
 $304
Other CRA investments (2)
 67
 —
 122
 69
 —
 125
 68
 —
 119
 69
 —
 125
Total $407
 $217
 $462
 $373
 $203
 $429
 $407
 $208
 $458
 $373
 $203
 $429
(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 CRA investments are recorded using either the adjusted cost method, equity method, or as HTM securities. Aggregate assets are included in other assets, HTM securities, or bank loans – net on the condensed consolidated balance sheets.






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

Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. During the threesix months ended March 31,June 30, 2018 and 2017, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide. CSB’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and CSB expects to pay substantially all of these commitments between 2018 and 2021.


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, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Interest-bearing deposits:        
Deposits swept from brokerage accounts $168,854
 $148,212
 $179,874
 $148,212
Checking 13,530
 13,388
 12,601
 13,388
Savings and other 6,925
 7,264
 6,825
 7,264
Total interest-bearing deposits 189,309
 168,864
 199,300
 168,864
Non-interest-bearing deposits 875
 792
 622
 792
Total bank deposits $190,184
 $169,656
 $199,922
 $169,656


8.    Borrowings

CSC’s Senior Notes are unsecured obligations and rank equally with the other unsecured senior debt. 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. The following table lists long-term debt by instrument outstanding as of March 31,June 30, 2018 and December 31, 2017.
 Date of Issuance Principal Amount OutstandingDate ofPrincipal Amount Outstanding
 March 31, 2018December 31, 2017IssuanceJune 30, 2018December 31, 2017
Fixed-rate Senior Notes:    
1.500% due March 10, 2018 (1)
 03/10/15 $—
$625
03/10/15$—
$625
2.200% due July 25, 2018(2) 07/25/13 275
275
07/25/13—
275
4.450% due July 22, 2020 07/22/10 700
700
07/22/10700
700
3.250% due May 21, 202105/22/18600
—
3.225% due September 1, 2022 08/29/12 256
256
08/29/12256
256
2.650% due January 25, 2023 12/07/17 800
800
12/07/17800
800
3.000% due March 10, 2025 03/10/15 375
375
03/10/15375
375
3.850% due May 21, 202505/22/18750
—
3.450% due February 13, 2026 11/13/15 350
350
11/13/15350
350
3.200% due March 2, 2027 03/02/17 650
650
03/02/17650
650
3.200% due January 25, 2028 12/07/17 700
700
12/07/17700
700
Total fixed-rate Senior Notes 4,106
4,731
5.450% Finance lease obligation (2)
 06/04/04 59
61
Floating-rate Senior Notes:  
Three-month LIBOR + 0.32% due May 21, 202105/22/18600
—
Total Senior Notes 5,781
4,731
5.450% Finance lease obligation (3)
06/04/0457
61
Unamortized discount — net (14)(14) (14)(14)
Debt issuance costs (23)(25) (35)(25)
Total long-term debt $4,128
$4,753
 $5,789
$4,753
(1) Redeemed on February 8, 2018.
(2)Redeemed on June 25, 2018.
(3) Schwab has a finance lease obligation related to an office building and land under a 20-year lease. The remaining finance lease obligation is being reduced by a portion of the lease payments over the remaining lease term through June 30, 2024.


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 long-term debt outstanding at March 31,June 30, 2018 are as follows:
Maturities
2018$281
$4
20198
8
2020709
709
20219
1,209
2022266
266
Thereafter2,892
3,642
Total maturities4,165
5,838
Unamortized discount — net(14)(14)
Debt issuance costs(23)(35)
Total long-term debt$4,128
$5,789
Short-term borrowings: CSB maintains a secured credit facility with the FHLB. Amounts available under this facility are dependent on the value of CSB’s First Mortgages, HELOCs, and the fair value of certain of CSB’s investment securities that are pledged as collateral. As of March 31,June 30, 2018, the collateral pledged by CSB provided a total borrowing capacity of $31.4$30.3 billion of which no amounts were outstanding. As of December 31, 2017, the collateral pledged by CSB provided a total borrowing capacity of $32.3 billion, of which $15.0 billion, was outstanding.
As a condition of the FHLB borrowings, CSB is required to hold FHLB stock, with the investmentwhich was recorded in other assets on the condensed consolidated balance sheets. The investment in FHLB was $233$17 million at March 31,June 30, 2018 and $405 million at December 31, 2017.


9.    Commitments and Contingencies

Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Quicken Loans, Inc. (Quicken Loans®). Pursuant to the Program, Quicken Loans originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. CSB purchased First Mortgages of $513$594 million and $665$683 million during the second quarters of 2018 and 2017, respectively, and $1.1 billion and $1.3 billion during the first quarterssix months of 2018 and 2017, respectively. Schwab purchased HELOCs with commitments of $107$100 million and $118$111 million during the second quarters of 2018 and 2017, respectively, and $207 million and $229 million during the first quarterssix months of 2018 and 2017, respectively.
The Company’s commitments to extend credit on bank lines of credit and to purchase First Mortgages are as follows:
March 31, 2018 December 31, 2017
June 30, 2018 December 31, 2017
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit$10,555
 $10,060
$10,726
 $10,060
Commitments to purchase First Mortgage loans377
 308
309
 308
Total$10,932
 $10,368
$11,035
 $10,368
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 partially satisfy the margin requirements by arranging unsecured standby letter of credit agreements (LOCs), in favor of the Options Clearing Corporation, which are issued by several banks. At March 31,June 30, 2018, the aggregate face amount of these LOCs totaled $225 million. There were no funds drawn under any of these LOCs at March 31,June 30, 2018. 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.
Schwab 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. Schwab’s liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. The

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

liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. The potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees.
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; potential opportunities for settlement and the status of any settlement discussions; and potential insurance coverage and indemnification. 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 certain 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.

Total Bond Market Fund Litigation: On August 28, 2008, a class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of investors in the Schwab Total Bond Market Fund™. The lawsuit, which alleged violations of state law and federal securities law in connection with the fund’s investment policy, named CSIM, Schwab Investments (registrant and issuer of the fund’s shares), and certain current and former fund trustees as defendants. Allegations include that the fund improperly deviated from its stated investment objectives by investing in collateralized mortgage obligations (CMOs) and investing more than 25% of fund assets in CMOs and mortgage-backed securities without obtaining a fundholder vote. Plaintiff seeks unspecified compensatory and rescission damages, unspecified equitable and injunctive relief, costs, and attorneys’ fees on behalf of a putative class of investors who held shares as of August 31, 2007, and a putative class of investors who purchased the shares between September 1, 2017 and February 27, 2009. Plaintiff’s federal securities law claim and certain of plaintiff’s state law claims were dismissed. On August 8, 2011, the court dismissed plaintiff’s remaining claims with prejudice. Plaintiff appealed to the Ninth Circuit, which issued a ruling on March 9, 2015 reversing the district court’s dismissal of the case and remanding the case for further proceedings. Plaintiff filed a fourth amended complaint on June 25, 2015, and in decisions issued October 6, 2015 and February 23, 2016, the court dismissed all claims with prejudice. Plaintiff has appealed to the Ninth Circuit, where the case remains pending.

Crago Order Routing Litigation: On July 13, 2016, a securities class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of a putative class of customers executing equity orders through CS&Co. The lawsuit names CS&Co and CSC as defendants and alleges that an agreement under which CS&Co routed orders to UBS Securities LLC between July 13, 2011 and December 31, 2014 violated CS&Co’s duty to seek best execution. Plaintiffs seek unspecified damages, interest, injunctive and equitable relief, and attorneys’ fees and costs. 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. Defendants have answered the complaint to deny all allegations, and intend to vigorously contest the lawsuit.




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

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

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, it would be required to deposit cash and/or securities of an equal amount into its segregated reserve bank accounts in order to meet its segregated cash and investment requirement. Schwab’s resale agreements are 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. 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 $237$472 million and $215 million at March 31,June 30, 2018 and December 31, 2017, respectively. All of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us and is 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.

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 resale agreements and securities lending activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities at March 31,June 30, 2018 and December 31, 2017.

       Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets		         Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets		  
 Gross
Assets/
Liabilities		 Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets		 Net Amounts
Presented in the
Condensed
Consolidated
Balance Sheets		 Counterparty
Offsetting		 Collateral Net
Amount		 Gross
Assets/
Liabilities		 Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets		 Net Amounts
Presented in the
Condensed
Consolidated
Balance Sheets		 Counterparty
Offsetting		 Collateral Net
Amount
March 31, 2018            
June 30, 2018            
Assets:                        
Resale agreements (1)
 $4,434
 $—
 $4,434
 $—
 $(4,434)
(2) 
 $—
 $5,391
 $—
 $5,391
 $—
 $(5,391)
(2) 
 $—
Securities borrowed (3)
 241
 —
 241
 (172) (68) 1
 484
 —
 484
 (362) (119) 3
Total $4,675
 $—
 $4,675
 $(172) $(4,502) $1
 $5,875
 $—
 $5,875
 $(362) $(5,510) $3
Liabilities:                        
Securities loaned (4,5)
 $800
 $—
 $800
 $(172) $(558) $70
 $946
 $—
 $946
 $(362) $(492) $92
Total $800
 $—
 $800
 $(172) $(558) $70
 $946
 $—
 $946
 $(362) $(492) $92
                        
December 31, 2017                        
Assets:                        
Resale agreements (1)
 $6,596
 $—
 $6,596
 $—
 $(6,596)
(2) 
 $—
 $6,596
 $—
 $6,596
 $—
 $(6,596)
(2) 
 $—
Securities borrowed (3)
 222
 —
 222
 (199) (22) 1
 222
 —
 222
 (199) (22) 1
Total $6,818
 $—
 $6,818
 $(199) $(6,618) $1
 $6,818
 $—
 $6,818
 $(199) $(6,618) $1
Liabilities:                        
Securities loaned (4,5)
 $966
 $—
 $966
 $(199) $(670) $97
 $966
 $—
 $966
 $(199) $(670) $97
Total $966
 $—
 $966
 $(199) $(670) $97
 $966
 $—
 $966
 $(199) $(670) $97
(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 102% of the related assets. At March 31,June 30, 2018 and December 31, 2017, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $4.5$5.5 billion and $6.7 billion, respectively.
(3) Included in receivables from brokers, dealers, and clearing organizations in the condensed consolidated balance sheets.
(4) Included in payables to brokers, dealers, and clearing organizations in the condensed consolidated balance sheets. 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,June 30, 2018 and December 31, 2017.
(5) Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities.


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, and the amounts that we had pledged:
 March 31, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Fair value of client securities available to be pledgedFair value of client securities available to be pledged $27,296
 $25,905
Fair value of client securities available to be pledged $28,511
 $25,905
Fair value of client securities pledged for: Fair value of client securities pledged for:     Fair value of client securities pledged for:    
Fulfillment of requirements with the Options Clearing Corporation (1)
Fulfillment of requirements with the Options Clearing Corporation (1)
 3,368
 2,280
Fulfillment of requirements with the Options Clearing Corporation (1)
 2,921
 2,280
Fulfillment of client short sales Fulfillment of client short sales 1,713
 2,011
 Fulfillment of client short sales 1,831
 2,011
Securities lending to other broker-dealers Securities lending to other broker-dealers 653
 784
 Securities lending to other broker-dealers 741
 784
Total collateral pledged Total collateral pledged $5,734
 $5,075
 Total collateral pledged $5,493
 $5,075
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 $74$104 million as of March 31,June 30, 2018 and $78 million as of December 31, 2017.
(1)  
Client securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.



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

11.    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, other securities owned, and AFS securities. 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. 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 do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. We generally obtain prices from at least three independent pricing sources for assets recorded at fair value.

Our primary independent pricing service provides prices based on observable trades 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 sources 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 a material difference in the recorded amounts.

For a description of the fair value hierarchy and Schwab’s fair value methodologies, including the use of independent third-party pricing services, see Note 2 in the 2017 Form 10-K. We did not transfer any assets or liabilities between Level 1, Level 2, or Level 3 during the threesix months ended March 31,June 30, 2018, or the year ended December 31, 2017. In addition, the Company did not adjust prices received from the primary independent third-party pricing service at March 31,June 30, 2018 or December 31, 2017.




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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets measured at fair value on a recurring basis. Liabilities recorded at fair value were not material, and therefore are not included in the following tables:
March 31, 2018 Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)		 Significant
Other Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)		 Balance at
Fair Value
June 30, 2018 Level 1 Level 2 Level 3 Balance at
Fair Value
Cash equivalents:                
Money market funds $1,049
 $—
 $—
 $1,049
 $1,103
 $—
 $—
 $1,103
Commercial paper —
 210
 —
 210
Total cash equivalents 1,049
 —
 —
 1,049
 1,103
 210
 —
 1,313
Investments segregated and on deposit for regulatory purposes:  
  
  
    
  
  
  
Certificates of deposit —
 2,147
 —
 2,147
 —
 1,999
 —
 1,999
U.S. Government securities —
 3,661
 —
 3,661
 —
 1,532
 —
 1,532
Total investments segregated and on deposit for regulatory purposes —
 5,808
 —
 5,808
 —
 3,531
 —
 3,531
Other securities owned:  
  
  
    
  
  
  
Equity and bond mutual funds 371
 —
 —
 371
 399
 —
 —
 399
Schwab Funds® money market funds
 59
 —
 —
 59
 42
 —
 —
 42
State and municipal debt obligations —
 36
 —
 36
 —
 42
 —
 42
Equity, U.S. Government and corporate debt, and other securities 2
 32
 —
 34
 3
 39
 —
 42
Total other securities owned 432
 68
 —
 500
 444
 81
 —
 525
Available for sale securities:  
  
  
    
  
  
  
U.S. agency mortgage-backed securities —
 21,061
 —
 21,061
 —
 22,947
 —
 22,947
U.S. Treasury securities —
 10,827
 —
 10,827
 —
 10,859
 —
 10,859
Asset-backed securities —
 9,636
 —
 9,636
 —
 10,720
 —
 10,720
Corporate debt securities —
 6,552
 —
 6,552
 —
 6,191
 —
 6,191
Certificates of deposit —
 1,791
 —
 1,791
 —
 2,692
 —
 2,692
U.S. agency notes —
 1,557
 —
 1,557
 —
 1,524
 —
 1,524
Commercial paper —
 315
 —
 315
 —
 505
 —
 505
Foreign government agency securities —
 48
 —
 48
 —
 48
 —
 48
Non-agency commercial mortgage-backed securities —
 40
 —
 40
 —
 36
 —
 36
Total available for sale securities —
 51,827
 —
 51,827
 —
 55,522
 —
 55,522
Total $1,481
 $57,703
 $—
 $59,184
 $1,547
 $59,344
 $—
 $60,891

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

December 31, 2017 Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)		 Significant
Other Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)		 Balance at
Fair Value		 Level 1 Level 2 Level 3 Balance at
Fair Value
Cash equivalents:                
Money market funds $2,727
 $—
 $—
 $2,727
 $2,727
 $—
 $—
 $2,727
Total cash equivalents 2,727
 —
 —
 2,727
 2,727
 —
 —
 2,727
Investments segregated and on deposit for regulatory purposes:                
Certificates of deposit —
 2,198
 —
 2,198
 —
 2,198
 —
 2,198
U.S. Government securities —
 3,658
 —
 3,658
 —
 3,658
 —
 3,658
Total investments segregated and on deposit for regulatory purposes —
 5,856
 —
 5,856
 —
 5,856
 —
 5,856
Other securities owned:  
        
      
Equity and bond mutual funds 318
 —
 —
 318
 318
 —
 —
 318
Schwab Funds® money market funds
 135
 —
 —
 135
 135
 —
 —
 135
State and municipal debt obligations —
 52
 —
 52
 —
 52
 —
 52
Equity, U.S. Government and corporate debt, and other securities 2
 32
 —
 34
 2
 32
 —
 34
Total other securities owned 455
 84
 —
 539
 455
 84
 —
 539
Available for sale securities:                
U.S. agency mortgage-backed securities —
 20,929
 —
 20,929
 —
 20,929
 —
 20,929
U.S. Treasury securities —
 9,500
 —
 9,500
 —
 9,500
 —
 9,500
Asset-backed securities —
 9,047
 —
 9,047
 —
 9,047
 —
 9,047
Corporate debt securities —
 6,169
 —
 6,169
 —
 6,169
 —
 6,169
Certificates of deposit —
 2,041
 —
 2,041
 —
 2,041
 —
 2,041
U.S. agency notes —
 1,906
 —
 1,906
 —
 1,906
 —
 1,906
Commercial paper —
 313
 —
 313
 —
 313
 —
 313
Foreign government agency securities —
 50
 —
 50
 —
 50
 —
 50
Non-agency commercial mortgage-backed securities —
 40
 —
 40
 —
 40
 —
 40
Total available for sale securities —
 49,995
 —
 49,995
 —
 49,995
 —
 49,995
Total $3,182
 $55,935
 $—
 $59,117
 $3,182
 $55,935
 $—
 $59,117
 

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, 2018 Carrying
Amount		 Quoted Prices
in Active Markets for Identical
Assets
(Level 1)		 Significant
Other Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)		 Balance at
Fair Value
June 30, 2018 Carrying
Amount		 Level 1 Level 2 Level 3 Balance at
Fair Value
Assets:                    
Cash and cash equivalents $13,096
 $—
 $13,096
 $—
 $13,096
 $11,937
 $—
 $11,937
 $—
 $11,937
Cash and investments segregated and on deposit for regulatory purposes 7,002
 —
 7,002
 —
 7,002
 7,469
 —
 7,469
 —
 7,469
Receivables from brokers, dealers, and clearing organizations 894
 —
 894
 —
 894
 1,025
 —
 1,025
 —
 1,025
Receivables from brokerage clients — net
 21,144
 —
 21,144
 —
 21,144
 22,344
 —
 22,344
 —
 22,344
Held to maturity securities:                    
U.S. agency mortgage-backed securities 103,967
 —
 101,672
 —
 101,672
 113,106
 —
 110,254
 —
 110,254
Asset-backed securities 14,625
 —
 14,744
 —
 14,744
 16,356
 —
 16,471
 —
 16,471
Corporate debt securities 4,340
 —
 4,304
 —
 4,304
 4,550
 —
 4,504
 —
 4,504
U.S. state and municipal securities 1,245
 —
 1,262
 —
 1,262
 1,242
 —
 1,257
 —
 1,257
Non-agency commercial mortgage-backed securities 1,033
 —
 1,017
 —
 1,017
 1,065
 —
 1,044
 —
 1,044
U.S. Treasury securities 223
 —
 215
 —
 215
 223
 —
 214
 —
 214
Certificates of deposit 200
 —
 200
 —
 200
 200
 —
 200
 —
 200
Foreign government agency securities 50
 —
 49
 —
 49
 50
 —
 48
 —
 48
Total held to maturity securities 125,683
 —
 123,463
 —
 123,463
 136,792
 —
 133,992
 —
 133,992
Bank loans — net:
                    
First Mortgages 10,061
 —
 9,865
 —
 9,865
 10,141
 —
 9,915
 —
 9,915
HELOCs 1,789
 —
 1,834
 —
 1,834
 1,691
 —
 1,758
 —
 1,758
Pledged asset lines 4,362
 —
 4,362
 —
 4,362
 4,570
 —
 4,570
 —
 4,570
Other 177
 —
 177
 —
 177
 167
 —
 167
 —
 167
Total bank loans — net
 16,389
 —
 16,238
 —
 16,238
 16,569
 —
 16,410
 —
 16,410
Other assets 656
 —
 656
 —
 656
 441
 —
 441
 —
 441
Total $184,864
 $—
 $182,493
 $—
 $182,493
 $196,577
 $—
 $193,618
 $—
 $193,618
Liabilities:                    
Bank deposits $190,184
 $—
 $190,184
 $—
 $190,184
 $199,922
 $—
 $199,922
 $—
 $199,922
Payables to brokers, dealers, and clearing organizations 1,122
 —
 1,122
 —
 1,122
 3,319
 —
 3,319
 —
 3,319
Payables to brokerage clients 31,088
 —
 31,088
 —
 31,088
 30,347
 —
 30,347
 —
 30,347
Accrued expenses and other liabilities 1,173
 —
 1,173
 —
 1,173
 1,110
 —
 1,110
 —
 1,110
Long-term debt 4,128
 —
 4,077
 —
 4,077
 5,789
 —
 5,718
 —
 5,718
Total $227,695
 $—
 $227,644
 $—
 $227,644
 $240,487
 $—
 $240,416
 $—
 $240,416


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

December 31, 2017 Carrying
Amount		 Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)		 Significant
Other Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)		 Balance at
Fair Value		 Carrying
Amount		 Level 1 Level 2 Level 3 Balance at
Fair Value
Assets:                    
Cash and cash equivalents $11,490
 $—
 $11,490
 $—
 $11,490
 $11,490
 $—
 $11,490
 $—
 $11,490
Cash and investments segregated and on deposit for regulatory purposes 9,277
 —
 9,277
 —
 9,277
 9,277
 —
 9,277
 —
 9,277
Receivables from brokers, dealers, and clearing organizations 649
 —
 649
 —
 649
 649
 —
 649
 —
 649
Receivables from brokerage clients — net
 20,568
 —
 20,568
 —
 20,568
 20,568
 —
 20,568
 —
 20,568
Held to maturity securities:                    
U.S. agency mortgage-backed securities 101,197
 —
 100,453
 —
 100,453
 101,197
 —
 100,453
 —
 100,453
Asset-backed securities 12,937
 —
 13,062
 —
 13,062
 12,937
 —
 13,062
 —
 13,062
Corporate debt securities 4,078
 —
 4,086
 —
 4,086
 4,078
 —
 4,086
 —
 4,086
U.S. state and municipal securities 1,247
 —
 1,304
 —
 1,304
 1,247
 —
 1,304
 —
 1,304
Non-agency commercial mortgage-backed securities 994
 —
 999
 —
 999
 994
 —
 999
 —
 999
U.S. Treasury securities 223
 —
 220
 —
 220
 223
 —
 220
 —
 220
Certificates of deposit 200
 —
 200
 —
 200
 200
 —
 200
 —
 200
Foreign government agency securities 50
 —
 49
 —
 49
 50
 —
 49
 —
 49
Total held to maturity securities 120,926
 —
 120,373
 —
 120,373
 120,926
 —
 120,373
 —
 120,373
Bank loans — net:
                    
First Mortgages 10,000
 —
 9,917
 —
 9,917
 10,000
 —
 9,917
 —
 9,917
HELOCs 1,935
 —
 2,025
 —
 2,025
 1,935
 —
 2,025
 —
 2,025
Pledged asset lines 4,369
 —
 4,369
 —
 4,369
 4,369
 —
 4,369
 —
 4,369
Other 174
 —
 174
 —
 174
 174
 —
 174
 —
 174
Total bank loans — net
 16,478
 —
 16,485
 —
 16,485
 16,478
 —
 16,485
 —
 16,485
Other assets 781
 —
 781
 —
 781
 781
 —
 781
 —
 781
Total $180,169
 $—
 $179,623
 $—
 $179,623
 $180,169
 $—
 $179,623
 $—
 $179,623
Liabilities:                    
Bank deposits $169,656
 $—
 $169,656
 $—
 $169,656
 $169,656
 $—
 $169,656
 $—
 $169,656
Payables to brokers, dealers, and clearing organizations 1,287
 —
 1,287
 —
 1,287
 1,287
 —
 1,287
 —
 1,287
Payables to brokerage clients 31,243
 —
 31,243
 —
 31,243
 31,243
 —
 31,243
 —
 31,243
Accrued expenses and other liabilities 1,463
 —
 1,463
 —
 1,463
 1,463
 —
 1,463
 —
 1,463
Short-term borrowings 15,000
 —
 15,000
 —
 15,000
 15,000
 —
 15,000
 —
 15,000
Long-term debt 4,753
 —
 4,811
 —
 4,811
 4,753
 —
 4,811
 —
 4,811
Total $223,402
 $—
 $223,460
 $—
 $223,460
 $223,402
 $—
 $223,460
 $—
 $223,460



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

12.    Stockholders’ Equity
The Company’s preferred stock issued and outstanding is as follows:
Shares Issued and Outstanding (In thousands) atLiquidation Preference Per ShareCarrying Value at Dividend Rate in Effect at March 31, 2018Earliest Redemption DateDate at Which Dividend Rate Becomes FloatingFloating Annual Rate of Three-Month LIBOR plus:Shares Issued and Outstanding (In thousands) atLiquidation Preference Per ShareCarrying Value at Dividend Rate in Effect at June 30, 2018Earliest Redemption DateDate at Which Dividend Rate Becomes FloatingFloating Annual Rate of Three-Month LIBOR plus:
March 31, 2018 (1)
December 31, 2017 (1)
March 31, 2018December 31, 2017Issue Date
June 30, 2018 (1)
December 31, 2017 (1)
June 30, 2018December 31, 2017Issue Date
Fixed-rate:            
Series C600
600
$1,000
$585
$585
08/03/156.000%12/01/20N/AN/A
600
600
$1,000
$585
$585
08/03/156.000%12/01/20N/AN/A
Series D750
750
1,000
728
728
03/07/165.950%06/01/21N/AN/A
750
750
1,000
728
728
03/07/165.950%06/01/21N/AN/A
Fixed-to-floating-rate:            
Series A400
400
1,000
397
397
01/26/127.000%02/01/224.820%400
400
1,000
397
397
01/26/127.000%02/01/224.820%
Series E6
6
100,000
591
591
10/31/164.625%03/01/223.315%6
6
100,000
591
591
10/31/164.625%03/01/223.315%
Series F5
5
100,000
492
492
10/31/175.000%12/01/2712/01/272.575%5
5
100,000
492
492
10/31/175.000%12/01/2712/01/272.575%
Total preferred stock1,761
1,761


$2,793
$2,793
     1,761
1,761


$2,793
$2,793
     
(1) Represented by depositary shares, except for Series A.
N/A Not applicable.


13.    Accumulated Other Comprehensive Income
Accumulated other comprehensive income (AOCI) represents cumulative gains and losses that are not reflected in earnings. The components of other comprehensive income (loss) are as follows:
Three Months Ended March 31,2018 2017
Before
Tax		 Tax
Effect		 Net of
Tax		 Before
Tax		 Tax
Effect		 Net of
Tax		2018 2017
Three Months Ended June 30,Before
Tax		 Tax
Effect		 Net of
Tax		 Before
Tax		 Tax
Effect		 Net of
Tax
Change in net unrealized gain (loss) on available for sale securities: 
  
  
  
  
  
 
  
  
  
  
  
Net unrealized gain (loss)$(108) $26
 $(82) $52
 $(19) $33
$(33) $8
 $(25) $29
 $(11) $18
Reclassification of net unrealized loss on securities transferred to held to maturity (1)
—
 —
 —
 227
 (85) 142
Other reclassifications included in other revenue—
 —
 —
 (1) —
 (1)—
 —
 —
 (6) 3
 (3)
Change in net unrealized gain (loss) on held to maturity securities:                      
Reclassification of net unrealized loss on securities transferred from available for sale (1)
—
 —
 —
 (227) 85
 (142)
Amortization of amounts previously recorded upon transfer from available for sale9
 (2) 7
 2
 (1) 1
9
 (2) 7
 9
 (4) 5
Other—
 —
 —
 (3) 1
 (2)
Other comprehensive income (loss)$(99) $24
 $(75) $50
 $(19) $31
$(24) $6
 $(18) $32
 $(12) $20

 2018 2017
Six Months Ended June 30,Before
Tax		 Tax
Effect		 Net of
Tax		 Before
Tax		 Tax
Effect		 Net of
Tax
Change in net unrealized gain (loss) on available for sale securities: 
  
  
  
  
  
Net unrealized gain (loss)$(141) $34
 $(107) $81
 $(30) $51
Reclassification of net unrealized loss on securities transferred to held to maturity (1)
—
 —
 —
 227
 (85) 142
Other reclassifications included in other revenue—
 —
 —
 (7) 3
 (4)
Change in net unrealized gain (loss) on held to maturity securities:           
Reclassification of net unrealized loss on securities transferred from available for sale (1)
—
 —
 —
 (227) 85
 (142)
Amortization of amounts previously recorded upon transfer from available for sale18
 (4) 14
 11
 (5) 6
Other—
 —
 —
 (3) 1
 (2)
Other comprehensive income (loss)$(123) $30
 $(93) $82
 $(31) $51
(1) See Note 5 in the 2017 10-K for discussion of the transfer of securities from the AFS category to the HTM category during the first quarter of 2017.

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

AOCI balances are as follows:

 Total
Accumulated Other
Comprehensive Income		 Total Accumulated Other Comprehensive Income
Balance at December 31, 2016 $(163) $(163)
Available for sale securities:    
Net unrealized gain (loss) 33
 51
Reclassification of net unrealized loss on securities transferred to held to maturity 142
 142
Other reclassifications included in other revenue (1) (4)
Held to maturity securities:    
Reclassification of net unrealized loss on securities transferred from available for sale (142) (142)
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 1
 6
Other (2) (2)
Balance at March 31, 2017 $(132)
Balance at June 30, 2017 $(112)
    
Balance at December 31, 2017 $(152) $(152)
Adoption of accounting standards (Note 2) (33) (33)
Available for sale securities:    
Net unrealized gain (loss) (82) (107)
Held to maturity securities:    
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 7
 14
Balance at March 31, 2018 $(260)
Balance at June 30, 2018 $(278)


14.    Taxes on Income
On December 22, 2017, the Tax Act was signed into law. Among other things, the Tax Act lowered the federal corporate income tax rate from 35% to 21%, effective for tax years including or commencing January 1, 2018. In connection with our initial analysis of the impact of the Tax Act, Schwab’s effective tax rate for the three and six months ended March 31,June 30, 2018 was 21.9%23.4% and 22.7%, respectively, compared to 33.1%36.7% and 35.0% for the same period inthree and six months ended June 30, 2017, respectively, resulting from the impact of the Tax Act of 2017.

Also as a result of the Tax Act, Schwab recognized a $46 million one-time non-cash charge to taxes on income in the fourth quarter of 2017 associated with the remeasurement of net deferred tax assets and other tax adjustments related to the Tax Act. While we were able to make a reasonable estimate of the impact of the reduction in the corporate tax rate in the fourth quarter of 2017, our accounting for various elements of the Tax Act may be affected by clarifications of the Tax Act and other related analysis.

During the second quarter of 2018, Schwab concluded its analysis including, but not limited to,of the effect of bonus depreciation that will allowallows for immediate expensing of qualified property andrelated to the Tax Act. The impact of the true-up adjustment from this analysis was determined to be immaterial. We are continuing to gather additional information to complete the accounting for the remaining estimated items, including the state tax effect of adjustments made to federal temporary differences.differences, and expect to complete the accounting within the prescribed measurement period. As such, the impact of the Tax Act is an estimate pending further information and the analysis noted.

Schwab did not record any material measurement-period adjustments related to the Tax Act during the first quarter of 2018. We are continuing to gather additional information to complete the accounting for estimated items and expect to complete the accounting within the prescribed measurement period. As of January 1, 2018, Schwab adopted new accounting guidance that decreased AOCI and increased retained earnings by $33 million for the reclassification of certain impacts of the Tax Act as described in Note 2.



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

15.    Earnings Per Common Share

EPS under the basic and diluted computations is as follows:
 Three Months Ended
March 31,		 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017 2018 2017
Net income $783
 $564
 $866
 $575
 $1,649
 $1,139
Preferred stock dividends and other (1)
 (37) (39) (53) (45) (90) (84)
Net income available to common stockholders $746
 $525
 $813
 $530
 $1,559
 $1,055
Weighted-average common shares outstanding — basic 1,347
 1,336
 1,350
 1,338
 1,349
 1,337
Common stock equivalent shares related to stock incentive plans 15
 15
 14
 13
 14
 14
Weighted-average common shares outstanding — diluted (2)
 1,362
 1,351
 1,364
 1,351
 1,363
 1,351
Basic EPS $.55
 $.39
 $.60
 $.40
 $1.16
 $.79
Diluted EPS $.55
 $.39
 $.60
 $.39
 $1.14
 $.78
(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 1110 million and 9 million shares for the second quarters of 2018 and 2017, respectively, and 12 million and 10 million shares for the first quarterssix months of 2018 and 2017, respectively.



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

16.    Regulatory Requirements

At March 31,June 30, 2018, Schwab and CSB met all of their respective capital requirements. The regulatory capital and ratios for CSC (consolidated) and CSB are as follows:
 Actual Minimum to be
Well Capitalized		 Minimum Capital Requirement Actual Minimum to be
Well Capitalized		 Minimum Capital Requirement
March 31, 2018 Amount Ratio Amount Ratio Amount Ratio
June 30, 2018 Amount Ratio Amount Ratio Amount Ratio
CSC                        
Common Equity Tier 1 Risk-Based Capital $15,535
 19.8% N/A
   $3,537
 4.5% $16,328
 19.3% N/A
   $3,813
 4.5%
Tier 1 Risk-Based Capital 18,328
 23.3% N/A
   4,717
 6.0% 19,121
 22.6% N/A
   5,083
 6.0%
Total Risk-Based Capital 18,372
 23.4% N/A
   6,289
 8.0% 19,149
 22.6% N/A
   6,778
 8.0%
Tier 1 Leverage 18,328
 7.5% N/A
   9,832
 4.0% 19,121
 7.6% N/A
   10,049
 4.0%
CSB                        
Common Equity Tier 1 Risk-Based Capital $14,093
 20.7% $4,435
 6.5% $3,070
 4.5% $14,599
 20.1% $4,725
 6.5% $3,271
 4.5%
Tier 1 Risk-Based Capital 14,093
 20.7% 5,458
 8.0% 4,094
 6.0% 14,599
 20.1% 5,815
 8.0% 4,362
 6.0%
Total Risk-Based Capital 14,121
 20.7% 6,823
 10.0% 5,458
 8.0% 14,626
 20.1% 7,269
 10.0% 5,815
 8.0%
Tier 1 Leverage 14,093
 7.0% 10,133
 5.0% 8,107
 4.0% 14,599
 7.2% 10,136
 5.0% 8,108
 4.0%
                        
December 31, 2017                        
CSC                        
Common Equity Tier 1 Risk-Based Capital $14,630
 19.3% N/A
   $3,414
 4.5% $14,630
 19.3% N/A
   $3,414
 4.5%
Tier 1 Risk-Based Capital 17,423
 23.0% N/A
   4,552
 6.0% 17,423
 23.0% N/A
   4,552
 6.0%
Total Risk-Based Capital 17,452
 23.0% N/A
   6,069
 8.0% 17,452
 23.0% N/A
   6,069
 8.0%
Tier 1 Leverage 17,423
 7.6% N/A
   9,218
 4.0% 17,423
 7.6% N/A
   9,218
 4.0%
CSB                        
Common Equity Tier 1 Risk-Based Capital $13,355
 20.1% $4,324
 6.5% $2,993
 4.5% $13,355
 20.1% $4,324
 6.5% $2,993
 4.5%
Tier 1 Risk-Based Capital 13,355
 20.1% 5,321
 8.0% 3,991
 6.0% 13,355
 20.1% 5,321
 8.0% 3,991
 6.0%
Total Risk-Based Capital 13,382
 20.1% 6,652
 10.0% 5,321
 8.0% 13,382
 20.1% 6,652
 10.0% 5,321
 8.0%
Tier 1 Leverage 13,355
 7.1% 9,462
 5.0% 7,569
 4.0% 13,355
 7.1% 9,462
 5.0% 7,569
 4.0%
N/A Not applicable.

At March 31,June 30, 2018, CSB is considered well capitalized (the highest category) under its regulatory capital rules. At March 31,June 30, 2018, both CSC’s and CSB’s capital levels exceeded the fully implemented capital conservation buffer requirement. Certain events, such as growth in bank deposits and regulatory discretion, could adversely affect our ability to meet future capital requirements.

In late 2017, Schwab acquired a federal savings bank charter and changed the name to Charles Schwab Signature Bank (CSSB). At March 31,June 30, 2018, CSSB’s balance sheet consisted primarily of investment securities with total assets of $6.5$9.6 billion. CSSB is subject to similar regulatory guidelines and requirements, and seeks to maintain a Tier 1 Leverage Ratio similar to CSB.
Net capital and net capital requirements for CS&Co are as follows:
 March 31, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Net Capital $2,211
 $2,118
 $2,323
 $2,118
Minimum net capital required 0.250
 0.250
 0.250
 0.250
2% of aggregate debit balances 459
 435
 475
 435
Net Capital in excess of required net capital $1,752
 $1,683
 $1,848
 $1,683
In accordance with the SEC Customer Protection Rule, CS&Co had portions of its cash and investments segregated for the exclusive benefit of clients at March 31,June 30, 2018. The SEC 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

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

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 consolidated statements of cash flows.

17.    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 and banking 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 support services, as well as retirement business services to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are allocated 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:tables:
 Investor Services Advisor Services Total Investor Services Advisor Services Total
Three Months Ended March 31, 2018 2017 2018 2017 2018 2017
Three Months Ended June 30, 2018 2017 2018 2017 2018 2017
Net Revenues:                        
Net interest revenue $957
 $753
 $306
 $247
 $1,263
 $1,000
 $1,063
 $795
 $344
 $258
 $1,407
 $1,053
Asset management and administration fees 593
 566
 258
 257
 851
 823
 569
 582
 245
 263
 814
 845
Trading revenue 127
 119
 74
 73
 201
 192
 115
 98
 65
 59
 180
 157
Other 64
 50
 19
 16
 83
 66
 65
 55
 20
 20
 85
 75
Total net revenues 1,741
 1,488
 657
 593
 2,398
 2,081
 1,812
 1,530
 674
 600
 2,486
 2,130
Expenses Excluding Interest 1,042
 930
 354
 308
 1,396
 1,238
 1,012
 914
 343
 307
 1,355
 1,221
Income before taxes on income $699
 $558
 $303
 $285
 $1,002
 $843
 $800
 $616
 $331
 $293
 $1,131
 $909
  Investor Services Advisor Services Total
Six Months Ended June 30, 2018 2017 2018 2017 2018 2017
Net Revenues:            
Net interest revenue $2,020
 $1,548
 $650
 $505
 $2,670
 $2,053
Asset management and administration fees 1,162
 1,148
 503
 520
 1,665
 1,668
Trading revenue 242
 217
 139
 132
 381
 349
Other 129
 105
 39
 36
 168
 141
Total net revenues 3,553
 3,018
 1,331
 1,193
 4,884
 4,211
Expenses Excluding Interest 2,054
 1,844
 697
 615
 2,751
 2,459
Income before taxes on income $1,499
 $1,174
 $634
 $578
 $2,133
 $1,752




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,June 30, 2018. 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,June 30, 2018.
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,June 30, 2018, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



THE CHARLES SCHWAB CORPORATION



PART  II  -  OTHER  INFORMATION


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


Item 1A.     Risk Factors

During the first threesix months of 2018, there have been no material changes to the risk factors in Part I – Item 1A – Risk Factors in the 2017 Form 10-K.


Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the firstsecond quarter of 2018:
Month Total number of shares Purchased (in thousands) Average Price Paid per shares Total number of shares Purchased (in thousands) Average Price Paid per shares
January:    
April:    
Employee transactions (1)
 10
 $51.80
 6
 $51.07
February:    
May:    
Employee transactions (1)
 5
 $53.61
 6
 $55.80
March:    
June:    
Employee transactions (1)
 179
 $52.00
 6
 $56.36
Total:        
Employee Transactions (1)
 194
 $52.04
 18
 $54.45
(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. The Company 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.

There were no share repurchases under the Share Repurchase Program during the firstsecond quarter of 2018. At March 31,June 30, 2018, approximately $596 million of future share repurchases remained authorized under the Share Repurchase Program, and the remaining authorizations do not have an expiration date. Repurchases as part of this program are under two authorizations by CSC’s Board of Directors, each covering up to $500 million of common stock, which were publicly announced by the Company on April 25, 2007 and March 13, 2008.



THE CHARLES SCHWAB CORPORATION




Item 3.     Defaults Upon Senior Securities

None.


Item 4.     Mine Safety Disclosures

Not applicable.


Item 5.     Other Information
None.



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
Number
Exhibit 
Exhibit
Number
Exhibit 
  
10.39210.392
Credit Agreement (364 – Day Commitment) dated as of June 1, 2018, between the Registrant and financial institutions therein (supersedes Exhibit 10.376).
(1)
     
12.112.1
Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
 12.1
Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
 
     
31.131.1
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

 31.1
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
     
31.231.2
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 31.2
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
     
32.132.1
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)32.1
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)
     
32.232.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)32.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)
     
101.INS101.INSXBRL Instance Document(2)101.INSXBRL Instance Document(2)
     
101.SCH101.SCHXBRL Taxonomy Extension Schema(2)101.SCHXBRL Taxonomy Extension Schema(2)
     
101.CAL101.CALXBRL Taxonomy Extension Calculation(2)101.CALXBRL Taxonomy Extension Calculation(2)
     
101.DEF101.DEFXBRL Extension Definition(2)101.DEFXBRL Extension Definition(2)
     
101.LAB101.LABXBRL Taxonomy Extension Label(2)101.LABXBRL Taxonomy Extension Label(2)
     
101.PRE101.PREXBRL Taxonomy Extension Presentation(2)101.PREXBRL Taxonomy Extension Presentation(2)
     
(1)Furnished as an exhibit to this Quarterly Report on Form 10-Q. )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, 2018 are the following materials formatted in 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. )Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018 are the following materials formatted in 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. 




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 9,August 8, 2018 /s/ Peter Crawford
   Peter Crawford
   Executive Vice President and Chief Financial Officer


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