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SCHWAB CHARLES CORP (SCHW)·Q4 2024 Earnings Summary

Executive Summary

  • 4Q24 delivered broad-based strength: net revenues rose 20% YoY to $5.33B, GAAP EPS reached $0.94 and adjusted EPS $1.01 (+49% YoY), with adjusted pre-tax margin expanding to 46.6% .
  • Client activity and cash trends improved: client transactional sweep cash increased to $418.6B, net interest margin expanded 25 bps sequentially to 2.33%, margin balances grew to $83.8B, and Bank Supplemental Funding fell to $49.9B (~50% from peak) .
  • Strategic momentum continues: record asset management fees ($1.5B) and Managed Investing net inflows, deepening relationships post-Ameritrade integration, and explicit 2025 scenario for revenue growth (13–15%), NIM expansion, and upper-40% adjusted margins .
  • Capital return catalyst: with adjusted Tier 1 leverage at 6.8% (within 6.75–7.0% objective), management signaled opportunistic capital return in 2025; common dividend raised 8% to $0.27 per share on Jan 29, 2025 .
  • Estimates comparison: S&P Global consensus EPS/revenue for 4Q24 was unavailable at time of query; beats/misses vs Street cannot be stated. Values retrieved from S&P Global were unavailable.

What Went Well and What Went Wrong

What Went Well

  • Strong top-line and earnings leverage: Total net revenues +20% YoY to $5.33B; adjusted EPS $1.01 (+49% YoY); adjusted pre-tax margin 46.6% on disciplined expenses .
  • Balance sheet progress: client sweep cash +$34.6B QoQ; NIM to 2.33%; Bank Supplemental Funding cut by $14.9B to $49.9B; capital ratios to target range (Adj. T1LR 6.8%) .
  • Post-integration growth drivers: Managed Investing net inflows a record ($15.3B in 4Q); thinkorswim adoption +60% YoY; margin loans EOP $83.8B (+34% YoY) .

What Went Wrong

  • Expense growth outlook: 2025 adjusted OpEx guided up mid-single digits (4.5–5.5%), reflecting growth investments; while disciplined, it tempers margin expansion pace vs a lower-spend scenario .
  • BDA fee dynamics: higher bank deposit account fees reflect mix/laddering, but fixed bucket net rates remain low, constraining yield uplift (fixed 0.37% vs floating 4.28%) .
  • Securities portfolio constraints: management remains reluctant to reposition the securities portfolio given headline/trust risks, limiting near-term NIM accretion from reinvestment at higher rates .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Total Net Revenues ($USD Billions)$4.46 $4.69 $4.85 $5.33
Diluted EPS GAAP ($USD)$0.51 $0.66 $0.71 $0.94
Diluted EPS Adjusted ($USD)$0.68 $0.73 $0.77 $1.01
Pre-tax Profit Margin GAAP (%)26.8% 37.2% 38.0% 43.3%
Pre-tax Profit Margin Adjusted (%)36.0% 41.0% 41.2% 46.6%
Net Interest Margin (%)1.89% 2.03% 2.08% 2.33%

Segment revenue breakdown:

Revenue Component ($USD Millions)Q4 2023Q2 2024Q3 2024Q4 2024
Net Interest Revenue2,130 2,158 2,222 2,531
Asset Mgmt & Admin Fees1,241 1,383 1,476 1,509
Trading Revenue767 777 797 873
Bank Deposit Account Fees174 153 152 241
Other147 219 200 175

Key KPIs:

KPIQ2 2024Q3 2024Q4 2024
Total Client Assets ($USD Trillions)$9.41 $9.92 $10.10
Core Net New Assets ($USD Billions)$61.2 $95.3 $114.8
Client Transactional Sweep Cash ($USD Billions)$374.8 $384.0 $418.6
Bank Supplemental Funding ($USD Billions)$73.7 $64.8 $49.9
Margin Balances (EOP, $USD Billions)$71.7 $73.0 $83.8
DATs (Thousands)5,486 5,697 6,312

Non-GAAP notes and items:

  • Adjusted EPS excludes acquisition/integration costs, amortization of acquired intangibles, and restructuring; reconciliation shows adjusted pre-tax margin 46.6% and adjusted EPS $1.01; EPS also included ~$0.03 from resolution of previously accrued tax/legal reserves .
  • GAAP total expenses down 7% YoY; adjusted expenses flat YoY in 4Q .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue Growth (YoY)FY2025Not provided13%–15% New
Net Interest Margin (full-year)FY2025Not provided2.55%–2.65% New
Net Interest Margin (Q4)Q4 2025Not provided~2.8% New
Adjusted Expenses GrowthFY2025Not provided4.5%–5.5% New
Adjusted Pre-tax MarginFY2025Not providedUpper-40% (4Q ~50%) New
Adjusted EPSFY2025Not provided$4.10–$4.20 New
Capital ReturnFY2025Building capital to target range Poised for opportunistic returns in 2025 Elevated
Common DividendQ1 2025$0.25 per share (4Q declared) $0.27 per share (+8%) Raised
Bank Supplemental FundingFY2025Ongoing reduction Continued progress each quarter toward minimum diversified level Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (Prior-2)Q3 2024 (Prior-1)Current Period (Q4 2024)Trend
Client cash & NIMNIM 2.03%; sweep cash $374.8B; supplemental funding up to $73.7B NIM 2.08%; sweep cash $384.0B; supplemental funding down to $64.8B NIM 2.33%; sweep cash $418.6B; supplemental funding $49.9B Improving
Ameritrade integrationConversion completed; attrition lower than expected Momentum with clients; record assets; Managed Investing net flows Core NNA +20% YoY (FY), thinkorswim adoption +60% YoY Strengthening
Managed InvestingRecord AMAF $1.4B; strong flows YTD AMAF record $1.5B; flows continued Full-year Managed Investing net flows $55.2B (+69% YoY); 4Q net inflows $15.3B Accelerating
Capital & leverageCSB Adj. T1LR 6.2%; consolidated 5.9% Consolidated Adj. T1LR 6.7% Consolidated Adj. T1LR 6.8% (within 6.75–7.0%) At target
AI/technology——AI “Schwab Knowledge Assistant” usage +90%; process modernization to reduce cost per account Expanding
Crypto offering——Planning spot crypto trading when permissible; strong crypto interest on platform Upcoming launch

Management Commentary

  • “The one word summary of our year and quarter is growth. Net new assets growth was strong, up 20% for the year and 51% for the quarter… Revenue was up 4% for the year and up 20% over 4Q23… We are in a position of strength and poised for liftoff in 2025.” – CEO Rick Wurster .
  • “We would expect total revenue growth of 13% to 15% in 2025… full year net interest margin of 2.55% to 2.65%… adjusted expenses to grow 4.5% to 5.5%… [and] 4Q25 adjusted pretax margins approaching 50%.” – CFO Mike Verdeschi .
  • “Following the $15B pay down during the 4Q, we have now cut the level of higher cost supplemental funding in half from its peak… we do expect to make additional progress each quarter.” – CFO Mike Verdeschi .
  • “We will hire hundreds of new financial consultants and expand our physical branch network… continue to invest in our trader offer… and launch spot crypto trading when and if regulations make it permissible.” – CEO Rick Wurster .

Q&A Highlights

  • NNA trajectory: Management reiterated long-term 5–7% organic NNA target; retail flows normalizing post-integration with accelerating legacy Ameritrade engagement .
  • Alternatives platform: Retail alts rollout broad in 1H25 (PE, private credit, hedge, long/short, exchange funds) with specialist support; more curated advisor offering ahead .
  • Capital return and TD stake: Management prefers to participate in similar situations when feasible; capital now within target operating range, supporting 2025 returns .
  • Client cash normalization: Two consecutive quarters of deposit growth; realignment decelerated; expect seasonal December build to flow back early 2025 .
  • Buybacks vs funding: Supplemental funding will be reduced to minimum diversified levels (not zero); progress expected, not a hard gate to capital return .
  • OpEx guide context: Mid-single-digit OpEx growth balances growth investments and efficiency; volume-linked exchange fees included .
  • Balance sheet & NIM: FY25 interest-earning assets down slightly as funding paydown prioritized; long-term flexibility to move liquidity off balance sheet as appropriate .
  • Securities portfolio: Repositioning remains evaluated but avoided to protect client trust; principal/interest (~$10B/quarter) used to reduce supplemental borrowings .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for 4Q24 were unavailable at time of query; as a result, we cannot definitively conclude beats/misses vs Street. Values retrieved from S&P Global were unavailable.
  • Given management’s commentary on 4Q run-rate EPS (~$1 adjusted) and 2025 scenario ($4.10–$4.20 adjusted), sell-side models may need to raise NIM, asset management revenue, and margin assumptions consistent with lower supplemental funding and healthy client engagement .

Key Takeaways for Investors

  • Narrative shift: Sequential NIM expansion and funding mix improvement are restoring earnings power; adjusted margins trending toward upper-40s with potential ~50% in 4Q25 .
  • Asset gathering momentum: Core NNA accelerated to $114.8B in 4Q; deepening relationships (Managed Investing, margin/PAL) diversify revenue beyond NIR, supporting multiple expansion .
  • Capital return ahead: With adjusted Tier 1 leverage at 6.8% and an 8% dividend hike to $0.27, expect opportunistic buybacks/dividends in 2025 as supplemental funding declines further .
  • Post-integration upside: Thinkorswim adoption (+60% YoY) and retail alts rollout in 1H25 provide incremental engagement and fee opportunities; watch trader activity and advice penetration .
  • Risk checks: Securities portfolio repositioning remains a watch item; macro-path of rates and equity markets will modulate NIM/AMAF; OpEx growth reflects offensive investments .
  • Short-term trade: Positive setup on 1Q trajectory given December seasonal sweep cash and funding paydown, though early-quarter cash outflows may temper NIR sequentially .
  • Medium-term thesis: Through-cycle profitability improving with diversified growth (trading, advice, lending), efficiency gains (AI/process), and capital flexibility, supporting sustained EPS growth and returns .

References:

  • 4Q24 8-K earnings press release and exhibits .
  • 3Q24 8-K press release .
  • 2Q24 8-K press release .
  • Winter 2025 Business Update transcript and slides - -.
  • Dividend increase press release (Jan 29, 2025) .