SCHWAB CHARLES CORP
For the period ended Mar 31, 2025. Filed May 9, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 9, 2025
SCHW$91.49-1.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-08.
0000316709-24-000069
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-09.
0000316709-25-000023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 247 previous paragraphs and 235 current paragraphs.
123 unchanged; 73 reworded; 38 added; 48 removed; 3 previous and 1 current paragraphs rearranged.
Tables are not compared: 25 previous and 23 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (38)
Current report
The first quarter of 2025 presented investors with an increasingly uncertain macroeconomic environment. While equity markets rose early in the first quarter of 2025, uncertainty around the economic impacts of trade policy and increased volatility dampened equity markets and investor sentiment. The Standard & Poor’s®500 Index (S&P 500®) was down 5% during the first three months of 2025, and the NASDAQ Composite® declined 10%. The 10-year U.S. Treasury yield fell by 35 basis points to 4.23%, and the Federal Reserve left the federal funds overnight rate unchanged in the first quarter.
Current report
Against this backdrop, clients continued to turn to Schwab, as the Company saw strength in asset gathering, new accounts, and client engagement in the first quarter of the year. Core net new assets totaled $137.7 billion in the first quarter of 2025, up 44% from the same period in 2024, representing an annualized growth rate of 5.5%. Active brokerage accounts rose 5% year-over-year to 37.0 million at March 31, 2025, including 1.2 million new brokerage accounts in the first quarter of 2025, up 8% from the first quarter of 2024. Clients were highly engaged in the markets, especially amid market volatility late in the first quarter. Clients’ daily average trades (DATs) were up significantly year-over-year to 7.4 million in the first three months of 2025, an increase of 24% from the first quarter of 2024.
Current report
Schwab’s financial performance in the first quarter of 2025 reflected strength in asset gathering, increased client engagement, reduced reliance on higher-cost bank supplemental funding, and continued demand for margin and bank lending. Net income totaled $1.9 billion in the first quarter of 2025, rising 40% from the first quarter of 2024. Diluted earnings per common share
Current report
(EPS) was $.99 in the first quarter of 2025, higher by 46% from the prior-year first quarter. Adjusted diluted EPS(1) was $1.04 in the first quarter of 2025, up 41% from the same period in 2024.
Current report
Total net revenues increased 18% year-over-year to $5.6 billion in the first quarter of 2025. Net interest revenue was $2.7 billion in the first quarter of 2025, increasing 21% from the first quarter of 2024, primarily due to lower interest expense and growth in margin and bank lending, which more than offset lower yields on interest-earning assets due to lower market rates. Asset management and administration fees were $1.5 billion in the first quarter of 2025, higher by 14% year-over-year due to continued growth in money market funds and managed investing solutions, and higher overall client asset balances due to strength of asset gathering and year-over-year equity market appreciation. Trading revenue was $908 million in the first quarter of 2025, an increase of 11% from the first quarter of the prior year, which was due primarily to higher trading volume. Bank deposit account fee revenue totaled $245 million in the first quarter of the year, rising 34% from the first quarter of 2024 due to improved net yield as a growing percentage of the balances have converted to floating rates. BDA balances decreased 4% from year-end 2024, ending the first quarter at $83.7 billion.
Current report
Total expenses excluding interest were $3.1 billion in the first quarter of 2025, higher by 7% from the first quarter of 2024. This increase was due primarily to higher compensation and benefits expense, inclusive of annual merit increases and a reduction in the prior year for a change in estimated restructuring costs, and higher other expense which was due to higher industry fees resulting from the SEC’s May 2024 fee rate increase and higher client trading volume. For the first quarter of 2025, adjusted total expenses(1) totaled $3.0 billion, up 8% from the same period in 2024 due to higher compensation and benefits and other expense.
Current report
Schwab supported continued client-driven demand for margin and bank lending, while reducing bank supplemental funding and returning capital to stockholders. Total balance sheet assets decreased 4% from year-end 2024 to end the first quarter of 2025 at $462.9 billion. Principal and interest from our AFS and HTM securities portfolios supported further reduction in bank supplemental funding, which includes brokered CDs, Federal Home Loan Bank (FHLB) borrowings, and borrowings under repurchase agreements at our banks. The Company reduced total bank supplemental funding by $11.8 billion, or 24%, during the first three months of 2025, with $38.1 billion outstanding at March 31. Though investors reduced their leverage later in the first quarter following an increase in market volatility, the Company continued to see strong demand for margin lending, with margin loans ending the first quarter at $83.6 billion, largely flat with year-end 2024. Bank loans grew 4% during the first three months of 2025, ending the first quarter at $47.1 billion.
Current report
Concurrent with the completion of The Toronto-Dominion Bank’s (TD Bank) February 2025 secondary public offering of CSC common shares, the Company repurchased all remaining outstanding shares of nonvoting common stock directly from TD Group US Holdings, LLC, an affiliate of TD Bank, for a total repurchase of $1.5 billion (see Capital Management – Share Repurchases and Item 1 – Note 14). In addition, the Company increased its common dividend during the first quarter by 8% to $.27 per share. Inclusive of these capital actions, the Company’s consolidated Tier 1 Leverage Ratio was 9.9% for the first quarter of 2025, remaining consistent with year-end 2024 due to strong first-quarter net income. Our consolidated adjusted Tier 1 Leverage Ratio(1) rose to 7.1% due to the first quarter’s net income and higher AOCI.
Current report
•The SEC’s December 2022 equity market structure rule proposals, “Order Competition Rule” and “Regulation Best Execution”.
Current report
Schwab’s average interest-earning assets in the first quarter of 2025 were lower compared with the same period in 2024; however, client demand for margin and bank lending continued to be strong during the first quarter of 2025, even as clients reduced leverage amid market volatility late in the first quarter. Margin and bank loan balances increased by 23% and 16%, respectively, from March 31, 2024 to the end of the first quarter of 2025. Following further deceleration in the pace of clients’ reallocation of cash from sweep products to higher-yielding investment solutions in 2024, client activity in the first quarter of 2025 reflected normalized cash behavior, inclusive of organic growth, seasonality, and investor sentiment against a backdrop of increased market volatility. Bank sweep deposits and payables to brokerage clients increased by a total of $11.5 billion, or 4%, from March 31, 2024 to the end of the first quarter of 2025. Principal and interest payments on AFS and HTM securities supported a further reduction in bank supplemental funding of $11.8 billion, or 24%, during the first quarter of 2025. Since March 31, 2024, the Company has reduced bank supplemental funding by $32.7 billion, or 46%.
Current report
(2)Beginning in the fourth quarter of 2024, payables to brokers, dealers, and clearing organizations is presented separately from non-interest-bearing funding sources and included in total interest-bearing liabilities. This line item includes securities loaned and related interest expense. Prior period amounts have been reclassified to reflect this change.
Current report
Net interest revenue increased $473 million, or 21%, in the first quarter of 2025, compared to the same period in 2024. This increase was primarily due to lower balances of bank supplemental funding, lower average rates paid on funding sources, and growth in margin and bank lending, partially offset by lower yields on floating-rate assets due to lower market rates. Average interest-earning assets declined by 2% in the first quarter of 2025 from the first quarter of 2024, as cash inflows from AFS and HTM securities were used to pay down bank supplemental funding amid improvement in client cash trends. The decrease was partially offset by growth in margin lending, which was supported by higher payables to brokerage clients and increased securities lending, and growth in bank loans.
Current report
Net interest margin increased to 2.53% in the first quarter of 2025, compared to 2.02% during the same period in 2024, as lower rates paid on funding sources and reduced balances of bank supplemental funding more than offset lower yields on floating-rate assets due to lower market interest rates.
Current report
Asset management and administration fees increased by $182 million, or 14%, in the first quarter of 2025 compared to the same period in 2024. This increase was primarily a result of continued growth in Schwab money market funds amid the ongoing elevated interest rate environment. The increase in asset management and administration fees in the first quarter of 2025 was also due to growth in fee-based managed investing solutions and Mutual Fund OneSource®. These increases reflected the Company’s asset gathering and net inflows into managed investing solutions, as well as year-over-year equity market appreciation, which more than offset equity market declines experienced in the first quarter of 2025.
Current report
Trading revenue increased $91 million, or 11%, in the first quarter of 2025 compared to the same period in 2024, primarily driven by an increase in order flow revenue reflecting higher volume. Commission revenue increased due to higher volume, partially offset by changes in the mix of client trading activity. Offsetting the increase in commission revenue, principal transactions revenue decreased reflecting changes to the fair value of securities positions held to facilitate client activity and cash and investments segregated for regulatory purposes.
Current report
Other revenue increased $51 million, or 32%, in the first quarter of 2025 compared to the same period in 2024, primarily due to higher industry fees. Industry fees increased primarily due to higher SEC fee rates in effect during the first quarter of 2025 compared to the same period in 2024 and an increase in trading volumes.
Current report
Subsequent to March 31, 2025, the SEC announced that effective May 14, 2025, it would decrease the fee rate applicable to most securities transactions to zero from the rate in effect since May 22, 2024. This change will result in lower industry fees in other revenue and a corresponding decrease in other expense after the effective date, resulting in no impact to net income.
Current report
Total compensation and benefits expense increased in the first quarter of 2025 compared to the same period in 2024, primarily due to annual merit increases and higher incentive compensation. In the first quarter of 2024, compensation and benefits included a $31 million benefit due to a change in estimated restructuring costs, and also acquisition and integration-related costs of $17 million.
Current report
Professional services expense increased in the first quarter of 2025 compared to the same period in 2024, reflecting increased utilization of technology and other professional services to support overall growth of the business. Professional services included acquisition and integration-related costs of $17 million in the first quarter of 2024.
Current report
Occupancy and equipment expense increased in the first quarter of 2025 compared to the same period in 2024, reflecting higher building expenses and technology equipment and software costs related to growth of the business. Occupancy and equipment included restructuring costs of $2 million in the first quarter of 2024.
Current report
Depreciation and amortization expense decreased in the first quarter of 2025 compared to the same period in 2024, primarily due to finance lease terminations in 2024 and lower depreciation on equipment due to abandonment of certain data centers in 2024 related to the integration of Ameritrade Holding LLC (Ameritrade Holding) and its consolidated subsidiaries (collectively, Ameritrade).
Current report
Amortization of acquired intangible assets remained consistent in the first quarter of 2025 with the same period in 2024.
Current report
Other expense increased in the first quarter of 2025 compared to the same period in 2024, primarily due to higher industry fees. Industry fees increased primarily due to higher SEC fee rates in effect during the first quarter of 2025 compared to the first quarter of 2024 and an increase in trading volumes. Subsequent to March 31, 2025, the SEC announced that effective May 14, 2025, it would decrease the fee rate applicable to most securities transactions to zero from the rate in effect since May 22, 2024. This change will result in lower industry fees in other expense and a corresponding decrease in other revenue after the effective date, resulting in no impact to net income.
Current report
Capital expenditures were $156 million and $122 million in the first quarter of 2025 and 2024, respectively. Capital expenditures increased in the first quarter of 2025 compared to the same period in 2024, primarily due to higher investment in purchased software and buildings, partially offset by lower internally developed software. We continue to anticipate capital expenditures for full-year 2025 will be approximately 3-5% of total net revenues.
Current report
(1)In connection with certain changes in Schwab’s organizational management structure, in the fourth quarter of 2024, the Retirement Business Services business unit was transferred from the Advisor Services segment to the Investor Services segment. Accordingly, amounts related to the Retirement Business Services business unit are included within Investor Services for the first quarter of 2025, and prior-year amounts have been recast to reflect this new basis of segmentation.
Current report
N/M Not meaningful. Percentage changes greater than 200% are presented as not meaningful.
Current report
Investor Services and Advisor Services total expenses excluding interest increased by 5% and 13%, respectively, in the first quarter of 2025, compared to the same period in 2024. Compensation and benefits expense increased in both segments, primarily due to annual merit increases, higher incentive compensation, and employee benefits and taxes. Professional services expense increased in both segments, due to increased utilization of technology and other professional services to support overall growth of the business. Regulatory fees and assessments decreased for both segments primarily due to a $25 million incremental FDIC special assessment in the first quarter of 2024 and lower FDIC assessments. Other expenses increased for both segments primarily due to higher industry fees driven by higher SEC fee rates coupled with higher trading volumes.
Current report
Our measurement of interest rate risk involves assumptions that are inherently uncertain and, as a result, cannot precisely estimate the impact of changes in interest rates on net interest revenue, bank deposit account fees, or EVE. 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. Financial instruments are also subject to the risk that valuations will be negatively affected by changes in demand and the underlying market for a financial instrument.
Current report
We are indirectly exposed to option, futures, and equity market fluctuations in connection with client option and futures accounts, securities collateralizing margin loans to brokerage customers, and client securities loaned out as part of the brokerage securities lending activities. Equity market valuations may also affect the level of brokerage client trading activity, margin borrowing, and overall client engagement with Schwab. Additionally, we earn mutual fund and ETF service fees and asset management fees based upon daily balances of certain client assets. Fluctuations in these client asset balances caused by changes in equity valuations directly impact the amount of fee revenue we earn.
Current report
Our market risk related to financial instruments held for trading is not material.
Current report
Schwab’s EVE profile is characterized by a more stable asset duration relative to liabilities in both higher and lower interest rate environments. Currently, the EVE exposure to rates increasing or decreasing in a similar magnitude shows that there is greater exposure to rates decreasing.
Current report
(3) Outstanding balance of unsecured commercial paper as of March 31, 2025 represents the gross par value before discount of $15 million.
Current report
(1) Weighted average interest rates presented here exclude the impact of derivatives. See Note 11 for information on the Company’s hedging of Senior Notes.
Current report
On January 29, 2025, the Board of Directors of the Company declared a two cent, or 8%, increase in the quarterly cash dividend to $.27 per common share.
Current report
(1)The Company had no nonvoting common stock outstanding as of the record date for the Company’s first quarter 2025 dividend and accordingly, no dividends were paid on nonvoting common stock during the three months ended March 31, 2025.
Current report
(2) Dividends paid quarterly.
Current report
On February 12, 2025, TD Group US Holdings LLC, an affiliate of TD Bank, completed a secondary public offering of the Company’s common shares through which TD Group US Holdings LLC sold 133.8 million shares of the Company’s common stock and 31.7 million shares of the Company’s nonvoting common stock, which automatically converted into common stock, for an aggregate amount of $13.1 billion. The Company did not receive any of the proceeds from the sale of shares. Concurrent with the completion of the secondary offering, and pursuant to a repurchase agreement dated February 9, 2025, the Company repurchased directly from TD Group US Holdings LLC its remaining 19.2 million shares of nonvoting common stock at a price of $77.982 per share for an aggregate repurchase amount of $1.5 billion, which settled on February 12, 2025. The shares of nonvoting common stock automatically converted into common stock upon repurchase and are now held in treasury stock, reducing the number of shares outstanding. These shares were purchased under CSC’s $15.0 billion share repurchase authorization. The share repurchase authorization does not have an expiration date and as of March 31, 2025, approximately $7.2 billion remained on the authorization. There were no repurchases of CSC’s common stock during the three months ended March 31, 2024.
Current report
Through the completion of the secondary offering and the Company’s repurchase of nonvoting common stock, TD Bank disposed of all of its common shares of CSC and the Company has no remaining nonvoting common stock outstanding. See Item 1 – Note 14 for additional information.
Removed paragraphs (48)
Previous report
In May 2024, the Company completed the final client account conversions to CS&Co from the Ameritrade broker-dealers, TD Ameritrade, Inc. and TD Ameritrade Clearing, Inc. (TDAC). Accordingly, these entities are no longer principal business subsidiaries. See Overview – Integration of Ameritrade for additional information regarding the integration.
Previous report
•Integration of Ameritrade, expected levels of attrition, and expense and revenue synergies (see Overview in Part I – Item 2, and Exit and Other Related Liabilities in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);
Previous report
•Exit and related costs associated with our actions to streamline operations (see Overview and Results of Operations in Part I – Item 2, and Exit and Other Related Liabilities in Item 1 – Note 10);
Previous report
•Our ability to successfully implement integration plans relating to Ameritrade;
Previous report
•The risk that client transitions may result in a negative client experience, expected expense and revenue synergies and other benefits from the Ameritrade acquisition may not be fully realized or may take longer to realize, and integration expense may be higher than expected;
Previous report
(2) Client cash as a percentage of client assets excludes brokered CDs issued by CSB.
Previous report
(3) Beginning in July 2023, adjustments made to GAAP financial measures also include restructuring costs. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
Previous report
While the third quarter of 2024 introduced changes to the macroeconomic landscape, investor sentiment remained bullish and client engagement continued to be strong. In September, amid easing inflation and a cooling labor market, the Federal Reserve cut interest rates for the first time in over four years, reducing the federal funds overnight rate by 50 basis points. This action helped push equity markets to near all-time highs to close out the third quarter. The Standard & Poor’s® 500 and the NASDAQ Composite® moved higher in the third quarter, with both indices rising 21% in the first nine months of 2024.
Previous report
The strength of equity markets and organic asset gathering helped total client assets rise to $9.92 trillion as of September 30, 2024, and our organic growth trends have improved since the final Ameritrade client conversion in May. Core net new assets totaled $95.3 billion in the third quarter, up 109% from the same period in the prior year, as the third quarter of 2023 reflected expected Ameritrade client asset attrition in relation to the large client transition completed in September 2023. Year-to-date
Previous report
2024 core net new assets totaled $252.1 billion, up 10% from the first nine months of 2023. We continued to see client engagement in the markets throughout the first nine months of the year; clients’ daily average trades (DATs) were 5.7 million for both the third quarter and year-to-date periods, which were higher by 9% and 5% from the respective prior-year periods. Clients opened 972 thousand new brokerage accounts in the third quarter to bring the year-to-date total to 3.1 million. Active brokerage accounts were up 4% year-over-year, totaling 36.0 million at September 30, 2024.
Previous report
The Company’s financial results in the third quarter and first nine months of 2024 reflected the impact of positive equity markets, solid asset gathering, sustained client engagement, and continued deceleration of client cash realignment activity. Net income totaled $1.4 billion and $4.1 billion in the third quarter and first nine months of 2024, respectively, up 25% and 2% from the same periods in 2023. Diluted earnings per common share (EPS) was $.71 and $2.05 in the third quarter and first nine months of 2024, respectively, up 27% and 1% from the comparable prior-year periods. Adjusted diluted EPS(1) was $.77 and $2.25 in the third quarter and first nine months of 2024, respectively, flat and down 8% from the same periods in 2023. Our third quarter results reflected sequential growth, as net income, diluted EPS, and adjusted diluted EPS were higher by 6%, 8%, and 5%, respectively, from the second quarter of 2024.
Previous report
Total net revenues rose 5% year-over-year to $4.8 billion in the third quarter, bringing the year-to-date total to $14.3 billion, down 1% from the same period in 2023. Net interest revenue was $2.2 billion and $6.6 billion in the third quarter and first nine months of 2024, respectively, down 1% and 9% from the comparable periods in 2023 due primarily to lower average interest-earning assets and higher rates paid on funding sources. Asset management and administration fees were $1.5 billion and $4.2 billion in the third quarter and first nine months of 2024, respectively, increasing 21% and 20% from the same prior-year periods as a result of growth in money market funds, equity market gains, and growth in advice solutions. Trading revenue was $797 million in the third quarter of 2024, increasing 4% from the prior-year third quarter primarily due to higher volume and changes in mix; year-to-date trading revenue of $2.4 billion was lower by 3% from the prior year due to changes in mix. Bank deposit account fee revenue was $152 million and $488 million in the third quarter and first nine months of 2024, respectively, down 26% and 8% from the same prior-year periods primarily due to lower average BDA balances. BDA balances totaled $84.0 billion at September 30, 2024, down 14% from year-end 2023 primarily resulting from lower client cash allocations.
Previous report
Total expenses excluding interest were $3.0 billion and $8.9 billion in the third quarter and first nine months of 2024, respectively, lower by 7% and 3% from the same periods in the prior year. These decreases reflected lower restructuring costs and lower acquisition and integration-related costs, partially offset by higher incentive compensation and other expense. Other expense reflected higher exchange processing fees primarily due to the SEC’s May 2024 fee rate increase. Adjusted total expenses(1) were $2.9 billion and $8.4 billion in the third quarter and first nine months of 2024, respectively, up 6% and 3% from the comparable prior-year periods. Acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs totaled $153 million and $468 million in the third quarter and first nine months of 2024, respectively, down 71% and 54% from the comparable periods in 2023.
Previous report
The Company continued its diligent approach to balance sheet management, seeking to prioritize flexibility. Total balance sheet assets increased 4% during the third quarter of 2024 to $466.1 billion, which was due in part to client cash inflows during the quarter. The growth of client cash helped us pay down $8.9 billion of our aggregate bank supplemental funding during the quarter, which includes brokered CDs, Federal Home Loan Bank (FHLB) borrowings, and borrowings under repurchase agreements at our banks. Total bank supplemental funding ended the third quarter at $64.8 billion, down $14.8 billion, or 19%, from year-end 2023. Supported by net income, our consolidated Tier 1 Leverage Ratio increased to 9.7% as of September 30, 2024. Our consolidated adjusted Tier 1 Leverage Ratio(1), which includes AOCI in the ratio, increased to 6.7% as of the end of the third quarter, as we continue to build towards our operating objective of 6.75% - 7.00%.
Previous report
Integration of Ameritrade
Previous report
In May 2024, the Company completed the conversion of the final client transition group from Ameritrade to the Schwab platform. Over the course of five client transition groups throughout the integration, we converted approximately $1.9 trillion in client assets across more than 17 million client accounts, including 7,000 RIAs, from Ameritrade to Schwab, and conversion of this final client group is a significant milestone in our integration. In connection with these transitions, we have experienced some expected attrition of client assets from retail accounts and RIAs that continues to be below our initial estimates when we announced the acquisition. We continue to expect total acquisition and integration-related costs and capital expenditures will be between $2.4 billion and $2.5 billion.
Previous report
Acquisition and integration-related costs, which are inclusive of related exit costs, totaled $23 million and $97 million for the third quarter and first nine months of 2024, respectively, and $106 million and $334 million for the third quarter and first nine months of 2023, respectively. Over the course of the integration, we expect to realize annualized cost synergies of between $1.8 billion and $2.0 billion, and, through September 30, 2024, we have achieved approximately 95% of this amount on an annualized run-rate basis. The Company expects to realize the remaining estimated cost synergies by the end of 2024, with anticipated full year synergy realization beginning in 2025. Estimated timing and amounts of costs incurred and synergies to be realized are subject to change as we work to complete the integration. Refer to Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7) – Overview in our 2023 Form 10-K, Results of Operations – Total Expenses Excluding Interest, Non-GAAP Financial Measures, and Item 1 – Note 10 for additional information regarding our integration of Ameritrade.
Previous report
In addition to cost synergies directly related to the integration of Ameritrade, the Company took incremental actions in 2023 to streamline its operations to prepare for post-integration, including through position eliminations and decreasing its real estate footprint. Through these actions, the Company has realized approximately $500 million of incremental run-rate cost savings in addition to integration synergies. In order to achieve these cost savings, the Company expects to incur total exit and related costs, primarily related to employee compensation and benefits and facility exit costs, of approximately $500 million, substantially all of which have been recognized as of September 30, 2024. Refer to Results of Operations – Total Expenses Excluding Interest and Item 1 – Note 10 for additional information.
Previous report
In September 2024, the SEC adopted amendments to Rules 610 and 612 of Regulation National Market System (NMS) to (i) establish an additional minimum price increment, or “tick size,” for the quoting and trading of certain NMS stocks, (ii) reduce the exchange access fee caps, and (iii) require transparency of odd-lots. In March 2024, the SEC adopted amendments to Rule 605 of Regulation NMS requiring enhanced disclosures of order execution quality for large broker-dealers that handle retail orders. We do not expect the new rules to have a material impact on the Company’s business, financial condition, or results of operations. The two related equity market structure rule proposals released in December 2022 by the SEC remain pending.
Previous report
6 - prohibited transaction exemptions (PTEs), subjects broker-dealers who provide non-discretionary investment advice to retirement plans and accounts to a “best interest” standard. The rule was scheduled to take effect September 23, 2024, with a one-year transition period for certain PTE provisions. On July 25 and 26, 2024, federal district court judges in two separate industry lawsuits seeking to vacate the rule stayed effectiveness of the rule pending resolution of litigation.
Previous report
•The SEC’s November 2022 proposed rule that would require substantial changes to the liquidity risk management programs for open-end mutual funds other than money market funds and require them to implement “swing pricing” and impose a “hard close” on the acceptance of purchase and redemption orders.
Previous report
Schwab’s average interest-earning assets in the third quarter and first nine months of 2024 were lower compared with the same periods in 2023, reflecting clients’ reallocation of cash from sweep products to higher-yielding investment cash alternatives and fixed income investments particularly throughout 2023, which resulted from the higher interest rate environment. The Company saw additional reduction of sweep cash through much of the first nine months of 2024, which also reflected strong client engagement in the equity markets. These changes in client cash reduced average balances of bank deposits in the third quarter and first nine months of 2024. To support client cash allocation activity that resulted from the higher interest rate environment during 2023 and through most of 2024, the Company has utilized bank supplemental funding, including drawing upon FHLB secured lending facilities, engaging with external financial institutions in repurchase agreements, and issuing brokered CDs. The average pace of client cash allocation out of sweep products into higher-yielding investment solutions decreased significantly beginning in the second half of 2023, and continued to decrease through the third quarter and first nine months of 2024 from peak levels seen in mid-2023.
Previous report
Net interest revenue decreased $15 million, or 1%, and $684 million, or 9%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. These decreases were primarily due to lower average interest-earning assets, higher average rates paid on funding sources, and lower net interest revenue contributed from securities lending, partially offset by lower average bank supplemental funding. Average interest-earning assets were lower by 8% and 12% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. These decreases were due primarily to lower average bank sweep deposits, which reflected client cash reallocation into higher-yielding investment cash alternatives and fixed income investments as well as client engagement with the equity markets. The decreases in average interest-earning assets in the third quarter and first nine months of 2024 were partially offset by growth in margin lending, which was supported by increased use of broker-dealer funding sources including securities lending, and growth in bank loans. Additionally, principal and interest on the AFS and HTM investment securities portfolio, along with deceleration of client cash reallocation activity, supported a reduction of bank supplemental funding balances.
Previous report
Net interest margin increased to 2.08% and 2.04% during the third quarter and first nine months of 2024, respectively, compared to 1.94% and 2.00% during the same periods in 2023 as improved yields on most interest-earning assets offset higher rates paid across interest-bearing funding sources.
Previous report
(1)The third quarter and first nine months of 2023 include transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource® and other NTF funds.
Previous report
Asset management and administration fees increased by $252 million, or 21%, and $692 million, or 20%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. These increases were primarily a result of higher balances in Schwab money market funds as clients shifted their cash allocations to higher-yielding investment solutions. These increases were also due to growth in balances in fee-based advice solutions and Mutual Fund OneSource, as a result of strong equity markets and, for advice solutions, net inflows of client assets.
Previous report
(1)Includes $39.8 billion of transfers from other third-party mutual funds and ETFs to Mutual Fund OneSource and Other NTF Funds for the three and nine months ended September 30, 2023.
Previous report
Trading revenue increased $29 million in the third quarter compared to the same period in 2023, primarily due to higher volumes and changes in the mix of client trading activity. Trading revenue decreased $72 million in the first nine months of 2024 compared to the same period in 2023, reflecting lower order flow and commissions revenue primarily due to changes in the mix of client trading activity.
Previous report
In accordance with the Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement) executed on May 4, 2023, cash held in eligible brokerage client accounts is swept off-balance sheet to deposit accounts at the TD Depository Institutions. Schwab provides recordkeeping and support services to the TD Depository Institutions with respect to the deposit accounts for which Schwab receives an aggregate monthly fee. Under the 2023 IDA agreement, the service fee on client cash deposits held at the TD Depository Institutions is 15 basis points. See Item 1 – Note 9 for additional discussion of the 2023 IDA agreement.
Previous report
Other revenue increased $28 million, or 16%, and $6 million, or 1%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in the third quarter and first nine months of 2024 was primarily due to higher exchange processing fees and lower losses recognized on sales of AFS securities, partially offset by certain lower service and other fees and a smaller release from the provision for credit losses on bank loans. Exchange processing fees increased in the third quarter and first nine months of 2024 due to higher SEC fee rates compared to the same periods in 2023. Effective May 22, 2024, the SEC increased its fee rates applicable to most securities transactions from the rate in effect since late February 2023.
Previous report
Total compensation and benefits expense decreased in the third quarter and first nine months of 2024 compared to the same periods in 2023, primarily due to the recognition of $276 million of restructuring costs during the third quarter of 2023. The decreases were also due to lower headcount as a result of position eliminations from the restructuring and Ameritrade integration, partially offset by higher incentive compensation and annual merit increases. Compensation and benefits included acquisition and integration-related costs of $9 million and $52 million in the third quarter of 2024 and 2023, respectively, and $44 million and $158 million in the first nine months of 2024 and 2023, respectively. Compensation and benefits also included a $34 million benefit in the first nine months of 2024, due to a change in estimated restructuring costs.
Previous report
Professional services expense decreased in the third quarter and first nine months of 2024 compared to the same periods in 2023, primarily due to lower utilization of professional services as we completed the final Ameritrade client account transitions in the second quarter of 2024, and approach the completion of the Ameritrade integration. Professional services included acquisition and integration-related costs of $3 million and $37 million in the third quarter of 2024 and 2023, respectively, and $32 million and $111 million in the first nine months of 2024 and 2023, respectively.
Previous report
Occupancy and equipment expense decreased in the third quarter and first nine months of 2024 compared to the same periods in 2023, primarily due to lower technology equipment and software costs, lower property tax expense, and lower occupancy costs as a result of facility closures in 2023 related to restructuring and the Ameritrade integration. Occupancy and equipment included restructuring costs of $3 million in the first nine months of 2024. Occupancy and equipment included acquisition and integration-related costs of $7 million and $21 million in the third quarter and first nine months of 2023, respectively.
Previous report
Depreciation and amortization expense increased in the third quarter and first nine months of 2024 compared to the same periods in 2023, primarily as a result of higher amortization of purchased and internally developed software, driven by capital expenditures in 2023 and the first nine months of 2024 primarily to enhance our technological infrastructure to support growth of the business. Depreciation and amortization expense included acquisition and integration-related costs of $8 million and $13 million in the third quarter and first nine months of 2024, respectively.
Previous report
Amortization of acquired intangible assets decreased in the third quarter and first nine months of 2024 compared to the same periods in 2023, as certain assets from the Ameritrade acquisition were fully amortized during 2023.
Previous report
Other expense increased in the third quarter and first nine months of 2024 compared to the same periods in 2023, primarily due to higher exchange processing fees, partially offset by lower other clearing costs. The first nine months of 2024 also included a $43 million accrual related to an industry-wide regulatory review of off-channel communications (see Item 1 – Note 9). Exchange processing fees increased, due largely to higher SEC fee rates in effect during the third quarter of 2024 compared to the third quarter of 2023. Effective May 22, 2024, the SEC increased its fee rates applicable to most securities transactions from the rate in effect since late February 2023. Other expense included restructuring costs of $13 million in the first nine months of 2024. Other expense included acquisition and integration-related costs of $4 million and $26 million in the third quarter and first nine months of 2023, respectively.
Previous report
Capital expenditures were $135 million and $250 million in the third quarter of 2024 and 2023, respectively, and $349 million and $605 million in the first nine months of 2024 and 2023, respectively. Capital expenditures decreased for the third quarter and first nine months of 2024 compared to the same periods in 2023, primarily due to lower purchased and internally developed software as we completed Ameritrade client account transitions in the second quarter of 2024 and approach the completion of the Ameritrade integration. As a result of higher year-to-date total net revenues and lower spending, we continue to estimate capital expenditures for full-year 2024 will be on the lower end of our previously disclosed expected range of approximately 3-5% of total net revenues.
Previous report
Investor Services and Advisor Services total net revenues increased by 1% and decreased by 7%, respectively, in the first nine months of 2024 compared to the same period in 2023. Asset management and administration fees increased for both segments, primarily as a result of higher balances in money market funds and Mutual Fund OneSource, and, additionally for Investor Services, fee-based advice solutions. Net interest revenue decreased for both segments, primarily due to lower average interest-earning assets and higher average rates on funding sources, which were partially offset by higher margin loan balances for Investor Services. Trading revenue decreased for both segments, primarily due to lower commissions for Investor Services and lower order flow revenue for Advisor Services as a result of changes in the mix of client trading activity. Additionally, bank deposit account fees decreased for both segments, primarily due to lower average BDA balances.
Previous report
Investor Services total expenses excluding interest decreased by 4% in the third quarter of 2024 and remained flat in the first nine months of 2024, compared to the same periods in 2023. Advisor Services total expenses excluding interest decreased by 14% and 12% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. Compensation and benefits expense decreased in both segments, primarily due to restructuring costs recognized during the third quarter of 2023 and lower headcount as a result of position eliminations, partially offset by higher incentive compensation and annual merit increases. Occupancy and equipment expense decreased in both segments, primarily due to lower technology equipment and software costs, lower property tax expense, and facility closures in 2023 related to restructuring and the Ameritrade integration. For Investor Services, depreciation and amortization expense increased, primarily due to higher amortization of purchased and internally developed software, driven by capital expenditures in 2023 and the first nine months of 2024 to enhance our technological infrastructure to support growth of the business. Regulatory fees and assessments increased in both segments in the first nine months of 2024, primarily due to higher FDIC assessments, as described above. In Investor Services, other expense increased primarily due to higher exchange processing fees and, for the nine-month period, accruals related to an industry-wide regulatory review of off-channel communications.
Previous report
As interest rates rose in the Federal Reserve’s tightening cycle, EVE sensitivity has generally trended higher due to a shortening of liability duration. While the Company’s asset duration remained largely stable during the period of rising interest rates, liability duration shortened significantly and is now consistent with asset duration.
Showing the first 40 of 48 passages. Open the source sections for the rest.
Reworded paragraphs (73)
Previous wording
Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services, as well as retirement business services, to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.
Current wording
Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage, investment advisory, and banking and trust services to individual investors, and retirement plan and business services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking and trust, and support services to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.
Previous wording
Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $70 trillion, which means the Company’s $9.92 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.
Current wording
Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $70 trillion, which means the Company’s $9.93 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.
Previous wording
1 - or 15(d) of the Securities Exchange Act of 1934. In addition, we post to the website the Dodd-Frank stress test results, our regulatory capital disclosures based on Basel III, our average liquidity coverage ratio (LCR), and our average net stable funding ratio (NSFR). The SEC maintains a website athttps://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with the Commission.
Current wording
On our website, https://www.aboutschwab.com, we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC or Commission): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In addition, we post to the website the Dodd-Frank stress test results, our regulatory capital disclosures based on Basel III, our average liquidity coverage ratio (LCR), and our average net stable funding ratio (NSFR). The SEC maintains a website athttps://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with the Commission.
Previous wording
In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “prioritize,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “maintain,” “continue,” “seek,” and other similar expressions. In addition, any statements that refer to expectations, strategy, objectives, projections, or other characterizations of future events or circumstances are forward-looking statements.
Current wording
In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “prioritize,” “will,” “may,” “estimate,” “appear,” “could,” “would,” “maintain,” “continue,” “seek,” and other similar expressions. In addition, any statements that refer to expectations, strategy, objectives, projections, or other characterizations of future events or circumstances are forward-looking statements.
Previous wording
•Net interest revenue, the adjustment of rates paid on client-related liabilities, and client cash realignment activity (see Results of Operations in Part I – Item 2);
Current wording
•Net interest revenue, client cash allocation behavior, and adjustment of rates paid on client-related liabilities (see Results of Operations in Part I – Item 2);
Previous wording
•Sources and uses of liquidity (see Liquidity Risk in Part I – Item 2);
Current wording
•Funding sources and uses of liquidity (see Liquidity Risk in Part I – Item 2);
Previous wording
•Management of interest rate risk; modeling and assumptions, the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity, and liability and asset duration (see Risk Management in Part I – Item 2);
Current wording
•Management of interest rate risk; modeling and assumptions, the impact of changes in interest rates on net interest margin and revenue, bank deposit account fee revenue, economic value of equity (EVE), and liability and asset duration (see Risk Management in Part I – Item 2);
Previous wording
•Capital management; potential migration of insured deposit account balances (IDA balances) to our balance sheet; capital accretion; expectations about capital requirements, including accumulated other comprehensive income (AOCI); long-term operating objective; and uses of capital and return of excess capital to stockholders (see Capital Management in Part I – Item 2 and Commitments and Contingencies in Item 1 – Note 9);
Current wording
•Capital management; potential migration of insured deposit account balances (IDA balances) to our balance sheet; capital accretion; expectations about capital requirements, including accumulated other comprehensive income (AOCI); long-term operating objective; and uses of capital and return of excess capital to stockholders (see Capital Management in Part I – Item 2 and Commitments and Contingencies in Part I – Item 1 – Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 10);
Previous wording
•General market conditions, including the level of interest rates, equity market valuations and volatility;
Current wording
•General economic and market conditions, including the level of interest rates, equity market valuations and volatility;
Previous wording
•Our ability to access supplemental funding sources;
Current wording
•Our ability to access and use supplemental funding sources;
Previous wording
Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the third quarter and first nine months of 2024 and 2023 are as follows:
Current wording
Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the first quarter of 2025 and 2024 are as follows:
Previous wording
(1) The third quarter and first nine months of 2024 include net outflows of $4.4 billion and $9.1 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB. Also, the first nine months of 2024 include an inflow of $10.3 billion from a mutual fund clearing services client. The third quarter and first nine months of 2024 also include an outflow of $0.1 billion from an international relationship. The third quarter and first nine months of 2023 includes inflows of $3.3 billion and $30.1 billion, respectively, from off-platform brokered CDs issued by CSB. Also, the first nine months of 2023 include an inflow of $12.0 billion from a mutual fund clearing services client. The third quarter and first nine months of 2023 also include an outflow of $0.8 billion from an international relationship.
Current wording
(1) The first quarter of 2025 and 2024 include net outflows of $5.3 billion and $7.4 billion, respectively, from off-platform brokered certificates of deposit (CDs) issued by CSB.
Previous wording
Return on average common stockholders’ equity was 14% for both the third quarter and first nine months of 2024, which was flat with the third quarter of 2023 and down from 18% in the first nine months of 2023. The decrease in the year-to-date measure was due primarily to higher average stockholders’ equity. For the quarter-to-date period, year-over-year growth in net income largely offset year-over-year growth in average stockholders’ equity. Return on tangible common equity(1) (ROTCE) was 31% and 33% in the third quarter and first nine months of 2024, respectively, down from 58% and 66% in the same periods in 2023. The decreases in ROTCE were primarily due to higher average stockholders’ equity, and, for the year-to-date period, lower adjusted net income available to common stockholders(1). Average common stockholders’ equity was higher year-over-year for both the quarter-to-date and year-to-date periods due to net income for full-year 2023 and the first nine months of 2024, as well as higher average AOCI. The increase in average AOCI was driven by lower unrealized losses on our available for sale (AFS) investment securities portfolio and securities transferred in 2022 from AFS to held to maturity (HTM) (see Item 1 – Note 15).
Current wording
Return on average common stockholders’ equity was 18% in the first quarter of 2025, up from 15% in the first quarter of 2024, due to growth in net income, which more than offset higher average common stockholders’ equity. Return on tangible common equity(1) was 35% in the first quarter of 2025, down from 39% in the first quarter of 2024, as higher average tangible common equity more than offset growth in net income. Average common stockholders’ equity increased primarily as a result of year-over-year growth in retained earnings and higher average AOCI. The increase in average AOCI was due to lower unrealized losses on available for sale (AFS) investment securities and securities previously transferred from AFS to held to maturity (HTM).
Previous wording
(1) Adjusted diluted EPS, adjusted total expenses, adjusted net income available to common stockholders, return on tangible common equity, and adjusted Tier 1 Leverage Ratio are non-GAAP financial measures. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
Current wording
(1) Adjusted diluted EPS, adjusted total expenses, return on tangible common equity, and adjusted Tier 1 Leverage Ratio are non-GAAP financial measures. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
Previous wording
See Part II – Item 7 – Current Regulatory and Other Developments in our 2023 Form 10-K for additional information regarding these and other pending regulatory matters including:
Current wording
Refer to Part II – Item 7 – Current Regulatory and Other Developments in our 2024 Form 10-K for information regarding pending regulatory matters including:
Previous wording
On July 30, 2024, the Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking to amend the brokered deposits framework effective since 2021 (2021 framework) setting forth its conditions for when broker-dealers such as CS&Co that place deposits with depository institutions through brokerage sweep arrangements qualify for the primary purpose exception (PPE) from the definition of a deposit broker, and from attendant restrictions for brokered deposits, under Section 29 of the Federal Deposit Insurance Act. Under the 2021 framework, a broker-dealer qualifies for the PPE if less than 25 percent of its customer assets under administration for a particular business line are placed at depository institutions. Among other changes, the FDIC is proposing a new framework that would revert back to the 10 percent threshold it applied to broker-dealers prior to 2021. The proposed new framework, certain alternatives, and other amendments described in the notice are subject to a public comment period through November 21, 2024. The impacts to Schwab from any ultimate changes will depend on further clarification of definitions and requirements in any final rule.
Current wording
•The Federal Deposit Insurance Corporation’s (FDIC) July 2024 proposed rulemaking to amend the brokered deposits framework setting forth its conditions for when broker-dealers such as CS&Co qualify for the primary purpose exception (PPE) from the definition of a deposit broker and from attendant restrictions for brokered deposits;
Previous wording
In April 2024, the U.S. Department of Labor adopted a final rule to significantly broaden the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974. Among other requirements, the rule, in conjunction with associated
Current wording
•The U.S. Department of Labor’s April 2024 final rule significantly broadening the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974 and related litigation;
Previous wording
In November 2023, the FDIC approved a final special assessment to recover losses incurred by the Deposit Insurance Fund (DIF) to protect uninsured depositors due to the March 2023 closures of two banks, which was subject to potential extension and a potential one-time final special assessment for any shortfall in the DIF. The pre-tax impact of the final rule’s initial assessment to the Company was $172 million, which was tax deductible and was recognized in earnings in the fourth quarter of 2023. In late February 2024, the FDIC notified banks, including the Company’s banking subsidiaries, that the estimated assessed losses to the DIF increased. Accordingly, during the first quarter of 2024, Schwab recognized a pre-tax charge of $25 million for its estimate of this incremental special assessment, which is tax deductible. During the second quarter of 2024, the Company recognized an additional pre-tax charge of $5 million based on the FDIC’s June 2024 invoices, resulting in a year-to-date total of $30 million. The Company paid its first amount on the special assessment in the second quarter of 2024 and expects the remaining collection period to be the next two years. The FDIC has indicated that its special assessments and related collection period remain subject to further refinement.
Current wording
•The FDIC’s November 2023 and February 2024 special assessments on banks, including the Company’s banking subsidiaries, to recover losses incurred by the Deposit Insurance Fund (DIF) to protect uninsured depositors due to the March 2023 closures of two banks;
Previous wording
Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on cash and cash equivalents, floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, FHLB borrowings, other short-term borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities. See also Risk Management – Market Risk.
Current wording
Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on cash and cash equivalents, floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, FHLB borrowings, other short-term
Previous wording
In response to inflation, the Federal Reserve raised the federal funds target overnight rate four times in the first three quarters of 2023 for a total of 100 basis points. The Federal Reserve maintained the upper bound of the target overnight rate at 5.50% from July 2023 through much of the first nine months of 2024 before reducing the rate by 50 basis points towards the end of September 2024.
Current wording
The Federal Reserve maintained the upper bound of the target overnight rate at 5.50% through most of 2024 before reducing the rate by 50 basis points during the third quarter of 2024 and another 50 basis points across two cuts during the fourth quarter of 2024. During the first quarter of 2025, the Federal Reserve maintained the upper bound of the target overnight rate at 4.50%.
Previous wording
The following tables present net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:
Current wording
The following table presents net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:
Previous wording
The Company’s average balances of FHLB borrowings and brokered CDs were lower in the third quarter of 2024 compared to the same period in 2023, which helped contribute to a 14-basis-point improvement in net interest margin for the third quarter of 2024 compared with the same period in 2023. The Company continues to prioritize repayment of bank supplemental funding balances. The total outstanding balance of bank supplemental funding decreased by $8.9 billion during the third quarter of 2024. Our use and the financial impacts of such bank supplemental funding is dependent on several factors, including the volume and pace of clients’ cash allocation activity, which is driven primarily by changes in market interest rates, as well as asset gathering and the level of maturities and paydowns on our investment securities portfolios. While client cash realignment activity has continued to decline from peak levels, uncertainty remains, including the path of market interest rates and client behavior, which could significantly impact our utilization of bank supplemental funding sources. The impacts to net interest revenue of using bank supplemental funding sources also depend on the type of funding source used, levels of interest rates, and the use of proceeds. The Company currently expects its outstanding balances of bank supplemental funding sources to decrease over time. Certain balances outstanding at September 30, 2024 will require rollover into new borrowings, the amount and costs
Current wording
The Company continues to prioritize repayment of bank supplemental funding balances and expects the total outstanding balance to continue to decrease over time to a level consistent with our diversified long-term funding profile. Our use and the financial impacts of such bank supplemental funding are dependent on several factors, including the volume and pace of clients’ cash allocation activity, which are driven primarily by changes in market interest rates, client engagement with equity markets, as well as asset gathering and the level of maturities and paydowns on our investment securities portfolios. The Company may rollover certain balances outstanding at March 31, 2025 into new borrowings, the amount and costs of which will depend on the above noted factors. See also Risk Management – Liquidity Risk, Capital Management, Item 1 – Notes 8, 9, and 12 for additional information on these and other funding sources.
Previous wording
(2)Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above.
Current wording
(1)Average client assets for managed investing solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above.
Previous wording
(3)Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.
Current wording
(2)Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.
Previous wording
The following tables present a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource®and other NTF funds. These funds generated 49% of the asset management and administration fees earned in both the third quarter and first nine months of 2024, compared with 44% and 42% in the third quarter and first nine months of 2023, respectively:
Current wording
The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource and other NTF funds. These funds generated 50% and 48% of the asset management and administration fees earned in the first quarter of 2025 and 2024, respectively:
Previous wording
The Company earns bank deposit account fee revenue from TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions). These fees are affected by changes in interest rates and the composition of balances designated as fixed- and floating-rate obligation amounts.
Current wording
The Company earns bank deposit account fee revenue from TD Bank USA, National Association and TD Bank, National Association (together, the TD Depository Institutions), in accordance with the Second Amended and Restated Insured Deposit Account Agreement (2023 IDA agreement). These fees are affected by changes in interest rates and the composition of balances designated as fixed- and floating-rate obligation amounts. See Item 1 – Note 10 for additional information.
Previous wording
Bank deposit account fees decreased $53 million, or 26%, and $43 million, or 8%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The decrease in the third quarter and first nine months of 2024 compared to the same periods in 2023 was primarily due to lower average BDA balances. The decrease in the first nine months of 2024 compared to the same period in 2023 was partially offset by $97 million of breakage fees incurred that resulted in lower bank deposit account fee revenue in the first nine months of 2023. The decrease in average BDA balances in the third quarter and first nine months of 2024 compared to the same periods in 2023 was primarily due to client cash allocation decisions in response to higher short-term market interest rates during 2023 and through most of 2024.
Current wording
Bank deposit account fees increased $62 million, or 34%, in the first quarter of 2025, compared to the same period in 2024, primarily due to a decrease in the amount paid to clients as a result of lower interest rates in the first quarter of 2025 compared to the same period in 2024, partially offset by lower average BDA balances. The decrease in average BDA balances in the first quarter of 2025 compared to the same period in 2024 was primarily due to client cash allocation decisions in 2024 in response to elevated short-term market interest rates through most of 2024.
Previous wording
Average net yield decreased in the third quarter of 2024 compared to the same period in 2023, as the increase in the average amount of floating-rate BDA balances was more than offset by a decrease in average net yield on fixed-rate BDA balances. Average net yield increased in the first nine months of 2024 compared to the same period in 2023, due to the breakage fees incurred in 2023 and the increase in the average amount of floating-rate BDA balances, which was partially offset by the decrease in average net yield on fixed-rate BDA balances. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of September 30, 2024 were 84% and 16%, respectively.
Current wording
Average net yield increased in the first quarter of 2025 compared to the same period in 2024 due to an increase in the average amount of floating-rate BDA balances, which was partially offset by a decrease in the average net yields on fixed-rate and floating-rate BDA balances. The percentages of BDA balances designated as fixed-rate and floating-rate obligation amounts as of March 31, 2025 were 77% and 23%, respectively.
Previous wording
Other revenue includes exchange processing fees, certain service fees, other gains and losses from the sale of assets, and the provision for credit losses on bank loans.
Current wording
Other revenue includes industry fees, certain service fees, other gains and losses from the sale of assets, and the provision for credit losses on bank loans.
Previous wording
Expenses excluding interest decreased by $218 million, or 7%, and $304 million, or 3%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and, beginning in the third quarter of 2023, restructuring costs, increased 6% and 3% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results.
Current wording
Expenses excluding interest increased by $202 million, or 7%, in the first quarter of 2025 compared to the same period in 2024. Adjusted total expenses, which excludes acquisition and integration-related costs, amortization of acquired intangible assets, and restructuring costs, increased 8% in the first quarter of 2025 compared to the same period in 2024. See Non-GAAP Financial Measures for further details and a reconciliation of such measures to GAAP reported results. There were no acquisition and integration-related costs or restructuring costs in the first quarter of 2025.
Previous wording
Advertising and market development expense remained consistent in the third quarter and first nine months of 2024 compared to the same periods in 2023, as higher client promotional spending largely offset lower digital advertising costs.
Current wording
Advertising and market development expense increased in the first quarter of 2025 compared to the same period in 2024, primarily due to higher client promotional spending.
Previous wording
Communications expense decreased in the third quarter and first nine months of 2024, compared to the same periods in 2023, primarily as a result of lower exchange quotation services expenses.
Current wording
Communications expense increased in the first quarter of 2025 compared to the same period in 2024, primarily as a result of higher exchange quotation services expenses.
Previous wording
Regulatory fees and assessments decreased in the third quarter and increased in the first nine months of 2024 compared to the same periods in 2023. The decrease in the third quarter of 2024 was primarily due to lower FDIC deposit insurance assessments, reflecting a decrease in brokered CDs compared to the third quarter of 2023, and a lower assessment base. The increase in the first nine months of 2024 was primarily as a result of incremental FDIC special assessments and higher FDIC deposit insurance assessments, reflecting greater use of brokered CDs compared to the first nine months of 2023, partially offset by a lower assessment base. The incremental FDIC special assessments totaled $30 million in the first nine months of 2024. See Current Regulatory and Other Developments for further discussion of these special assessments.
Current wording
Regulatory fees and assessments decreased in the first quarter of 2025 compared to the same period in 2024. The decrease in the first quarter of 2025 was primarily due to a $25 million incremental FDIC special assessment in the first quarter of 2024 and lower FDIC deposit insurance assessments, reflecting a decrease in brokered CDs and a lower assessment base, compared to the first quarter of 2024.
Previous wording
Taxes on income were $434 million and $258 million for the third quarter of 2024 and 2023, respectively, resulting in effective tax rates of 23.6% and 18.7%, respectively. Taxes on income were $1.3 billion and $1.2 billion for the first nine months of 2024 and 2023, respectively, resulting in effective tax rates of 23.9% and 22.4%, respectively. The increase in the effective tax rates in the third quarter and first nine months of 2024 compared to the same periods in 2023 was primarily due to the recognition of certain tax credits in the third quarter of 2023, partially offset by a decrease in state tax expense and additional tax credits recognized in the third quarter of 2024.
Current wording
Taxes on income were $546 million and $436 million for the first quarter of 2025 and 2024, respectively, resulting in effective tax rates of 22.2% and 24.2%, respectively. The decrease in the effective tax rate in the first quarter of 2025 compared to the same period in 2024 was primarily due to the reversal of tax reserves due to the resolution of certain state tax matters during the first quarter of 2025, an increase in equity compensation tax deduction benefits, and a decrease in non-deductible FDIC deposit insurance assessments.
Previous wording
Financial information for our segments is presented in the following tables:
Current wording
Financial information for our segments is presented in the following table(1):
Previous wording
(1)In the third quarter and first nine months of 2024, Investor Services includes net outflows of $4.4 billion and $9.1 billion, respectively, from off-platform brokered CDs issued by CSB, and an outflow of $0.1 billion from an international relationship. Also in the first nine months of 2024, Investor Services includes an inflow of $10.3 billion from a mutual fund clearing services client. In the third quarter and first nine months of 2023, Investor Services includes net inflows of $3.3 billion and $30.1 billion, respectively, from off-platform brokered CDs issued by CSB. Also in the first nine months of 2023, Investor Services includes an inflow of $12.0 billion from a mutual fund clearing services client. In the third quarter and first nine months of 2023, Advisor Services includes an outflow of $0.8 billion from an international relationship.
Current wording
(2)In the first quarter of 2025 and 2024, Investor Services includes net outflows of $5.3 billion and $7.4 billion, respectively, from off-platform brokered CDs issued by CSB.
Previous wording
Investor Services and Advisor Services total net revenues increased by 6% and 1%, respectively, in the third quarter of 2024 compared to the same period in 2023. Asset management and administration fees increased for both segments, primarily as a result of higher balances in money market funds and Mutual Fund OneSource®, and, additionally for Investor Services, fee-based advice solutions. Net interest revenue increased for Investor Services primarily due to higher margin loan balances, partially offset by other lower average interest-earning assets and higher average rates on funding sources, while net interest revenue decreased for Advisor Services primarily due to lower average interest-earning assets and higher average rates on funding sources. Additionally, trading revenue increased for Investor Services, primarily due to higher order flow revenue as a result of higher trading volume and changes in the mix of client trading activity. These increases were partially offset by decreases in bank deposit account fees for both segments, primarily due to lower average BDA balances.
Current wording
Investor Services and Advisor Services total net revenues increased by 19% and 15%, respectively, in the first quarter of 2025 compared to the same period in 2024. Net interest revenue increased for both segments, primarily as a result of lower balances of bank supplemental funding, lower average rates paid on funding sources, and growth in margin and bank lending, partially offset by lower average interest-earnings assets. Asset management and administration fees increased for both segments, primarily as a result of higher balances in money market funds, equity and bond funds, ETFs, CTFs, and Mutual Fund OneSource®, and, additionally for Investor Services, managed investing solutions. Trading revenue increased for both segments, primarily due to higher order flow revenue as a result of higher trading volume and increased commission revenue, partially offset by changes in the mix of client trading activity and lower principal transactions revenue. Bank deposit account fees increased for both segments, primarily due to an increase in average net yield partially offset by lower average BDA balances. Other revenue increased for both segments, primarily due to higher industry fees.
Previous wording
To manage interest rate risk, we have established policies and procedures, which include setting limits on net interest revenue risk and economic value of equity (EVE) risk. To remain within these limits, we manage the maturity, repricing, and cash flow characteristics of the investment portfolios. Management monitors established guidelines to stay within the Company’s risk appetite. The Company utilizes interest rate swap derivative instruments to assist with managing interest rate risk, the effects of which are incorporated into the Company’s net interest revenue and EVE analyses. For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 1 – Note 11.
Current wording
To manage interest rate risk, we have established policies and procedures, which include setting limits on net interest revenue risk and EVE risk. To remain within these limits, we manage the maturity, repricing, and cash flow characteristics of the investment portfolios. Management monitors established guidelines to stay within the Company’s risk appetite. The Company utilizes interest rate swap derivative instruments to assist with managing interest rate risk, the effects of which are incorporated into the Company’s net interest revenue and EVE analyses. For further information on our interest rate risk management strategies utilizing interest rate swaps, see Item 1 – Note 11.
Previous wording
For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulations include all balance sheet interest rate-sensitive assets and liabilities, and include derivative instruments. Key assumptions include the projection of interest rate scenarios with rate floors, rates and balances of non-maturity client cash held on the balance sheet, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans. We use independent third-party models to simulate net interest revenue sensitivity and related analyses. Fixed income analytical vendors provide term structure models, prepayment speed models for mortgage-backed securities and mortgage loans, and cash flow projections based on interest income, contractual maturities, and prepayments. Consistent with our policies related to the management of interest rate risk, the Company’s net interest revenue sensitivity analysis primarily involves gradual parallel increases/decreases in interest rates over a twelve-month period, though we also regularly simulate the effects of non-parallel shifts and instantaneous shifts of interest rates on net interest revenue.
Current wording
For our net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulations include all balance sheet interest rate-sensitive assets and liabilities, and include derivative instruments. Key assumptions include the projection of interest rate scenarios with rate floors, rates and balances of non-maturity client cash held on the balance sheet, prepayment speeds of mortgage-related investments, repricing of financial instruments, and reinvestment of matured or paid-down securities and loans. We use independent third-party models to simulate net interest revenue sensitivity and related analyses. Fixed income analytical vendors provide term structure models, prepayment speed models for mortgage-backed securities and mortgage loans, and cash flow projections based on interest income, contractual maturities, and prepayments. The Company’s net interest revenue sensitivity analyses utilize gradual parallel increases/decreases in interest rates over a twelve-month period, though we also regularly simulate the effects of non-parallel shifts and instantaneous shifts of interest rates on net interest revenue.
Previous wording
Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may reprice at different times or by different amounts, and the spread between short- and long-term interest rates. Interest-earning assets include investment securities, margin loans, bank loans, and cash and cash equivalents. These assets are sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment. Because we establish the rates paid on certain brokerage client cash
Current wording
Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may reprice at different times or by different amounts, and the spread between short- and long-term interest rates. Interest-earning assets include investment securities, margin loans, bank loans, and cash and cash equivalents. These assets are sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment. Because we establish the rates paid on certain brokerage client cash balances and bank deposits and the rates charged on certain margin and bank loans, and control the composition of our
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6 - borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities. See also Risk Management – Market Risk.
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Previous report — wording carried elsewhere
On our website, https://www.aboutschwab.com, we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC or Commission): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a)
Previous report — wording carried elsewhere
10 - of which will depend on the above noted factors. See also Risk Management – Liquidity Risk, Capital Management, Item 1 – Note 7, Note 8, and Note 12 for additional information on these and other funding sources.
Previous report — wording carried elsewhere
22 - issuances. In managing compliance with our LCR requirements, the broker-dealer subsidiary may also retain client cash balances rather than sweeping such balances to our banking subsidiaries.