The Charles Schwab Corporation (SCHW) 1Q25 Earnings Review
Earnings Beat Street Forecast; Client Growth Metrics Look Solid with Core NNA of 5.5%; NIM Should Continue to Expand and Opportunistic Capital Return Remains on the Table
EPS Beats Consensus Forecast as Revenue Comes in 1% Ahead of Expectations
SCHW reported earnings prior to market open today. Total net revenue came in at $5,599M, up 5% Q/Q and up 18% Y/Y. The sequential increase in revenue was driven by an increase in net interest income (NII), which rose 7% Q/Q and was up 21% Y/Y to $2,706M. Meanwhile, trading revenue increased by 4% Q/Q (+11% Y/Y) to $908M, asset management fees increased 1% Q/Q (+14% Y/Y) to $1,530M, BDA fees rose 2% Q/Q (+34% Y/Y) to $245M and other revenue increased 20% Q/Q (+32% Y/Y) to $210M. On the expense side, total adjusted operating expenses came in at $3,014M, which was up 6% sequentially (+8% Y/Y) and drove pre-tax margins to 46.2% (down 40bps Q/Q but up 530bps Y/Y). Adjusted diluted EPS came in at $1.04, up 3% Q/Q (+40% Y/Y).
Relative to consensus estimates, revenue came in 1% ahead of the consensus forecast of $5,538M. Meanwhile, pre-tax income was about 1% higher than the street while expenses were 1% above expectations and adjusted EPS came in 3% above consensus.
In terms of key operating metrics, average interest-earning assets for the quarter were unchanged sequentially (-2% Y/Y) while the net interest margin (NIM) rose 20 bps Q/Q (+51bps Y/Y) to 2.53%. Total asset management client assets increased 2% Q/Q (16% Y/Y) to $3.8T. Client accounts at quarter end increased 2% from the end of 2024 (+5% Y/Y) while total client assets declined 2% Q/Q (+9% Y/Y) to $9.9T (note: the sequential decline in client assets was driven by market driven losses in 1Q). For the quarter, core net new assets (NNA) amounted to $138B which translates into an annualized growth rate of 5.5%, up from the 4.6% annualized growth rate posted in 4Q24. Total customer daily average trades (DATs) for the quarter were 7,391k (+17% Q/Q, +24% Y/Y) and the average commission per trade came in at $2.05 (-7% Q/Q, -9% Y/Y).
SCHW Earnings Summary and Key Operating Metrics
Source: company data and Tikr.com
Highlights from SCHW Earnings Call, Presentation and Press Release
In terms of the outlook going forward, SCHW 0.00%↑ management touched on several details during this evening’s earnings call that are worth highlighting:
Bank Supplemental Funding – Reduced supplemental funding by $12B to $38B – helped drive balance sheet funding costs down 23bps sequentially, driving NII growth Q/Q. Still focused on reducing supplemental funding through year end, though quarterly pace may vary from what we have seen in 4Q24 and 1Q25
Overall Financial Outlook – tracking towards upper-end of full-year 2025 scenario – recall 2025 scenario estimates revenue growth of 13-15%, expense growth of 4.5-5.5%, pre-tax margin approaches 50% by year end, implied EPS from these inputs amounts to $4.10-$4.20. Will provide detailed update on 2025 outlook in July
April Activity – have seen record breaking trading levels and 2-3x the number of accounts being opened, however a slightly risk-off tone with higher levels of cash growth than typical, a reduction in margin balances and equity net selling. Also noted that the increase in cash alone has offset the earnings impact from lower margin
NIM Commentary – still feel good about ability to expand NIM with full year NIM in 2.55%-2.65% range however 4Q25 NIM may be slightly below 2.8% range management previously expected if Fed does end up cutting rates 4 times in the back half of the year as the forward curve implies
Expenses – while 1Q25 growth was 8% Y/Y, this was contemplated in initial guidance range of 4.5-5.5% for the full year
NNA – Ameritrade client NNA is roughly 50% the level of legacy SCHW clients, up from essentially neutral NNA during integration process. As SCHW moves further from the final integration, anticipates Ameritrade NNA should meet or exceed that of legacy SCHW clients
Other notable highlights from the earnings call/press release:
Capital and Capital Return – Adjusted Tier 1 leverage ratio ended the quarter at 7.1%, above the operating target of 6.75% - 7.00%. After $1.5B in share repurchases in 1Q poised for additional “opportunistic” capital return in 2025. May consider taking action on Series G preferred that becomes redeemable in 2Q
Crypto Trading – Given regulatory environment, hopeful to launch spot crypto trading in the coming months
Branch Growth – Expect to open 16 branches in 2025 with more to come in 2026 and 2027 as relationships with branches drastically increase client NNA
Wealth.com Investment – part of broader effort to provide more of an ecosystem for RIA clients as SCHW helps them grow and compete
Broad Thoughts / Outlook
I thought this was a really strong quarter out of SCHW. The total quarterly NNA annualized growth rate was the strongest we’ve seen since 1Q23. The progress on supplemental funding reduction exceeded expectations and helped drive solid NIM expansion despite a reduction in the average Fed Funds rate for the quarter of 33bps. While Y/Y expense growth was higher than full year guidance, this was more than made up for with the impressive revenue growth in the quarter and management noted high 1Q growth was baked into its initial expense guidance range. Given the solid pace of NNA I think SCHW will have the ability to continue paying down supplemental funding and drive further NIM expansion through year end, even if the Fed ends up cutting rates later in the year. All of this should help with the capital return story and continue to drive further earnings growth exiting 2025.