Overview

The Charles Schwab Corporation (Schwab) continued its strong performance in 2024, navigating an evolving macroeconomic landscape. Despite easing inflation and volatile equity markets, Schwab saw robust client engagement, solid asset gathering, and improvement in client cash trends.

Total client assets reached a record $10.10 trillion at the end of 2024, up 19% from the prior year. Core net new assets, which exclude significant one-time flows, totaled $366.9 billion, up 20% year-over-year. Clients opened 4.2 million new brokerage accounts in 2024, a 10% increase. Active brokerage accounts ended the year at 36.5 million, up 5% from 2023.

Schwab’s financial results reflected these positive trends. Net income grew 17% to $5.9 billion, and diluted earnings per share (EPS) increased 18% to $2.99. Adjusted diluted EPS, which excludes certain non-recurring items, was $3.25, up 4% from 2023.

Total net revenues rose 4% to $19.6 billion, driven by growth in asset management and administration fees, trading revenue, and bank deposit account fees. Net interest revenue declined 3% due to lower average interest-earning assets and higher funding costs, partially offset by growth in margin and bank lending.

Total expenses excluding interest decreased 4% to $11.9 billion, reflecting lower restructuring and acquisition-related costs, partially offset by higher incentive compensation, depreciation, and other expenses. Adjusted total expenses, which exclude certain non-recurring items, increased 2% year-over-year.

Segment Performance

Schwab’s Investor Services segment, which serves individual investors, saw a 6% increase in total net revenues in 2024. This was driven by growth in net interest revenue, trading revenue, and asset management and administration fees. The Advisor Services segment, which serves independent registered investment advisors (RIAs), experienced a 3% decline in total net revenues due to lower net interest revenue and trading revenue.

Both segments saw decreases in total expenses excluding interest, with Investor Services down 2% and Advisor Services down 11%. The declines were primarily due to lower restructuring and acquisition-related costs.

Risk Management

Schwab has a comprehensive risk management program to identify, assess, and manage operational, compliance, credit, market, and liquidity risks. The company’s risk governance structure includes the Board of Directors, designated Board committees, and various management risk committees.

Key operational risks include business interruptions, fraud, and third-party vendor management. Compliance risks relate to regulations around client suitability, consumer protection, conflicts of interest, and anti-money laundering. Credit risks arise from the company’s investment, lending, and client trading activities. Market risks stem primarily from interest rate fluctuations and their impact on net interest revenue and the economic value of equity.

Schwab actively manages its interest rate risk through simulation modeling, duration management, and the use of interest rate swaps. As of December 31, 2024, the company’s net interest revenue sensitivity to a 100-basis-point increase in rates was 4.6%, down from 5.8% a year earlier. The economic value of equity sensitivity to a 100-basis-point rate increase was also lower, at 4.6% compared to 5.8% in 2023.

Liquidity and Funding

Schwab’s primary sources of liquidity are client cash balances, including bank deposits and brokerage cash. The company also utilizes external funding sources such as FHLB borrowings, repurchase agreements, and the Federal Reserve discount window to meet short-term liquidity needs.

As of December 31, 2024, Schwab had $59.8 billion in available borrowing capacity from FHLB facilities and $30.5 billion from the Federal Reserve discount window. The company also maintained $1.7 billion in unsecured uncommitted lines of credit and a $2.1 billion unsecured committed revolving line of credit.

Schwab’s consolidated Tier 1 Leverage Ratio, a key measure of capital strength, increased to 9.9% at the end of 2024, up from 8.5% a year earlier. This was driven by the company’s strong net income and a smaller balance sheet.

Outlook and Risks

Looking ahead, Schwab expects total expenses excluding interest in 2025 to increase approximately 3.5% to 4.5% from 2024 levels. Adjusted total expenses are anticipated to rise 4.5% to 5.5%.

Key risks facing Schwab include:

• General market conditions, including interest rates and equity market valuations
• The company’s ability to attract and retain clients, develop trusted relationships, and grow client assets
• Client use of advisory, lending, and other products and services
• The level and mix of client trading activity
• Regulatory changes and their impact
• The company’s ability to manage expenses and attract and retain talent
• The timing and success of technology projects and new product launches
• Balance sheet positioning relative to changes in interest rates
• Prepayment levels for mortgage-backed securities
• Migrations of bank deposit account balances
• Potential breaches of contractual terms and related indemnification obligations

Overall, Schwab’s strong performance in 2024, driven by its diversified business model and disciplined risk management, positions the company well to navigate the evolving market environment and continue delivering value to its clients and shareholders.