10-QPeriod: Q2 FY2024

SCHWAB CHARLES CORP Quarterly Report for Q2 Ended Jun 30, 2024

Filed August 8, 2024For Securities:SCHWSCHW-PDSCHW-PJ

Summary

Charles Schwab Corporation (SCHW) reported solid results for the second quarter of 2024, demonstrating resilience and strategic execution despite a dynamic macroeconomic environment. The company successfully completed the final client account conversions from the Ameritrade integration, a significant operational milestone. Client assets reached $9.41 trillion, reflecting a 17% year-over-year increase, driven by strong organic asset gathering and positive market performance, particularly in technology stocks. Core net new client assets grew by 17% year-over-year to $61.2 billion. While total net revenues saw a modest 1% increase to $4.7 billion for the quarter, net income rose by 3% to $1.3 billion, translating to diluted EPS of $0.66. Key revenue drivers included a 18% increase in asset management and administration fees, benefiting from higher money market fund balances and advice solutions growth. However, net interest revenue saw a 6% decline due to lower average interest-earning assets and higher funding costs, despite improved asset yields. Expenses excluding interest were managed effectively, decreasing by 1% year-over-year, aided by lower integration costs and restructuring efforts, though offset by increased regulatory accruals and exchange processing fees. Schwab maintained a strong capital position, with its consolidated Tier 1 Leverage Ratio improving to 9.4%. The company is also actively managing its balance sheet, including progress in repaying supplemental funding sources. The completion of the Ameritrade integration marks a significant step, with most expected cost synergies already achieved, positioning Schwab for continued client acquisition and asset growth.

Financial Highlights

36 data points
Beta

Revenue

$4.69B

Net Income

$1.33B

28.4% Net Margin

EPS (Diluted)

$0.66

Total Assets

$449.68B

Cash & Equivalents

$25.35B

Free Cash Flow

-$4.34B

Financial Statements
Beta
Revenue$4.69B
Interest Expense$1.66B
Net Income$1.33B
EPS (Basic)$0.66
EPS (Diluted)$0.66
Shares Outstanding (Basic)1.83B
Shares Outstanding (Diluted)1.83B

Key Highlights

  • 1Total client assets reached $9.41 trillion as of June 30, 2024, up 17% year-over-year.
  • 2Core net new client assets increased by 17% to $61.2 billion in Q2 2024.
  • 3Net income for Q2 2024 was $1.3 billion, a 3% increase year-over-year, with diluted EPS at $0.66.
  • 4Asset management and administration fees grew 18% year-over-year, driven by money market fund growth and advice solutions.
  • 5The company completed the final client account conversions from the Ameritrade integration, a major operational milestone.
  • 6Total expenses excluding interest decreased by 1% year-over-year, reflecting cost management and restructuring benefits.
  • 7Consolidated Tier 1 Leverage Ratio improved to 9.4% as of June 30, 2024.

Frequently Asked Questions

The completion of the final client account conversions from the Ameritrade integration in May 2024 is a significant milestone. While integration-related costs are decreasing, the company has largely achieved its targeted cost synergies from the acquisition. Client asset attrition related to the integration has been below initial estimates, indicating successful client retention post-conversion.

Asset management and administration fees increased by 18% year-over-year to $1.38 billion in Q2 2024. This growth is primarily attributed to higher balances in Schwab money market funds as clients shifted cash to higher-yielding solutions, and growth in fee-based advice solutions and Mutual Fund OneSource, supported by strong equity market performance and net inflows.

Net interest revenue decreased by 6% year-over-year in Q2 2024, primarily due to lower average interest-earning assets and higher funding costs. While yields on interest-earning assets have improved, the overall balance of these assets has decreased. Management expects outstanding balances of supplemental funding sources to decrease over time, which could positively impact net interest revenue if market interest rates remain favorable or decline moderately.

Charles Schwab maintained a strong capital position, with its consolidated Tier 1 Leverage Ratio increasing to 9.4% as of June 30, 2024. The company updated its long-term operating objective for its consolidated adjusted Tier 1 Leverage Ratio to be 6.75%-7.00%. Liquidity remains robust, supported by strong client activity and various funding sources, including significant capacity from FHLB and Federal Reserve facilities. The company is actively managing its balance sheet and prioritizing the repayment of supplemental funding.