Charles Schwab(SCHW) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for The Charles Schwab Corporation Condensed Consolidated Statements of Income The company reported significant year-over-year growth in net income for both the second quarter and first six months of 2025 Key Income Statement Figures (Unaudited) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total net revenues | $5,851 million | $4,690 million | $11,450 million | $9,430 million | | Net interest revenue | $2,822 million | $2,158 million | $5,528 million | $4,391 million | | Total expenses excluding interest | $3,048 million | $2,943 million | $6,192 million | $5,885 million | | Net Income | $2,126 million | $1,332 million | $4,035 million | $2,694 million | | Diluted Earnings Per Share | $1.08 | $0.66 | $2.07 | $1.34 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for Q2 2025 increased significantly due to higher net income and positive changes in other comprehensive income Comprehensive Income Summary (Unaudited) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Net Income | $2,126 million | $4,035 million | | Other comprehensive income (loss), net of tax | $1,030 million | $2,257 million | | Comprehensive Income | $3,156 million | $6,292 million | Condensed Consolidated Balance Sheets Total assets decreased due to reduced bank deposits and borrowings, while stockholders' equity increased from retained earnings and improved AOCI Key Balance Sheet Figures (Unaudited) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total assets | $458,936 million | $479,843 million | | Available for sale securities | $67,612 million | $82,994 million | | Held to maturity securities | $139,684 million | $146,453 million | | Bank loans — net | $50,405 million | $45,215 million | | Total liabilities | $409,485 million | $431,468 million | | Bank deposits | $233,058 million | $259,121 million | | Total stockholders' equity | $49,451 million | $48,375 million | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased due to net income and AOCI, partially offset by dividends, stock repurchases, and preferred stock redemption - Key equity changes in the first six months of 2025 include the repurchase of all remaining nonvoting common stock from TD Bank for $1.5 billion and an additional $351 million in common stock repurchases[120][142] - The company redeemed its Series G preferred stock for $2.5 billion on June 2, 2025[108][142] Condensed Consolidated Statements of Cash Flows Net cash provided by operating and investing activities was offset by significant cash used in financing activities, leading to a net decrease in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (Unaudited) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $9,536 million | ($5,601) million | | Net cash provided by (used for) investing activities | $19,546 million | $19,181 million | | Net cash provided by (used for) financing activities | ($39,027) million | ($40,938) million | | Increase (Decrease) in Cash and Cash Equivalents | ($9,945) million | ($27,358) million | Notes to Condensed Consolidated Financial Statements Detailed disclosures cover accounting policies, financial instruments, debt, and regulatory capital, highlighting preferred stock redemption and share repurchases - On June 2, 2025, the company redeemed all outstanding Series G preferred stock for $2.5 billion[108][244] - In February 2025, the company repurchased all remaining 19.2 million shares of nonvoting common stock from TD Group US Holdings LLC for $1.5 billion. An additional 3.9 million common shares were repurchased for $351 million in Q2 2025[239][241] - As of June 30, 2025, the company and its banking subsidiaries met all respective capital requirements and were considered well capitalized[254] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q2 and H1 2025, highlighting strong revenue and net income growth Introduction The Charles Schwab Corporation provides wealth management, brokerage, banking, and asset management services through its subsidiaries - Schwab's principal business subsidiaries include Charles Schwab & Co., Inc. (broker-dealer), Charles Schwab Bank, SSB (banking), and Charles Schwab Investment Management, Inc. (asset management)[14] - The company serves clients through two primary segments: Investor Services and Advisor Services[9] - With $10.76 trillion in client assets, management sees substantial growth opportunity in the estimated $70+ trillion U.S. investable wealth market[11] Overview Schwab's strong H1 2025 performance saw significant revenue and net income growth, driven by asset gathering and reduced funding costs Q2 2025 Financial Highlights (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total net revenues | $5,851 M | $4,690 M | 25% | | Net income | $2,126 M | $1,332 M | 60% | | Diluted EPS | $1.08 | $0.66 | 64% | | Core net new client assets | $80.3 B | $61.2 B | 31% | H1 2025 Financial Highlights (vs. H1 2024) | Metric | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | Total net revenues | $11,450 M | $9,430 M | 21% | | Net income | $4,035 M | $2,694 M | 50% | | Diluted EPS | $2.07 | $1.34 | 54% | | Core net new client assets | $218.0 B | $156.8 B | 39% | - The company reduced total bank supplemental funding by $22.2 billion (44%) in the first six months of 2025, with $27.7 billion remaining at June 30[25] - Significant capital actions in H1 2025 included repurchasing $1.5 billion of nonvoting common stock from TD Bank, increasing the common dividend by 8%, redeeming $2.5 billion of Series G preferred stock, and repurchasing an additional $351 million of common stock[27] Current Regulatory and Other Developments Recent regulatory developments include SEC and FDIC rule withdrawals, with ongoing monitoring of other pending matters - The SEC withdrew its December 2022 equity market structure rule proposals, 'Order Competition Rule' and 'Regulation Best Execution', on June 12, 2025[28] - The FDIC withdrew its July 2024 proposal related to the brokered deposits framework on March 3, 2025[29] - The company continues to monitor pending regulatory matters, including the DOL's final rule on the definition of 'fiduciary', FDIC special assessments, and proposed rulemaking on long-term debt and regulatory capital (Basel III endgame)[30] Results of Operations The company's operations showed strong year-over-year revenue growth, primarily from net interest revenue and asset management fees Revenue Breakdown - Q2 2025 vs Q2 2024 | Revenue Category | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Net interest revenue | $2,822 M | $2,158 M | 31% | | Asset management & admin fees | $1,570 M | $1,383 M | 14% | | Trading revenue | $952 M | $777 M | 23% | | Bank deposit account fees | $247 M | $153 M | 61% | | Total net revenues | $5,851 M | $4,690 M | 25% | Expense Breakdown - Q2 2025 vs Q2 2024 | Expense Category | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Compensation and benefits | $1,536 M | $1,450 M | 6% | | Professional services | $291 M | $259 M | 12% | | Depreciation and amortization | $215 M | $233 M | (8)% | | Total expenses excluding interest | $3,048 M | $2,943 M | 4% | Risk Management Schwab manages market, liquidity, and credit risks through policies on interest rate sensitivity, maintaining strong funding, and robust regulatory liquidity ratios - A hypothetical gradual 100 basis point increase in interest rates is simulated to increase net interest revenue by 4.1% over the next 12 months, while a 100 basis point decrease would lower it by 4.0%[79] - The company's primary source of funds is cash from client activity (bank deposits and brokerage cash). Supplemental funding includes FHLB borrowings, repurchase agreements, and commercial paper[89] Regulatory Liquidity Ratios (Average for Q2 2025) | Ratio | Q2 2025 Average | | :--- | :--- | | Liquidity Coverage Ratio (LCR) | 143% | | Net Stable Funding Ratio (NSFR) | 132% | Capital Management Schwab manages capital to support strategy, meet regulatory requirements, and return excess capital, maintaining a well-capitalized status Key Capital Ratios (Consolidated) | Ratio | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Common Equity Tier 1 Capital Ratio | 33.0% | 31.7% | | Tier 1 Capital Ratio | 38.9% | 39.8% | | Tier 1 Leverage Ratio | 9.8% | 9.9% | | Adjusted Tier 1 Leverage Ratio (Non-GAAP) | 7.2% | 6.8% | - The Board of Directors increased the quarterly cash dividend by 8% to $0.27 per common share, effective January 29, 2025[117] - In Q1 2025, the company repurchased $1.5 billion of nonvoting common stock from TD Bank. In Q2 2025, it repurchased an additional $351 million of common stock. In July 2025, a new $20.0 billion share repurchase authorization was approved, replacing the previous one[120][122] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures used by management for clearer operational performance insights Reconciliation of GAAP to Non-GAAP EPS (Diluted) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Diluted EPS (GAAP) | $1.08 | $2.07 | | Adjustments (Amortization, etc.) | $0.06 | $0.10 | | Adjusted Diluted EPS (Non-GAAP) | $1.14 | $2.17 | Reconciliation of GAAP to Non-GAAP Capital Ratio (Consolidated) | Metric | June 30, 2025 | | :--- | :--- | | Tier 1 Leverage Ratio (GAAP) | 9.8% | | AOCI Adjustment | (2.6)% | | Adjusted Tier 1 Leverage Ratio (Non-GAAP) | 7.2% | - Management uses non-GAAP measures like Adjusted Diluted EPS and ROTCE as components for employee and executive incentive compensation[129] Item 3. Quantitative and Qualitative Disclosures About Market Risk Disclosures about market risk are located in the Risk Management section of the MD&A - The disclosures about market risk are located in the Risk Management section of the MD&A[133] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[264] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[265] Part II - Other Information Item 1. Legal Proceedings Information on legal proceedings, including a pending settlement for the Corrente Antitrust Litigation, is detailed in Note 10 - For details on legal proceedings, the report refers to Note 10 of the Condensed Consolidated Financial Statements[266] - The Corrente Antitrust Litigation has a proposed settlement pending court approval, which involves non-monetary undertakings and an immaterial payment for plaintiffs' attorneys' fees[206] Item 1A. Risk Factors There were no material changes to the company's risk factors during the first six months of 2025 - There were no material changes to the company's risk factors during the first six months of 2025[267] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details on stock repurchase activities, including Q2 2025 repurchases and a new $20 billion authorization approved in July 2025 - On July 24, 2025, the Board of Directors approved a new share repurchase authorization of up to $20.0 billion, replacing the previous program[268] Issuer Purchases of Equity Securities (Q2 2025) | Month | Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | April | — | — | | May | — | — | | June | 3,950 | $88.75 | Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None[271] Item 4. Mine Safety Disclosures This item is not applicable to The Charles Schwab Corporation - Not applicable[272] Item 5. Other Information Jonathan S. Beatty adopted a Rule 10b5-1 trading plan in May 2025 for the potential sale of common stock - Jonathan S. Beatty, Managing Director and Head of Advisor Services, adopted a Rule 10b5-1 trading plan on May 28, 2025, for the potential sale of up to 13,216 shares[273] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including SOX certifications and Inline XBRL data files - Exhibits filed include certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL data files[276] Signature - The report was signed on August 8, 2025, by Michael Verdeschi, Managing Director and Chief Financial Officer[280]