Executive Summary / Key Takeaways

• Growth & Integration Momentum: Charles Schwab is experiencing robust client and asset growth, significantly accelerating post-Ameritrade integration, with core net new assets up 39% in the first half of 2025 and new brokerage accounts up 10% in 2024.
• Financial Resurgence: Strong revenue and earnings expansion are evident, with Q2 2025 adjusted EPS up 56% year-over-year, driven by reduced high-cost funding, increased client engagement, and strategic investments.
• Strategic & Tech Offensive: The "Through Clients' Eyes" strategy, bolstered by AI-powered efficiency, expanded wealth/lending solutions, and planned spot crypto trading, is deepening client relationships and diversifying revenue streams.
• Capital Deployment: With capital ratios exceeding targets and significant progress in reducing supplemental bank funding, Schwab is poised for accelerated capital returns, including a new $20 billion share repurchase authorization.
• Competitive Moat: Schwab maintains market leadership in client assets, RIA custody, and trading, leveraging its low-cost model, omnichannel service, and integrated platforms to differentiate against competitors.

Charles Schwab: Integrated Strength and Tech Innovation Drive Record Earnings

The Charles Schwab Corporation ($SCHW) stands as a titan in the financial services industry, a testament to its enduring "Through Clients' Eyes" strategy. Founded in 1971 on the principle of democratizing investing, Schwab has evolved into a diversified powerhouse spanning wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. This client-centric approach, coupled with a relentless focus on scale and expense discipline, has not only shaped its historical trajectory but also fortified its competitive position in a dynamic market.

Schwab operates across two robust segments: Investor Services, catering to individual investors with retail brokerage, advisory, and banking, and Advisor Services, providing comprehensive support to independent Registered Investment Advisors (RIAs). The company's sheer scale is formidable, managing $10.76 trillion in client assets as of Q2 2025, yet still eyeing a substantial opportunity within the estimated $70 trillion U.S. investable wealth market. This market leadership is further underscored by its #1 position in RIA custodial assets and daily average trades, demonstrating a powerful competitive moat.

Technological Edge and Innovation Driving Client Value

Schwab's competitive advantage is deeply rooted in its differentiated technology and continuous innovation. The integration of TD Ameritrade (AMTD), a monumental undertaking completed in 2024, brought not only nearly $2 trillion in assets but also the highly acclaimed thinkorswim trading platform. This platform, now utilized by 25% of legacy Schwab clients, offers advanced trading tools, specialized research, and educational content, distinguishing Schwab's trader offer as the strongest in the industry. The company has further enhanced this by expanding 24/5 trading capabilities to over 1,100 securities, including S&P 500 and Nasdaq 100 stocks and ETFs, providing critical flexibility for investors in interconnected global markets.

Beyond trading, Schwab is leveraging artificial intelligence (AI) to enhance efficiency and client experience. The firm currently has 40 AI use cases in various stages of development, with near-term applications focused on empowering client-facing representatives and streamlining internal operations. Schwab Knowledge Assistant, an AI technology supporting service professionals, saw its usage increase by 90% in 2024. Additionally, Schwab Intelligent Assistant, powered by a large language model, now provides on-demand, personalized support for international clients. These AI investments are designed to lower the cost-to-serve clients while simultaneously improving service quality and freeing up resources for further growth initiatives.

Looking ahead, Schwab is poised to enter the direct digital asset trading space. Building on its existing leadership in crypto Exchange-Traded Products (ETPs), where it custodies $25 billion in client assets (representing 20% of the total market), Schwab plans to launch spot crypto trading for Bitcoin and Ethereum within the next 12 months, contingent on regulatory clarity. This move is a direct response to client demand for a trusted platform to consolidate their digital assets alongside traditional portfolios. While cautiously approaching tokenization due to concerns about transparency and regulatory alignment in nascent markets, Schwab's commitment is to innovate responsibly, ensuring any new offerings uphold the firm's 50-year legacy of transparent, low-cost, and effective market participation.

Financial Momentum and Operational Excellence

Schwab's strategic and technological investments are translating into impressive financial performance, marking a significant "lift-off" year in 2025. For the second quarter of 2025, total net revenues surged 25% year-over-year to $5.9 billion, contributing to a year-to-date total of $11.5 billion, up 21% from the first half of 2024. Adjusted diluted earnings per common share (EPS) reached $1.14 in Q2 2025, a remarkable 56% increase from the prior year, bringing the year-to-date adjusted EPS to $2.17, up 48%. This robust growth is a direct outcome of several key drivers:

• Net Interest Revenue (NIR): NIR increased 31% in Q2 2025 to $2.8 billion (up 26% to $5.5 billion year-to-date). This was primarily fueled by a substantial reduction in higher-cost bank supplemental funding and lower market rates, alongside growth in bank lending and increased cash and investments segregated for regulatory purposes. The net interest margin (NIM) expanded to 2.65% in Q2 2025, up from 2.03% in Q2 2024.

• Asset Management and Administration Fees: These fees rose 14% in Q2 2025 to $1.6 billion (up 14% to $3.1 billion year-to-date), driven by continued growth in Schwab money market funds, higher client asset balances from equity market appreciation, and strong adoption of managed investing solutions.
• Trading Revenue: Reflecting heightened client engagement, trading revenue jumped 23% in Q2 2025 to $952 million (up 17% to $1.9 billion year-to-date), primarily due to higher trading volumes. Daily average trades (DATs) surged 38% year-over-year to 7.6 million in Q2 2025.
• Bank Deposit Account Fees: These fees increased 61% in Q2 2025 to $247 million (up 46% to $492 million year-to-date), largely due to improved net yields as a greater percentage of balances converted to floating rates.

Expense management remains a core discipline. While total expenses excluding interest increased 4% in Q2 2025 to $3.0 billion (up 5% to $6.2 billion year-to-date), adjusted total expenses rose 5% (up 7% year-to-date). These increases reflect strategic investments in growth initiatives, such as hiring financial consultants and enhancing client-serving capabilities, balanced with ongoing efforts to drive efficiencies, including AI adoption and process improvements. The firm's adjusted pre-tax profit margin reached 50.1% in Q2 2025, demonstrating the power of its diversified revenue model and disciplined cost control.

Bolstering Liquidity and Capital for Future Growth

Schwab has made significant strides in strengthening its balance sheet and optimizing its capital structure. The company reduced total bank supplemental funding by $22.2 billion (44%) in the first six months of 2025, with $27.7 billion remaining outstanding at June 30, 2025. This aggressive paydown, a key priority, is supported by cash flows from the securities portfolio and stabilizing client cash trends. Management aims to further reduce these higher-cost liabilities to a modest, permanent level consistent with a diversified long-term funding profile, which includes strategic wholesale funding and broker-dealer funding.

Capital ratios are robust, with the consolidated Tier 1 Leverage Ratio at 9.8% and the adjusted Tier 1 Leverage Ratio at 7.2% as of Q2 2025, slightly above the long-term operating objective of 6.75%-7.00%. This strong capital position, driven by organic capital generation from net income and improved Accumulated Other Comprehensive Income (AOCI), enables Schwab to pivot towards accelerated capital returns. In the first half of 2025, the company redeemed $2.5 billion in Series G preferred stock, increased its common dividend by 8% to $0.27 per share, and repurchased $1.85 billion in common stock, including a $1.5 billion repurchase from TD Group US Holdings, LLC (TD). A new $20 billion share repurchase authorization, replacing the previous $15 billion program, signals management's confidence in future capital generation.

Competitive Landscape and Strategic Positioning

Schwab operates in a highly competitive financial services landscape, facing direct rivals like Morgan Stanley (MS), Bank of America (BAC) via Merrill Edge, Robinhood (HOOD), and Interactive Brokers (IBKR), as well as indirect competitors such as robo-advisors and crypto exchanges. Schwab's competitive advantages are multifaceted:

• Cost Leadership & Accessibility: Schwab's low-cost model and transparent pricing, a foundational element of its "Through Clients' Eyes" strategy, differentiate it from full-service banks like BAC and premium wealth managers like MS. This appeals to a broad spectrum of investors, from self-directed to high-net-worth.
• Omnichannel Service & Trust: Unlike mobile-first disruptors like Robinhood, Schwab offers a comprehensive omnichannel experience, including 400 physical branches and 16,000 advisors, fostering deep client relationships and trust. This was evident when Schwab Bank was named the "most trusted bank" by Investor's Business Daily, a significant achievement given past market misperceptions.
• Integrated Platform & Product Breadth: The successful integration of TD Ameritrade's thinkorswim platform has solidified Schwab's position as the #1 firm for traders. Its expanding suite of wealth, lending (e.g., industry-leading Pledged Asset Lines with 1.1-day average cycle times), and asset management solutions provides a "no trade-offs" value proposition that rivals struggle to match.
• Organic Growth Engine: Schwab's Transfer of Assets (TOA) ratio of 1.5 indicates it attracts $1.50 from competitors for every $1 that leaves, highlighting its ability to win market share. The accelerating net new asset (NNA) growth from legacy Ameritrade clients, which saw over 100% year-over-year growth in H1 2025, further validates the integration's success and future growth potential.

While competitors like Robinhood demonstrate faster growth in capturing younger demographics through innovative, gamified interfaces, Schwab is actively addressing this by attracting younger investors (30% of new-to-firm clients under 30, nearly 60% under 40 in Q1 2025) and traders with its enhanced platforms and digital asset offerings. Interactive Brokers excels in advanced analytics for professional traders, but Schwab's focus on user-friendliness and comprehensive support for all investor levels provides a broader appeal.

Outlook and Risk Assessment

Management's updated full-year 2025 financial scenario (as of July 2025) projects total revenue growth of 18.5%-19.5%, with adjusted EPS in the $4.55-$4.65 range, implying year-over-year earnings growth into the very high 40% zone. This outlook assumes two 25-basis-point Fed rate cuts before year-end, approximately 9% S&P returns for 2025, and significantly higher daily average trading volumes than 2024. Full-year NIM is expected to be 2.65%-2.75%, expanding into the 280 basis point range by Q4 2025, driven by continued supplemental funding paydowns and favorable cash trends. Expenses are projected to grow 4.75%-5.25%, reflecting strategic investments balanced with efficiency gains. Schwab anticipates making progress towards its long-term 5%-7% organic NNA growth target in the second half of 2025.

Despite this optimistic outlook, several risks warrant consideration. Interest rate fluctuations remain a primary market risk, potentially impacting net interest revenue if asset yields decline faster than funding costs. However, Schwab has implemented hedging programs, covering approximately one-third of its interest rate risk profile in a downward rate environment, to mitigate this exposure. Liquidity risk, while actively managed through diversified funding sources and stress testing, could arise from unforeseen market dislocations or client cash outflows. Regulatory risks, including potential changes to capital rules (e.g., AOCI inclusion) and ongoing scrutiny of fiduciary definitions and special assessments, could impact capital requirements and operational costs. Management is also cautious about large-scale securities portfolio restructuring, prioritizing client trust over potential headline risk. Cyber threats and technological disruptions are ever-present, though Schwab's continuous investment in technology and AI aims to bolster its resilience.

Conclusion

Schwab's journey from a disruptor to an industry leader is defined by its unwavering commitment to clients and strategic innovation. The successful integration of TD Ameritrade has not only expanded its scale but also invigorated its growth engine, driving record financial performance and solidifying its competitive advantages in a crowded market. With a robust balance sheet, a clear path to accelerated capital returns, and a forward-looking strategy that embraces technological advancements and deepening client relationships, Schwab is well-positioned for sustained profitable growth.

The firm's ability to consistently deliver on its "Through Clients' Eyes" strategy, leveraging its low-cost model, superior technology, and comprehensive service, underpins a compelling investment thesis. As Schwab continues to expand its offerings, from advanced trading and wealth solutions to digital assets, its technological leadership and operational efficiency will be critical in capturing a larger share of the vast U.S. investable wealth, ensuring its long-term trajectory as a trusted leader in financial services.