Charles Schwab Corporation (SCHW) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the supplied filing does not provide a standalone Q4 income statement. Schwab provides brokerage, wealth management, banking, asset management, custody, and advisory services through Investor Services and Advisor Services. Year-end client assets were $8.52 trillion, with 34.8 million active brokerage accounts.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total net revenue | $18.84 billion | $20.76 billion | Down 9% |
| Net interest revenue | $9.43 billion | $10.68 billion | Down 12% |
| Net income | $5.07 billion | $7.18 billion | Down 29% |
| Diluted EPS | $2.54 | $3.50 | Down 27% |
| Pre-tax profit margin | 33.9% | 45.2% | Down 11.3 percentage points |
| Total expenses excluding interest | $12.46 billion | $11.37 billion | Up 10% |
| Net interest margin | 1.98% | 1.78% | Up 20 basis points |
Adjusted diluted EPS, a non-GAAP measure, was $3.13, down 20% from $3.90. Adjusted expenses were $11.03 billion, up 6%; these measures exclude specified acquisition, amortization, and restructuring costs.
Revenue and client activity
- Asset management and administration fees rose 13% to $4.76 billion, supported by growth in Schwab money market funds and stronger markets.
- Trading revenue fell 12% to $3.23 billion; daily average trades declined 9% to 5.4 million.
- Bank deposit account fees fell 50% to $705 million as average swept deposits and net yields declined. Revenue included $97 million of one-time breakage fees from ending certain third-party bank arrangements.
- Core net new client assets were $305.7 billion, down from $427.7 billion. Year-end client assets increased 21% to $8.52 trillion, reflecting market gains and asset gathering, partly offset by TD Ameritrade-related attrition.
Cash flow, balance sheet, debt, and liquidity
- Cash from operating activities was $19.59 billion; investing activities provided $57.41 billion; financing activities used $61.25 billion. Cash and cash equivalents, including restricted amounts, ended the year at $74.47 billion.
- Total assets were $493.18 billion, down 11% year over year. Stockholders’ equity was $40.96 billion; accumulated other comprehensive loss improved to $18.13 billion from $22.62 billion.
- Bank deposits were $289.95 billion, down from $366.72 billion; payables to brokerage clients were $84.79 billion. Schwab used higher-cost funding to manage client cash outflows, including $26.4 billion of FHLB borrowings, $48.3 billion of brokered CDs included in bank deposits, and $4.9 billion of repurchase agreements at year-end.
- Long-term debt was $26.13 billion. Schwab issued $6.2 billion of senior notes in 2023; the filing reports $3.69 billion of long-term debt maturities in 2024.
- Year-end consolidated Tier 1 leverage ratio was 8.5%, versus 7.2% in 2022; the company’s non-GAAP ratio including AOCI was 4.9%. Average fourth-quarter LCR was 130% and NSFR was 126%, both above the 100% regulatory minimum.
Material changes versus 2022
Rapid rate increases prompted clients to move cash from sweep deposits into higher-yielding money market funds and fixed income investments. Bank sweep deposits and brokerage-client payables declined by a combined $126.1 billion during 2023, while client assets in Schwab proprietary money market funds and fixed income securities increased by $383.8 billion. Lower average interest-earning assets and greater use of costly supplemental funding reduced net interest revenue despite higher asset yields. Expenses also rose, including restructuring costs and increased FDIC assessments.
Outlook, commentary, risks, and unusual items
- TD Ameritrade integration: Schwab had transitioned approximately 90% of TD Ameritrade accounts by year-end and expected the final client transition in May 2024. Management estimated total acquisition and integration costs and capital expenditures of $2.4–$2.5 billion, with approximately $200 million of integration costs expected in 2024. About 80% of expected $1.8–$2.0 billion annualized cost synergies had been achieved by year-end; most remaining synergies were expected by the end of 2024, with full-year realization beginning in 2025. These estimates remain subject to change.
- Additional cost actions: Management expected at least $500 million of incremental annualized savings from streamlining, alongside approximately $500 million of related exit and restructuring costs; $495 million had been recognized through year-end, with remaining costs expected mainly in 2024.
- Expense and investment outlook: Management expected 2024 total expenses excluding interest to be generally consistent with 2023, except for acquisition/integration and restructuring costs. Capital expenditures were expected within the longer-term range of 3%–5% of revenue. The filing does not provide clear full-year 2024 revenue or EPS guidance.
- Funding and interest-rate exposure: Management expected supplemental funding balances to decrease over time, but future cash movements, rates, and funding costs remain uncertain. Client cash migration, deposit pricing, securities yields, and unrealized securities losses could affect earnings, liquidity, and capital.
- Capital and regulation: Schwab paused share repurchases after the first quarter of 2023 amid capital management and regulatory uncertainty. Proposed rules could require AOCI inclusion in regulatory capital and additional long-term debt, potentially increasing capital and funding costs. The $172 million FDIC special assessment was recognized in Q4 2023 and is payable over eight quarters beginning in 2024.
- Integration, legal, and operational risks: The final TD Ameritrade conversion could cause client attrition, execution issues, or additional costs. Schwab disclosed ongoing litigation, including antitrust and order-routing cases; it said a reasonably possible loss estimate was generally unavailable for significant matters. Other principal risks include cyber incidents, technology and third-party service disruptions, market volatility, credit losses, and extensive regulatory requirements.
Important facts for investors to verify
- Whether the May 2024 TD Ameritrade transition completed as planned, with client retention and attrition consistent with management’s expectations.
- Progress toward remaining integration synergies, the expected 2025 full-year benefit, and actual 2024 integration and restructuring costs.
- Trends in client sweep cash, BDA balances, money market fund and fixed-income allocations, and the level and cost of supplemental funding.
- Capital adequacy under any final rules, especially the effect of including AOCI; compare the reported 8.5% leverage ratio with the 4.9% adjusted ratio that includes AOCI.
- Developments in the disclosed legal matters and proposed regulatory requirements, as well as any material effects on revenue, expenses, liquidity, or capital.