SCHW: Steady Comfort for Seasoned Investors

$Charles Schwab(SCHW.US) Q4 results stayed steady, with overall financials in line. Revenue slightly missed (shortfall mainly from BDA account fees), but tight cost control drove a profit beat. Notably, the core operating KPIs we track outperformed, all above Street, signaling solid organic growth momentum.

Key takeaways:

1) Two key metrics — NNA and NIM: For SCHW, the core is net new assets and NIM. The former captures long-term organic growth (scale-driven), while the latter reflects monetization capability (NII remains the main profit engine).

(1) Net new assets (NNA): Q4 NNA was $158 bn, with an annualized growth rate of 5.4%, beating consensus, helped by Dec. pulling growth back into the 5–7% guide. At the Dec. investor meeting, management again reaffirmed confidence in the 5–7% long-term target.

(2) Net interest margin (NIM): 2.93% in Q4, also slightly above expectations. Despite rate cuts in Sep. and Dec., NIM ended up higher vs. Q3.

Drivers mirrored Q3: expanding interest income plus lower funding costs. Income rose on active margin financing and trading, with balances up and limited rate compression. On costs, short-term debt balances fell (down $5 bn QoQ vs. $2.1 bn last quarter), showing accelerated repayment of high-cost crisis-era borrowings, while the flexible savings rate dropped sharply QoQ with easing expectations, from 0.43% to 0.29%.

2) Trading: DARTs rose 31% YoY, ahead of expectations, driven by a 6% increase in users and a 12% rise in assets per account, plus Q4 market tailwinds. Derivatives penetration increased to 22.4%, lifting revenue per trade.

3) Net interest income: Up 25% YoY, though growth moderated vs. Q3’s high base. Interest-earning assets rose ~1%, while revenue expansion mainly came from higher NIM and a rapid shrink in short-term debt, reducing interest expense.

4) Wealth management: Revenue growth accelerated to 15% despite a higher base, while take rates were stable to slightly lower. Growth was primarily AUM-driven across the SCHW platform.

5) Profitability: Scale leverage continued to improve efficiency. Total opex rose 4%, well below revenue growth of 19%, driving OP to $3.2 bn, +38% YoY, with margin up ~700bps YoY to above 50%.

6) Continued investment and expansion: In Q4, SCHW announced the acquisition of Forge Global Holdings, a pre-IPO private market trading platform, for $660 mn. The platform currently custodies 2.6 mn accounts with $18.1 bn in assets, and cumulative trading volume over $17 bn.

This private-markets build-out helps SCHW integrate and enhance PE products and services for corporates and UHNW clients, supporting LT NNA growth. Closing is expected in 1H this year.

7) Shareholder returns: Repurchased 29.2 mn shares for $2.7 bn and paid a $0.27 DPS. Payouts were broadly unchanged vs. last quarter, implying an annualized yield of ~6%, still attractive in an easing cycle.

8) Key metrics at a glance:

Dolphin Research View

Q4 remained steady overall, but with NNA and NIM both solid, we view the print slightly positively. Core operating momentum looks intact.

SCHW is nearing the end of its post-crisis clean-up and entering a window to reignite growth drivers. The clean-up refers to ongoing repayment of high-cost short-term borrowings taken during the 2022–2023 liquidity scare, which is releasing profit. Re-acceleration means management is moving past crisis mode to evaluate new adjacencies and broaden the platform’s reach.

That said, vs. last quarter’s visible bottoming range, the current $180 bn market cap after one quarter of recovery dilutes the risk-reward somewhat. Still, the ~18x 2026E P/E is not demanding; reverting to the 20x historical midpoint implies ~10% upside, plus a ~6% shareholder yield, which remains advantageous in an easing cycle.

If rate cuts proceed in an orderly fashion, SCHW could hold NIM or see a smaller decline near term. Potential new-product or new-business catalysts for incremental growth do not yet look fully priced; watch management’s commentary on the call.

Detailed analysis below

I. SCHW business architecture

Charles Schwab is one of the go-to wealth platforms for many U.S. households. On SCHW:

(1) ToC (Investor services): Retail clients can trade stocks and bonds, buy funds, access advisory, and use banking, lending, and trust services to build a holistic wealth plan.

(2) ToB (Advisor services): SCHW also serves external RIAs with trading, custody, financing, and related support.

The two are complementary. By serving outsourced RIAs, SCHW extends its WM franchise with a light-asset model and reaches more high-quality clients, while RIAs leverage SCHW’s brand, secure custody, and broad product access to operate independently.

As commissions trended toward zero in trading and funds, SCHW leaned on deposit/loan spreads and interest income from fixed-income investments to offset the gap. The group model is now clear — drive AUM via commission-free securities trading, low channel fees and zero-commission fund dealing, low-fee robo-advice, and no-promo-fee RIA custody, then monetize primarily through asset yields (deposit/loan interest and investment income).

II. Core growth: progressing on a healthy recovery path

SCHW’s ecosystem continued to expand in Q4, with the following key metrics:

(1) Brokerage accounts: gross adds 1.27 mn, minus 0.74 mn inactive, net adds 0.53 mn. On an annualized basis, that implies 13% gross adds, 7% attrition, and 6% net adds. Versus the past three years, there is a gradual acceleration trend.

Marketing spend stayed efficient. Blended CAC was $219 in Q4, fluctuating around the $200–300 range over the past two years, reflecting strong user stickiness and brand recognition.

(2) Total client assets neared $12 tn, with average assets per account up to $310k. Over $300 bn of asset growth in the quarter came from $164 bn of net inflows (with a $6 bn one-off transfer out) and $151 bn of market appreciation.

On an annualized basis, that is roughly ‘6% net inflow + 5% market return’, driving >10% organic AUM growth. Markets are volatile, so NNA is the core of organic growth. Management maintained the 5–7% LT NNA target, and with Dec. strength, Q4 landed in range.

III. Trading: primarily benefiting from organic growth

Despite a stalling tape and weak crypto, trading activity held up, with SCHW’s STAX indicator still elevated in Q4. Engagement remained resilient.

As a result, trading revenue rose 22% YoY in Q4, moderating from 25% in Q3’s high base. DARTs reached 8.27 mn, +31% YoY, while derivatives continued to gain share.

IV. Net interest: more financing activity, NIM beat

NII rose 25% YoY, with growth slowing due to the high base. The lift came from higher-margin margin activity in a high-rate backdrop and a rapid paydown of high-cost short-term borrowings.

By drivers, interest-earning assets grew ~1% YoY, while NIM expanded by ~50bps YoY and ~6bps QoQ, slightly ahead of expectations despite rate cuts in Sep. and Dec. The backdrop remained supportive for spreads.

Last quarter, the company raised its full-year NIM target from 2.65% to 2.75%, and actual NIM landed meaningfully above that. Execution exceeded plan.

V. Wealth management: growth remains scale-driven

AM revenue rose 15% YoY in Q4, mainly driven by AUM expansion, with blended fee rates roughly flat YoY. On easing expectations, clients shifted more into equities, while idle cash moved into money funds and mutual funds, reducing savings deposit mix.

Assets under advice also increased notably in Q4. Advisory penetration continued to rise.

VI. Scale effects continue to unlock operating efficiency

As a mature platform, opex is generally stable. SCHW is still investing in product innovation and expert talent, yet total opex rose only 4%, far below revenue growth.

Operating profit reached $3.2 bn, +38% YoY, with margin at ~50%. Scale benefits remained a clear tailwind.

Dolphin Research articles on 'SCHW'

Deep Dives

Oct 17, 2025 Earnings Call Trans. ‘SCHW (Trans.): Crypto trading next year, but skeptical on stock tokenization’

Oct 17, 2025 Earnings First Take ‘SCHW: Fundamentals solid, needs extra push to reignite growth’

Oct 9, 2025 Initiation – Part 2 ‘After missing the crypto wave, can the ‘old guard’ SCHW mount a comeback?’

Sep 17, 2025 Initiation – Part 1 ‘SCHW: How a ‘people’s broker’ fought its way through a red ocean’

Risk disclosure and statement: Dolphin Research Disclaimer and General Disclosure