Grade: B — Generally Healthy, Minor Concerns
Framework: Bank/brokerage-specific analysis + Schilit principles (traditional manufacturing checks partially N/A)
Data: SEC EDGAR 10-K (Filed 2026-02-25, FY ended December 31, 2025) + Yahoo Finance
Auditor: Deloitte & Touche LLP — Unqualified opinion
One-line verdict: Charles Schwab delivered a powerful earnings recovery in FY2025 — revenue surged 22% to $23.9B, net income jumped 49% to $8.85B, and ROTCE hit 38%. The post-TD Ameritrade integration is bearing fruit. But the screening engine flags two issues: AR outpacing revenue for 2 consecutive years (a fail), and goodwill + intangibles at $19.2B representing 39% of equity (watch). The A2 fail reflects the unique dynamics of a brokerage/bank — "receivables" include client-related assets that don't behave like commercial AR. CFFO/NI of 1.05x shows clean cash backing. NIM of 2.74%. Debt declined sharply from $45.1B to $31.0B as Schwab unwound emergency FHLB borrowings from the 2023 deposit crisis. We override the engine Grade C to B.
| Metric | Result |
|---|---|
| Red Flags (Engine) | **1** (A2 — AR outpacing revenue, brokerage artifact) |
| Watch Items | **1** (goodwill at 39% of equity) |
| Checks Completed | **12/18** (6 N/A) |
| Beneish M-Score | **N/A** (model does not apply to financial institutions) |
| F-Score (Fraud Probability) | **1.85** (0.68% probability — low) |
| Altman Z-Score | **N/A** (not applicable to financial services companies) |
| Auditor | Deloitte & Touche LLP — Unqualified opinion |
| Fiscal Year | 2025 (ended December 31, 2025) |
| Report Date | 2026-04-05 |
Post-TD Ameritrade Recovery
Per the 10-K, Schwab is the largest publicly traded U.S. brokerage by client assets, with NIM of 2.74% and ROTCE of 38%. The company completed the TD Ameritrade integration and has been deleveraging aggressively.
| Metric | 2022 | 2023 | 2024 | 2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $20.8B | $18.8B | $19.6B | **$23.9B** | +22.0% |
| Net Income | $7.18B | $5.07B | $5.94B | **$8.85B** | +49.0% |
| Net Margin | 34.6% | 26.9% | 30.3% | **37.0%** | Recovery |
| ROE | 19.6% | 12.4% | 12.3% | **17.9%** | Strong recovery |
| ROTCE | — | — | — | **38%** | Exceptional |
| CFFO | $2.06B | $19.6B | $2.67B | **$9.31B** | +249% |
| CFFO/NI | 0.29x | 3.87x | 0.45x | **1.05x** | Normalized |
| NIM | — | — | — | **2.74%** | Solid |
| Total Debt | $37.9B | $59.1B | $45.1B | **$31.0B** | -31.4% |
The 2023 CFFO spike ($19.6B) and 2024 trough ($2.67B) reflect FHLB borrowings and repayments during the regional bank deposit stress. Schwab drew down emergency FHLB advances when clients moved deposits to money market funds, then repaid those borrowings as conditions normalized. Total debt declining from $59.1B to $31.0B is the deleveraging story.
Per the filing, diluted EPS of $4.65, up from $3.25 prior year. Client assets and DATs (daily average trades) continued to grow.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 1,641 days (reflects brokerage balance sheet), +2 days |
| A2 | AR vs Revenue Growth | **FAIL*** | AR outpaced revenue for 2 consecutive years |
| A3 | Revenue vs CFFO | PASS | Revenue +22%, CFFO +249% |
| B1 | Inventory vs COGS | PASS | No inventory |
| B2 | CapEx vs Revenue | PASS | CapEx declining |
| B3 | SG&A Ratio | N/A | Financial services |
| B4 | Gross Margin | N/A | Financial services |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 1.05 |
| C2 | Free Cash Flow | PASS | FCF $8.76B |
| C3 | Accruals Ratio | PASS | -0.1% — near zero |
| C4 | Cash vs Debt | PASS | Cash $46.0B covers $31.0B debt |
| D1 | Goodwill + Intangibles | WATCH | $19.2B = 39% of equity |
| D2 | Leverage | N/A | Financial services |
| D3 | Soft Asset Growth | N/A | Financial services |
| D4 | Asset Impairment | N/A | No data |
| E1 | Serial Acquirer FCF | PASS | Positive |
| E2 | Goodwill Surge | PASS | -3% YoY — declining |
| F1 | Beneish M-Score | N/A | Financial services |
*A2 note: For a brokerage/bank, "receivables" include margin loans, securities lending, and client-related balances that grow with client assets and market levels, not with revenue. This is a structural pattern, not a revenue manipulation signal.
Key Risks from the 10-K
1. Interest Rate Sensitivity
Schwab's NIM of 2.74% is sensitive to rate changes. The company hedges some interest rate risk, but a rapid decline in short-term rates would compress net interest revenue — the largest revenue component. Per the filing, the delinquency roll rates and provision dynamics are tied to economic conditions.
2. Client Cash Sorting
The 2023 crisis was triggered by client cash sorting — deposits migrating to higher-yielding money market funds. While this has stabilized, future rate spikes could reignite the dynamic, forcing Schwab to draw on wholesale funding again.
3. Goodwill — $19.2B from TD Ameritrade
The TD Ameritrade acquisition created the bulk of Schwab's $19.2B in goodwill + intangibles. While declining (down 3% YoY as intangibles amortize), impairment risk exists if the brokerage industry faces structural revenue compression.
4. AOCI and Capital
As a Category III banking organization, Schwab has elected to exclude most AOCI from CET1. Unrealized losses on the investment portfolio could impact economic capital even if regulatory capital appears adequate.
Summary
Grade: B. Generally healthy. A strong earnings recovery post-TD Ameritrade integration, with active deleveraging and clean cash flow quality.
Schwab's FY2025 was a recovery year — revenue +22%, net income +49%, ROTCE of 38%, and total debt reduced by $14B. CFFO/NI normalized to 1.05x. The A2 flag is a brokerage-specific artifact. Goodwill at 39% of equity (watch) is declining as intangibles amortize. The real risks are interest rate sensitivity and the potential for another cash sorting episode. Watch NIM trajectory and the debt reduction pace.
**Disclaimer**: This report is based on Charles Schwab Corporation's fiscal year 2025 10-K filed with the SEC on February 25, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade B means the company is generally healthy with minor concerns to monitor.