This is Morningstar's analysis:
Charles Schwab Earnings Preview
For Charles Schwab’s SCHW upcoming first quarter of 2023 earnings, we expect to see some signs of accelerated “cash sorting,” with low-cost sweep deposits being moved into higher-yielding fixed-income securities and money market funds. The low-cost deposit funding is also being replaced by higher-cost funding sources. When Schwab released its annual report in late February, it had already borrowed an additional $13 billion from the FHLBank system, which more than doubled its FHLBank loan balance of $12.4 billion at the end of 2022. The FHLBank loans carry an interest rate around 5% compared with Schwab’s average funding costs from bank deposits of 0.46% in the fourth quarter of 2022. Schwab has also likely incorporated more retail certificates of deposit on its funding base, which also have an interest rate around 5%.
We continue to believe that wide-moat Charles Schwab has access to sufficient funding sources (even if some of them are higher cost that could pressure net interest margins) and that it has sufficient capital. We assess shares are undervalued compared with our $70 fair value estimate and believe the discount is more related to market uncertainty over the company’s earnings power and less about concerns over its access to funding and capital.
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