Charles Schwab Corporation (the) · NYSE:SCHW
Charles Schwab Corporation (the) — Q2 2024 Earnings Presentation
46 slides from Charles Schwab Corporation (the)'s earnings presentation, Jul 16, 2024
Slide 1: Summer Business Update
Summer Business Update July 16, 2024
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements that refer to expectations, projections or other ch
Slide 3: Strategic Update
Strategic Update Walt Bettinger Co-Chairman of the Board and Chief Executive Officer Rick Wurster President Charles Schwab Corporation 3
Slide 4: Schwab's organic growth rate begins to accelerate as Ameritrade-related attrition moderates
Schwab’s organic growth rate begins to accelerate as Ameritrade-related acquisition attrition moderates. During this transition year, client engagement remains strong as a growing number of individual investors and the independent advisors who serve them turned to Schwab In concert with the succ
Slide 5: Signs of improving inflation trends reinforced the market's soft landing outlook
Signs of improving inflation trends reinforced the market’s outlook for a soft landing, helping to sustain the recent tech- led rally,… Federal Funds Rate and U.S. Inflation Rate (%)1 YTD 2024 Select Index Returns (%)2 U.S Inflation Rate Federal Funds Rate NASDAQ® S&P 500® S&P® U.S. Aggregate Bond I
Slide 6: …and bolster overall investor sentiment
…and bolster overall investor sentiment. AAII® Bull-Bear Spread Sentiment Survey1 Schwab Trading Activity IndexTM (STAX)2 2Q24 70 55 Bull Bear 35 Jan-23 Jun-24 Clients’ investment exposure continued to trend higher during 2Q24, with the index increasing 6% sequentially and 23% YTD. Jan-23 Jun-24 Not
Slide 7: Completed the largest broker-dealer conversion in history
Against this backdrop, we completed the largest broker-dealer conversion in history and millions of clients are already utilizing the capabilities of the combined firm. CPS for Ameritrade clients continues to …and clients continue to benefit from the Assets $1.9T+ steadily build following conversion
Slide 8: Client engagement remained healthy through the end of June
Client engagement remained healthy through the end of June,... 2Q24 Buy-Sell Ratio Daily Average Trades (K) 2Q24 Managed Investing Net Flows ($B)1 +4% 5,958 1.1 5,272 5,218 5,192 5,486 +48% vs. 2Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Note: Q = Quarter. K = Thousand. B = Billion. 1. Managed investing net flows
Slide 9: An increasing number of investors turned to Schwab
…as an increasing number of investors turned to Schwab for their investing needs. Asset Gathering New Brokerage Accounts (K) +3% $157B +17% 1,094 960 985 894 910 YTD Core Net Y/Y Core NNA New Assets Growth for 2Q24 2Q23 3Q23 4Q23 1Q24 2Q24 Note: Certain totals may not sum due to rounding. K = Thousa
Slide 10: A broad range of individual investors and RIAs contributing to organic growth
A broad range of individual investors and RIAs are contributing to the firm’s organic growth trajectory. Households under 40 accounted for ~56% …while RIAs of all sizes continue to trust of total new retail HHs on a YTD basis,… Schwab to custody their clients’ assets. ASI NNA by Size, YTD 20241 100%
Slide 11: Providing clients more value across our full range of products and solutions
Throughout our history, we have looked to provide clients more value and a leading experience across our full range of products and solutions,... Personalization Banking Advice Asset Advisor Management We call this Discount Services Modern Brokerage Wealth Management Our unwavering commitment to cli
Slide 12: Including an award-winning bank built specifically for investors
…including an award-winning bank built specifically for investors. Personalization Banking Advice Asset Advisor Management We call this Discount Services Modern Brokerage Wealth Management Our unwavering commitment to clients remains at the forefront of every decision we make. Charles Schwab Corpora
Slide 13: Operating a bank that provides a best-in-class experience for investors
We are committed to operating a bank that provides a best-in-class experience for investors and enables strong returns for owners. Support wealth management offer by serving the lending and cash management needs of individual investors and RIAs Banking the Schwab Way Further evolve client experience
Slide 14: Advancing our strategic priorities to power long-term growth
As we begin our next chapter, we believe further advancing our strategic priorities will help power our long-term growth. Scale & Win-Win Client Brilliant Efficiency Monetization Segmentation Basics Charles Schwab Corporation 14
Slide 15: Scale and efficiency remains one of our biggest competitive advantages
Scale & Efficiency Scale and efficiency remains one of our biggest competitive advantages. Our growing client base, expense discipline, and ongoing investments in …and we believe there are many more opportunities technology have materially lowered our cost per account over time,… to grow this import
Slide 16: Win-Win Monetization: broad array of advice solutions
Win-Win Monetization Clients continue to take advantage of our broad array of advice solutions,… Strong net flows into our Managed Investing solutions,… …are being converted into revenue growth. ~$25B +56% Asset Management and Administration Fees ($M) $2,731 YTD Managed Y/Y Growth $2,120 $2,291 Inve
Slide 17: Win-Win Monetization: lower-cost fixed income strategies
Win-Win Monetization …and have shown great interest in having access to lower- cost fixed income strategies. Since the acquisition in July 2020, client utilization of Wasmer’s capabilities TM has continued to grow. Assets Under Management, ($B) Wide range of tax-exempt and taxable fixed income +23
Slide 18: Client Segmentation: strong relationships are the foundation of our service model
Client Segmentation Strong relationships are the foundation of our leading client service model. RIAs of all sizes look to Schwab to support their independence with the HNW Retail clients with Financial Consultants have enhanced services and capabilities they need to grow, compete and succeed. resul
Slide 19: Brilliant Basics: enhancing the Schwab mobile app
Brilliant Basics We continue to enhance our best-in-class Schwab mobile app to deliver an even better client experience. Our mobile app is regarded as best-in-class by both …with enhancements focused on further clients and third-parties,… customization and ease-of-use. Recent Customizable dashboar
Slide 20: Through-the-cycle growth recipe powers long-term momentum
Schwab’s through-the-cycle growth recipe powers our long- term business momentum and success in the marketplace. Strategic Focus Areas 3-5% 2-3% 5-7% Scale & Win–Win Efficiency Monetization NNA Growth from NNA Growth from Annualized NNA Existing Clients New Clients growth rate Client Brilliant Segme
Slide 21: Schwab's organic growth rate begins to accelerate as Ameritrade-related attrition moderates
Schwab’s organic growth rate begins to accelerate as Ameritrade-related acquisition attrition moderates. During this transition year, client engagement remains strong as a growing number of individual investors and the independent advisors who serve them turned to Schwab In concert with the succ
Slide 22: Financial Perspectives
Financial Perspectives Peter Crawford Managing Director, Chief Financial Officer Charles Schwab Corporation 22
Slide 23: Continued success with clients keeps us positioned for strong financial results
Our continued success with clients keeps us positioned to deliver strong financial results through-the-cycle. As we navigate this transitional year, Schwab’s diversified model converted sustained business momentum into year-over-year revenue growth and healthy profitability for the second quarter
Slide 24: Strong equity markets, client engagement and seasonal cash trends shaped the first half
Although strong equity markets, sustained client engagement, and anticipated seasonal cash trends shaped the first half of 2024,… Led by the technology sector, concentrated rally helped key market indices reach Equity new record levels Markets Relative to year-end 2023, the NASDAQ Composite® and
Slide 25: Navigating a transitional year while delivering strong profitability
…we continue to navigate this transitional year while delivering strong profitability. 2Q 2024 1H24 vs 1H23 Expense Commentary Net Revenue $4.7B GAAP expenses down 1% Adjusted1 expenses up 2% Expenses $2.9B $2.8B Notable 1H24 expense items include: GAAP Adjusted1 – $73 million for the incremen
Slide 26: Our balance sheet declined by 4% sequentially
Our balance sheet declined by 4% sequentially. ($M, EOP) 2Q23 1Q24 2Q24 Total assets declined by 4% sequentially Total Assets $511,505 $468,784 $449,675 due to anticipated tax seasonality and elevated net securities purchase activities by clients Bank Deposits $304,414 $269,460 $252,420 Outstand
Slide 27: Factors reinforcing confidence in long-term client transactional sweep cash
A number of factors reinforce our confidence in the long-term trajectory of client transactional sweep cash. Slowing bank sweep outflows despite robust client engagement – Excluding balances transitioned to support growth in margin debits, net client bank sweep outflows in 2Q have been less than t
Slide 28: Financial outlook influenced by interest rates and investor behavior
As we transition through 2024, our financial outlook continues to be influenced by the path of interest rates and investor behavior. Utilizing the June Federal Reserve Dot Plot, we anticipate full-year 2024 revenue to be flat to up 2% versus the prior year – NIM expands well into the 220s bps by 4
Slide 29: Capital position continues to strengthen toward operating objective
Our capital position continues to strengthen as we make further progress toward our operating objective of 6.75% - 7.00%. Tier 1 Leverage Ratio1 (Illustrative) GAAP T1LR Adjusted T1LR2 Consolidated Charles Schwab Bank 10.9% 9.4% 5.9% 6.2% Dec-22 Jun-24 Dec-24E Dec-22 Jun-24 Dec-24E Factors Influenci
Slide 30: On a path back towards Schwab's long-term growth and earnings potential
As our momentum continues to build, we remain on a path back towards Schwab’s long-term growth and earnings potential. Premier Asset Gatherer Diversified Revenue Model Competitive position in the two fastest growing Business model that combines brokerage, segments in wealth management banking, a
Slide 31: Q&A
Q&A Charles Schwab Corporation 31
Slide 32: Summer Business Update
Summer Business Update July 16, 2024
Slide 33: Appendix
Appendix Charles Schwab Corporation 33
Slide 34: Select Annualized Sensitivities
Appendix Select Annualized Sensitivities (as of June 30, 2024) Supplemental Funding Target Fed Funds Rate Bank Sweep Balances BDA Balances Balances +/- 25 bps +/- $1B +/- $1B +/- $5B ~$175M – $375M ~6 bps NIM ~$50M ~$45M S&P 500® Daily Average Trades Margin Balances 5-Year Treasury +/- 1% +/- 100K +
Slide 35: Historical Client Cash Trends
Appendix Historical Client Cash Trends (as of June 30, 2024) Select Client Cash Metrics, 2Q14 – 2Q24 ($K, %)1 Total Client Cash Mix, 2Q24 (%)1, 2, 3 Ameritrade acquisition closed in 4Q20 15.1% Other Balance Sheet Cash 29% 10.3% 9.7% $41 $909B Purchased 57% $26 MMFs 3% Checking, Savings & Other 9% 2%
Slide 36: Average Interest-earning Assets & Bank Investment Portfolio
Appendix Average Interest-earning Assets & Bank Investment Portfolio (as of June 30, 2024) 2Q24 Avg. Interest-earning Assets (%)1, 2 Bank Investment Portfolio Spotlight Fixed vs. Cash & Other IEA Floating 95% Fixed / 5% Floating Equiv. 5% 7% 59% 26% 15% Securities Agency RMBS Agency CMBS Other Mix3
Slide 37: Duration Profiles
Appendix Duration Profiles Option-adjusted Duration, Schwab vs. LUMSTRUU1 (Years) 5.2 3.8 2.4 preliminary 2Q23 3Q23 4Q23 1Q24 2Q24 2 LUMSTRUU Portfolio Schwab Bank Investment Portfolio1 Schwab Consolidated IEAs Charles Schwab Corporation Note: Q = Quarter. IEA = Interest earning assets. 1. Schwab Se
Slide 38: Reinvestment Opportunities
Appendix Reinvestment Opportunities (as of June 30, 2024) *Illustrative* Potential Blended Reinvestment Yield Potential Reinvestment Opportunities Selection Criteria Cash & U.S. MBS Other IG Shorter duration Equivalents Treasuries Securities Securities Floating: SOFR +55 Security Front-loaded ca
Slide 39: Bank Deposit Account Summary
Appendix Bank Deposit Account Summary (as of June 30, 2024) Mix of Average BDA Balances ($B,%)1 BDA Balances by Maturity, EOP ($B) $10.1 Total Balance: $84.5 Net Rate2: 0.69% Annual Revenue3: $590.7M (12%) Fixed Maturities: $74.8 (89% of total)1 | Net Rate2: 0.17% $24.8 $87.0 $18.1 $17.5 $9.7 $11.1
Slide 40: Select Trading Information
Appendix Select Trading Information (as of June 30, 2024) Monthly DATs (M) Derivatives as % of Trades 24% 22% 22% Jun-23 Jun-24 2Q23 1Q24 2Q24 Quarterly DAT Mix (%) Monthly Average Contracts per Option Trade 23% 8.5 Retail AS 2Q24 77% Jun-23 Jun-24 Charles Schwab Corporation Note: Q = Quarter. M = M
Slide 41: Non-GAAP Introduction
Appendix Non-GAAP Introduction In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S. (GAAP), this presentation contains references to the non-GAAP financial measures described below. We believe these non-GAAP financial measures provide us
Slide 42: Non-GAAP Reconciliation: Adjusted total expenses and Adjusted net income
Appendix Non-GAAP Reconciliation: Adjusted total expenses and Adjusted net income Three Months Ended, Three Months Ended, Six Months Ended, Six Months Ended, June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Total Expenses Total Expenses Total Expenses Total Expenses Excluding Excluding Exclud
Slide 43: Non-GAAP Reconciliation: Adjusted pre-tax income and margin
Appendix Non-GAAP Reconciliation: Adjusted income before taxes on income and Adjusted pre-tax profit margin Three Months Ended, June 30, 2024 % of Total Net (In millions, except ratios and per share amounts) Amount Revenues Income before taxes on income (GAAP), Pre-tax profit margin (GAAP) $ 1,747 3
Slide 44: Non-GAAP Reconciliation: Adjusted net income and diluted EPS
Appendix Non-GAAP Reconciliation: Adjusted net income to common stockholders and Adjusted diluted EPS Three Months Ended, June 30, 2024 (In millions, except ratios and per share amounts) Amount Diluted EPS Net income available to common stockholders (GAAP), Earnings per common share — diluted (GAAP)
Slide 45: Non-GAAP Reconciliation: Adjusted Tier 1 Leverage Ratio
Appendix Non-GAAP Reconciliation: Adjusted Tier 1 Leverage Ratio Three Months Ended, Three Months Ended, Three Months Ended, (Preliminary) (In millions, except ratios and per share amounts) June 30, 2024 March 31, 2024 June 30, 2023 CSC CSB CSC CSB CSC CSB Tier 1 Leverage Ratio (GAAP) 9.4% 10.9% 8.8
Slide 46: Summer Business Update
Summer Business Update July 16, 2024
Charles Schwab Corporation (The) — Q2 2024 Earnings Presentation on 6ix