Charles Schwab Corporation (the) · NYSE:SCHW
Charles Schwab Corporation (the) — Q3 2024 Earnings Presentation
47 slides from Charles Schwab Corporation (the)'s earnings presentation, Oct 15, 2024
Slide 1: Fall Business Update
Fall Business Update October 15, 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: Through Clients' Eyes strategy supports continued momentum and long-term growth
Schwab's "Through Clients' Eyes" strategy supports our continued momentum and keeps us positioned for long-term growth. While the third quarter introduced changes to the macroeconomic landscape, investor sentiment and engagement remained strong Organic growth trends have further improved since t
Slide 5: Federal Reserve cut interest rates for the first time in over four years
Amidst easing inflation and a cooling labor market, the Federal Reserve cut interest rates for the first time in over four years. The easing cycle was kicked-off with a 50 bp rate cut and rates …pushing equity markets to near all-time highs to dropped sharply across the curve,… close out a dynamic q
Slide 6: Investor sentiment remained bullish with softening in September
While investor sentiment remained bullish for the quarter, pockets of volatility led to some softening during September. AAII® Bull-Bear Spread Sentiment Survey1 Schwab Trading Activity IndexTM (STAX)2 3Q24 70 47 Bull Bear 35 Dec-23 Sep-24 Dec-23 Sep-24 Note: Q = Quarter. 1. AAII® Bull-Bear Spread S
Slide 7: Engagement continued at healthy levels across our platform
Engagement continued at healthy levels across our platform,… Daily Average Trades (M) Margin Balances ($B) Managed Investing Net Flows ($B)1 +12% $71.7 $73.0 $68.1 $65.1 $62.6 5.7M $15.1 $10.5 $8.4 +4% vs. 2Q24 3Q23 4Q23 1Q24 2Q24 3Q24 3Q23 2Q24 3Q24 Note: Q = Quarter. M = Million. B = Billion. 1. M
Slide 8: Clients entrusted Schwab with their financial futures
…as current and prospective clients entrusted Schwab with their financial futures. Core Net New Assets ($B) 3Q24 New Brokerage Accounts +109% $95.3 $45.7 +972K 3Q23 3Q24 Note: Certain totals may not sum due to rounding. K = Thousand. Q = Quarter. B = Billion. Core NNA = Net new assets before signifi
Slide 9: Positive inflection in organic growth following final client conversion
We have seen a positive inflection in organic growth following the final client conversion in May,… YTD Cumulative Core NNA ($B) September YTD Core NNA ($B) 2023 vs. 2024 2023 +10% May 2024: 2024 Final Client $252 Conversion $230 2023 2024 Jan Feb Mar Apr May Jun Jul Aug Sep Note: YTD = Year to date
Slide 10: Increased engagement from former Ameritrade clients
…and increased engagement from former Ameritrade clients supports our path back to our long-term growth trajectory. Client Promoter Scores for Ameritrade clients …and clients continue to utilize capabilities of the combined platform. continue to steadily build following conversion,… $4.6B ~35% ~35%
Slide 11: Third-party recognition for service and solutions
Numerous third-parties recognized us for our industry-leading service and solutions. 2024 Most Trusted Bank 2024 Best Customer Service 2024 Best Online Brokers Investor’s Business Daily1 Forbes2 Investor’s Business Daily3 Note: 1. The IBD Most Trusted Bank accolade/recognition was published online b
Slide 12: Advanced strategic initiatives to meet investors' evolving needs
During the quarter, we advanced our strategic initiatives, further enhancing our ability to meet investors' evolving needs. Scale & Win-Win Client Brilliant Efficiency Monetization Segmentation Basics Further enhance our operations Attract and retain Serve the specific Drive client loyalty and infra
Slide 13: Scale & Efficiency
Scale & Efficiency Our commitment to expense discipline and … is further expanding our low cost to continuous process improvements,… serve advantage. Schwab Expense on Client Assets (bp)2 GAAP Adjusted Artificial Intelligence ~95% 16 13 12 Process Transformation Captured Ameritrade Run-Rate Expense
Slide 14: Win-Win Monetization
Win-Win Monetization We have seen strong momentum across our …and increasingly, investors are looking to wide array of advice solutions,… Schwab for holistic wealth management. $40B +75% YTD Managed Y/Y Quarterly Net Flows into Investing Net Flows1 Full-Service Advice Offers2 Including record quarte
Slide 15: Win-Win Monetization: Pledged Asset Line
Win-Win Monetization Pledged Asset Line® Adoption of our Pledged Asset …and our enhanced digital process... …is delighting clients. Line® continues to grow,… $15.7B ~30pts 20212 20241 Digitally Originated 27% 89% 30+ 1.5 Improvement in Client Record PAL® Balances1 PAL® Cycle Time business business P
Slide 16: Client Segmentation
Client Segmentation We continue to invest in our relationship models – the foundation of our leading client service model. RIAs Retail UHNW Traders thinkorswim® Digital Experience 90% Schwab CoachingTM Forum Financial Consultant Assignment Rate for Retail Ultra High Net Worth Clients1 Schwab.com and
Slide 17: Brilliant Basics
Brilliant Basics We are continuing to deliver exceptional and easy client experiences across all channels. 89 <40 secs Avg. Speed to Answer Easy Score1 Ranked #1 in Participant Satisfaction 3Q24 Advisor Services with Retirement Plan Digital Experiences Awarded by J.D. Power2 Note: Q = Quarter. Avg =
Slide 18: Challenge the Status Quo to Benefit Investors
Challenge the Status Quo to Benefit Investors Our leading modern wealth offering plus strong competitive positioning power the Virtuous Cycle, Greater Investments, Investors Reward Us bolstering our Which Fund Actions to… With More of Their Assets long-term growth trajectory Long-Term Stockholder Le
Slide 19: Financial Perspectives
Financial Perspectives Mike Verdeschi Managing Director, Chief Financial Officer Peter Crawford Managing Director Charles Schwab Corporation 19
Slide 20: Consistent focus on clients yields success through the cycle
Our consistent focus on clients and disciplined approach are yielding success through the cycle. Healthy investor engagement, coupled with the strength of our diversified model, enabled sequential earnings growth and strong profitability during the third quarter We are entering the fourth quarte
Slide 21: Ability to serve evolving client needs and sustain engagement
Our ability to serve evolving client needs and support sustained levels of engagement… Despite pockets of volatility, broadening sector performance pushed key market Equity indices higher throughout the quarter Markets Relative to year-end 2023, the NASDAQ Composite® and S&P 500® are up 21% year
Slide 22: Sequential earnings growth in the third quarter
…helped drive sequential earnings growth in the third quarter. Net Revenues ($B) Pre-tax Profit Margin +5% $4.6 $4.7 $4.8 NIR 38.0% 41.2% AMAF Trading Other GAAP Adjusted1 3Q23 2Q24 3Q24 Expenses ($B) Earnings Per Share $3.2 $2.9 $3.0 $2.8 $2.9 $2.7 GAAP $0.71 $0.77 1 Adjusted GAAP Adjusted1 3Q23 2Q
Slide 23: 3Q24 Balance Sheet Highlights
3Q24 Balance Sheet Highlights Supported Client-Driven Growth – Client margin loans reached $73 billion, up 2% sequentially and 17% since year-end 2023 – Bank loans to clients increased 3% sequentially – including ~$1 billion in new PAL® balances Sweep Cash Net Inflows – Driven by a very strong S
Slide 24: Abatement of realignment activity supported modest build in sweep cash
The further abatement of rate-sensitive realignment activity in 3Q helped support a modest build in transactional sweep cash... Transactional Sweep Cash Balances1, ($B) Factors Influencing Client Cash $581 Client Engagement Investor Sentiment $384 Organic Growth (Volume & Mix) $10 $9 Quarterly Inter
Slide 25: Further reduction of higher cost Bank Supplemental Funding
…and enabled us to further reduce higher cost Bank Supplemental Funding. Factors Influencing Paydown Bank Supplemental Funding Balances1 ($B) 1 Securities Portfolio Cash Flows (Principal & Interest) -33% 2 Macroeconomic Environment $97.1 $73.7 3 Seasonality $64.8 4 Client Engagement 5 Client Asset A
Slide 26: Capital position continues to build toward operating objective
Our capital position continues to build as we approach our operating objective of 6.75% – 7.00%, inclusive of unrealized losses in our available for sale portfolio. Consolidated Tier 1 Leverage Ratio Regulatory T1LR Adjusted T1LR 1 9.4% 9.7% 8.5% 8.8% 8.2% 7.5% 7.1% 6.7% 5.9% 5.3% 4.9% 4.1% 3.4% 3.7
Slide 27: Building momentum supports sequential earnings expansion as we exit 2024
Schwab’s building momentum supports sequential earnings expansion as we exit 2024,… Utilizing the recent September Federal Reserve Dot Plot, we anticipate full-year 2024 revenue to grow by 2% to 3% versus the prior year - NIM expands sequentially well into the 220s basis points for 4Q, driven prim
Slide 28: Well-positioned for continued growth in 2025
...keeping us well-positioned for continued growth in 2025. 2025 financial outlook will be shaped by a range factors, including the macroeconomic environment, interest rates, market sentiment, and client engagement NIM should continue to expand – even in a lower rate environment – influenced by
Slide 29: Focus on clients enables profitable growth through the cycle
Our consistent focus on clients and disciplined approach enables Schwab to deliver profitable growth through-the-cycle. Targeted growth Continued business Long-term revenue investments plus growth through our Efficient utilization growth through expense discipline client-first strategy of capital mu
Slide 30: Q&A
Q&A Charles Schwab Corporation 30
Slide 31: Fall Business Update
Fall Business Update October 15, 2024
Slide 32: Appendix
Appendix Charles Schwab Corporation 32
Slide 33: Select Annualized Sensitivities
Appendix Select Annualized Sensitivities (as of September 30, 2024) Bank Supplemental Target Fed Funds Rate Bank Sweep Balances BDA Balances Funding Balances1 +/- 25 bps +/- $1B +/- $1B +/- $5B ~$175M – $375M ~6 bps NIM ~$50M ~$45M S&P 500® Daily Average Trades Margin Balances 5-Year Treasury +/- 1%
Slide 34: Historical Client Cash Trends
Appendix Historical Client Cash Trends (as of September 30, 2024) Select Client Cash Metrics, 3Q14 – 3Q24 ($K, %)1 Total Client Cash Mix, 3Q24 (%)1, 2, 3 Ameritrade acquisition closed in 4Q20 15.1% Other Balance Sheet Cash 29% 10.3% 9.5% $41 $946B Purchased 57% $26 MMFs 3% Checking, Savings & Other
Slide 35: Historical Transactional Sweep Cash Trends
Appendix Historical Transactional Sweep Cash Trends (as of September 30, 2024) Transactional Sweep Cash1 per Account ($K) and as a % Total Client Assets Advisor ~$29K Services Total ~$22K Retail ~$20K ~$11K 10% 9% 10% ~$11K 8% ~$10K 6% % of 6% 5% 5% 4% TCA 4% 4% Mar- Jun- Sep- Dec- Mar- Jun- Sep- De
Slide 36: Balance Sheet
Appendix Balance Sheet (as of September 30, 2024) ($M, EOP) 3Q23 4Q23 1Q24 2Q24 3Q24 Total Assets $475,204 $493,178 $468,784 $449,675 $466,055 Bank Deposits $284,408 $289,953 $269,460 $252,420 $246,462 Payables to Brokerage Clients $72,818 $84,786 $84,005 $79,966 $89,164 Long-term Debt $24,803 $26,1
Slide 37: Average Interest-earning Assets & Bank Investment Portfolio
Appendix Average Interest-earning Assets & Bank Investment Portfolio (as of September 30, 2024) 3Q24 Avg. Interest-earning Assets (%)1, 2 Bank Investment Portfolio Spotlight Fixed vs. Cash & Other IEA Floating 96% Fixed / 4% Floating Equiv. 6% 7% 60% 27% 13% Securities Agency RMBS Agency CMBS Other
Slide 38: Duration Profiles
Appendix Duration Profiles Option-adjusted Duration, Schwab vs. LUMSTRUU1,2 (Years) 5.1 3.8 2.3 preliminary 3Q23 4Q23 1Q24 2Q24 3Q24 3 LUMSTRUU Portfolio Schwab Bank Investment Portfolio1 Schwab Consolidated IEAs Note: Q = Quarter. IEA = Interest earning assets. 1. Schwab Securities Portfolio durati
Slide 39: Reinvestment Opportunities
Appendix Reinvestment Opportunities (as of September 30, 2024) *Illustrative* Potential Blended Reinvestment Yield Potential Reinvestment Opportunities Selection Criteria Cash & U.S. MBS Other IG Shorter duration Equivalents Treasuries Securities Securities Floating: SOFR +60 Security Front-load
Slide 40: Bank Deposit Account Summary
Appendix Bank Deposit Account Summary (as of September 30, 2024) Mix of Average BDA Balances ($B,%) BDA Balances by Maturity, EOP ($B) $10.8 Total Balance: $84.0 Net Rate2: 1.01% Annual Revenue3: $859.6M (13%) Fixed Maturities: $70.2 (84% of total)1 | Net Rate2: 0.34% $26.0 $83.1 $17.5 $17.5 $13.8 $
Slide 41: Select Trading Information
Appendix Select Trading Information (as of September 30, 2024) Monthly DATs (M) Derivatives as % of Trades 5.5 24% 22% 21% Sept-23 Sept-24 3Q23 2Q24 3Q24 Quarterly DAT Mix (%) Monthly Average Contracts per Option Trade 23% Retail 7.5 AS 3Q24 77% Sept-23 Sept-24 Charles Schwab Corporation Note: Q = Q
Slide 42: 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 43: 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, Three Months Ended, Nine Months Ended, Nine Months Ended, Twelve Months Ended, September 30, 2024 June 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 December
Slide 44: 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, September 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,
Slide 45: 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, September 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 (
Slide 46: Non-GAAP Reconciliation: Consolidated Adjusted Tier 1 Leverage Ratio
Appendix Non-GAAP Reconciliation: Consolidated Adjusted Tier 1 Leverage Ratio Three Months Three Months Three Months Three Months Three Months Three Months Three Months Ended, Ended, Ended, Ended, Ended, Ended, Ended, Preliminary (In millions, except ratios and per share amounts) September 30, 2024
Slide 47: Fall Business Update
Fall Business Update October 15, 2024
Charles Schwab Corporation (The) — Q3 2024 Earnings Presentation on 6ix