Charles Schwab (SCHW) Summer 2024 Business Update summary

Strategic progress and integration

• Completed Ameritrade client transition, moving nearly $2 trillion in assets and 17 million accounts, with lower-than-expected attrition and improved client satisfaction, as promoter scores rose by 50 points for retail and 35 points for advisors post-conversion.

• Organic growth rate is accelerating as Ameritrade-related attrition moderates, with strong client engagement and successful completion of the final Ameritrade client conversion.

• Over 2 million new brokerage accounts opened year-to-date, with nearly 1 million in Q2 and 56% of new retail households under age 40.

• Integration has driven scale and efficiency, reducing cost per client account by 25% over the past decade, with remaining 10% of expense synergies from the Ameritrade acquisition expected by year-end.

• Former Ameritrade clients are now contributing positively to net new assets, though still below target growth rates.

Financial performance and outlook

• Q2 2024 net revenue was $4.7 billion, up 1% year-over-year, with adjusted pre-tax margin at 41% and adjusted EPS of $0.73; GAAP pre-tax margin was 37.2% and GAAP EPS $0.66.

• Net new assets year-to-date exceeded $150 billion, with Q2 asset gathering up 17% from last year; total client assets reached a record $9.41 trillion, up 17% year-over-year.

• Full-year 2024 revenue is expected to be flat to up 2% versus 2023, with adjusted expenses rising about 2%, half due to one-time items.

• Net interest margin is projected to reach the mid-2.20s in Q4 2024 and approach 3% by end of 2025, assuming a Fed rate cut in September.

• Adjusted Tier 1 Leverage Ratio is climbing, targeting 6.75%-7% by year-end 2024, while GAAP Tier 1 Leverage Ratio was 9.4% at quarter-end.

Banking and balance sheet strategy

• Committed to offering lending services, including mortgages, HELOCs, and pledged asset lines, to deepen client relationships.

• Plans to gradually shift some deposits to third-party banks to lower capital intensity and improve liquidity, with changes expected over years.

• Bank size will be somewhat smaller over time, but will maintain ability to meet client needs and protect economics.

• Supplemental borrowing increased to $73.7 billion to support higher margin lending, with paydown possible using liquidity.

• Securities portfolio expected to generate $10-11 billion in cash flows per quarter, declining as portfolio shrinks.