SCHWAB CHARLES CORP Q4 FY2024 earnings call

• 2024 was a transition year where Schwab completed the largest brokerage conversion in industry history, welcoming over 17 million Ameritrade client accounts and bringing nearly $2 trillion in assets, with less client attrition than forecasted.
• In 2024, net new assets growth was strong (up 20% for the year and 51% for the quarter), total new brokerage accounts were up 10% from prior year. Clients were active with strong trading activity, record engagement in trading, coaching, education, and record flows into managed investing and lending solutions.
• For 2025, expect NNA and account growth to accelerate and return to long-term 5%-7% growth range. There's opportunity to grow revenue by doing more for existing 43 million client accounts in wealth, banking, and trading areas. Strategic focus areas include growing and deepening client relationships (hiring financial consultants, expanding branch network, investing in marketing, enhancing capabilities), creating value through scale and efficiency (investing in process transformation, systems modernization, AI), delivering on brilliant basics for clients, and investing in employees.

In 2024, core NNA reached $367 billion for the year, up 20% over 2023. Fourth quarter attracted nearly $115 billion in NNA, up 51% from the prior year. Retail core NNA grew by over 50% versus the prior-year quarter and nearly 20% for the year. Legacy Ameritrade NNA continues to increase. Daily average trades grew nearly 10% year-over-year. Managed investing net flows reached a record $55 billion in 2024, up nearly 70% over last year and 80% for the quarter. Pledged asset line balances increased to $17 billion, up more than 25% year-over-year. Fourth quarter total revenue was up 20% over the prior year and up 10% sequentially over the third quarter of 2024. Adjusted earnings per share were $1.01 for the fourth quarter, up 49% over the prior year and up 31% sequentially over Q3. Adjusted pre-tax margins came in at 46.6% for the fourth quarter and 42.5% for the full year.

• Anticipate total revenue growth of 13%-15% in 2025. - Bank supplemental funding to continue reducing, full year net interest margin in 2025 expected to be 2.55%-2.65%, with average 4Q 2025 NIM expanding through the 2.8% level. - Expenses expected to have mid-single-digit growth relative to 2024, in the range of 4.5%-5.5%. - Full year 2025 adjusted earnings expected in the $4.10 to $4.20 area, representing year-over-year earnings growth of around 25%-30%. - Expect to commence capital return during 2025.

Q: Steve Chubak with Wolfe Research asked about the NNA target, specifically why the 5% to 7% target is still appropriate and the building blocks to close the gap.

A: Rick Wurster responded that it's in line with expectations after a large integration, Ameritrade clients are engaging more, and they're investing in relationships and physical footprint to accelerate trust building, and also highlighted the broader growth opportunities with existing clients.

Q: Brennan Hawken with UBS asked about capital returns and appetite if TD comes to market.

A: Mike Verdeschi said it's hard to comment definitively but they like to evaluate such situations and feel good about progress made.

Q: Dan Fannon with Jefferies asked about client cash trends.

A: Mike Verdeschi said they're entering a more normalized environment for client cash, with realignment activity decelerated and new account formation driving cash.

Q: Brian Bedell with Deutsche Bank asked about deposit formation and NNA target.

A: Mike Verdeschi said encouraged by deposit trends and realignment, and Rick Wurster said they expect progress in 2025 towards the 5%-7% target.

Q: David Smith with Truist Securities asked about buyback and AOCI.

A: Mike Verdeschi said they expect to make steady progress in reducing supplemental borrowings but don't aim to bring it to zero.

Q: Ben Budish with Barclays asked about OpEx growth.

A: Mike Verdeschi said the mid-single-digit growth range is due to investing in growth and efficiency.

Q: Bill Katz with TD Cowen asked about balance sheet.

A: Mike Verdeschi said the balance sheet will reflect client engagement, focus on reducing supplemental borrowings, and they're a growth firm focused on meeting client needs.

Q: Devin Ryan with Citizens JMP asked about spot crypto.

A: Rick Wurster said they're doing well in crypto with ETFs and other products, expect to launch spot crypto once regulations permit in 2025.

Q: Alex Blostein with Goldman Sachs asked about securities portfolio strategy.

A: Mike Verdeschi said they'll focus on paying down supplemental borrowings near term and reinvesting longer term in highly liquid, high-credit quality securities.

Q: Kyle Voigt with KBW asked about securities repositioning.

A: Mike Verdeschi said they're mindful of client trust and keeping an eye on the portfolio but restructuring isn't off the table.