Charles Schwab Corp.’s bank deposits fell 7% in the second quarter from the prior period as the firm responded to the worst US banking crisis since 2008, but executives said they expect to see growth again by year-end.
Schwab shares rose 11.8% at 9:32 a.m. in New York.
Customer deposits dropped to $304.4 billion as of June 30, the Westlake, Texas-based brokerage said Tuesday in a statement. That beat the average estimate of $298.4 billion from analysts surveyed by Bloomberg.
Deposits were also down 31% from a year earlier. The firm’s outflows are decelerating, as they fell 11% in the first quarter from year-end.
The firm also reduced its borrowings from the Federal Home Loan Bank system by 10% since the prior quarter.
“While anticipated client cash realignment, along with net equity buying during June, pushed cash levels lower, we observed a continued and substantial deceleration in the daily pace of cash outflows versus prior months,” Chief Financial Officer Peter Crawford said in the statement. “The continuation of this trend through the end of the quarter further strengthens our conviction that this realignment activity will inflect before the end of 2023, unlocking growth in client cash held on the balance sheet.”
Schwab has been facing pressure from investors, particularly since March when the collapse of several midsize US lenders focused attention on unrealized losses from securities held on bank balance sheets. The company operates both a brokerage and one of the country’s largest banks.
The Federal Reserve’s interest rate hikes over the past year have pressured the banking arm, a pivotal source of revenue for the company. Higher rates encouraged some Schwab clients to move their money from the bank to other investment products, including money-market funds, in a process known as “cash sorting.”
“While recent results have been negatively influenced by a number of temporary factors, we remain extremely well-positioned heading into the years to come,” Crawford added.
Schwab shares have declined 30% this year through Monday compared with a 1% gain in the S&P 500 Financials Index.
Adjusted earnings per share were 75 cents, four cents more than the average estimate of analysts in a Bloomberg survey. Revenue totaled $4.7 billion, compared with Wall Street’s $4.6 billion estimate.
The firm gathered $52 billion in core net new assets during the quarter, bringing year-to-date asset gathering to more than $180 billion.
(Updates with share move)
