From Fortune:

Charles Schwab Corp. posted a drop in profit, new assets, and deposits as it endured interest rate hikes last year. New assets plummeted 48%, to $66.3 billion, and net income crashed by nearly half. The company’s total retail accounts also missed analyst estimates. Shares initially nosedived 7% after the announcement.

The company struggled last year due to regional banking chaos and interest rate hikes damaging its investments. As a result, Schwab faced turbulent times with consumer deposits being withdrawn. CEO Walt Bettinger said it was a challenging year and the most difficult since the internet bubble burst in 2000. Shares have dropped 1.7% to $63.

Like other financial firms, Schwab in Texas saw funding costs increase due to Federal Reserve rate hikes. The company faced a rise in depositors shifting to money market funds and other higher-yielding instruments. Schwab responded by turning to higher-cost funding sources, such as certificates of deposit and Federal Home Loan Bank advances.

Chief Financial Officer Peter Crawford said the company is moving away from higher-cost funding sources. Repayment was at 18%, decelerating by almost 80% in the second half of 2023. Last spring, paper losses on long-dated bonds spooked some regional banks’ customers. Schwab said it’s now focused on shortening the durations of their securities books to avoid similar losses.

The company is aiming to increase its earnings potential by paying down higher-cost borrowings and reinvesting its securities portfolio at higher market rates than their current earnings. It continues to see a path to a net interest margin approaching 3% before the end of 2025, and a longer-term goal of a 20% to 30% dividend payout ratio, plus buybacks.



Read more: Charles Schwab earnings: CEO says year ‘certainly the most challenging since the bursting of the internet bubble in 2000’