Q2 2024 Charles Schwab Corp Earnings Call

Transition year for the firm. We define this year as transitional for a series of reasons.

Walter William Bettinger: We were anticipating completing the last transition groups from the Ameritrade acquisition, and we anticipated that former emiratory clients would move from negative asset flows to positive levels of net new assets. We further anticipated that former Ameritrade retail clients would begin to utilize Schwab capabilities in the areas of investment advisory, financial planning, and banking. Additionally, we anticipated the investment advisors who formerly used Ameritrade for custodial services would also begin to bring net new assets to Schwab, and their evaluation of our service levels would improve rather dramatically. We anticipated that Schwab users of StreetSmart would begin to take advantage of the powerful trading capabilities in the Thinkorswim platform.

We were anticipating completing the last transition groups from the Ameritrade acquisition.

And we anticipated that former Ameritrade clients would move from negative asset flows to positive levels of net new assets.

We further anticipated that former Ameritrade retail clients would begin to utilize Schwab capabilities in the areas of investment advisory, financial planning, and banking.

We anticipated the investment advisors who formerly used Ameritrade for custodial services would also begin to bring net new assets to Schwab, and their evaluation of our service levels would improve rather dramatically.

We anticipated that Schwab users of StreetSmart would begin to take advantage of the powerful trading capabilities in the Thinkorswim platforms.

Walter William Bettinger: From a capital standpoint, we anticipated that we would organically build capital throughout the year toward our long-term objective. And from a financial standpoint, we anticipated improving, albeit somewhat uneven, earnings results during the year, with Q4 2024 delivering somewhere between $0.80 and $0.90, and then with strong growth continuing into 2025 and beyond. Halfway through the year, this definition of a transition year is being realized, again, as we anticipated.

From a capital standpoint, we anticipated that we would organically build capital throughout the year toward our long-term objectives.

And from a financial standpoint, we anticipated improving, albeit somewhat uneven, earning the results during the year with Q4 2024 delivering somewhere between 80 and 90 cents.

and then with strong growth continuing into 2025 and beyond.

Halfway through the year, this definition of a transition year is being realized, again, as we anticipated.

Walter William Bettinger: And all of these things position us for a strong period of growth in client metrics and financial results in the coming years. So with these critical indicators of success unfolding in such a positive manner, let's take a quick look tactically at how the second quarter of this year looked.

And all of these issues position us for a strong period of growth in client metrics and financial results in the coming years.

So with these critical indicators of success unfolding in such a positive manner, let's take a quick look tactically at how the second quarter of this year looked.

Walter William Bettinger: Inflation showed some encouraging signs of moderating closer to the Fed target of 2%, which continued pushing a select number of primarily technology stocks higher during the quarter. Investor sentiment remained solidly positive at quarter end, with investors purchasing stocks throughout the quarter, and overall trading activity was a bit higher than in the prior year. Now, as I stated earlier, as we anticipated, we completed the last client transition group during the second quarter.

Inflation showed some encouraging signs of moderating closer to the Fed target of 2%, which continued pushing a select number of primarily technology stocks ever higher during the quarter.

Investor sentiment remained solidly positive at quarter-end.

With investors purchasing stocks throughout the quarter, an overall trading activity was a bit higher than in the prior year.

Speaker Change: As I stated earlier, as we anticipated, we completed the last client transition group during the second quarter.

Walter William Bettinger: That's almost $2 trillion in assets, 17 million client accounts, and over three and a half million daily average trades. All done with attrition levels that are well below other integrations in our industry, as well as our estimates at the time of the acquisition, which were 5-6% asset attrition and 4% revenue attrition. And while it's still somewhat early, the client response to the combined platform has been even stronger than we anticipated. Promor scores for former Ameritrade retail clients are now increasing by about 50 points nine months post-conversion date.

Speaker Change: That's almost $2 trillion in assets, 17 million client accounts, and over 3.5 million daily average trades.

Speaker Change: All done with attrition levels that are well below other integrations in our industry, as well as our estimates at the time of the acquisition, which were 5-6% asset attrition and 4% revenue attrition.

Speaker Change: And while it's still somewhat early, the client response to the combined platform has been even stronger than we anticipated.

Speaker Change: Promoter scores for former Ameritrade retail clients are now increasing about 50 points.

Walter William Bettinger: Well, the promoter scores for advisor services, including the former Ameritrade advisor clients, have returned to pre-conversion levels. Impressively, former Ameritrade retail clients who converted in 2023 are already bringing in assets on a net basis. However, their level of net new assets still remains below our target range.

Speaker Change: 9 months post-conversion date, while the promoter scores for advisor services, including the former Ameritrade advisor clients, have returned to pre-conversion levels.

Speaker Change: Impressively, former Ameritrade retail clients who converted in 2023 are already bringing in assets on a net basis.

Speaker Change: However, their level of net new assets

Walter William Bettinger: Clearly, this illustrates that we're reaching an inflection point as attrition continues to abate, and we rebuild back to firm-wide net new asset levels in our targeted five to seven percent range. And lastly, former Ameritrade retail clients are already making up about one third of our overall enrollment in advisory solutions, an early illustration of the power of combining the two firms and their interest in Schwab's broader offering of wealth management solutions.

Speaker Change: Rest assured, the current situation still remains below our target range. Clearly this illustrates that we're reaching an inflection point as attrition continues to abate and we rebuild back to firm-wide net new asset levels in our targeted 5-7% range.

Speaker Change: And lastly, former Ameritrade retail clients are already making up about one-third of our overall enrollments in advisory solutions.

Speaker Change: An early illustration of the power of combining the two firms and their interest in Schwab's broader offering of wealth management solutions.

Walter William Bettinger: Overall, client engagement was solid in the second quarter, with the equity buy-sell ratio at about 1.1, and daily average trades remained at relatively high levels for the second quarter and above the same period from last year.

Speaker Change: Overall, client engagement was solid in the second quarter with the equity buy-sell ratio at about 1.1.

Speaker Change: While daily average trades remained at relatively high levels for a second quarter and above the same period from last year.

Walter William Bettinger: Meanwhile, we've seen a large increase in interest among our clients in our managed investing solutions. So overall, key client metrics continue to be solid. Net new assets year-to-date were over $150 billion, including Q2 asset gathering of about $60 billion, up 17% from the same period last year.

Speaker Change: Meanwhile, we've seen a large increase in interest among our clients in our managed investing solutions.

Speaker Change: So overall, key client metrics continue to be solid.

Speaker Change: Net new assets, year-to-date, were over $150 billion.

Speaker Change: including Q2 asset gathering of about $60 billion, up 17% from the same period last year. Again, still somewhat below our long-term goal of 5 to 7% through an economic cycle.

Walter William Bettinger: Again, still somewhat below our long-term goal of 5% to 7% through an economic cycle, but growing closer to that figure as the impact from former emiratory client attrition begins to wane. New brokerage accounts were again almost $1 million. I'm sorry, 1 million accounts during the quarter.

Speaker Change: But growing closer to that figure as the impact from former emiratory client attrition begins to wane.

Speaker Change: New brokerage accounts were again almost 1 million dollars, I'm sorry, 1 million accounts during the quarter.

Walter William Bettinger: Looking deeper at the types of clients we're attracting, these new-to-firm households continue to set us up well for the long term, with almost 6 out of 10 new clients under the age of 40, and investment advisor clients of all sizes continue to entrust their client assets to our custodial service. For years, we've emphasized that Schwab Advisor Services is the premier offering for RIAs of all sizes, and we are equally committed to each segment of advice.

Speaker Change: By looking deeper at the types of clients we're attracting, these new-to-firm households continue to set us up well for the long term, with almost 6 out of 10 new clients under the age of 40.

Speaker Change: And investment advisor clients of all sizes continue to entrust their client assets to our custodial services.

Speaker Change: For years, we've emphasized that Schwab Advisor Services is the premier offering for RIAs of all sizes, and we are equally committed to each segment of advisors.

Speaker Change: And these net new asset results are particularly encouraging as they reflect our success serving, again, every size advisor.

Walter William Bettinger: And these net new asset results are particularly encouraging as they reflect our success serving, again, every size advisor. Now, let me take a brief step back to take a more big picture look at Schwab and the growth trajectory we've been on for over 50 years. From our origins as a discount broker, we have continually listened to client needs, as well as anticipated client needs, and added services and capabilities along the way. What is key is that we have always done so in a Schwab way, through the client's eyes, at a great value, and without the client having to accept tradeoffs.

Speaker Change: Let me take a brief step back to take a more big picture look at Schwab and the growth trajectory we've been on for over 50 years.

Speaker Change: From our origins as a discount broker, we have continually listened to client needs, as well as anticipated client needs, and added services and capabilities along the way.

Speaker Change: What is key is that we have always done so in a Schwab way, through client's eyes, at a great value, and without the client having to accept tradeoffs.

Walter William Bettinger: We call that modern wealth management, and when we look to the future, we believe this formula will only serve to build our market share larger and larger. Of course, one of the key capabilities we've added along the way has been banking services to meet the needs of our clients on both sides of their personal balance sheets. Now, some have asked us after the regional banking crisis of 2023 whether we remain committed to serving our clients' banking needs, and the answer is a definite yes.

Speaker Change: We call that modern wealth management. And when we look to the future, we believe this formula will only serve to build our market share larger and larger.

Speaker Change: Of course, one of the key capabilities we've added along the way has been banking services to meet the needs of our clients on both sides of their personal balance sheets.

Speaker Change: Now some have asked us, after the regional banking crisis of 2023, whether we remain committed to serving our clients' banking needs. And the answer is a definite yes.

Walter William Bettinger: That said, we have studied our approach to offering banking services in recent quarters and wanted to share a few additional perspectives on how we see banking unfolding in the future at Schwab. Offering lending services to our retail clients and the clients of the investment advisors we serve is important. Arguably, it's critical, as it meets client needs and deepens relationships in a meaningful way. Most of our significant competitors have the ability to assist clients with both their investing needs as well as their borrowing needs. We believe firms that do not offer lending services are at a strategic disadvantage that will show itself more and more over time.

Speaker Change: That said, we have studied our approach to offering banking services in recent quarters and wanted to share a few additional perspectives on how we see banking unfolding in the future at Schwab.

Speaker Change: Offering lending services to our retail clients and the clients of the investment advisors we serve is important. Arguably, it's critical, as it meets client needs and deepens relationships in a meaningful way.

Speaker Change: Most of our significant competitors have the ability to assist clients with both their investing needs as well as their borrowing needs.

Speaker Change: We believe firms that do not offer lending services are at a strategic disadvantage that will show itself more and more over time.

Walter William Bettinger: So we're committed to offering quality lending services. In a manner consistent with how we lend today, exclusively for our clients, residential mortgages, Key Locks for clients who have their first mortgage with us, and Pledged Asset Locks. And to support lending for our clients, we continue to invest in both technology to make the application and approval process streamlined and efficient, as well as experienced bankers who can help shepherd the more complex loans through. From the standpoint of the investments we make at the bank for deposits in excess of those needed for lending to our clients, Over time, and by that, I mean years, not months or quarters.

Speaker Change: So we're committed to offering quality lending services in a manner consistent with how we lend today. Exclusively for our clients, residential mortgages, HELOCs for clients who have their first mortgage with us, and pledged asset lines.

Speaker Change: And to support lending for our clients, we continue to invest in both technology to make the application and approval process streamlined and efficient, as well as experienced bankers who can help shepherd the more complex loans through.

Speaker Change: From the standpoint of the investments we make at the bank, for deposits in excess of those needed for lending to our clients,

Speaker Change: Over time, and by that I mean years, not months or quarters, we would envision some shortening of our overall balance sheet investment portfolio duration.

Walter William Bettinger: We would envision some shortening of the duration of our overall balance sheet investment portfolio. That could lead to some modestly higher earnings volatility through an interest rate cycle but should help reduce volatility of our capital level and the need to access supplemental borrowing when interest rates potentially rise rapidly. One of our objectives is to increase our emphasis on attracting transactional bank depositors, like checking balances, with our award-winning checking product. This will serve as a means of increasing liquidity and further stabilizing our overall deposit base, and we anticipate the potential to increase our usage of third-party banks like TD Bank and others to achieve the following goals: deliver extended FDIC insurance for clients; lower our capital intensity and improve liquidity, subject, of course, to obtaining economics from the third-party banks that make sense for us.

Speaker Change: That could lead to some modestly higher earnings volatility through an interest rate cycle, which should help reduce volatility of our capital levels and the need to access supplemental borrowing when interest rates potentially rise rapidly.

Speaker Change: One of our objectives is to increase our emphasis on attracting transactional bank deposits, like checking balances, with our award-winning checking product.

Speaker Change: This will serve as a means of increasing liquidity and further stabilizing our overall deposit base.

Speaker Change: And we envision the potential to increase our usage of third-party banks.

Speaker Change: Like TD Bank and others to achieve the following goals.

Speaker Change: Deliver extended FDIC insurance for clients, lower our capital intensity, and improve liquidity, subject, of course, to obtaining economics from the third-party banks that make sense for us.

Walter William Bettinger: Net, these various actions should lead, again, over time, to a bank that is somewhat smaller than our bank has been in recent years, while retaining the ability to meet our clients' banking needs, lower our capital intensity, and importantly, protect the economics we're able to generate from owning a bank. So while we see some modest changes in the way we manage and operate our bank, one thing you can count on is that we will continue to operate our business in the Schwab way.

Speaker Change: Net, these various actions should lead, again, over time, to a bank that is somewhat smaller than our bank has been in recent years. While retaining the ability to meet our client's banking needs, lower our capital intensity,

Speaker Change: And importantly, protect the economics we are able to generate from owning a bank.

Speaker Change: So while we see some modest changes in the way we manage and operate our bank, one thing you can count on, we will continue to operate our business in the Schwab way.

Walter William Bettinger: Making Decisions Through the Client's Eyes, Offering Clients Great Value, and delivering service and advice to our valued clients without asking for any trade-offs. So Rick, let me turn it over to you for some more discussion on our efforts as well as results during the second quarter. Thanks, Walt, and good morning, everyone.

Speaker Change: Making decisions through clients' eyes, offering clients great value, and delivering service and advice to our valued clients without asking for any trade-offs.

Speaker Change: So Rick, let me turn it over to you for some more discussion on our efforts as well as results during the second quarter.

Rick: With the successful completion of the Ameritrade conversion behind us, we are looking ahead to an exciting new chapter as we continue to advance our four strategic focus areas, and we will do so from a position of strength, having fully combined the best of Schwab and Ameritrade to offer our clients a no trade-offs experience. Our ability to increase our scale while also continuously driving efficiency in our operations remains one of our key competitive advantages.

Rick: Thanks Walt and good morning everyone.

Rick: With the successful completion of the Ameritrade conversion behind us.

Rick: We are looking ahead to an exciting new chapter as we continue to advance our four strategic focus areas. And we will do so from a position of strength, having fully combined the best of Schwab and Ameritrade to offer our clients a no tradeoffs experience.

Rick: Our ability to increase our scale while also continuously driving efficiency in our operations remains one of our key competitive advantages.

Rick: The Ameritrade integration is a clear example of how we have vastly increased our scale while cutting costs. And by the end of this year, we'll realize the remaining 10% of run rate expense synergies from the acquisition. Over time, our growing client base, our cost discipline, and our ongoing investments in technology will continue to help us reduce our cost to serve our clients in the same way it has over the past decade, as we've decreased our cost per client account by 25%. Excuse me, and by around 50% when you consider inflation.

Rick: The Ameritrade integration is a clear example of how we have vastly increased our scale while cutting costs. And by the end of this year, we'll realize the remaining 10% of run rate expense synergies from the acquisition.

Rick: Over time, our growing client base, our cost discipline.

Rick: And our ongoing investments in technology will continue to help us reduce our cost to serve our clients. In the same way it has over the past decade, as we've decreased our cost per client account by 25%. Excuse me.

Rick: We plan to build on this competitive advantage. We will invest in technology, including artificial intelligence, that will ultimately help us lower our costs. We will implement operational enhancements and process transformation so we can serve our clients even more efficiently than we do today. And as we continue to increase our scale and enhance our efficiency, we'll reinvest in our clients over time and support our growth for the long term, just as we've done historically. Win-win monetization is about meeting more of our clients' total financial needs by offering the ease and convenience of having more of their financial life in one place.

Rick: And by around 50% when you consider inflation.

Rick: We plan to build on this competitive advantage. We will invest in technology, including artificial intelligence, that will ultimately help us lower our costs.

Rick: We will implement operational enhancements and process transformation so we can serve our clients even more efficiently than we do today.

Rick: And as we continue to increase our scaling and enhance our efficiency, we'll reinvest

Rick: In our clients over time and support our growth for the long term, just as we've done historically.

Rick: Win-win monetization is about meeting more of our clients' total financial needs.

Rick: by offering the ease and convenience of having more of their financial life in one place.

Rick: We're also able to bolster our revenue growth, and our wealth business is growing quickly. And this is a win for clients, as client promoter scores for our advice solutions are among the highest at the firm. So these are our happiest clients, and it is a win for us.

Rick: We're also able to bolster our revenue growth, and our wealth business is growing quickly. And this is a win for clients, as client promoter scores for our advice solutions are among the highest at the firm. So these are our happiest clients. And it is a win for us.

Rick: Year to date, we've attracted nearly $25 billion in managed investing net flows, a 56% increase over last year. And we see strong net flows across our spectrum of solutions. And you can see the growth on this page: 40% in Schwab Wealth Advisory, 53% in Wadsworth Schroeder, and 127% in Schwab Personalized Indexing.

Rick: Year-to-date, we've attracted nearly $25 billion in managed investing net flows, a 56% increase over last year.

Speaker Change: And we see strong net flows across our spectrum of solutions. And you can see the growth on this page. 40% in Schwab Wealth Advisory, 53% in Wadsworth Schroeder, and 127% in Schwab personalized indexing.

Rick: By offering our clients a broad spectrum of the well solutions they need, we're also supporting growth in our fee-based revenue streams, as you can see with the growth in our revenue on the right-hand side of this page. Looking within our wealth solutions, I wanted to do a bit of a deeper dive into our WASMR strategies. These fixed income strategies provide clients with a wide range of tax-exempt and taxable solutions.

Speaker Change: By offering our clients a broad spectrum of the wealth solutions they need, we're also supporting growth in our fee-based revenue streams, as you can see with the growth in our revenue on the right-hand side of this page.

Rick: Clients also have access to a dedicated team of portfolio managers and portfolio personalization capabilities, all at a lower cost than competitive offerings. With total assets under management of $25 billion, we've seen assets in these strategies grow at a compound annual growth rate of 23% since our acquisition in July of 2020 and have grown by nearly 80% in the last two years, when we've had a higher interest rate environment. This year, to date alone, we've seen net flows of $4 billion, demonstrating that these solutions are indeed meeting client needs.

Speaker Change: Looking within our wealth solutions, I wanted to do a bit of a deeper dive into our WASMR strategies.

Speaker Change: These fixed income strategies provide clients with a wide range of tax exempt and taxable solutions. Clients also have access to a dedicated team of portfolio managers and portfolio personalization capabilities all at a lower cost than competitive offerings.

Speaker Change: With total assets under management of $25 billion, we've seen assets in these strategies grow at a compound annual growth rate of 23% since our acquisition in July of 2020, and have grown by nearly 80% in the last two years.

Speaker Change: Where we've had a higher interest rate environment.

Speaker Change: This year, to date alone, we've seen net flows of $4 billion, demonstrating that these solutions are indeed meeting client needs.

Rick: Turning now to client segmentation. At Schwab, we will always meet the needs of a wide spectrum of investors and RIA firms. But we also need to serve our distinct client segment, and strong relationships are the foundation of our ability to do that.

Speaker Change: Turning now to client segmentation. At Schwab, we will always meet the needs of a wide spectrum of investors and RIA firms, but we also need to serve our distinct client segments.

Speaker Change: And strong relationships are the foundation of our ability to do this.

Rick: When we build relationships by meeting client needs and meeting clients where they are, and with the service models, the tailored education, and the specialized capabilities they need, we will retain existing clients and attract new ones. For RIAs, which are one of our key client segments, we strengthen our relationships with RIAs of all sizes through an unparalleled offer that helps each of them grow, compete, and succeed. For example, we offer advisors turnkey asset management solutions, flexible technology, and highly specialized business consultant teams, all at incredible value, with zero custody fees, and no intention of changing that.

Speaker Change: When we build relationships by meeting client needs and meeting clients where they are, and with the service models, the tailored education, and the specialized capabilities they need, we will retain our existing clients and attract new ones.

Speaker Change: RIAs, which are one of our key client segments, we strengthen our relationships with RIAs of all sizes through an unparalleled offer that helps each of them grow, compete, and succeed.

Speaker Change: For example, we offer advisors turnkey asset management solutions, flexible technology, and highly specialized business consultant teams, all at an incredible value, with zero custody fees, and no intention of changing that.

Rick: Turning to our retail business, high net worth retail clients are another important segment where the power of strong relationships is clear. High network retail investors who have a financial consultant bring in more than three times the average household net new assets, 2.8 times the managed investing net flows and have better TOA ratios and notably higher client promoter scores compared to retail high net worth clients who do not have an FC. Continuing to invest so we can build and expand on these valuable client relationships will help support our growth over the long term. Our fourth strategic focus area is the brilliant base.

Speaker Change: Turning to our retail business, high net worth retail clients are another important segment where the power of strong relationships is clear.

Speaker Change: Our high net worth retail investors who have a financial consultant bring in more than three times the average household net new assets.

Speaker Change: 2.8 times the managed investing net flows and have better TOA ratios and notably higher client promoter scores compared to retail high net worth clients who do not have an FC.

Speaker Change: Continuing to invest so we can build and expand on these valuable client relationships will help support our growth over the long term.

Speaker Change: Our fourth strategic focus area is the Brilliant Basics.

Rick: We know that if we can make it even easier for our clients to do business with us and if we can deliver on the basics for our clients in every interaction they have with Schwab, we'll build loyalty, and our delighted clients will grow their wealth with us and refer their friends and family members to us. One example of how we're delivering on this for clients is the enhancements we continue to make to the best-in-class Schwab mobile app. We know clients and third parties like it today. Our mobile app has a 4.8 star rating in the App Store.

Speaker Change: We know that if we can make it even easier for our clients to do business with us, and if we can deliver on the basics for our clients in every interaction they have at Schwab, we'll build loyalty and our delighted clients will grow their wealth with us and refer their friends and family members to us.

Speaker Change: One example of how we're delivering on this for clients is the enhancements we continue to make to the best-in-class Schwab mobile app.

Rick: And for the second year in a row, Corporate Insight has ranked us the number one mobile app experience among brokerage firms. And we continue to invest in and enhance that experience. We're introducing features our former Ameritrade clients love, like the recently launched customizable dashboard. Other recent planned enhancements will simplify the client experience by reducing clicks and expanding on our customization capabilities.

Speaker Change: We know clients and third parties like it today. Our mobile app has a 4.8 star rating on the App Store, and for the second year in a row, Corporate Insight has ranked us the number one mobile app experience among brokerage firms.

Speaker Change: And we continue to invest in and enhance that experience. We're introducing features our former Ameritrade clients love, like the recently launched customizable dashboard.

Speaker Change: Other recent planned enhancements will simplify the client experience by reducing clicks and expanding on our customization capabilities.

Rick: Guided by our consistent through client size strategy, we remain well positioned for continued growth. While there are several factors that can influence asset gathering in the near term, things like the macroeconomic environment, seasonality, and some behavioral differences we see in the former Ameritrade client base, we believe our through-the-cycle growth recipe remains intact. Over the longer term, we expect we'll continue to see 5% to 7% annualized NNA growth from existing and new clients, bolstered by delivering on our four strategic focus areas.

Speaker Change: Guided by our consistent through-client-size strategy, we remain well-positioned for continued growth.

Speaker Change: While there are several factors that can influence asset gathering in the near term, things like the macroeconomic environment, seasonality, and some behavioral differences we see in the former Ameritrade client base.

Speaker Change: We believe our through-the-cycle growth recipe remains intact. Over the longer term, we expect we'll continue to see 5-7% annualized NNA growth from existing and new clients.

Speaker Change: bolstered by delivering on our four strategic focus areas.

Rick: As we've shared, 2024 is a transition year with strong client engagement, a successful integration, continued progress on our strategic focus areas, and opportunities to introduce our client base to the best of Schwab and Ameritrade. We remain well positioned to continue serving our growing client base and delivering profitable, long-term growth to stockholders. With that, I'll turn it over to Peter.

Speaker Change: As we've shared, 2024 is a transition year. With strong client engagement, a successful integration,

Speaker Change: Continued progress on our strategic focus areas.

Speaker Change: And opportunities to introduce our client base to the best of Schwab and Ameritrade. We remain well positioned to continue serving our growing client base and delivering profitable long-term growth to stockholders. With that, I'll turn it over to Peter.

Peter: So, Walt and Rick talked about the exciting results we've already seen from the Ameritrade integration and the opportunities that it enables. Our strong momentum in the market and the success we have enjoyed in attracting a diverse mix of clients. The progress we have made in continuing to enhance our leading value proposition at the same time that we continue to drive greater efficiency through our business. And, finally, our commitment to continuing that journey, combining ever greater efficiency with sustained investments in improving the client experience. In my time today, I'll review our solid financial performance in the second quarter and over the first half of the year.

Peter: Thank you very much, Rick. So Walt and Rick talked about the exciting results we've already seen from the Ameritrade integration and the opportunities it enables. Our strong momentum in the market and success we've enjoyed in attracting a diverse mix of clients.

Peter: The progress we have made in continuing to enhance our leading value proposition at the same time that we continue to drive greater efficiency throughout our business.

Peter: And finally, our commitment to continuing that journey, combining ever greater efficiency with sustained investments in improving the client experience.

Speaker Change: At my time today, I'll review our solid financial performance in the second quarter and over the first half of the year. I'll provide some high-level perspective on what we're seeing with regards to our clients' transactional cash. And I'll share an updated scenario for 2024.

Peter: I'll provide some high-level perspective on what we're seeing with regard to our clients' transactional cash, and I'll share an updated scenario for 2024. The important point is that we are proceeding through what we've described previously and what Walt talked about at the outset as a transitional year, but, frankly, at a slightly faster pace than we'd anticipated just six months ago. With our organic growth rebounding towards historical levels, a continued moderation of client cash realignment activity despite seasonal pressures and the impact of very high investor engagement, and sequential growth in our net interest margin. Continued expense discipline with adjusted expenses basically flat year over year, excluding some unusual items.

Peter: The important point is that we are proceeding through what we've described previously and what Walt talked about at the outset as a transitional year, but frankly at a slightly faster pace than we'd anticipated just six months ago.

Peter: With our organic growth rebounding towards historical levels, a continued moderation of client cash realignment activity, despite seasonal pressures and the impact of very high investor engagement.

Peter: Sequential growth in our net interest margin, continued expense discipline with adjusted expenses basically flat year-over-year, excluding some unusual items, and finally, a steady increase in our capital levels, both our regulatory levels and those inclusive of AOCI.

Peter: And finally, a steady increase in our capital levels, both our regulatory levels and those inclusive of AOCI. And all of that sets the stage for what we expect will be more of a return to normal, the unlocking of our core earnings power, and, frankly, a much simpler financial story in the quarters and years ahead, but one featuring strong growth in revenue and earnings in the back half of 2024 and over the next several years. As Walt mentioned, the first half of the year has been characterized by strong equity markets, increased client engagement, and solid organic growth.

Peter: And all of that sets the stage for what we expect will be more of a return to normal.

Peter: The Unlocking of our Core Earnings Power, and frankly, a much simpler financial story in the quarters and years ahead, but one featuring strong growth in revenue and earnings in the back half of 2024 and over the next several years.

Peter: As Walt mentioned, the first half of the year has been characterized by strong equity markets, increased client engagement, and solid organic growth.

Peter: We saw that reflected in external benchmarks such as the S&P 500 and NASDAQ, as well as key drivers of our business performance, including margin balances up 15% from the end of 2023 and trading activity up slightly from the first six months of last year. And, as Rick mentioned, a real surge in interest among clients for our advisory solution. Our clients' transactional cash balances are typically pressured in the first half of the year by engagement in the markets in January and February and then tax season in April and early May. And that was no different in 2024.

Walt: We saw that reflected in external benchmarks such as the S&P 500 and NASDAQ, as well as key drivers of our business performance, including margin balances up 15% from the end of 2023.

Peter: Trading activity up slightly from the first six months of last year. And as Rick mentioned, a real surge in interest among clients for our advisory solutions.

Rick: Our clients' transactional cash balances are typically pressured in the first half of the year by engagement in the markets in January and February , and then tax season in April and early May. And that was no different in 2024.

Peter: But even so, we continue to see a moderation of the rate-driven client cash realignment activity. Now that backdrop helps support solid financial performance in the second quarter, with revenue of 1% year over year to $4.7 billion. Adjusted expenses in Q2 were up just under 2% year-over-year, but that included several one-time and or unusual items without which our adjusted expenses would have been down more than 1%. We produced an adjusted pre-tax margin of roughly 41% and adjusted EPS of 73 cents.

Speaker Change: But even so, we continue to see a moderation of the rate-driven client cash realignment activity.

Speaker Change: Now that backdrop helps support solid financial performance in the second quarter with revenue up 1% year-over-year to $4.7 billion.

Speaker Change: Adjusted expenses in Q2 were up just under 2% year over year, but that included several one-time and or unusual items, without which our adjusted expenses would have been down more than 1%.

Speaker Change: We produced an adjusted pre-tax margin of roughly 41% and adjusted EPS of 73 cents.

Peter: Turning our attention to the balance sheet, total assets dropped by 4%, driven primarily by tax-related outflows and the continuation, albeit at a much slower pace, of the client cash realignment activity we have experienced for a little over two years. And the overall level of realignment within BankSweep and Schwab 1 in the quarter was down about 50% versus the same quarter in 2023. Now, as I mentioned earlier, we have seen strong growth in margin utilization to start the year. And to support that activity, we redirected about $5 billion of client cash from the banks to the broker dealers.

Speaker Change: Turning our attention to the balance sheet, total assets dropped by 4%, driven primarily by tax-related outflows and the continuation, albeit a much slower pace, of the client cash realignment activity we have experienced for a little over two years.

Speaker Change: And the overall level of realignment within BankSweep and Schwab 1 in the quarter was down about 50% versus the same quarter in 2023.

Speaker Change: Now, as I mentioned earlier, we have seen strong growth in margin utilization to start the year. And to support that activity, we redirected about $5 billion of client cash from the banks to the broker-dealers. That caused our level of supplemental borrowing to rise slightly in the quarter.

Peter: That caused our level of supplemental borrowing to rise slightly in the quarter. But I want to emphasize again that this is a good thing. We are more than happy to absorb a bit more borrowing on which we're paying just over 5%. (Inaudible) And finally, despite rates that increased slightly during the quarter, our capital position continued to get even stronger. With our adjusted tier one leverage ratio, again, reminding you, that's the one that's inclusive of AOCI, and therefore, what our binding constraint would be if we lose the AOCI opt-out at Schwab Bank, now well over 6% and just under 6% for the company overall.

Speaker Change: But I want to emphasize again that this is a good thing. We are more than happy to absorb a bit more borrowing on which we're paying just over 5% to support margin loans on which we're earning just under 8%.

Speaker Change: And finally, despite rates that increased slightly during the quarter, our capital position continued to get even stronger.

Speaker Change: With our Adjusted Tier 1 Leverage Ratio, again, reminding you that's the one that's inclusive of AOCI, and therefore what our binding constraint would be if we lose the AOCI opt-out.

Speaker Change: At Schwab Bank now well over 6% and just under 6% for the company overall.

Peter: Meaning we are marching steadily towards our new operating objective for capital. Now, despite the influence of typical seasonal pressure to start the year coupled with atypically, very bullish investor sentiment, client cash balances have largely trended consistent with our expectations, despite rates remaining higher than the Fed and the market predicted earlier in the year. And all indications support that we are in the very late innings of client cash realignment activity.

Speaker Change: Meaning we are marching steadily towards our new operating objective for capital.

Speaker Change: Now, despite the influence of typical seasonal pressure to start the year, coupled with atypically bullish, very bullish investor sentiment.

Speaker Change: Client cash balances have largely trended consistent with our expectations, despite rates remaining higher than the Fed and the market predicted earlier in the year.

Speaker Change: And all indications support that we are in the very late innings of client cash realignment activity.

Peter: In fact, over the course of Q2, client-driven outflows from BankSweep, despite seasonal tax payments, have been less than the cash flow generated from our investment portfolio, which, in the absence of any other actions on our part, would have led to continued declines in supplemental lending. Now, with new client acquisition and organic growth returning to our historical norms, and all signs suggesting that the Fed funds rate is likely peaked, meaning in the absence of this catalyst, we expect the utilization of investment cash alternatives such as purchase money funds and CDs to stabilize and then eventually decrease over time.

Speaker Change: In fact, over the course of Q2,

Speaker Change: Client-driven outflows from BankSweep, despite the seasonal tax payments, have been less than the cash flow generated from our investment portfolio, which, in the absence of any other actions on our part, would have led to continued declines in supplemental borrowing.

Speaker Change: Now, with new client acquisition and organic growth returning to our historical norms,

Speaker Change: And all signs suggesting that the Fed funds rate is likely peaked, meaning in the absence of this catalyst, we expect the utilization of investment cash alternatives such as purchase money funds and CDs to stabilize and then eventually decrease over time.

Peter: We believe we're nearing the point where aggregate transactional cash balances should flatten and then ultimately resume growing again. Now, that solid start to the year lays the foundation for what we expect will be an even stronger end of the year, propelling us into growth through 2025 and beyond. We now expect our full-year revenue to range between flat to up 2% versus 2023, or roughly in the middle of the mathematical illustrations you may recall we shared back in January.

Speaker Change: We believe we're nearing the point where aggregate transactional cash balances should flatten and then ultimately resume growing again.

Speaker Change: Now that solid start to the year lays the foundation for what we expect will be an even stronger end of the year, propelling us into growth through 2025 and beyond.

Speaker Change: We now expect our full-year revenue to range between flat to up 2% versus 2023, or roughly in the middle of the mathematical illustrations you may recall we shared back in January . And as I shared back in May at our Investor Day, we now expect our adjusted expenses to be approximately 2% higher than 2023.

Peter: And as I shared back in May at our Investor Day, we now expect our adjusted expenses to be approximately 2% higher than 2023. And as a reminder, about half that change from the previous guidance is due to unanticipated one-time items, such as the FDIC surcharge and the regulatory accrual, with the remainder coming from the increase in the SEC 31 fee, which is again a pass-through expense and therefore P&L neutral.

Speaker Change: And as a reminder, about half that change from the previous guidance is due to unanticipated one-time items such as the FDIC surcharge and the regulatory accrual, with the remainder coming from the increase in the SEC 31 fee, which is, again, is a pass-through expense and therefore P&L neutral.

Peter: But to use the transitional word again, that annualized view masks the progression in earnings power by the end of the year. We're expecting flattish earnings from Q2 to Q3, but assuming the Fed cuts rates in September, as it is widely expected, we could see our NIM reach the mid-220s in Q4 on its way to approaching 3% by the end of 2025, which we believe will support adjusted earnings per share in the middle of the 80 to 90 cent range we outlined at the beginning of the year, with our earnings power building in 2025 and beyond.

Speaker Change: But to use the transitional word again, that annualized view masks the progression in earnings power by the end of the year.

Speaker Change: We're expecting flattish earnings from Q2 to Q3.

Speaker Change: But assuming the Fed cuts rates in September , as is widely expected,

Speaker Change: We could see our NIM reach the mid-$220s in Q4 on its way to approaching 3% by the end of 2025, which we believe will support adjusted earnings per share in the middle of the $0.80 to $0.90 range we outlined at the beginning of the year.

Speaker Change: With our earnings power, building in 2025 and beyond.

Peter: And despite long-term rates moving a little bit higher during the quarter, our capital levels are climbing steadily, and we continue to expect our consolidated adjusted tier one leverage ratio to approach our slightly updated operating objective of 675 to 7% on a consolidated basis by the end of 2024. At which point it becomes more of a live conversation regarding whether and how we want to do further capital returns. Our number one priority for capital is always to support business growth.

Speaker Change: Despite long-term rates moving a little bit higher during the quarter, our capital levels are climbing steadily.

Speaker Change: And we continue to expect our Consolidated Adjusted Tier 1 Leverage Ratio to approach our slightly updated operating objective of 675 to 7% on a consolidated basis by the end of 2024.

Speaker Change: At which point it becomes more of a live conversation regarding whether and how we want to do further capital return.

Speaker Change: Our number one priority for capital is always to support business growth.

Peter: To the extent that we have capital in excess of what is needed to do that, we have, throughout our history, taken steps to return that to stockholders. That can be through increasing our dividend, which generally rises alongside earnings. That can be by redeeming outstanding preferreds to create additional dry powder for the future, especially preferreds that might be or might become relatively expensive.

Speaker Change: To the extent that we have capital in excess of what is needed to do that, we have, throughout our history, taken steps to return that to stockholders.

Speaker Change: That can be through increasing our dividend, which generally rises alongside earnings.

Speaker Change: That can be by redeeming outstanding preferreds to create additional dry powder for the future.

Speaker Change: Specially preferreds that might be or might become relatively expensive. And that can also be of course through stock buybacks, which we do opportunistically.

Peter: And that can also be, of course, through stock buybacks, which we do opportunistically. There is one additional consideration right now, which is to the extent that we have outstanding supplemental borrowing, we may choose to utilize some of the liquidity we'd otherwise use for buybacks to reduce some of that bank-level debt. Doing that reduces our reliance on non-business-as-usual funding sources. And given the relatively higher cost of the supplemental borrowing, it's likely more costly to earnings in the near term. While preserving the ability to implement stock repurchases at a later date. So by doing that, we can kind of have our cake and eat it too.

Speaker Change: There is one additional consideration right now.

Speaker Change: Which is to the extent that we have outstanding supplemental borrowing we may choose to utilize some of the liquidity We'd otherwise use for buybacks to reduce some of that bank level debt

Speaker Change: Now, doing that reduces our reliance on non-business-as-usual funding sources, and given the relatively higher cost of the supplemental borrowing, it's likely more accretive to earnings in the near term.

Speaker Change: while preserving the capacity, the ability to implement stock repurchases at a later date. So by doing that, we can kind of have our cake and eat it too.

Peter: Both of you who have followed the company for a while know that we don't tend to communicate bold, long-term financial targets. Rather, we continue to talk about our long-term financial formula, a relatively simple and straightforward formula that is based on our clear and straightforward business strategy, which we articulate, as you know, through our clients' eyes. And what makes that financial formula simple and straightforward is that it's based on a set of pretty reasonable assumptions, for Schwab at least, around organic growth, revenue growth, expense containment, and capital returns. Assumptions that we have delivered through the cycle over multiple decades.

Speaker Change: Those of you who have followed the company for a while know that we don't tend to communicate bold, long-term financial targets.

Speaker Change: Rather, we continue to talk about our long-term financial formula, a relatively simple and straightforward formula that is based on our clear and straightforward business strategy, which we articulate, as you know, is through client's eyes.

Speaker Change: And what makes that financial formula simple and straightforward is that it's based on a set of pretty reasonable assumptions, for Schwab at least, around organic growth, revenue growth, expense containment, and capital return.

Speaker Change: Assumptions that we have delivered through the cycle over multiple decades.

Peter: Over the last two plus years, that formula has admittedly been obscured to an extent by the impact of rising rates and what that has done to client transactional cash balances. But with rates seeming to plateau and client cash realignment moderating while organic growth returns to that historical level, we're nearing the point where that simple and straightforward formula, that simple and straightforward financial story, should become more clear. One that, without making some big leap of faith, combines strong organic growth.

Speaker Change: Over the last two plus years, that formula has admittedly been obscured to an extent by the impact of rising rates and what that has done to client transactional cash balances.

Speaker Change: But with rates seeming to plateau and client cash realignment moderating while organic growth returns to that historical level, we're nearing the point where that simple and straightforward formula, that simple and straightforward financial story should become more clear.

Speaker Change: One that, without making some big leap of faith, combines strong organic growth, strong profitability, and substantial capital return.

Peter: Strong Profitability and Substantial Capital Return. With that, I'll turn it over to Jeff to facilitate our Q&A. Thank you very much, Peter. Operator, can you please remind everyone how they may ask a question? For those on the phone, if you'd like to ask a question, please unmute your phone, hit star 1 and record your name clearly when prompted.

Speaker Change: With that, I'll turn it over to Jeff to facilitate our Q&A. Thank you very much, Peter. Peter, can you please remind everyone how they may ask a question?

Jeff: Again, that's star 1 to ask a question and star 2 to withdraw your question. Would you like me to go to the first question? Yeah, please.

Jeff: For those on the phone, if you'd like to ask a question, please unmute your phone, hit star 1 and record your name clearly when prompted. Again, that's star 1 to ask a question and star 2 to withdraw your question.

Speaker Change: Would you like me to go to the first question?

Operator: Thank you. Our first question comes from Brian Bedell from Deutsche Bank. Please go ahead. Good. Thanks.

Speaker Change: Thank you. Our first question comes from Brian Bedell from Deutsche Bank. Please go ahead.

Brian Bertram Bedell: Thanks very much for the presentation. Maybe, Peter, could you talk about your view on how you may cut deposit rates as the Fed cuts? And I guess first and foremost is your assumption in your targets based on, I guess, how many Fed cuts are based on that? And then maybe just talk about how you might reduce direct deposit rates in a sweep and banking deposits as the Fed cuts, essentially the deposit beta to that. In terms of deposit betas, I wouldn't necessarily assume that deposit betas are symmetrical.

Brian Bertram Bedell: Great, thanks very much for the presentation.

Brian Bertram Bedell: Maybe just, Peter, can you talk about your view on how you may cut deposit rates as the Fed cuts?

Speaker Change: First and foremost is your assumption in your targets.

Speaker Change: based on how many Fed cuts are based on that? And then maybe just talk about how you might reduce direct deposit rates in SWEEP and the banking deposits versus Fed cuts, essentially the deposit beta to that.

Speaker Change: Sure. So thanks, Brian .

Speaker Change: scenario that we would that I outlined is based off the Fed cutting rates, single a single time and the rest of this year, and in September , in terms of deposit betas, I wouldn't necessarily assume that deposit betas are symmetrical. If you look historically, deposit betas tend to be a bit higher on the on the in a easing cycle than they are in a tightening cycle. And so, you know, while we certainly haven't made any decisions exactly about what we'll do with deposit rates, I think that's a reasonable expectation. And we also, you know, we're expected as rates come down, the cost of any replacement supplemental funding that we have to access comes down as well. And we'd also expect that

Peter: If you look historically, deposit betas tend to be a bit higher in the easing cycle than they are in a tightening cycle. And so, while we certainly haven't made any decisions exactly about what we'll do with deposit rates, I think that's a reasonable expectation. And we also, you know, expect that as rates come down, the cost of any replacement supplemental funding that we have to access comes down as well. And we'd also expect, on the margin, that rate cuts would, you know, over time, bring about higher levels of clients' transactional cash as the incentive for them to utilize alternative solutions, like purchase money funds and CDs, become somewhat less. Next, we'll go to the line of Ken Worthington from J.P. Morgan. Please go ahead.

Speaker Change: on the margin that rate cuts would, over time, bring about higher levels of clients' transactional cash as the incentive for them to utilize alternative solutions like purchase money funds and CDs becomes somewhat less.

Speaker Change: Next we'll go to the line of Ken Worthington from J.P. Morgan. Please go ahead.

Kenneth Brooks Worthington: Hi, good morning, and thanks for taking the question. In terms of the use of third-party banks like TD, how much of your bank assets might migrate to third-party banks over time in a sort of steady state? And how would you expect the economics to compare to the fees that you currently earn on a money market fund or in the Schwab bank spread over a rate cycle? And, I guess lastly, given Wells' comments on Friday, is there a risk that using third-party banks might risk regulators having an opinion on the yields passed on to certain end customers in the advisory or other segments of your business? Yeah, so I think it's, I think it's early to have definitive answers on the first set of questions that you ask, although, Thank you. Thank you.

Kenneth Brooks Worthington: Hi, good morning and thanks for taking the question. In terms of the use of third-party banks like TD, how much of your bank assets might migrate to third-party banks over time at sort of steady state? And how would you expect the economics to compare to the fees that you currently earn on a money market fund or in the Schwab bank spread over a rate cycle? And I guess lastly, given the Wells comments on Friday, is there a risk that using third-party banks?

Speaker Change: might risk regulators having an opinion on the yields passed on to certain end customers in the advisory or other segments of your business.

Speaker Change: Yeah, so I think it's, I think it's early to have

Speaker Change: I don't have definitive answers on the first set of questions that you asked.

Peter: IDA Agreement with TD Bank. It probably gives you a good direction with respect to the economy. The economics can be very attractive for us in terms of not needing to have capital relative to those deposits. And that's where I would probably direct you to look in terms of the economics of that. In terms of the level, we want to make sure that we maintain sufficient deposits at our bank to, again, fund the loans that our clients want and then have appropriate levels of liquidity over and above that. With respect to the Wells Fargo issue, we have provided money market funds, money market fund sweep cash, or money market yields on bank cash for all of our fiduciary-driven investment advisory solutions already. So...

Speaker Change: If you research our...

Speaker Change: IDA agreement with TD Bank, it probably gives you a good direction with respect to the economics.

Speaker Change: The economics can be very attractive for us in terms of not needing to have capital relative to those deposits.

Speaker Change: And that's where I would probably direct you to look in terms of the economics of that. In terms of the level, we want to make sure that we maintain sufficient deposits at our bank to, again, fund the loans.

Speaker Change: that our clients want and then have appropriate levels of liquidity over and above that.

Speaker Change: With respect to the Wells Fargo issue, we have provided money market fund, money market fund sweep cash and or

Speaker Change: Money Market Yields on bank cash for all of our fiduciary-driven investment advisory solutions already.

Kyle Voigt: I don't really see the Wells Fargo report having any kind of meaningful implications for us. We've been doing this for an extended period of time already. Next, we'll go to the line of Kyle Voigt from KBW. Please go ahead.

Speaker Change: I don't really see the Wells Fargo report having any kind of meaningful implications for us. We've been doing this for an extended period of time already.

Speaker Change: Next we'll go to the line of Kyle Voigt from KBW. Please go ahead.

Peter: Hi, good morning. Just maybe on the attrition rate at Ameritrade abating, and net new assets getting back to that 5 to 7% level, as they have grown historically, I guess, with the knowledge of doing prior brokerage integration, albeit at a smaller scale than the Ameritrade integration, do you have any expectation of when you could get back into that range? And typically, when do you see attrition effectively fully abate after the last migration, which we've obviously just gone through?

Kyle Voigt: Hi, good morning.

Speaker Change: Just maybe on the Ameritrade attrition abating and net new assets getting back to that 5-7% level as they have grown historically, I guess with the knowledge of doing prior brokerage integrations,

Speaker Change: I'll be at a smaller scale than the Ameritrade integration. Do you have any expectation of when you could get back into that range? And typically, when do you see attrition effectively fully abate after the last migration, which we've obviously just went through?

Peter: Let me start by saying first thing, thanks for the question, Kyle. Let me start by saying that when we look at our Schwab client base, we continue to grow within that five to 7% organic growth rate that we target over the long term. So when you look at the company level metrics, what's keeping us from the five to 7% overall is, in fact, the behavior of the Ameritrade clients. And the great thing that we're seeing is that we are seeing a change in their behavior.

Speaker Change: Let me start by saying, when we look at our Schwab client base, we continue to grow within that 5-7% organic growth rate that we target over the long term. So when you look at the company level metrics, what's keeping us from the 5-7% overall is in fact,

Speaker Change: behavior of the Ameritrade clients. And the great thing that we're seeing is we are seeing a change in their behavior, and it's in line with what we would expect, which is

Peter: And it's in line with what we would expect, which is, first, we need to stop clients from leaving the firm and from Ameritrade flows being negative. And I think we're in the process of that happening. Walt referenced the significant improvement in client promoter scores.

Speaker Change: First, we need to stop clients from...

Speaker Change: leaving the firm and from Ameritrade flows being negative. And I think we're in the process of that happening. Walt referenced the

Speaker Change: to significant improvement in client promoter scores. That's true both on the retail side and the advisor side. So client promoter scores are getting higher. As those client promoter scores are getting higher, we're moving from outflows from our Ameritrade clients to inflows.

Peter: That's true both on the retail side and the advisor side. So client promoter scores are getting higher. As those client promoter scores are getting higher, we're moving from outflows from Ameritrade clients to inflows. What we then need to do is to move a client base that hasn't had client flows quite in line with where Schwab's organic growth rate has been historically. We need to move them from being positive contributors to net new assets to contributing at the same level as Schwab, as our Schwab organic growth rate. So we're confident we can grow in the 5% to 7% range. We continue to do so on the Schwab side today.

Speaker Change: had client flows quite in line with where Schwab organic growth rate has been historically. We need to move them from being positive contributors to net new assets to contributing at the same level as our Schwab organic growth rate. And the way we'll do that is by introducing our Schwab model.

Speaker Change: Two Ameritrade clients.

Speaker Change: The financial consultant, the relationship model, the service, the advice, the consultants that we bring on the advisor side. All of that, we believe, will help accelerate the Ameritrade.

Peter: And we're right where we'd expect to be in terms of the process of moving Ameritrade clients from being net detractors and net new assets to now being slightly positive. And then we anticipate, by introducing our model to them, being able to grow them to the same level as Schwab clients over time. Next, we'll go to the line of Dan Fannon from Jeffries. Please go ahead.

Speaker Change: We're confident we can grow in the 5-7% range. We continue to do so on the Schwab side today, and we're right where we'd expect to be in terms of the process of moving Ameritrade clients from being net detractors and net new assets to now being slightly positive. And then we anticipate by introducing our model to them to be able to grow them to the same level as Schwab clients over time.

Speaker Change: Next we'll go to the line of Dan Fannon from Jeffries. Please go ahead.

Daniel Thomas Fannon: Thanks. Good morning. Peter was hoping you could elaborate on your assumptions of what's going to, you know, drive the sequential growth really after being flattened from Q3 to Q4. And, you know, specifically things like margin balances, which are growing, but, as you said, are drawing more short-term funding. So curious about short-term funding levels, plus some of the other assumptions in that Q3 to Q4 ramp. Yeah, so, so we can, you know, certainly you can follow up on. We have a number of assumptions on the page there. And you're welcome to follow up with the IR team on terms of some of the details.

Daniel Thomas Fannon: Thanks. Good morning. Peter was hoping you could elaborate on your assumptions of what's going to...

Daniel Thomas Fannon: And these all have to drive the sequential growth really after being flattened Q3 to Q4, and specifically things like margin balances which are growing, but as you said are drawing more short-term funding. So, I'm curious about short-term funding levels for some of the other assumptions in that Q3 to Q4 ramp.

Peter: But, broadly speaking, as I mentioned previously, the assumptions are the single Fed cut in, in September, client cash realignment activity that, you know, continues to moderate, we expect it will, you know, flatten, and then again, ultimately resume growth. And then more of a continuation of the, you know, general, relatively conventional assumptions on equity market appreciation, margin balance growth that goes along with that, and so forth. In terms of, you know, borrowing, our priority, of course, is to pay that down as quickly as we can.

Speaker Change: Yeah, so we have a number of assumptions on the page there, and you're welcome to follow up with the IR team in terms of some of the details. But broadly speaking, as I mentioned previously, the assumptions are it's a single Fed cut in September , client cash realignment activity that continues to moderate. We expect it will flatten and then again ultimately resume growth.

Peter: But, you know, the pace at which we pay that down is dependent on the level of margin balance growth. And, and if we see continuously more margin balance growth, we will, as we always do, want to make sure we support that growth. And, and at times, that means moving some cash out of the bank, some client cash out of the bank over to the broker dealer. But again, that is, we welcome the margin balance growth.

Speaker Change: And then more of a continuation of the...

Speaker Change: General, you know, relatively conventional assumptions on equity market appreciation, margin balance growth that goes along with that, and so forth. In terms of borrowing, our priority, of course, is to...

Speaker Change: to pay that down as quickly as we can, but the pace at which we pay that down is dependent on the level of margin balance growth. And if we continue to see more margin balance growth, we will.

Speaker Change: As we always do, I want to make sure we support that growth, and at times that means moving some cash out of the bank, some client cash out of the bank over to the broker dealer, but again, that is a, we welcome the margin balance growth, it's good for clients, it means we're, you know, our clients are engaged, that we are supporting our active trader community, which is a very important segment for us,

Peter: It's good for clients. It means we are, you know, our clients are engaged, that we are supporting our active trader community, which is a very important segment for us. It's a very profitable interest-earning asset, so we're more than happy to support that, even if it means that it delays to a certain extent the repayment of the supplemental lending. It's accretive from a NIMS standpoint, accretive from a net interest revenue standpoint, and so forth.

Speaker Change: It's a very profitable interest earning asset, so we're more than happy to support that, even if it means that it delays, to a certain extent, the pay down of supplemental borrowing. It's accretive from a NIMS standpoint, accretive from a net interest revenue standpoint, and so forth. So it's why it's really...

Peter: So it's why it's why it's really important for everyone not to focus on supplemental borrowing, just, you know, in isolation in a vacuum, because it's influenced by other factors as well. Next we'll go to the line of Steven Chubak from Wolf Research. Please go ahead. Hi, good morning.

Speaker Change: I think I'd caution everyone not to focus on supplemental borrowing just, you know, in isolation, in a vacuum, because it's influenced by other factors as well.

Speaker Change: Next we'll go to the line of Steven Chubak from Wolf Research. Please go ahead.

Steven Chubak: Unknown Speaker, Peter, you had outlined a couple of different self-help levers. I mean, the first is the potential to migrate some additional cash off the balance sheet in the future. I actually wanted to focus on the potential opportunity to accelerate paydowns of the high-cost liabilities by repositioning the securities portfolio, and I was hoping you could just unpack what are some of the constraints that we should be mindful of when thinking through this potential opportunity.

Steven Chubak: Hi, good morning.

Steven Chubak: So...

Steven Chubak: Peter, you had outlined a couple of different self-help levers. I mean, the first is the potential to migrate some additional cash off balance sheet in the future.

Steven Chubak: I actually wanted to focus on the potential opportunity to accelerate paydowns of the high-cost liabilities.

Speaker Change: by repositioning the securities portfolio.

Speaker Change: And we're hoping you could just unpack what are some of the constraints that we should be mindful of when thinking through the potential opportunity. And is it fair to assume that you would likely wait until you're at your capital target, at which point you would maybe consider pursuing that path?

Steven Chubak: And is it fair to assume that you would likely wait until you're at your capital target, at which point you would maybe consider pursuing that path? At the same time, we're very cognizant of, and very mindful of doing anything that would jeopardize the trust our clients place in us, especially for the sake of bringing forward something that we expect will happen on its own. And so that's why we, you know, why we haven't done that.

Speaker Change: Yeah, so thanks for the question, Steven. So, you know, I would say, I know we've gotten this question, you know, we've gotten this question a fair amount, and our thinking on repositioning trade hasn't really, hasn't really changed. We certainly understand the, you know, the benefit of that on accelerating the pay down of supplemental borrowing, accelerating the net interest margin accretion, earnings accretion that we expect to happen over time.

Speaker Change: At the same time, we're very cognizant of and very mindful of doing anything that would jeopardize the trust our clients place in us.

Speaker Change: Especially for the sake of bringing forward something that we expect will happen on its own. So that's why we haven't done that. I would say it's not something we by any means rule out altogether, but it's also not something we're looking to do in the near term.

Steven Chubak: So I would say it's not something we, you know, by any means rule out altogether, but it's also not something we're looking to do in the near term. Next we'll go to the line of Brennan Hawken from UBS. Please go ahead.

Speaker Change: Next we'll go to the line of Brennan Hawken from UBS. Please go ahead.

Brennan Hawken: Morning, thanks for taking my questions. I'd like to follow up on the question around the shift to third-party banks as a place for deposits. So, just at a high level, I'm curious if you could explain to us the strategic shift here, because, you know, we spoke about it. A year ago at the last, what used to be the Winter Business Update, now is Investor Day, although I guess in 2023 it was at a different time, there was a defense of using the bank subsidiary. So, what led you to shift there?

Brennan Hawken: Morning, thanks for taking my questions. I'd like to follow up on the question around the shift to third party.

Brennan Hawken: Thanks for as a place for deposits. So, um, just at a high level.

Brennan Hawken: I'm curious if you could explain to us the strategic shift here because, you know, we spoke about it.

Brennan Hawken: A year ago, at the last, what used to be the Winter Business Update, now is the Investor Day, although I guess in 2023 it was at a different timing.

Peter: And then maybe, just like timing wise, when should we expect this to happen? And how do you strike the balance you referenced, you know, that you want liquidity above the need to fund the loans? You know, how should we be thinking about what the bank will actually look like once things settle out and us use and you take this journey?

Speaker Change: there was a defense of using the bank subsidiary. So what led you to shift there? And then maybe just like timing-wise, when should we expect this to happen? And how do you strike the... you referenced, you know, that you want liquidity above the need to fund the loans. You know, how should we be thinking about what the bank...

Speaker Change: will actually look like once things settle out and you take this journey.

Peter: Yeah, thanks, Brennan. So, as I indicated, we're talking about years, not months and quarters. And we just want to foreshadow that, over that period of years, we think that there may be approaches that are more efficient in terms of rewarding our clients as well as rewarding our stockholders, then maintaining 100% of the deposits at our bank. We want deposits, as I indicated, to be sufficient to cover the loans that we intend to do for our clients that provide quality yields, deepen relationships, and we're able to do at exceptionally low credit risk, as But we all recognize that deposit flows can be very volatile, depending on rate environments.

Speaker Change: Yeah, thanks, Brennan. So, as I indicated, we're talking about years, not months and quarters, and we just want to foreshadow that

Speaker Change: Over those period of years...

Speaker Change: We think that there may be approaches that are more efficient in terms of rewarding our clients as well as rewarding our stockholders than maintaining 100% of the deposits.

Speaker Change: at our bank.

Speaker Change: We want deposits, as I indicated, to be sufficient to cover the loans that we intend to do for our clients that provide quality yields, deepen relationships, and we're able to do at exceptionally low credit risk.

Speaker Change: As well as having liquidity beyond that.

Speaker Change: But we all recognize that deposit flows can be very volatile depending on rate environments.

Peter: And we have in place one agreement already today that provides us with substantial flexibility for client deposits with exceptional economics for us without the need for capital. And we think that there are other opportunities to consider expanding that. Again, I want to emphasize the prepared remarks I made that this is all subject to the economics of doing so. But we do think there are meaningful opportunities to lighten some of the capital load over time, again, measured in years, not months and quarters, that will provide us additional flexibility and also let us extend FDIC insurance to higher levels for our clients. Next we'll go to the line of Benjamin Budish from Barclays. Please go ahead. Hi, good afternoon.

Speaker Change: And we have in place one agreement already today that provides us substantial flexibility.

Speaker Change: for for client deposits with exceptional economics for us without the need for capital and and we think that there are other opportunities to consider expanding that again I want to emphasize the prepared remarks I made that this is all subject to the economics of doing so.

Speaker Change: But we do think there are meaningful opportunities to lighten some of the capital load over time, again, measured in years, not months and quarters, that will provide us additional flexibility and also let us extend FDIC insurance to higher levels for our clients.

Speaker Change: Next we'll go to the line of Benjamin Budish from Barclays. Please go ahead.

Benjamin Budish: Thanks for taking the questions. Just thinking about the sort of cash inflows over the next, you know, maybe six to eight quarters, can you maybe provide an update on your expected pace of securities maturing off of the balance sheet? I think you've talked before about the back half of 24, but is there any update you could perhaps provide on what to expect in 2025? Thank you.

Benjamin Budish: Hi, good afternoon. Thanks for taking the questions. Just thinking about the sort of cash inflows over the next, you know, maybe six to eight quarters, can you maybe provide an update on your expected pace of securities maturing off of the balance sheet? I think you've talked before about the back half of 24, but is there any update you could perhaps provide on what to expect in 2025? Thank you.

Peter: Yeah, so I think I would think about that in terms of the pace of cash flows off the investment portfolio as sort of in the, you know, 10 to $11 billion a quarter, somewhere in that range, as the portfolio, the size of the portfolio, goes down, it's reasonable to expect that that level of cash flow goes down, as well, sort of commensurate with that, but sort of an asset, you know, general rule of thumb, over Next, we'll go to the line of Alex Blostein from Goldman Sachs. Please go ahead. Hey, good morning, everybody.

Speaker Change: Yeah, so I mean, I think I would think about that in terms of the pace of cash flows off the investment portfolio as sort of in the, you know, $10 to $11 billion a quarter, somewhere in that range. As the portfolio, the size of the portfolio, you know, goes down, that it's reasonable to expect that that level of cash flow

Speaker Change: goes down as well, sort of commensurate with that, but sort of, and that's a, you know, general rule of thumb over the next several quarters I think is a reasonable expectation.

Speaker Change: Next we'll go to the line of Alex Blostein from Goldman Sachs. Please go ahead.

Alexander Blostein: Thank you for the questions. Well, so a lot of these things we're talking about for the last several quarters are related to kind of self-help levers and improvement in the company's earnings power, ultimately start with improvement in the deposit trajectory of the business that will help supplement the borrowings, capital returns, et cetera. So maybe help us sort of refresh now that you've had the business with Ameritrade for some time, how are you thinking about the normalized framework for growth and Schwab's deposits, sweep deposits, whether it's a percentage of net new assets or some other metric, but I guess also considering that even if we do get rate cuts, the Fed Funds rate and the market rate is still going to be probably meaningfully higher versus kind of the available deposit yield that you and the industry are offering.

Alexander Blostein: Hey, good morning, everybody. Thank you for the questions. Well, so a lot of the things we're talking about for the last several quarters are related to kind of self-help levers and improvement in the company's earnings power, ultimately start with improvement in the deposit trajectory of the business that will help supplement the borrowings, capital returns, etc. So maybe help us sort of refresh now that you've had the business with Ameritrade for some time. How are you thinking about the normalized framework for growth and Schwab's deposits, sweep deposits, whether it's the percentage of net new assets or some other metric, but I guess also considering that even if we do get rate cuts, the Fed funds rate and the market rate is still going to be probably meaningfully higher versus kind of the available deposit yield that you and the industry are offering?

Alexander Blostein: Yeah, thanks, Alex, for the question. So, You know, I know there's a lot of focus on kind of month to month, you know, even at times, you know, week to week changes in deposit flows. I think it's important to maybe set a little bit of context.

Peter: So first, deposit flows over a short period of time are influenced by net new assets, of course, and the cash is brought in from new accounts. And then what clients do with that cash, which can be rate-driven allocations that they make to purchase money funds, and CDs. And so forth; that can also be into engagement in the markets, equities, mutual funds, and so forth. And so that can create some, some volatility.

Alexander Blostein: Yeah, thanks Alex for the question.

Alexander Blostein: You know, I know there's a lot of focus on kind of month-to-month, you know, even at times, you know, week-to-week changes in deposit flows, and I think it's important to

Alexander Blostein: Maybe set a little bit of context, you know, so first is...

Alexander Blostein: deposit flows over a short period of time are influenced by net new assets of course and the cash is brought in from new accounts and then what clients do with that cash and that can be rate driven allocations that they make a purchase money funds CDs and so forth. They can also be into engagement to market equities, mutual funds, and so forth. And so that can create some

Peter: You know, we have seen a, you know, strong engagement in the markets. And when we look at the rate-driven activity among our clients, that continues to go down. You know, the second point of context I would make, which is that, you know, you do see variability in those flows from day to day or month to month, and we can see two or $3 billion of net inflows or outflows on a particular day.

Alexander Blostein: some variability, we have seen a strong engagement in the markets, and when we look at the rate-driven activity among our clients, that continues to go down. The second point of context I would make, which is that

Peter: And so when you just look at a month's numbers, you know, depending on what day of the week the month ends on, it can influence the level of transactional cash that we report on on that monthly basis. I would say, you know, June was, you know, sort of, comparable to May; July is, you know, has started off stronger, but it's still early, about halfway through the month.

Alexander Blostein: You know, you do see variability in those flows from, you know, frankly from day to day or month to month, and we can see two or three billion dollars of net inflows or outflows on a particular day. And so when you just look at a month's numbers, you know, depending on which day of the week the month ends on it can influence the level of transactional cash that you, that we report on, on that monthly basis. So let's say, you know, June was, you know, sort of, it was comparable to May. July is, you know, has started off stronger. It's still early. It's about halfway through the month. So we'll see how the month ends. But it is start off definitely stronger than, in terms of deposit flows, than May. In terms of long term, to get to your question on long term, you know, we would expect in a stable

Peter: So we'll see how the month ends, but it is starting off definitely stronger in terms of deposit flows than May. In terms of the long term, to get your question to the long term, you know, we would expect in a stable environment that client transactional cash grows with the growth in accounts and the growth in total assets. We actually recently did a study to look at clients who opened their accounts roughly 20 years ago.

Alexander Blostein: environment that client transactional cash grows with.

Alexander Blostein: The Growth in Accounts and the Growth in Total Assets. We actually recently did a study.

Alexander Blostein: to look at clients who opened their accounts roughly 20 years ago. And what we see over time is...

Peter: And what we see over time is, as those clients increase the net worth in their accounts, as they increase assets in their accounts, their cash balances go up, and they actually stay at a relatively constant percent of the assets in the account. And so I think, you know, as you are modeling our transactional cash over a long period of time, over years, it's reasonable to expect that that transactional cash grows with the growth in assets and the growth in accounts. You know, when rates are rising, growth will be a little bit slower.

Alexander Blostein: As those clients increase the net worth in their accounts, increase assets in their accounts, their cash balances go up, and they actually stay at a relatively constant percent of the assets in the account. And so I think that, you know, as you are modeling...

Alexander Blostein: Our transactional cash over a long period of time, over years, I think it's reasonable to expect that that transactional cash grows with the growth in assets and the growth in accounts.

Alexander Blostein: you know, when rates are rising, your social growth will be a little bit slower if rates are falling that growth will be a little bit faster, but I think over time in a stable environment that's a reasonable expectation over again, over multiple years.

Peter: When rates are falling, that growth will be a little bit faster. But I think over time, in a stable environment, that's a reasonable expectation again, over multiple years. Next, we'll go to the line of Bill Katz from TD Cowen. Please go ahead. Okay, thank you very much for taking the question. Maybe a two-parter.

Alexander Blostein: Next we'll go to the line of Bill Katz from TD Cowen. Please go ahead.

William Raymond Katz: The first one is just in terms of the Ameritrade metrics you mentioned, in terms of not up to the 5% to 7% growth rate that you're experiencing with the Legacy Platform. Can you scale and size the two relative asset pools I was speaking about? And then the broader question I have is, just as you're thinking now about migrating growth of the bank, how should we think about the end state of the size of the bank? And does this change your capital return methodology? Let me start with the Ameritrade part of the question. We brought over about $2 trillion of Ameritrade client assets. We're at $9.4 trillion overall.

William Raymond Katz: Okay, thank you very much for taking the question, maybe a two-parter. The first one is just in terms of the Ameritrade metrics you had mentioned, in terms of not up to the 5 to 7 percent.

Speaker Change: Growth Rate that you are experiencing with Legacy Platform. Can you scale and size the two relevant asset pools that we're speaking to? And then the broader question I have is that just you are thinking now about migrating the growth of the bank, how should be thinking about the end state of the size of the bank and does this change your capital return methodology?

Speaker Change: Let me start with the Ameritrade part of the question. We brought over about $2 trillion of Ameritrade client assets. We're at $9.4 trillion overall. So Ameritrade is clearly an important part of our business. Looking at the longer term...

Peter: So Ameritrade is clearly an important part of our business. Looking at the longer term... We went from clients who experienced a lot of change and might have had dual relationships at Ameritrade and somewhere else, making the decision that this wasn't where they wanted to be. And so we did see some attrition. But that attrition was well below what our expectations were.

Speaker Change: It's important to remember the enthusiasm we have for the combination of the strength of Ameritrade and Schwab. We're talking a lot about short-term dynamics around cash and net interest margin and things like that.

Speaker Change: We have an incredible franchise that we've just spent four years putting together the best of everything Ameritrade had to offer With the best of everything Schwab has to offer and the behavior we're seeing from our clients is exactly what we would expect

Peter: And now we're seeing what we'd expect to see in the next phase, which is client satisfaction from those clients that were moved, who had their experience changed dramatically. We're up 35 points in our advisor services business in terms of our overall client promoter scores following the conversion. And on the retail side, nine months after a client moves, their satisfaction is up 50 points.

Speaker Change: We went from clients who experienced a lot of change and might have had dual relationships at Ameritrade and somewhere else, making the decision that this wasn't where they wanted to be. And so we did see some attrition. That attrition was...

Speaker Change: Well below what our expectations were.

Speaker Change: And now we're seeing what we'd expect to see in the next phase, which is...

Speaker Change: Client satisfaction from those clients that were moved, who had their experience changed, improving dramatically. We're up 35 points in our advisor services business in terms of our overall...

Speaker Change: Client Promoter Scores following the conversion. And on the retail side, nine months after a client moves, their satisfaction is up 50 points.

Peter: So we have built a platform that both sets of clients love. And now, what we get to do for the long-term and for the foreseeable future is deliver our mission of making a difference in our clients' lives through a platform that's never been stronger on the retail side and the advisor side than it is right now. And so we're confident in our long-term organic growth rate. We think the behavior we're seeing is exactly in line with what we would have expected, and we are very optimistic about our future growth. Next, we'll go to the line of Michael Cyprys from Morgan Stanley. Please go ahead. Hey, good morning.

Speaker Change: So, we have built a platform that both sets of clients love. And now what we get to do for the long term and for the foreseeable future is deliver our mission of making a difference in our clients' lives through a platform that's never been stronger on the retail side and the advisor side than it is right now today. And so, we're confident in our long-term organic growth rate. We think the behavior we're seeing is exactly in line with what we would have expected and are very optimistic for our future growth.

Speaker Change: Next we'll go to the line of Michael Cyprys from Morgan Stanley . Please go ahead.

Michael J. Cyprys: Thanks for taking the question. Maybe just sort of going back to the Wells Fargo announcement, maybe you could just help clarify for us the magnitude of cash that you have in fiduciary accounts, the types of accounts these represent, where you offer the money fund equivalent yields, is this just retirement only? And then, just more broadly, how do you think about the risk, over the long term, that industry practices evolve with more account types over time that capture these money fund equivalent yields?

Michael J. Cyprys: Hey, good morning. Thanks for taking the question. Maybe just sort of going back to the Wells Fargo announcement, maybe you could just help clarify for us the magnitude of cash that you have in fiduciary accounts, the types of accounts these represent, where you offer the money fund equivalent yields, is this just retirement only? And then just more broadly, how do you think about the risk over the long term that industry practices evolve with more account types over time that capture these money fund equivalent yields? Unknown Speaker

Peter: So just, I just want to clarify, in our... fiduciary relationships where we, in our managed investing programs or wealth programs, cash assets are invested in a sweep government money fund, so we don't have this exposure that Wells Fargo has. Thank you. Next, we'll go to the line for Chris Allen from Citi. Please go ahead. Good morning, everyone. I wanted to ask about the 3% MIM outlook for 2025. Just wondering, what are the parameters that you're baking in to get there?

Speaker Change: So just I just want to clarify in our

Speaker Change: Fiduciary relationships in our managed investing programs, our wealth programs.

Speaker Change: Cash assets are invested in a sweep government money fund, so we don't have this exposure that Wells Fargo has.

Speaker Change: Thank you. Next we'll go to the line of Chris Allen from Citi. Please go ahead.

Christopher John Allen: Does this entail any of the changes you talked about around the balance sheet strategy in terms of shortening duration as well? moderation of the client transactional cash realignment activity and, and the pay down of the supplemental borrowing, that is very, very accretive to our net interest margin. In terms of, you know, whether the comments that Walt provided have any influence over that, you know, I just reiterate what he said, which is that is something that's evolutionary, not revolutionary; it's going to play out over multiple years. And so it doesn't influence at all really the more near-term outlook that we have for the end of towards the end of 2025.

Christopher John Allen: Good morning, everyone. I wanted to ask about the 3% MIM outlook for 2025. Just wondering what are the parameters that you're baking in to get there? Does this entail any of the changes that you talked about around the balance sheet strategy in terms of shortening duration as well?

Speaker Change: Yeah, thanks, Chris. So the 3%, approaching 3%, NIM approaching 3% by the end of 2025, the primary driver of that is, again, the moderation of the client transactional cash realignment activity and the pay down of the supplemental borrowing. That is very, very accretive.

Speaker Change: to our net interest margin. In terms of you know, whether the comments that Wall provided have any influence over that. Yeah, I just reiterate what he said, which is that is something that is evolutionary, not revolutionary. It's going to play out over multiple years. And so it doesn't influence at all, really, the that more near-term outlook that we have for the end of the 2025.

Speaker Change: Thanks for the question.

Peter: Thanks for the question. Okay, next. Operator, I think we have time for one short question and then we're going to close. Absolutely. Our final question comes from Devin Ryan from Citizens JMP. Please go ahead. Oh, great. Thanks so much for squeezing me in.

Speaker Change: [inaudible]

Speaker Change: Operator, I think we have time for one short question and then we're going to close.

Speaker Change: Absolutely. Our final question comes from the line of Devin Ryan from Citizens JMP. Please go ahead.

Devin Ryan: Do you have a question about lending? And obviously, it's been an area you guys have been talking about, both yesterday and today as well. Just thinking about kind of where Schwab is with 40 basis points of client assets, I think you highlighted that the industry, so just want to get some color around where you are, how much of that gap you think you could actually close just with your, I guess, suite of products, number one, and number two, what you're comfortable going to in terms of the mix of the balance sheet, especially just given some of the evolution of the balance sheet we're talking about today Thank you.

Devin Ryan: Oh, great. Thanks so much for squeezing me in. Do you have a question about lending? Obviously, it's been an area you guys have been talking about both yesterday and today as well. Just thinking about kind of where Schwab is, your 40 basis points of client assets, I think you highlighted that the industry…

Speaker Change: So just want to get some color around where, how much of that gap you think you could actually close just with your, I guess, suite of products, number one, and number two, what you're comfortable going to in terms of the mix of the balance sheet, especially just given some of the evolution of the balance sheet we're talking about today as well. Thank you.

Peter: Thanks for the question, Devin. We certainly think we can expand our lending capabilities. And the way we're focused on doing that is by creating the easiest, most straightforward, client-friendly process in the industry. And we've seen that within our Pledged Asset Line program, where it's now 1.7 days average cycle time to get a Pledged Asset Line. It's actually less than a day for individual and joint accounts, but our more complex ones drive up the average time.

Speaker Change: Thanks for the question, Devin.

Speaker Change: We certainly think we can expand our lending capabilities. And the way we're focused on doing that is by creating the easiest, most straightforward,

Speaker Change: Client-friendly process in the industry.

Speaker Change: We've seen that within our Pledged Asset Line program where it's now 1.7 days average cycle time to get a Pledged Asset Line. It's actually less than a day for individual and joint accounts, but our more complex ones drive up the average time. 85% of those originations are now done digitally.

Peter: Eighty-five percent of those originations are now done digitally. These are major enhancements. And we're making other enhancements to our mortgage process, to the way we lend to our higher net worth clients and the experience they have. So we're trying to build an experience that makes it such that our Schwab clients never want to borrow somewhere else. They want to borrow from us.

Speaker Change: These are major enhancements and we're making other enhancements to our mortgage process, to the way we lend to our higher net worth clients and the experience they have. So we're trying to build an experience that

Peter: So we do think there is lots of runway to close that gap, and we're quite bullish on the opportunity here. Now, we are in an interest rate environment where there is not as much borrowing as we've seen historically, not as much rolling over of loans and things.

Speaker Change: makes it such that our Schwab clients never want to borrow somewhere else. They want to borrow from us. So we do think there is lots of runway to close that gap and we're quite bullish on the opportunity here. Now we are in an interest rate environment where

Peter: But we are confident that we've built the process, the experience, and the offer that we should be for our clients an exceptional place to borrow. And that includes our industry-leading rates for clients that have assets with us. It's also a terrific way to add to the service that we provide to our advisor clients. Our advisors have for years been asking us to do more lending because they don't want to have to introduce another party into the relationship. And increasingly, we're able to meet their needs, which delights them, and we think we'll be able to do more of that over time. All right, well, I think it's my opportunity or my time to close.

Speaker Change: There's not as much borrowing as we've seen historically, not as much rolling over of loans and things. But we are confident that we've built the process, the experience.

Speaker Change: And the offer that we should be, for our clients, an exceptional place to borrow. And that includes our industry-leading rates for clients that have assets with us. The final comment I'd make is...

Speaker Change: It's also a terrific way to add to the service that we provide to our advisor clients. Our advisors, for years, have been asking us to do more lending because they don't want to have to introduce another party into the relationship. And increasingly, we're able to meet their needs, which delights them, and we think we'll be able to do more of that over time.

Unknown Executive: All right, well I think it's my opportunity or my time to close. I want to thank all of you for joining us this morning and hearing our thoughts on the business and the opportunity in front of us. You know, I think it's very easy to focus on, you know, very near-term, practical measures and, you know, is, you know, crank, actually realignment activity, you know, plus or minus a billion dollars or supplemental borrowing or net interest margin in terms of which you measure in terms of basis points.

Peter: You know, I want to thank all of you for joining us this morning and hearing our thoughts on the business and the opportunity in front of us. You know, I think it's very easy to focus on, you know, very near-term tactical measures and, you know, client cash realignment activity, plus or minus a billion dollars or supplemental lending or net interest margin, which you measure in terms of basis points, and those of you who have followed this company for a long time know that we manage for the long term. We have a very long-term orientation.

Speaker Change: Alright, well I think it's my opportunity or my time to close. I want to thank all of you for joining us this morning and hearing our thoughts on the business and the opportunity in front of us.

Speaker Change: You know, I think it's very easy to focus on, you know, very near-term tactical measures and, you know, is, you know, client cash realignment activity, you know, plus or minus a billion dollars or supplemental borrowing or net interest margin in terms of which you measure in terms of basis points. And those of you who have followed this company for a long time know that we manage for the long term. You know, we have a very long-term orientation. We are, our faith in our clients, our faith in our strategy, our confidence in that strategy really helps us remain focused on the long term. And, you know, Walt described this year at the outset as a transitional year. And I think as we sit here halfway through the year,

Unknown Executive: And those of you who follow the committee for a long time know that we've managed to long-term. And we've got a very long-term orientation; we have faith in our clients, our faith in our strategy, our confidence in that strategy really helps us remain focused on a long-term.

Peter: We have faith in our clients, our faith in our strategy, and our confidence in that strategy really helps us remain focused on the long-term. And, you know, Walt described this year at the outset as a transitional year, and I think as we sit here halfway through the year, we feel really good about how that transition is going in terms of our strategic positioning, in terms of the completion of the Ameritrade integration and the satisfaction of those clients, in terms of the organic growth and the capital levels.

Walter Bettinger: You know, Walter described this year at the outset as a transitional year, and I think as we sit here halfway through the year, we feel really good about how that transition is going in terms of our strategic positioning, in terms of the composition of the marriage rate integration and the status of action of those clients, in terms of the organic growth, the capital levels, and even the financial performance. And we certainly recognize that journey is not over by any means, but we're feeling very confident about where we are and where we're going.

Walt: We feel really good about how that transition is going in terms of our strategic positioning, in terms of the completion of the Ameritrade integration and the satisfaction of those clients, in terms of the organic growth, the capital levels.

Peter: And even the financial performance. And we certainly recognize the journey is not over by any means, but we're feeling very confident about where we are and where we're going. Thanks, everyone again, and we'll look forward to speaking with you again in October.

Speaker Change: And even the financial performance. And we certainly recognize the journey is not over by any means, but we're feeling very confident about where we are and where we're going. Thanks, everyone, again, and we'll look forward to speaking with you again in October .

Unknown Executive: Thanks everyone again, and we'll look forward to meeting with you again in October.