Q3 2024 Charles Schwab Corp Earnings Call

might be different cadence to the session. Well, we'll kick things off with some opening remarks.

Walter Bettinger: and then he and Rick, who will be stepping into the CEO role from January, will provide insights around our clients and overall strategic picture.

and then he and Rick, who will be stepping into the CEO role in January, will provide insights around our clients and overall strategic picture. And then given the recent CFO transition at the beginning of the month, we thought it made sense to allocate the financial update between Peter, who will focus on three cue results and Mike, who will touch on our thinking as we enter the final stretch for 2024.

Peter Morgan: And then, given the recent CFO transition at the beginning of the month, we thought it made sense to allocate the financial update between Peter, who will focus on three Q results, and Mike, who will touch on our thinking as we enter the final stretch for 2024.

Walter Bettinger: And then this time around, we will save a few extra minutes at the end for some closure remarks from Walt, some quick housekeeping reminders.

and then this time around we will save a few extra minutes at the end for some closer marks from Walter.

Unknown Executive: The slides for today's business update will be posted to their usual spot on the IR website at the end of the prepared remarks.

from Quick Housekeeping Reminders. The slides for today's business update will be posted to their usual spot on the IR website at the end of the prepared remarks.

Unknown Executive: Q&A remains structured as the one question, no follow-ups, and let's be mindful of those multi-part questions that we certainly encourage anyone to re-enter the queue if another question comes to mind. And, as always, please don't hesitate to follow up with IR with any additional questions.

Q&A remains structured as the one question, no follow-ups, and let's be mindful of those multi-part questions that we certainly encourage anyone to re-enter the queue if another question comes to mind. As always, please don't hesitate to follow up with IR with any additional questions.

Unknown Executive: And finally, the thread that links us all together through the years, the eternal wall of words regarding our form of statements, reminding us that the future is indeed uncertain, so please stay in touch with our disclosures.

and finally, the thread that links us all together through the years, the eternal wall of words regarding our four making statements, reminding us that the future isn't eaten uncertain, so please stay in touch with our disclosures. And with that, Walter, let me start us off.

Walter Bettinger: And with that, Walt, let me start us off.

Jeff Edwards: Thank you, Jeff.

Walter Bettinger: And good morning, everyone. Thanks for joining us for our October business update. I've had the honor of speaking with all of you at these updates, dating back to 2005 when I assumed responsibility for our investor services or retail business.

Walter: Thank you, Jeff and good morning, everyone. Thanks for joining us for our October Business App update.

Walter: I've had the honor of speaking with all of you at these updates dating back to 2005. When I assume responsibility for our investor services or retail business, of course, is Jeff indicated going forward in my role as executive co-chair. I won't be participating in these calls.

Walter Bettinger: Of course, Jeff indicated that going forward in my role as executive co-chair, I won't be participating in these calls. So, I want to take a moment and thank all of you for your interest, your thoughtful questions, as well as the insights you shared with me over the years. Through all the ups and downs that changing economic and competitive environments lead to, I've always respected your professionalism and integrity, so thank you.

Walter: So I wanted to take a moment and thank all of you for your interest, your thoughtful questions as well as the insights you shared with me over the years.

Walter: Through all the ups and downs, the changing economic and competitive environments lead to, I've always respected your professionalism and integrity, so thank you.

Walter Bettinger: Let's go ahead and dive right into our discussion. The third quarter was an important quarter for us during this transition year. Some might refer to it as an inflection point, although only time will tell on that perspective.

Walter: So let's go ahead and dive right into our discussion. The third quarter was an important quarter for us during this transition year.

Walter: Some might refer to it as an inflection point, although only time will tell on that perspective. Nevertheless, Rick, Peter, Mike and I have a series of positive developments to share with you today.

Walter Bettinger: Nevertheless, Rick, Peter, Mike, and I have a series of positive developments to share with you today. In the quarter, we made strong progress across virtually all key areas. Former Ameritrade clients are continuing to generate positive net new assets. That's the second quarter in a row. Our clients are growing transactional sweep cash balances. We've made meaningful progress in paying down supplemental funding. We're experiencing ongoing strengthening in firm-wide net new assets. Clients are enrolling into our retail advisory solutions at record levels. All these facts, along with other key metrics, illustrate the health of the franchise and fuel our solid optimism for the future.

Walter: In the quarter we made strong progress across virtually all key areas.

Walter: For our Maritory clients are continuing to generate positive net new assets, that's the second quarter in a row. Our clients are growing transactional sweet cash balances.

Walter: We've made meaningful progress in paying down supplemental funding. We're experiencing ongoing strengthening in firm-wide net new assets.

Walter: Clients are enrolling into our retail advisory solutions at record levels.

Walter: All these facts along with other key metrics illustrate the health of the franchise and fuel our solid optimism for the future.

Walter Bettinger: The third quarter did see some choppiness in the markets.

Walter Bettinger: Overall, our clients remain solidly engaged, and we continue to make progress on key areas of focus across the firm, which Rick will spend some more time on. I think at this point any questions about our long-term growth trajectory should seemingly be fading.

Walter: The third quarter did see some choppiness in the markets, overall our clients remain subtly engaged. And we continue to make progress on key areas of focus across the firm, which Rick will spend some more time on.

Walter: I think at this point, any questions about our long-term growth trajectory should seemingly be fading.

Walter Bettinger: Kennedy. During the quarter, inflation eased, and as the Fed began to lower interest rates, equity markets responded by reaching all-time highs. Investor sentiment remained bullish during the quarter. Overall trading activity was solid, including some modest softening late in the quarter, as our traders digested the future of rates, as well as an equity market at all time highs. Client engagement was quite healthy across our full spectrum of capabilities, whether it be trading, banking services, advisory solutions, custody for RIAs, as well as asset management. For the quarter, trades were up about 4% from the prior quarter, while margin balances grew over a billion dollars to end at 73 billion.

Walter: Here in the quarter inflation east and as the Fed began to lower interest rates, equity markets responded by reaching all-time highs.

Walter: Investment Remained Bullish during the quarter, overall trading activity was solid, including some modest softening late in the quarter as our traders digested the future of rates, as well as an equity market at all time highs.

Walter: Klein engagement was quite healthy across our full spectrum of capabilities, whether it be trading, banking services, advisory solutions, custody for RIAs, as well as asset management.

Walter: For the quarter trades were up about 4% from the prior quarter, while margin balance has grew over a billion dollars to end at 73 billion.

Walter Bettinger: Managed investing or retail advisory flows broke another record, totaling $15 billion during the third quarter. Net new assets were also quite strong during what is sometimes a slower quarter, given that the summer months are included. Net new assets more than doubled from the third quarter of last year. As former Ameritrade clients continued to generate positive, albeit still modest, net asset flows. During the quarter, clients entrusted us with almost 1 million new brokerage accounts.

Walter: Managed investing or retail advisory flows broke another record totaling $15 billion during the third quarter.

Walter: Net New Assets were also quite strong during what is sometimes a slower quarter given that the summer months are included. Net New Assets more than doubled from the third quarter of last year as former military clients continued to generate positive, albeit still modest net asset flows.

Walter: and during the quarter, clients entrusted us with almost 1 million new brokerage accounts.

Walter Bettinger: Slide 9 here is particularly important for those who track our net new assets closely and have been trying to ascertain our progress back to our long-term track record of 5-7% organic growth. When we acquired Ameritrade, we recognized that we would be benefiting from a one-time large lift in client assets. But along with it would be the noise of attrition that we estimated at 5-6% of assets ultimately applied to nearly a $2 trillion client base. What we saw during the third quarter, as more of that attrition faded into the rearview mirror, was that year-to-date net new assets for this year crossed over the trajectory of net new assets in 2023.

Walter: White 9 years, particularly important for those who track our net new assets closely and have been trying to ascertain our progress back to our long-term track record of 5% to 7% organic growth.

Walter: When we acquired a merit trade, we recognized that we would be benefiting from a one-time large lift in client assets.

Walter: But along with it, we'd be the noise of attrition that we estimated at 5 to 6% of assets, ultimately applied to nearly a $2 trillion client base.

Walter: What we saw during the third quarter as more of that attrition faded into the rear view mirror, was that year-to-date net new assets for this year crossed over the trajectory of net new assets in 2023.

Walter Bettinger: But we all know that net new asset levels can be fickle, as multiple factors influence them. From investor sentiment to market performance, interest rates, and even the level of promotional cash for assets temporarily offered by some competitors. But when we dig through the various factors that do influence net new assets, we remain quite confident in our plans to build our way back to our historical ranges. This confidence is further supported by the response from former Ameritrade clients. As these clients become more familiar with the Schwab platforms and service experience, we are seeing an increase in client promoter scores, or client satisfaction, whether it be retail or RIA clients.

Walter: We all know that net new asset levels can be fickle.

Walter: as multiple factors influence them, from investor sentiment, market performance, interest rates, and even the level of promotional cash for assets temporarily offered by some competitors.

Walter: But when we dig through the various factors that do influence net new assets, we remain quite confident in our plans to build our way back to our historical ranges.

Walter: This confidence is further supported by the response from former Amaritrade clients.

Walter: As these clients become more familiar with the Schwab platforms and service experience, we are seeing an increase in client promoter scores, or client satisfaction, whether it be retail or RAA clients.

Walter Bettinger: Their engagement across the business in our various solutions is further evidence of the success of the integration. And consistent with our best of both approach to the Ameritrade integration, legacy Schwab clients are now taking advantage of the Thinkorswim trading platform at a robust level. Consistent with prior years, we continue to be recognized by a variety of third-party sources for our quality of services, our overall client offering, as well as our reputation. We were particularly proud of the fact that Investors Business Daily named Schwab Bank as the most trusted bank. Even the negative press and, at times, misperceptions regarding our bank over the past 18 months.

Walter: They're engaging in across the business and our various solutions is further evidence of the success of the integration.

Walter: and consistent with our best of both approach to the Maritrade integration. Legacy Schwab clients are now taking advantage of the thinkers who in trading platform at a robust level.

Walter: Consistent with prior years, we continue to be recognized by a variety of third-party sources for our quality of services, or overall client offering, as well as our reputation.

Walter: We were particularly proud of the fact that investors' business daily named Schwab Bank as the most trusted bank.

Walter: Given the negative press, and at times, misperceptions regarding our bank over the past 18 months, we were especially pleased with this particular result.

Walter Bettinger: We were especially pleased with this particular result.

Rick Wurster: Rick, let me turn it over to you to review some more details of our progress serving clients and building the franchise, and I'll close this out, as Jeff indicated, after the Q&A session with just a few final observations. Thank you, Walt, and good morning, everyone. Getting up on where Walt left off, we've been able to achieve this industry recognition because our through client size approach remains the foundation of our strategy, and it will continue to drive our long term growth through the cycle. In the near term, we deliver for clients through our four strategic focus areas, and in the third quarter, we advance initiatives in each area that you see on the screen.

Speaker Change: Rick, let me turn it over to you to review some more details of our progress serving clients in building the franchise. And I'll close this out as Jeff indicated after the Q&A session with just a few final observations.

Rick: Thank you, Walter, and good morning, everyone.

Rick: Taking up on where Walt left off, we've been able to achieve this industry recognition because our through-clinesized approach remains the foundation of our strategy and it will continue to drive our long-term growth through the cycle.

Rick: In the near term, we deliver for clients through our four strategic focus areas and in the third quarter, we advance initiatives in each area that you see on the screen.

Rick Wurster: Starting with scale and efficiency, we've captured 95% of our Ameritrade run rate expense energies and expect to capture the rest by the end of the year. In an industry where pricing matters to clients, having a low cost position is a huge competitive advantage, one we're committed to maintaining. With our cost discipline and ongoing investments in our operations and infrastructure, we're continuing to lower our cost to serve clients. In 2024 to date, our adjusted expense on client assets, or Iyoka, fell to 12 basis points, down from 16 in 2019. Our second focus area is win-win monetization, which is all about how we attract and retain assets by meeting more of our clients' evolving financial needs.

Rick: Starting with scale and efficiency, we've captured 95% of our Maritrade Runrad expense synergies and expect to capture the rest by the end of the year.

Rick: In an industry where pricing matters to clients, having a low cost position is a huge competitive advantage, one were committed to maintaining.

Rick: With our cost discipline and ongoing investments in our operations and infrastructure, we're continuing to lower our cost to serve clients.

Rick: in 2024 to date for a Jeff's at expense on client assets where EOCA fell the 12 basis points, down from 16 in 2019.

Rick: Our second focus area is win-win monetization, which is all about how we attract and retain assets by meeting more of our clients evolving financial needs.

Rick Wurster: Wealth management is one of our key areas of focus, and clients continue to turn to us for advice across the spectrum of our solutions. Year-to-date management investing net flows are up 65% compared to last year. In the third quarter, new and existing clients added $11.5 billion to our full service wealth offers, which include Schwab Wealth Advisory and Schwab Advisory Network. This is 75% more than the prior year quarter. Clients continue to turn to Schwabwealth Advisory and record numbers. We also recently began introducing a discretionary option for SchwabWealth Advisory Clients, which will help us meet even more of the comprehensive wealth management needs of investors.

Rick: Welp Management is one of our key areas of focus, and clients continue to turn to us for advice across the spectrum of our solutions.

Rick: Here to date, managing besting net flows are up 65% compared to last year.

Rick: In the third quarter, new and existing clients added 11.5 billion to our full service wealth offers, which include Schwab wealth advisory and Schwab advisor network. This is 75% more than the prior year quarter.

Rick: Fines continue to turn to Schwab Walter Advisory in record numbers. We also recently began introducing a discretionary option for Schwab Walter Advisory Clients, which will help us meet even more of the comprehensive wealth management needs of investors.

Rick Wurster: Clients continue to have strong interests in our other wealth offerings, including our Wasmer Schroeder Fixed Income Strategies, where year-to-date net flows are up nearly 60% compared to last year. Clients are also increasingly turning to us for their borrowing needs, cowering strong growth and adoption of our Plaged Asset Line or PAL. PAL balances reached a record 15.7 billion, an increase of 16% over last year. Notably, former Ameritrade clients represent 44% of PAL balance growth. Our account originations are up 57% year-over-year, and we expect if rates fall, the amount drawn on the PAL will increase. The increased adoption is in large part due to the digital enhancements that we've made to the process.

Rick: Klein's continued to have strong interest in our other Welfare offerings, including our Wazmers Shroeder Fixed Income Strategies, where year-to-date, net flows are up nearly 60% compared to last year.

Rick: are also increasingly turned off for their borrowing needs, powering strong growth and adoption of our pledge-dastard line or pal. Cal Balances reached a record 15.7 billion in increase of 16% over last year.

Rick: Rotably former American clients represent 44% of Powell balance growth. Our account originations are up 57% year over year and we expect a rates fall the amount drawn on the Powell increase.

Rick: The increased adoption is in large part due to the digital enhancements that we've made to the process. Nearly 90% of pay-up cows are now digitally originated and more than 40% of retail applications are now initiated by a financial consultant compared to less than 5% just a few years ago.

Rick Wurster: Nearly 90% of PALs are now digitally originated, and more than 40% of retail applications are now initiated by a financial consultant compared to less than 5% just a few years ago. This makes it easier on our clients and helps FCE deepen relationships with our clients. The entire process from the time a client opens an application to when they can access their loan takes, on average, just one and a half business days and only minutes for most loans. This industry leading offer is delighting our clients, and client promoter scores have increased roughly 30 percentage points in this product since 2021.

Rick: This makes it easier on our clients and helps FC deepen relationships with our clients.

Rick: The entire process from the time of client opens an application to when they can access their loan takes on average just one and a half business days and only minutes for most loans.

Rick: This industry leading offer is delighting our clients and client promoter scores have increased roughly 30 percentage points in this product since 2021.

Rick Wurster: With client segmentation, we're focused on serving distinct retail and advisor client groups with tailored solutions specific to their unique needs. RIAs have been remade in an incredibly important client segment for Schwab. With the same goal as the RIAs we serve, can make a meaningful difference in the financial lives of our clients, and we are committed to continuing to help our advisors grow, compete, and succeed in pursuit of this mission. We have a world-class custody business, and we'll continue to invest in it to provide RIAs of all sizes with the open architecture platform and unmatched resources, services, and education that they have come to expect from us.

Rick: With client segmentation, we're focused on serving distinct retail and advisor client groups with tailored solutions to specific to their unique needs.

Rick: RIAs have been in remaining an incredibly important client segment for Schwab.

Rick: We have the same goal as the RA as we serve, can make a meaningful difference in the financial lives of our clients. And we are committed to continuing to help our advisors grow, compete and succeed in pursuit of this mission.

Rick: We have a world-class custody business and we'll continue to invest in it to provide RIAs of all sizes with the Open Architecture platform and unmatched resources, services, and education that they have come to expect from us.

Rick Wurster: I'm thrilled to have the opportunity to dive into this in more detail at our upcoming Impact Conference next month. Turning to our retail business, we know that relationships matter, and we're investing to give more of our clients access to a dedicated financial consultant. Our ultra-high net worth clients have been a particular area of focus as they have some of the most complex financial planning and wealth management needs among our client base. We've added additional expertise for this group, including wealth consultants and tax, trust, and estate experts. We've also enhanced our approach to service and operations for this client group, all of which has been well received by clients, as evidenced by their high client promoter scores.

Rick: I'm thrilled to have the opportunity to dive into this in more detail at our upcoming impact conference next month.

Rick: Kurning to our retail business, we know that relationships matter, and we're investing to give more of our clients access to a dedicated financial consultant.

Rick: are older high-network clients that have been a particular area of focus as they have some of the most complex financial planning and wealth management needs among our client base.

Rick: We've added additional expertise for this group, including wealth consultants and tax trust and estate experts. We've also enhanced our approach to service and operations for this client group, all of which has been well received by clients as evidenced by their high client promoter scores.

Rick Wurster: We've planned to launch retail alternatives to this client segment this quarter, which will be an important milestone for clients. Traders are another distinct and very important client segment for us. I believe that the combination of Schwab and Ameritrade has produced the strongest trader offer in the industry, and we are continuing to enhance our capabilities, including investments in our mobile experience, our platform, and our research and education. Our fourth strategic area is the Brilliant Basics. With the size of our client base, the most attractive opportunity we have for growth is to delight our existing clients with every interaction they have with us so that they trust us with more of their assets, conduct more of their financial lives here at Schwab, and refer others to us because we are delivering each day on the client experience.

Rick: We pray to launch retail alternatives to this client segment this quarter which will be an important milestone for clients.

Rick: Traders are another distinct and very important client segment for us. I believe that the combination of Schwab and Ameritrade has produced the strongest trader offer in the industry.

Rick: and we are continuing to enhance our capabilities, including investments in our mobile experience, our platform, and our research and education.

Rick: Our Ford Strategic Area is the brilliant basics.

Rick: With the size of our client base, the most attractive opportunity we have for growth, it's a delight or existing clients with every interaction they have with us so that they trust us with more of their assets, conduct more of their financial lives here at Schwab and refer others to us because we are delivering each day on the client experience.

Rick Wurster: You know, retail business, our average speed to answer the phone was less than 40 seconds in the third quarter. Here to date through the third quarter, the client Easy Score for our service teams is 92%. That's the highest score we've earned from clients in four years. And the vast majority of incoming calls are addressed without the need to transfer the client call. In advisor services, our client Easy Score, which is a client's real-time rating of how easy it was to complete a specific task or transaction, was 89% in the third quarter. And in our workplace business, we were ranked number one by JD Power and participant satisfaction for our retirement plan digital experiences.

Rick: In our retail business, our average speed to answer the phone was less than 40 seconds in the third quarter.

Rick: Here to date through the third quarter, the client easy score for our service teams is 92%. That's the highest score we've earned from clients in four years. And the vast majority of incoming calls are addressed about the need to transfer the client call.

Rick: In advisor services, our client easy score, which is a clients real-time rating of how easy it was to complete a specific task or transaction was 89% in the third quarter.

Rick: and in our workplace business, we are ranked number one by JD Power and Participant Satisfaction for our retirement plan digital experiences.

Rick Wurster: I'm confident in our ability to deliver for clients today, and I'm energized by the opportunity to do even more as we look ahead. And as we look to the future, not just next quarter or next year, but through the cycle and for the long term, through client size will remain the foundation of our strategy. Through client size means we will relentlessly focus on serving the needs of individual investors, workplace clients, and RIAs and the clients that they serve. Through client size is what will continue to drive the virtuous cycle and fuel our growth well into the future as we invest in the brilliant basics, scale and efficiency, and serving more of our client's needs across client segments.

Rick: I'm confident in our ability to deliver for clients today and I'm energized by the opportunity to do even more as we look ahead.

Rick: And as we look to the future, not just next quarter or next year, but through the cycle and for the long-term, the room-quiet size will remain the foundation of our strategy.

Rick: Through clients' eyes, means we will relentlessly focus on serving the needs of individual investors, workplace clients, and RIAs and the clients that they serve.

Rick: Good clients' eyes is what will continue to drive the virtuous cycle and fuel our growth well into the future as we invest in the brilliant basics, scale and efficiency in serving more of our clients' needs across client segments.

Rick Wurster: I do want to take just a moment here to express my gratitude to Walt for his vision, his leadership, his focus on our clients, and the integrity and selflessness in which he has led our company. That vision is not changing as he transitions into his new role as co-chairman, and I'm moving to my new role as CEO in the new year. I'm grateful to be stepping into this role in a period when our client capabilities have never been stronger, and we are operating from a position of strength.

Speaker Change: I do want to take just a moment here to express my gratitude to Walter for his vision, his leadership, his focus on our clients, and the integrity and selflessness in which he has led our company.

Speaker Change: That vision is not changing as he transitions into his new role as Coach Chairman and I'm moving to my new role at CEO in the new year.

Speaker Change: I'm grateful to be stepping into this role in a period when our quiet capabilities have never been stronger and we are operating from a position of strength. And with that, I'll turn it over to Peter.

Peter Morgan: And with that, I'll turn it over to Peter. All right, well, thank you very much, Rick. So, Walt and Rick talked about the strong engagement we're seeing among our clients as they utilize our broad wealth management and trading capabilities, our success in attracting assets and accounts from both existing and new clients. The encouraging signs are seeing that fewer confidence about returning to our historical growth levels, and our progress and plans to do just that as we execute on our four strategic priorities that Rick talked about.

Peter: Alright, well thank you very much Rick.

Peter: So, Walter Rick talked about the strong engagement we're seeing among our clients as they utilize our broad, wealth management and trading capabilities, our success in attracting assets and accounts from both existing and new clients. The encouraging signs we're seeing that fewer confidence about returning to our historical growth levels. And our progress and plans to do just that as we execute on our forced due priorities that Rick talked about.

Peter Morgan: In this, my final time addressing you today in Mike's inaugural business update, he and I will review our very solid and improving financial performance in the third quarter, which was somewhat better than we expected heading into the quarter. We'll provide an update on the latest developments regarding our client's cash realignment activity, and how that enabled us to make progress in paying down bank supplemental borrowing. And we'll share an updated outlook for Q4 2024 earnings, and some very early thoughts on 2025. The important point is that we near the end of what we repeatedly call the transitional year; we know we haven't yet reached our traditional level of organic growth or peak financial performance.

Speaker Change: In this my final time addressing you today, in my inaugural Business Update, he and I will review our very solid and improving financial performance in the third quarter, which was somewhat better than we expected heading into the quarter.

Speaker Change: We'll provide an update on the latest developments regarding our clients, cash realignment activity, and how that enabled us to make progress and paying down banks up a metal borrowing. And we'll share an update out look for Q42024 earnings, and some very early thoughts on 2025.

Speaker Change: The important point is that we near the end of what we are pedally called a transitional year. We know we have a new research traditional level of organic growth or peak financial performance.

Peter Morgan: And yet we feel really good about the progress we have made further unlocking the core earnings power that has been building through this full cycle, but which has been masked by other factors and reinvigorating our long term financial formula. with a Maritrade-related attrition receding and ceasing to be a major drag on our organic growth, a continued moderation of client cash relime and activity which allowed for sequential growth and client transactional cash on the third quarter to strong net inflows during September, sequential growth in both net interest revenue and overall revenue, and finally a steady and continued increase in our capital levels, inclusive of AOCI.

Speaker Change: and yet, we feel really good about the progress we have made, further unlocking the core earnings power that has been building through this whole cycle, but which has been mass by other factors and reinvigorating our long-term financial formula.

Speaker Change: With a Maritrade Related Trish and Receiving and Seathing to be a major drag on our organic growth.

Speaker Change: Continued moderation of client cash realignment activity, which allowed for sequential growth and client transactional cash in a third quarter to strong net inflows during September.

Speaker Change: sequential growth in both net-inch revenue and overall revenue. And finally, the study and continued increase in our capital levels, inclusive of AOCI.

Peter Morgan: And while we all appreciate the uncertain nature of the world we live in, our positive momentum sets the stage for what we expect will be even better operating in financial performance in the quarters and years ahead. As Walt mentioned, 2024 has been characterized by strong equity markets and consistent client engagement. 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. Now, up 17% from the end of 2023, trading activity in the third quarter that was up modestly from the second quarter, and as Rick mentioned, a continuation of the very strong interest among clients for our advisory solutions.

Speaker Change: and while we all appreciate the uncertain nature of the world we live in, our positive momentum sets the stage where we expect will be even better operating in financial performance in the quarters and years ahead.

Speaker Change: As Walt mentioned, 204 has been characterized by strong equity markets and consistent client engagement. We saw that reflected in external benchmarks such as the S&B 500 and NASDAQ. As well as key drivers of our business performance, including margin balance is now up 17% from the end of 2023.

Speaker Change: Trading Activity in the third quarter that was up modestly from the second quarter. And as Rick mentioned, a continuation of a very strong interest among clients for our advisory solutions.

Peter Morgan: And finally, client cash relime and activity continues to decelerate, enabling strong growth in overall client cash and transactional cash for the quarter and especially robust growth in the month of September. Now, while we repeatedly cautioned against overreacting to a specific month or even quarter's transactional cash flows, this risk activity is further evidence that we are at or near truly transactional levels of client cash, enabling us to pay down a meaningful amount of supplemental borrowing at the banks and creating a good launching off point for Q4, as Mike will discuss in a moment. Now, that backdrop helped support solid financial performance in the third quarter that exceeded our expectations, with revenue up 5% year over year to $4.8 billion.

Speaker Change: and finally, client cash realignment activity continues to decelerate, enabling strong growth and overall client cash and transactional cash for the quarter and especially robust growth in the month of September.

Speaker Change: Now while we repeatedly cautioned against overreacting to a specific month or even quarters transactional cash flows.

Speaker Change: This respectivity is further evidence that we are at or near truly transactional levels of client cash, enabling us to pay down a meaningful amount to supplemental borrowing at the banks, and creating a good, launching off point for Q4 as Mike will discuss in a moment.

Mike: Now, that backdrop helps support solid financial performance in the third quarter that exceeder our expectations with revenue up 5% year rear to $4.8 billion. Adjusted pre-tactic income up a similar amount, and adjusted pre-tax margin of a little over 41% and adjusted EPS of 77 cents.

Peter Morgan: Adjusted pre-tax ink and come up a similar amount, and adjusted pre-tax margin of a little over 41% and adjusted EPS of 77 cents.

Peter Morgan: Now, before I turn over to Mike, I want to make two brief comments. First, I want to join Walt in thanking all of you within the investment community for your engagement and your interest over these last several years. I firmly believe that the rigor, the discipline, and the transparency you demand of us makes us a better company. And second, I want to thank Mike here for allowing me to step down from the CFO role with a confidence that between him and Rick, this company I care so much about is in great hands. It's really been a real privilege working with Mike these last several months, and I'll continue to do what I can to help over the coming months.

Mike: I want to make two brief comments.

Mike: First, I want to join Walter in thanking all of you within the investment committee for your engagement in your interest over these last several years. I firmly believe that the rigor, the discipline and the transparency you demand of us makes us a better company.

Mike: And second, I want to thank Mike here for allowing me to step down from the CFO role with the confidence that between him and Rick, this company I care so much about is in great hands.

Mike: It's really been a real privilege working with Mike these last several months and I'll continue to do what I can to help over the coming months.

Peter Morgan: He has already had a lot in his time here, leveraging his very relevant experience and exceptional judgment. And finally, and importantly, he connects with our purpose, and his values align with the company's values.

Mike: He has already had a lot in his time here, leveraging his very relevant experience and exceptional judgment. And finally, and importantly, he connects with our purpose, and his values align with the company's values. And with that, it's my pleasure to turn this war over tonight.

Mike Verdeschi: And with that, it's my pleasure to return with more of him, Mike.

Mike Verdeschi: Thank you, Peter, and congratulations on your well-deserved retirement. I've certainly enjoyed working with you and the broader management team to get up to speed these past few months. You've been an outstanding leader for the firm, with many contributions over the years, which has had a positive and lasting impact on our clients and employees. As I mentioned back in May, at Investor Day, there are so many exciting things happening around Schwab, so I feel very fortunate to be stepping into this role right now, and I look forward to working with Rick and the rest of our teams as we continue to serve the needs of our growing client base.

Mike: Thank you, Peter, and congratulations on your well-reserved retirement. I'm certainly enjoyed working with you and the broader management team to get up to speed these past few months.

Speaker Change: You've been an outstanding leader for the firm with many contributions over the years, which have had a positive and lasting impact on our clients and employees.

Speaker Change: As I mentioned back in May at Investor Day, there are so many exciting things happening around Schwop.

Speaker Change: So, I feel very fortunate to be stepping into this role right now, and I look forward to working with Rick and the rest of our teams as we continue to serve the needs of our growing client base.

Mike Verdeschi: Let's pick it up with the summary of key balance sheet highlights for the corner. Importantly, we continue to support our clients with both margin and bank loans to clients up sequentially. As Peter alluded to earlier, we saw a healthy rebound in transactional sweep cash during the quarter, including 17 billion of net inflows in September. This positive development in cash enabled us to reduce high cost supplemental funding at the banks by 9 billion. At the same time, we also continue to take proactive steps at the broker-dealer to both support sustained client activity in areas such as margin lending and further diversify our funding profile.

Speaker Change: Let's pick it up with the summary of key down-cheat highlights for the corner.

Speaker Change: Importantly, we continue to support our clients, like both margin and bank loan up sequentially.

Speaker Change: has Peter alluded to earlier, we saw a healthy rebound in transactional sweet cash during the quarter, including 17 billion of net inflows in September.

Speaker Change: This positive development in cash enabled us to reduce high-cost governmental funding at the banks by 9 billion.

Speaker Change: At the same time, we also continue to take proactive steps at the broker dealer to both support sustained client activity in areas such as margin lending and further diversify

Mike Verdeschi: Those actions included transferring 4 billion of client cash sweep bounce to the broker dealer, bringing the totally at a day transfers to 14 billion. This allows us to align funding where it's needed to support the large and growing activity of our former Ameritrade clients. We also activated some efficient client-related wholesale funding at the broker dealer to again serve the needs of our growing client base, especially those that tend to trade and utilize margin loans more frequently. This wholesale funding has very little impact on our net interest revenue because the funds we take on are deployed into cash, which earns a fairly similar rate.

Speaker Change: Those actions included transferring 4 billion of client cash sweet balance to the broker dealer bringing the total of the everyday transfers to 14 billion.

Speaker Change: This allows us to align funding where it's needed to support the large and growing activity of our former Ameritrade clients.

Speaker Change: We also activated some efficient, client-related wholesale funding at the broker dealer to, again, serve the needs of our growing client-based, especially those that tend to trade and utilize margin loans more frequently.

Speaker Change: This wholesale funding has very little impacts on our net interest revenue because the funds we take on are deployed into cash which earns a fairly similar rate.

Mike Verdeschi: The net result of these actions is increased flexibility to meet the evolving needs of clients while continuing to achieve our financial objectives, such as paying down supplemental borrowings at the bank and ensuring growth in earnings.

Speaker Change: The net results of these actions is increased flexibility to meet the evolving needs of clients while continuing to achieve our financial objectives such as paying down supplemental borrowings at the bank and ensuring growth in earnings.

Mike Verdeschi: Finally, our capital levels continue to build towards our adjusted to one-level objectives, driven by a few factors. First, quarterly earnings; then the accretion of unrealized marks, which occurs at a pace of around 1 billion per quarter, regardless of changes in interest rates; and lastly, an incremental tailwind in Q3 from the move lower in interest rates. Of course, this rate-related impact will vary over time based on fluctuations in interest rates across the curve.

Speaker Change: Finally, our Capitol-levels continue to build towards their adjusted to one of the objectives, driven by a few factors, first, quarterly earnings.

Speaker Change: Then the accretion of unrealized marks, which occurs at a pace of around 1 billion per quarter. We guardless of changes in interest rates, and lastly an incremental tailwind in Q3 from the move lower in interest rates.

Speaker Change: Of course, this lately-related impact will vary over time based on fluctuations and interest rates across the curve.

Mike Verdeschi: Turning to client cash trends. The trends in transactional sweep were quite encouraging for the third quarter, with total sweep cash balances growing 9 billion, including a 17 billion net inflow during the month of September. This result reflects the continued slowdown of rate-related realignment activity. Cash trends during September also benefited from anticipated seasonal trends as well. Moving forward, it's important to keep in mind that while cash trends do not move in a straight line month over month, we anticipate making further progress over time, ultimately resulting in cash balances growing in proportion with client accounts and assets.

Speaker Change: Turning to client cash trends.

Speaker Change: The trends in transactional sweep were quite encouraging for the third quarter, with total sweep cash bounces growing 9 billion, including a 17 billion net inflow during the month of September.

Speaker Change: This result reflects the continues flow down of great related realignment activity.

Speaker Change: Cash Trends during September also benefited from anticipated seasonal trends as well.

Speaker Change: Moving forward, it's important to keep in mind that while cash trends do not move in a straight line month over month, we anticipate making further progress over time ultimately resulting in cash balance is growing in proportion with climate council assets.

Mike Verdeschi: So while we will continue to monitor factors that can influence the trajectory of cash, such as interest rates, investor engagement, as well as seasonality, these encouraging trends help support our strategy and momentum into the end of the year. The cash trends also positioned us to make incremental progress on reducing the amount of outstanding supplemental funding at the banks. We reduce the balances by 9 billion from the June 30, 2024, level to just under 65 billion at the end of the third quarter. Supplemental funding balances are now down over 30% from peak levels back in May 2023.

Speaker Change: So while we will continue to monitor factors that can influence the trajectory of cash, such as interest rates, investor engagement, as well as seasonality, these encouraging trends help support our strategy and momentum into the end of the year.

Speaker Change: The Cash Trends also positioned us to make incremental progress on reducing the amount of outstanding supplemental funding at the banks. We reduced the balances by 9 billion from the June 30, 2024 level to just under 65 billion at the end of the third quarter.

Speaker Change: Supplemental funding balances are now down over 30% from peak levels back in May, 2023.

Mike Verdeschi: Further pay down progress remains a priority, as cash, as well as principal and interest proceeds from the bank security portfolio, continue to be key drivers in paying down borrowings. The exact timing for achieving our pay down goal will also be influenced by some of the same factors that we see in our transactional cash trends. Over the near term, continuing to reduce the amount of supplemental funding outstanding is a key driver in achieving normalized earnings power, and we expect to show continued progress from here.

Speaker Change: Further pay down progress remains a priority, as cash, as well as principle and interest proceeds from the bank securities portfolio continue to be key drivers in paying down borrowings.

Speaker Change: The exact timing for achieving our paid-on goal will also be influenced by some of the same factors that we see in our transactional cash trends.

Speaker Change: Over the near term, continuing to reduce the amount of supplemental funding outstanding is a key driver in achieving normalized earnings power and we expect to show continued progress from here.

Mike Verdeschi: Turning our attention to capital, lower rates supported our pace of capital bill during the quarter, with our adjusted to one leverage ratio expanding by over 70 basis points to 6.7%. We are quickly approaching our 6.75 to 7% operating objectives. Despite the recent back up and rates to start the fourth quarter, we still expect to finish 2024 above the lower bound of the objective range.

Speaker Change: Turning our attention to the capital.

Speaker Change: Lower rates supported are pace of capital bill during the quarter, with our adjusted two-one leverage show, expanding by over 70 basis points to 6.7%. The quickly approaching are 65 to 7% operating objectives.

Speaker Change: The fight, the recent backup and race to start the fourth quarter, we still expect to finish 2024, above the lower bound of the objective range.

Mike Verdeschi: As we begin 2025, we will start to pivot from what has been a focus on building our capital ratios, inclusive of AOCI, to looking across our capital framework. As always, our number one priority for capital is to support business growth. To the extent we have excess capital beyond our business needs, we have sought to add our history to return into stockholders through a variety of means including our common dividend, which historically has risen alongside GAAP earnings, preferred security redemptions, considering costs and an optimized equity funding mix, as well as opportunistic stock buybacks. But, as we have previously noted in the near term, there is an added consideration relating to our progress on reducing the high-cost supplemental funding at the banks.

Speaker Change: as we begin 2025.

Speaker Change: We will start to pivot from what has been a focus on building our capital ratios, inclusive of AOCI, to looking across our capital framework. As always, our number one priority for capital is to support business growth.

Speaker Change: To begin, we have excess capital beyond our business needs. We have sought to add our history to return into stockholders through a variety of means, including our common dividend, which historically has risen alongside gap earnings.

Speaker Change: Perford's security redemption, considering costs, and an optimized equity funding mix as well as Opportunistic Stock Buybacks.

Speaker Change: But as we have previously noted in the near term, there is an added consideration relating to our progress and reducing the high-cost supplemental funding at the banks.

Mike Verdeschi: While this action is not a return of capital per se, liquidity, which otherwise could support capital buybacks, may instead be used to pay down supplemental borrowings.

Speaker Change: While this action is not a return of capital per se, liquidity, which otherwise could support capital buybacks and instead be used to pay down supplemental borrowings.

Mike Verdeschi: Following our third quarter results, we now anticipate full year 2024 revenue to increase by 2% to 3% versus 2023. This is slightly above the range that was communicated back in July due to a higher starting balance for transactional cash balances, and we give supplemental funding balances at the bank. Adjusted expense growth for full year 2024 is still expected to be approximately 2%, inclusive of certain non-controllable items outlined earlier in the year. Combining this refresh perspective on top-line growth with an expense trajectory that reflects the benefits of our scale and ongoing efficiency initiatives, implies earnings expanding further into the upper 80s range for the fourth quarter, a bit above the level we communicated back in July.

Speaker Change: Following our third quarter results, we now anticipate full year 2024 revenue to increase by two to three percent versus 2023.

Speaker Change: This is slightly above the range that was communicated back in July due to a higher starting balance for transactional cash balances, and we do supplemental funding balances at the bank.

Speaker Change: A justed expense growth for full year 2024 is still expected to be approximately 2% inclusive of certain non-controllable items outlined earlier in the year.

Speaker Change: Combining this refresh perspective.

Speaker Change: on top line growth with an expense trajectory that reflects the benefits of our scale and ongoing efficiency initiatives. In place earnings expanding further into the upper 80s range for the fourth quarter, a bit above the level we communicated back in July.

Mike Verdeschi: Before we wrap up, let's spend a moment on 2025. We are right in the middle of our planning cycle, so we won't get too far ahead of ourselves, especially with the upcoming presidential election and two FOMC meetings, with a rate pack remaining uncertain. However, we thought it might be helpful to briefly touch on a few items that are helping inform our thinking heading into next year. As noted, we anticipate coming into 2025 with good momentum and expected to further build in the year ahead, with, of course, the usual considerations for shifts in the macroeconomic backdrop: interest rates, market sentiment, seasonality too.

Speaker Change: Before we wrap up, let's spend a moment on 2025. We are right in the middle of our planning cycle, so we won't get too far ahead of ourselves. Especially with the upcoming presidential election, and two FOMC meetings with a rate pass, we mean some certain.

Speaker Change: However, we thought it might be helpful to briefly touch on a few items that are helping inform our thinking heading in to next year.

Speaker Change: As noted, we anticipate coming to 2025 with good momentum, and expected to further build in the year ahead, with of course the usual considerations for shifts in the macroeconomic backdrop, interest rates, market-centenance, seasonality too.

Mike Verdeschi: While MIMS should continue to expand even in a lower rate environment, the ultimate level will be influenced by a range of factors, including the passive rates, which is now much lower than back in July. On the expense front, consistent with the company's historical approach, we will balance making investments to support sustainable long-term growth, while also delivering on the front near-term financial objectives. Keeping that balance for the approaching mind, year-over-year expense growth in a mid-sing of digits still feels like a reasonable starting point for now, while acknowledging that changes in the broader environment, client activity, typical seasonality, and other key factors will undoubtedly shape our 2025 expenses.

Speaker Change: Well, MIM should continue to expand even in a lower rate environment. The ultimate level will be influenced by a range of factors, including the path of race, which is now much lower than back in July.

Speaker Change: On the expense front, consistent with the company's historical approach, we will balance making investments to support sustainable long-term growth while also delivering on the current near-term financial objectives.

Speaker Change: Keeping that down for the protein mind.

Speaker Change: Year-over-year expense growth in amid single digits still feels like a reasonable starting point for now, while acknowledging that changes in the broader environment,

Mike Verdeschi: The plenty of opportunities, discuss these topics a few months from now. As we approach the end of 2024, it is hard not to be excited about the opportunity in front of us. Momentum with clients continues to strengthen, while our three two financial results put us in a position to deliver meaningful earnings power expansion. As the combination of our diversified revenue model and a balanced approach to expense management yields profitable growth, which we believe will be amplified by our capital efficiency through the cycle.

Speaker Change: Plenty of opportunities got these topics a few months from now.

Speaker Change: As we approach the end of 2024, it's hard now to be excited about the opportunity in front of us. Momentum with clients continues to strengthen while our three chief financial results.

Speaker Change: Put us in a position to deliver meaningful earnings power expansion. As the combination of our diversified revenue model and a balance approach to expense management yields profitable growth, which we believe will be amplified by our capital efficiency through the cycle. And with that, it's time for some Q&A, Jeff Bettinger.

Unknown Executive: And in fact, it's time for some Q&A; check that to you. I'm on Twitter. Can you please help out more in the Q&A process for bigger? Absolutely.

Speaker Change: I'm Peter, can you please help out when in the Q&A process for the group?

Unknown Executive: For those in the phone, if you would like to ask a question, please unmute your phone. Hit star one and record your name clearly when prompted. Again, that star one to ask a question and start to withdraw your question.

Jeff Bettinger: Absolutely. For those on the phone, if you would like to ask a question, please unmute your phone, hit star one and record your name clearly when prompted. Again, that star one to ask a question and star two to withdraw your question.

Kenneth Worthington: Our first question comes from Ken Worthington from JP Morgan.

Kenneth Worthington: Please go ahead. Hi, good morning. Thank you for taking the question.

Speaker Change: A first question?

Speaker Change: comes from Ken Worthington from JP Morgan, please go ahead.

Mike Verdeschi: You reported a substantial improvement in transactional suite passion to pod this quarter. I would love to better understand what drove this change in September compared particularly to August in the earlier quarter levels. Given September at an A was similar in September to August levels and given the merit trade flows are positive but still modest, and we're seeing fun and ETF buying similar again in September to August levels. You know, what is really driving the better? What really drove the better transactional cash in September?

Ken Worthington: Hi, good morning. Thank you for taking the question. You reported a substantial improvement in transactional sweep cash and deposits this quarter. I would love to better understand what drove this change in September compared particularly to August and earlier quarter levels. Given September , NNA was similar in September to August levels and given the Ameritrade flows are positive but still modest and we're seeing fun and ETF buying similar again in September to August levels. What is really driving what really drove the better transactional cash in September and is this the beginning of a better outlook?

Mike Verdeschi: And is this the beginning of a better outlook, or is September really just a one off?

Mike Verdeschi: What do you address that we're talking about the quarter? In the quarter, we did see organic growth of cash, and I would say we also saw some of the variability that we typically see in client activity as they engage us. So, as you highlight, we did see that take up in September, but over the course of the quarter, as we've been saying, this is further evidence of that realignment activity normalizing.

Ken Worthington: is September really just a one-off.

Speaker Change: Let me address that we're talking about the quarter. In the quarter, we did see organic growth of cash and I would say we also saw some of the variability that we typically see in client activity as they engage us. So as you highlight, we did see that pick up in September , but over the course of the quarter, as we've been saying, this is further evidence of that realignment activity normalizing. So a combination of organic growth and some of that very variability as well.

Mike Verdeschi: So, a combination of organic growth and some of that variability as well.

Mike Verdeschi: So, we feel good about this progress, and again, this is going to be one of the keys, in addition to obviously taking on the principle and interest payments that come out of the securities portfolio, in combination using those proceeds to make further progress on paying down the supplemental borrowings.

Speaker Change: So we feel good about this progress and again, this is going to be one of the keys in addition to obviously taking on the principle and interest payments that come out of the securities portfolio in combination using those proceeds to make further progress on paying down the supplemental borrowings.

Alexander Blostein: Next, we'll go to the line of Alex Blostein from Goldman Sachs. Please go ahead. Hey, good morning, everybody.

Speaker Change: Next, we'll go to line of Alex Blastine from Goldman Sachs, please go ahead.

Mike Verdeschi: Thanks for the question, and congrats to your all and your next respective chapters. I wanted to ask Mike, you just your thoughts around how you think about the securities portfolio, given the fact that the cash seems to be stabilizing a bit and the capital is building. That's come up a number of times in the past as well, but obviously, financially paying down securities a bit of how to schedule to reduce habitual being to debalances makes sense. But here's how you think about any kind of holistic securities portfolio restructuring as you enter 25.

Speaker Change: Hey, good morning, everybody. Thanks for the question and congrats to you all on your next respective chapters. I wanted to ask Mike you just your thoughts around how you think about the security portfolio, given the fact that the cash seems to be stabilizing a bit and the capital is building. That's come up a number of times in the past as well, but obviously financially paying down securities a bit of how to schedule to reduce aperture of being to debounce this makes sense, but curious how you think about any kind of holistic security portfolio restructuring as you enter 25th.

Mike Verdeschi: Sure. Well, that remains certainly a popular topic within the investment community, and we appreciate that question, but it is something that we're not currently pursuing.

Speaker Change: Sure. Well, that remains certainly a popular topic within the investment community and we appreciate that question, but it is something that we're not currently pursuing and as they said in the past.

Mike Verdeschi: And, as we said in the past, we do not want to create unnecessarily headline risk that could disrupt our trust and relationship with clients. And I think an important factor that we're looking at is, again, that ability to continue to make progress in paying down that supplemental funding at the bank. And so we do have an analysis; we keep that analysis fresh of looking at what a restructuring could entail. But for the reasons that I mentioned, not at this time, and the key factor that we're focused on is the progress of paying down that supplemental funding.

Speaker Change: We do not want to create unnecessarily headline risk that could disrupt our trust and relationship with clients. And I think an important factor that we're looking at is, again, that ability to continue to make progress and tamed down that supplemental funding at the bank. And so we do have an analysis, we keep that analysis fresh of looking at what a restructuring could entail. But for the reasons that I mentioned, not at this time, and a key factor that we're focused on is the progress of tamed down that supplemental funding.

Brennan Hawken: Thank you. Next, we'll go to line of Brennan Hawkins from UBS. Please go ahead. Good morning. Thanks for taking my question. Mike, I believe you said mid-single budget expense growth was in early expectations for 2025.

Speaker Change: Thank you, next we'll go to line of Brennan Hawkins from UBS, please go ahead.

Brennan Hawkins: Good morning, thanks for taking my question. Mike, I believe you said mid single-digit expense growth was an early expectation for 2025. Just wanted to clarify, would that be before the averaging in the efficiencies that were realized through the year in 2024, and would it exclude one-pound items, such as the FDIC and other charges in 2024? No, no, no, no, no.

Mike Verdeschi: You can just want to clarify, you know, would that be before the averaging in of the efficiencies that were realized through the year in 2024, and would it exclude one pound items such as the FDIC and other charges in 2024? Sure. So that does that is inclusive of that restructuring from this year. So again, that mid-single budget is going to reflect really our intent to ensure we have resources made available to continue to invest in our capabilities. So we are a growth company, so that is going to be important that we have sustainable investments in our firm.

Speaker Change: Sure, so that is inclusive of that restructuring from this year. So again, that mid-single digit is going to reflect really our intent to ensure we have resources made available to continue to invest in our capability. So we are a growth company. So that is going to be important that we have sustainable investment in our firm. Well, at the same time, we're going to be demonstrating discipline in that expense, deployment, ensuring that we're meeting our financial objectives. So it does include those components.

Mike Verdeschi: Well, at the same time, we're going to be demonstrating discipline in that expense deployment, ensuring that we're meeting our financial objectives. So it does include those components.

Daniel Fannon: Thank you. Next, we'll go to the line of Dan Sandin from Jeffries. Please go ahead. Thanks, good morning. Question on organic growth, which those trying to continue to improve, but it does seem like a merit trade client continue to be somewhat of a drag.

Speaker Change: Thank you, next we'll go to the line of Dan Fanon from Jeffries. Please go ahead.

Dan Fanon: Thank you. Good morning, question on organic growth, which those kinds continue to improve, but it does seem like a merit-grade client continue to be somewhat of a drag. I mean, talk about how you see that normalizing or when you see that normalizing, and then also update us on the backlog currently for new advisors potentially joining the platform.

Rick Wurster: We'll talk about how you see that normalizing or when you see that normalizing, and then also update us on the backlog currently for new advisors, potentially joining the platform. Sure, let's start with our organic growth. So overall, when we look at the Schwab, our Schwab-only clients are legacy clients of Schwab. The growth of our legacy Schwab clients remains in that five to seven percent growth range that we historically have seen. As it relates to a merit trade client, we're going through what is a natural process of a merit trade client's coming to Schwab, joining our platform, and realizing how much they love it.

Speaker Change: Let's start with our organic growth.

Speaker Change: So overall, when we look at the Schwab, only clients are legacy clients of Schwab. The growth of our legacy Schwab clients remains in that five to seven percent growth range that we historically have seen. As it relates to a merit trade clients, we're going through what is a natural process of a merit trade clients coming to Schwab, joining our platform and realizing how much they love it.

Rick Wurster: Our flows from a merit trade clients have outperformed our expectations. Well, Chair, earlier, the expected level of attrition that we thought we would see; we've seen less than that. We've outperformed that. And for two quarters in a row, we've begun to see former A Merit Trade clients contribute positively to net new assets. So our expectation is that over time, as those clients become more familiar with our platform, it comfortable with it. As we build a relationship with those clients, because I think that's a big difference between some of what they would have experienced that a merit trade and what they're experiencing now as part of Schwab, is the relationship element of what we do, the service part of what we do.

Speaker Change: Our flows from air trade clients have outperformed our expectations. Walter, earlier, the expected level of attrition that we thought we would see. We've seen less than that. We've outperformed that. And for two quarters in a row, we've begun to see.

Speaker Change: former Ameritrade clients contribute positively to net new assets. So our expectation is that over time as those clients become more familiar with our platform, get comfortable with it, as we build a relationship with those clients because I think that's a big difference between some of what they would have experienced that Ameritrade and what they're experiencing now as part of Schwab. And I think that's a big difference between some of what they would have experienced now as part of what they would have experienced.

Speaker Change: is the relationship element of what we do, the service part of what we do. As they get to experience that we believe they will contribute more net new assets over time and grow.

Rick Wurster: As they get to experience that, we believe they will contribute more net new assets over time and grow into the level that we see from our Schwab clients. So we do expect that our long-term growth trajectory will continue. We expect our merit trade clients to continue to grow their net new assets as the firm, as they've done the last two quarters. And importantly, all signs that we're seeing with our merit trade clients suggest that our relationship model is working. And if you look at our record flows into our wealth area, the significant portion, over a third of the flows, are coming from former Merit Trade clients.

Speaker Change: in the level that we see from our Schwab clients. So we do expect that our long-term growth trajectory will continue. We expect our Ameritrade clients to continue to grow their net new assets as the firm as they've done the last two quarters. And importantly, all signs that we're seeing with our Ameritrade clients suggest that we're going to be able to do our best.

Speaker Change: that our relationship model is working.

Speaker Change: and if you look at our record flows into our wealth area.

Speaker Change: The significant portion over a third of the flows are coming from former armary trade clients. And if you look at our lending capabilities,

Rick Wurster: And if you look at our lending capabilities, half of new originations in our budget asset line, half of the growth came from former Merit Trade clients. So the push to put our arms around these merit trade clients, help them in their financial life. Just as we've done for Schwab clients, is working and our expectation is that you'll see over the long term are growth in the range that you've seen in that Schwab.

Kyle Voigt: Thank you. Our next question comes from Kyle Voitte from KBW. Please go ahead. Hi, good morning. So you seem to be on track to be at the high end or even above your children leverage target by year end. However, you reiterated this quarter that you want to make more progress on the repayment of supplemental borrowing before restarting shared purchases. I'm just wondering if you could provide more color as to whether there's a certain level of supplemental borrowing at which you feel comfortable executing on buybacks. Or if there's a certain level of tier one leverage above your target where you would be comfortable executing on buybacks, even without substantially making more progress on repayment of supplemental borrowing.

Speaker Change: Thank you, our next question comes from Kyle Voight from KBW, please go ahead.

Kyle Voight: Hi, good morning. So you seem to be on track to be at the high end or even above your children's leverage target by year end. However, you reiterated this quarter that you want to make more progress on the repayment of supplemental borrowing before restarting shared purchases.

Kyle Voight: I'm just wondering if you could provide more color as to whether there's a certain level of supplemental borrowing at which you feel comfortable executing on buybacks or if there's a certain level of Q1 leverage above your target where you would be comfortable executing on buybacks, even without substantially making more progress on repayment of supplemental borrowings.

Mike Verdeschi: So, just to reiterate, and thank you for the question, paying down supplemental borrowings is a very high priority. Obviously, we've had some good progress this quarter; we want to continue to make that progress. And we really want to get those levels down much more meaningfully, really get it down to that more permanent level, which is going to be modest at very most. So, we have more work to do there; we're certainly encouraged by the cash trends that we've seen, which will be an important driver of that pay down supplemental borrowings. And so we need to continue to see that sustain progress.

Speaker Change: So, just to reiterate, and thank you for the question, paying down supplemental borrowings is a very high priority. Obviously, we've had some good progress this quarter. We want to continue to make that progress.

Speaker Change: and we really want to get those levels down.

Speaker Change: Much more meaningfully, really get it down to, you know, that more permanent level, which is going to be modest at very most. So we have more work to do there. We're certainly encouraged by the cash trends that we've seen, which will be an important driver of that pay down the supplemental borrowings. And so we need to continue to see that.

Mike Verdeschi: I wouldn't say there's an exact amount in mind; it's going to be a function of the broader environment as well. And yes, we've made a good progress on the growth of that capital, as you alluded to, and that's been a combination of the earnings growth that we've seen, so that organic growth. You also have that accretion component as well from the security support portfolio. And this quarter, you did see some increased due to the variability and interest rates, and that's the component. Keep in mind that will continue to play out over time. But it then gives back to our capital framework to the extent we have capital over and above, which needed to support our firm.

Speaker Change: Stain Progress. I wouldn't say there's an exact amount in mine. It's going to be a function of the broader environment as well. And yes, we've made a good progress.

Speaker Change: on the growth of that capital, as you alluded to, and that has been a combination of the earnings growth that we've seen, so that organic growth, you also have that accretion component as well from the security support folio, and this quarter you did see some increase due to the variability in interest rates, and that's the component keep in mind that will continue to play out over time.

Speaker Change: Black, then gives back to our capital framework to the simply of capital over and above.

Mike Verdeschi: And I want to make that point very clear; the capital that we have is there to support our firm and to grow our strategy. Beyond that, and beyond paying down supplemental borrowings, that we look to our capital framework, where we will look at an opportunity to return capital to shareholders, and that could come in a variety of forms. It could be through common dividends, where historically we've been at 20 to 30 percent of GAAP earnings. But we'll also look at preferred securities outstanding and look to see when they are callable and make a decision whether that capital is needed and whether we wish to call them or not.

Speaker Change: with needed to support our firm and I want to make that point very clear, the capital that we have is there to support our firm and to grow our strategy.

Speaker Change: Beyond that, and beyond paying down supplemental bar wings, that we look to our Capital Framework, where we will look at an opportunity to return capital to shareholders, and that could come in a variety of forms.

Speaker Change: It could be through common dividends, where historically we've been at 20 to 30 percent of gap earnings.

Speaker Change: Bob will also look at preferred securities outstanding.

Speaker Change: and look to see when they are callable and make a decision whether that capital is needed and whether we wish to call them or not. And then beyond that, we would look to buybacks. So I think when I think about capital, we're going to continue to ensure that the capital is available for our growth. We have this different consideration this time around with paying down supplemental borrowings. And then beyond that, we'll look to our capital framework.

Mike Verdeschi: And then beyond that, we would look to buy that. So I think that the, you know, when I think about capital, we're going to continue to ensure that the capital is available for our growth. We have this different consideration this time around with paying down supplemental borrowings. And then beyond that, we'll look to our capital framework.

Unknown Executive: Thank you, next.

Steven Chubak: We'll go to the line of Steven Chewbox from Wolf Research. Please go ahead. Take a morning. So first off, congrats Walton, Peter. Thank you for all of your insights over the years. Mike, I did want to ask you on the funding strategy. You touched on it a bit in your prepared remarks, but we're hoping you to speak the changes to your funding approach. There's just trying to understand whether there's a funding arbitrage from raising wholesale borrowings with the broker-dealer versus the bank. And it's helped quantify the increase in borrowings at the broker-dealer.

Speaker Change: Thank you, next we'll go to the line of Steven Chewbox from Wolfree Search. Please go ahead.

Steven Chewbox: Thank you for your morning.

Steven Chewbox: So, first off, congrats, Walter and Peter. Thank you for all of your insights over the years. Mike, I did want to ask you on the funding strategy. You touched on it a bit in your prepared remarks, but was hoping you to speak the changes to your funding approach. Just trying to understand whether there's a funding arbitrage from raising wholesale borrowings at the broker dealer versus the bank. And to help quantify the increase in borrowings at the broker dealer. Just trying to get a better or more holistic funding picture, if you will, across the firm, given there seem to be some different moving pieces of the bank versus the broker dealer here. Thank you very much.

Mike Verdeschi: Just trying to get a better or more holistic funding picture, if you will, across the firm, given there seem to be some different moving pieces of the bank versus the broker dealer here.

Speaker Change: Hi, Stephen. Thank you for the question.

Speaker Change: So that funding at the broker dealer is certainly an efficient...

Speaker Change: Source of Funds, and it is important that we diversify our sources of funding. That is just a general practice that we want to have here. It's a capability we want to have.

Speaker Change: and it's efficient in that the think of it as pre-positioning funding that we then subsequently placing in cash and earning a roughly equivalent yield, that is very efficient and gives us the flexibility to meet the evolving needs of our clients. In the broker dealer with the completion of the Ameritrade acquisition, we have a growing client base, we have a client base that's dynamic and how they engage us through margin lending, and that type of broker deal of funding is very important. It's very efficient in meeting that evolving needs and it allows us.

Speaker Change: Thank you for the next question. We'll go on to Brian Badele from Deutsche Bank. Please go ahead.

Brian Badele: Great, thanks for the morning and also the congrats for Walter, Peter and Rick and welcome, Mike. My question to go back to the deposit. Obviously, you have a fantastic result for September. I guess, and I know months and months can be noisy, of course, but do you expect some reversion of that? I eat some deployment of...

Brian Badele: of that surge in deposits as we sort of move into October . And then similarly, that growth over the long term that you outlined, Mike, is that you think we'll be able to select it 2025 with a name of 3%, given the forward curve, or is that simply just lower? And do you have a view of what that might be given the lower forward curve? Yeah, that's right.

Speaker Change: Thanks, Brian . Let me address the cash part again. I know Mike's already addressed it, but let me just make a quick comment there and I'll turn it over to Mike to talk about the NIM. We have cautioned for a long time, an excessive focus on monthly cash movements because you can simply have one day difference making a huge impact in a monthly number, depending on when fixed income maturity is mature. Although the numbers are big, if you look at these numbers as a percentage of a $10 trillion client base, they're actually quite modest. And so the right way to look at it is at a quarter, not at a month.

Speaker Change: and we feel very good about where we ended up for the quarter. I don't think there is anything unique or one off in the results for the quarter, and that's why we feel confident about the fact that we continue to make progress in building of our balance sheet cash, and anticipate that as we move forward, taking into account the seasonality that Mike previously referenced. Mike, let me turn over to you for NIMM. Thank you very much for your time.

Speaker Change: Thank you, Walter, and sure, there's been a lot of focus on NIM and that previous outlook of minimaproaching 3%.

Speaker Change: by the end of 2025, at end point December 25, if you will.

Speaker Change: That was informed by a rate path from earlier in the year that was much higher than the rate path that we see in today's dot plot. So it's reasonable to expect with that much lower expected rate trajectory for men to be modestly below that approaching 3% level that we talked about for the end of 2025. But what's important to convey? Thank you very much.

Speaker Change: is that even in that lower expectation for race, that we expect to continue to expand that interest margin in 2025. And a key driver of that is going to be our confidence in making that sustained progress in reducing that high cost supplemental funding at the bank. And so what we're talking about for a fourth quarter is NINN into the, well into the 220's. And importantly, further meaningful expansion in 2025 as well. Now. Oh, uh.

Speaker Change: will be back in January as we typically do with the financial scenario at that time between now and then we have two more FOMC meetings where the outcome of those meetings still remains uncertain in terms of their decisioning. So we'll have more information between now and January when we'll come back to you and talk more about them at that time.

Speaker Change: Great, thanks, Operator, I think we had time for one final question.

Speaker Change: and for our last question, we'll go to the line of Michael Cypress from Morgan Stanley. Please go ahead.

Speaker Change: Thanks for the question, Michael. Let me talk a little bit about our advisor services business and start by just saying it's been a growth powerhouse for us. It continues to drive really strong net new asset formation, both in terms of the RA's coming on to our platform and the growth of the RA's for whom we custody assets. As we look at monetizing the business, I think there's lots of opportunity in the future.

Speaker Change: We have been trying to do more in wealth asset management and lending to support our advisors and you certainly see it our growth in all three of those areas as evidenced by some of the numbers we shared earlier. RIAs have been asking us almost begging for us to lend to them and their clients over time because they want to work directly with us and they don't want to introduce another party into the relationship and as we've. [inaudible]

Speaker Change: Up to our game with our Pledge-Dass online capability and some of our mortgage capabilities. More and more clients are keeping their lending business with us and we expect that as rates fall.

Speaker Change: will see that accelerate. We're also sitting on the well from the asset management side where

Speaker Change: RIAs rely upon us in a number of different ways including our fixed income capabilities, our Schwab personalized indexing capabilities, and a number of other areas. I also think that there's more we can do for RIAs over time. If you think about the value chain around the RIAs, there are a number of ways in which RIAs spend money in their business. And many of those ways are services that we could potentially provide and for which the RIA would prefer to work with us because it would make their life easier. Those are all areas that we are exploring.

Speaker Change: Well, thanks all for dialing in and just being in our in our call today. As I mentioned in my

Speaker Change: Opening Thoughts, I've had the honor and the privilege to speak with many of you about Schwab's results for almost 20 years. During that time, I have learned so much from the...

Speaker Change: Foxville and season Danlos who cover our stock as well as the owners who I would regularly meet with. So thank you.

Speaker Change: and as I make this transition from CEO to executive co-chair, I'm especially grateful to the tens of thousands of Chwavis and the millions of clients who have helped us grow during my tenure. Not only from an $18 billion market cap company to something around 125 billion but also quadruple our stock price.

Speaker Change: I realized that these numbers are the lenses that many will choose to look through to evaluate my time as CEO of Schwab.

Speaker Change: But if I could, I'd like to go back to the very first conversation that Chuck Schwab had with me about the possibility of being CEO of the company someday. This conversation actually happened several years before I formally became CEO. And during that conversation I asked Chuck this question.

Speaker Change: If I do become CEO some day, what would be the most important objective that you would like me to achieve during my time in CEO?

Unknown Executive: I fully expected Chuck to reply with maybe a certain level of client assets or client accounts, maybe a level of market capitalization or even the stock price. But for those of you who know Chuck well, you can probably suspect that his answer was none of those.

Speaker Change: I fully expected Chuck to reply with maybe a certain level of client assets or client accounts may be a level of market capitalization or even the stock price.

Speaker Change: But for those of you who know Chuck Well, you can probably suspect that his answer was none of those. Instead, Chuck shared that his definition of success would be if I did my part during my tenure to ensure that there would be a strong independent Schwab 50 years hence.

Walter Bettinger: Instead, Chuck shared that his definition of success would be if I did my part during my tenure to ensure that there would be a strong, independent choice. But Chuck's job 50 years hence, importantly, because in Chuck's words, investors need and deserve what we offer them. First rate service, great value, quality execution, professional advice, low cost, mutual funds, ETFs, access to independent investment advisors, and so much more.

Speaker Change: Importantly, because in Chuck's words, investors need and deserve what we offer them. First-rate service, great value, quality execution, professional advice, low cost, mutual funds need to be accessed, independent, investment advisors, and so much more.

Walter Bettinger: And thanks to our employees, our 43 million clients, and our long-term stockholders, Chuck has personally shared with me, mission accomplished.

Speaker Change: and thanks to our employees, our 43 million clients and our long-term stockholders, Chuck has personally shared with me mission accomplished. Thank you all so much for joining us on our call today.

Thank you all so much for joining us on our call today.

Speaker Change: Good morning.

Speaker Change: The End