The paragraph introduces the Schwab 2024 Summer Business Update and lists the speakers for the event. It also mentions some housekeeping items, such as the availability of slides and the structure of the Q&A session. The speakers then discuss the transitional nature of 2024 for the company, including the completion of the Ameritrade acquisition, the expected positive asset flows, and the utilization of Schwab's capabilities by former Ameritrade clients. They also mention the anticipated improvements in service levels and the use of trading platforms by Schwab users.

The company is on track with its plans for a transition year, seeing growth in capital and earnings. Inflation is moderating and investor sentiment is positive. The company completed a major client transition during the second quarter and has seen a strong response from clients on the combined platform. Promoter Scores have increased for former Ameritrade retail clients and returned to pre-conversion levels for advisory services.

The paragraph discusses the positive impact of the merger between Ameritrade and Schwab, including an increase in assets and client engagement. It also mentions the growth of Managed Investing solutions and the attraction of younger clients. The paragraph concludes by emphasizing Schwab's commitment to all segments of financial advisors.

Schwab has been successful in serving advisers of all sizes and has continuously added services and capabilities to meet client needs. They are committed to modern wealth management and believe this formula will continue to increase their market share. They have also studied their approach to banking services and will continue to offer lending services to meet client needs and deepen relationships. Schwab believes that firms without lending services are at a strategic disadvantage and are committed to offering quality lending services exclusively for their clients, including residential mortgages, HELOCs, and pledged asset lines.

The bank is investing in technology and experienced bankers to support lending for clients. They plan to shorten their balance sheet investment portfolio duration over time, leading to some potential earnings volatility but also reducing the need for supplemental borrowing. They aim to attract more transactional bank deposits and potentially work with third-party banks to achieve extended FDIC insurance, lower capital intensity, and improve liquidity. These actions may lead to a smaller bank, but they will continue to prioritize clients and operate in the "Schwab Way."

The speaker, Rick Wurster, discusses the success of the Ameritrade conversion and the company's plans for the future. He highlights their competitive advantage of increasing scale while driving efficiency, and mentions their investments in technology and operational enhancements. The company aims to meet their clients' total financial needs and increase revenue through their wealth business.

The company's focus on providing high-quality advice solutions has resulted in high Client Promoter Scores and a significant increase in Managed Investing net flows. This growth is seen across a range of solutions, leading to an increase in fee-based revenue. The company also highlights the success of its fixed income strategies, which have seen significant growth and net flows. The company's commitment to serving a diverse range of client segments through tailored education and specialized capabilities is key to retaining existing clients and attracting new ones.

The company has strengthened relationships with RIAs and high net worth retail clients by offering them turnkey asset management solutions, flexible technology, and specialized business consultant teams at a great value. They are also focused on delivering excellent customer service and have been recognized for their excellent mobile app experience. They continue to invest in enhancing the app, including features that are popular among former Ameritrade clients.

The paragraph discusses recent and planned enhancements that will simplify the client experience and contribute to continued growth for the company. It also mentions the factors that may influence asset gathering in the near term and the company's expectations for long-term growth. Additionally, it touches on the successful integration of Ameritrade, the company's financial performance, and its commitment to efficiency and improving the client experience.

The company is going through a transitional year, but at a faster pace than expected. They have seen organic growth, a moderation of client cash realignment activity, high investor engagement, and an increase in net interest margin. They also have disciplined expenses and increased capital levels. This sets the stage for a return to normal and strong growth in revenue and earnings in the back half of 2024 and beyond. The first half of the year has been characterized by strong equity markets, client engagement, and solid organic growth. Despite seasonal pressures, the company has seen a moderation in client cash realignment activity. This has led to solid financial performance in the second quarter, with a 1% increase in revenue.

In the second quarter, adjusted expenses were up slightly but would have been down without certain one-time items. The company had a pretax margin of 41% and EPS of $0.73. Total assets decreased by 4% due to tax-related outflows and a decrease in client cash realignment. Margin utilization and supplemental borrowing increased, but this was seen as a positive as it supports margin loans with higher interest rates. The company's capital position improved, with an adjusted Tier 1 leverage ratio of over 6%. Despite seasonal pressure and bullish investor sentiment, client cash balances have remained consistent with expectations.

The company is nearing the end of client cash realignment activity, with outflows from Bank Sweep decreasing and new client acquisition and organic growth expected to stabilize and eventually decrease investment cash alternatives. This sets a strong foundation for growth in the coming years, with expected revenue to range between flat to up 2% and adjusted expenses to be approximately 2% higher than 2023. However, this annualized view does not reflect the progression in earnings power by the end of the year.

The company is expecting stable earnings in the next quarter, but with the potential for a Fed rate cut in September, they anticipate their net interest margin to increase and support higher earnings per share. They also plan to continue building their capital levels and may consider returning excess capital to shareholders through dividend increases, preferred stock redemptions, and stock buybacks. They may also use some of their liquidity to reduce outstanding supplemental borrowing, which could be more beneficial for earnings in the near term.

The company does not communicate long-term financial targets, but instead focuses on a simple formula based on their business strategy. This formula has been obscured by rising interest rates and changes in client cash balances, but is expected to become clearer as rates plateau and organic growth returns to historical levels. The company expects this formula to result in strong organic growth, profitability, and capital return. During the Q&A session, an analyst asks about the company's view on deposit rates as the Fed cuts, and if their targets are based on the number of expected cuts.

The speaker discusses the potential impact of the Fed cutting rates on deposit betas and how it may lead to higher levels of clients' transactional cash. They also mention the use of third-party banks like TD and how it may affect their bank assets and economics. However, it is still too early to have definitive answers on these questions.

The speaker discusses the attractive economics of not needing capital for deposits and maintaining sufficient liquidity. They also mention that the Wells Fargo issue will not have any significant effects on their business. They address the question of when Ameritrade attrition will fully abate and state that they are seeing a change in behavior from Ameritrade clients, which is in line with their expectations. They are focused on stopping clients from leaving and achieving positive flows.

Walt mentioned that Client Promoter Scores have improved significantly on both the retail and adviser side. This has resulted in a shift from outflows to inflows from Ameritrade clients. The goal now is to further increase net new asset formation by introducing the Schwab model to Ameritrade clients, including the financial consultant, relationship model, and advisory services. The company is confident that they can achieve 5-7% growth and are currently on track to move Ameritrade clients from being net detractors to slightly positive contributors. They anticipate that by implementing their model, Ameritrade clients will eventually grow at the same level as Schwab clients. In terms of sequential growth, the company has various assumptions, including margin balances and short-term funding levels.

The company is expecting moderate realignment of client cash and plans to pay down supplemental borrowing as quickly as possible. However, their priority is to support margin balance growth, which is profitable and beneficial for clients. The company has multiple self-help levers to improve their financials, including migrating cash off balance sheet and accelerating pay-downs of high-cost liabilities by repositioning the securities portfolio.

Peter Crawford, speaking in response to a question about a potential strategic shift to using third-party banks for deposits, explains that the company is aware of the potential benefits but is also mindful of maintaining the trust of their clients. They have not ruled out this option but are not currently pursuing it. A year ago at the last Investor Day, there was a defense of using the bank subsidiary, but the company has since shifted their thinking. The timing of this shift is uncertain, but the company wants to maintain a healthy level of liquidity above the need to fund loans. It is unclear what the bank will look like once this change is implemented.

Peter Crawford, during a conference call, discussed the bank's plans for the future in terms of deposit flows and capital efficiency. He mentioned that they are looking at approaches that may be more efficient in rewarding clients and stockholders, and that this will take years to implement. He also mentioned that they have an agreement in place that provides flexibility for client deposits and that they are considering expanding this. However, he emphasized that this is all subject to the economics of doing so. In terms of cash inflows, the expected pace of securities maturing off the balance sheet is currently projected for the back half of 2024, but there may be updates for 2025.

The speaker discusses the expected pace of cash flows from the investment portfolio, stating that it will likely decrease as the size of the portfolio decreases. They also mention that the growth of deposits is an important factor in improving the company's earnings and that it is influenced by new assets and client behavior.

The speaker discusses the variability in market engagement and rate-driven activity among clients. They mention that there can be significant fluctuations in net inflows or outflows on a daily or monthly basis. They also note that June was similar to May in terms of deposit flows, but July has started off stronger. In the long term, they expect transactional cash to grow with the growth in accounts and total assets, based on a recent study of clients who opened their accounts 20 years ago. They acknowledge that growth may be slower during rising rates and faster during falling rates, but over time, they expect it to be relatively constant. The next question is from Bill Katz of TD Cowen, who has a two-part question.

The paragraph discusses the recent merger of Ameritrade and Schwab, with a focus on the growth rate and size of the combined bank. CEO Walt Bettinger notes that Ameritrade brought over $2 trillion in assets and is an important part of the overall business. He also mentions the positive impact of the merger on client satisfaction and emphasizes the strength of the combined platform. The end state of the bank's size and potential changes in capital return methodology are also mentioned.

The speaker discusses the company's long-term plans and growth potential, mentioning their strong platform and confidence in their organic growth rate. They clarify that their fiduciary relationships do not have the same exposure as Wells Fargo. The CFO then explains that the company's 3% NIM outlook for 2025 is primarily driven by the moderation of client transactional cash realignment and the paydown of supplemental borrowing, which will be very accretive to their net interest margin.

The speaker discusses the potential for Schwab to expand its lending capabilities and create a more client-friendly process, citing recent improvements in the pledged asset line program. They also mention plans to enhance the mortgage process and lend to higher net worth clients.

The speaker discusses their goal of providing an exceptional borrowing experience for clients and their confidence in their ability to do so. They also mention the potential for adding to their services for advisor clients and their long-term orientation and faith in their strategy.

The company is pleased with the progress of its transition, including strategic positioning, Ameritrade integration, client satisfaction, organic growth, capital levels, and financial performance. They acknowledge that the journey is not over yet, but are confident about their current position and future plans. They look forward to providing updates in October.

This summary was generated with AI and may contain some inaccuracies.