The paragraph is an introduction to Schwab's 2024 Fall Business Update, led by Jeff Edwards, Head of Investor Relations. It highlights the presence of key figures, including Co-Chairman and CEO Walt Bettinger, President Rick Wurster, new CFO Mike Verdeschi, and Managing Director Peter Crawford. Edwards notes the bittersweet nature of the event as it is the last update for Walt and Peter. Walt, who has significantly contributed to these updates for over 15 years, will make opening remarks, followed by insights from Rick, who is set to become CEO in January. Peter and Mike will cover the financial updates, with Peter focusing on Q3 results and Mike discussing the outlook for 2024. Additional closing remarks will be made by Walt, and event slides will be available on the IR website.

The paragraph is part of an update from Walt Bettinger, who has been updating investors since 2005 and is now transitioning to the role of Executive Co-Chair, meaning he will no longer be participating in these calls. He thanks the participants for their interest and insights over the years. The focus of the update is on the positive developments in the third quarter, which is seen as a potentially pivotal period. Notably, Ameritrade clients continue to generate positive net new assets for the second consecutive quarter, and there is growth in transactional sweep cash balances. The company has also made progress in reducing supplemental funding and is experiencing firm-wide growth in net new assets.

The paragraph highlights the strong performance and optimistic outlook for a retail advisory firm, despite some market volatility in the third quarter. Client engagement remains robust across various services, including trading, banking, and asset management. Trades increased by 4% from the previous quarter, margin balances grew to $73 billion, and retail advisory inflows hit a record $15 billion. Net new assets doubled compared to the same quarter last year, driven partly by former Ameritrade clients. The firm also gained nearly 1 million new brokerage accounts, signaling progress towards achieving 5% to 7% organic growth.

Following the acquisition of Ameritrade, Schwab experienced an initial boost in client assets, along with anticipated attrition, which is now diminishing. As a result, their year-to-date net new assets have surpassed expectations for 2023. Despite various factors influencing net new asset levels, Schwab is confident in returning to historical asset growth, supported by positive client responses and improved satisfaction scores among former Ameritrade clients. Schwab continues to integrate Ameritrade's platforms successfully and gains recognition for service quality, notably being named the most trusted bank by Investor’s Business Daily.

In the paragraph, Rick Wurster shares progress updates on serving clients and building the franchise, emphasizing a client-centric strategy that drives long-term growth. The company achieved 95% of its Ameritrade expense synergies and aims to capture the rest by year-end, maintaining a competitive low-cost position through cost discipline and infrastructure investments. In 2024, their EOCA decreased to 12 basis points from 16 in 2019. Wurster highlights "Win-Win Monetization," focusing on attracting and retaining clients by meeting their evolving financial needs, particularly in wealth management. The company saw a 65% increase in year-to-date managed investing net flows compared to last year, with clients adding $11.5 billion to full-service wealth offers in the third quarter, a 75% increase from the previous year. Schwab Wealth Advisory continues to attract record numbers of clients.

The paragraph highlights Schwab's recent initiatives and successes in wealth management and borrowing services. It mentions the introduction of a discretionary option for Schwab Wealth Advisory clients and reports strong interest in its Wasmer Schroeder fixed income strategies and Pledged Asset Line (PAL), with PAL balances reaching a record $15.7 billion, largely driven by former Ameritrade clients. The adoption of digital enhancements has streamlined the PAL process, leading to faster approvals and higher client satisfaction, as reflected in improved client promoter scores. Schwab is focused on serving distinct client groups, including retail and advisor clients, with tailored solutions, emphasizing its commitment to supporting RIAs in enhancing clients' financial lives.

The paragraph outlines the company's commitment to enhancing its custody business and retail operations. It emphasizes providing RIAs with a robust platform and resources, focusing on ultra-high net worth clients with specialized expertise, and launching retail alternatives soon. The company also highlights its strong position in the trading sector following the Schwab and Ameritrade merger, with ongoing investments in mobile and platform improvements. Additionally, it stresses the importance of customer experience, aiming to delight existing clients and improve service efficiency, as evidenced by an average phone response time of under 40 seconds in the third quarter.

The paragraph highlights the company's achievements, including a client satisfaction score of 92% for service teams, the highest in four years, and a strong performance in advisor services with an 89% satisfaction score in the third quarter. The company was ranked #1 by J.D. Power and Participant Satisfaction for its Retirement Plan Digital Experiences. Emphasizing a client-centric strategy, the company aims for continuous growth by focusing on individual investors, workplace clients, and RIAs. The speaker expresses gratitude to Walt for his leadership as he transitions to Co-Chairman, while the speaker prepares to become the new CEO, noting the company's strong operational position. Lastly, the speaker hands over to Peter Crawford.

In the final address by Walt and the initial business update by Mike, the focus is on the company's strong client engagement, asset growth, and financial performance in the third quarter, which exceeded expectations. They emphasize progress in paying down bank borrowings and provide an updated outlook for Q4 2024 and early thoughts on 2025. Despite not yet reaching peak growth levels, the company is optimistic about its progress and long-term financial strategy. Reduced attrition related to Ameritrade and moderated client cash realignment have contributed to growth in client transactional cash, net interest revenue, and overall revenue, alongside increased capital levels.

The paragraph discusses the company's positive momentum and expectations for improved financial performance in the future, driven by strong equity markets, increased client engagement, and growth in margin balances and trading activity. Client interest in advisory solutions remains high, and client cash realignment has slowed, leading to increased overall and transactional cash levels. This has allowed the company to reduce supplemental borrowing and set a favorable starting point for the fourth quarter. The third quarter exceeded expectations, with revenue rising 5% to $4.8 billion, adjusted pre-tax income and margin both improving, and adjusted EPS at $0.77. The speaker expresses gratitude to the investment community for its engagement, which is seen as contributing to the company's improvement.

Mike Verdeschi expresses gratitude to Peter for his leadership and congratulates him on his retirement. He acknowledges the positive contributions Peter made to the company and expresses excitement about assuming the CFO role at Schwab. Mike highlights ongoing support for clients with increases in margin and bank loans and mentions a significant rebound in transactional sweep cash, resulting in reduced high-cost supplemental funding. He also notes proactive measures taken to sustain client activity and diversify the company's funding profile.

The paragraph discusses financial actions taken by a firm to support its increasing client base, particularly former Ameritrade clients. These actions include transferring $4 billion of client cash to a broker dealer and activating wholesale funding for clients who frequently trade and use margin loans, with minimal impact on net interest revenue. The firm aims to enhance flexibility to meet clients' evolving needs while achieving financial goals, such as reducing borrowings and boosting earnings. The firm’s capital levels are improving due to quarterly earnings, accretion of unrealized marks, and a decrease in interest rates, though this rate impact may change over time. Furthermore, client cash trends were positive in the third quarter, with a $9 billion growth in sweep cash balances and a $17 billion net inflow in September, partly due to seasonal trends.

The paragraph discusses the company's progress and strategy regarding cash trends and capital management. It highlights successful efforts in reducing supplemental funding balances by over 30% since May 2023, with a recent reduction of $9 billion by the end of the third quarter of 2024. The company is focusing on further reducing supplemental funding to achieve normalized earnings while building its capital ratios. Despite changes in interest rates, the company is on track to meet its capital ratio objectives by early 2025 and will shift focus toward a broader capital framework.

The company's primary focus for capital remains supporting business growth, with excess capital historically returned to stockholders through dividends, security redemptions, and stock buybacks. Currently, excess liquidity might be used to reduce high-cost supplemental funding instead of capital buybacks. They now expect full-year 2024 revenue growth of 2% to 3% compared to 2023, driven by increased transactional cash balances and decreased supplemental funding. Adjusted expenses are still expected to grow by around 2%. Earnings for the fourth quarter are projected to rise slightly beyond previous estimates. Looking ahead to 2025, the company is cautiously planning, considering factors like the presidential election and upcoming Federal Reserve meetings.

The company is optimistic about entering 2025 with strong momentum, expecting it to grow further despite potential macroeconomic changes such as shifts in interest rates and market sentiment. Net Interest Margin (NIM) is expected to expand even if rates decrease, but will depend on various factors. The company aims to balance investments for long-term growth while achieving short-term financial goals, predicting mid-single-digit expense growth year over year. Excited about their position at the close of 2024, they highlight their strong client momentum and 3Q financial results, which enable significant earnings growth. Their diverse revenue model and expense management strategies are expected to lead to profitable growth, enhanced by capital efficiency. The paragraph ends with Jeff Edwards initiating a Q&A session, with Ken Worthington from JP Morgan asking the first question about improved transactional sweep cash and deposits.

In the paragraph, the discussion revolves around a financial update for the quarter, specifically looking at the changes in cash flow from August to September. Michael Verdeschi addresses questions about the stability and growth of transactional cash in September, suggesting that both organic growth and client activity variability contributed to the increase. He highlights the normalization of realignment activity throughout the quarter and feels positive about the progress made. Additionally, Verdeschi mentions using the proceeds from the securities portfolio to repay supplemental borrowings. Alexander Blostein from Goldman Sachs then asks about the strategy for handling the securities portfolio, considering the stabilization of cash and rebuilding of capital, and acknowledges the financial logic of reducing EBITDA balances by paying down securities slightly ahead of schedule.

In the discussion, Michael Verdeschi addresses the topic of holistic securities portfolio restructuring for 2025, indicating that they are not currently pursuing it to avoid unnecessary headline risk and maintain client trust. Instead, they focus on repaying supplemental funding. Brennan Hawken from UBS asks about expected mid-single-digit expense growth for 2025, clarifying if it accounts for efficiencies and excludes one-time charges like the FDIC. Verdeschi confirms it includes restructuring from 2024 and reflects the company's intent to invest in growth capabilities while maintaining financial discipline. The conversation then moves to Dan Fannon from Jefferies.

The paragraph discusses Schwab's organic growth and the integration of Ameritrade clients into their platform. Growth among Schwab's legacy clients remains stable at 5% to 7%. As for Ameritrade clients, their transition to Schwab has surpassed expectations, with lower attrition rates and positive contributions to net new assets for two consecutive quarters. Schwab anticipates these clients will continue to grow their net assets and align more closely with Schwab's growth trajectory as they become familiar with Schwab's relationship-focused service model. The overall expectation is for continued long-term growth, with the relationship model proving effective.

The paragraph discusses the progress and strategy of managing financial growth and stability. A significant portion of new business comes from former Ameritrade clients, contributing to both wealth management and lending growth. The company aims to sustain long-term growth similar to what has been achieved with Schwab clients. In response to a question from Kyle Voigt of KBW, Michael Verdeschi emphasizes the priority of reducing supplemental borrowings before resuming share buybacks. Although they have made progress, the company intends to significantly reduce these borrowings to a more permanent and modest level. Verdeschi notes that cash trends are encouraging, but there isn't a specific borrowing level set to trigger buybacks.

The paragraph discusses the company's capital management strategy. It highlights the progress made in growing capital through earnings growth and contributions from the securities portfolio. The company plans to support its firm and growth strategy with existing capital and, after addressing supplemental borrowings, aims to return capital to shareholders through methods like common dividends, evaluating preferred securities, and buybacks. The focus is on maintaining sufficient capital for growth while also considering the possibility of returning excess capital to shareholders. The operator then prompts the next speaker, Steven Chubak, to ask about the company's funding strategy.

In the paragraph, Michael Verdeschi explains that the broker dealer's funding is an efficient and diversified source of funds, especially following the Ameritrade acquisition. This funding allows for flexibility in meeting clients' evolving needs and supports the firm's goal of earnings growth. Verdeschi emphasizes the importance of having a diversified funding strategy, which includes both bank and non-bank sources, to ensure financial outcomes while catering to clients' demands.

The paragraph involves a discussion during an earnings call, with Brian asking about the company's deposit trends and their long-term growth predictions, particularly in terms of Net Interest Margin (NIM). Walter W. Bettinger cautions against placing too much emphasis on month-to-month cash movements due to variability, emphasizing the importance of quarterly assessments. He expresses confidence in the company's quarterly progress in cash balance. Mike Verdeschi addresses the NIM outlook, noting that previous expectations of reaching a 3% NIM by the end of 2025 were based on an earlier, more optimistic interest rate forecast, which may have changed based on current indicators like the dot plot.

The paragraph discusses expectations for the net interest margin (NIM) heading into 2025, suggesting it will be below 3% due to a lower expected rate trajectory. Despite this, there is confidence that NIM will still expand in 2025 due to reducing high-cost supplemental funding. The NIM for the fourth quarter is anticipated to be in the 220s with further growth in 2025. There will be updates in January post two Federal Open Market Committee (FOMC) meetings that are expected to provide more information. The conversation shifts to a question from Michael Cyprys about opportunities for expanding and monetizing the REA custody business, particularly regarding charging a custody fee. Walter W. Bettinger responds by highlighting the growth and asset formation strength of their Advisor Services business.

The paragraph discusses the company's efforts to monetize its business by expanding in wealth management, asset management, and lending services, particularly for Registered Investment Advisors (RIAs). The company has enhanced its lending capabilities, which is attracting more clients. It also supports RIAs through various services, such as fixed income and personalized indexing. The company is considering expanding services that RIAs typically spend money on to simplify their operations. Despite discussions about changing the custody fee model, the current model remains preferred by RIAs. The company aims to monetize its RIA relationships in a client-friendly manner while supporting the growth of both its own and the RIAs' businesses.

The speaker reflects on nearly 20 years of discussing Schwab's results and expresses gratitude as they transition from CEO to Executive Co-Chair. They highlight Schwab's growth under their leadership, acknowledging both the financial milestones and a broader goal set by Chuck Schwab. Rather than focusing on traditional financial metrics, Chuck Schwab's measure of success was ensuring the company's long-term independence and ability to provide valuable services to investors. The speaker believes this goal has been achieved, thanks to employees, clients, and stakeholders.

The paragraph expresses gratitude to the participants for attending the call.

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