Charles Schwab Corporation (The)

And we're live. Good morning, everyone. Welcome to Schwab's Spring 2022 Business Update. This is Rich Fowler, Head of Investor Relations. And first off, we want to thank you for spending some time with us today. And as always, we hope everyone on the call and your families remain safe and well as the pandemic continues on its knockwood downward path. We do have a full program today, including our President Rick Worcester's inaugural Interim Update Participation. So let's do a quick administrative review and get right into it. As the holding slides indicated, Walt, Rick, and Peter are the presenters today. The program remains at 60 minutes with Q&A following prepared remarks. Jeff Edwards will once again moderate the Q&A session. We'll take questions from the dial-in and the webcast console. And we ask that you stick with the one plus follow-on approach so that we can cover as much ground as possible in the limited time that we have today. Also as before, we will post the slides on the IR site as Peter begins his remarks. And finally, please make note of the forward-looking statement language, as always, and with that, Walt, will you start us off?

Thanks, Rich. Good morning, everyone. Thanks for joining us this morning. Consistency, it's a word that I spend a lot of time on, and it's a word that is critical at Schwab. It means that we're committed to a consistent business strategy, a consistent commitment to feeding the virtuous cycle, innovating on behalf of investors, a consistent financial reporting cadence, a consistent commitment to our employees and the communities that we live and work in, and a consistent long-term approach. It's focused not just on the current year but on years to come. But when I talk about consistency, I also want to emphasize that it doesn't mean that we have to be slow or stodgy or unwilling to be disruptive. Frankly, I don't think I've ever heard anyone refer to Schwab as unwilling to be disruptive, but it does mean that clients can count on us through good times for investing, as we enjoyed much of last year, as well as more difficult times. It means that They know we work hard to improve on our shortcomings and that we will continue to innovate, enhance, and keep their best interests at the forefront of our firm. I think as all of you know who have followed our company, taking a long-term client-centric approach, it's not always easy, but after almost 14 years as CEO, I'm as committed as ever to my belief that it is really the only path to rewarding long-term stockholders. And in the first quarter of this year, we executed on that exact approach, despite it being a tough quarter for investors. And clients continue to reward us with their business, over a million new brokerage accounts, over $120 billion in net new assets. We're just going to continue investing to better serve them and innovate on their behalf. Importantly, we're also going to remain consistent investors. in our strategic approach through clients' eyes, and that is our North Star. So let's take a look at some of the details from the first quarter and the implications for our long-term emphasis. It was, I guess you could say, a fairly brutal quarter for investors, whether they were conservative, aggressive, or anywhere in between. So we had four-decade high inflation, and the resulting anticipated increase in interest rates really punished fixed income investors. And of course, the equity market declined rather sharply before we saw a modest comeback a bit late in that first quarter. But despite it being a difficult quarter, again, clients continued to trust us. They continued to bring their hard-earned investment dollars to Schwab and opened new accounts with us. We maintained an organic growth rate in terms of core net new assets at the same consistent level we've been able to deliver for over a decade. We've done that in good times. We've done it in more difficult times. And, of course, we've done it even as we've grown larger, had a much larger base, and therefore presumably more challenging. Taking a look at the next slide, investor sentiment fell pretty hard during the quarter. It turned quite a bit negative. Then we had a small recovery in the market late again in the quarter, created a little bit of a lift off the floor from where we were in sentiment. But we saw the sentiment manifest itself throughout the quarter. Things like margin loan balances falling about $6 billion from year end and Although trading activity was relatively robust overall, I think as Peter is going to discuss in his section, the mix of those trades changed and reflected much more of what we might consider a risk-off viewpoint by investors. But again, with our commitment to consistency, it means we don't slam on the gas or slam on the brakes depending on environmental factors that are going on around us. Instead, our strategic efforts are designed to enhance services to clients for years to come, deliver financial benefits to stockholders over the years. So as you would expect, we will continue making investments for the long term consistent with the three key strategic initiatives that we've shared with you multiple times. And Rick, maybe I can turn it over to you, and you can spend a bit of time discussing some of those efforts.

Thank you, Walt, and hello, everyone. I'm thrilled to be here today to share an update on the progress we have made this year to advance our key strategic initiatives. Walt talked about consistency. Our actions continue to be guided by our through client size strategy. With that as our North Star, we're focused on the three actions that you see on this page. achieving even more scale and efficiency, pursuing win-win monetization, and meeting the segmented needs of our clients. In this quarter, we've made progress on all fronts, and I'd like to start by sharing some of the updates on scale and efficiency. In the first quarter, the key measure of our scale and efficiency, our expense on client assets, or EOCA, was 15 basis points, or 13 basis points on an adjusted basis. Although that's up slightly from recent levels due to seasonal expenses and the market decline, we continue to believe that this lower cost to serve provides us with a competitive edge. To illustrate the power of the investments we've made in digital and technology capabilities, I think it is remarkable that we have bolstered our trading system capacity by more than five times over the last five years. To put that in perspective, this means that we have the ability within a handful of minutes to handle the same system volume we would have handled in an entire day only a few years ago. As we think about the future for us in scale and efficiency, our top priority remains consistent, the integration of Ameritrade. And we made consistent and more progress on this front in the first quarter of this year, including duly licensing Ameritrade financial consultants. This has a number of important benefits, including making client day one easier to and providing the opportunity to introduce our wealth management capabilities and improving retention and win-win monetization. Speaking of win-win monetization, I spoke in January about three areas where we see the opportunity to help more clients and to drive growth, and those areas are asset management, wealth management, and lending. I'm going to focus my comments today on two of those areas, asset management and lending. On the proprietary asset management side, I am thrilled to share that last week we launched Schwab Personalized Indexing. Our proprietary launch provides tax benefits to investors. It brings the minimum on our platform for direct indexing down to $100,000 from the $250,000 level that it was at for the third-party product that has been on our platform. Yet that $100,000 minimum is still at a level where we think meaningful tax benefits can be provided to clients. And finally, we launched at 40 basis points for retail clients and 25 basis points for advisors, which are very competitive fee points. You can expect us to continually innovate in this area and stay tuned for more updates as it relates to personalization and a digital experience within our personalized indexing offer. In February, we launched our new strategic relationship with T. Rowe Price. This launch has a number of client benefits. including providing RIAs with no transaction fee access to T. Rowe Price's lowest-cost institutional share class funds. Turning now to lending, I've talked previously about the potential upside to enhancing our lending offer for both IS and AS clients. Most importantly, I think this would be a win for clients. Clients are asking to do their borrowing through Schwab, and we know they can access our industry-leading low rates here. We've made a lot of progress on this front this year. We've cut our pledged asset line or PAL cycle times down significantly. We've created a new lending experience for our ultra high net worth clients. And we've worked with Rocket Mortgage to make it easier for our $5 million plus clients to get a mortgage. All of this has resulted in our client promoter scores for lending being at 77 in the first quarter, which is near all-time highs, suggesting clients are seeing the value from this offer. Let me wrap up with sharing a bit more on our efforts to meet the specific needs of our client segments. As I mentioned earlier, seeing through clients' eyes is our north star, and we made progress this quarter to meet the needs and preferences of a range of investors, and I want to share an update on that. For trading-oriented and newer clients, we launched thematic stock lists in March. This is an innovative new tool that will help trading-oriented and newer clients identify themes that may be of interest to them and help them identify investment and trading opportunities. We have over 45 themes available for clients today, including a number of ESG-related themes. You can expect from us additional advancements as it relates to this capability and the way we deliver it to clients over time. Turning now to our high net worth client segment, This client segment grew at five times the rate of retail households year over year, and we continue to enhance our advice, our service, and our offers like lending to make sure that they meet the specific needs of our high net worth clients. More broadly, we've continued to make progress to build out our relationship support model. We've added financial consultants, wealth strategists, and other professionals to make sure that investors at Charles Schwab feel supported. For our trader clients, we've established the first ever Ameritrade Active Trader FC branch. For our ESG investors, we've recently launched MSCI ESG ratings on individual stocks that our clients can use to evaluate the investment decisions they're making alongside other criteria that they like to look at. This new resource on ESG adds to other enhancements that we've made in the past year for ESG investors, including the launch of the Schwab Ariel ESG ETF, the Wasmer-Schroeder positive impact strategy launched last year, ESG-related themes that can be found in the thematic stock list, and access to an ESG index as part of our recent Schwab personalized indexing launch. And finally, we also have an RIA client segmentation strategy. RAS model is designed to serve clients of all sizes, from clients just starting their businesses to large multifamily offices and everywhere in between. Late last year, we segmented our client base into three sub-segments to tailor support to the needs and priorities of our different advisors. Early results show this specialization or segmentation has been immensely successful with client satisfaction up and improved service. As we look ahead, you will continue to see the consistency of our strategy. With ThruClientSize as our North Star, We will continue to put our clients first as we make progress on these important initiatives. And with that, I will turn it back to Walt.