Charles Schwab Corporation (The)

Good morning, everyone. Thank you for joining us for Schwab's 2026 Spring Business Update. This is Jeff Edwards, Head of Investor Relations, and I'm joined in Westlake this morning by our President and CEO, Rick Worcester, as well as our CFO, Mike Griteschi. Let's jump right in today, and hopefully everyone had a chance to review our earnings release that crossed the wires earlier this morning. And per the usual slides for today's business update will be posted to the IR website at the conclusion of today's prepared remarks. Please adhere to our one-question policy during Q&A And as always, the IR team is available to assist with any questions following today's update. And finally, the Rich Fowler Raw of Words, or perhaps more widely known as the Forward-Looking Statements page, which reminds us that outcomes may differ from expectations. So please stay up to date with our disclosures. And with that, I'll turn it over to Rick.

Thank you, Jeff, and good morning. Thank you for joining us for our spring business update. I hope you walk away from the call this morning with three overarching messages. One, our through client size strategy drove record client growth and financial results in the first quarter. Two, Schwab is delivering for clients and is uniquely capable of meeting client needs across investor types and investment environments. And three, we are innovating at a rapid pace with tangible progress in AI, digital assets, and client capabilities and experiences. Our through client size strategy continues to drive results with strong growth across all fronts in the first quarter. Clients remain highly engaged and they continue to turn to Schwab through volatile and uncertain markets. Clients opened 1.3 million brokerage accounts up 10% over last year. Excluding a one-time mutual fund clearing outflow, we attracted $158 billion in core net new assets, a first quarter record that brings total client assets to $11.8 trillion. March was our second highest month of NNA ever, behind only December of 2021. Clients continued to turn to us for more of their financial lives with strong engagement in our wealth and lending solutions. managed investing net flows were up 46 percent reaching an all-time record bank lending was up 29 year-over-year with bank product balances and pledged asset line balances reaching all-time records we supported a record 9.9 million daily average trades this engagement led to record financial results with revenues up 16 percent and adjusted earnings per share a record $1.43, up nearly 40% over last year. Behind those numbers are people of all life stages who are turning to Schwab to invest and trade through a period of heightened market volatility. In the first quarter, we continued to execute across our key strategic focus areas and deliver innovations at a fast pace to help clients grow and protect their wealth. I'll highlight just a few starting with growth. We're continuing to hire financial consultants and wealth advisors while expanding our branch footprint with about a dozen new branches planned for 2026. When clients have a direct relationship with a financial consultant, their client promoter scores increase 10 points and they trust Schwab with 2.4 times more net new assets. We launched the Schwab Teen Investor Account, giving young people ages 13 to 17 an engaging way to get started on their lifelong investing journey. Our differentiated joint account structure allows parents to monitor and engage as needed as their teens trade and invest. We are still in the early days, but have seen great interest and enthusiasm so far. We believe it is important for teenagers to learn the benefits of saving and investing, the merits of compounding over time, and to differentiate our messaging from the more gambling-oriented messaging from some competitors. We completed the acquisition of Forge, which will allow us to provide clients with direct and indirect access to shares of pre-IPO companies through direct private share purchases, single company funds, and multi-company funds. We'll roll these capabilities out to clients over time and look forward to sharing more details in the months ahead. We are building a healthy pipeline in our recently launched private issuer equity services service, which offers capital table management solutions for pre-IPO companies that combines the expertise and capabilities of our workplace business with Capita's flexible technology and offers a seamless transition to our public stock plan services capability. With the Forge transaction now closed, we continue to see upside in engaging the private market ecosystem with a solution that offers them pre-IPO stock plan services, liquidity solutions for their employees and equity holders, and lending solutions for their employees. This win-win opportunity creates value for the issuer while creating a pipeline of stock plan services clients and greater access to private company shares to grow Forge. We also increased our strategic investment in Wealth.com, which we are already using to bring AI-powered estate planning tools to our clients. We're also working to launch their AI-powered tax planning capability in the near future. We successfully began the rollout of our structured asset line offer to advisor clients, expanding the type of securities they can use as collateral, including alternative investments. We'll talk more about our AI progress in a moment, which is helping us drive both growth and scale and efficiency. When it comes to Brilliant Basics, we were there for our clients in the first quarter. We supported over 600 million trades, more than 7.8 million calls to our service centers, and about 570 million digital logins, up about 12% from the first quarter of last year. Clients reaching out to our service centers had their calls answered in less than 30 seconds on average. We're also making it easier for our clients to do business at Schwab. In advisor services, we're continuing to enhance our digital experiences across RIA workflows like move money, account open, and account maintenance, while also modernizing tools on our advisor platform. Taking together these enhancements help RIAs get routine work done faster and with fewer errors. We're also continuing to enhance our digital experience across the retail and workplace ecosystem. including expanding our digital experiences and bringing workplace onto Schwab Mobile. Most importantly, we continue to delight our clients. Client promoter scores are up nine points over last year in investor services, nearing all-time highs. Our ASEZ score also remains near an all-time high. Our capabilities are differentiated and aligned to support clients in all markets, including the more volatile environment that we experienced in Q1. Our formula for driving earnings growth over the long term is straightforward, and you see it here on the screen. I want to spend a few minutes highlighting just a few of the ways we are accelerating our pace of innovation to deliver for clients and drive our strategy as we look ahead. We have a diverse set of opportunities to deepen relationships with our 47 million client accounts while also diversifying our revenue streams. I'll spotlight two areas where we are helping clients conduct more of their financial lives at Schwab, wealth and digital assets. Flows into our managed investing solutions reached all-time highs. This was driven by strong engagement with our flagship wealth offer Schwab Wealth Advisory, where net flows reached a record $10 billion, up 90% over last year. Approximately 30% of the flows into our managed investing solutions came from legacy Ameritrade clients. Clients in our managed investing solutions have the highest client promoter scores at the firm and bring in approximately two times the revenue on client assets. And we still have runway to grow this business as our clients' financial lives become more complex and we continue to add to our capabilities to help clients grow, protect, and pass along their wealth. Another way we will deepen relationships with clients is with Schwab Crypto, our new spot crypto offer. I'm excited to share that the employee pilot is underway and we expect the phased client rollout will begin in the coming weeks. We are starting with the two most popular coins, Coin and Ether, which together represent approximately three quarters of the crypto market. Pricing will be competitive at 75 basis points on the dollar value of each trade. We plan to add additional cryptocurrencies to the platform over time, as well as transfer capabilities for both deposits and withdrawals, allowing clients with existing digital assets to bring them to Schwab alongside their other investments. Most importantly, we are launching our spot crypto offer the Schwab way with the powerful combination of education, research, risk management and service, all at great value. Finally, I want to spend a few minutes diving into how artificial intelligence is accelerating our strategy and the fast pace at which we are launching impactful AI capabilities. I want to start by highlighting three points. One, Schwab is already an AI-enabled company. We have been using machine learning and AI capabilities for years and have made recent progress launching new AI capabilities. Just as we have embraced and flourished during other periods of seismic technology change, we are doing the same now, benefiting from our massive scale, data, and technological prowess. Two, AI will accelerate our strategy. On the growth front, AI opens up new distribution channels and allows us to create personalized relationships with clients we have not been able to serve with a person-to-person relationship. AI is already having significant impact in driving scale and efficiency, both in our technology and operations and in the way we serve clients. Three, we are harnessing the power of AI in the Schwab way, bringing the best of people and technology and allowing clients to engage the way they prefer. AI is accelerating our strategy in several ways. First, AI will help fuel our ability to serve more clients. As prospects and clients increasingly use consumer AI tools for research, We are making sure Schwab will be there, providing the trusted education and expertise that we already bring to clients on other digital channels today. We're already reaching a growing number of clients through the answer engine optimization work that our marketing team is doing to ensure we show up on the AI platforms where investors are turning. We are working with these platforms now, and you'll see us do even more. AI will help us with our second growth lever, deepening existing client relationships. AI can help us create personalized and deeper relationships with the clients we can't currently serve at scale with one-to-one relationships. We know investors are using AI today. Seventy-seven percent of U.S. investors use AI today, though more than 90 percent still prefer human involvement in addition to AI. Next month, we will begin the rollout of portfolio insights, an AI-enabled experience that will deliver tailored insights to our clients about their investment portfolios, how they are performing relative to indices, the news about their holdings, and the relevant proprietary research from Schwab. We have already tested this capability with employees. We will expand these capabilities throughout 2026 providing clients with insights on topics like concentration risk, asset allocation, and technical indicators. We will also be launching a generative search capability for clients looking for information on Schwab.com. The first iteration will launch this year. Starting over the summer, we will introduce the first of several AI assistants that will enable our clients to interact with chat and voice to address their most frequent service and support needs. Our first iteration of the Investor AI Assistant will launch in June. This capability will go to answer general questions, and we will start to test a set of actions the agent can take on behalf of clients. For example, clients will be able to interact with the voice agent to set beneficiaries. We're ensuring clear handoffs to human agents and strict guardrails. This agent and others like it will get smarter with each release as we introduce new skills. We are working with a leading AI agent firm on this build out and look forward to sharing more details soon. We are also now able to meet our clients' trust needs with an AI-powered capability from wealth.com. We will do the same with tax. Over time, these efforts will create opportunities for enhanced experiences and new fee-based offers that will create value we believe our clients will be willing to pay for. According to research, more than half of our clients are willing to pay for AI financial tools. AI is already driving scale and efficiency in two ways. First, it is helping us drive productivity across the firm. Every one of our sales, service and advice professionals is using AI every day to elevate every interaction they have with clients. A few examples. Schwab Knowledge Assistant gives our phone professionals answers to complex client questions in seconds. And Schwab Research Assistant synthesizes market insights from the Schwab Center for Financial Research. Schwab AI Service Assistant, which we've rolled out in retail and will follow in advisor services, instantly transcribes approximately 60,000 live interactions a day. captures notes, and assists client-facing professionals with next steps. Within advisor services, we've introduced large language learning models to analyze millions of calls to provide better coaching to our service professionals. In our branches, we are launching a relationship management assistant. If an FC has a client meeting coming up, this capability quickly summarizes past client interactions using AI, shares a view on actions that would help the client, records the client meeting, and prepares an action-based summary of the meeting for the client. We believe this tool will make our financial consultants more productive and able to serve more clients more deeply and more effectively. Second, AI is helping us transform how employees work. We have equipped every one of our 33,000 employees with AI tools and are seeing tremendous creativity as they are developing fluency in AI and embracing the ways it can transform how we work. We are accelerating the pace at which our Schwab engineers build technology. More than 8,000 of our technologists are using AI to design, code, test and fix bugs, all of which increases our speed. And we are streamlining back office processes and operations, risk, and across the firm to save time and resources. We are confident that we're incredibly well positioned to continue unlocking the benefits AI can bring to our clients and our business, including one, enhancing the client experience by bringing personalized insights to more clients at scale and serving more clients more efficiently. Two, increasing productivity and efficiency, which will lower our cost to serve while enabling us to continue to reinvest in our growth. And three, creating future monetization opportunities with AI-powered capabilities that clients value. The outcome is AI is accelerating our through clients' eyes strategy to help us drive profitable growth through the cycle. I look forward to sharing more detail with all of you at our Institutional Investor Day on May 14th, including demos of some of the AI capabilities that will launch soon. To summarize, we have strong momentum as we head into the second quarter, and we're well positioned to deliver earnings growth through the cycle. With that, I'll turn it to Mike to speak more in detail on our financial picture.

Thank you, Rick, and good morning, everyone. During today's call, I'll discuss our strong start to 2026, where our sustained business momentum drove record financial results for the first quarter. In addition, I'll cover our disciplined approach to managing the balance sheet, which allows us to support the evolving needs of our clients across different environments. And lastly, highlight how by doing more for our clients across our platform, including the continued deployment of AI, enables Schwab's model to become even stronger and more diversified, allowing us to provide individual investors and RIAs with an industry-leading value proposition. Starting with 1Q, revenue increased 16 percent year over year to a record $6.5 billion for 1Q, including another quarter of double-digit year-over-year growth across all major line items. the reduction of higher cost borrowings at the banks, increased utilization of our lending solutions by clients, and interest in long-short strategies helped drive a 16% increase in net interest revenue versus 1Q25. While equity markets were increasingly volatile over the course of the quarter, strong asset gathering and client interest in Schwab's wealth and asset management offerings drove 15% year-over-year growth in asset management and administration fees to a record $1.8 billion. Trading revenue for the quarter was up 20% versus 1Q25 as our best-in-class retail trading platform supported record levels of engagement, including 9.9 million daily average trades. Bank deposit account fees also increased 20% year-over-year, due to an improved net yield as lower yielding fixed rate obligations continue to mature and convert into higher yields across both the floating and fixed rate buckets. Moving on to expenses, adjusted expenses for 1Q grew 5% year over year, reflecting first quarter seasonality and strong client engagement across our trading, wealth and banking solutions. We also continue to invest to support our key strategic initiatives, including organic growth, new products, AI opportunities, and ongoing scale and efficiency efforts. Record quarterly revenue combined with balanced expense management resulted in an adjusted pre-tax profit margin of 51.4%, and first quarter adjusted earnings per share reached a record $1.43 a year-over-year increase of 38%. Transitioning to the balance sheet, we continue support of our clients' evolving needs as they navigated a challenging environment in 1Q26. Demand for our bank lending solutions remained strong as total bank loan balances drew to $61 billion, up 29% from 1Q25 and 5% versus the prior year end. Client margin loan balances ended the quarter at nearly $127 billion, up 13% from year-end 2025 levels, reflecting continued interest in certain long-short strategies as well as increased trading-related margin balances despite a pullback in activity during the month of March. We also continue to utilize the combination of our interest rate hedge programs and investment portfolio to match off our assets and liabilities, enabling us to efficiently maintain a more modest asset sensitive position. Client cash followed typical seasonal trends to begin the year. However, as volatility increased during the back half of the quarter, clients took a slightly more defensive posture. which in conjunction with the cash build from organic growth and the long-short strategies contributed to $25 billion of cash inflows during the month of March, resulting in an $8 billion sequential quarter increase in client transactional sweep cash. For the second quarter, we still anticipate the typical drawdown in client cash due to tax payments in April. And similar to past years, We expect this activity to impact both transactional sweet cash as well as other liquid cash alternatives, such as money market funds. Beyond seasonal considerations, continued market volatility could influence client cash allocations. And lastly, in line with our stated principles, we continue to prioritize flexibility in managing the balance sheet to remain well positioned to navigate a wide range of environments. Capital levels remain strong with our adjusted Tier 1 leverage ratio finishing the quarter within our 6.75% to 7% objective range. Our adjusted ratio of 6.8% reflects a 19% increase in our common stock dividend, the repurchase of common shares for $2.4 billion during the first quarter, and sequential growth in the balance sheet. 1Q26 represented a strong start to the year with growth on all fronts, including healthy organic growth, record client trading activity, as well as robust engagement across a broader suite of modern wealth solutions, which we converted into record revenue and earnings. Given our strong performance in 1Q and based on what we see today in terms of the expected path of rates and strong client engagement, we are tracking higher than the $5.70 to $5.80 EPS range implied by the scenario we showed back at the winter business update in January, which excluded the impact of buybacks and Forge. We'll provide a more comprehensive update on our full 2026 financial scenario at the next business update in July. Finally, before we move on to Q&A, wanted to take a moment to build on Rick's AI comments, specifically the conversation relating to cash. There are three key points to remember. One, Schwab provides an industry-leading value proposition to individual investors and RIAs. Two, with help from Schwab, our clients are actively managing their cash allocations. And three, Schwab's ability to help clients with more of their financial lives enhances the flexibility of our client-driven model. So, first, the overall value of Schwab's platform. We have created an exceptional offering in the marketplace that is highly trusted and valued by individual investors and RIAs, which has led to approximately 47 million total accounts and investors entrusting us with approximately $12 trillion in total client assets. Clients value our firm's focus on helping them build and manage their wealth while providing all of these services at highly attractive all-in costs for them. Second, we provide a broad suite of cash management solutions that offer clients a range of products with different features to help meet their diverse needs. We also proactively seek to raise awareness around the cash options available on the platform and efficiently enable them to move between the various options with as little as one click of a button. At the same time, independent RIAs continue to help their end clients manage their portfolio allocations, including cash, to help meet their individual financial goals. Today, this has resulted in total cash levels running around 10% of client assets with transactional cash allocated at about a 4% level or approximately $10,000 per account. And as we see demand for new products or capabilities for cash, you would expect us to deliver those to our clients. Importantly, given how easy we have made it for clients to move their cash between different solutions, And based on the trends observed over the past few years, client cash is actively allocated today. To the extent additional efficiencies are enabled down the line, the broader evolution of the platform enables continued flexibility in managing our economics. Finally, as Rick noted, we view the emergence of artificial intelligence as a tailwind to Schwab's strategy. So by continuing to put clients first, Schwab's platform has built up immense flexibility. Our model is informed by investors' preferences for lower explicit fees without sacrificing product access, convenience, or service. To extend those preferences change at some point in the future, Schwab has a lot of flexibility to continue supporting investors and RIAs and the way they have come to expect from us while still delivering strong returns for stockholders. And with that, Jeff, let's move on to Q&A.