The Charles Schwab's CEO Hosts Annual Shareholder Meeting (Transcript)

May.16.13 | About: The Charles (SCHW)

The Charles Schwab Corporation (NYSE:SCHW)

Annual Shareholder Meeting

May 16, 2013 5:00 pm ET

Executives

Charles Robert Schwab - Founder, Chairman, Member of Policy Committee, Chairman of Charles Schwab & Co and Chairman of the U S Trust Board

Carrie E. Dwyer - Executive Vice President of Corporate Oversight, General Counsel, Corporate Secretary and Member of Policy Committee

Joseph R. Martinetto - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Walter W. Bettinger - Chief Executive Officer, President, Director and Member of Policy Committee

Charles Robert Schwab

Good afternoon, everyone. Thank you for coming. Gosh, I saw that in the other room actually, in the green room, the whole thing in 3 minutes, 40-years worth, a little bit longer than that, actually. But it is unbelievable how fast it did go by, 40-years worth.

Anyway, we're very proud as an organization. We have our 40th anniversary this year. And welcome to all of you, who are not only here in the room but to our webcast. Thanks for being with us. But we just saw a movie. I hope everyone on the webcast saw it, too. It was pretty interesting, to say the least. The hair color has changed over the years, and that's been -- and certainly my frames have changed a lot. But other than that, it's pretty much the same old guy, same values and same everything else.

But it's certainly a pleasure to be here to face up to the 40 years, and I think we have reason to do that. We have a fantastic company, which we'll hear a lot about today, some of the accomplishments just last year, our 39th year. But thanks for so many clients who have been with us, some actually have been with us almost 40 years. And when I go out on the road, I do see some of the people who have been with us. And they raise their hand and say, very proud about the fact they've been with us that many years.

And shareholders, of course, we've only been public for 26 years. And some people maybe even in this room have been shareholders from the very beginning, certainly many of our employees. Right down here, Steve Machon [ph] raised his hand.

But time has flown by so quickly, to say the least. And seeing that so many are employees who worked so hard through these years and we've had some rotation about that. But we when we start out just 40 years ago, we had a very simple idea and that was to make financial lives and people simpler, cheaper, make it more convenient and provide more service, a pretty easy formula. But I guess the magic has been trying to keep it together for 40 years. And of course, I have every optimism that the next 40 years will be more of the same and probably more improvements and so forth.

But today, we're obviously quite a complicated company, which we'll talk to you further about, and we've grown our various services and solutions. And it's amazing. I was just last week, for instance, in Denver seeing our expansion there, which we've been there for 30 -- over 35 years in Denver or longer. It started out with a simple office. And now we're building a campus there for our call center. We're consolidating 3 buildings, and we'll have our campus of 40 acres, with room for 2,200 people that are already there. And we'll be able to go up to 5,000 people in Denver alone.

So it's fulfilling wherever I go to see how this company has just flourished and grown, and it's based upon some very simple principles of great service. And so thank you for being a part of that.

I think as a company, we are probably as well positioned as any in the financial services business that I could point to, frankly, having come through an unbelievable test, the '08 and '09 period of time. That was really a defining moment for America in many respects, and we're seeing the consequences today and some of the issues that have been developed, the Dodd-Frank being one of the things that we have to live with now as a new regulation. But nonetheless, we are able to move our way through it and provide still the same level of service, even improved service, same level. The prices even come down even more so this year, thanks to Walt and our great team who figured out ways to cut our costs and make sure that we deliver great service and great value to our clients. So this is our 26th meeting as a public company, and thank you for that.

And so maybe I'll move right into the agenda for today. It's pretty much similar to the last one and pretty much similar to the last 26-years worth, so I should probably do it by wrote.

Carrie Dwyer, our General Counsel, will come up and perform and exercise the formal part of our meeting and also give you the numbers on the proxy outcomes and votes there. Following Carrie, Joe Martinetto, our CFO, right over here, will come up and update you on the great results for last year and give you some clues as to how we're doing in '13 -- 2013. And then Walt will come up and give you a CEO report about some of the activities. And following his report to you, I'll join him for always a very interesting Q&A period. So think about a question, try to make it on the business if you can. That would be -- no social issues, I don't want to talk about that. Keep it on the business.

So before I move ahead on that, I'd like to introduce some of our board members. First, I'll point out, maybe you could stand as I call your name. The first 3 will be the people who were on the ballot that you voted for and it's appropriate you meet them, including myself. So Steve Ellis -- Steve? -- Arun Sarin and Paula Sneed are the people you voted for and for a good reason. They're fantastic people and I thank you for voting for them, and even for myself.

Others on the board, I'll start to do it alphabetically: Nancy Bechtle, Walt Bettinger -- of course, you'll see more of him later -- Preston Butcher -- thank you, Preston, Mark Goldfarb. Mark is relatively new. He moved up from our ETF Board and is an expert in the accounting and financial regulations, but mostly accounting. I won't say regulations, but he's CPA and has a very successful CPA firm in the Midwest. Steve McLin, he's been with us a long time, you know Steve. Roger Walther -- where's Roger? Bob Wilson -- thank you, Bob. He's our -- the man is expert in pharmaceuticals. He was with J&J for, I don't know, 30 years or something, 40 years -- 42 years, I stand corrected.

Anyway, these people here have come out here from all over the country to help Walt, I and the rest of the management team guide the company in so many important ways. But the thing that's most important to me is their wisdom that they share with us about their perspective on financial life in America. And Frank Herringer, he's waving. He wants to be recognized. I went right? And Frank is our lead director, and he's going to really get me for this one. Generally, it's on the golf course. He will probably ask for a couple of extra strokes, and I will be very happy to give him 2 extra strokes the next time we have competition. But anyway thank you, our board, for your insights.

Second I'd like to introduce or have all of our executive management team stand up. These are the people who guide the company every day all the time. If you'd all stand up, thank you so much. How about a round of applause for them. Anyhow, Frank, you just threw me off. How about a round of applause for our board, too.

These aboard meetings are getting more and more casual as they get smaller in size and people are on the webcast. Before long, it will be a regular board meeting, so you're all welcome to attend that.

So Carrie, before you come up here, I just want to say, thank you to our clients, anyone who's here or listening. They're so important to us and have been loyal to us for so many years. And of course, our long-term shareholders who many have been, like myself, 40-year shareholders. We believe in the company. We believe in what we do. And thank you for some new shareholders, some that actually increased the price here recently. That's very noticeable to me. So thank you for joining our list of shareholders.

So Carrie, why don't you come up and conduct the business meeting?

Carrie E. Dwyer

Thank you, Chuck. Those of you who've been here before will recognize the business portion of the meeting. It doesn't change. Like many things about Schwab, it stays the same year-to-year. So we will move forward as straightforwardly as we can. And thank you to those that are on the webcast. We'll give you some extra instructions so that you can vote as well.

To begin our first item of business, I'd like to introduce our inspector of election and our independent auditors. The Board of Directors appointed the inspector of election to conduct the voting for this meeting. This year, our inspector of election is Wells Fargo Bank, N.A. The representative of Wells Fargo, Deborah O'Donnell, is here with us today. Ms. O'Donnell has a filed an oath of inspector with me. And she has also informed me that based on a preliminary count, we have a quorum for this meeting because more than 93% of the company's approximately 1.3 billion shares that are entitled to vote are represented at this meeting.

Our independent auditors are Deloitte & Touche, LLP, and Mr. Mark Berres of Deloitte & Touche is here at the meeting and will be happy to respond to your questions during the question-and-answer period.

The polls are now open for voting on the proposals. If you are stockholder as of March 18 of this year and you have not returned your proxy card, voted by telephone or voted by Internet or if you would like to change the instructions, you may vote at this time. For stockholders in the room, please raise your hand and one of our representatives will give you a ballot. For those of you attending our virtual meeting, you may select the Vote Your Proxy link on the webcast console to cast your ballot.

Now I'd like to present the 4 proposals we're asking the stockholders to vote on this year. The first proposal is to elect 4 directors. As Chuck said, this year, Stephen A. Ellis, Arun Sarin, Charles R. Schwab and Paula A. Sneed, have been nominated for reelection to -- or election to the Board of Directors. The second proposal is to ratify the selection of the company's independent auditors. The third proposal is for advisory approval of named executive officer compensation. The fourth proposal is to approve the 2013 Stock Incentive Plan.

The Board of Directors has recommended that you vote in favor of each of these 4 proposals, and they are described in the company's 2013 proxy statement, which if you'd like review that, there are copies at the registration desk in the front.

We've also been notified that 2 stockholders intend to present proposals for your consideration at this year's meeting. First, a representative from the New York City Pension Funds will present a stockholder proposal on political contributions.

Ms. Young [ph], will you please step forward to the microphone.

Unknown Attendee

My name is Margaret Young [ph]. On behalf of the New York City Comptroller, John Liu, and the trustees of New York City Pension Funds, I present this resolution calling on our company to disclose its policies and procedures providing detailed information on the use of corporate resources to make both direct and indirect political contributions and expenditures. Without detailed disclosure and a system of accountability, company assets can be used for policy objectives that may pose risks to the long-term interests of the company and its shareholders. The 2010 Supreme Court ruling in Citizens United overruled 2 legislative precedents that restricted corporate political spending. The result has been an unleashing of money for influence in the recent election cycle and the rise of super PACs and to support or oppose legislations, such as the Health Care Affordability Act.

This ability to disproportionately influence elections and issues corrodes democracy. The lack of transparency also poses financial and reputational risks to this company. Target, for instance, faced a backlash of protests and boycott after it donated to politician opposed to same-sex marriage. This now makes disclosure even more imperative, and agencies are pushing for such transparency. The FCC ruled in 2012 that television broadcasters are now required to post advertising expenditures on the SEC's website. Groups, including law professors, are urging the SEC to address this issue, and the SEC recently announced that it is considering rule-making on the disclosure of political contributions. According to Commissioner Aguilar, it is one of the SEC's core functions to identify gaps in information that investors require and then close that gap as quickly as possible.

These recent and future developments are compelling reasons why our company and its best interest and that of its shareholders should be proactive and establish the proposed good governance practice before legislation mandating full disclosure of political contributions is enacted. More than 100 companies have already agreed to do so.

Charles Schwab's disclosure fall short of best practices. It does not disclose any policies or procedures for its corporate political activities, including its activities with regard to trade associations or board oversight. We urge you to support our proposal. Thank you.

Carrie E. Dwyer

Thank you. Next, a representative from Norges Bank will present a proposal regarding proxy access. Ms. Kim?

Unknown Attendee

Thank you. My name is Allysa Kim [ph], and I am here today on behalf of Norges Bank for the purpose of introducing for consideration ballot item #6, the second shareholder proposal, which asks the company to amend the bylaws to require the inclusion of shareholder-nominated candidates for the Board of Directors in the company's annual proxy statement provided to shareholders. Norges Bank believes that the shareholders right to nominate candidates to the Board of Directors of publicly listed companies is a fundamental principle of good corporate governance. The current rules only allow for shareholder nominations pursuant to burdensome provisions in the company's bylaws designed to discourage such nominations or in the course of extremely costly and cumbersome proxy fights, where shareholders must submit alternative agendas at annual general meetings and distribute proxy materials to other shareholders.

Norges Bank's proxy access proposal asks the company to simplify this process by allowing shareholders owning at least 1% of the company's shares for a period of at least 1 year to have their nominees included directly on the company's meeting agenda and proxy statement. The requested stock ownership requirements are intended to help prevent inappropriate use of the nomination process.

At the same time, individual shareholders could only nominate up to 25% of the number of directors standing for election at a shareholder meeting and no more than 25% of the elected board can have been nominated by shareholders. Proxy access is an effective means to increase board accountability. Approving this proposal will let the board know that poor performance and bad corporate governance practices could have an effect on their reelection. Proxy access is in the interest of both the company and all of its shareholders. We, therefore, urge shareholders to vote for this proposal. Thank you.

Carrie E. Dwyer

Thank you. The Board of Directors has recommended that you vote against the stockholder proposals regarding political contributions and proxy access. Statements against these proposals are contained, again, in our 2013 proxy statement.

So if you have not -- if you have completed the ballot, you can hand that now to the Schwab representative. If you are participating in the virtual annual meeting, please press the Vote Your Proxy link to cast your ballot electronically through the Internet at this time. If you have completed ballot during the meeting, your vote will be counted at the end of the meeting and reflected in the final report of the inspector of election in the minutes of the annual meeting.

The polls are now closed. The inspector of election has completed a preliminary count of the proxies that were voted in the weeks leading up to this meeting. And the preliminary count shows that more than 95% or more of the shares voting on the proposal and present at the meeting by proxy has have been voted in favor of each of Steve Ellis, Arun Sarin, Charles Schwab and Paula Sneed. So they have been reelected to the Board of Directors.

More than 90% of the shares voting on the proposal and present at the meeting by proxy have been voted in favor of the ratification of the company's independent auditors, and so that proposal has been approved.

More than 91% of the shares voting on the proposal and present at the meeting by proxy have been voted in favor of the advisory approval of named executive officer compensation, and that proposal has been approved.

More than 94% of the shares voting on the proposal and present of the meeting by proxy have been voted in favor of the approval of the 2013 Stock Incentive Plan, and that plan has been approved.

Less than 21% of the shares voting on the proposal and present at the meeting by proxy have been voted in favor of approval of the stockholder proposal regarding political contribution, so that proposal has been defeated.

And finally, less than 32% of the shares voting on the proposal and present at the meeting by proxy have been voted in favor of the stockholder proposal regarding proxy access, and that proposal has been defeated.

So this adjourns the business portion of the meeting, and thank you very much for your attention. I'll now turn the meeting over to our Chief Financial Officer, Joe Martinetto. Thank you.

Joseph R. Martinetto

Great. Thank you, Carrie. I get to speak to a lot of our stockholders over the course of the year, but I always look forward to this meeting as well because we pick up a lot of folks that, in the course of our travels, I don't get to see. So it gives me an opportunity to say thank you for your continued support of the company.

Before I jump into the presentation, we've got a disclosure page on forward-looking statements. But quite simply, what this says is we're going to talk a little bit about how we see the future unfolding. To the extent that we make those statements, we'll try to set them off with phrases like may and will and should, so that you know. To the extent that the outlook changes some, we'll adopt our public disclosures, so we would ask over time that you stay in touch with our disclosures so that you can stay up-to-date with our best thinking around how we're seeing changes regarding some of the statements we'll make today.

I always think as a good discipline to start here by rehashing a little bit of what did we tell you we expected to do in the prior year and then how did we actually deliver. So at the last meeting, we laid out a couple of scenarios, talking about certain economic environment, what we would expect to be able to deliver in terms of financial performance.

The scenario up at the top of the page refers to what we usually talk about as our baseline. We plan for a reasonably modest amount of a market appreciation over the course of the year. 6.5% in the S&P is how we benchmark that. Over the last year, we thought interest rates will likely not change, so our statement here around Fed funds staying between 0 and 25 basis points was representative of that. But we were really talking about the entire term structure of interest rates so both long-term rates and short-term rates being relatively flat over the course of the year.

And then finally, we thought trades could grow pretty dramatically last year. If you remember back in 2011, we'd had some volatility in the market. People had pulled away. And then we also had the full year impact of the acquisition of optionsXpress in the numbers, so we thought we could see trades up as much of 20%. In that environment, we thought we could produce revenues approaching 8% up. We spent expenses up about 6% so, again, incorporating the impacts of optionsXpress in there; a pretax profit margin of about 30%. So that was our expectations in our baseline scenario.

We also ran a second scenario where the only thing -- the only difference between the top and bottom was an increase in interest rates so, again, letting people know that we have been hurt by this ultra-low rate environment. And as rate starts to move back up, we would expect our revenues and our earnings to both increase pretty dramatically.

So what did we see? We got better market appreciation than we thought we were going to get, so that was certainly helpful. But on interest rates, we didn't get a flat interest rate curve. The short end of it didn't move short rates. But at the long end of the curve, so the 10-year treasury, for example, dropped almost 100 basis points. And we definitely felt some pain in our net interest income related to that. We also didn't get the 20% lift in trades as we had contemplated. And in fact, trades were down 7% year-over-year as opposed to up 20%.

So the combination of the pressure that we felt from lower interest rates and lower trade counts meant that we didn't achieve the 8% increase in revenues but instead saw a 4% lift. In the context of the environment, that was a pretty good number. And when you look at the competitors as well, that was a very solid result.

The management team took action to trim some of our spending expectations and managed our growth in expenses down to 4%. So with a little bit less revenue, a little bit less spending, we still managed to hang on to that 30% pretax profit margin.

We were rewarded for those results by about a 30% increase in the year on our shareholder return. And as of the close today, we were up an incremental 30% year-to-date. So the results that we've been able to produce are finally starting to get recognized in the stock price here again of late.

Now starting to look forward to 2013, running similar scenarios, same 6.5% market appreciation, same flat interest rates. Trades, again, we were a little bit optimistic. I think, when we started to put our scenarios together, we were coming out of what was a contested presidential election cycle. We would normally see some pretty good lift in trade activity coming out of that kind of a year though. We thought we could see DARTs up 15% to 20%.

In that environment, revenues could have been up 10%. We would have thought that we would spend about 8%, and we would see EPS in the mid-70s. Admittedly, we were probably a little bit optimistic on trades, and we would expect that growth in revenues to be down 1% or 2% from that 10% number. We've got flexibility due to managed expenses. So for now, we would expect to still be able to make the trade-offs and hit the commitments on the EPS that we talked about on the page.

And we remain sensitive to rising interest rates. On that day, when the Fed stops pushing down those interest rates and they start to float up to levels that are more consistent with what we've seen in the long run, we will definitely see an increase in the revenues and the earnings picture for the company.

As we started the year in the first quarter, we are continuing to win in the marketplace. Year-to-date, as of the end of April, we brought in over $43 billion of net new assets. You can see what our other public reporting competitors have been able to put up combined. We continue to win in the market with our clients and take share in terms of their assets that we are at the firm today are trusting the most with, with the asset growth.

Looking at some of the other dimensions of how that growth turns into revenue growth. To the extent that rates have been at least relatively stable albeit low, there's not incremental pressure from lower rates of that we're having to absorb. So to the extent that we're seeing growth in client assets and have at least growth in client cash balances, we would expect more of that to translate into growth in net interest income. So that's a positive.

We're also having really good success continuing to sell advised offers that generate ongoing fees, and that leads to increases in the asset management line. So that's also helped by increases in market valuation. So the combination of better sales to the client base, as well as the lift in the market valuation helps asset management fees look pretty solid on the year. Trades, as I said, probably aren't going to be up 15% to 20% based on what we've seen so far over the course of the year. But we do expect them to be up modestly from the prior year.

With that as a background, we have taken some steps to continue to manage the expense base. First, we've said that we're going to operate the company basically at a flat headcount versus where we were in the first quarter. So along with that, we would expect compensation expense to fall pretty dramatically in Q2 versus Q1. There are some impacts of timing, so things like payroll tax tends to hit us most in Q1 and drops off over the course of the year.

We also had a couple of one-timers in the first quarter numbers that won't repeat related to things like accruals for benefits and then also some changes in retirement provisions. So Q2, we would expect to actually be down about $50 million in compensation expense versus Q1, and we think we'll stay relatively constant there over the course of the remainder of the year.

As we look at other places where we've got levers that we can pull on spending, our development budgets, our project budgets, what we call internally projects, will be up still year-over-year but maybe up a little bit less than we had anticipated in our original baseline. Marketing is the same story. We're still looking to increase our investment but just increase it at a slightly slower pace than what we had thought originally.

So as you pull together maybe a little softer revenue environment with a little bit tighter control on expenses, we still expect to be able to hit that mid-70s EPS number that we had talked about in that preliminary scenario.

So we're honoring the commitment that we've made to be able to achieve the financial results not just to our stockholders, but also to our employees. We've had a number of years here where we've been paying bonuses that have been substantially below the target compensation levels as we have come out of the financial crisis. And we're making a meaningful contribution to lift that number back up closer to where we would expect to be in the long run this year.

So in summary, we're making the trade-offs, I think, you'd expect us to make. We're continuing to balance those short-term investments versus the long-term growth and the need to produce results in the near term. We're confident were going to be able to continue to make those trade-offs while still driving that long-term growth based on the investments that we've made in the years coming to this one, as well as the investments we continue to make this year.

With that, I'll turn it over to our CEO, Walt Bettinger, for his report.

Walter W. Bettinger

Good afternoon, everyone. Thank you for joining us and being here today live in San Francisco. For those of you on the web, thank you for your engagement with our annual meeting. It's a real honor for me to be here with all of you, 40-years celebration of this wonderful company. I think this is the fifth time I've had the honor of meeting with all of you as CEO and the seventh time I've had the opportunity to share with all of you. So thank you very much again for being with us today.

Before I get into the formal slides that I'd like to share with you, I actually want to roll the clock back 4 years ago because it's only by having a discussion of the environment that we found ourselves in 4 years ago that it -- we can provide the context for the results that you'll see in the presentation I have today.

So 4 years ago, we were at the height of the financial crisis, a very -- a time of great uncertainty, a time in which many of the firms in financial services were under significant duress. And at that time, your leadership team, with the support of Chuck as our Chairman and our Board of Directors, made what I would consider to be a fairly bold decision. We made the decision that, at that point where many of our competitors were at their weakest point, that we would go ahead and invest aggressively in our business, that we would invest aggressively in our clients, in our capabilities, in our technology and in our pricing, with the view that from a long-term strategic standpoint and in the development of long-term shareholder value, this was the opportunity to separate Charles Schwab from so many other firms that we compete with. And I think that you'll see as we go through our presentation today that, that strategy formed 4 years ago and executed on over the last 4 years is certainly paying off.

Now in no way does that mean that the environment that we're in is necessarily better than it was 4 years ago from a Schwab standpoint. As Joe has indicated, the ultra low interest rates, the experiment by the Federal Reserve with 0 rates on the short end and aggressive quantitative easing has a meaningful impact on our revenue and our earnings. In the near term, we'll share that with you. But I think when you look at the long-term opportunities for our company, they're very, very exciting.

Any discussion of Charles Schwab company has to begin with clients. In fact, every meeting that we have at Charles Schwab begins with a discussion of clients. What will this decision mean for clients? Is this going to be better for clients or worse? And at this point in time, after 40 years, there's very few meetings that begin with anything that might actually be worse for clients. We put clients first, it's the hallmark of this company and the hallmark of our success.

You can see on this slide, which does a recap of 2012, some of the implications of operating the business in a way we do through clients' eyes. In the middle of the page, our net new assets, $112 billion, $112 billion in a single year, net new money brought to our firm. That's 37% higher than the year before. And, of course, we ended the year 2012 just below $2 trillion in client assets. And today, we're well over it.

But maybe most importantly is the distance that we are generating from our competitors, and that's reflected in the box you can see on the bottom of the slide. From the end of 2009 through the end of 2012, we were able to successfully grow, through building trust with our clients, $530 billion in additional client assets. Our 4 largest publicly traded competitors added together: Merrill Lynch, Morgan Stanley, TD Ameritrade and E*TRADE collectively grew client assets $320 billion.

As Joe referenced, 2012 was a challenging year in terms of generating revenue growth, principally because of the decline in the 10-year treasury rate of almost 1%. At the same time, we still expanded our margins and grew our income faster than our revenue, and maybe most importantly, for our long-term shareholders, expanded our earnings power. As you can see in the bottom bullet, we generated $0.15 of earnings in the fourth quarter. In a more normalized environment, just a 2% Fed rate, that $0.15 would have been $0.43. So we continue to build the earnings power of the company to be unveiled as we would experience a more normalized interest rate environment.

We have stayed very consistent as we've executed on this strategy over the last 4 years with the client at the center, our 5 operating priorities remaining intact, diversified client acquisition, win-win monetization, long-term client retention, expense discipline and effective capital management. And as we have now begun to realize significant benefits from this investment since 2009, as Joe indicated, we're in a position to begin to scale back some of those investments and begin to deliver a higher level of return to our shareholders in the near term.

Let's just take a look at some of the metrics underneath these results that we shared with you. First, you'll see on the left side of the slide the progress in our Client Promoter Score. Client Promoter Score may be the single most important metric that we study at Charles Schwab, and it's driven off a very simple, single question that we ask our clients. We asked them, on a 1 to 10 scale, how likely would you be to refer Schwab to your friends and family? If they score us a 9 or 10, they're considered a promoter. If they score us a 7 or 8, we consider them passive. If they are a 0 to 6, well, then they're what we call a detractor. We add up all the detractors and we subtract them from the sum of the promoters, and that gives us a net score. You can see the progress that we've made on the retail side of our business since 2004 from a negative 34 score to now a score of 46, a rather extraordinary turnaround. The founder of this metric has indicated Charles Schwab as being one of the greatest turnaround stories in the history of American business from 2004 to today. And, of course, it manifests itself, this building trust with our clients, in great results. You can see our net new asset numbers, accumulative figure of the last 2 quarters, $91 billion, the best 6-month period in the history of our firm over the 40 years that we've been in existence.

At the same time, our clients continue to turn to us, looking for more and more assistance with the investment decisions that they make. Client cash is at historic levels, around 13%. However, client interest in having Schwab assist them with the management of their money is at an all-time high, actually up 74% in terms of new enrollments year-over-year. So we continue to be in a position to help more and more clients make wise, long-term decisions with respect to their portfolios.

How does it -- how does all this manifest itself on a relative basis versus firms that we compete with? This particular chart shows the growth in assets over the last 12-month period at Charles Schwab versus 4 competing firms, as well as growth in revenue. I know it sounds simplistic, but seeing the world through your clients' eyes and striving to operate under the golden rule works. It may be an old-fashioned approach, but it's been dogged on successful for 40 years and one that you can count on us continuing for many, many more.

Within our operating priorities, I'd just make a comment or 2 about a couple of some of the most important areas that we focused on. First one here, our ETF OneSource program. ETFs are a wonderful investment for so many individuals. The challenge historically in investing in ETFs is that people were dinged with a commission every time they went to make a purchase. And if you were a modest investor trying to dollar-cost average into your investments, the commissions would eat up such a large part of the money that you would put away. So the first thing that we did from an innovative standpoint at Schwab is we introduced our own exchange-traded funds and made them available to clients with 0 commission. But we decided we wanted to take it even a step even further, not just limit them to the 15 or 20 exchange-traded funds that we could manage but open up to a much broader population, over 100 ETFs. So earlier this year, we made available ETF OneSource, an innovative program that offers over 100 exchange-traded funds to any investor that they can buy and invest in with 0 commission.

On the monetization side, we've made several acquisitions in recent years that have been helpful in assisting our clients in managing their money. ThomasPartners, more recently; Windward, which we rebranded Windhaven, about 2.5 years ago. And to give an illustration of the success in that acquisition, we acquired Windward at about $4 billion in assets under management 2.5 years ago. And today, we are at approximately $17 billion, only 2.5 years later.

From a capability standpoint, we've made significant investments in a number of areas, one of which, of course, is mobile. And the impact of mobile and the trajectory that mobile technology has within our clients does yield some amazing results. One just off the top of my head, we now deposit almost 70% of all client checks that come into Charles Schwab bank via a smartphone. And we've only had that type of capability for a couple of years. Our clients want efficiency, they want access, they want multichannel capabilities, and that's what Schwab delivers for them.

So as I begin to wrap up my remarks, just a couple of observations I'd like to make. The strategy that we outlined at the beginning of 2009 is clearly working. We are taking share. We are widening the gap. We are clearly a rapidly growing and successful financial services firm.

The second is if these investments have paid off, we'll now be in a position to begin to moderate some of our near-term expense growth and it widen our margins. And then last in the box here and I spoke of this last year, the coiled spring, in other words the earnings power of our company in a more normalized interest rate environment, continues to build. That spring gets bigger and bigger every year, and frankly, it becomes -- with greater and greater tension as we grow the franchise. This is a chart very similar to one I've shared with you 12 months ago, in which I illustrate the revenue potential of our firm in a more normalized world. And what this chart will show is what we project the future revenue could be, annualized by the fourth quarter of 2017, if the environment does not change, somewhere around 11% compounded annual. At the same time, if interest rates begin to normalize in 2016, then we could see annualized revenue by the fourth quarter of '17 of up to $12 billion, a 20% compounded growth rate. And, of course, at the same time, if in by fourth quarter of 2017, if when interest rates go up, our new assets also increase to around 9% of our base, that number could be $12.6 billion, a compounded growth rate of 21%. The numbers are less important than the tremendous earnings power and revenue power that is being built up in our company as we grow our assets by hundreds of billions of dollars year-over-year and position ourselves to deliver great results as the environment improves.

So just to wrap up. I guess, 3 points I'd like to make with you before we move to our question-and-answer segment. The first one, we are widening our lead over our competitors. This is not an even [indiscernible]. They're taking a step, and we're taking 2 or 3. That lead is widening between us and those we compete with. The second point is that we are poised to deliver higher earnings to our shareholders in the near term, no matter what happens with interest rates. And then the third point is, for many of you who are investors in our company, for the long term, that tremendous upside that exists as the environment might begin to normalize is still there and building and growing on a daily basis.

So with that, let me outline just a couple of procedures, as we will begin our transition into the Q&A segment. We have microphones set up on either side of the room. Those of you who might have a question, please approach the microphone. I would ask that, out of respect for the shareholders that in the room as well as those on the web, please confine your questions to no more than 2 minutes. And as Chuck indicated, it would be wonderful if the questions would be about our business and the challenges and opportunities that are present today and in the future. When you get to the mic, if you could state your name, the city or state of residence and whether you're a shareholder or a proxy for one of our shareholders, that would be helpful for all the rest of the attendees. So please approach a mic, 2-minute maximum please on the question. And, Chuck, I'd encourage you to join me on stage.

Question-and-Answer Session

Charles Robert Schwab

That was great, Walt, thank you. I feel very comfortable as a shareholder, let me tell you, this guy running the company.

Unknown Shareholder

My name is Arthur Samuelson. I live in San Francisco, California, and I'm a proxy holder for my IRA account, which is held at Charles Schwab. I was wondering whether you might consider a difference in the way you handle the voting that takes place at this annual meeting for the people who are present. I was at a PG&E Corporation shareholders meeting earlier this month, and the way they handled it is they handed out the ballots, people filled out the ballots and then dropped them in a ballot box when they left. This gave shareholders a chance to comment on the shareholder proposals. The way it seems to be here is that the voting is already closed and individual shareholders don't have anything to say about the shareholder proposals or to ask you additional questions as to why you might be opposed to them other than what is in the printed material. So it just doesn't give us any time to really digest and to listen to comments from other shareholders. So I wonder whether you might consider just having a ballot box and we drop our ballots in after Q&A on our way out.

Charles Robert Schwab

I think it's an interesting idea. I -- maybe, a compromise might be something that we have a longer Q&A period that Carrie or myself could conduct. So there's commentary within the room. And then if there's -- the problem you propose is that it goes to the box and we have to count it, nobody ever want to leaves the room not knowing the results of that vote. So maybe there's some way in there that we could have conversation, discussion and your points of view on subject matters that we proposed, so there'd be an open forum for doing that, that makes a lot of sense to me. But -- so we'll certainly consider your thoughts, thank you. So we have a long line of questions, I can see over here. Someone must have an important question. Have we done that good of a job, Walt, that there's simply no questions or suggestions? How about some new services?

Walter W. Bettinger

Do we have any questions from the web attendees? Oh, we have a question. Yes, sir?

Charles Robert Schwab

Here comes a gentleman right now.

Unknown Shareholder

My name is James Won [ph]. I reside here in San Francisco. I've been a shareholder since 2000, but a client since 1995. I have a question. If I have any issues, do I call this number here?

Walter W. Bettinger

The best number to call if you have any questions would be 1 (800) 435-4000, and we'll have people available to assist you 24/7, 365. We also have a number of branches here locally, and I believe we have some professionals in the back of the room that could assist you personally if you have any direct question for them.

Unknown Shareholder

Okay. How about, for example, regarding issues, less than stellar service at a branch, for example, we call that toll-free number?

Walter W. Bettinger

You can call that or speak with one of the professionals in the back, and they'll make sure that your issues are definitely addressed.

Charles Robert Schwab

Thank you. Here comes [indiscernible].

Unknown Shareholder

My name is Iris Burman [ph], and I live in San Francisco. I've been a very happy shareholder of Schwab since I moved here 20 years ago. But you're doing so well; what about a dividend? Are you have any plans to increase it?

Charles Robert Schwab

Well, the board certainly has that under consideration continuously. I think it's -- we presently pay about 30% or so of our earnings, and that's sort of been a pattern of ours. And I think as our earnings do improve from where they have been in the last few years, I think I would be -- I'd encourage them to consider a dividend increase. But I think we need to see ourselves come through this time period, which we're doing rapidly, as Walt underlined. And I'm optimistic that may be something in the next year or so will be considered by the board.

Walter W. Bettinger

Thank you, Iris.

Charles Robert Schwab

I thought we're going to get some really tough ones. But so many asked me, do I get an annual examination every year. I saw one was -- and I -- the answer is, yes, I do. In fact, sometimes, twice a year. You get to my age, you got to make sure things are ticking okay.

Walter W. Bettinger

Good afternoon, sir.

Unknown Shareholder

My name is Al Lewis [ph]. I'm a member of the Schwab family of investors. And today, I brought my daughter, who is the mother of 2 beautiful grandchildren. And they are approaching the age of college. And what I'd like to know from Mr. Bettinger and Mr. Schwab is, have you designed any new college funds or investments for people like myself or family members to take their children to the next higher level in college?

Walter W. Bettinger

Thank you. That's a wonderful question. The beauty of Schwab and the success over the last 40 years is, in many ways, attributable to individuals like yourself with loyalty, not only to the company, but also sharing the company with their children and grandchildren. So thank you so much for that. We've tried to do a number of things, whether it be trust accounts that we offer or capabilities for beginning investment programs for minors, savings plans under Code Section 529 that help people save for retirement. At the same time, we've also tried to do a number of things through our bank. So, for example, we offer a checking account program that you could establish for your grandchildren. I actually established them for my 3 older children myself that have no minimum balance, no fees, pay interest from dollar 1. Albeit it's not a lot of interest right now, but they do pay interest from dollar 1 with the no fees, no minimum balance and anywhere that they withdraw money from an ATM in the world, we rebate the fees. I happen to think that's the best checking account program available anywhere. But it's a great program, I think, for offering your grandchildren and getting them underway exposure to Schwab. It's all integrated on our website. I think they'd be excited to have that. And from there, we'll hope that they grow into long-time loyal Schwab clients, just like you.

Charles Robert Schwab

I have one suggestion for you right now, Al, being a grandfather also. You can -- as a individual, grandparent or otherwise, you can pay directly to the school your grandchild is going to school a portion of their tuition and not count it as a gift to them. And so you can avoid a gift tax, which is certainly very large these days, but by directly paying $5,000 or $10,000 directly to the school that would account to your child's -- or your grandchild's tuition. And I found that since I have 12 grandkids, I have a huge claim on my -- so it's a wonderful thing to look at.

Walter W. Bettinger

Yes, sir?

Unknown Attendee

I'm Kaoru Nagata [ph] from Union City, California. What are your thoughts on growth through acquisition? Or is that a little bit more risky for the company?

Walter W. Bettinger

I think what we look at when we think about acquisitions, we go down a checklist of criteria. The first thing we look at is we ask ourselves whether it's client-driven. In other words, is the acquisition that we're considering going to add services and capabilities for our clients, and therefore, is it the best thing for us to do through their eyes. And then once we do that, we try to evaluate, assuming it passes that screen, we try to evaluate is are we better able to offer these capabilities to buy or build. And, of course, if it is buy and it passes through that screen, then we'll look at the economics of the transaction and make a determination as to whether we think shareholders would be appropriately returned in the long term for making the decision on that acquisition. We've had some very successful acquisitions over the years. We've had some that didn't pan out as well, some of which we divested because they didn't pan out as well. But I think we have a fairly strong track record at making quality acquisition decisions. We'll continue to use those criteria as we evaluate various opportunities that come before us.

Charles Robert Schwab

You may want to talk about -- you did talk about Windhaven, about ThomasPartners, the acquisition that we made a year ago and now we're prepared to offer that service.

Walter W. Bettinger

That's right, that's right. We did a transaction a number of months ago with a firm called ThomasPartners. That is a professional in the management of dividend-oriented stocks. And they have a extraordinary track record, exceeding performance of the Standard & Poor's 500 for long time frames, and at the same time, generating significant current income. So that's a perfect example of the type of acquisition that we do consider. Clients are looking for higher levels of income. They're interested in dividend stocks, ThomasPartners has an outstanding track record and a capable management team, and we'll be able to offer that to our clients here by the end of this month.

Charles Robert Schwab

I just want to comment about acquisitions to just broaden the company. We'd never really have done that as such go off to different parts of businesses in that maybe unrelated to this business. We're so passionate about our business at what we have here in serving individual investors across the country. In some respects, we -- there's 300 million people in America and we only sort of touch 10 million of them. So we think we have a huge upside yet to increase our client base by just focusing our abilities on the next 10 million, and not necessarily on the problems or whatever some other company might offer to us in terms of opportunity. We'd like to focus in on what is our best capabilities.

Walter W. Bettinger

The next 10 million. I think I just got my goals from Chuck.

Charles Robert Schwab

Well, I think, we're probably at the end of the period here. We squeezed every question out, I'm sure. Thank you all for coming, and see you next year.

Walter W. Bettinger

Thank you.

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