SCHW — Q3 2026 Financial Report Analysis

Charles Schwab's third-quarter 2026 net revenues rose 17% to a record $7,171 million and net income rose 23% to $2,906 million, while diluted earnings per share (profit per share, counting stock options and similar) climbed 29% to $1.62 from $1.26. Lending did most of the work: Schwab lent far more against clients' portfolios and to its bank customers while paying less on client deposits than a year ago, so net interest revenue grew 14% and the net interest margin widened to 3.04%. Trading also grew strongly against a year ago (daily trades up 44%), but it cooled from the second quarter, and costs grew 9%, about half as fast as revenue.

This report is written from Schwab's October 15, 2026 earnings release (Exhibit 99.1 to its 8-K). The full 10-Q for the quarter isn't filed yet, so segment results, the regulatory CET1 ratio, credit-quality detail (charge-offs and the loan-loss allowance) and the full management discussion aren't available; where a figure below is missing, that's why.

Key figures

Schwab does not publish a bank-style efficiency ratio; the expense line above is total expenses excluding interest divided by total net revenues (the share of each revenue dollar spent running the business — lower is better), the mirror image of its reported pre-tax margin. Return on tangible common equity is annualized adjusted profit relative to shareholders' equity excluding goodwill and acquired intangibles. The release doesn't give a CET1 ratio or a net charge-off figure; those come with the 10-Q.

Lending kept replacing bonds

Net interest revenue rose $426 million to $3,476 million, and was up 4% from the second quarter's $3,357 million. Short-term rates were lower than a year ago, so Schwab's floating-rate assets earned less: cash yielded 3.59% (from 4.26%), segregated client cash 3.62% (from 4.20%) and margin loans 5.70% (from 6.52%). Two things more than offset that:

• The mix moved toward loans. Average margin loans on the balance sheet (receivables from brokerage clients) rose $35.8 billion to $123.1 billion and average bank loans $17.7 billion to $69.5 billion. Over the same year, average available-for-sale and held-to-maturity securities fell a combined $14.3 billion and segregated cash $14.8 billion. Swapping assets yielding 1.7%-4.2% for loans yielding 4.4%-5.7% lifted the yield on interest-earning assets to 3.58% from 3.51%, while average interest-earning assets grew 8% to $451.5 billion.
• Deposits got cheaper, but other funding got bigger. The average rate paid on bank deposits fell to 0.23% from 0.43%, cutting deposit interest to $139 million from $248 million on a larger base ($244.3 billion average versus $229.3 billion). Most of that saving went to more expensive broker-dealer funding: average payables to brokers, dealers and clearing organizations more than doubled to $42.1 billion at 3.50%, costing $376 million versus $188 million. The overall cost of funding was unchanged at 0.86%, so the margin gain came from the asset side.

Bank loans ended September at $72.3 billion, up 35% from a year ago and 8% from June. Pledged asset lines (credit lines secured by a client's portfolio) reached $37.3 billion, up 59%. Margin loan balances reached $187.9 billion, up 14% in the quarter, but $60.7 billion of that relates to long/short strategies used by registered investment advisers, from which Schwab earns a fixed net yield; those balances and the matching short credits are excluded from interest-earning assets, with the income booked in "other interest revenue" ($130 million versus $57 million). So the headline 93% margin growth overstates how much of it feeds the reported margin.

One thing moved the wrong way in the quarter: the deposit rate rose to 0.23% from 0.19% in Q2, and period-end bank deposits fell to $244.1 billion from $249.7 billion in June. The release attributes the movement in client cash to "client asset allocation decisions" partly offsetting organic growth and long/short demand; total transactional sweep cash still grew $7.1 billion in the quarter to $492.8 billion.

Trading and fees

Trading revenue rose 16% to $1,158 million on 10.69 million daily average trades, up 44%. Revenue per trade fell 20% to $1.69 from $2.11, so volume grew far faster than revenue. Against the second quarter, the picture reversed: trades fell 10% from 11.92 million and trading revenue fell 5% from $1,215 million, cushioned by revenue per trade ticking up from $1.64.

Asset management and administration fees rose 14% to $1,913 million, roughly in line with the 15% rise in total client assets to $13.33 trillion. Average fee rates were flat across every category in the release (for example 0.27% on Schwab money market funds and 0.38% on fee-based managed solutions), so this was asset growth, not pricing. Bank deposit account fees — earned on client cash swept to TD Bank under a legacy agreement — rose 40% to $345 million even though those balances fell 13% to $68.0 billion, implying a higher net yield on them. "Other" revenue rose 64% to $279 million but fell from $342 million in Q2; the release doesn't explain the line, so the 10-Q should be checked before reading much into it.

Client growth stayed strong: 1.24 million new brokerage accounts (up 9%), 40.3 million active accounts (up 6%), and Advisor Services — custody for independent advisers — brought in $120.1 billion of the quarter's $192.4 billion total net new assets.

What the headline numbers hide

EPS growth came from operations, with a buyback assist and a tax headwind. Pre-tax income rose 25.0% to $3,777 million. The effective tax rate rose to 23.1% from 21.9%, so net income grew a little slower at 23.2%. Preferred dividends rose to $95 million from $81 million, a small drag. Diluted shares fell 4.3% to 1,733 million from 1,811 million, which added about 5 points, turning 23.5% growth in income available to common shareholders into 28.6% EPS growth. Buybacks slowed sharply: 4.7 million shares for $0.5 billion in Q3, versus $1.0 billion in Q2.

The GAAP-to-adjusted gap is small and recurring. Adjusted EPS of $1.69 excludes $141 million of amortization of acquired intangibles from past acquisitions and $10 million of acquisition and integration costs (mainly compensation; in Q2 these costs related to Forge Global, bought in March), less $36 million of tax effects — $0.07 a share in total. A year ago the gap was $0.05 and there were no integration costs, so adjusted and GAAP EPS both grew 29%.

No one-offs flagged, but one line deserves a look. The release lists no unusual gains or charges in either year. "Other" revenue's 64% jump ($109 million) is unexplained here. Expenses were flat with the second quarter ($3,394 million versus $3,403 million), with compensation down 2% while regulatory fees rose 16%.

Capital is close to Schwab's own floor. The preliminary consolidated Tier 1 leverage ratio was 8.9%; including $10.4 billion of unrealized bond losses (accumulated other comprehensive loss), the adjusted Tier 1 leverage ratio was 7.0%, at the top of the 6.75%-7.00% long-term operating target cited in the Q2 10-Q. That leaves limited room for buybacks to speed up unless earnings or bond-price recoveries rebuild capital faster than lending absorbs it — consistent with the smaller Q3 repurchase.

Cash flow and credit can't be checked from the release. It contains no cash flow statement, allowance or charge-off data. Schwab recorded no bank-loan charge-offs in the first half of 2026, and its margin loans and pledged asset lines are secured by client securities, but loans grew 35% in a year, so the 10-Q's credit disclosures matter.

Takeaway: Schwab is still turning maturing low-yield bonds and segregated cash into higher-yielding margin and bank loans, and that mix shift — not interest rates — is why the margin widened again and EPS rose 29%. The quarter also showed the limits: trading volumes cooled from Q2, deposit costs ticked up, and capital is at the top of its own target range, so buybacks have stopped adding as much to per-share growth.

Did last time's read hold up?

Our Q2 2026 report said the two things to watch were whether margin and bank loan balances kept growing fast enough to replace securities runoff, and whether trading held near 11-12 million trades a day. The first held: period-end bank loans grew $5.3 billion and brokerage-client receivables $5.3 billion while AFS and HTM securities shrank $7.5 billion, and net interest revenue rose 4% in the quarter. The second didn't: daily trades fell to 10.69 million and trading revenue fell 5% from Q2, although that was still 16% above a year ago.

Outlook

The release contains no updated guidance (Schwab held its Fall Business Update for investors the same morning, but that material isn't part of this filing). With its Q2 results, management guided 2026 total expenses excluding interest to rise about 10% to 11%. Through nine months they are up 8.4% ($10,091 million versus $9,306 million), against an 18% rise in net revenues. Reaching 10%-11% for the year would require fourth-quarter expenses of roughly $3.6-3.7 billion, well above Q3's $3.39 billion, so either Q4 spending jumps or the year comes in below the guided range — the latter would help margins.

Our read: the balance-sheet mix shift has further to run while the securities book keeps maturing, and the 10-Q should confirm whether deposit costs rising from 0.19% to 0.23% was a one-quarter blip or the start of paying clients more for cash. The two things to watch in Q4 are trading volumes (a line that is 16% of revenue and the one most exposed to a quieter market) and whether buybacks stay near $0.5 billion a quarter now that adjusted Tier 1 leverage has reached 7.0%.