Charles Schwab Q3 2026 Earnings: Record Asset Flows and Lending Drive Margin Expansion

Charles Schwab reported record third-quarter revenue of $7.2B, up 17% year over year, and GAAP diluted EPS of $1.62, up 29%. Adjusted EPS reached $1.69 as strong asset gathering, lending growth, asset-management fees, and trading activity more than offset higher operating costs.

The central investment development was not simply the earnings beat: Schwab’s $190.4B of core net new assets, expanding secured-lending activity, and 350-basis-point increase in adjusted pre-tax margin point to stronger client engagement across the platform. The key question is whether that momentum can continue as the company manages rapid growth in tax-efficient long/short strategies and relies more heavily on wholesale funding to support loan growth.

Earnings Snapshot

The Bigger Story

Schwab’s quarter showed that its earnings model is benefiting from deeper use of its platform, rather than solely from equity-market appreciation. Core net new assets rose 38% year over year to a record $190.4B, while lending, managed investing, trading, and advisory-related activity all increased.

The mix also improved. Bank loan balances rose 35% to $72.3B, driven primarily by Pledged Asset Line borrowing, while margin balances reached $187.9B. Loans have now surpassed Schwab’s securities portfolio as a source of interest-earning asset growth, according to management, which supports net interest margin because secured lending produces more attractive spreads than the legacy securities portfolio.

That mix shift carries a trade-off. Loan growth has outpaced deposit growth, leading Schwab to use more wholesale funding. The company has flexibility through its funding programs, but sustained lending growth without corresponding client cash growth could make balance-sheet funding and deposit behavior more important to the earnings outlook.

Revenue and Operating Performance

Net interest revenue increased 14% year over year to $3.5B, supported by higher average interest-earning assets, stronger secured-lending balances, and net interest margin expansion to 3.04%. Average interest-earning assets rose 8% to $451.5B.

Margin loans were a major contributor to client engagement and balance-sheet growth. Total margin balances increased 14% sequentially to $187.9B, including $60.7B tied to long/short strategies used by registered investment advisors. Schwab excludes certain long/short-related margin loans and short credits from its reported interest-earning assets and funding sources because the company earns a fixed net yield on those positions.

Asset management and administration fees rose 14% to $1.9B. Higher equity markets contributed, but so did organic client growth and broader adoption of wealth and asset-management services. Managed investing net flows reached a record $24B, up 22% from a year earlier, while Schwab Wealth Advisory net flows rose 55%.

Trading revenue increased 16% to $1.2B as daily average trades rose 44% to 10.7 million. The growth in trades exceeded revenue growth because revenue per trade fell 20% year over year to $1.69. This indicates that higher client activity, rather than improved transaction economics per trade, drove the trading-revenue increase.

Client acquisition remained healthy. Schwab opened 1.2 million new brokerage accounts, bringing total client accounts to 48.6 million. Total client assets rose 15% to $13.33T, including 17% growth in Advisor Services assets to $5.85T.

Profitability and Margins

GAAP net income rose 23% to $2.9B, while diluted EPS increased 29% to $1.62. The faster EPS growth partly reflected a 4% reduction in diluted weighted-average shares outstanding year over year.

Adjusted EPS was $1.69, excluding $151M of pre-tax acquisition, integration, and acquired-intangible amortization costs. Of that amount, $141M was amortization of acquired intangible assets, an expense that will continue over the remaining useful lives of those assets. The adjusted figure is therefore useful for period comparisons, but it should not be viewed as entirely free of recurring economic cost.

Expenses excluding interest rose 9% to $3.4B, substantially below the 17% revenue increase. Compensation and benefits increased 6%, reflecting higher activity-related and performance-based compensation, while professional services, occupancy, communications, regulatory fees, and other costs also rose.

The result was meaningful operating leverage. GAAP pre-tax margin increased 350 basis points year over year to 52.7%, while adjusted pre-tax margin rose to 54.8%. Management said underlying expenses were modestly better because of efficiency efforts, though it intends to reinvest a portion of those savings into strategic initiatives.

Demand, Customers and Pricing

The strongest demand signals came from asset gathering, advisory activity, lending, and trading. Core net new assets represented a 5.8% annualized growth rate, and management said momentum came from retail investors, RIAs, and workplace-plan businesses.

Advisor Services generated $120.1B of net new assets during the quarter, while Investor Services added $72.3B. The long/short strategy business contributed to advisor growth, although management acknowledged the program expanded faster than anticipated after a competitor had less capacity to support similar activity.

Schwab has since raised minimums and throttled long/short growth to ensure the program remains operationally and financially sustainable. Management said it had not seen a deceleration in Advisor Services net new assets after taking those steps, but the program remains an important variable because of its contribution to margin balances, sweep cash, funding needs, and asset flows.

Client cash behavior remained mixed. Transactional sweep cash ended September at $492.8B, up $7.1B sequentially, helped by organic growth and long/short activity but partly offset by client purchases of securities. Management attributed some of the movement out of cash to improved market sentiment and IPO activity rather than renewed cash sorting.

What is Charles Schwab’s outlook for Q4 2026 and 2027?

Management expects strong client engagement, lending growth, trading activity, revenue growth, and net interest margin expansion to continue through the fourth quarter. It said full-year 2026 revenue growth and net interest margin should finish toward the lower end of the ranges previously discussed, while expenses should come in at the low end of the prior range.

For the fourth quarter, management expects net interest margin to expand by roughly 25 to 30 basis points year over year. It also expects net interest margin to continue expanding in 2027, supported by higher-yielding loan growth and the eventual redeployment or maturity of roughly $190B of securities yielding below 2%.

Management expects about 800 basis points of positive operating leverage for full-year 2026, roughly double its expectation at the beginning of the year. For 2027, it plans to continue investing in growth initiatives while using scale and artificial intelligence to generate productivity gains. A more detailed 2027 financial scenario is expected in January.

Strategically, Schwab is expanding its product offering in crypto, single-stock futures, binary options, and eventually financially focused prediction markets. Management expects to broaden prediction-market capabilities over the next 12 to 18 months, focusing on financial events, corporate key performance indicators, and political events rather than sports wagering.

The company is also developing an extended proprietary long/short offering based on its direct-indexing capabilities. Management did not provide a launch date.

Balance Sheet, Cash Flow and Capital

Schwab ended the quarter with $36.7B of cash and cash equivalents, down from $40.6B in the second quarter. Total assets were $520.7B, up 12% year over year.

Bank deposits were $244.1B, down 2% sequentially, while loan growth continued. Other short-term borrowings were $14.2B, Federal Home Loan Bank borrowings were $2.0B, and long-term debt was $23.8B. The rise in borrowing reflects the company’s use of diversified funding sources to support secured-lending growth.

Capital levels remained within management’s targeted range. Schwab reported a preliminary Tier 1 leverage ratio of 8.9% and an adjusted Tier 1 leverage ratio of 7.0%. The company repurchased 4.7 million shares for $0.5B in the third quarter and said it had repurchased nearly $4B of common stock through the first nine months of 2026, alongside a common-dividend increase and preferred-stock redemption.

Capital returns remain secondary to maintaining capital sufficient to support client activity and business growth. That hierarchy matters as loan balances and wholesale funding continue to rise.

What Investors Should Watch

1. Core Net New Asset Growth

The $190.4B quarterly core net new asset result was exceptional and underpins recurring fee revenue, client cash growth, and cross-selling opportunities. Investors should watch whether retail, advisor, and workplace flows remain broadly based rather than becoming dependent on a small number of product programs or market-sensitive activity.

2. Long/Short Strategy Growth and Capacity Management

Long/short activity has supported Advisor Services flows, margin balances, and sweep-cash growth. Schwab has throttled the program after rapid expansion, making the sustainability of advisor asset gathering without unrestricted long/short growth an important execution test.

3. Net Interest Margin and Funding Mix

Management expects continued net interest margin expansion, aided by loan growth and low-yielding securities rolling off. The offset is that loans are growing faster than deposits, increasing reliance on funding sources beyond bank deposits. Deposit trends, sweep cash, borrowing costs, and loan spreads will determine whether margin expansion remains durable.

4. Wealth-Management Conversion

Managed investing net flows reached $24B, and Schwab Wealth Advisory flows rose 55%. With management estimating that only about 5% of retail households currently use an advice solution, greater conversion into advisory services could deepen relationships and raise fee-based revenue, but execution will need to show up in sustained flow growth.

5. Expense Discipline and AI Productivity

Schwab delivered strong operating leverage while continuing to invest in new capabilities. Management cited approximately 25% higher developer productivity from AI tools and lower core expenses, but it also plans to reinvest savings. Investors should watch whether productivity gains translate into sustained margin improvement rather than simply higher spending.

AlgovestIQ Takeaway

Schwab’s third quarter was stronger than the headline revenue and EPS figures alone suggest. Revenue growth was broad-based across net interest income, asset-management fees, trading, bank-deposit fees, and other revenue. At the same time, expenses grew at roughly half the rate of revenue, producing a substantial increase in pre-tax margin.

The most favorable change is the evolving asset mix. Secured lending has grown rapidly, improving earnings power relative to a balance sheet more heavily weighted toward low-yielding securities. Combined with continued client asset inflows and higher managed-investing adoption, that mix supports management’s view that net interest margin can continue expanding.

However, the pace of lending growth also creates a more complex funding picture. Deposit balances declined sequentially while loans expanded, and Schwab is using more diverse funding sources to meet client demand. The company has adequate capital and liquidity flexibility, but future earnings will be increasingly tied to its ability to fund lending growth efficiently.

The long/short program is another important variable. Management’s decision to throttle growth reflects prudent capacity management, but it also confirms that a portion of recent Advisor Services momentum was connected to a rapidly expanding niche activity. Evidence that advisor flows remain strong as the program is moderated would strengthen the case that Schwab’s asset gathering is driven primarily by its broader custody, service, trading, lending, and advisory platform.

The central investment question is whether Schwab can sustain its current combination of high asset flows, loan growth, margin expansion, and expense discipline through varying market conditions. Continued broad-based net new assets, rising advisory adoption, stable client cash levels, and controlled funding costs would support that thesis. Slower advisor flows, weaker deposits, higher funding costs, or a meaningful pullback in trading and lending activity would be the main signs that the current earnings momentum is becoming less durable.