2026 Fall Business Update - SCHWAB CHARLES CORP

Financial Performance:

• Third-quarter total net revenues reached a record $7.2 billion, a 17% year-over-year increase, driven by strong engagement across lending, trading, and asset management.
• Adjusted earnings per share (EPS) hit a record $1.69, up 29% year-over-year, supported by a 350 basis point expansion in adjusted pre-tax profit margins to 54.8%.
• Net interest income grew 14% to nearly $3.5 billion, fueled by robust demand for secured lending (margin loans up to $187.9 billion; bank loans up 35% to $72.3 billion).
• Asset management and administration fees rose 14% to a record $1.9 billion, driven by market appreciation and organic growth.
• Trading revenue increased 16% to $1.2 billion with daily average trades of 10.7 million; bank deposit fees surged 40% year-over-year.
• Transactional sweep cash balances ended at $492.8 billion, up $7.1 billion quarter-over-quarter, though some cash redeployment occurred into the market due to improved sentiment.
• Capital levels remain strong with an adjusted Tier 1 leverage ratio of 7.0%; almost $4 billion in common shares were repurchased and dividends increased in the first nine months of 2026.

Guidance and Future Outlook:

• Management expects continued revenue growth and Net Interest Margin (NIM) expansion through 2027, targeting approximately 800 basis points of positive operating leverage for the full year 2026.
• Fourth-quarter revenue and NIM are expected to trend toward the lower end of prior guidance ranges, while expenses are projected at the low end of the range due to efficiency gains.
• NIM expansion is anticipated in Q4 2026 (25-30 bps YoY growth from Q4 2025) and into 2027, driven by a favorable rate environment and asset sensitivity.
• Long-term goal remains mid-teens earnings growth per cycle, supported by a diversified financial model and the integration of AI and human expertise.
• 2027 financial scenario details will be provided at the winter business update in January, pending macroeconomic factors including interest rates and equity market performance.

Business Segments and Product Lines:

• Client Acquisition: Added 1.2 million brokerage accounts and attracted $190 billion in core net new assets (NNA) in Q3, a 38% YoY increase; managed investing net flows hit a record $24 billion.
• RIA Segment: Serves 16,000 firms with $5.8 trillion in assets; over 1,100 advisory firms added Schwab as a custodian last year (3x the nearest competitor).
• Retail Segment: 70% of new-to-firm households are Gen Z and Millennials; 80% of retail assets are held by UHNW/HNW clients; retention during wealth transfers remains high.
• Trading: Launched single-stock futures and binary options; introduced "Charlie," an AI-powered conversational assistant for administrative and information tasks; piloting AI-powered Thinkorswim assistant.
• Crypto & New Products: Clients can now access Schwab crypto, with three new coin launches planned by year-end; expanding prediction markets for financial events and KPIs over the next 12-18 months.
• AI Integration: Launched "Quad" for RIAs (first custodian included in CLAWD); AI has boosted developer productivity by 25% and reduced call center volumes per client.
• Lending: Secured lending programs are growing faster than deposits, with loans now exceeding the securities portfolio in book size, offering favorable economics.

Market and Competitive Landscape:

• Schwab holds the #1 position in total client assets, RIA custodial assets, and daily average trades.
• Client interaction reached a record 1.8 billion times YTD; the firm-wide transfer of assets ratio is 1.80.
• Clients move nearly $4 trillion in cash monthly through the platform, indicating deep consolidation of financial lives.
• Schwab holds approximately 2% of the $37 trillion U.S. advice market, with a 31% addressable market of clients willing to pay for advice.
• The firm faces competition in the long-short strategy space but notes a competitor's capacity constraints allowed Schwab's accelerated growth; Schwab intends to launch a proprietary long-short solution.

Risks and Challenges:

• Market Volatility: Equity market fluctuations and interest rate changes could impact net interest income and asset growth, though the firm remains asset-sensitive.
• Cash Management: Fluctuations in client cash balances due to market sentiment and IPO activity create variability in funding, requiring reliance on diversified funding sources.
• Cybersecurity & AI: Risks associated with unauthorized agent login attempts are being actively blocked; ensuring safe and secure AI deployment is a priority.
• Regulatory: Expansion into prediction markets and crypto requires navigating evolving regulatory frameworks.
• Capacity Constraints: Rapid growth in long-short strategies necessitated throttling to ensure operational stability, though demand remains high.

Management Commentary and Tone:

• Management projected extreme confidence, describing the firm as being in a "position of strength" and "winning today."
• Key themes emphasized: the enduring "through-client-size" strategy, a "no-trade-offs" value proposition, the synergy of people and AI, and a diversified financial model.
• CEO Rick Worcester and CFO Mike Wadaschi highlighted record performance metrics as validation of their strategy, expressing satisfaction with the balance of growth, efficiency, and capital return.
• Tone was assertive regarding the durability of their model, dismissing fears that AI would deplete cash holdings, noting instead that AI users hold more cash due to higher trading activity.

Analyst Questions and Answers:

• AI Revenue & Execution: Analyst Ken Worthington asked about AI revenue opportunities. Management confirmed AI is already driving revenue via increased engagement and wealth insights, and while LLMs cannot move money, they can execute trading strategies via APIs/MCPs.
• NIM & Cash: Analyst Alex Blosstein inquired about declining deposits despite NNA growth and NIM outlook. Management explained cash redeployment into markets due to sentiment/IPOs, but expect seasonal inflows in Q4 and NIM expansion due to floating-rate loan demand.
• Capital Returns: Analyst Bill Katz asked about repurchase pace given limited earning asset growth. Management confirmed flexibility to return capital while prioritizing client funding and franchise growth.
• NNA Sustainability: Analyst Dan Fannin asked about NNA sustainability and long-short contributions. Management credited breadth across retail, RIA, and workplace segments, with long-short growth throttled but NNA accelerating.
• Rate Impact: Analyst Stephen Chubak asked about cash outlook amid rate hikes. Management stated rates are not driving cash sorting; clients have already allocated, and organic cash growth continues.
• Long-Short Product: Multiple analysts asked about proprietary long-short funds. Management confirmed plans to launch an offering to meet demand sustainably and efficiently.
• Prediction Markets: Analysts asked about the timeline for prediction markets. Management outlined a 12-18 month rollout for financial events and KPIs, avoiding sports gambling.
• Trading Hours: Regarding 24/7 trading, management noted low current interest (1-2% of activity) but remains ready to provide it if client demand warrants.

Other Key Points:

• Schwab is the first RIA custodian included in CLAWD (Custodian Level AI Workflow Deployment) for financial advisors.
• "Charlie," the AI assistant, is set for broad client release in the coming months, capable of text/voice interaction and administrative actions.
• The firm blocks unauthorized AI agents attempting to log in on behalf of clients to maintain security and control.
• Schwab has expanded ETF monetization and is exploring transactional revenue streams in crypto and prediction markets.
• The company plans to extend its direct indexing capabilities to include proprietary long-short strategies for enhanced tax alpha.