2026 Fall Business Update - SCHWAB CHARLES CORP

Explicit Guidance:

• 2026 Full-Year Revenue & NIM: Expects revenue and Net Interest Margin (NIM) to grow towards the lower end of the ranges previously provided at the summer business update.
• 2026 Full-Year Expenses: Expects expenses to finish at the low end of the provided range, reflecting efficiency gains while maintaining strategic investments.
• 2026 Operating Leverage: Anticipates approximately 800 basis points of positive operating leverage for the full year, double the initial year-end expectation.
• 2027 NIM Outlook: Expects NIM to continue expanding in the fourth quarter of 2026 (targeting 25–30 basis points YoY expansion from 4Q25 to 4Q26) and to expand further in 2027.
• 2027 Earnings Growth: Reaffirms the long-term framework to deliver mid-teens earnings growth through the cycle.
• Capital Management: Maintains a Tier 1 leverage ratio target of 6.75% to 7%; ended Q3 at the upper end (7%) to support client activity.

Business-Segment Outlook:

• Wealth Advisory: Anticipates continued acceleration in managed investing net flows; Schwab Wealth Advisory net flows are up 55% YoY. Plans to expand branch footprint and add client-facing professionals to support high retention and engagement.
• Trading Platform: Rolling out an AI-powered "thinkorswim assistant" in the coming months; expecting growth in traders connecting LLMs via MCP servers (volume doubled in last six months).
• Crypto Services: Completing rollout of crypto holding transfers and launching access to three new coins by year-end.
• Long-Short Strategies: Throttled growth in mid-September to ensure operational sustainability; expects demand to remain strong. Plans to launch a proprietary long-short solution (an extended version of direct indexing) within the next 12–18 months to deliver sustainable tax alpha.
• Prediction Markets: Plans to expand binary options capabilities beyond S&P indices to include financially related events and company KPIs (e.g., earnings beats, delivery numbers) over the next 12–18 months, while avoiding sports/entertainment.
• Advisor Business: Continued focus on onboarding independent firms; expects sustained inflows from advisors of all sizes, particularly those moving up-market or serving sophisticated clients.

Market and Competitive Outlook:

• Client Demand: Anticipates continued consolidation of client financial lives; expects clients to hold more cash rather than less as AI adoption increases (counter to market fears regarding AI reducing cash balances).
• AI Integration: Expects AI to drive differentiation and revenue growth through enhanced client engagement, tax/estate insights in wealth, and efficiency gains; projects developer productivity will remain elevated.
• Market Hours Trading: No immediate rush to 24/7 trading; currently observing 1–2% of activity outside market hours, but remains ready to expand hours if client demand necessitates it.
• Competition: Maintains confidence in leadership position for RIA custodial assets and daily average trades; believes competitors lack the scale and combined people/technology value proposition.

Macro / Industry Outlook:

• Interest Rates: Views current rate levels as favorable; remains "asset sensitive," meaning higher rates benefit NIM. Expects rate hikes to have limited additional impact on client allocation behavior as clients have already adjusted portfolios.
• Cash & Deposits: Expects organic cash build driven by strong Net New Assets (NNA) and seasonal inflows in Q4; anticipates continued seasonal pickup mid-November onward.
• Economic Environment: Acknowledges macro factors (rates, equity markets, client sentiment) will shape the 2027 operating environment but expects the business to generate positive operating leverage across various scenarios.
• Lending vs. Securities: Lending balances have exceeded securities portfolio; expects continued expansion of lending (pledged asset lines, margin loans) as a higher-yielding alternative to fixed-rate securities, supporting NIM expansion.

Strategic Initiatives:

• AI Deployment (Charlie): Rolling out "Charlie," an AI-powered conversational assistant available to all clients in the coming months; intended to become the primary front door for AI interactions, combining third-party LLMs with Schwab's trusted data.
• MCP Server Expansion: Enhancing access for retail traders and RIA clients to connect external LLMs via Multi-Client Protocol (MCP) servers to execute administrative tasks and trading ideas securely, with strict controls on moving money.
• Operational Efficiency: Leveraging AI to reduce calls per client and increase first-call resolution; utilizing gains to reinvest in growth initiatives.
• Product Innovation: Launching single-stock futures and binary options; expanding crypto offerings; developing proprietary long-short investment solutions.
• Capital Deployment: Prioritizing capital to support business growth and client lending needs; maintaining flexibility for opportunistic share buybacks (accumulated ~$4B repurchases YTD 2026).

Risks and Headwinds to Outlook:

• AI Security: Blocking unauthorized agents attempting to log in on behalf of clients; restricting AI capabilities from moving money to prevent client risk.
• Long-Short Capacity: Growth in long-short programs has been throttled to avoid operational bottlenecks; future capacity limits could constrain this specific growth vector if not addressed.
• Market Volatility: NIM expansion and asset growth are contingent on continued client engagement and favorable market sentiment (e.g., IPO activity, market buying).
• Regulatory: Anticipated regulatory requirements for prediction markets and expanded trading capabilities require coordination with exchanges (e.g., CBOE) and internal compliance.

Management Tone on the Future:

• Confidence: Highly confident ("feel great," "powerful combination," "unmatched value proposition") in the durability of the "through-client-size" strategy and the ability to generate mid-teens earnings growth.
• AI Sentiment: Views AI as a significant accelerant and differentiator, not a threat; emphasizes the "people + AI" hybrid model as hard to replicate.
• Execution: Expresses confidence in delivering record results for 2026 and maintaining momentum into 2027, with a clear focus on balancing growth reinvestment with efficiency.

Miscellaneous:

• 2027 Detailed Guidance: Management plans to provide a more detailed 2027 financial scenario at the winter business update in January.
• Investor Day Framework: Reiterated the "mid-teens earnings growth" target established at the recent Investor Day as the guiding long-term metric.
• Cash Allocation: Clients are increasingly moving cash into the market (trading, investing) due to improved sentiment and AI-driven discovery, rather than holding cash idle despite higher rates.