Schwab (SCHW) Q3 2026 Earnings: Client Lending Lifts Net Interest Margin to 3.04%

Charles Schwab (SCHW) reported third-quarter 2026 results on October 15, 2026, through its earnings release and Fall Business Update, covering the quarter ended September 30. Client lending pushed Schwab's net interest margin higher again, and profit grew faster than revenue [1].

Earlier research on Schwab focused on three questions. Is the rise in net interest margin coming from client loans rather than lower funding costs? Can revenue per trade recover as trading volume cools? Can inflows into advisory assets overcome a falling fee rate? This quarter confirmed that the margin expansion is lending-driven. However, the client cash that stays on Schwab's platform is flowing out, and higher funding costs offset part of the gain. Trading and advisory fees moved in the direction expected earlier, but the size of the moves was routine. Overall, the earnings model looks stronger, and the next step depends on whether organic client cash returns in the fourth quarter.

What Schwab does

Schwab is one of the largest investment services platforms in the US. It provides brokerage, custody, advice and banking services to individual investors and independent registered investment advisers. The company earns money three ways from the same pool of client assets: it invests client cash in loans and securities to earn a spread, charges fees based on client asset balances, and collects trading revenue per trade. In 2025, Schwab's net revenues were $23.921 billion, of which the segment serving individual investors contributed $18.999 billion [5].

Net interest margin rises as client loans replace securities

Schwab's net interest margin rose to 3.04% in the third quarter, up 4 basis points from 3.00% in the second quarter and up 16 basis points from 2.88% in the third quarter of 2025 [1][2]. Net interest margin is net interest revenue divided by average interest-earning assets. Third-quarter net interest revenue was $3.476 billion, up 14% year over year and 4% from the prior quarter [1]. The result sits near the 3.00% to 3.10% full-year range management gave in July, but the margin for the first nine months was 2.97% [1][3].

Balance-sheet changes show that the wider spread came from client borrowing. In the third quarter, average bank loans were $69.526 billion at a 4.43% yield, and average receivables from brokerage clients were $123.061 billion at a 5.70% yield, up about 9% and 10% from the prior quarter, respectively [1]. Over the same period, average securities balances, which yield about 1.7% to 2.3%, fell from about $197.0 billion to about $193.2 billion in total [1][2]. Pledged Asset Line balances, revolving loans secured by clients' holdings, reached $37.3 billion at quarter-end, up 59% year over year, and bank loans ended September at $72.3 billion [1]. Management attributed further expansion to loan spreads and to reinvesting maturing securities that yield below 2% into lending [4].

Organic cash outflows raise funding costs

Weaker funding limited how far the margin could rise this quarter. Transactional sweep cash ended September at $492.8 billion, only $7.1 billion above the prior quarter-end. Schwab said the growth reflected demand for long/short strategies and organic growth, partly offset by client asset allocation decisions [1]. Long/short strategies are long-and-short portfolios used by independent advisers, on which Schwab earns only a fixed net yield. Short credits from these strategies totaled $63.3 billion in September; excluding them, organic sweep cash fell by about $12.5 billion based on the company's figures [1]. Management attributed the cash decline to sentiment-driven market entry and IPO activity [4].

Funding costs rose as a result. The average cost of bank deposits increased from 0.19% in the second quarter to 0.23%, and funding that costs 3.5% to 4.1%, such as payables to brokers and other short-term borrowings, also grew [1][2]. Schwab also throttled growth in the long/short business in mid-September because of operational capacity [4].

Conclusion

This quarter strengthens the earlier view: growth in net interest revenue is now driven by client borrowing, and maturing securities that yield below 2% keep supplying assets to redeploy. Trading revenue fell only 5% while daily average trades dropped 10%, and revenue per trade rose from $1.64 to $1.69. The average fee on fee-based managed investing solutions returned to 0.38%, but year-over-year growth in managed investing net flows slowed from 53% in the second quarter to 22% [1]. Third-quarter expenses were roughly flat, the adjusted pre-tax profit margin reached 54.8%, and Schwab repurchased $0.5 billion of stock [1].

The lending-driven shift in assets has already happened, while fourth-quarter margin expansion is still a management expectation. Management expects fourth-quarter net interest margin to be roughly 25 to 30 basis points higher than in the fourth quarter of 2025 and expects seasonal cash inflows in the fourth quarter [4]. Whether that wording matches the earlier fourth-quarter guidance of 3.25% to 3.30% cannot be judged without the prior-year fourth-quarter base [3]. The third-quarter 10-Q has not been filed yet, so the Pledged Asset Line composition and the derivatives share of trades still need confirmation, and only a summary of the business update is available. If organic cash returns in the fourth quarter, lending-driven margin expansion becomes more durable; if outflows continue, the expansion will lean more on wholesale funding.

Sources

[1] SCHW 2026年三季度业绩公告 8-K(Exhibit 99.1) — Schwab third-quarter 2026 earnings release (Exhibit 99.1), Form 8-K, 2026-10-15, https://www.sec.gov/Archives/edgar/data/316709/000031670926000035/a3q26exhibit991.htm [2] SCHW 2026年二季度 Form 10-Q — 净利息收入与生息资产表 — Schwab second-quarter 2026 Form 10-Q, net interest revenue and interest-earning assets table, 2026-08-07, https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000316709&type=10-Q&dateb=&owner=include&count=40 [3] SCHW 2026年二季度电话会 — 全年情景与指引更新 — Schwab second-quarter 2026 earnings call, full-year scenario and guidance update, 2026-07-21, https://www.aboutschwab.com/schwab-second-quarter-2026-earnings [4] SCHW 2026年秋季业务更新电话会摘要 — Schwab 2026 Fall Business Update call summary, 2026-10-15 [5] SCHW FY2025 Form 10-K — 分部财务信息 — Schwab FY2025 Form 10-K, segment financial information, 2026-02-25, https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000316709&type=10-K&dateb=&owner=include&count=40