Charles Schwab earned $2.8 billion in the second quarter of 2026, up 32% from a year earlier. More client lending, lower funding costs and higher trading and investment-service fees lifted profit. During the first half, lending expanded faster than combined bank deposits and brokerage-client cash balances, and additional short-term borrowing helped finance that growth. Growth now reaches beyond savings on old bank funding, but financing more client loans requires careful use of capital.
Reporting basis: The Charles Schwab Corporation and its consolidated subsidiaries, U.S. generally accepted accounting principles, unaudited Form 10-Q for the quarter ended June 30, 2026. Filed August 7, 2026; SEC accession 0000316709-26-000031; CIK 0000316709. Quarterly comparisons cover April–June; first-half comparisons cover January–June. Balance-sheet comparisons use December 31, 2025. Information cutoff: August 7, 2026; researched October 7, 2026. Subsequent operating developments are outside this assessment.
Sources: SEC filing identity and filing date; second-quarter 2026 Form 10-Q, cover; Overview, pp. 4–6; Net Interest Revenue, pp. 8–10; Cash Flow Activity, p. 22; and consolidated income statement, p. 29.
1. More client business is reaching the profit line
Schwab helps individuals buy and hold investments, manages money, and provides banking services. It also holds investments and supplies trading and banking services for clients of independent financial advisers. The relationships generate fees, trading revenue and interest.
Client investments held through Schwab are different from assets owned by Schwab. The company served $13.08 trillion of client assets at June 30, while its own consolidated balance sheet held $517.3 billion. Client investment growth can increase fees without expanding Schwab’s own balance sheet. Lending requires funding.
Revenue grew faster than expenses in both the quarter and the first half. The company added $1.221 billion of quarterly revenue while expenses excluding interest increased $355 million. The difference produced an $866 million increase in pretax profit.
Pretax margin measures how much of each revenue dollar remains before income taxes. Diluted earnings per share (EPS) divides profit available to common shareholders by the average share count, allowing for potential additional shares from employee awards.
| Consolidated results, U.S. dollars in millions except EPS and margins | Second quarter 2025 | Second quarter 2026 | First half 2025 | First half 2026 |
|---|---|---|---|---|
| Total net revenues | 5,851 | 7,072 | 11,450 | 13,554 |
| Expenses excluding interest | 3,048 | 3,403 | 6,192 | 6,697 |
| Income before income taxes | 2,803 | 3,669 | 5,258 | 6,857 |
| Net income | 2,126 | 2,800 | 4,035 | 5,279 |
| Pretax profit margin | 47.9% | 51.9% | 45.9% | 50.6% |
| Diluted EPS, U.S. dollars | 1.08 | 1.54 | 2.07 | 2.91 |
Reporting basis: Net revenues already deduct interest expense. Subtracting that expense again would understate profit. Pretax profit is the appropriate company-wide earnings measure here; the filing does not present a separate industrial-style operating-profit subtotal.
Sources: 2026 Form 10-Q, Overview, p. 4; consolidated income statement, p. 29; Note 1, p. 36.
The improvement was not simply a lower tax bill. Quarterly pretax profit increased 31%, while net income increased 32%. The effective tax rate eased to 23.7% from 24.2%. Management attributed that change mainly to lower state tax expense and lower nondeductible deposit-insurance assessments, partly offset by other tax items.
Source: 2026 Form 10-Q, Taxes on Income, p. 14.
There is also a limit to treating revenue growth as pure business expansion. Securities transaction fees collected from clients and passed through as expense increased after an SEC fee-rate change. That raises both revenue and costs without raising net income. The filing does not quantify a complete adjustment.
Compensation explains much of the cost increase. Quarterly compensation and benefits rose $254 million, accounting for about 72% of the $355 million increase in noninterest expenses. Management cited merit increases, additional employees, advisers and financial consultants, and higher incentive compensation. Average headcount rose only about 3%, while incentive compensation rose 39%. Costs reflect both added capacity and stronger results.
Source: 2026 Form 10-Q, Other Revenue and Total Expenses Excluding Interest, pp. 12–14.
2. Lending has become a larger source of interest earnings
When a client leaves cash at Schwab’s bank, Schwab can lend or invest that money and pay the client interest. The amount it earns after paying for deposits and other funding is net interest revenue. That revenue rose $535 million in the quarter and supplied approximately 44% of the total revenue increase. The table also shows net interest margin: annualized net interest revenue relative to average interest-earning assets, using Schwab’s balance definitions.
| Interest business, U.S. dollars in millions except rates | Second quarter 2025 | Second quarter 2026 |
|---|---|---|
| Interest revenue | 3,787 | 4,146 |
| Interest expense | 965 | 789 |
| Net interest revenue | 2,822 | 3,357 |
| Average bank loans | 48,691 | 63,823 |
| Net interest margin, annualized | 2.66% | 3.00% |
Source: 2026 Form 10-Q, net interest tables, pp. 8–10; Note 4, p. 39.
Larger loan balances and cheaper funding outweighed lower yields on some assets. Quarterly bank-loan interest rose $175 million, and interest on brokerage-client receivables rose $288 million. They outweighed lower interest from securities and segregated cash. At the same time, deposit interest expense fell $212 million and Federal Home Loan Bank interest expense fell $109 million.
The benefit was partly offset by higher costs elsewhere. Interest expense on amounts owed to brokers and clearing organizations rose $109 million, short-term borrowing expense rose $24 million, and long-term debt expense rose $22 million. Schwab is changing its funding mix, rather than eliminating its need for borrowed money.
Historical results show why this distinction matters. Full-year net interest revenue fell from $9.427 billion in 2023 to $9.144 billion in 2024, then recovered to $11.750 billion in 2025. During 2025, Schwab reduced bank supplemental funding by $44.8 billion to $5.1 billion. This included bank borrowings and brokered certificates of deposit.
By June 2026, Federal Home Loan Bank borrowing was only $500 million. Further repayment of that facility offers much less room for savings. Sustaining interest growth increasingly depends on loan demand, funding costs and replacement-asset returns.
Sources: 2026 Form 10-Q, pp. 8–10 and Note 4; 2025 Form 10-K, Management’s Discussion and Analysis, Overview and Net Interest Revenue, annual 2025/2024/2023 comparisons.
One accounting distinction is especially important. Some adviser clients combine purchases of securities with short sales, which involve selling borrowed securities. Their borrowing and related cash credits are presented net within client accounts on the balance sheet. The filing also excludes certain matched balances from the average assets and funding used to calculate interest margins because Schwab earns a fixed net yield on them.
The July earnings release reported $165.1 billion of margin loans, including $42.1 billion associated with these strategies. The 10-Q reported $122.8 billion of net brokerage-client receivables, a different accounting measure. Subtracting one rounded figure from the other is not a complete reconciliation because receivables have additional components. This analysis uses the filing’s consolidated receivables for balance-sheet and cash-flow comparisons.
Reporting basis: The 10-Q recalculates the 2025 average-balance comparisons for the late-2025 presentation change. A further second-quarter 2026 change presents the fixed yield net in other interest revenue; earlier periods were not recast because the impact was considered immaterial. Comparisons of total net interest revenue are more useful than interpreting every gross interest line independently.
Sources: 2026 Form 10-Q, Net Interest Revenue, pp. 7–10, and Note 4; July 21, 2026 earnings release, client and business highlights and footnote 2.
3. Advisers and managed investing strengthen the fee business
Clients brought Schwab $119.8 billion of core net new assets in the quarter, compared with $80.3 billion a year earlier. This measures incoming client money and investments minus withdrawals, excluding flows from Schwab bank certificates of deposit sold through outside brokers. It separates client flows from the market gains that also increase total client assets.
Quarterly asset-management and administration fees rose 16% to $1.825 billion. Within that total, managed-investing revenue rose 20% to $707 million. Managed-investing fees diversify income beyond lending and trading.
Still, average total client assets rose 26%, faster than these fees. Total client assets include holdings that generate different fees or no asset-based fee, so applying one fee rate to the whole $13.08 trillion would exaggerate Schwab’s earning potential.
The more direct comparison is within managed investing itself. Average assets in fee-based services grew about 28%, while their revenue grew 20%. Schwab earned less revenue per dollar managed, although the filing does not isolate how much of that change came from pricing versus the mix of services.
| Fee-based managed investing, U.S. dollars in millions except annualized fee yield | Second quarter 2025 | Second quarter 2026 |
|---|---|---|
| Average client assets | 595,203 | 763,716 |
| Revenue | 589 | 707 |
| Average annualized fee yield | 0.40% | 0.37% |
Calculation notes: Average asset growth = 763,716 / 595,203 − 1 = 28.31%; revenue growth = 707 / 589 − 1 = 20.03%. Fee yields are Schwab’s reported annualized measures, not profit margins.
Source: 2026 Form 10-Q, Asset Management and Administration Fees, p. 10.
Independent advisers were the stronger source of first-half asset gathering. Advisor Services attracted $166.0 billion of net new assets, up from $105.3 billion. Investor Services attracted $92.6 billion, down from $100.7 billion. Removing the disclosed brokered-CD outflows gives calculated Investor Services core inflows of $93.8 billion versus $112.7 billion. The company’s overall success therefore coexists with weaker first-half retail-segment inflows on this basis.
| Segment results, U.S. dollars in millions | Second quarter 2025 revenue | Second quarter 2026 revenue | Second quarter 2025 pretax profit | Second quarter 2026 pretax profit |
|---|---|---|---|---|
| Investor Services | 4,635 | 5,528 | 2,274 | 2,865 |
| Advisor Services | 1,216 | 1,544 | 529 | 804 |
| Consolidated total | 5,851 | 7,072 | 2,803 | 3,669 |
Reporting basis: Segment results use Schwab’s allocations of revenue and expenses. The filing reports no intersegment revenue. The segments reconcile to consolidated results.
Source: 2026 Form 10-Q, Overview, p. 4; segment discussion and net-new-asset table, pp. 15–16; Notes 4 and 19, pp. 39 and 68–69.
Advisor Services’ calculated pretax margin increased to 52.1% from 43.5%, while Investor Services improved to 51.8% from 49.1%. Advisers brought more assets and generated faster profit growth, but Investor Services remained the larger earnings contributor. Both remain sensitive to financial markets.
Trading offers a second caution about volume. Daily average trades increased 57% to 11.9 million, yet trading revenue rose 28%. Revenue per trade fell to $1.64 from $2.03. The changed trading mix produced less revenue per trade. Payments received for routing client orders rose to $624 million from $466 million; commissions rose to $528 million from $431 million.
Bank deposit account fees provide a different example of pricing overcoming lower volume. These fees come from client cash held at TD’s banks rather than Schwab’s own banks. Revenue rose to $333 million from $247 million even though average balances fell 13%, because the net yield increased to 1.83% from 1.19%.
Schwab transferred $3.0 billion of those balances to its own balance sheet during the first half. This reduces the balance on which TD-related fees are earned but supplies money for Schwab to lend or invest. The arrangement requires at least $60 billion to remain at TD, against an actual $70.7 billion at June 30. Transfers are consequently a limited funding source, not an unrestricted pool of cash.
Source: 2026 Form 10-Q, Trading Revenue and Bank Deposit Account Fees, pp. 11–12; Notes 4 and 11, pp. 39 and 52–53.
4. The balance sheet is shifting toward loans and brokerage financing
Client lending grew much faster than the company’s equity. Equity is the amount left after subtracting liabilities from assets; it helps the company absorb losses. Amounts owed by brokerage clients increased $18.188 billion and net bank loans increased $9.041 billion during the first half. Together, those increases exceeded the $26.271 billion expansion of total assets because cash and securities declined elsewhere.
| Consolidated balance sheet, U.S. dollars in millions | December 31, 2025 | June 30, 2026 |
|---|---|---|
| Cash and cash equivalents | 46,030 | 40,580 |
| Segregated cash and investments | 42,931 | 33,011 |
| Receivables from brokers and clearing organizations | 7,190 | 22,004 |
| Brokerage-client receivables, net | 104,660 | 122,848 |
| Available-for-sale securities | 62,357 | 62,467 |
| Held-to-maturity securities | 133,969 | 130,568 |
| Bank loans, net | 57,955 | 66,996 |
| Total assets | 490,995 | 517,266 |
| Bank deposits | 255,747 | 249,682 |
| Payables to brokers and clearing organizations | 25,689 | 43,826 |
| Payables to brokerage clients | 116,341 | 123,968 |
| Other short-term borrowings | 6,913 | 13,945 |
| Federal Home Loan Bank borrowings | 1,850 | 500 |
| Long-term debt | 22,199 | 22,669 |
| Total liabilities | 441,570 | 467,119 |
| Total stockholders’ equity | 49,425 | 50,147 |
Reporting basis: Selected accounts are shown, together with complete totals. Segregated assets are held under client-protection requirements and are not all freely available corporate cash.
Source: 2026 Form 10-Q, consolidated balance sheets, p. 31; Notes 5 and 18. All table values use the filing.
Additional reference: SEC company-concept data, us-gaap:Assets, USD. The supplemental feed was unavailable for independent verification.
The sharp increase in amounts due from other brokers mainly reflects securities borrowing. That component rose to $19.027 billion from $4.797 billion. On the liability side, deposits received for securities lent rose to $38.659 billion from $25.131 billion, while broker-dealer repurchase agreements—short-term borrowing secured by securities—increased to $3.500 billion from $50 million. These activities support trading and funding while creating collateral and repayment obligations.
Bank-loan growth was concentrated in securities-backed credit lines and mortgages. Pledged asset lines rose to $33.416 billion from $26.603 billion; first mortgages rose to $32.782 billion from $30.484 billion. The former let clients borrow against investment portfolios. Schwab’s co-branded mortgage program with Rocket Mortgage supplies another channel: purchases of first mortgages under that program totaled $4.6 billion in the first half, versus $2.7 billion a year earlier.
Credit quality remained strong, although early delinquency deserves attention. Total past-due and other nonaccrual bank loans rose to $151 million from $92 million, mainly in the 30–59-day category. Loans more than 90 days past due and other loans on which Schwab had stopped recording interest income fell to $26 million from $43 million. The increase is concentrated in early delinquencies.
The amount set aside in the accounts for expected bank-loan losses—the allowance—increased from $36 million to $37 million. The opening balance plus a net $1 million expense for expected losses explains the change; there were no loan write-offs or recoveries. A falling allowance-to-loan ratio therefore did not represent a reserve release. All pledged asset lines were fully collateralized at the reporting dates, and no allowance was required for them under the disclosed accounting method. Rapid collateral-price declines remain a risk. California represented 40% of first-mortgage and home-equity-line balances, adding geographic concentration.
Source: 2026 Form 10-Q, Notes 5, 7 and 11, pp. 40, 44–45 and 52.
Securities still matter because they earn relatively low returns and carry market-value losses. Securities classified as held to maturity are generally carried at adjusted purchase cost rather than current selling value. Their $130.568 billion carrying amount exceeded fair value by $9.362 billion at June 30, up from $7.914 billion at year-end. Securities classified as available for sale are carried at current fair value. Their cost-to-value shortfall changed much less, from $3.868 billion to $3.845 billion.
These are not expected credit losses, but selling securities can crystallize losses that waiting for repayment may avoid. Schwab also retained $7.3 billion of after-tax losses from earlier transfers into the held-to-maturity category. These sit in accumulated other comprehensive income, an equity account that records certain gains and losses outside net profit. Those older recorded losses should not simply be added to the current market-value shortfalls to produce a supposed new loss.
Property, equipment and software assets increased $568 million to $3.659 billion, largely reflecting a new software license discussed below. Goodwill—the acquisition value remaining after separately identified net assets—rose $339 million, matching the Forge acquisition. Acquired intangible assets, such as customer relationships and technology, increased only $50 million after amortization and other movements. Amortization spreads their recorded cost over their estimated useful lives. Other assets increased $1.932 billion; disclosed contributors include higher customer-contract receivables and affordable-housing tax-credit investments, but the filing does not supply one complete causal bridge for that account.
Source: 2026 Form 10-Q, balance sheet, p. 31; Notes 3, 4, 6, 8, 10 and 16.
5. Higher operating cash did not prevent cash and equivalents from falling
Schwab’s cash flow must be read together with client loans, deposits and restricted cash. Operating cash flow was $11.642 billion in the first half, up from $9.536 billion. Bank-loan funding and deposit withdrawals used cash elsewhere in the statement.
| Consolidated cash flows, U.S. dollars in millions | First half 2025 | First half 2026 |
|---|---|---|
| Cash from operating activities | 9,536 | 11,642 |
| Cash from / used in investing activities | 19,546 | -6,424 |
| Cash used in financing activities | -39,027 | -5,677 |
| Change in cash, including restricted amounts | -9,945 | -459 |
| Opening cash, including restricted amounts | 65,514 | 69,661 |
| Closing cash, including restricted amounts | 55,569 | 69,202 |
Source: 2026 Form 10-Q, consolidated cash-flow statements, pp. 34–35.
The operating reconciliation starts with $5.279 billion of profit. Noncash and other adjustments added $1.606 billion, including share compensation and depreciation or amortization. Changes in operating assets and liabilities supplied another $4.757 billion.
Behind that net contribution were large opposing flows. Increasing brokerage-client receivables used $18.222 billion, while higher amounts owed to brokerage clients supplied $7.627 billion. Changes in broker and clearing balances supplied a net $3.323 billion. A decline in segregated investments supplied $14.911 billion, while other operating assets and accrued liabilities absorbed cash. The flows reflect funding and protecting client activity.
Investing cash turned negative chiefly because bank-loan growth absorbed $9.065 billion. Securities purchases, sales and principal repayments together supplied $3.872 billion, much less than the loan outflow. Acquisition spending used $577 million net of acquired cash. Equipment, property and software cash purchases used $325 million.
Financing cash included a $6.065 billion net decrease in bank deposits, $3.377 billion of paid common-share repurchases, and $1.275 billion of paid dividends. Net proceeds from other short-term borrowing supplied $6.948 billion to help finance lending growth.
The decline in bank deposits did not mean combined client cash balances fell. The $7.627 billion increase in amounts owed to brokerage clients more than offset the bank-deposit decline, leaving combined balances $1.562 billion higher. Management says the brokerage subsidiary may retain client cash instead of transferring it into Schwab bank deposits to support margin lending while meeting liquidity requirements. Borrowing needs therefore reflect lending growth and where funding sits within the group, not simply a loss of client cash.
The cash definition also changes the conclusion. Closing cash including restricted amounts was $69.202 billion, of which $28.622 billion was restricted client-protection cash. The separate balance-sheet cash-and-equivalents account fell $5.450 billion to $40.580 billion, while restricted cash increased $4.991 billion. That separate account should not be read as cash freely available for parent-company distributions; subsidiary funding needs and capital rules still matter.
Source: 2026 Form 10-Q, consolidated cash-flow statements, pp. 34–35; Cash Flow Activity, p. 22; Note 18.
Investment spending needs another distinction. Management reported $965 million of first-half capital expenditures, but only $325 million appeared as cash purchases in investing activities. The $640 million difference is disclosed as a noncash change in accrued asset purchases. Most of the increase involved a $633 million multiyear software license recorded as both an asset and debt.
Schwab paid an initial $49 million on that software obligation, with further annual payments due through March 2033. Equipment additions also supported telecommunications, office expansion and building improvements. The filing does not divide spending into maintenance and growth. Operating cash minus equipment purchases would also leave out cash needed for bank loans and deposit withdrawals, which appear elsewhere in the cash-flow statement. That subtraction therefore cannot, on its own, show how much cash this lending business can distribute.
Cash income taxes were $1.792 billion versus $818 million a year earlier, exceeding the current first-half income-tax expense of $1.578 billion. Cash tax payments and accounting tax expense follow different timing. The filing does not provide a complete payment-timing bridge, so the increase should not be assigned an invented cause.
Source: 2026 Form 10-Q, capital expenditures, p. 14; cash-flow supplemental disclosures, p. 35; Note 10, pp. 49–50.
6. Liquidity is substantial, but borrowing maturities require active management
Schwab has meaningful liquidity resources, alongside a growing need to refinance short-term obligations. Other short-term borrowings slightly more than doubled during the first half. Including Federal Home Loan Bank borrowings, $13.719 billion was due during the remainder of 2026 and $726 million in 2027. Separate brokerage financing obligations also have short maturities.
Securities-lending liabilities included $27.2 billion with overnight or continuous maturities and $11.5 billion due in 35–95 days. These are temporary funds backed by an active collateralized securities-lending business. Their obligations must be assessed alongside the associated assets.
Long-term debt had $1.010 billion of scheduled maturities in the remainder of 2026, $3.493 billion in 2027, $1.999 billion in 2028, and $5.268 billion in 2029. The company issued $3.25 billion of new senior notes during the second quarter, with initial rates of 4.603%, 4.744% and 5.493%. Their initial annual contractual interest is approximately $162 million before hedges, fees or later rate resets. This is gross new-note cost, before savings from repaid debt.
Existing senior notes issued by the parent company had a 4.17% weighted-average contractual rate before hedging contracts. Interest-rate swaps exchange fixed and variable interest payments, changing the company’s effective borrowing cost. Some notes also later switch to rates that move with a market benchmark. Refinancing risk therefore includes both the ability to borrow and the price of replacement funding.
Source: 2026 Form 10-Q, Funding Sources and Long-Term Borrowings, pp. 21–23; Note 10, pp. 49–52.
Against those obligations, the average liquidity coverage ratio was 135%, unchanged from the first quarter. This compares eligible readily saleable assets with modeled cash outflows during a 30-day stress. Eligible assets averaged $51.927 billion against $38.534 billion of modeled outflows. Schwab also reported compliance with the separate stable-funding requirement.
Available capacity backed by already pledged assets included $32.836 billion at the Federal Home Loan Bank and $27.967 billion at the Federal Reserve discount window. More than 80% of bank deposits qualified for FDIC insurance. Secured capacity depends on collateral and facility terms. Banks have not promised to lend the unused amounts under uncommitted credit lines. Likewise, authorization to issue commercial paper—short-term debt sold to investors—does not guarantee that investors will buy it.
Covenants and entity boundaries also matter. Banking subsidiaries must maintain positive tangible capital to make new Federal Home Loan Bank draws. Bank and broker-dealer capital rules constrain how funds can move or be distributed. The broker-dealer held $16.124 billion of regulatory net capital, a measure of its financial cushion after required adjustments for assets and obligations. That exceeded its applicable requirement by $12.578 billion at June 30.
Lease payments are smaller but still contractual. The last full maturity schedule, at December 31, 2025, showed $1.019 billion of future operating-lease payments and a discounted liability of $903 million. Scheduled 2026 payments were $224 million on that year-end schedule. The first-half filing reports $122 million paid for amounts included in lease liabilities and $100 million of new operating-lease obligations; it does not replace the full schedule. June finance-lease liabilities were $23 million, separate from the software financing obligation.
Sources: 2026 Form 10-Q, pp. 20–22, 35 and Notes 10 and 18; 2025 Form 10-K, Note 14, Leases, p. 92.
7. Buybacks helped EPS while limiting capital accumulation
Management’s stated capital policy is to support business growth, subsidiaries and regulatory requirements, then return excess capital. Repurchases reduce the number of shares sharing future earnings. They also use cash that could otherwise support more assets or absorb losses.
Profit growth did most of the work, while fewer shares amplified EPS growth. Quarterly income available to common shareholders rose 35.6% to $2.681 billion. Diluted average shares fell 4.6% to 1.739 billion. Together, these changes produced reported EPS growth of approximately 43%.
Schwab repurchased 35.5 million shares in the first half, but treasury shares increased by only about 30.2 million because other share movements offset part of the purchases. Issued common shares remained 2.074 billion. Repurchased shares were held as treasury stock: they remained legally issued but were no longer outstanding in shareholders’ hands. Share-based compensation was $230 million in the cash-flow reconciliation, a noncash expense that still represents employee compensation and can contribute to dilution.
| Equity reconciliation, U.S. dollars in millions | First-half 2026 change |
|---|---|
| Opening equity | 49,425 |
| Net income | +5,279 |
| Other comprehensive income, after tax | +408 |
| Preferred issuance less redemption | -575 |
| Declared common and preferred dividends | -1,275 |
| Common repurchases, including excise tax | -3,407 |
| Option exercises and other related activity | +58 |
| Share compensation credited in equity statement | +211 |
| Other equity movements | +23 |
| Closing equity | 50,147 |
Reporting basis: Equity entries are not interchangeable with paid cash. In particular, repurchases in this table include excise tax; the cash-flow statement reports $3.377 billion paid for common repurchases. The equity statement’s compensation entry also differs from the $230 million cash-flow addback.
Source: 2026 Form 10-Q, pp. 29, 31, 33–35; Notes 15 and 17.
Retained earnings rose $3.979 billion after profit, dividends and a $25 million deemed dividend on preferred-stock redemption. Additional paid-in capital rose $183 million, reflecting compensation and other entries partly offset by option-related movements. Treasury stock’s carrying cost increased $3.298 billion. Accumulated other comprehensive losses narrowed $408 million, although the securities discussion shows that this was not a broad recovery of every market-value loss.
The consolidated regulatory leverage ratio compares qualifying capital with average assets after regulatory adjustments. It fell to 8.7% from 9.3% at year-end, meaning Schwab had less qualifying capital for each dollar of those assets. Schwab’s adjusted measure also includes accumulated other comprehensive income, capturing securities losses excluded from the regulatory measure. It fell to 6.8% from 7.1%. It remained inside management’s 6.75%–7.00% operating objective, but close to the lower end. This is a management target, not the regulatory minimum. It means continued rapid balance-sheet growth and continued distributions must be balanced against retained earnings.
Reported earnings should also remain the starting point. Schwab’s adjusted quarterly common earnings were $2.811 billion: reported $2.681 billion, plus $142 million of acquired-intangible amortization and $28 million of acquisition and integration-related costs, less $40 million of tax effects. The prior-year comparable was $2.073 billion, from reported $1.977 billion plus $128 million of amortization less $32 million of tax effects.
Adjusted EPS was $1.62 versus $1.14. Acquired assets generate revenue, and their amortization continues. Other gains, securities-sale losses and preferred-redemption effects are not all removed. Adjusted earnings are therefore not a clean forecast of recurring profit.
Source: 2026 Form 10-Q, Capital Management, pp. 23–24; non-GAAP reconciliation, pp. 26–28; equity statement, p. 33; Note 15.
8. New products widen the offering, with costs and obligations attached
Schwab bought Forge to give eligible clients access to private-company investments. The purchase adds private-market capabilities to Schwab’s client network. Consideration was $636 million, and the provisional purchase accounting recognized $339 million of goodwill and $320 million of identifiable intangible assets.
Forge expands the product offering, but it had not yet contributed profit. Included results were $40 million of revenue and a $33 million net loss in the second quarter. For the period from March 2 through June 30, revenue was $54 million and net loss $39 million. Those figures should not be combined mechanically with separately disclosed integration costs to create an unsupported acquisition-profit adjustment.
Success requires clients to use the service enough to cover its operating and integration costs. Schwab’s network offers distribution, but goodwill represents expected benefits, not earned cash. The small revenue contribution relative to the group also shows that Forge was not the principal cause of this quarter’s earnings growth.
Source: 2026 Form 10-Q, Acquisition of Forge, p. 6; Note 3, pp. 37–38.
Schwab began rolling out direct bitcoin and ether trading in May. Its April launch announcement set a fee of 0.75% of trade value and described plans for additional currencies and transfers. The business purpose is to let clients hold more types of assets within the Schwab relationship.
Competition limits how distinctive that offer is. Fidelity’s June 24 product discussion described existing external-wallet transfers, transfers between participating customers, and crypto retirement accounts launched in April 2025. Schwab’s planned transfers therefore address an existing competing capability. They do not establish either provider’s eventual profitability.
The arrangement for safeguarding clients’ cryptocurrency adds a concrete operational exposure. Schwab’s Premier Bank is responsible for custody and recordkeeping, while Paxos provides underlying custody and trade execution. The filing warns that losses recoverable from Paxos might not cover Schwab’s liability in a severe incident. Clients’ cryptocurrency has neither federal deposit insurance through the FDIC nor the brokerage-customer protection provided by SIPC. The quarter’s filing does not disclose enough separate crypto economics to estimate a material earnings contribution.
Sources: Schwab’s April 16, 2026 crypto launch announcement; Fidelity’s June 24, 2026 product discussion, transfers and retirement-account sections; 2026 Form 10-Q, pp. 6 and 70–71.
Other commitments also absorb capacity. Undrawn credit and mortgage-purchase commitments totaled $3.332 billion, up from $2.718 billion. Affordable-housing investment liabilities were $1.360 billion, and Schwab expected substantially all remaining commitments discussed in that note to be paid between 2026 and 2029. These investments produce tax benefits as well as funding obligations. First-half tax credits and other benefits of $166 million were accompanied by $127 million of amortization, which records part of the investments’ cost. Both amounts were included in income-tax expense.
The Corrente antitrust settlement had received final court approval, but objectors had appealed. The disclosed settlement involved nonmonetary undertakings and immaterial attorneys’ fees and costs. The filing provides no reliable additional loss estimate. Clearinghouse guarantees create another contingent obligation whose potential size cannot be quantified; the absence of a recorded liability does not mean the obligation disappears.
Source: 2026 Form 10-Q, Notes 8 and 11, pp. 48 and 52–53.
9. The next test is profitable growth within funding capacity
Schwab’s stronger business now needs disciplined funding more than another large reduction in old bank borrowings. Client gathering, managed-investing fees and loan demand support further growth. The first-half results support improvement beyond one quarter.
The strongest counterevidence is equally concrete. Trading revenue per trade declined, retail-segment core inflows weakened in the first half, and balance-sheet growth outpaced equity accumulation. Securities still carry substantial market-value discounts. These are areas where growth could consume more capital or become less profitable.
Management expected full-year reported expenses excluding interest to rise approximately 10%–11%, including Forge and the cost of supporting activity. Sustained profit-margin expansion therefore requires revenue to grow sufficiently faster than those costs. A slower trading environment or weaker asset prices could reduce fees while staffing and technology commitments continue.
Exposure to falling interest rates has eased in management’s model. Management models how interest earnings would change as rates move, allowing client cash balances and replacement borrowing to change too. Under this dynamic balance-sheet simulation, an immediate one-percentage-point rate decline would reduce the next twelve months’ net interest revenue by 1.6% at June 30, 2026, versus 5.3% at December 31, 2025. A two-percentage-point decline produced a 5.3% reduction versus 15.0%. These are modeled responses, not forecasts; both comparison dates use the dynamic framework first disclosed in this quarter.
Management attributed the smaller simulated downside mainly to hedging and balance-sheet changes. The improvement was not uniform across rate scenarios: a one-percentage-point increase would raise modeled net interest revenue by 3.6%, versus 2.0% at year-end. The model therefore supports less downside from rate cuts, rather than a blanket reduction in sensitivity to every rate move. It cannot guarantee deposit behavior, collateral values or market access. The practical test is whether Schwab can retain client money, finance loans at acceptable cost, and keep enough earnings to support the assets it adds.
Schwab’s operating progress is substantial: it earns more from a larger set of client relationships. Its ability to turn that progress into sustained profit growth will depend on keeping lending spreads and service margins healthy while matching distributions and investment spending to capital generation.
Source: 2026 Form 10-Q, expense outlook, p. 13; market-risk simulations and methodology, pp. 16–19; Capital Management, pp. 23–24. The overall assessment combines the evidence cited in Sections 1–8.
10. Calculation notes
Calculation notes: Amounts below are U.S. dollars in millions unless specified. Calculated percentages use the reported statement amounts before rounding the resulting percentages for presentation.
- Growth: revenue = 7,072 / 5,851 − 1 = 20.87%; net income = 2,800 / 2,126 − 1 = 31.70%. First-half revenue growth = 13,554 / 11,450 − 1 = 18.38%; first-half profit growth = 5,279 / 4,035 − 1 = 30.83%.
- Profit bridge: 2,803 + (7,072 − 5,851) − (3,403 − 3,048) = 3,669. Quarterly net margins, if calculated, are 2,800 / 7,072 = 39.59% and 2,126 / 5,851 = 36.34%. Net interest’s share of revenue growth is 535 / 1,221 = 43.82%.
- Segment pretax margins use each segment’s pretax profit divided by its revenue in Section 3. Investor Services core first-half inflows, in billions, are 92.6 + 1.2 = 93.8 and 100.7 + 12.0 = 112.7, removing the disclosed off-platform CD outflows only.
- Balance-sheet check: 467,119 liabilities + 50,147 equity = 517,266 assets; 441,570 + 49,425 = 490,995 for the comparison date. Equity increased 722 while assets increased 26,271.
- Retained earnings: 44,065 + 5,279 − 25 − 152 − 1,123 = 48,044. Paid-in capital: 27,996 − 132 + 211 + 104 = 28,179. Treasury-stock carrying cost: 18,437 + 3,407 − 190 + 81 = 21,735. Comprehensive income outside net profit: 531 pretax − 123 tax = 408 after tax.
- Operating cash: 5,279 profit + 1,606 adjustments + 4,757 operating-balance changes = 11,642. Cash movement: 11,642 − 6,424 − 5,677 = −459; 69,661 − 459 = 69,202. Closing cash: 40,580 in the separate balance-sheet cash-and-equivalents account + 28,622 restricted = 69,202. Combined bank deposits and brokerage-client cash balances increased by (249,682 + 123,968) − (255,747 + 116,341) = 1,562.
- Securities investing cash: −10,959 purchases + 6,091 sales + 4,549 repayments − 2,336 purchases + 6,527 repayments = 3,872. Paid common buybacks plus paid dividends = 3,377 + 1,275 = 4,652. This is cash allocation, not a free-cash-flow calculation.
- Asset additions: 325 cash purchases + 640 noncash accrued-purchase changes = 965 reported capital expenditures. The software agreement’s initial debt payment is separately classified and should not be added again to that asset-addition total.
- Initial annual interest on new notes: 1,000 × 4.744% + 1,250 × 5.493% + 1,000 × 4.603% = 162.1325. This excludes hedges, issuance costs, later resets and interest avoided on repaid debt.
- Adjusted first-half common income, supplemental to the quarterly reconciliation: 5,078 + 274 + 39 − 74 = 5,317 for 2026; 3,773 + 258 − 63 = 3,968 for 2025. Reported/adjusted diluted EPS were $2.91/$3.05 and $2.07/$2.17. Per-share effects can differ slightly from arithmetic on rounded share counts.
- Securities shortfalls use carrying or amortized cost less fair value. Held to maturity: 130,568 − 121,206 = 9,362, versus 133,969 − 126,055 = 7,914. Available for sale: 66,312 − 62,467 = 3,845, versus 66,225 − 62,357 = 3,868. These measures are not estimates of credit losses.
Sources: 2026 Form 10-Q, financial statements, pp. 29–35; non-GAAP reconciliation, p. 27; Notes 6, 10, 15 and 19. Historical annual net interest revenue uses the 2025 Form 10-K, Net Interest Revenue table. The asset reconciliation uses the consolidated balance sheets at June 30, 2026 and December 31, 2025, rather than an independently verified XBRL extract.
This report is for information and explains business and financial results. It is not investment advice.