The Charles Schwab Corporation (SCHW) Earnings

Management highlights

- Core Business Momentum and Positioning * Schwab delivered record Q2 2026 results, with 1.4 million new brokerage accounts and $120 billion in core net new assets (NNA), up nearly 50% year-over-year. Managed investing net flows increased 53% year-over-year, and Client Promoter Scores are at all-time highs for both investor services and advisor services. * Management highlights a structural industry shift: 61% of affluent 25-44 year-old clients prefer consolidating wealth and banking relationships, and the share of $1M-$5M asset households using only one financial provider rose 11 percentage points year-over-year to 22%. Stock ownership is at a 20-year high, with broader participation across age, income, and education groups, and investing playing an increasingly central role in household finances. * Schwab holds the number one position in total client assets, RIA custodial assets, and daily average trades, creating scale advantages that compound over time. - Strategic Growth Initiatives * New product expansion is on track: crypto transfers capability is scheduled to pilot by the end of 2026 Q3, the Forge private markets acquisition has closed, and integration is underway to position Schwab as a leading private markets investing destination. An investment was made in Paxos to support crypto delivery, and new capabilities including third-party tax filing introductions, structured lending for private assets, and expanded tax/trust planning have been launched. * The wealth advice opportunity is large and underpenetrated: the U.S. retail advice market is $37 trillion and growing, with Schwab holding just 2% market share, and only 5% of Schwab retail households currently use a fee-based advice solution (despite 31% of clients indicating willingness to pay for advice). Schwab Wealth Advisory clients generate 3x the return on client assets (ROCA) compared to standard retail clients, creating a large long-term conversion funnel from self-directed to advisory. * Bank lending is a high-potential underpenetrated growth area: only 0.5% of Schwab clients currently use a firm lending product, compared to a 4% industry average. Digital PAL originations are up 60% year-over-year, with average spreads over securities exceeding 100 basis points, creating attractive incremental margin as penetration grows. - AI and Technology Investment * AI is embedded across the client and internal experience, with capabilities including the recently launched personalized portfolio insights and an ongoing employee pilot of Schwab Assistant. Combining human advice with AI-powered tools is cited as Schwab's core competitive advantage, improving personalization, scaling service, and increasing efficiency (developer productivity has improved 15-20% over the past year). * Schwab is actively building infrastructure to support tokenized securities and blockchain-based markets should client demand grow, even as the ultimate size of this market remains uncertain. The firm already has the technical capability to move to T+0 settlement if the industry requires it. - Scale and Efficiency * Cost per account continues to decline, and expense as a share of client assets is the lowest in the industry. Scale-driven efficiencies free up capital to reinvest in growth initiatives, supporting durable long-term earnings growth.

Guidance

- Full year 2026 core net new organic asset growth is maintained at 5%, with management confident it can deliver 5% or higher long-term NNA growth, supported by strong momentum across all three client-facing segments. - Full year 2026 total revenue growth guidance is updated to 17.5% to 18.5% year-over-year. - Full year 2026 net interest margin (NIM) guidance is updated to a range of 3% to 3.10%, with an expected Q4 2026 NIM of 3.25% to 3.30% (unchanged from prior guidance, as the expected 125 basis point rate hike is priced for December 2026 and will not impact 2026 financials, with expansion expected to flow through to 2027 instead). - Full year 2026 daily average trades guidance is raised to 10.6 million, reflecting strong Q2 momentum, with an expected seasonal moderation in activity over the summer. - Updated guidance implies stronger operating leverage and higher adjusted pre-tax margins than prior management scenarios, driven by higher-than-expected revenue growth that more than offsets increased volume-related expenses. - 2026 expense guidance is raised, with 100 basis points of the year-over-year expense growth increase attributable to the inclusion of Forge, and the remainder driven by higher client engagement-related volume costs. - Management reaffirms confidence in delivering mid-teens earnings growth through market cycles.

Segment performance

The firm reports total Q2 2026 revenue of $7.1 billion, representing 21% year-over-year growth. Net interest revenue grew 19% year-over-year, driven by higher client utilization of lending solutions, reduced high-cost bank borrowings, and increased demand for long-short strategies. Asset management and administration fees reached $1.8 billion, up 16% year-over-year, supported by strong equity market performance, robust asset gathering, and growing client adoption of wealth and asset management offerings. The retail trading segment achieved a record 11.9 million daily average trades, holding leading industry market share with one-third of all U.S. retail brokerage trades and the top position in options contracts. Total bank loan balances reached $67 billion, up 33% year-over-year, led by strong growth in digital pledged asset line (PAL) originations. Total margin balances ended the quarter at $165.1 billion, with continued growth in long-short related activity. Advisor Services continues to outperform, with core net new assets (NNA) growth exceeding 6% over the last four quarters, outpacing competitors and extending market leadership. Retail Investor Services (IS) delivered steady NNA growth, supported by investments in financial consultants and AI capabilities. The workplace retirement and stock plan business delivered strong NNA contributions, with meaningful long-term growth opportunity remaining.

Risks & headwinds

Management did not highlight material new operational risks or downside risks in the call. All risk-related forward-looking statements were limited to the standard general disclaimer that actual outcomes may differ from projected expectations.

Analyst Q&A

• Q: NNA accelerated to a record high in June. What is the sustainability of this trend, and how much growth comes from new clients versus existing client share gains? /

  A: Management reaffirms 5% or higher long-term NNA growth is sustainable, driven by the structural trend of clients consolidating financial lives with Schwab. Advisor Services continues to outpace competitors with over 6% NNA growth over the past four quarters, Retail Investor Services delivers steady growth supported by investments in financial consultants and AI, and the workplace retirement business is a growing contributor with large remaining upside. Broad-based deepening of client relationships is creating a virtuous cycle of new asset growth, with proprietary wealth flows up 86% year-to-date and PAL originations up 60% year-over-year. (337 characters)

• Q: Q2 saw record daily average trading activity. How much of this is structural versus market-driven, and is this level sustainable? /

  A: Management views the higher trading engagement as largely structural and sustainable. Growth is driven by expanding participation among young investors, growing comfort with options trading as a strategy for income and hedging, and increasing use of AI by clients to support trading decisions. While strong market returns have supported higher engagement, the underlying shift in client behavior is expected to persist long-term. (255 characters)

• Q: What was SpaceX's impact on June's NNA momentum, and what would be the impact of a broader reopening of the IPO window on businesses like securities lending? /

  A: SpaceX generated high client engagement and volume, but did not meaningfully impact core net new assets for Schwab, with June's strength coming from broad-based underlying business momentum. Management expects no meaningful uplift to securities lending activity from the SpaceX IPO, and notes securities lending (hard-to-borrow) activity has remained subdued for all of 2026, with no major improvement expected near-term. (249 characters)

• Q: How does Schwab plan to allocate free cash flow going forward, between loan growth, preferred equity reduction, share buybacks, and M&A? /

  A: The first priority for capital remains supporting client demand and franchise growth, particularly strong loan growth which has delivered incremental NIM expansion. Beyond that, management will opportunistically return capital to shareholders via buybacks when it makes sense. Organic growth is the current primary focus, and while M&A is never ruled out, it is not a near-term priority. (228 characters)

• Q: What is Schwab's stance on prediction markets and binary event options, including potential company KPI contracts? /

  A: Schwab is working with the CBOE on binary options rollout but has not set a public timeline. Management views economic and financial-event prediction products (including potential company KPI binary options) as relevant and useful for clients to use for information or hedging, and is open to supporting these. Sports gambling-oriented prediction products are viewed purely as entertainment, not investing, and Schwab will not offer these products. (266 characters)