Charles Schwab Corporation 10-Qquarter ended 2026-06-30
Positive
Advisor Services growth and lower funding costs lifted profitability; deposit outflows and lending growth increased short-term borrowing.
Filed 2026-08-07 16:31 ET
Key figures · Q2 FY2026 · period ended 2026-06-30
- Net revenue— Unavailable
- Net income$2.8BYoY +31.7%QoQ +12.9%
- Total assets$517.3BYoY +12.7%QoQ +4.9%
- Total debt— Unavailable
- Shareholders' equity$50.1BYoY +1.4%QoQ +1.9%
- Tangible book value$30.6BYoY +1.9%QoQ +3.6%
How this filing reads
- Health−0.2Deposits fell to $250B while short-term borrowings doubled to $13.9B; adjusted leverage reached 6.8%.
- Momentum+0.8Revenue rose 21% and GAAP net income increased 32% year over year.
- Outlook+0.3Quarterly core net new assets reached $120B and net interest margin was 3.00%.
Executive Summary
Schwab delivered broad-based growth in Q2 2026: revenue rose 21%, while slower expense growth lifted GAAP net income 32% and expanded pretax margin to 51.9%. Client inflows, trading activity and lending strengthened the franchise, while lower funding costs improved interest profitability. The tension is that loan and brokerage-receivable growth, deposit outflows and capital returns increased short-term borrowing and narrowed the capital cushion. For investors, the thesis is sustained client growth and operating leverage; the test is whether Schwab can preserve those gains without becoming more dependent on market funding.
Key Financial Highlights
| Metric | Q2 2026 / H1 2026 or quarter-end | Investor interpretation |
|---|---|---|
| Total net revenue | Q2 $7.07B, +21% Y/Y; H1 $13.6B, +18% | Growth extended across interest, asset-management and trading revenue. |
| GAAP net income | Q2 $2.80B, +32%; H1 $5.28B, +31% | Earnings outpaced revenue through operating leverage. |
| Diluted EPS | Q2 $1.54 vs $1.08; H1 $2.91 vs $2.07 | A lower diluted share count amplified earnings growth. |
| Pretax margin | Q2 51.9% vs 47.9%; H1 50.6% vs 45.9% | Revenue growth exceeded expense growth. |
| Net interest revenue | Q2 $3.36B, +19%; H1 $6.50B, +18% | Lower funding costs and lending growth outweighed lower asset yields. |
| Total assets | $517B, +5.4% since year-end | Lending and brokerage financing expanded the balance sheet. |
| Total stockholders’ equity, including preferred | $50.1B, broadly flat | Capital returns limited retained capital growth. |
| Tangible common equity, calculated | $24.4B | Excludes preferred stock, goodwill and acquired intangibles. |
- Revenue mix: net interest revenue contributed 47% of Q2 revenue, asset-management fees 26% and trading 17%; diversification still leaves substantial interest-rate exposure.
- Cash conversion: H1 OCF $11.6B vs net income $5.28B; cash capital expenditures $325M → FCF $11.3B. Segregated-investment releases and large receivable movements materially affected OCF, so it is not a clean measure of distributable earnings.
- Technology investment: H1 reported capital expenditures $965M included a $633M multi-year software license recorded with a corresponding liability; this explains much of the difference from cash capital expenditures.
- Capital return: H1 repurchases $3.41B; estimated common shares outstanding fell ≈1.7%, from ≈1.76B to ≈1.73B, net of issuance. Stock-based compensation was $211M; repurchases genuinely reduced shares rather than merely offsetting issuance.
- Comprehensive income: H1 $5.69B vs $6.29B despite higher earnings, reflecting smaller securities-related gains and a $540M pretax cash-flow hedge unrealized loss.
- Acquisition accounting: goodwill $12.3B and acquired intangibles $7.28B constrain tangible equity; Forge added $339M and $320M, respectively.
Business Developments
- Client acquisition: Q2 core net new assets $120B, +49% Y/Y; new brokerage accounts 1.39M, +26%. Client assets reached $13.1T, +22%, supporting fees, although market appreciation also contributed.
- Advisor Services: Q2 revenue $1.54B, +27%, and pretax margin ≈52.1% vs 43.5%; this channel grew faster than Investor Services and increased its earnings contribution.
- Product expansion: Schwab acquired Forge for $636M to expand private-market access; Q2 contributions were $40M revenue and a $33M net loss. Its phased bitcoin and ether launch began in May using Paxos for sub-custody and execution; both initiatives broaden the offering but add integration or custody exposure.
Risk Assessment
- Funding and capital: bank deposits fell to $250B while other short-term borrowings doubled to $13.9B; the adjusted leverage ratio reached 6.8%, near management’s 6.75%–7.00% objective’s lower boundary, limiting flexibility for further returns.
- Rates and valuation: modeled −100bp → 12-month net interest revenue −1.6%, improved from −5.3%, but assumption-dependent; held-to-maturity securities’ fair-value shortfall widened to $9.36B.
- Collateral and counterparties: pledged collateral increased to $148B from $79.3B as securities financing expanded, increasing liquidity exposure to collateral-value changes and counterparties.
- Market dependence: higher asset values and trading volumes support fees, but Q2 revenue per trade fell 19%, making monetization more volume-dependent.
- Credit concentration: past-due and nonaccrual loans rose to $151M from $92M; California represents 40% of first mortgages and home-equity lines despite strong borrower and collateral metrics.
- Crypto custody: client assets lack deposit or securities-investor protection; sub-custodian failure or theft could cause irreversible losses, remediation costs and reputational damage.
A 10-Q does not have to restate the risk factors in the annual report. Full list: the company's 10-Ks on SEC.
Strategic Outlook and Investor Actionables
Management is betting on client acquisition, lending and broader investment access to sustain growth. The opportunity is scalable fee and interest income; the threat is that funding requirements and capital returns outrun internally generated capital.
- Client franchise: core inflows start at $120B in Q2. Sustained inflows and account growth would validate organic expansion; weaker inflows despite rising markets would undermine it.
- Trading economics: daily trades reached 11.9M, but revenue per trade fell to $1.64. Durable trading revenue with stabilizing monetization would support the thesis; fading activity and further yield declines would weaken it.
- Funding profitability: Q2 net interest margin reached 3.00% vs 2.66%. Preservation alongside deposit stability would validate funding improvements; rising borrowing reliance and margin compression would reverse them.
- Capital discipline: adjusted leverage starts at 6.8%. Maintaining management’s range while assets grow would support capital returns; further erosion would constrain them.
Figures are computed from the filing's XBRL data; the summary and scores are written by an AI model reading the filing.
Model 006 · prompt bdad6d7239