Charles Schwab (NYSE: SCHW) posted a quarter that checks every box. Record revenue. Record earnings. Asset inflows that dwarf most competitors' total client bases. Adjusted diluted EPS of $1.69 beat the $1.66 consensus by $0.03 and rose 29% from $1.31 a year ago. Net revenues hit $7.2B, up 17% year-over-year, just a hair below the $7.18B estimate. The headline numbers are strong. The underlying mechanics are more interesting.
The headline-grabber is core net new assets: $190.4B. That’s a record, up 38% year-over-year, an annualized growth rate of 5.8%. It came from 1.2 million new brokerage accounts. The composition matters. Schwab Wealth Advisory net flows jumped 55% year-over-year, and managed investing solutions net flows rose 22%. Clients are moving into fee-generating advisory relationships, not just parking cash. Asset management and administration fees grew 14% to $1.9B, and the fee rate on managed investing solutions held steady at 0.31%. A durable revenue stream with operating leverage built in.
The trading story is more nuanced. Trading revenue rose 16% to $1.2B. Daily average trading volume, however, surged 44% to 10.7 million. Revenue per trade fell 20% to $1.69, reflecting a mix shift toward lower-revenue-per-trade activity. Volume growth is real and speaks to retail engagement. But revenue capture per trade is compressing. That's a structural trend, not a quarterly blip.
Net interest margin expanded to 3.04% from 2.88% a year ago. Higher interest-earning assets (up 8% to $451.5B) and disciplined funding costs supported the move. Transactional sweep cash balances rose to $492.8B, up $7.1B sequentially. The real story on the balance sheet is the explosion in margin loans. Margin loan balances jumped 14% quarter-over-quarter to $187.9B, including $60.7B tied to long/short strategies. That’s up from $2.8B in average margin loans for those strategies in the year-ago quarter. This business, where Schwab earns a fixed net yield, is scaling fast. It is a high-margin, low-capital-intensity revenue stream that does not show up in interest-earning assets. The $130M in "other interest revenue" this quarter, up from $57M a year ago, is largely driven by this business. A $73M year-over-year swing from a business that barely existed two years ago.
An adjusted pre-tax profit margin of 54.8% is impressive, up from 51.3% a year ago. GAAP expenses rose 9%, but revenue grew faster. The $151M in transaction-related costs (amortization of acquired intangibles and integration costs) is a recurring feature of the post-TD Ameritrade merger landscape, though it is slowly declining as a share of revenue. The adjusted return on tangible common equity of 44% reminds us of the capital-light nature of the custodian model.
Schwab repurchased 4.7 million shares for $0.5B during the quarter. If sustained, that pace would retire about 1% of shares per quarter. The diluted share count fell 4% year-over-year to 1.733B. That is meaningful accretion, especially given the 25% annualized return on average common equity.
The company didn't issue explicit forward guidance. The Fall Business Update webcast this morning may provide more color. For the rest of 2026, the key question is whether the long/short strategy growth can continue at this pace, and whether advisory fee momentum can offset the structural decline in revenue per trade. Schwab's model is diversifying away from pure trading volume toward wealth management and structured lending. This quarter suggests that transition is working.