Morningstar

Charles Schwab Earnings: Higher Interest Rates Slightly Overshadow Otherwise Stellar Quarter

We plan to lower our fair value estimate for Schwab stock by a low-single-digit percentage.

Exterior of the Charles Schwab Building in San Francisco.
Smith Collection/Gado via Getty
Securities in This Article
Charles Schwab Corp
(SCHW)

Key Morningstar Metrics for Charles Schwab

  • Fair Value Estimate
    : $124.00
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : Medium

What We Thought of Charles Schwab’s Earnings

Charles Schwab SCHW reported solid third-quarter results, with $7.2 billion in quarterly revenue (up 17% year over year) and $1.69 in adjusted diluted earnings per share (up 29%), as it makes progress on the strategic initiatives laid out in its 2026 investor day. Shares fell modestly after the release.

Why it matters: After digesting the results, our two key takeaways are that Schwab’s core business is extremely healthy, exhibiting no signs of intensifying competitive pressure that would support the artificial intelligence disruption narrative, and that a modest top-line miss and a (prudent) move to proactively shore up the balance sheet are responsible for the tepid market reaction.

  • The firm’s asset gathering was robust, with $190.4 billion in core net new assets (5.8% annualized), while engagement remains strong across the Schwab ecosystem. The firm saw 59% growth in pledged asset lines and 35% growth in bank loans, a key strategic priority as Schwab works to deepen touchpoints with clients and diversify its earning asset book.
  • While client cash balances declined 10 basis points sequentially to 8.9% of assets, they remain around where we would expect, considering higher short-term interest rates and strong equity market performance, both of which correlate with leaner cash holdings.
  • It was interesting to see Schwab add roughly $5.5 billion in more expensive short-term borrowing and long-term debt from a quarter ago (average balances), weighing on its net interest margin, which expanded very modestly to 3.04%. We view this as a prudent measure that assuages concerns about the impact of unrealized securities losses as long-term interest rates push higher. However, the net effect is slightly dilutive to net interest margins and returns.

The bottom line: As we digest the results, we plan to lower our $124 fair value estimate for wide-moat Schwab by a low-single-digit percentage.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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