Schwab Charles Corp Q3 FY2025 Earnings Call

Good morning, everyone, and welcome to Schwab's 2025 Fall Business Update, broadcasting live from our Westlake headquarters. This is Lauren Gaspar, Managing Director of Investor Relations, and I am joined by President and CEO, Rick Wurster and CFO, Mike Verdeschi. Hopefully, everyone has had an opportunity to review our strong results for the third quarter released about an hour ago. The team is looking forward to sharing additional insights into those results, along with the broader strategic and financial update as we head into the final chapter of 2025. As always, let's quickly hit on the typical housekeeping items. The slides for the business update will be posted to their usual spot on the IR website at the conclusion of today's prepared remarks. Q&A remains structured as one question, no follow-ups. And please, let's try to avoid the multilayered questions disguised as one. This will allow us to address as many questions as possible during our time together. As always, please don't hesitate to reach out to your friendly IR team with any follow-up questions after today's business update. And last but certainly not least, everyone's favorite part of these business updates—the forward-looking statements page. Given the importance of these statements, I would like to break from tradition and read them out loud in their entirety. Just kidding, but seriously, they are important. So do take a look at them and remember that outcomes can differ from expectations, so please keep in touch with our disclosures. And now it is my pleasure to turn it over to Rick to start us off.

Thank you, Lauren, and thanks, everyone, for joining us for our fall business update. Our Through Clients' Eyes strategy continues to drive growth on all fronts. In the third quarter, clients opened 1.1 million new brokerage accounts and trusted Schwab with approximately $138 billion in core net new assets. Year-to-date, we've attracted nearly $356 billion in core net new assets. Clients are deepening their relationships with us by conducting more of their financial lives here, as seen by our record wealth and lending flows. Daily average trades remained above $7 million for the third consecutive quarter, and margin balances reached a record $97.2 billion. With engaged clients, a supportive market, and strong execution, we delivered another quarter of record results, with 27% year-over-year revenue growth and 70% year-over-year adjusted earnings growth, and we returned excess capital in multiple forms. As we head into the final stretch of 2025, we are playing offense with ongoing investments that will continue to drive profitable growth through the cycle. Equity markets reached all-time highs in the third quarter, and investor sentiment landed in bullish territory. We are here to support investors through market cycles and make a difference in their financial lives. This quarter, I visited 19 of our branches across the country, several of our Schwab Wealth Advisory offices, and met with multiple dozens of our RIA clients. Broadly speaking, our clients are happy because markets are up. Client wealth is at an all-time high, and they are asking us how to protect it, pass it along, and grow it. And this is when they turn to Schwab. We provide exceptional service platforms and advice in the channel of our clients' choice. In the third quarter, we supported nearly 570 million digital logins, 7 million calls, 36% growth in interactions with our research content, and thousands of interactions in our 400 branches in local communities across our country and overseas. We are here for clients when, where, and how they need us. Our Through Clients' Eyes strategy, combined with our diversified business model and ongoing investments in client experiences and capabilities, is powering growth on all fronts with clients across our solutions and on all financial measures. Starting with client growth, investors opened more than 1 million new brokerage accounts, and we attracted core net new assets in the third quarter, a 44% increase over last year. We said we'd make progress in getting back to our historic organic growth range. And as you can see, we've made substantial progress on our path to 5%. We believe we are positioned incredibly well in the 2 fastest-growing areas of the market. Through the cycle, we remain confident in our ability to grow at levels consistent with our historic range. This quarter, our strong net new assets were helped by the market environment, improvement with legacy Ameritrade clients, and high client satisfaction and engagement. We're continuing to deepen relationships with former Ameritrade clients who have been positive contributors to net new assets throughout 2025. While they have not yet reached the organic growth rate levels we see among legacy Schwab clients, Client Promoter Scores among former Ameritrade clients have improved 11 points this year. Turning to our solutions growth, clients are deepening their Schwab relationships by conducting more of their financial lives with us across our wealth, lending, and trading solutions. Managed investing net flows increased 40% year-over-year, with 30% of flows from legacy Ameritrade clients. Schwab Wealth Advisory, our flagship wealth offer, achieved another quarter of record flows and continues to delight clients with a record Client Promoter Score of 85. Bank lending balances are up 24% overall, with Pledged Asset Line balances reaching record levels. Traders continue to turn to us for our world-class offerings. Thinkorswim adoption among Schwab legacy clients has increased by 98% over last year. We're also here for our clients who are looking for crypto exposure. Visits to our digital assets content on schwab.com are up 92% year-over-year, and Schwab has approximately a 20% share of the spot crypto ETP market. We know that our clients who have allocated a small portion of their portfolios in spot crypto at other firms are eager to bring those assets to Schwab. We remain on track to launch spot crypto in the first half of 2026, starting with Bitcoin and Ethereum. We'll launch this offering to Schwab clients with a powerful combination of education, research, risk management, and the service clients expect, all at great value. Our offering will allow clients to access crypto directly alongside their existing investments and our banking capabilities, which will be a strong differentiator. Our financials are the third dimension of growth, and we delivered record results this quarter. Net revenues increased 27% year-over-year to a new quarterly record, and we delivered record quarterly adjusted earnings per share of $1.31. As we look to the future, we're confident in our ability to continue driving growth on all fronts and across a range of environments, and I'll spend the next few minutes highlighting why. One, we are in a strong competitive position. We serve 45 million client accounts and $11.59 trillion in assets, making us #1 among peers who report on that metric. We are #1 in RIA custodial assets and we're #1 in retail trading as measured by daily average trades with no close second. We continue to receive recognition from respected third parties because we stand apart by putting clients' financial well-being at the forefront of every decision. Our no trade-offs approach offers an unmatched breadth of capabilities, education, research, and service with a combination of industry-leading digital experiences and deep client relationships to help clients achieve their desired outcomes. Two, our business fundamentals are healthy. We look at this across a few dimensions. First, clients are highly engaged with both Schwab and the markets. Total client interactions within our branches, on chat, email, and on the phones are up 19% year-over-year. And we exceeded 500 million digital client logins across mobile and web for the third consecutive quarter. Daily average trades remained above $7 million during the quarter, and clients have increased their use of margin to record levels, up 33% over last year. Second, we're delivering world-class service. We're answering the phones in less than 30 seconds on average, and more than 75% of questions are answered without the need to transfer the call. And third, most importantly, clients are happy. Overall satisfaction scores for our service organization are at an all-time high of 88%. Client Promoter Scores for IS and AS are at record levels, meaning we are delivering for clients when and where they need us. It's important to remember that for 50 years, we have championed our investors' financial goals and done everything we can to make clients better off in their financial lives. Three, we're attracting a diverse range of clients. We're continuing to attract and serve RIAs of all sizes, and our Advisor Services business is thriving. In our Retail business, we are attracting and serving investors of all ages, and we see significant engagement from younger clients. When we think about our mission and the opportunity to get more Americans invested, it is encouraging that industry research shows Gen Z is 45% more likely to start investing by the age of 21 compared to Millennials. And we see these trends playing out among our client base. This year, nearly 1/3 of new-to-firm retail households at Schwab are Gen Zers, investors between the ages of 13 and 28. One of the reasons they're turning to Schwab is because we're meeting them in the channels where they turn for information about investing. We know they learn about finances primarily through social media and family. Their top online resource is YouTube, and we're the #1 financial services firm on YouTube by followers. And younger investors at Schwab are highly engaged in building their wealth over the long term. In fact, 1/3 of retail households who created a financial plan within the last 2 years are under the age of 40. While client assets are more concentrated among older generations today, the average age of our clients continues to get younger. Finally, a growing portion of new-to-firm households are traders. Traders of all ages and experienced levels are coming to Schwab, including younger traders. Younger traders are turning to us because they recognize the potential that trading has in helping build wealth over time. And they're turning to Schwab because we have the platforms, tools, education, coaching, expertise, and service they need to help them succeed, a combination they cannot find anywhere else. Finally, we remain committed to our 4 strategic focus areas to meet the evolving needs of our clients. At the start of the year, I laid out our priorities: growth, scale and efficiency, the brilliant basics, and our people. I'll spend just a few minutes sharing highlights on the progress we've made. Our first focus area is driving growth by deepening relationships with our clients. I'll highlight just a few ways we're delivering on this priority. In our Advisor Services business, we're deepening relationships with the 16,000 RIA firms we serve by building a broader support ecosystem that extends beyond custody alone to add value for RIAs. We've grown our lending support, alternatives capability, and expanded our institutional no transaction fee mutual fund platform to include funds from nearly 60 managers with no transaction fees for clients. We also launched Advisor ProDirect, which helps breakaway advisers on their path to independence. Finally, we supported the largest adviser transition in the history of our industry by welcoming OpenArc to our platform in September. In our retail business, we're expanding our branch footprint and hiring financial consultants and wealth consultants to serve even more of our higher net worth clients. These investments are important because we know that clients who have a financial consultant relationship have higher Client Promoter Scores while also bringing in more than 2.5 times the net new assets and engaging more in our trading, wealth, and banking solutions. We're investing in deepening relationships within clients and enhancing how we support their financial life. We've enhanced Schwab Wealth Advisory, adding a discretionary offer. We've launched alternatives. We've invested in tax, trust, and estate capabilities, and we've added more experts to support more clients. Within our banking offer, our budget asset line experience continues to lead the industry with cycle times of about 1 day, and clients can now borrow against most managed investing assets they hold at Schwab, meaning they can borrow more. And we're continuing to invest in our trader experience. Our second focus area is creating value with scale and efficiency. These initiatives, which are primarily centered within service, operations, and technology, are a win for clients and are also helping enable us to keep our cost to serve clients low so that we can reinvest in our growth. We're using AI to supercharge our professionals through capabilities like our Schwab Knowledge Assistant and the rollout of our service AI assistant, which helps our client-facing professionals create post-call summaries and notes, among other capabilities. These efforts will help our representatives serve clients more efficiently. We've also made progress on improving status notifications to clients and removing more paper from our system, reducing errors and saving time for our clients and professionals. Our third focus area is delivering on the brilliant basics. At the heart of it, this means being there for clients when and where they need us and delighting them in every interaction they have with us. It means our systems are available and experiences are easy. One measure of this is our Client Easy Scores, which are near all-time highs: 94% for our retail client service organization and a 93% ease of doing business score for Advisor Services. Finally, our finance team has done a great job of enhancing our approach to managing our balance sheet. Last but not least, the fourth focus area is investing in our people. We couldn't do what we do without 32,000 employees working together, united by a single mission. We're continuing to invest in our people and culture to retain and attract the best talent in the industry. To wrap up, we've sustained positive momentum through 2025 and are continuing to deliver growth on all fronts. We are looking toward the future from a position of strength, continuing to play offense to power profitable growth over the long term. With that, I'll turn it over to Mike to dive into details on our financial results.

Thank you, Rick, and good morning, everyone. Schwab delivered strong third-quarter results across all fronts, highlighting our momentum as we continue to meet the evolving needs of individual investors and independent advisers. The combination of our firm's focused execution across key strategic objectives and favorable macro tailwinds yielded record results. We saw another step-up in our organic client growth trends during the period, and client engagement across our broad suite of products and solutions also remained robust. This sustained momentum translated into record revenue and earnings for the quarter, including year-over-year revenue growth of 27% to $6.1 billion, adjusted pretax margins exceeding 51%, and adjusted earnings per share of $1.31, an increase of 70% versus Q3 '24. Client cash levels continue to reflect normal behavior, inclusive of organic growth, seasonality, and strong client engagement as equity markets reached record levels. We made further progress in reducing supplemental borrowings, which ended the quarter at $14.8 billion or just within the upper bound of our business-as-usual range. We also returned meaningful excess capital via common stock repurchases. Inclusive of these actions, our capital ratios stayed relatively flat versus the second quarter finishing Q3 slightly above our target range. Now let's unpack some of the key drivers influencing these record Q3 results before sharing our perspectives on the final chapter of 2025. Revenue increased 27% year-over-year to a record $6.1 billion for Q3, the fourth consecutive quarter of double-digit year-over-year growth across all major line items. Our further reduction in supplemental borrowings at the banks, client loan growth, and another strong quarter for securities lending activity helped expand net interest margin and empower a 37% increase in net interest revenue versus Q3 '24. Strong equity markets, healthy asset gathering, and sustained client interest in Schwab's wealth and asset management offerings drove 13% year-over-year growth in asset management and administration fees to a record $1.7 billion. Trading revenue was up 25% versus Q3 '24 as our leading retail trading platform facilitated another robust quarter of activity, including 7.4 million daily average trades and approximately $6 trillion of gross notional value traded across equities, ETFs, and mutual funds. Bank deposit account fees moved higher year-over-year due to an improved net yield as lower-yielding fixed-rate obligations continue to mature and converted into the floating rate bucket. September marked an inflection point for the BDA as we transitioned into the new $60 billion to $90 billion operating range for the remainder of the agreement, gaining the flexibility to move balances between the BDA and our balance sheet. During the third quarter, we transferred $3 billion worth of balances to Schwab to accelerate the paydown of bank supplemental borrowings. Turning to expenses, adjusted expenses for the quarter were up 5% versus Q3 '24 as we continue to make ongoing investments to support sustainable growth, including opening new branches and hiring financial consultants, supported by very strong and sustained client engagement across our broad suite of modern wealth solutions, and seek to further unlock incremental efficiencies across our business. Further progress in reducing high-cost borrowings at the banks, equity market strength, and sustained trading volumes drove regular top-line growth. In conjunction with balanced expense management, Schwab's adjusted pretax profit margin reached 51.3%. Quarterly adjusted earnings per share equaled a record $1.31, a year-over-year increase of 70%. Note that Q3 EPS included a $0.03 benefit related to state tax matters. With the majority of this benefit realized in Q3 '25, we expect our corporate tax rate to remain around the 23% to 24% zone in future periods. Moving on to our balance sheet. We supported our clients as their needs evolve against a shifting backdrop. Client demand for our lending solutions increased during the quarter. Outstanding Pledged Asset Line balances grew to $23.4 billion, representing a year-over-year increase of 37%. Client margin loan balances rose to $97.2 billion at quarter end, up 16% versus year-end 2024, reflecting rising equity markets, improved investor sentiment, and certain tactical client trading activities, such as long/short strategies. Transactional sweep cash trends continue to reflect normal client behavior. Following modest outflows during July and August related to typical seasonality and client net buying activity, we saw $19 billion of cash inflows in September to bring the quarter-end balance to $425.6 billion, which represents a quarter-over-quarter increase of $13.5 billion or approximately 3%. This sequential building cash, along with the use of investment portfolio proceeds and balances transferred from the BDA, allowed us to further reduce high-cost funding at the banks. We'd expect normal cash behavior to continue in Q4, including typical seasonality, such as adviser payments in October and the December cash build. Staying on high-cost bank funding for a moment, we made great progress during the third quarter, reducing supplemental funding balances by another $13 billion, bringing outstanding balances down to $14.8 billion or approximately 85% below the peak in May 2023. This level is just inside the upper bound of our business-as-usual range of approximately $5 billion to $15 billion, which aligns with our long-term diversified funding profile. While outstanding balances may come down further and move around this range over time, we'll continue to support client loan needs and begin to focus more on new security purchases versus paydown activities. Our capital levels finished the quarter slightly above the upper bound of the firm's adjusted Tier 1 leverage objective of 6.75% to 7%. The quarter-over-quarter build was primarily driven by earnings and the continued pull to par of unrealized marks. The ratio also reflects our repurchases of common shares for $2.7 billion, bringing year-to-date total capital return across all forms to $8.5 billion. Looking ahead, we will continue to prioritize maintaining capital to support the needs of our clients and the growth of the franchise, while returning excess capital in multiple forms as part of our through-the-cycle financial growth story. Turning to our full year 2025 scenario. During the summer business update in July, we provided an updated financial scenario informed by several inputs, including a mid-July forward interest rate curve calling for 225 basis point cuts to the Fed funds target rate, equity market appreciation of roughly 9% for the full year, and client trading volume that represented a slight pullback from levels observed during the first half of the year. Moving forward to today, the interest rate curve now calls for a total of 325 basis point cuts during 2025 versus a previous expectation for only 2 cuts. Markets continue to move higher during the third quarter, and client trading remains robust. However, the last couple of weeks remind us that the environment can shift quickly. So in terms of the remainder of the year, we are likely to see various puts and takes as both rates and the broader markets evolve with the macroeconomic backdrop. So far in October, we continue to see good engagement from clients, which can increase revenue as well as volume-related expenses. Assuming this engagement persists, we could see a lift in earnings of around 2% or a bit better relative to the upper end of the financial scenario range we shared back at the July business update. In terms of next year, we are still working through our annual planning process, but we expect to keep building upon our 2025 momentum. And like most years, we will need to navigate in an evolving macroeconomic environment, including potential shifts in sentiment and engagement levels. We remain confident in our ability to continue balancing the investments necessary to support the needs of our clients while delivering on our near-term financial objectives, such as top-line growth and positive operating leverage across a range of environments. So please stay tuned, and we'll come back to you with a more detailed 2026 financial scenario in January. In closing, as we approach the final months of 2025, we are excited with our progress to date. Momentum with clients continues to strengthen as they entrust us with an increasing amount of their assets and execute our broad suite of solutions, including wealth, trading, asset management, and banking. Schwab's diversified model, along with record equity markets and strong client engagement, have positioned us to deliver record financial results for the full year. While that is certainly a great position to be in, obviously, our time horizon extends beyond a single year. We remain relentlessly focused on maintaining the strength of our diversified model with the ability to efficiently serve the needs of individual investors and the independent advisers who serve them through a range of environments.

Thanks, Mike. Operator, can you please walk everyone through the instructions for the Q&A session?

Our first question comes from Ben Budish with Barclays.

Rick, you talked a little bit about the Advisor business in your prepared comments. I was wondering if you could unpack the recent trends a little bit more. It seems like from some of your other publicly traded peers, they're calling out a bit of a slowdown environment across the industry, maybe since April the kind of volatility events we've seen your results seem to be bucking that trend. So could you talk a little bit about what's going well more recently? To what extent is the NNA growth in that channel coming from existing advisers versus kind of net new firms to Schwab? Maybe talk a little bit about your engagement and activity with sort of legacy Ameritrade advisers that are now part of Schwab. Help us understand a little bit what's going on there?

Ben, thanks for the question. Our Advisor business is really thriving and growing at an accelerated rate. We've seen net new asset pickup substantially in our Advisor business this year versus last year. And I think it's a combination of things. Number one, I think we're executing and delivering for clients as strongly as we ever have. And part of that is having gone through the integration with Ameritrade, where we picked up some capabilities, integrated them into Schwab's already strong offering and put them together. And so I think we had some clients, particularly Ameritrade clients, and others who during the transition were wondering how it's going to play out. And now they've had the chance to see how strong the combined offering is, and they're loving it. And so we're winning on all fronts concerning advisers. And I'm not surprised that's resulting in others growing more slowly because our metrics, like transfer of asset ratios and things like that, are up meaningfully over last year, meaning we're winning more and more this year. You asked about what's driving it. We see it across every dimension. We look at growth in a few different fronts. First, growth from existing clients of advisers that we already work with—existing advisers that bring on new business and win new business at the direct towards us—and then new advisers that transition to us. And across every one of those dimensions, we've seen an acceleration. In particular, among advisers converting to us and choosing independence and choosing to be with Schwab, and why wouldn't they? I think our offer is far and away the best in the industry, and I think that's reflected in the net new assets that you're seeing.

Our next question comes from Alex Blostein with Goldman Sachs.

I was hoping you guys could expand on dynamics you're seeing in sort of core deposits, really nice build over the course of the quarter. And more importantly, as you think about the trajectory of interest rates and sort of sensitivity to the trajectory of core deposits on the back of that, how are you thinking of that over the next couple of quarters here? Because obviously, it's a pretty important component to the overall earnings growth profile.

Alex, thank you for the question. As we've said, we've looked at deposits this year, and we're seeing really that normal environment play out. In that normal environment means you're seeing us attract deposits just from core growth, of course, where—as we're growing net new assets, a component of that is going to be in cash. We typically see seasonality, of course, as well. And so that's played out from quarter to quarter. And then, of course, client sentiment plays a big part in that as well, where early in the year, you saw a more pronounced selling and then subsequent months, cash going back into the market as clients began to continue to engage and invest. From here, the path of rates, if you look at the forwards, is, of course, rates heading lower. We tend to pick up cash in that environment; how much remains to be seen. But we feel really good about what we've seen this year. Cash is still operating in that normal environment, again, with an ability to pick up cash as rates begin to trend lower from here. So we think that will be supportive of continued strong earnings as we go into next year and conduct activity throughout the year.

Our next question comes from Ken Worthington with JPMorgan.

Are you looking at crypto as a driver of near-term profit? Or is crypto really about bringing in the next generation of future Schwab investors? And to what extent is aggressive pricing below the level of competitors like Coinbase and Robinhood a factor that you're using to drive crypto clients to Schwab?

Ken, great to hear from you, and thanks for the question. First, we're winning in crypto today. Our clients are highly engaged. Our traffic on our crypto site has gone up 90% year-over-year. Our clients own 20% of the crypto exchange traded product in the industry. And so most of our clients, we find, are not using coins to transact on the blockchain; most are wanting to get invested in the price change of crypto. And they feel very comfortable doing that in ETFs with a company they really trust. And so that's why we're seeing what we're seeing in crypto. That said, we do want to launch spot crypto, and I hear from clients all the time that, hey, I've been a longtime Schwab client. I've got 99% of my assets with you, but I've got a little account over at a digital-native firm where I keep my crypto, and I can't wait until I can bring it back to Schwab. And we're incredibly excited about that. In terms of both profitability or using it kind of to attract the next generation, I would say both to that. And here's why I would say that is the spreads at the moment and the amount of money that these digitally native firms are making in crypto are enormous. You can see it in the revenue on client assets of some of the digital and native public firms. And so there's room, I think, to be both aggressive on price and to deliver great value and generate a profit for the firm. So I think that's how I would think about it. In terms of attracting the next generation, Ken, I want to be really clear. Crypto will be great for clients and will certainly appeal to young investors, but we are absolutely reaching out to young investors today. One in 3 of our new-to-firm household numbers, which are really strong new-to-firm numbers are under the age of 24. One-third are Gen Zers under the age of 28, and they're not just engaging with us in trading. They're engaging with us across the board. They're responsible for a lot of the financial planning conversations that we've had. They'll come in and want to consolidate loans into a pledged asset line balance so that they can pay off their student debt. They'll talk to us about how to buy a house in the future. These are clients that really want to be investors for the long term and want our help navigating it. No one can compete with us as it relates to delivering for the young investor. I have 1,000 colleagues that wake up every day that are former trading professionals who answer the phones for any investors that want advice and expertise on how to trade. We put on 35 hours a week of live content for our investors about how to learn, how to trade, how to learn how to invest, the power of things like compounding. The engagement in those types of things is off the charts. So I think what we can offer the young investor in terms of support, service, education, and, of course, leading platforms with thinkorswim and our digital capabilities is unmatched, and that's why we're having so much success with young investors. I think crypto will be additive, but we're already winning with them.

Our next question comes from Brennan Hawken with Bank of Montreal.

Now that we have the wholesale funding back in the normal operating range, Mike, as you called it, we saw some BDA movement, as you identified in between the cash buckets. How are you thinking about redeployment and reinvestment? Should we be thinking that securities will be the likely target? And what level of duration would you expect? Or is the floating-rate bucket on the BDA side attractive as a capital-light option?

Thank you for the question. So yes, we're happy with the progress we've made in the pay down. We could see a little bit more reduction in that supplemental borrowing balance. But you're right; as we have now cash coming in, we will deploy that into, of course, meeting our client borrowing needs. We've seen good momentum in lending, and we will continue to deploy funds, of course, to support that need. We, of course, have the opportunity then as well to invest in securities. And that's with new cash, but also as we see the securities portfolio maturing, we'll reinvest those proceeds. Keep in mind those yields on the existing securities are under 2%, so we'll get a nice lift on that. You asked about the duration. I've talked about this before, where the average duration for the portfolio will probably be in that 2- to 4-year range. That will give you some sense of where the overall duration will be. That will be a function of how we look at the liability side of the balance sheet and the composition of deposits. You can have certain investments that are shorter than that 2 to 4 years, some that could be longer. Certainly, agency mortgages will extend a little bit beyond that, but we could buy very short-dated treasuries as well. But we're going to maintain that 2- to 4-year duration. In terms of the BDA, this is something that gives us a tremendous amount of flexibility. In terms of size, it's $60 billion to $90 billion, the range that we operate in, but it also allows us to manage across our risk types efficiently, and that means capital, liquidity, and our interest rate risk profile. So as you saw us do less in the third quarter, we moved funds from the BDA onto our balance sheet and used those proceeds to pay down supplemental borrowings. But of course, we have the flexibility to place proceeds into the BDA, and that could help us with our interest rate risk management profile where we could either place it at a floating rate or, if we wanted to match off some of our deposits, we could also place it at a fixed rate. And of course, as we've talked about before, if we wanted to free up some capital, we could also place some funds into the BDA with that consideration in mind. I think from here, we're in a really good position to continue to meet the needs of clients in terms of their borrowing needs while also investing in securities in that 2- to 4-year duration, which will give us a very nice lift in earnings as well.

Our next question comes from Dan Fannon with Jefferies.

Rick, I wanted to follow up on just the Ameritrade customer. You mentioned that growth is improving, but that's still not where you want it to be. So I was hoping you could put some numbers around that and or think about the journey and how long it will take to get them to the appropriate growth rates you are expecting.

Yes. Thanks for the question, Dan. I think we have continued upside with our Ameritrade clients. If you look at the last 18 to 24 months, they've gone from being net negative contributors to net new assets to being net positive— not yet at the level that we see from legacy Schwab clients, but I think that's just a matter of time. The reason I believe that's just a matter of time is a couple of things. When we measure their client satisfaction scores relative to Schwab clients, they've gone up dramatically over the last 12 months, but even more so if you look over the last couple of years. So that's really encouraging. I also—when I get the chance to be in our branches and talk about how our Ameritrade clients are doing or talk to them. They've gone from being frustrated that they got moved to another firm without being asked and trying to figure out how to navigate a completely somewhat new platform to saying, I don't know how I lived without Schwab while I was at Ameritrade; we have so much more here. We see that because they're engaging in banking, they're engaging in wealth. I think they account for 30% of all our record wealth flows that we're seeing. They're engaging in all kinds of activities that they didn't have access to at Ameritrade. So I am bullish about our ability to get them to the level of net new asset growth that we see from Schwab clients. I'm hopeful that the progress we've seen in going from negative to 0 to now positive—with still a few percentage gaps between Schwab and legacy Ameritrade—but I am confident in the coming months that we'll continue to make progress in closing that. I couldn't be more enthusiastic about what we're seeing from our Ameritrade clients and how we're showing up and delivering for them.

Our next question comes from Brian Bedell with Deutsche Bank.

Maybe, Mike, just back on the guidance for the rest of the year. Any color on the revenue and expense components of that? Obviously, things are trending much better than initially expected. So I just wanted to see if you were able to offer a range? Or how much you think we could be beating that 18.5% to 19.5%. And then similar on expense, obviously, that would bring higher expenses, of course. But would we still be in that range? Or are you targeting a specific margin target? And then I guess any color on Q4 NIM and NII, if we think NII can expand at least in Q4 given the balances are growing nicely?

Brian, thanks for the question. A lot packed in there. So as you know, we provide the scenario twice a year, meaning that we give you a preliminary scenario in January. We updated it in July. What we wanted to do today is really just provide you with the direction of travel. As we've been saying, we've seen outstanding client engagement. The macro environment has been favorable. I wanted to give you the direction of travel where I mentioned earnings, again, relative to that July updated scenario, the top end of that range implied EPS of up 2% or a bit better. So you will see a lift in earnings is what we're expecting. The components include a lift in revenue. We're not going to update the range, as I mentioned, a lift in expenses as well. Again, this is volume-related, therefore, variable expenses. Where we updated the scenario in July, we gave that 5.25% top end of that expense range, so we'll be up against that or a bit above. That will just depend on client engagement and volumes. But again, keep in mind that is going to be seeing revenue on the other side in terms of transactions and overall earnings accretive. What pretax profit margin? The way I think about it is that's a result of a very well-balanced approach to how we manage our financials. The more we see clients engage with us across our suite of products, we see good revenue diversification coming out of that. And of course, with our expenses, we take a balanced approach. We're making resources available for growth, but we're also investing in efficiency. That supports durable earnings across a range of environments. The pretax profit margin is really an output of how we manage that balanced approach with revenue diversification and expenses. You asked about net interest margin; we're up this quarter. Keep in mind that we now have 3 cuts—at least that's what the market indicates—for the full year. We expect to still be in the 2.80s for net interest margin to close out the fourth quarter. We'll come back to you in January with the 2026 scenario at that time. Again, based on what we see today, rates will be around that 3% range to end the year. We feel really good about the ability to continue to drive our earnings in a range of environments, even in that lower rate environment. On the NIM side, we talked about asset sensitivity before. We have some asset sensitivity; however, we were proactive in cutting out roughly 1/3 of that net interest revenue sensitivity. As I mentioned earlier on this call, as rates head lower, we tend to pick up cash, and that will be a nice offset as will be the reinvestment of securities. So even in that lower rate environment despite the asset sensitivity, I expect some meaningful offset to the impact of lower rates and the impact it would have on NIM. We feel really good heading into 2026.

Our next question comes from Bill Katz with TD Cowen.

It seems like there's a significant inflection in the business here now that you're done sort of paying down the—predominantly done paying down the high cost. Your organic growth is great. Cash is building a little bit. So how should we think about the interplay between interest-earning asset growth and capital return? Clearly, bought back a ton of stock this quarter, off to a good start relative to the $20 billion. Just trying to think through where you are strategically thinking about driving balance sheet growth versus maybe more sustained capital return to investors.

Thank you. This year, as we've talked about with the paydown of supplemental borrowings, interest-earning assets will probably come down modestly. Now that we've paid down the vast majority of those borrowings—as I said earlier, we'll probably pay down a little bit more there. You're likely to see us in the lower end of that supplemental borrowing range that I provided earlier. Over the course of next year, I think it will be more about the growth of our client borrowing needs. We've seen good momentum in lending in a range of environments, and we would expect that to continue. But again, I think that would be reasonably modest growth of interest-earning assets. Again, we'll come back to you with a scenario that's more specific, but on the capital side, we also feel very good in this environment where we've been able to return capital across our framework. As we've said before, that's an important part of our financial story. We're generating very good earnings that are building capital for us, and so we continue to be in a very flexible position to generate good earnings to meet the needs of our clients while being able to return capital in multiple forms. We think we're in a very good position.

Our next question comes from Kyle Voigt with KBW.

Maybe just regarding the strong Pledged Asset Line growth. Just wondering if you could comment on what inning you think you are in, in terms of penetrating your existing client base there. And I think you effectively began to hedge some of those loans in the fixed. Can you just give us an update on how that trended in Q3 and how to think about future hedging as those balances continue to grow strongly from here?

Thanks for the question, Kyle. Yes, we've seen good momentum in the Pledged Asset Line. As we've talked about before, we've made that experience very easy for clients to engage in that product. We've seen a good lift. We expect continued engagement in that product. Again, this is something that we're going to be responding to client needs. In terms of penetration, when you look at our bank lending activity, it's relatively low penetration. So we do think there is good upside that we could experience there. So we are looking forward to that. Yes, we have hedged some of those Pledged Asset Line balances. That just gives us another tool for how we match our assets and liabilities. Typically, we've invested in securities as a way of matching. But again, using these interest rate swaps against our underlying assets and liabilities just creates another flexible tool to manage that interest rate risk profile. As those balances grow, that continues to give us flexibility. But we'll also look to broaden how we think about those hedges. Are there other underlying assets, floating-rate assets, for example, that we could utilize? So all of this is with the intent of building additional flexibility in how we manage our balance sheet. So again, this is a win-win. We're meeting our client needs. We think there's more upside there, but also we're ensuring that we're building ourselves flexibility in how we manage the balance sheet and drive efficiency and good financial outcomes.

Our next question comes from Devin Ryan with Citizens.

Rick and Mike, a question on retail investor engagement. Obviously, you're seeing great results here, and they're clearly highly invested right now with low transactional cash; debts are elevated; margin balances are at a record. At the same time, a number of other ratios aren't stretched. A question we've been getting a fair amount recently is whether we're kind of at an extended level for retail investor engagement or if this is something normal. I would just love to get some thoughts there.

Devin, it's a good question. Daily average trades are definitely up above what they were when you look back 12 or 18 months ago; it used to be $5.8 million or $6 million was a good month, and now we're running at $7.5 million as being pretty normal. So clients are definitely more engaged. I think there are some structural elements to that and also some sort of market environment with a strong bull market now that has gone on for a couple of years. You've got some topics that are of great interest to investors, like AI and crypto, and I think that's driving engagement. It's hard to know whether this level of engagement will persist or grow. I do think that I would call out, though, that I believe our investor base tends to trade in any environment. These aren't new investors who came in and got excited about the entertainment of investing. These are investors that do research, that invest thoughtfully, and are engaged in markets, and they oftentimes are counter-cyclical traders. We've actually seen our traders do what we've called sell the rip and buy the dip. They've been very active on updates, selling and then when they get a little down move, they've been back in buying. I think our engagement is likely to be more sustainable perhaps than some others. But the overall market environment will also play a role in how engaged clients are.

Our next question comes from Michael Cyprys with Morgan Stanley.

I just wanted to ask a bigger picture question on tokenization. Just curious how you're thinking about in a potential future world where investors build access portfolios and long-term investments through the blockchain. I'm curious about what risks and opportunities might that present for Schwab and for the industry. What steps might you take over the next year? I imagine it could be a major cost efficiency unlock on one side; but then, if there are tokenized substitutes for deposits with atomic settlement, what implications could this have for transactional sweep cash as well as revenue monetization and competitive dynamics?

Yes. Thanks for the question. First thing I'd say is for 50 years, it's been our mission to help investors get invested and to help them achieve their financial goals and dreams. So if we find investors want to hold securities on the blockchain and that brings more investors into investing, then we're going to find a way to offer clients the opportunity to hold their securities on the blockchain and hold them as tokens if that's how they would like to do it. Second, I believe there's tokenization is more likely in some asset classes than others. I think the public equity market is incredibly efficient. The customer protection rules make a lot of sense. The spreads are very tight. Going to tokenization doesn't solve a lot of problems for public equity investors and introduces a number of complications and risks, making the pros and cons somewhat questionable. So it's hard for me to see that taking off. If it does, again, we're going to offer it and be ready to participate. I think it's more likely to be in some fixed income markets or in private markets and collectibles and areas like that. We'll see, and we're open to any environment. We want our investors to be able to hold securities the way they want to hold securities. On your question about what it means for our economics, I think there are pros and cons to that. If you look at the tokenization markets today, the public equities that have been tokenized and the trades that have been done, not that we would necessarily do this, but they've been done at incredibly wide spreads that are inefficient for the end trader but more profitable for the intermediary. We're always going to give clients great execution, but there are definitely pros and cons. On the flip side, maybe it's incrementally easier to move cash. I don't think it's overly hard to click one button at Schwab today and move your money from sweep into a purchase money fund. And not only that, we proactively remind you to do that when we see large balances in your account. When you log into schwab.com, it's often the first thing you see is move your cash. So there are not many barriers to doing that today. It might be easier on the blockchain overall. As clients want to participate and hold securities that way, we will accommodate that and are working towards that. We're building the books and records and capabilities so that we can custody assets. We're doing so because we’re taking a long-term view of this to participate in things like blockchain and tokenization over time and offer that to our clients. So that's a long-winded answer, but those are my top of mind thoughts on tokenization.

Okay. Operator, I think we have time for one final question before we wrap up.

Our final question will come from David Smith with Truist Securities.

Staying on the vein of crypto and tokenization. You said you're on track to launch spot crypto in the first half of next year. Are there any meaningful external constraints like regulatory clarity or anything like that that you're still waiting on at this point? Or is everything now just based on your own internal decision-making and ensuring that everything is built out fully to your standards and ready to handle the size and potential volume of your own client base?

Thanks for the question. At this point, it's in our hands. Up until about 4 months ago, the regulatory environment made it challenging, which is why you don't see any banks in crypto today. Instead, you see banks announcing plans that they will be in crypto in coming months and quarters and years. But that's a result of the change in the regulatory environment. I don't think that's standing in our way. What takes time is all the stuff I talked about. We want to build this for the long term. We want to do it thoughtfully. We want to be able to have our own books and records and things like that. That is a completely new build, and we've got a group of technologists working on that. Of course, we're going to want to roll it out in the right way and have people pilot it, test it, and roll it out to a small group of clients and then a larger group of clients. All those things take time. I think we're moving quite rapidly given the expansiveness with which we're thinking about it and the way we're building for the long term, but there's nothing from a regulatory standpoint standing in our way. And with that, we will wrap up. Thanks so much for your engagement today. We love the opportunity to be on the phone and have a chance to speak with all of you. I'll leave you with 3 takeaways. First, we are delivering growth on all fronts: attracting assets and growing accounts from new and existing clients, increasing utilization of our wealth banking and trading solutions, and delivering record financial results. Second, we anticipate year-over-year revenue and earnings expansion to finish 2025. And third, we think the future is incredibly bright. We are well positioned to deliver profitable growth through the cycle. Most importantly, as we do so, we are making a real difference in the lives of millions of investors, and we're energized by the opportunity we have to empower even more Americans to take control of their financial futures. We are in an incredible position to serve our clients and help them meet their financial goals. Thanks again, and thanks for joining today.