Schwab Earnings: Sweep Cash Fell Excluding Short Credits

Charles Schwab (SCHW) reported record third quarter results on Thursday, Oct. 15, with net revenues of $7.17 billion, up 17%, and adjusted earnings of $1.69 a share, according to its earnings release. The release says client transactional sweep cash, the cash clients leave in their accounts, ended September at $492.8 billion, up $7.1 billion from June. A footnote shows that total includes short credits tied to certain long/short strategies run by independent advisers, and those grew much faster. By TradeFlock's estimate, sweep cash outside them fell about $12.5 billion, or 2.8%, in the quarter, and is up only about 1.6% from a year earlier against 16% for the headline number.

The distinction matters because Schwab says it earns "a fixed net yield" on these strategy balances and excludes their average balances from its "interest-earning assets and funding sources." By TradeFlock's reading, the sweep cash outside the short credits is the part that sits among the funding sources Schwab uses to support its lending.

Schwab Stock After the Record Quarter

Schwab stock traded at $94.39 at 9:42 a.m. ET on Friday, Oct. 16, according to Yahoo Finance data, 0.2% above Thursday's close of $94.16, by TradeFlock's estimate. That close was 2.7% below Wednesday's $96.80, by TradeFlock's estimate, even though earnings beat. Investing.com reported consensus figures of $1.66 in earnings and $7.20 billion in revenue, so adjusted earnings of $1.69 beat while revenue of $7.17 billion fell slightly short. On the call, Chief Financial Officer Mike Verdeschi said Schwab expects full-year revenue and net interest margin to "grow towards the lower end of the ranges" it gave in the summer.

What Is Hiding Inside Sweep Cash

The release defines the sweep cash figure to include "short credits related to certain client long/short strategies." In those strategies an account borrows to buy one set of stocks and sells another set short, which leaves a matching pile of cash from the short sales.

In the second quarter release, filed in July, short credits totaled $43.7 billion in June, and sweep cash was $485.7 billion. In the third quarter release they totaled $63.3 billion in September. That is a $19.6 billion increase, nearly three times the $7.1 billion rise in the headline total. Subtracting them gives $442.0 billion in June and $429.5 billion in September, a decline of about $12.5 billion, by TradeFlock's estimate. Schwab's own wording says the increase reflected "continued demand for long/short strategies and organic growth, partially offset by client asset allocation decisions."

The year-over-year view is starker. Sweep cash was $425.6 billion in September 2025, so the headline is up about 16%. Schwab's release says average short credits were $2.8 billion in the third quarter of 2025. Removing that leaves about $422.8 billion, so the $429.5 billion this September is up about 1.6%, by TradeFlock's estimate. That estimate mixes a month-end sweep cash figure with a quarterly average for short credits, so treat it as approximate.

Schwab's explanation is about total cash, not our ex-short-credit figure. Verdeschi told analysts that as sentiment improved, "we saw cash go back into the market," and that "part of that was fueled by the activity in IPOs as well." Asked whether higher rates were driving clients out of cash, he said "this is not cash sorting in any way." He expects "that seasonal pickup" in cash from "mid-November onwards," according to a Motley Fool transcript of the call. The second quarter included what Schwab called "typical 2Q tax seasonality," when sweep cash rose $24.2 billion, so part of the third quarter move may be seasonal. The release does not say where the roughly $12.5 billion went.

Margin Loans Show the Same Pattern

Margin loans reached $187.9 billion, up 93% from a year earlier and 14% from June, but $60.7 billion of that relates to long/short strategies, up from $42.1 billion in June. Excluding them, margin loans were about $127.2 billion, up from $123.0 billion, or 3.4%, by TradeFlock's estimate. Chief Executive Rick Wurster said Schwab "throttled the growth in mid-September" for the long/short program and that it "changed the minimums for long/short" for October, adding that advisor net new assets showed no slowdown.

Other Numbers in the Release

Net interest revenue rose 14% to $3.48 billion and the net interest margin widened to 3.04% from 2.88% a year earlier. Bank deposits were $244.1 billion, down 2% from June. Daily average trades were 10.7 million, up 44% from a year ago but down 10% from the second quarter's 11.9 million. Revenue per trade fell to $1.69 from $2.11 a year earlier, a decline of 20%, so trading revenue of $1.16 billion rose only 16% and slipped 5% from the second quarter. TradeFlock has followed how deposits are being repriced in its look at SoFi and the neobanks, and how Schwab's cash mix has shifted in its report on clients leaving T-bills.

Because Schwab says it slowed the long/short program, the tailwind to headline sweep cash and margin loans from those balances may fade, and the ex-credit trend matters more. The next data points are Schwab's quarterly filing, its monthly activity report for October, and whether the mid-November seasonal inflow management expects arrives. TradeFlock also covered how IPO activity shaped Morgan Stanley's record client inflows.

Cover photo: Financial District East Skyline, 2025 by Julian Lupyan / Wikimedia Commons, CC0 (cropped and resized).