Charles Schwab (Minutes): Will launch cryptocurrency trading next year, but is not optimistic about tokenized stocks.

The following is the Q3 2025 earnings call transcript of $Charles Schwab(SCHW.US) organized by Dolphin Research. For financial report commentary, please refer to "Charles Schwab: Hard Power is Undeniable, But Growth Needs a 'Spark'"

I. Key Financial Metrics

1. Two Key Metrics—NNA, NIM: Currently, if we simplify Schwab's business, the core focus is on the net increase in client assets and the net interest margin. One reflects long-term intrinsic growth (scale-driven business logic), and the other reflects the ability to monetize assets (net interest remains the main monetization channel).

(1) Net New Assets (NNA): Q3 NNA was $134 billion, with an annualized growth rate of 4.9%, aligning with market expectations and gradually approaching the lower end of the long-term guidance range of 5%-7%. Whether it can continue to return to the median level of 6% or above is key to driving intrinsic value enhancement.

(2) Net Interest Margin (NIM): Q3 was 2.87%, exceeding market expectations. Although in a rate-cutting cycle, the first 25 basis point rate cut was only announced in September, having limited impact on Q3. Additionally, the active capital markets in Q3 significantly increased high-interest margin trading, driving income-side rates higher. Meanwhile, Schwab's short-term debt decreased by $2.7 billion quarter-on-quarter, reducing interest expenses, thus further expanding the net interest margin.

2. Trading Business: Q3 saw a 25% year-on-year growth, mainly driven by DARTs (up 30% year-on-year). The activity in DARTs is closely linked to the stable 6% growth in account numbers and a 10% increase in per capita asset size, along with market conditions boosting turnover rates.

DARTs slightly declined quarter-on-quarter, but the penetration rate of derivative trades in Q3 reached 22%, up 2 percentage points from the previous quarter. This increased average revenue per trade quarter-on-quarter, and with two additional trading days in Q3, trading revenue was significantly higher than in Q2.

3. Net Interest Business: Q3 saw a 37% year-on-year growth, accelerating compared to the previous quarter, primarily driven by the aforementioned increase in NIM, with interest-earning asset size remaining flat year-on-year.

4. Wealth Management Business: Q3 saw a 13% year-on-year growth, with asset management mainly driven by scale, as both 1P fund management fees and 3P fund commissions saw a comprehensive fee rate decline. Due to rate cut expectations, users invested more idle funds into money market or mutual funds, and funds from users receiving advisory services also increased significantly in Q3, driving up wealth management scale.

5. Profitability: Changes in Q3 expenses were mainly reflected in increased employee costs, while marketing and basic operating expenses remained restrained, resulting in an operating profit of $3 billion. Despite a higher base, a 64% growth rate was achieved. The profit margin was 49.2%, up over 1 percentage point quarter-on-quarter and 11 percentage points year-on-year.

6. Shareholder Returns: In Q3, 28.9 million common shares were repurchased, costing $2.7 billion, an increase of $900 million from the previous quarter. Annualized at the Q3 level, the return yield is 6%, which is a decent return rate in a low-interest environment. The total shares at the end of the period were 1.811 billion (including potential dilution), down 11 million quarter-on-quarter, boosting EPS by 0.6%.

7. Overview of Key Metrics:

II. Management Report

1. User Scale Growth

Our strategy "Through Clients’ Eyes" continues to drive comprehensive business growth. In Q3, 1.1 million new brokerage accounts were opened, bringing in $138 billion in new deposits. Year-to-date, we have attracted $356 billion in cumulative new deposits. Q3 average daily trading volume exceeded $7 million, with margin balances reaching $97.2 billion.

In the third quarter, we supported nearly 570 million digital login operations and 7 million phone consultations; user interaction with our research content increased by 36%; meanwhile, we also interacted with thousands of clients across our 400 branches worldwide. We are always ready to support clients anytime, anywhere, and in any way.

We believe we are in an extremely advantageous position in the two fastest-growing areas of the market (direct investment, RIA advisory). Throughout the market cycle, we remain confident in maintaining the same growth rate as in the past. This quarter, our outstanding net new client numbers benefited from improved market conditions, further consolidation of relationships with existing clients, and increased client satisfaction and engagement.

We have been strengthening relationships with clients who previously used Ameritrade services; these clients have contributed positively to NNA development throughout 2025, with 30% of NNA coming from Ameritrade users. Although their client retention rate has not yet reached our expectations (i.e., the level of Schwab's traditional clients), the client satisfaction score of these former Ameritrade clients has increased by 11 points this year.

2. Performance of Segmented Businesses

(1) Wealth Management: Schwab Wealth Advisory saw a record high in single-quarter fund inflows, with client satisfaction scores remaining at 85 points.

(2) Trading: Among Schwab's long-term users, the number of users using the Thinkorswim platform increased by 98% compared to last year. The number of users accessing digital asset-related content on schwab.com increased by 92% year-on-year, and Schwab holds about 20% market share in the spot cryptocurrency ETF market.

We know that many of our users invest small amounts in spot cryptocurrencies on other financial platforms. They are eager to transfer these assets to the Schwab platform. Therefore, we are still planning to launch spot cryptocurrency services in the first half of 2026, with the first supported varieties being Bitcoin and Ethereum.

When launching this service, we will attract these clients by providing rich educational resources, in-depth market research, comprehensive risk management mechanisms, and high-quality services that meet client expectations. Our services will enable clients to trade cryptocurrencies directly on top of their existing investments while enjoying our comprehensive banking services—this will undoubtedly become a major competitive advantage for us.

(3) Banking: Loan balances grew by 24%, with PAL account balances reaching a record high.

3. How Does Management Evaluate Schwab's Growth Drivers?

(1) Scale Advantage. We serve 45 million clients, managing assets totaling $11.59 trillion, ranking first among similar institutions. We also rank first in asset management scale among RIA institutions; in the retail trading field, based on average daily trading volume, we are also far ahead, unmatched by others.

We continue to receive recognition from authoritative third-party institutions because our core philosophy is always to place clients' interests at the forefront of all decisions. We adhere to an "uncompromising" service principle, providing clients with an unparalleled range of services—including rich professional capabilities, in-depth educational resources, cutting-edge research results, and high-quality service support. At the same time, we combine industry-leading digital service experiences with deep relationships established with clients to help them achieve their goals.

(2) High Customer Service Satisfaction. On average, we can connect with clients' calls within 30 seconds; moreover, over 75% of issues are resolved without the need for transfer. Thirdly, and most importantly, our clients are very satisfied with our services. The overall satisfaction of our service department has reached a historical high of 88%. The client recommendation rate in IS and AS services has also set a new record, meaning we can assist clients anytime, anywhere. Remember, for 50 years, we have been committed to helping our investors achieve their financial goals and doing our utmost to make clients' financial lives better.

(3) Independent Financial Advisors. We continue to attract and serve independent financial advisors of all sizes, and our advisory services business is developing very smoothly.

(4) Attention to Young Users. In the retail business, we are also attracting and serving investors of all ages, and we find that young clients show great interest in our services. Industry research shows that compared to millennials, Gen Z is 45% more likely to start investing before the age of 21. We have observed this trend in our client base as well. This year, nearly one-third of Schwab's new retail clients belong to Gen Z—aged between 13 and 28.

One reason they choose to work with Schwab is that we connect with them on the main channels where they obtain investment information. We know they primarily learn about financial knowledge through social media and family. For them, YouTube is the most important online information source; and on YouTube, we are the financial services company with the most followers.

At Charles Schwab, younger investors are very focused on long-term wealth accumulation. In fact, one-third of the families that have made financial plans in the past two years are under 40 years old. Although clients' assets are currently concentrated in older groups, the average age of our clients continues to decline.

(5) Focus on Four Strategic Areas. At the beginning of the year, I clarified our priorities: achieving growth, expanding scale, improving efficiency, while ensuring our core business can continue to develop steadily, and emphasizing employee training and motivation. The main progress is as follows:

a. Driving Business Growth by Strengthening Client Relationships.

1) In the advisory services business, we are deepening cooperation with the 16,000 registered investment advisor companies we serve. To this end, we have built a more comprehensive support system—not only covering asset custody services but also bringing more value to these investment advisor companies.

We have enhanced loan support services, expanded the range of alternative investment products, and further optimized our institutional investor-exclusive mutual fund platform. Today, the platform covers products from nearly 60 fund management companies, and clients do not have to pay any transaction fees on these funds.

Exited the Advisor ProDirect service, aiming to help advisors who wish to operate independently achieve their career goals. Additionally, in September this year, we incorporated the OpenArc platform into our service system, supporting the largest advisor team transformation in the industry.

2) In the retail investment business, we are expanding the network coverage of branches and recruiting financial advisors and wealth advisors to serve more high-net-worth clients. These investments are very important because we believe that clients who establish long-term cooperative relationships with our financial institutions have higher client satisfaction scores; at the same time, the net income brought by these clients exceeds that of ordinary clients by 2.5 times, and they are more willing to use our trading, wealth management, and banking service products.

3) In the wealth management business, we optimized Schwab Wealth Advisory services, added personalized investment advisory services; and launched more alternative investment products. We also strengthened our service capabilities in tax, trust, and estate planning, and recruited more experts to serve more clients.

4) In the banking business, our budget management services remain industry-leading—with a processing cycle of only about one day; now, clients can also use most of their investments held at Schwab as collateral to borrow, meaning they can borrow more funds. Additionally, we will continue to invest in enhancing our trading service experience.

b. Creating Value through Scaling and Improving Efficiency

We are using artificial intelligence to enhance the efficiency of our professionals. For example, we have launched tools such as the "Schwab Knowledge Assistant" and "Service AI Assistant," which can help professionals who directly interact with clients generate trade summary reports and various notes.

These initiatives will help our sales representatives serve clients more efficiently. Additionally, we have made progress in improving the status notifications sent to clients and reduced the number of paper documents that need to be processed in the system, thereby reducing error rates and saving time for both clients and our professionals.

c. Ensuring the Provision of the Most Basic and High-Quality Services to Clients

This means providing help to clients anytime, anywhere, and making every interaction with us a pleasant experience for clients. It also means our systems must be available at all times, and client processes must be simple and convenient.

One indicator of this goal is our "client satisfaction score," which is currently close to historical highs: our retail client service department's client satisfaction score is 94%, and the ease of business handling score in the advisory services department is 93%.

d. Investing in Employees

We will continue to invest resources in employee training and corporate culture building to retain and attract the best talent in the industry.

4. Other Important Financial Metrics

(1) Further reduced additional borrowings in Q3, with an ending balance of $14.8 billion, slightly above the upper limit of our normal borrowing range (between $5 billion and $15 billion), approximately 85% of the May 2023 peak level.

Although the outstanding loan balance may further decrease over time and fluctuate within this range, we will continue to meet clients' borrowing needs and begin to focus more on new securities purchases, rather than loan repayment activities. At the end of this quarter, our capital level was slightly above the company's adjusted Tier 1 capital leverage ratio target upper limit, which is 6.75% to 7%.

(2) Average daily trading volume reached 7.4 million trades, with total trading volume through stocks, ETFs, and mutual funds amounting to approximately $6 trillion.

(3) The company's adjusted pre-tax profit margin reached 51.3%. Quarterly adjusted earnings per share reached a record $1.31, up 70% year-on-year. It should be noted that Q3 EPS includes a $0.03 gain related to state taxes. We expect the company's corporate tax rate to remain in the 23% to 24% range in the future.

(4) The trend of transactional cash flow remains consistent with normal client behavior patterns. During July and August, due to seasonal factors and clients' net buying (investment products) behavior, there was a slight cash outflow; however, by September, cash inflows reached $19 billion, raising the quarter-end cash balance to $425.6 billion. Compared to the previous quarter, the cash balance increased by $13.5 billion, a growth of approximately 3%.

Through this gradual cash accumulation, combined with portfolio-generated income and funds transferred from BDA, we have further reduced reliance on high-cost bank financing. We expect the cash situation in Q4 to remain at normal levels, including typical seasonal changes—such as advisor fee payments in October and cash accumulation in December.

5. Outlook: Expectations on the Impact of Interest Rate Cuts

In the July summer business report, we updated our financial forecasts based on multiple factors: among them, the mid-July interest rate curve indicated that the federal funds rate target needed to be cut by 225 basis points. The full-year stock market is expected to rise by about 9%, while client trading volume is expected to decline compared to the first half of the year.

As of now, the interest rate curve predicts a total of 325 basis points of rate cuts throughout 2025, whereas previous expectations were only for two rate cuts. The market continued to rise in Q3, and client trading activity remained very active. However, recent weeks have made us realize that the market environment can change rapidly. Therefore, for the remainder of this year, as interest rates and overall market conditions evolve in the macroeconomic context, we are likely to see various market reactions.

As of October, we still observe high client engagement, which not only helps increase revenue but also increases various expenses related to business volume. If this positive trend continues, our profitability is expected to be about 2% higher than the upper limit of the financial forecast range we predicted in the July business report.

Regarding next year, we are still formulating our annual plan, but we expect to continue the momentum of 2025. As in previous years, we need to address various challenges in a constantly changing macroeconomic environment, including potential changes in market sentiment and investor engagement. We remain confident in continuing to make necessary investments while meeting client needs to achieve our short-term financial goals—such as revenue growth and good operational efficiency in various market environments. Therefore, please continue to follow our progress, and we will provide you with a more detailed 2026 financial planning proposal in January.

III. Analyst Q&A

Q1: Could you elaborate further on recent market trends? From the situation of your other publicly listed peers, they all seem to point out that the entire industry is experiencing a slowdown; especially since April, there have been many volatility events in the market. However, your performance has accelerated instead.

Could you talk about what progress has been made recently? In Schwab's business channel, to what extent does client growth come from existing advisors rather than new advisors? Also, could you talk about the cooperation with those advisors who are now part of Schwab but originally came from Ameritrade? This will help us better understand the current situation.

A: Our advisor business is developing very smoothly, and the growth rate is accelerating. Compared to last year, the number of new clients in our advisor business has increased significantly this year. I believe multiple factors are at play here.

First, I think the quality and effectiveness of the services we currently provide to clients are better than ever. One important reason for this is that we successfully completed the integration with Ameritrade. Through this integration, we gained some new features, integrating them into Schwab's already very comprehensive business system, thereby enhancing our overall service level.

Some clients, especially Ameritrade clients, may have had doubts about our service performance during the transition period. But I believe we can successfully resolve their doubts and continue to provide them with quality service. Now, they have the opportunity to experience firsthand how strong our comprehensive services are, and they are very satisfied. Therefore, we have achieved success in all aspects related to advisors. I am not surprised by this—because our various indicators, such as asset transfer rates, have significantly improved compared to last year, meaning our performance will get better and better this year.

You asked about the factors driving this growth trend, the core is "advisor-driven":

First, it is the business growth that our existing advisors have obtained from existing clients; these advisors not only brought new clients to themselves but also directly introduced new clients to us; in addition, there are new advisors joining us. In all these aspects, we have seen an acceleration in growth.

Q2: Regarding the observed changes in core deposits—within this quarter, the scale of core deposits has indeed grown significantly. More importantly, considering the trend of interest rates and the sensitivity of core deposits to interest rate changes, what are your views on the situation in the next few quarters? Clearly, core deposits are one of the important factors affecting overall profit growth.

A: This year, we have indeed observed the deposit situation, and the result is that the market environment remains normal. The so-called "normal environment" means that our deposit growth mainly comes from the natural expansion of the business itself—when we continuously increase new net assets, a portion of it naturally manifests as cash.

Of course, we will also observe obvious seasonal fluctuations in the market. These fluctuations will be reflected in changes between quarters. Additionally, client attitudes also play an important role: at the beginning of the year, market sell-offs were more pronounced; and in the subsequent months, as clients began to reinvest, funds flowed back into the market.

From the current situation, if we focus on forward interest rates, interest rates will undoubtedly continue to decline. In this environment, we usually choose to manage cash, but the specific amount of income that can be obtained remains to be seen. However, we are very satisfied with the situation we have seen this year. Currently, the cash market is still operating normally; and as interest rates gradually decline from now on, we still have the ability to continue managing cash. Therefore, we believe this will provide strong support for us to continue achieving strong profit performance next year, helping us to continue various business activities throughout the year.

Q3: Do you see cryptocurrencies as a means to achieve short-term profits? Or is the real purpose of cryptocurrencies to attract the next generation of potential Schwab investors? Additionally, you have set prices far below competitors like Coinbase and Robinhood. To what extent has this strategy attracted clients to choose Schwab?

A: First, we have achieved good results in the cryptocurrency field. Our client engagement is very high, and visits to our cryptocurrency website have increased by 90% year-on-year. Our clients hold 20% of the industry's cryptocurrency exchange-traded products.

We found that most clients use cryptocurrencies not to trade on the blockchain but to invest in cryptocurrency price fluctuations. They feel that buying ETF products through a company they truly trust is a very convenient way to make such investments. Therefore, we see such a development trend in the cryptocurrency field.

That said, we do hope to launch related cryptocurrency services. I often receive feedback from clients saying, "Hey, I've always been a Schwab client, and 99% of my assets are stored in Schwab accounts; however, I also opened another account to store my cryptocurrencies on that platform that specializes in cryptocurrency services. I can't wait to transfer these cryptocurrencies back to Schwab accounts." We are very excited about this.

Therefore, whether from a profitability perspective or from using these technologies to attract the next generation of users, I think both aspects are feasible. The reason I say this is that the profits these companies focused on the digital field have obtained in the cryptocurrency field are truly astonishing. This can be clearly seen from the client asset return data of some large digital cryptocurrency companies. Therefore, I believe these companies have room to adopt a more aggressive pricing strategy while also providing quality products and services, thereby bringing profits to the company.

Cryptocurrencies are indeed very attractive to clients and will certainly attract young investors. However, our interaction with young investors is still very limited. Among the clients who have recently joined the company, one-third are under 24 years old; one-third belong to Gen Z, aged under 28. These young people not only participate in our trading business but also maintain contact with us in various other aspects.

In fact, they lead many of the financial planning discussions with us.

They come to us hoping to consolidate their loans into a loan structure secured by collateral assets, so they can pay off their student loans. They also consult us on how to buy a house in the future. These clients truly aspire to become long-term investors and hope we can help them achieve this goal.

No one can compete with us in providing related services to young investors. We provide investors with 35 hours of live content per week, including how to learn trading skills, how to invest, and explanations of investment concepts such as compounding. Investor engagement with this content is very high.

I believe that the support, service, and education we provide to young investors, as well as the help provided through the Thinkorswim platform and our digital technology, are unmatched by other competitors. Because of this, we have achieved great success in attracting young investors. I believe the cryptocurrency market will further develop in the future, but even without cryptocurrencies, we have already successfully attracted these young investors.

Q4: Since our funding has returned to normal levels, what suggestions do you have for reallocating and reinvesting these funds? Should we assume that securities are likely to become the target for reinvesting these funds? What do you expect the term of these investments to be? Or would floating rate products in BDA accounts be a more suitable option for low-cost fund utilization?

A: Indeed, we are pleased with the progress made in repaying debt, and we are likely to further reduce that additional borrowing balance. However, you are right; since we now have new cash inflows, these funds will naturally be used to meet clients' borrowing needs. Currently, our loan business is developing well, and we will certainly continue to invest funds to support these business needs.

Of course, we also have the opportunity to invest in securities. These investments can be made using new funds or reinvested using the proceeds from maturing securities portfolios. Remember, the yield on existing securities is below 2%, so through reinvestment, our returns will certainly improve.

The average term of such investment portfolios is usually between 2 to 4 years. The specific term is determined based on our analysis of the liability part of the balance sheet and the composition of deposits. Some investment projects may have terms shorter than 2 to 4 years, while others may be longer. Of course, the term of institution-issued mortgage loans will slightly exceed this range, but we can also purchase very short-term Treasury bonds. However, we will still adhere to controlling the term of the investment portfolio within 2 to 4 years.

As for BDA, it indeed provides us with great flexibility. In terms of scale, our business range is between $60 billion and $90 billion; at the same time, this also allows us to efficiently manage various types of risks—including capital risk, liquidity risk, and interest rate risk.

As you saw in the third quarter, we reduced related operations:

We transferred funds from BDA accounts to the company's balance sheet and used these funds to repay additional borrowings. Of course, we also have the flexibility to reinvest these funds into BDA accounts. Doing so helps us manage interest rate risk—we can choose to deposit these funds in a floating rate form, or if we want to match some of our deposits, we can also choose to deposit them at a fixed rate. Of course, as we discussed earlier, if we want to release some funds, we can also reinvest some funds into BDA accounts for this consideration.

Q5: I would like to talk more about Ameritrade clients. You mentioned that the business growth of Ameritrade clients is improving, but you also said it has not yet reached your expectations. Therefore, I hope to hear you provide some specific data or talk about the steps you think are needed to achieve this goal and how long the entire process might take.

A: Our Ameritrade client base still has the potential for continued growth. Over the past 18 to 24 months, the net contribution value of these clients has turned from negative to positive. Although their performance has not yet reached the level of our traditional Schwab clients, I believe this is only a matter of time.

There are several reasons: first, when we compare their client satisfaction scores with those of Schwab's traditional clients, we can see their satisfaction has significantly improved over the past 12 months, and if we look at the data from the past few years, this improvement trend is even more evident.

I also often have the opportunity to visit our branches and communicate with our Ameritrade clients about their experiences. These clients initially felt very frustrated about being inexplicably transferred to another company, and they struggled to figure out how to continue using our services in the new environment. For them, this is indeed a brand new platform, bringing a brand new experience. I want to say that when I experience the Ameritrade platform, it is impossible to do without Schwab's services, after all, Schwab's services are very rich.

The reason we can see such changes is that these clients have started participating in banking services, thereby beginning to accumulate wealth. I believe they account for about 30% of all the inflows we currently observe. They participate in various activities that cannot be achieved on the Ameritrade platform. Therefore, I am confident that we can help these clients reach the same growth level as Schwab clients.

Although there is still a certain gap between Schwab and traditional Ameritrade in terms of performance, I believe that in the coming months, we will certainly continue to work hard to narrow this gap. I am very excited about the performance of Ameritrade clients and the services we provide to them.

Q6: Regarding this year's income and expenditure data, can you provide some specific forecasts? Obviously, the current situation is much better than initially expected. So I would like to know if you can give a rough forecast range? Or how likely do you think it is for us to achieve a growth rate of 18.5% to 19.5%? As for expenditures, although this will undoubtedly lead to increased expenditures, can we still stay within this expected range? Or do you have a specific profit margin target?

A: As you know, we release related plans twice a year—an initial plan in January and an update in July. Today, we mainly want to explain the future development direction to everyone. As we said before, client engagement is very high, and the macro environment has always been very favorable.

Regarding revenue, I emphasize again that compared to the latest forecast released in July, earnings per share are expected to grow by about 2%. Therefore, we expect the company's revenue to increase. Specifically, revenue will increase; as I said before, costs will also rise, but we will not adjust the previous revenue forecast range.

Variable costs are related to business volume. When we updated the business forecast in July, we estimated the upper limit of this cost range to be 5.25%. Therefore, actual costs may reach or slightly exceed this level, depending on client engagement and business volume. However, it is important to emphasize again that from a revenue perspective, these costs will ultimately translate into transaction volume and overall profit growth.

Regarding pre-tax profit margin, I think this is the result of a very balanced strategy we have adopted in financial management. As more and more clients start using our various products, our revenue sources have also achieved good diversification. Of course, in terms of controlling expenses, we have also adopted a balanced attitude: on the one hand, we provide the necessary resource support for the growth of the enterprise, and on the other hand, we continue to invest efforts to improve operational efficiency.

This helps the company maintain stable profitability in various different environments. The pre-tax profit margin is actually the result of this balanced management approach achieved through the combination of revenue diversification and cost control. Regarding the net interest margin, it did indeed rise this quarter. However, it should be remembered that the market currently expects one or two more rate cuts for the full year. Therefore, we expect the net interest margin in the fourth quarter to remain around 2.80%.

We will communicate with everyone again in January, when we will provide you with the 2026 market forecast. Based on our current observations, interest rates at the end of this year should remain around 3%. We are very confident in our ability to remain profitable in various interest rate environments.

Regarding net interest margin, we have previously discussed the issue of asset sensitivity. Although there is indeed some asset sensitivity, please remember that we have proactively taken measures to reduce the negative impact on this part of net interest income by about one-third. As I mentioned in this conference call, as interest rates decline, we often receive more cash inflows; these cash inflows and our reinvestment in securities will partially offset the negative impact of interest rate declines. Therefore, even in a low-interest-rate environment, despite asset sensitivity, I still expect these factors to effectively mitigate the negative impact of interest rate declines on net interest margin. Therefore, we are very optimistic about the outlook for 2026.

Q7: The company's operating conditions have changed significantly—mainly because the funds previously used to repay high debt have been largely exhausted. The company's organic growth momentum is very strong, and cash reserves are gradually increasing. So, how should we view the relationship between "interest-earning asset growth" and "capital return"? Clearly, the company repurchased a large number of shares this quarter, laying a good foundation for future development (especially compared to the previous $20 billion repurchase scale). I'm just thinking: from a strategic perspective, should the company focus more on expanding the balance sheet or should it focus on providing more stable capital returns to investors?

A: This year, as we discussed earlier, as we gradually repay those additional borrowings, our interest-earning asset size may slightly decrease. After all, we have now repaid most of these borrowings. As I mentioned earlier, we may continue to further reduce the scale of these borrowings. Therefore, you are likely to see our borrowing scale at the lower end of the range I mentioned earlier.

In the coming year, I think our business focus will be more on meeting the growing borrowing needs of clients. Currently, we see good loan business development momentum in various market environments, and we expect this trend to continue.

However, I expect the growth rate of interest-earning assets to be relatively moderate. We will provide more detailed analysis later. As for capital, given the current market environment, we are also very satisfied with this—this year, we successfully achieved capital return throughout the business system. As we said before, capital return is a very important part of our financial situation.

We are obtaining very considerable returns, which have accumulated valuable capital for us. Therefore, we are still in a very favorable position: we can continue to create good returns to meet client needs, and we can also return funds to clients in various forms. So, we believe we are currently in a very favorable development environment.

Q8: In terms of expanding the existing client base, where do you think you are currently? Additionally, I believe you have already started to hedge some of these loans with fixed rates. Could you introduce the progress of this trend in the third quarter and how we should continue to hedge as these loan balances continue to grow rapidly?

A: We have indeed seen good development momentum in the PAL product. As we mentioned earlier, we have made the process of using this product very simple for clients, so user engagement has significantly increased. We expect this positive trend to continue. Of course, we will continue to adjust our products and services based on client needs.

From a penetration rate perspective, our bank loan business currently has a relatively low penetration rate. Therefore, we do believe there is great development potential in this area. We are very much looking forward to it. Yes, we have already hedged some PAL accounts. This provides us with another tool to balance assets and liabilities.

Usually, we hedge related risks by investing in securities. However, using these interest rate swap tools to manage our underlying assets and liabilities does provide us with another flexible risk management tool. As these asset balances continue to increase, this flexibility will also continue to increase. However, we will also consider further broadening the scope of hedging strategies—for example, whether there are other types of assets, such as floating rate assets, that can be used for hedging.

All these initiatives aim to give us greater flexibility in managing the balance sheet. Therefore, this is indeed a win-win situation: we meet client needs while leaving more room for maneuver in balance sheet management, thereby improving operational efficiency and achieving good financial results.

Q9: Regarding retail investor engagement. Clearly, you have achieved very good results—retail investor engagement is very high, but their trading funds are relatively small, and debt burdens have increased. Their margin balances have also reached record highs. However, some other related indicators have not shown excessive tension. Therefore, we are often asked this question recently: Are we in a stage of sustained high retail investor engagement, or is this situation normal? I would like to hear your views.

A: Compared to 12 months or 18 months ago, the average daily trading volume has indeed increased significantly. In the past, a month with a trading volume of $5.8 million or $6 million was already considered a good performance; now, a trading volume of around $7.5 million is considered normal. This shows that client engagement has indeed increased. I think the reasons for this change include both internal structural factors and the influence of the external market environment—we are currently in a strong bull market that has lasted for several years.

Some hotspots are indeed very attractive to investors, such as artificial intelligence and cryptocurrencies, and I think these topics are the reasons driving increased investor engagement. However, it is difficult to say whether this high level of engagement can be sustained or whether it will increase further. However, I still want to point out one thing: I think our investor group tends to engage in trading activities regardless of the market environment.

These investors are not those who are new to the market and are enthusiastic about the investment process. They are rational investors who conduct thorough research before investing, they have long focused on market dynamics and often belong to counter-cyclical traders. In fact, we find that these traders adopt what we call a "sell high, buy low" strategy: they actively sell stocks when the market rises, and when the market falls, they buy back.

Therefore, I think our client engagement may be more lasting, perhaps better than some other institutions. However, I think the overall market environment will also have an important impact on the level of client engagement.

Q10: In a future world where investors build portfolios and invest long-term through blockchain, what risks and opportunities will this bring to Charles Schwab and the entire industry? What measures might you take in the coming year to address these changes? From a certain perspective, tokenization does have the potential to significantly improve cost efficiency; but on the other hand, if deposits can be replaced by tokenization and these tokens can achieve instant settlement, what impact will this have on transaction processing, revenue monetization, and industry competition patterns?

A: If we find that some investors want to store their securities on the blockchain, and doing so can attract more investors to participate in investment, then we will definitely find a way to provide such services to clients—allowing them to store their securities on the blockchain and hold these securities in token form if they wish to do so.

Secondly, I think the possibility of implementing tokenization is greater in some asset classes than in others. But I think the public stock market itself is already very efficient; the relevant investor protection regulations are very reasonable, and market transaction costs are quite low. Implementing tokenization in the public stock market does not actually solve many problems, but rather introduces many new complexities and risks. Therefore, I think the pros and cons of this approach are quite difficult to weigh. So, I find it hard to imagine that this tokenization method can really become popular.

If this situation does occur, we will still continue to provide related services and be prepared accordingly. I think this trend is more likely to appear in certain fixed income market areas—such as in the private market, collectibles market, etc., where people may start using tokenization technology. However, the specific situation still needs to be observed, and we are open to any market environment. We hope our investors can hold securities according to their wishes.

If you look at today's tokenization market, those listed companies that have been tokenized, and the transactions conducted in these markets, although we may not necessarily adopt such practices, the actual situation is: the bid-ask spreads of these transactions are very large, and the efficiency for the final traders is very low; however, in this case, intermediaries can earn more profits from it.

Our approach to launching cryptocurrency business is different from some other institutions. I think the usual practice of some other institutions is: first introduce clients to those institutions that specialize in digital asset management, and then have clients' assets custodied at those institutions. However, we are building our own ledger system, record management system, and related technical capabilities to be able to custody clients' assets ourselves. We do this because we are planning this business from a long-term perspective—we hope to participate in emerging fields such as blockchain technology and tokenization over time and provide these technologies and services to our clients.

Q10: You mentioned that you plan to launch spot cryptocurrency services in the first half of next year. So, are there still some external constraints, such as regulatory uncertainties, that prevent you from launching this business immediately? Or is it that all decisions now depend entirely on your own judgment, just ensuring that all systems are built according to your standards and can handle the scale and potential trading volume of your existing client base?

A: About four months ago, due to unfavorable regulatory environments, it was difficult for banks to enter the cryptocurrency field, so there were no banks involved in cryptocurrency business in the market at that time. Now, banks are announcing plans to enter the cryptocurrency field in the coming months, quarters, or even years. And this is the result of changes in the regulatory environment.

So regulation will not be our obstacle. What really takes time are the steps I mentioned earlier. We hope this work can continue for a long time, and we need to advance this process cautiously. We hope to have our own ledger, records, etc. This is a completely new system construction project, and a group of technical personnel is currently responsible for this work.

Of course, we also need to gradually advance this plan in the right way, allowing relevant personnel to conduct pilots and tests first, and then promote this service to a small number of clients, and finally cover a wider client base, all of which require time. Considering the scale we plan to implement and the preparations we have made for long-term development, I think our advancement speed is already quite fast.

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