Charles Schwab shares were lower after the discount brokerage provided a third-quarter revenue update that was lighter than investors were hoping for.
The firm said sharply lower long-term interest rates prompted faster prepayments among the mortgage-backed securities within its investment portfolio.
Schwab said its net interest margin is being squeezed by those prepayments, leading to third-quarter revenue "slightly lower" than its second-quarter result.
FactSet expects third quarter revenue to increase 2.3% quarter to quarter to $2.51 billion. Schwab reported second-quarter revenue of $2.45 billion.
Net interest margin measures the difference between what a financial institution takes in on credit-related products and what it pays out as interest on deposits.
Schwab shares at last check were down 4.2% to $34.25.
The company reported August client assets were a record $4.49 trillion, up 21% from the year-earlier month.
Schwab has "taken steps to mitigate prepayment risk by reshaping our investment portfolio over recent years to include significantly expanded allocations to less-prepayable securities," Chief Financial Officer Peter Crawford said.
Still, "the sharp reduction in long-term rates has led to an acceleration of prepayment activity in the mortgage-backed securities held within our investment portfolio."
Earlier this summer, the Justice Department's antitrust division closed its assessment of Schwab's proposed $26 billion acquisition of TD Ameritrade (AMTD) .
Holders of both companies have approved the deal, and Schwab and TD Ameritrade expect it to close in the 2020 second half.
Integration is expected to take 18 to 36 months following the close, Schwab said.
A combined Schwab and TD Ameritrade would have more than $5 trillion of assets and more than 24 million clients.
TD Ameritrade shares were 4% lower at $37.05.