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Charles Schwab Bank Has Become a Large Source of Revenue

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Jan. 20 2016, Updated 2:11 p.m. ET

Charles Schwab Bank’s expansion

In 4Q15, Charles Schwab (SCHW) Bank’s balance sheet expanded to $139.1 billion, up 25% on a year-over-year basis. The bank’s net interest revenue led to an overall rise in net income. It reported net interest revenue of $690 million in 4Q15 as compared to $584 million in 4Q14.

Charles Schwab doesn’t use the bank and its products for client acquisition. The structure is used for supporting trading and wealth management products. The bank’s outstanding mortgage and home equity loans stood at $11.1 billion as of December 31, 2015.

Charles Schwab Bank’s loan reserve ratios stood at 0.22% as of December 31, 2015, reflecting a strong quality of its assets.

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Managing assets

Charles Schwab is expanding its asset base through third-party investment advisers as well as new initiatives. As of December 31, 2015, Windhaven managed client assets totaling $11.9 billion, a fall of 27% from the prior year’s quarter. ThomasPartners helped in an expansion of the client base by 7% to $7.3 billion.

Client assets managed under Intelligent Portfolios, including Schwab Intelligent Portfolios and Institutional Intelligent Portfolios, rose to $5.3 billion compared to $4.1 billion in the previous quarter.

Charles Schwab has also expanded its offering called ETF OneSource. It now offers five more ETFs, translating to 214 ETFs across 66 categories of Morningstar. The company charges fees rather than commissions on these investments. The company’s Schwab Index Advantage offers 130 plans. 90,000 clients have signed up for the ETF or index mutual fund versions.

Here is how a few of the company’s peers in the brokerage industry fared in terms of long-term debt to assets:

  • Interactive Brokers Group’s (IBKR) ratio was 5.77x.
  • TD Ameritrade’s (AMTD) ratio was 4.62x.
  • E*TRADE’s (ETFC) ratio was 5.85x.

Together, these companies form 1.4% of the Vanguard Financials ETF (VFH).

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