Charles Schwab Bank’s expansion
As of February 2016, Charles Schwab’s (SCHW) banking accounts stood at nearly 1.05 million, reflecting a growth of 6% YoY (year-over-year) and 1% MoM (month-over-month). The company’s average interest earnings assets increased to $177 billion, compared to $167 billion as of December 31, 2015. In the fourth quarter, the company’s balance sheet expanded to $139.1 billion, up 25% YoY. The bank’s net interest revenue led to an overall rise in net income, and it reported net interest revenues of $690 million in 4Q15, compared to $584 million in 4Q14.
Charles Schwab doesn’t use the bank and its products for client acquisition but rather 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 the quality of its assets. Here’s how a few of the company’s peers in the brokerage industry fared with long-term debt-to-assets:
- Interactive Brokers Group’s (IBKR) ratio was 5.77x.
- TD Ameritrade Holding’s (AMTD) ratio was 4.62x.
- E*TRADE Financial’s (ETFC) ratio was 5.85x.
Together, these companies make up 1.4% of the Vanguard Financials ETF (VFH).
Charles Schwab is expanding its asset base through third-party investment advisers as well as through new initiatives. As of December 31, 2015, Windhaven managed client assets totaling $11.9 billion, which represents a fall of 27% over 4Q14. ThomasPartners helped in the expansion of this client base by 7%, adding $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 ETF OneSource, which now offers five more ETFs, totaling 214 ETFs across 66 categories of Morningstar. The company charges fees rather than commissions on these investments. By comparison, the company’s Schwab Index Advantage offers 130 plans, and so far 90,000 clients have signed up for the ETF or index mutual fund versions.
In the next part, we’ll discuss Charles Schwab’s expense management and strong margins.