Charles Schwab Bank expansion
In the first two months of 2Q16, Charles Schwab (SCHW) added 13,000 new accounts, representing 6% growth on a year-over-year basis. In 1Q16, the bank’s balance sheet expanded to $135.7 billion, up 24% 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 $772 million in 1Q16 as compared to $588 million in 1Q15. Average interest earnings assets have expanded 20% on a year-over-year basis to $184 billion as of May 30, 2016.
Charles Schwab doesn’t use the bank and its products for client acquisitions. 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 on March 31, 2016. Charles Schwab Bank’s loan reserve ratio stood at 0.23% on March 31, reflecting the strong quality of its assets.
Here’s how a few of the company’s peers in the brokerage industry fared in terms of long-term debt-to-asset ratios in their last fiscal years:
- Interactive Brokers Group’s (IBKR) ratio was 5.8x.
- TD Ameritrade Holdings’ (AMTD) ratio was 4.6x.
- E*TRADE Financial’s (ETFC) ratio was 5.9x.
Together, these companies form 1.4% of the Vanguard Financials ETF (VFH).
Charles Schwab is expanding its asset base through third-party investment advisors as well as new initiatives. As of March 31, 2016, Windhaven Investment Management, an affiliate of Charles Schwab, managed client assets totaling $11.1 billion, a fall of 29% from 1Q15. ThomasPartners expanded its client base by 10% to $7.8 billion.
Client assets managed under Intelligent Portfolios, including Schwab Intelligent Portfolios and Institutional Intelligent Portfolios, rose to $6.6 billion compared to $5.3 billion in the previous quarter. Charles Schwab has also expanded its ETF OneSource. It now offers five more ETFs, translating to 225 ETFs across 66 Morningstar categories. The company charges fees rather than commissions on these investments. The company’s Schwab Index Advantage offers 130 plans, and 90,000 clients have signed up for the ETF or index mutual fund versions.