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Charles Schwab’s Bank Generating Strong Returns on Deposits

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Bank’s performance

In the first nine months of fiscal 2016, Charles Schwab (SCHW) added 55,000 new accounts to 1,088,000 total accounts. In 3Q16, the bank’s balance sheet expanded to $165.2 billion, which is a YoY (year-over-year) rise of 28%. The bank’s net interest revenue expanded due to new assets. It reported net interest revenue of $845 million in 3Q16, as compared to $635 million in 3Q15. The bank’s deposits expanded to $149.6 billion, up by 26% on a year-over-year basis. The bank has extended loans of $14.9 billion, up by 4% in comparison to 3Q15.

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Bank complements trading activity

Schwab doesn’t utilize its banking structure for client acquisitions. Instead, its banking structure is used for supporting trading and wealth management activity. The bank’s outstanding mortgage and home equity loans stood at $11.2 billion on September 30, 2016.

Here’s how a few of Schwab’s peers in the industry performed in terms of long-term debt-to-asset ratios in their last fiscal years:

  • E*TRADE Financial’s (ETFC) ratio was 5.9x.
  • Interactive Brokers Group’s (IBKR) ratio was 5.8x.
  • TD Ameritrade Holdings’ (AMTD) ratio was 4.6x.

Together, these companies make up 1.3% of the Vanguard Financials ETF (VFH).

Banking assets

Charles Schwab is targeting new assets through investment advisors, retirement advisors, as well as new initiatives. As of September 30, 2016, Windhaven Investment Management, an affiliate of Charles Schwab, managed client assets totaling $10.2 billion, a fall of 21% from 3Q15. ThomasPartners expanded its client base by 35% to $9.2 billion.

Client assets managed under Intelligent Portfolios like Schwab Intelligent Portfolios and Institutional Intelligent Portfolios rose to $10.2 billion, up $2.0 billion from 2Q16. Schwab has also expanded its ETF assets base to $304.9 billion out of which $20.2 billion are from ETF OneSource. The company charges fees rather than commissions on these investments.

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