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Schwab’s Banking Operation Has More Assets, High Interest Income

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Complementing business

Charles Schwab’s (SCHW) banking operations have seen strong growth over the past few quarters on an accumulation of assets, an expanding balance sheet, and interest income. In the first nine months of 2016, the company added 55,000 new accounts to 1.1 million total accounts.

The bank’s balance sheet expanded to $165.2 billion as of September 30, 2016, which is a YoY (year-over-year) rise of 28.0%. In 3Q16, the bank reported net interest revenue of $845.0 million compared to $635.0 million in the previous year.

Bank

The bank’s deposits rose to $149.6 billion in 3Q16, a 26.0% rise YoY. The bank has extended loans of $14.9 billion, a 4.0% rise over 3Q15. The bank’s outstanding mortgage and home equity loans stood at $11.2 billion on September 30, 2016. The expansion of deposits reflected a shift of its client assets from other banks.

Schwab doesn’t utilize its banking structure for client acquisitions. However, its banking structure is used to support trading and wealth management activity.

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

  • TD Ameritrade Holding (AMTD): 4.6x
  • E*Trade Financial (ETFC): 5.9x
  • Interactive Brokers Group (IBKR): 5.8x

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

Banking assets

In 4Q16, as client assets rise and markets improve, banking assets are expected to grow in line with these improvements. Schwab is targeting new assets through investment advisers, retirement advisers, and new initiatives.

As of September 30, 2016, Schwab’s affiliate Windhaven Investment Management managed client assets totaling $10.2 billion, a fall of 21.0% from 3Q15. ThomasPartners expanded its client base by 35.0% to $9.2 billion.

Client assets managed under Schwab Intelligent Portfolios and Institutional Intelligent Portfolios rose to $10.2 billion, a $2.0 billion rise from the previous quarter. Schwab has also expanded its ETF assets base to $304.9 billion, of which $20.2 billion is from ETF OneSource. It charges fees rather than commissions on these investments.

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