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Schwab Profit Up 27%: Q2 Earnings

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Charles Schwab’s (SCHW) net income for the second quarter increased by 27%, it reported Wednesday.

Schwab’s net income for the second quarter of 2014 was $324 million, compared with $326 million for the first quarter of 2014, and up from $256 million for the second quarter of 2013. Its net revenues rose 11% from a year ago with almost $1.5 billion for the quarter.

Combined with the first-quarter net income, the first half net income was $650 million, making this year what CFO Joe Martinetto is calling “the best start to any year in our history.”

“Our financial performance thus far in 2014 is right in line with management expectations,” Martinetto said in a statement. “Given an environment that is no longer masking our progress, it’s clear our financial model is working. Our success with clients and diversified income sources produced revenue growth.”

According to Schwab, it now has some $2.4 trillion in client assets, a 17% increase from last year.

Some $1.01 trillion of client assets are shepherded by independent advisors, and about $175 billion are part of the firm’s retail advisory program, up 20% and 28%, respectively, over the first quarter of 2013.

Schwab ended the quarter with 9.3 million active brokerage accounts and 950,000 banking accounts, up 3% and 4%, respectively, from year-ago levels.

Schwab saw a slump in trading activity — with trading revenue hitting $212 million in second quarter 2014, down from $235 million a year ago. Martinetto said “record levels of asset management and administration fees and net interest revenue, which grew by 10% and 19%, respectively, more than offset a decline in trading revenues as client activity slowed.”

Reporting $11.5 billion in net new assets in June and $22.7 billion during the second quarter, CEO Walt Bettinger said in a statement that Schwab is currently experiencing “the highest June in our history and the highest second quarter in 6 years.”

“With the right full-service model for serving today’s investors, we are driving sustained momentum in our business,” he said in a statement. “As investor engagement continues to gain strength, we offer the transparency, open architecture, technology and accessibility – including personal relationships – that support our clients’ confidence and trust in Schwab as a partner that can help them build their financial futures.”

Schwab Advisor Services

The net new client assets for this advisory unit were $13 billion in the second quarter, down 4% from $13.6 billion a year ago and a 25% decrease from the $17.3 billion reported last quarter.

Schwab Advisor Services has some $1.08 trillion in client assets, up from $900.4 billion a year ago and $1.03 trillion in the prior quarter.

Average client assets that are managed and administered by the Advisory Services group reached about $165 billion for second quarter 2014, compared to $142.2 billion a year ago. Revenues tied to these managed and administered assets were $209 million in second quarter 2014, compared with $177 million last year, and the average fees were 0.51% and 0.50%, respectively.

The growth in advice at the company reflects the fact that “very few people today believe they can be successful informally managing money on their own; what’s why you see so much growth,” Bettinger said in a telephone interview with ThinkAdvisor on June 19. In that same interview, he also argued that “the Charles Schwab of today is so different than it was,” as evidenced by the half of its assets receiving advice.

“We’ve shown that Schwab can perform well” even in a low-interest rate environment, Bettinger said during that interview.

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