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Schwab Profits Soar 33%, Beat Estimates: Q3 Earnings

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Charles Schwab (SCHW) said Monday that its third-quarter profit rose 33% to $503 million, or $0.35 per share vs. $376 million, or $0.28 per share, a year earlier, while revenue improved 17% to $1.9 billion from about $1.6 billion last year. The results beat analysts’ expectations.

Revenue tied to asset management and administration fees improved 20% year over year to nearly $800 million, and net interest revenue was $845 million. These results helped boost its pre-tax profit margin to 41.5% in Q3’16, up from 36.5% a year ago and 39.4% in the prior quarter.

The level of net new assets in Advisory Services was $15.8 billion in Q3’16, up from $11.8 billion in the prior quarter but down from $17.5 billion a year ago. Net new assets in Investor Services were $14.2 billion for the quarter.

(Related: 12 Best & Worst Broker-Dealers: Q2 Earnings, 2016)

Total assets at the firm stand at $2.7 trillion, with $1.25 trillion held in Advisory Services accounts. The total asset level rose 13% year over year and 4% from last quarter.

New retail brokerage accounts grew 6% to about 167,000, as the number of total accounts improved 3% to 7 million. The level of outstanding mortgage and home equity loans stayed around last year’s level at $11.2 billion.

“Schwab’s third quarter results reflect the combined power of our strategy and scale – we served more clients than ever while delivering record financial performance,” said CEO Walt Bettinger, in a statement. “Our range of full-service investment capabilities continued to attract a broad spectrum of investors and helped core net new assets total $30.0 billion in the third quarter, sustaining a solid 5% annualized organic growth rate.”

Assets enrolled in a broader measure of ongoing advisory services reached $1.37 trillion at quarter-end, up 14% from a year ago, he added.

Schwab’s robo-offering, Intelligent Portfolios, have attracted about than $10.2 billion as of Sept. 30, up about $2 billion from June 30. They were launched in March 2015.

“Roughly a quarter of the assets enrolled in Intelligent Portfolios are new to Schwab, and that proportion is growing steadily,” the company said in a press release.

On the downside, trading revenue fell 17% to $190 million due to weaker market volatility and trading volumes from the year-ago quarter, according to CFO Joe Martinetto. Net litigation spending of about $14 million related to non-agency RMBS portfolio accounted for “the conclusion of our last pending cases,” he added.

“Altogether, revenues grew 20% to $1.91 billion, allowing for both a healthy level of investment in the company’s growth initiatives and stronger profitability,” the CFO said. 

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