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Charles Schwab Sitting Pretty

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While it may still be too early to declare that the retail investor is back, Charles Schwab (Nasdaq: SCHW  ) continues to thrive in the face of suboptimal conditions.

The retail brokerage slightly topped analyst estimates, but showed significant improvement, as all three of the company's main revenue generators increased by more than 10% over the previous year. While Schwab competitors E*TRADE (Nasdaq: ETFC  ) and TD AMERITRADE (Nasdaq: AMTD  ) depend more on revenue from trading activity, Schwab has better diversified its business during the last several years by focusing on asset management.

This business represents Schwab's largest revenue generator, and the key driver of its next-most-important revenue component, net interest. For the quarter, Schwab brought in net new assets of $23 billion, a 10% increase from last year. Schwab's total invested assets now stand at $1.65 trillion, a record high for the company.

You can see the importance of this net new asset growth in the 28% increase in Schwab's net interest revenue, the most impressive piece of the report. Schwab and its competitors are highly sensitive to changes in interest rates, and the unprecedented near-0% Fed Funds target rate has been particularly troubling. As a result of these low rates, the discount brokers have had to waive fees on their money market funds in order to ensure that their clients don't lose money just by putting it into those investments. For the quarter, Schwab was forced to waive $112 million in money market mutual fund fees, yet it was still able to post this large net interest gain.

Schwab's ability to effectively keep its costs low while growing revenue in this difficult environment has put the company in an extremely strong position as the economy continues to recover. Interest rates won't remain near 0% forever. Recent rate hikes in Europe, and continuous hikes in China, have only put more pressure on the Federal Reserve to tighten the reins a bit. Rate hikes will naturally improve Schwab's net interest revenue, and finally cut down on the fee waivers that have troubled the entire industry over the last several years.

While the extremely low interest rate environment remains beyond management's control, its focus on what the company can control -- maintaining low operating costs and increasing assets under management -- has been impressive. Right now, monetary policy might be the only thing keeping Schwab shares from taking off.

Andrew Bond owns no shares in the companies listed. Charles Schwab is a Motley Fool Stock Advisor pick. You can follow Andrew on Twitter @Bond0 or on his RSS feed. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.

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