Financial services firm Charles Schwab (SCHW -0.39%) reported third-quarter results on Tuesday, Oct. 15, that topped consensus analyst estimates on both top and bottom lines. Quarterly revenue of $4.8 billion was up 5% year over year, and exceeding expectations thanks to increased client engagement. Adjusted earnings per share (EPS) matched the previous year's Q3 at $0.77.
Despite facing challenges in banking operations, Schwab reported solid fiscal performance for the quarter.
| Metric | Q3 2024 | Analysts Estimates | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Total net revenue | $4.85 billion | $4.79 billion | $4.61 billion | 5.2% |
| Adjusted EPS | $0.77 | $0.75 | $0.77 | 13% |
| Client assets | $9.92 trillion | N/A | $7.82 trillion | 27% |
| Net income (GAAP) | $1.41 billion | N/A | $1.13 billion | 25% |
Source: Charles Schwab. Note: Analyst estimates for the quarter are provided by FactSet. YOY = Year over year.
Understanding Charles Schwab
Charles Schwab is a key player in the financial services sector, known for its brokerage and banking offerings. With over $9.92 trillion in client assets and 35.6 million active brokerage accounts, Schwab leverages its expansive infrastructure for efficient service delivery. Recent moves include successfully completing the integration of TD Ameritrade's assets, enhancing Schwab’s trading capabilities and market reach. The focus on scale, efficiency, and diversified revenue streams defines Schwab’s business model. Its strategy involves optimizing operations to cater to a broad client base effectively.
Notable Developments from Q3
Charles Schwab's third-quarter revenue growth stemmed from strong engagement and improved market performance. It reported net new assets of $95.3 billion, highlighting effective client retention. This strategic move bolstered Schwab’s market standing.
Client assets soared to $9.92 trillion, a 27% increase from last year, marking a new record for Schwab. Asset management and administrative fees reached $1.4 billion, which was also a quarterly record. This rise aligned with its Client First initiative, which saw a surge in managed investing flows to $15 billion. However, the net interest revenue experienced a slight 1% decline, attributed to the volatile interest rate environment.
There was a notable decline of 26% in bank deposit fees due to competitive pressures and interest rate fluctuations. Despite this, adjusted pre-tax profit margins fell slightly to 41.2% but were up eight percentage points on a GAAP basis, demonstrating Schwab’s operational efficiency amid the Ameritrade integration process.
Schwab's leverage and capital ratios remain strong, with a Tier 1 leverage ratio of 9.7% and an adjusted ratio of 6.7%. This positions it well against regulatory demands, although the company acknowledges ongoing challenges in managing high funding costs and market competition.
Looking Ahead
No specific guidance was offered in this latest earnings report, but management at Schwab has indicated elsewhere that it holds a positive outlook, focusing on further integrating advanced trading platforms and expanding wealth management solutions. High client engagement should drive sustained growth. The company seeks to enhance its service offerings while maintaining low-cost leadership. Notable changes include efforts to streamline high-cost debt and optimize operations to boost efficiency.
