Schwab's Adjusted Earnings Rise 29% to $1.69 a Share on Record Revenue of $7.17 Billion

Charles Schwab posted record third-quarter results on Thursday, with adjusted earnings of $1.69 a share, up 29% from a year earlier, on record net revenues of $7.17 billion, as clients poured a record $190.4 billion of core net new assets into the firm.

The reported figures were net revenues of $7.17 billion, up 17% from $6.14 billion a year earlier, GAAP net income of $2.91 billion and GAAP diluted earnings of $1.62 a share, up 29% from $1.26. Excluding $151 million of pre-tax transaction-related costs, adjusted net income was $3.02 billion and adjusted earnings were $1.69 a share, up 29% from $1.31. Against expectations, the print was a small beat on earnings and essentially in line on revenue: Seeking Alpha's post-release summary put adjusted earnings three cents ahead of a $1.66 consensus and revenue of $7.17 billion $10 million short of a $7.18 billion consensus, while Barron's, citing FactSet, put the earnings consensus lower, at $1.65, against the same $7.18 billion revenue expectation. The two consensus figures differ by a cent; TickerGrove reports both rather than splitting the difference.

The client engine set the records

Core net new assets totaled $190.4 billion, up 38% from a year earlier and a quarterly record, an annualized growth rate of 5.8%. Total client assets rose 15% to $13.33 trillion, clients opened 1.2 million new brokerage accounts, and total client accounts reached 48.6 million. Managed investing net flows grew 22% from a year earlier, Schwab Wealth Advisory net flows grew 55%, and pledged asset line balances grew 59% to $37.3 billion — the wealth and lending sides of the platform growing faster than the brokerage core that feeds them.

Every revenue line grew, led by the bank

Net interest revenue rose 14% to $3.48 billion, and the net interest margin expanded to 3.04%. Asset management and administration fees rose 14% to $1.91 billion. Trading revenue rose 16% to $1.16 billion as daily average trading volume reached 10.7 million, up 44% from a year earlier. Bank deposit account fees rose 40% to $345 million. The pre-tax profit margin was 52.7% on a reported basis and 54.8% adjusted; return on average common equity was 25% and return on tangible common equity was 44%.

Lending and sweep cash did the balance-sheet work

Client transactional sweep cash ended September at $492.8 billion, up $7.1 billion from the prior quarter-end. Margin loan balances rose 14% from the prior quarter to $187.9 billion, including $60.7 billion tied to long and short strategies, and bank loan balances reached $72.3 billion, up 35% from a year earlier. Schwab repurchased 4.7 million shares for $500 million during the quarter, and its preliminary consolidated Tier 1 leverage ratio was 8.9%. The balance sheet, not just the income statement, is where the quarter's growth showed up: clients borrowed more, lent the firm more cash, and brought it more assets at the same time.

What to watch from here

The release carries no forward guidance, so the next evidence is management's commentary and whether the 5.8% annualized pace of core net new asset growth holds into the fourth quarter. Barron's reported the shares fell 2.4% in premarket trading, against a 0.3% dip in S&P 500 futures — a reminder that a 29% earnings jump buys little when revenue lands in line and expectations were already high. Three things will decide whether this record quarter compounds: whether sweep cash keeps building from $492.8 billion, whether margin balances near $187.9 billion hold if markets cool, and whether trading volume anywhere near 10.7 million a day survives a quieter tape.