Charles Schwab Posts Mixed Q3 Earnings: Net Interest Revenue Dips Amid Higher Interest Rate Environment

Charles Schwab Corp SCHW reported a Q3 net revenue decline of 16% Y/Y to $4.61 billion, missing the consensus of $4.63 billion.

Revenues were impacted by a temporary utilization of higher-cost funding, a decline in interest-earning assets, and weaker trading volumes. 

Net interest revenue declined 24% Y/Y to $2.24 billion, impacted by client allocation decisions within a higher interest rate environment.

Also, trading revenue declined 17% Y/Y to $768 million, and Bank deposit account fees decreased 50% Y/Y to $205 million in Q3.

Meanwhile, Asset management and administration fees increased 17% Y/Y to $1.22 billion, led by ongoing interest in proprietary fund products, growth in no-transaction-fee platform balances, and strong flows into advised solutions.

Bank deposits declined 28% Y/Y to $284.4 billion in the quarter.

Total expenses rose 14% Y/Y to $3.22 billion, which includes acquisition and integration-related costs of $106 million, $135 million in amortization of acquired intangibles, and $279 million in costs related to previously announced restructuring. 

In Q3, the bank opened over 894K new brokerage accounts (flat Y/Y), comprising $46 billion worth of core net new assets, ending Q3 with total client assets worth $7.82 trillion across ~35 million accounts. 

Adjusted net income fell 31% Y/Y to $1.52 billion in Q3. Adjusted EPS stood at $0.77, down 30% Y/Y, exceeding the consensus of $0.75.

Total assets decreased 18% Y/Y to $475.2 billion. Tier 1 leverage ratio stood at 8.2% in Q3.

"We have identified a number of opportunities for increased efficiency, including capturing the remaining deal expense synergies, streamlining our operational design, aligning our geographic footprint to match our hybrid workforce, and harnessing the benefits of increased automation. Once fully implemented, we expect these actions to deliver at least $1 billion of incremental annual expense savings....Today we announced the launch of our new end-to-end trader experience that combines access to thinkorswim® with curated education for all levels and specialized service and support. This offer is tailored to meet the specific needs of a highly engaged client group that on average maintains approximately 4x more assets at the firm relative to other retail households while also utilizing a broad array of other products offered across Schwab,” stated Walt Bettinger, Co-Chairman and CEO.

Price Action: SCHW shares are trading higher by 0.55% at $51.61 premarket on the last check Monday.