Brokerage firm Charles Schwab (SCHW - Get Report) turned in quarterly financial results in line with Wall Street's expectations as asset-management fees, trading revenue and interest income increased.
Net income for the first three months of 2016 rose 36% to $412 million, or 29 cents a share, compared with the same period a year ago. That was the average of analysts' estimates, according to Bloomberg.
"In this environment, that's considered a win," said Stephen Biggar, an analyst with Argus Research Co.
Asset management and administration fees climbed 9% from a year earlier to $699 million, while net interest revenue rose 31% to $772 million, and trading revenue gained 2% to $232 million. Rates and market performance are the two biggest drivers for Schwab over the next year, said SunTrust Robinson Humphrey stock analyst Doug Mewhirter.
The quarterly performance is the "first step in the long climb of Schwab nearly doubling their earnings over the next five years, with the primary driver of that being rising interest rates," said Morningstar analyst Michael Wong. "As long as you believe that the U.S. economy is stable and that the Federal Reserve will raise interest rates by 25 basis points more, you can see a similar material large jump in [Schwab's] earnings."
The San Francisco-based firm reported revenue of $1.764 billion, up 16% from a year ago and higher than analysts' projections of $1.754 billion.
"The ongoing effect of the Fed's initial interest rate hike in December has provided a glimpse of Schwab's earnings power as rates normalize," Schwab CFO Joe Martinetto said in the earnings release. The central bank's 25 basis-point hike in December was the first since they were cut to nearly zero during the financial crisis of 2008.
Monetary policy committee members said last year it might be followed by as many as four hikes year -- taking short-term rates to 1.25% to 1.5% -- but trimmed the outlook after market volatility at the start of 2016.
"Overall, while the market volatility shaped a path that was a bit different than originally thought, our first-quarter financial results were consistent with the baseline 2016 scenario that we introduced in early February," Martinetto added. "As the rest of the year unfolds, we intend to monitor the evolving environment -- including the pace of Fed rate actions -- and apply the flexibility built into our spending plans."
Core new net assets totaled $32 billion in the first quarter, marking a 5% annualized organic growth rate.
"I thought it was a pretty solid quarter in general," said SunTrust's Mewhirter. "They showed good asset-gathering. There's also a nice increase in interest-related income."
Schwab fell 0.73% to $28.53 on Friday as the broader markets declined.