The online brokers are done reporting their earnings for the third quarter of 2017. Every quarter StockBrokers.com takes an in-depth look at the earnings reports from each of the publicly-traded brokers. The 2016 earnings picture for the brokers was great, but a pricing war and other outside factors made the first half of 2017 a mixed bag. Now, we’ll take a look at the third quarter. We’ll look at each broker by starting with fast facts from the report and then taking a deeper dive into their results. At the close of this post, we’ll summarize what all these reports mean for the online brokerage sector in general. Here is a look at the results from Charles Schwab (SCHW), TD Ameritrade (AMTD), Interactive Brokers (IBKR), and E*TRADE (ETFC).

Before we look at the individual reports, let’s take a look at how each company did on an earnings per share basis compared to the same quarter a year ago. Charles Schwab reported 42 cents per share in the third quarter compared to only 35 cents per share a year ago. TD Ameritrade brought in 39 cents per share including 10 cents of charges for the Scottrade acquisition. Interactive Brokers reported earnings of 44 cents per share compared to only 30 cents per share a year ago. E*TRADE earned 49 cents per including a six cent charge related to early extinguishment of debt. A year ago E*TRADE earned 51 cents per share.

Charles Schwab Third Quarter Earnings Fast Facts

Schwab reported 42 cents per share which beat analysts estimates of 41 cents per share 

Revenues were up 17 percent from a year ago to $2.17 billion

Trading revenue was $151 million- down 21 percent from a year ago

Net interest revenue jumped 28 percent from a year ago to $1.08 billion

Charles Schwab narrowly bested analysts estimates on the bottom line and narrowly missed estimates on the top line in the third quarter. Trading revenue isn’t a huge portion of the company’s overall earnings, but it is that lower commissions are putting pressure on this area. On the other hand, net interest revenue has gone up substantially thanks to the interest rate hikes. Additionally, asset management fee revenue, an area Schwab has focused on a lot in recent quarters, was up eight percent in the third quarter to $861 million.

Pre-tax profit margin rose from 41.5 percent a year ago to 43.5 percent in this quarter. Core net new assets were $51.6 billion in the quarter, which is a new record for Schwab. Total client assets reached $3.18 trillion in the quarter, up 17 percent from a year ago.

TD Ameritrade Third Quarter Earnings Fast Facts

Earnings adjusted for costs related to the Scottrade acquisition were 49 cents per share 

Revenue came in at $983 million, which easily bested analysts estimates of $965.4 million

Daily Average Revenue Trades (DARTs) were 529,000 in the quarter

Net new client assets of $19.9 billion

TD Ameritrade beat the average analyst estimate by three cents per share on the bottom line. They coasted past analysts estimates on the top line as well in this strong report. The Scottrade acquisition was closed on September 18. TD Ameritrade now has $1.1 trillion in client assets, which is up 45 percent from a year ago. Interest rate sensitive assets were up 31 percent from a year ago to $156 billion.

DARTs of 529,000 jumped an impressive 19 percent year over year. Ameritrade also said that the first half of October’s DARTs were running significantly higher than that number. Pre-tax income was $338 million, or 34 percent of net revenues. Asset gathering jumped 32 percent from a year ago.

Interactive Brokers Third Quarter Earnings Fast Facts

Total net revenues jumped to $426 million- analysts estimates were for only $375 million

Total DARTs were 695,000 which was up 14 percent from a year ago

Pre-tax profit margin rose from 53 percent last year to 63 percent this year

Total non-interest expenses were down 2 percent to $158 million

Interactive Brokers blew away estimates on both the top and bottom line in the third quarter. Net revenues increased 27 percent in the electronic brokerage segment. Pre-tax profit margin in the electronic brokerage segment rose from 56 percent to 61 percent. Customer accounts in the electronic brokerage segment were up 24 percent to 457,000 in the quarter. Commissions revenue grew 15 percent from last year. Net-interest income increased by $46 million. Customer equity grew 40 percent from the year ago quarter to $115.7 billion.

Market making segment income before taxes increased to $11 million as Interactive Brokers continues to wind down this business. Lower costs and a $10 million net recovery of exit costs led to this increase.

E*TRADE Third Quarter Earnings Fast Facts

Revenue jumped to $599 million from $486 million in the same quarter a year ago

Net new brokerage accounts were 26,000 

DARTs were 206,000 in the quarter, up 26 percent from a year ago

Operating margin of 37 percent

E*TRADE reported diluted earnings of 49 cents per share. There was a six cent charge included in that related to early extinguishment of debt and other items. E*TRADE earned $100 million in commissions, down just seven percent from a year ago. It’s important to note that the addition of Options House would skew this number so it isn’t an apples to apples comparison. Total non-interest expenses rose from $123 million last year to $139 million this year. Advertising and market development was the biggest reason for that increase. Net new brokerage assets were $2.2 billion in the quarter.

The DARTs number was very strong, but that is also in part due to OptionsHouse. You can see that in the results thanks to the rise in derivatives. Derivatives were 32 percent of DARTs this quarter compared to only 26 percent a year ago.

Conclusion

The brokers had what I believe was another fairly strong quarter. DARTs were much stronger than you would expect in the third quarter, which is a very light trading time on average. Despite continued low volatility, investors are staying active in the market. All the brokers continue to do a good job of bringing in new accounts and assets. Additionally, we are starting to see clear signs of the rising interest rate environment helping brokers. That should continue as the Federal Reserve is expected to continue raising rates gradually.

Trading revenues are obviously down after the price war in the industry, but it hasn’t drastically cut into earnings. I believe we need a few more quarters to see exactly what the lower commissions will mean to the online brokers. In all, this was a better than expected quarter for the online brokerage sector.

Below is a yearly chart of all four brokers. The charts are as of the close of trading on October 31.