Charles Schwab profits surge as retail traders bought the dip in a volatile quarter

Charles Schwab ( SCHW ) said Tuesday that profits soared 32% from a year ago, fueled by record client trading activity during a busy quarter for Wall Street.

Schwab reported net income of $2.8 billion, or $1.62 per share on a adjusted basis. Total net revenue increased 21% to $7.1 billion, driven in part by a 28% rise in trading revenue.

The company's report exceeded analyst forecasts for profits and revenue.

"During the second quarter, strong client engagement helped drive year-over-year revenue growth," Schwab CEO Rick Wurster said in a earnings release statement.

Sharp price swings, heavy stock rotation, and rising investor balances helped stock trading desks deliver a blowout second quarter. The frenzy extended to Schwab.

Customer margin balances, or the amount clients borrowed from Schwab to buy securities, rose 30% from the previous quarter to $165 billion. The platform's daily average number of trades climbed to a record 11.9 million.

"Our ability to do more for clients throughout their financial lives enables Schwab to deliver robust results across a range of environments," Wurster added.

Schwab's core profit machine, net interest income, rose 19% from a year ago to $3.36 billion. Its net interest margin — or the spread Schwab earns on its loans and securities after funding costs — expanded by 12 basis points from the previous quarter to 3.00%.

Total client assets on the firm's platform increased by $1.31 trillion from last quarter to $13.08 trillion.

Schwab also increased its full-year revenue guidance to an increase of 17.5%-18.5% from last year, based on stronger markets and heavier client trading. At its May investor day, the firm expected a 14%-15% increase.

Schwab stock rose Tuesday morning. The company's stock hit a low point in late May but has since recovered to roughly where it began the year.

The major brokerage is trying to take advantage of its heightened customer engagement by expanding into more products.

Schwab has rolled out crypto spot trading and is investing in AI-powered tools. It's also working with Cboe Global Markets to launch binary options, a prediction-market variation geared toward financial and economic events.

However, Wurster made it clear the firm isn't expanding the options push into sports or cultural event outcome betting.

"I think it's completely disingenuous for people to be out in the market calling this an asset class and a new way for young people to invest," Wurster said on Tuesday.

David Hollerith covers a range of developments throughout the financial sector, from Wall Street to banking and asset management to crypto and fintech. Email him at david.hollerith@yahoofinance.com. Follow him on X at @DsHollers.

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