Charles Schwab on Monday reported accelerating earnings growth that topped Q3 estimates, helped by retail investors re-entering the market and taking on more risk.
The discount brokerage's earnings rose 16% to 22 cents a share, beating by 2 cents. That was the best gain in two years.
Revenue climbed 14.5% to a 13-year high of $1.37 billion, above estimates for $1.34 billion. It also was the strongest top-line growth in 10 quarters.
"Even with the continued head wind created by an interest-rate environment that remains at historic lows, our third-quarter revenues surpassed all our prior quarterly results save the extraordinary spike we experienced at the height of the Internet bubble," CEO Walt Bettinger said in a statement.
Charles Schwab (SCHW) shares jumped nearly 5% to 23.03, hitting a 5-year high intraday.
Retail investors have been coming back to stocks slowly but surely, helped by the gradually improving job market.
"Once retail investors know they aren't going to lose their job, then they are going to take some risks," said Brad Hintz, a senior equity analyst at Sanford C. Bernstein.
He sees retail investors moving out of safer money market funds and moving into hybrid funds, which are made up of stocks and bonds.
The summer downturn in investment activity wasn't as bad as usual, suggesting the retail investor is becoming more engaged in investing, Hintz added.
That comeback is also boosting Schwab's fee-based advisory services, which the brokerage has been pushing as it diversifies beyond trading for individual investors.
In Q3, $949 billion, or 44.2%, of the $2.15 trillion in Schwab client assets were in an adviser services program. That's up from $900 billion, or 43.9%, in Q2 and $812 billion, or 43%, a year earlier.
Meanwhile, trading activity rose 8% vs. a year earlier but was down 6% from Q2.
Schwab reaffirmed that it expects 2014 revenue to rise 3% to 5% faster than its expenses. It still sees revenue this year topping expenses by 1% to 2%.
But going forward, Schwab needs to be on the lookout for TD Ameritrade (AMTD), which has lower advisory fees, Hintz warned.
Ameritrade is slated to report fiscal Q4 earnings Oct. 29. Analysts see EPS rising 35% to 35 cents with revenue up 11% to $718.3 million.
E-Trade (ETFC) reports Oct. 23. Analysts expect EPS of 17 cents vs. last year's 10-cent loss. Revenue should fall 14% to $419.4 million.