2011 Q1 Earnings: Schwab Earns $0.20 per Share on 23% Jump in Revenue

Schwab Advisor Services sees 10% rise in assets, but net new assets fall

Charles Schwab Corp. (SCHW) reported Friday that net income in the first quarter of 2011 was $243 million, or $0.20 in earnings per share, slightly beating analysts’ earnings consensus, versus profits of only $6 million in the first quarter of 2010.

Net revenues in the first quarter of 2011 increased 23% to $1.20 billion compared $978 million in the year-ago period.

Schwab Advisor Services, which custodies assets for more than 6,000 registered investment advisors, sawassets rise 10% from Q1 2010 to $688.6 billion, which also represents a 5% increase over fourth-quarter 2010 assets in the RIA channel. But net new assets in Advisor Services were $14.2 billion in the first quarter, a 3% decline from the prior year and a 13% drop from the fourth quarter.

For the entire company,Q1 2011 net new assets declined 1% of $23.0 billion from last year and a 12% decline from the fourth quarter.

Schwab’s retail arm, Investor Services, however, saw a 30% rise in net new assets of $5.7 billion from the year-ago period, and a 14% rise from the fourth quarter. New brokerage accounts totaled 224,000 in the first quarter, a 3% decline year over year and a slight decline from the 225,000 new accounts opened in 2010’s fourth quarter.

The consensus of analysts as reported by FactSet Research was for Schwab to report a Q1 profit of $0.19 per share for the quarter. Prior to Schwab’s release of earnings, Citigroup’s William Katz wrote in an analyst’s note that he was lowering his full-year 2011 earnings forecast for Schwab to $0.80 per share from $0.85 per share, citing “lower interest rate assumptions” and restructuring costs related to Schwab’s acquisition of optionsXpress.

In the formal announcement of earnings, Chairman Charles Schwab noted that “approximately $800 billion of the client assets currently at Schwab are either enrolled in one of our advisory offerings or under the guidance of an independent advisor,” up 16% from 2010’s first quarter. He also reported that Schwab clients had reduced the percentage of their assets at Schwab held in cash to “pre-crisis levels.”

Schwab’s first-quarter 2010 net income included charges of $196 million related to settlement of litigation surrounding its YieldPlus Fund.

During the first quarter, Schwab agreed to acquire Chicago-based optionsXpress Holdings for $1 billion in Schwab stock. Following the announcement, Bernie Clark, who heads Schwab’s RIA custody unit, Schwab Advisor Services (SAS), said in an interview with AdvisorOne on March 24 that when the acquisition closes, likely in 2011’s third quarter, it will benefit its affiliated advisors as well as Schwab’s retail clients. “It will all be available” to advisors,” Clark said then, and he anticipated that “eventually we’ll have integration.”

In announcing the deal on March 21, Schwab said it expected that the acquisition would be modestly accretive over the first full year of combined operations, including expected revenue and expense synergies totaling approximately $80 million.” Schwab further said that it expected $55 million in merger and restructuring charges from the acquisition.

On January 18, Schwab announced that net income for the fourth quarter of 2010 fell 27% to $119 million, or $0.10 per share, versus $164 million, or $0.14 per share, in the fourth quarter of 2009. Without charges relating to the YieldPlus Fund, a dispute that it settled last year, Schwab’s fourth-quarter net income would have been $218 million, up 33% over the year-ago period.

For the 12 months ended Dec. 31, 2010, the company’s net income declined 42% to $454 million, or $0.38 a share, from $787 million, or $0.68 cents a share, in 2009. Excluding charges associated with YieldPlus and other issues, net income for 2010 was $775 million.

Click here for AdvisorOne’s 2011 Q1 Earnings Calendar for the Financial Sector at AdvisorOne.com.

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