Q3 Earnings: Schwab Misses Estimates as Average Revenue Per Trade Falls

Net new assets in Advisor Services totaled $10.6 billion, a 33% year-over-year increase and no change from the second quarter of 2011

Charles Schwab (SCHW) said Monday that its earnings rose to 18 cents a share in the third quarter on net income of $220 million, compared to 10 cents a share on net income of $124 million, a year earlier, missing estimates by 1 cent.

Net revenue grew 11% to $1.18 billion from $1.06 billion a year ago, and pre-tax margin for Q3’11 was 30.5% vs. 18.7% last year.

During the third quarter, the average number of daily revenue trades was 323,100, a 39% year-over-year increase and a 22% sequential increase. However, average revenue per revenue trade fell 2% both from last year and from last quarter to $12.04.  

Third quarter 2011 results include non-recurring costs relating to the acquisition of optionsXpress Holdings Inc. totaling $10 million after-tax, according to the company.

“Our unique combination of full-service, high-value brokerage continues to perform well and deliver growth despite a difficult economic environment,” said President and CEO Walt Bettinger in a press release. “Although the environment weakened further during the third quarter, our clients stayed with their long-term investing plans.”

“We ended September with a total of 2.4 million accounts at Schwab either enrolled in retail advisory offerings or under the guidance of an independent advisor, an increase of 153,000 over September 2010,” Bettinger continued. “During the quarter, we … executed a record 1,005,000 trades on a single day in August during the height of recent market volatility.”

According to the Schwab CEO, net new assets totaled $86 billion for the third quarter–excluding the optionsXpress acquisition and major clearing inflows, while core net new assets totaled $17.6 billion, up 21% from last year. In addition, he says, clients opened 191,000 new brokerage accounts during the period, up 14% from a year ago.

The firm ended the quarter with 8.5 million active brokerage accounts, 769,000 banking accounts, and 1.46 million retirement plan participants. Client assets totaled $1.58 trillion at the end of September, up 7% from a year ago, but down 5% from the second quarter.

Advisor Services

Assets in the Advisor Services unit expanded 5% year over year to $640.1 billion, but that represented a drop of 8% from the previous quarter.

Net new assets in Advisor Services totaled $10.6 billion, a 33% year-over-year increase and no change from the second quarter of 2011.

The total number of clients in active brokerage accounts was 8.51 million as of Sept. 30, a 7% year-over-year increase, a 5% quarter-over-quarter jump and a 4% improvement from Aug. 31.

“Given the weakened environment, we’ll respond appropriately on the expense side while remaining true to our long-term strategy,” said Bettinger in a statement continued. “We recognize that effective expense discipline remains key to our ability to balance near-term profitability with investing in our clients to enhance their service experience and sustain our growth.

“Our ongoing willingness to make appropriate trade-off decisions helped us to deliver year-to-date revenue and operating income growth of 15% and 27%, respectively,” he continued. “At the same time, we are pushing forward with initiatives that will expand our non-rate-sensitive revenues, such as our recent acquisitions of Windhaven and optionsXpress, as well as the development of an integrated technology platform for independent advisors and a new index-based 401(k) offering.”

Read AdvisorOne's Q3 Earnings Calendar to keep track of earnings releases for the finance sector.

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