Updated from 9:37 a.m. EDT

An ongoing price war between the big discount brokerages resulted in mediocre first-quarter earnings at

Charles Schwab

(SCH)

.

Earnings at the San Francisco-based brokerage fell 10% to $145 million, or 11 cents a share, in the quarter, from $161 million, or 12 cents a share, in the year-ago period.

On an operating basis, which excluded a $19 million restructuring charge, earnings totaled $164 million, or 12 cents a share.

Schwab's earnings, on an operating basis, met expectations of analysts as surveyed by Thomson Financial. Revenue, which totaled $1.06 billion in the quarter, came in slightly shy of the Thomson estimate of $1.08 billion.

In the quarter, Schwab's revenue came under pressure as the result of an all-out price war in the discount and online brokerage sector to reduce commission costs. Over the past several months, Schwab has cut the average commission cost for its customers by 45%.

The price-cutting led to a 4% decline in revenue compared to a year ago. The brokerage also said price reductions resulted in a 5% sequential drop in trading revenue to $207 million in the first quarter.

The price-cutting, however, may be encouraging Schwab's customers to trade more often.

Even though the major market indices have been in the red for much of this year, Schwab said "client activity picked up in the quarter." The firm said daily average revenue trades rose 8% compared to the fourth quarter, "the highest quarterly level in four years.''

Chairman and CEO Charles Schwab, in a press release, said the price cuts have helped the brokerage build "a new connection with our clients.''

Schwab CFO Chris Dodd, in a telephone interview, said Schwab's historically higher commission costs was a reason the firm often lost customers to its competitors. He said the price reductions of the past nine months will go a long way to stopping customers from taking their business elsewhere.

"Price is not part of the equation anymore,'' says Dodd.

The average commission charge for many Schwab customers is $19.95, compared to

Fidelity Investment's

$10.95 charge and a $14.99 charge at

E*Trade

(ET) - Get Report

.

Dodd also rejected speculation that Schwab, which has been trying to reduce operating costs and exit certain businesses, is trying to make itself attractive to a potential acquirer.

"The whole construct of dressing us up for sale is completely flawed,'' he said.