TD Ameritrade (AMTD) Posts In-Line Q3 Earnings, Up Y/Y

TD Ameritrade Holding Corporation's AMTD fiscal third-quarter 2014 earnings of 34 cents per came in line with the Zacks Consensus Estimate. However, the reported figure came a penny above the prior-year quarter earnings.

 

Results reflected increased revenues. Further, the quarter continued to witness a rise in both total client assets and daily average client trades. However, higher expenses were on the downside.

 

TD Ameritrade's net income for the quarter was $190 million, up 3.3% from the prior-year quarter.

 

Quarter in Detail

 

Net revenue came in at $763 million, surpassing the Zacks Consensus Estimate of $758 million. Further, net revenue was up 5.2% year over year. The rise reflected an increase in asset-based revenues, partially offset by a decline in transaction based revenue.

 

Operating income increased 6.0% from the prior-year quarter to $316 million. The rise was due to increased revenues, partly offset by higher expenses. Net interest margin NIM was 1.52%, increasing 3 basis points (bps) from the prior-year quarter.

 

Total operating expense rose 4.7% year over year to $447 million. The increase was mainly due to a rise in employee compensation and benefits expenses, clearing and execution costs, and professional services expenses.

 

Average client trades per day in the quarter increased nearly 1% year over year to 401,468. Further, as of Jun 30, 2014, net new client assets stood at $13.4 billion, up 24.1% from the prior-year quarter end.

 

At the quarter end, TD Ameritrade reported total client assets of $650.2 billion, up 24.2% year over year. Moreover, average spread-based balance was $91.2 billion, up 7.7% year over year, while average fee-based investment balance increased 17.3% to $138.5 billion.

 

Net interest revenue was $149 million, up 24.2% year over year.

 

Balance Sheet

 

As of Jun 30, 2014, TD Ameritrade's cash and cash equivalents were $1.3 billion, compared with $1.1 billion as of Sep 30, 2013. Shareholders' equity was $4.7 billion, in line with the figure as of Sep 30, 2013.

 

Share Repurchase Update

 

During the quarter, TD Ameritrade repurchased 2.9 million shares of its common stock for around $89 million at an average price of $30.48 per share.

 

Our Viewpoint

 

Innovations in online trading, long-term investment in products and services, delivery of advanced customer service and creative marketing and sales are TD Ameritrade's key strategies to boost its trading and investing business. Further, we believe the company will benefit from the renewed interest of retail investors in the equity market.

 

Additionally, the company's association with The Toronto-Dominion Bank TD provides an opportunity to cross-sell its products. This is expected to be a significant growth driver for TD Ameritrade's organic assets.

 

Amid a volatile operating environment, TD Ameritrade witnessed a continuous rise in both organic client assets and trading volumes, which bode well going forward. However, we remain cautious as a continuous rise in expenses, a low interest rate environment and stringent regulations may weigh on the company's financials in the upcoming quarters.

 

At present, TD Ameritrade carries a Zacks Rank #4 (Sell).

 

Performance of Other Investment Brokers

 

Interactive Brokers Group, Inc.'s IBKR second-quarter 2014 adjusted earnings per share of 26 cents missed the Zacks Consensus Estimate of 29 cents. However, the reported figure was up from 21 cents earned in the year-ago quarter.

 

Robust top-line growth drove The Charles Schwab Corp's SCHW second-quarter earnings of 23 cents per share, surpassing the Zacks Consensus Estimate of 22 cents. Also, this was up 28% from 18 cents earned in the year-ago quarter.