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Analyst Blog

TD Ameritrade Holding Corp. (AMTD - Analyst Report) reported fiscal third-quarter 2013 (ended Jun 30, 2013) earnings of 33 cents per share, beating the Zacks Consensus Estimate of 31 cents. The results also surpassed the prior-year quarter figure by a nickel.

Better-than-expected results came on the back of higher revenues. Further, an increase in both total client assets and daily average client trades were the positives. However, a rise in expenses was a headwind.

TD Ameritrade’s net income for the said quarter was $184 million, up 19% from $154 million in the prior-year quarter.

Quarter in Detail

Net revenue rose 9% year over year to $725 million. This was due to an increase in total asset-based revenue, net interest revenue and transaction-based revenues. Further, net revenue exceeded the Zacks Consensus Estimate of $701.0 million.

Average client trades per day increased 12% year over year to 399,216. Net new client assets were $10.8 billion, up 11% from $9.7 billion in the past year.

At the end of the quarter, TD Ameritrade reported total client assets worth $523.5 billion, up 18% year over year. Moreover, average spread-based balance was $84.7 billion, up 14% from $74.2 billion in the prior-year quarter. Average fee-based balance was $118.1 billion, up 34% year over year.

Net interest revenue was $120.0 million, up 2% year over year.

Operating income climbed 17% year over year to $298 million. The rise was due to increased revenues, partly offset by a rise in expenses. Net interest margin (NIM) was 1.49%, down 24 basis points from 1.73% in the prior-year quarter.

Total operating expense shot 3% year over year to $427.0 million. The rise was mainly due to an increase in clearing and execution costs, occupancy and equipment costs, advertising expenses as well as depreciation and amortization expenses.

Balance Sheet

As of Jun 30, 2013, TD Ameritrade’s leverage ratio was 0.8, compared with 1.1 as of Jun 30, 2012. Cash and cash equivalents were $1.0 billion, compared with $0.9 billion as of Jun 30, 2012.

Capital Deployment Update

Along with the earnings release, TD Ameritrade declared a quarterly dividend of 9 cents per share on its common stock. The dividend will be paid on Aug 15, 2013 to shareholders of record as of Aug 1.

Other Developments

On Jul 1, 2013, KCG Holdings, Inc. (KCG) closed its merger with GETCO Holding Company LLC. Consequently, TD Ameritrade expects to record a pre-tax gain on its investment in KCG Holdings of approximately $54 million or $0.06 per share. The company will record this gain in the fourth fiscal quarter, ending Sep 30, 2013.

Our Viewpoint

Innovations in online trading, long-term investment in products and services, delivery of advanced customer service, creative as well as cost-effective marketing and sales, along with prudent expense management are the key factors behind TD Ameritrade’s strategy of boosting its trading and investing business.

Further, the company’s association with The Toronto-Dominion Bank (TD - Snapshot Report) 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 rise in both organic client assets and trading volumes, which will benefit the company. However, a low interest rate environment and stringent regulations will likely be dampeners.

TD Ameritrade currently carries a Zacks Rank #3 (Hold). Among other companies in the financial sector, E*TRADE Financial Corporation (ETFC - Analyst Report) will announce second-quarter results on Jul 24.

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