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TD Ameritrade Holding Corp. (AMTD - Analyst Report) reported first-quarter fiscal 2014 earnings of 35 cents per share, which beat the Zacks Consensus Estimate of 32 cents. The reported figure was also higher than 27 cents earned in the prior-year quarter.

Better-than-expected results came on the back of increased revenues. The other positives were rise in both total client assets as well as daily average client trades. However, higher expenses were a headwind.

TD Ameritrade’s net income for the said quarter was $192 million, up 31% from the prior-year quarter.

Quarter in Detail

Net revenue rose 16% year over year to $752.0 million. This was due to an increase in total asset-based revenues and transaction-based revenues. However, net revenue also surpassed the Zacks Consensus Estimate of $734.0 million.

Average client trades per day in the quarter increased 24% year over year to 413,743. However, net new client assets were $14.5 billion, down 7% from the past year.

At the quarter-end, TD Ameritrade reported total client assets worth $596.5 billion, up 24% year over year. Moreover, average spread-based balance was $90.3 billion, up 14% from $79.3 billion in the prior-year quarter. Average fee-based balance was $130.5 billion, up 31% year over year.

Net interest revenue was $127.0 million, up 9% year over year.

Operating income increased 27% from the year-earlier quarter to $307 million. The rise was due to increased revenues, partly offset by higher expenses. Net interest margin (NIM) was 1.45%, down 13 basis points from 1.58% in the prior-year quarter.

Total operating expense rose 9% year over year to $445.0 million. This was mainly due to increase in employee compensation and benefits expenses, clearing and execution costs, depreciation and amortization expenses as well as advertising expenses.

Balance Sheet

As of Dec 31, 2013, TD Ameritrade’s cash and cash equivalents were $1.3 billion, compared with $1.1 billion as of Sep 30, 2013. Shareholders’ equity was $4.5 billion versus $4.7 billion as of 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 TD Ameritrade’s key strategies to boost 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 bode well going forward. However, a low interest rate environment and stringent regulations pose as challenges.

At present, TD Ameritrade carries a Zacks Rank #2 (Buy).

Among other investment brokers, E*TRADE Financial Corp. (ETFC - Analyst Report) and Evercore Partners Inc. (EVR - Snapshot Report) are scheduled to announce fourth-quarter results on Jan 23 and Jan 29, respectively.

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