TD Ameritrade Holding Corporation (AMTD - Analyst Report) reported fourth-quarter 2012 net income of 26 cents per share, beating the Zacks Consensus Estimate only by a cent. However, results compared unfavorably with net income of 29 cents per share reported in the prior-year quarter.

For the fiscal year 2012, earnings per share came in at $1.06, which also surpassed the Zacks Consensus Estimate of $1.10. However, earnings compared unfavorably with the prior-year earnings of $1.11.

Better-than-expected results for the quarter reflected a decline in operating expenses. Further, an increase in total client assets was a positive. However, a dip in total daily average revenue trades (DARTs) and decline in revenue were the downsides.

TD Ameritrade reported fourth-quarter net income of $143 million compared with $164 million reported in the prior-year quarter.

Performance in Detail

Net revenue declined 8.1% year over year to $647.0 million in the quarter, primarily attributable to a decline in transaction-based revenues and net interest revenue, partially offset by a rise in total asset-based revenues. However, the reported revenues outpaced the Zacks Consensus Estimate of $643.0 million.

Total revenue for the fiscal 2012 was recorded at $2.6 billion, down 4.4% from $2.8 billion in fiscal 2011. However, revenue was in line with the Zacks Consensus Estimate of $2.6 billion.

The DARTs for the reported quarter decreased 21.0% year over year to 328,280. Net new client assets reported were $10.1 billion, down from $12.4 billion in the prior-year quarter.

At the end of the quarter, TD Ameritrade reported $472.3 million in total client assets, up 24.7% year over year. Moreover, average spread-based balance was $76.2 billion, compared with $67.5 billion in the prior-year quarter. Average fee-based balances were recorded at $93.6 billion, up 16.9% year over year.

Net interest revenue was $116.0 million, down 6.5% year over year, primarily due to lower interest revenue.

Operating income fell 13.8% year over year to $232.0 million in the quarter under review. The decline was due to a decline in net revenues, though partially offset by reduced operating expenses. Net interest margin in the quarter was 1.66%, down from 1.87% in the last quarter.

Total operating expense moved down 4.6% year over year to $415.0 million. The decline was mainly attributable to lower employee compensation and benefits expenses, clearing and execution costs, professional services as well as other expenses. These were partially offset by a hike in advertising expenses.

Balance Sheet

As of September 30, 2012, TD Ameritrade’s leverage ratio was 1.1, compared with 1.0 as of September 30, 2011. Cash and cash equivalents stood at $0.9 billion in the reported quarter compared with $1.0 billion as of September 30, 2011.

Capital Deployment Update

TD Ameritrade declared a quarterly dividend of 9 cents per share on its common stock, reflecting a 50% hike from the prior quarter’s dividend. The dividend will be paid on November 23, 2012 to shareholders of record as of November 9, 2012.

During the reported quarter, TD Ameritrade repurchased 1.8 million shares of its common stock at an average price of $16.38 per share.

Guidance

For fiscal 2013, the company expects earnings in the range of $1.00 to $1.20 per share, DARTs of 355,000 to 410,000, revenue of $2.5 to $2.9 billion and operating expenses of $1.6 billion to $1.8 billion. Further, net new assets are projected to be in the range of $33 billion to $52 billion and return on stockholders' equity (ROE) is anticipated to be 12% to 14%.

Our Viewpoint

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

Amidst a volatile operating environment, TD Ameritrade witnessed a rise in organic client asset. However, the company’s trading volumes declined, which remain a matter of concern. Further, a low interest rate and stringent regulatory environment are expected to be the dampeners.

TD Ameritrade currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. Among its peers, Knight Capital Group, Inc. (KCG) retains a Zacks #2 Rank (a short-term Buy rating).