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TD Ameritrade Holding Corporation (AMTD - Analyst Report) reported its fiscal first quarter 2013 (ended Dec 31, 2012) net income of 27 cents per share, marginally beating the Zacks Consensus Estimate of 24 cents. However, net income was in line with the prior-year quarter.

Better-than-expected results for the quarter reflected a decline in operating expenses. Further, an increase in total client assets was a positive. However, decreases in total daily average revenue trades (DARTs) and revenue were the downsides.
 
TD Ameritrade reported fiscal first-quarter net income of $147 million compared with $152 million reported in the prior-year quarter.
 
Performance in Detail
 
Net revenue declined 0.3% year over year to $651.0 million in the quarter, primarily attributable to declines in transaction-based revenues, partially offset by a rise in total asset-based revenues and net interest revenue. However, the reported revenues outpaced the Zacks Consensus Estimate of $635.0 million.
 
The DARTs for the reported quarter decreased 9.1% year over year to 334,035. Net new client assets reported were $15.6 billion, up 52.9% from $10.2 billion a year ago.
 
At the end of the quarter, TD Ameritrade reported $480.8 billion in total client assets, up 18.3% year over year. Moreover, average spread-based balance was $79.3 billion, up 9.2% from $72.6 billion in the prior-year quarter. Average fee-based balances were recorded at $100.0 billion, soaring 28.4% year over year.
 
Net interest revenue was $116.0 million, up 6.4% year over year. 
 
Operating income rose 5.7% year over year to $241.0 million in the quarter under review. The rise was due to reduced operating expenses, partly offset by a decrease in net revenue. Net interest margin in the quarter was 1.58%, down 11 basis points from 1.69% in the prior-year quarter.
 
Total operating expense moved down 3.5% year over year to $410.0 million. The decline was mainly attributable to lower employee compensation and benefits expenses, advertising expenses, professional services as well as other expenses. These were partially offset by a hike in clearing and execution costs, occupancy and equipment costs along with higher depreciation and amortization expenses.
 
Balance Sheet
 
As of Dec 31, 2012, TD Ameritrade’s leverage ratio was 1.0, compared with 1.2 as of Dec 31, 2011. Cash and cash equivalents stood at $1.9 billion compared with $0.9 billion as of Dec 31, 2011.
 
Capital Deployment Update
 
TD Ameritrade declared a quarterly dividend of 9 cents per share on its common stock. The dividend will be paid on Feb 15, 2013 to shareholders of record as of Feb 1, 2013.
 
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. 
 
Further, its association with The Toronto-Dominion Bank (TD - Snapshot Report) provides an opportunity to cross-sell its products, which is anticipated to be a significant growth driver of organic assets for the company.
 
Amid a volatile operating environment, TD Ameritrade witnessed a rise in organic client assets. However, the decline in trading volumes is a matter of concern for the company. Further, a low interest rate and stringent regulatory environment are expected to be the dampeners.
 
TD Ameritrade currently retains a Zacks Rank #3 (Hold). Among other investment brokers that are worth considering include Arlington Asset Investment Corp. (AI - Snapshot Report) and Evercore Partners Inc. (EVR - Snapshot Report). Both carry a Zacks Rank #1 (Strong Buy).

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