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TD Ameritrade's (AMTD) Q2 Earnings Beat on Improved Trading

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TD Ameritrade Holding Corporation (AMTD - Free Report) reported earnings per share of 73 cents in second-quarter fiscal 2018 (ending Mar 31), beating the Zacks Consensus Estimate by a penny. Moreover, the bottom line increased 66% from the prior-year quarter.

The quarter displayed higher revenues and elevated expenses. Rise in net interest margin (NIM) was also reported. Notably, the company recorded an increase in average client trades per day, indicating improvement in trading activity.

Including certain non-recurring items, net income for the quarter came in at $271 million or 48 cents per share compared with $214 million or 40 cents in the prior-year quarter.

Rise in Revenues Offsets Escalating Expenses

Net revenues for the quarter came in at $1.42 billion, surpassing the Zacks Consensus Estimate of $1.36 billion. Moreover, net revenues surged 56.5% year over year. The rise was chiefly due to higher transaction-based as well as asset-based revenues.

Total asset-based revenues for the quarter amounted to $830 million, up 57.8% year over year, driven by higher bank deposit account fees, as well as investment product fees and net interest revenues.

Commissions and transaction fees climbed 52.3% from the prior-year quarter to $556 million. Further, the quarter's NIM came in at 1.83%, expanding 42 basis points year over year.

Total operating expenses flared up 86.6% to $1.02 million. The rise mainly stemmed from increase in a number of expenses, including employee compensation and benefits, professional services, occupancy and equipment costs, and other expenses.

Trading Activity Improves

Average client trades per day for the reported quarter increased 82.4% year over year to 943,058.

As of Mar 31, 2018, net new client assets totaled $22.2 billion, up 13.8%. Total client assets came in at $1.2 trillion, up 40%.

Average spread-based balance was $150.3 billion, jumping 25.6% year over year. Average fee-based investment balance soared 39.5% to $251.7 billion.

Balance Sheet Position

As of Mar 31, 2018, TD Ameritrade’s cash and cash equivalents were $1.4 billion compared with $1.5 billion reported as of Sep 30, 2017. Shareholders’ equity was $7.6 billion compared with $7.2 billion as of Sep 30, 2017.

Our Viewpoint

As volatility returned to the market in the reported quarter, the company delivered an impressive performance on a significant improvement in trading activities. Furthermore, eased margin pressure acted as a tailwind.

TD Ameritrade also witnessed rise in average client trades per day, that supported its revenue growth. Also, the company’s steady capital deployment activities are encouraging. However, we remain cautious of elevated costs, which are likely to weigh on the company’s financials.

TD Ameritrade Holding Corporation Price, Consensus and EPS Surprise

TD Ameritrade carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Brokers

Riding on strong fixed income trading revenues, Goldman Sachs (GS - Free Report) delivered a positive earnings surprise of 22.6% in first-quarter 2018. The company reported earnings per share of $6.95, comfortably beating the Zacks Consensus Estimate of $5.67. Further, the bottom line witnessed 35% year-over-year improvement.

Interactive Brokers Group (IBKR - Free Report) released first-quarter 2018 results. Earnings per share of 63 cents surpassed the Zacks Consensus Estimate of 56 cents. Also, the figure was higher than prior-year quarter’s figure of 34 cents per share.

E*TRADE Financial (ETFC - Free Report) pulled off a positive earnings surprise of 11.4% in first-quarter 2018. Earnings of 80 cents per share comfortably surpassed the Zacks Consensus Estimate of 79 cents. Moreover, results compared favorably with 48 cents recorded in the prior-year quarter.

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