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TD Ameritrade (AMTD) Q2 Earnings In Line, Trading Activity Low

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TD Ameritrade Holding Corporation (AMTD - Free Report) reported second-quarter fiscal 2019 (ending Mar 31) earnings of 93 cents per share, in line with the Zacks Consensus Estimate. The figure jumped 27% from the prior-year quarter's reported tally.

The company’s results displayed stellar revenues and escalating expenses in the fiscal second quarter. Rise in net interest margin (NIM) was also recorded. Notably, the company witnessed a decrease in average client trades per day, indicating calm markets leading to lower trading activity.

Including certain non-recurring items, net income for the quarter came in at $499 million or 89 cents per share compared with $271 million or 48 cents reported in the prior-year quarter.

Rise in Revenues and Lower Expenses Recorded

Net revenues for the reported quarter came in at $1.45 billion, up 2.1% year over year. The rise chiefly stemmed from higher asset-based revenues, partly offset by lower transaction-based revenues. The reported figure, however, lagged the Zacks Consensus Estimate of $1.46 billion.

Total asset-based revenues for the Mar-end quarter amounted to $929 million, up 11.9% year over year, driven by higher bank deposit account fees and net interest revenues. This was partly mitigated by lower investment product fees.

However, commissions and transaction fees slipped 12.4% from the prior-year quarter to $487 million. The quarter's NIM came in at 2.17%, expanding 34 basis points year over year.

Total operating expenses dropped 26.8% year over year to $746 million. The downside mainly resulted from fall in almost all components of expenses.

Trading Activity Mixed

Average client trades per day for the fiscal second quarter declined 8.8% year over year to 860,000.

As of Mar 31, 2019, net new client assets totaled $19.6 billion, up 11.7% year over year. Total client assets came in at $1.3 trillion, up 9.2% year over year.

Average spread-based balance was $145.7 billion, down 3.1% year over year, and average fee-based investment balance was up 8.7%, to $273.7 billion.

Balance Sheet Position

As of Mar 31, 2019, TD Ameritrade’s cash and cash equivalents were $2.7 billion, in line with the amount reported as of Sep 30, 2018. Shareholders’ equity was $8.3 billion compared with $8 billion as of Sep 30, 2018.

Capital Deployment

During the fiscal second quarter, TD Ameritrade repurchased 6.5 million shares for a total cost of $317million.

Our Viewpoint

The company put up an impressive performance. Growth in revenues and prudent expense management are expected to continue. Furthermore, eased margin pressure in the Jan-Mar quarter acted as a tailwind. Additionally, rising net new assets and anticipated strong investor engagement may likely support bottom-line growth over the long term.

Though we remain cautious of lower trading, which are likely to weigh on the company’s financials, TD Ameritrade’s steady capital-deployment activities are encouraging.

Currently, 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 Banks

Charles Schwab’s (SCHW - Free Report) first-quarter 2019 earnings of 69 cents per share surpassed the Zacks Consensus Estimate of 66 cents. Also, earnings increased 25% from the prior-year quarter. Revenue growth (driven by a rise in interest income) and an increase in total client assets aided the results. However, higher expenses and lower trading revenues acted as headwinds.

E*TRADE Financial (ETFC - Free Report) delivered a positive earnings surprise of 16% in the first quarter. Earnings of $1.09 per share comfortably beat the Zacks Consensus Estimate of 94 cents. Moreover, the results compared favorably with the 88 cents recorded in the prior-year quarter.

Interactive Brokers Group, Inc.’s (IBKR - Free Report) first-quarter 2019 earnings per share of 64 cents outpaced the Zacks Consensus Estimate of 43 cents. The reported figure also compared favorably with the prior-year quarter’s earnings of 63 cents.

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