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TD Ameritrade (AMTD) Q4 Earnings Beat, Trading Activity High

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TD Ameritrade Holding Corporation (AMTD - Free Report) delivered a positive earnings surprise of 8.2% in fourth-quarter fiscal 2019 (ending Sep 30). Adjusted earnings of $1.05 per share surpassed the Zacks Consensus Estimate of 97 cents. The figure also jumped 14.1% from the prior-year quarter’s reported tally.

The company’s results displayed stellar revenues and escalating expenses in the fiscal fourth quarter. Rise in net interest margin (NIM) was also recorded. Notably, the company witnessed an increase in average client trades per day, indicating investors’ willingness to invest, leading to higher trading activity.

Including certain non-recurring items, net income for the quarter came in at $551 million or $1.00 per share compared with the $454 million or 80 cents reported in the prior-year quarter.

For fiscal 2019, adjusted net income came in at $2.3 billion or $4.13 per share compared with the $1.9 billion or $3.34 recorded in fiscal 2018. Including certain non-recurring items, net income came in at $2.2 billion or $3.96 per share compared with the $1.5 billion or $2.59 reported in fiscal 2018.

Rise in Revenues Partly Offset by Higher Expenses

For fiscal 2019, the company reported revenues of $6 billion, up 9.1% year over year. Furthermore, the revenue figure surpassed the Zacks Consensus Estimate of $5.9 billion.

Net revenues for the reported quarter came in at $1.56 billion, up 11.4% year over year. This upside can chiefly be attributed to higher asset-based and transaction-based revenues. The reported figure outpaced the Zacks Consensus Estimate of $1.47 billion as well.

Total asset-based revenues for the September-end quarter amounted to $1 billion, up 12.9% year over year, driven by higher bank deposit account fees, investment product fees and net interest revenues.

Further, commissions and transaction fees jumped 4.1% from the prior-year quarter to $502 million. The quarter's NIM came in at 2.27%, expanding 22 basis points year over year.

Total operating expenses flared up 2% year over year to $778 million. This upswing mainly resulted from rise in almost all components of expenses, partly mitigated by lower occupancy and equipment costs, along with communication and other expenses.

Steady Trading Activity

Average client trades per day for the fiscal fourth quarter increased 5.3% year over year to 837,009. For fiscal 2019, average client trades per day were 862,158, up 6.3% year over year.

As of Sep 30, 2019, net new client assets totaled $22 billion, up 7% year over year on annualized basis. Total client assets came in at $1.33 trillion, up 2.3% year over year.

Average spread-based balance was $146.8 billion, up 2.9% year over year, and average fee-based investment balance was down 1.7%, to $267.1 billion.

Balance Sheet Position

As of Sep 30, 2019, TD Ameritrade’s cash and cash equivalents were $2.85 billion, up from the $2.69 billion reported as of Sep 30, 2018. Shareholders’ equity was $8.7 billion compared with $8 billion as of Sep 30, 2018.

Capital Deployment

During the fiscal fourth quarter, TD Ameritrade repurchased 5.8 million shares for a total cost of $295 million and an additional 30 million shares for repurchases was authorized by the board.

Concurrent with earnings, the company announced an increased dividend of 31 cents per share, up 1 cent for fiscal 2020. The new dividend will be paid on Nov 19 to shareholders of record as of Nov 5, 2019.

Our Viewpoint

The company put up an impressive performance during the July-September period. Growth in revenues and average clients per day are anticipated to continue. Furthermore, eased margin pressure during the quarter acted as a tailwind. Additionally, rising net new assets and anticipated strong investor engagement may keep supporting bottom-line growth, marching ahead.

Nevertheless, escalating expenses are likely to dampen the company’s financials.

Currently, TD Ameritrade carries a Zacks Rank #5 (Strong Sell).

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) third-quarter 2019 adjusted earnings of 74 cents per share beat the Zacks Consensus Estimate of 65 cents. Also, the bottom line increased 14% from the prior-year quarter. Results in the reported quarter included severance charges of $62 million (4 cents per share) related to position eliminations. Revenue growth and an increase in total client assets aided the company’s performance. However, higher expenses, lower rates and lower trading revenues acted as headwinds.

Riding on top-line strength, E*TRADE Financial (ETFC - Free Report) delivered a positive earnings surprise of 8% in the third quarter. Earnings of $1.08 per share comfortably surpassed the Zacks Consensus Estimate of $1.00. Moreover, the results compared favorably with the prior-year quarter’s $1.00.

Among others, Evercore Inc (EVR - Free Report) is slated to report quarterly numbers on Oct 23.

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