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Ordinary Investors 'Re-Engaged,' Says TD Ameritrade CEO

TD Ameritrade (AMTD) reported strong quarterly earnings and accelerating revenue growth Tuesday as its chief executive said retail investors are moving back into stocks.

The slow-but-steady improvement in the U.S. economy, the Federal Reserve's decision to taper its monthly bond buying and last year's big stock market rally have buoyed confidence of mom-and-pop investors, said TD Ameritrade CEO Fred Tomczyk.

"The market is up so much," he told IBD in an interview Tuesday. "People take note, particularly around year-ends.

Those same people are putting their money where their mouths are. Ameritrade's average daily client trades rose 24% to 414,000 in its fiscal Q1 ended Dec. 31 vs. a year earlier.

"Retail investor re-engagement is pretty broad-based," he added. "We're seeing it across the board.

TD Ameritrade jumped more than 4% — to the stock's highest level since its 1999 dot.com boom peak — after its rosy Q1 report.

Stronger Growth

The online broker's earnings grew 30% to 35 cents a share, beating analyst forecasts by 2 cents.

Revenue rose 16% to $752 million — the sixth straight quarter of accelerating growth. Commissions and transaction fees grew 28% to $328 million. Average commissions and fees slid to $12.56 per trade from $12.62.

"We attribute the better-than-expected results primarily to growth in interest earning assets, specifically good growth in relatively high-yielding margin loans," wrote Joel Jeffrey and Michael Needham, analysts at Keefe, Bruyette & Woods, in a research note.

Ameritrade's margin loans rose about $800 million vs. the prior quarter with revenue up $7 million to $93 million.

The improving market is bringing individual investors back after they suffered severe bruising due to the financial crisis and Great Recession, Tomczyk noted.

Everybody Wins

Last year's solid gains of nearly 30% for the S&P 500 and 26% for the Dow, along with a gradual decline in the unemployment rate, helped the online brokerage industry as a whole.

"From an earnings perspective, it was generally good for most people," he said. "We had a nice year. Whenever you have an area that gets good returns and good growth, it's going to be competitive.

Charles Schwab (SCHW) last week reported its strongest EPS growth in nine quarters.

Ameritrade derives about half its revenue from trading, with more than half of that options-related, Tomczyk said.

Despite having a small Singapore office, TD Ameritrade is not planning on further expansion into the Asian market and has changed its focus from acquisitions and active traders to asset gathering and organic growth.

Net new assets grew by $14.5 billion in its Q1 vs. $10.1 billion in Q4 and $15.6 billion a year earlier.

Looking to the year ahead, Tomczyk said he sees individual investors shifting from fixed income to equities as they are willing to take on more risk.

The move toward trading via smartphones or tablets also will continue. Currently, Ameritrade sees 2,500 new mobile users per day, he said.

"It should be a good environment for online brokers with investors trending more bullish toward options and equities," Tomczyk said.