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TD Ameritrade (AMTD) Q3 Earnings Top, Trading Activity High

Zacks Equity Research

TD Ameritrade Holding Corporation AMTD delivered a positive earnings surprise of 7.2% in third-quarter fiscal 2019 (ending Jun 30). Adjusted earnings of $1.04 per share surpassed the Zacks Consensus Estimate of 97 cents. The figure also jumped 16.9% from the prior-year quarter’s reported tally.

The company’s results displayed stellar revenues and escalating expenses in the fiscal third 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 $555 million or $1.00 per share compared with $451 million or 79 cents reported in the prior-year quarter.

Rise in Revenues Partly Offset by Higher Expenses

Net revenues for the reported quarter came in at $1.49 billion, up 8% year over year. This upside can chiefly be attributed to higher asset-based revenues, partly muted by lower transaction-based revenues. The reported figure also outpaced the Zacks Consensus Estimate of $1.46 billion.

Total asset-based revenues for the June-end quarter amounted to $955 million, up 11.2% year over year, driven by higher bank deposit account fees, investment product fees and net interest revenues.

However, commissions and transaction fees slipped 2.7% from the prior-year quarter to $477 million. The quarter's NIM came in at 2.23%, expanding 29 basis points year over year.

Total operating expenses flared up 2.7% year over year to $771 million. This upswing mainly resulted from rise in almost all components of expenses, partly mitigated by lower employee compensation and benefits along with communication expenses.

Trading Activity Mixed

Average client trades per day for the fiscal third quarter increased 5.2% year over year to 824,600.

As of Jun 30, 2019, net new client assets totaled $19.5 billion, down 1.5% year over year. Total client assets came in at $1.31 trillion, up 6.5% year over year.

Average spread-based balance was $142.9 billion, down 2.5% year over year, and average fee-based investment balance was up 13.2%, to $290.6 billion.

Balance Sheet Position

As of Jun 30, 2019, TD Ameritrade’s cash and cash equivalents were $2.95 billion, up from $2.69 billion reported as of Sep 30, 2018. Shareholders’ equity was $8.49 billion compared with $8 billion as of Sep 30, 2018.

Capital Deployment

During the fiscal third quarter, TD Ameritrade repurchased 4.7 million shares for a total cost of $242 million.

Our Viewpoint

The company put up an impressive performance during the April-June 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, moving ahead.

Though we remain cautious of escalating expenses, which are likely to dampen the company’s financials, TD Ameritrade’s steady capital-deployment activities are encouraging.

TD Ameritrade Holding Corporation Price, Consensus and EPS Surprise

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 second-quarter earnings of 66 cents per share came in line with the Zacks Consensus Estimate. Also, the bottom line went up 10% from the prior-year quarter. Revenue growth (driven by a rise in interest income) and an increase in total client assets aided the results. Nevertheless, higher expenses and lower trading revenues acted as headwinds.

E*TRADE Financial ETFC delivered a positive earnings surprise of 1.8% for the June-end quarter. Adjusted earnings of $1.12 per share comfortably surpassed the Zacks Consensus Estimate of $1.10. Moreover, the results compared favorably with the prior-year quarter’s 95 cents.

Among others, Evercore Inc EVR is slated to report quarterly numbers on Jul 24.

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