Shares of TD Ameritrade Holding Corporation (AMTD) declined around 0.5% in a day’s trading following its first-quarter fiscal 2015 earnings release on Wednesday, before the market opened. The company reported earnings per share of 39 cents, missing the Zacks Consensus Estimate by a penny. However, the bottom line comfortably beat the prior-year quarter figure of 35 cents.
Results were hurt by higher expenses, which were, however, partially offset by a rise in revenues. The quarter continued to witness an increase in net new client assets and daily average client trades.
TD Ameritrade’s net income for the quarter was $211 million, up 9.9% from the prior-year quarter.
Performance in Detail
Net revenue came in at $819 million, missing the Zacks Consensus Estimate of $831 million. However, the figure grew 8.9% year over year. The year over year improvement reflected an increase in both asset-based and transaction-based revenues.
Total asset-based revenues for the quarter amounted to $451 million, up 10.8% year over year. Commissions and transaction fees increased 9.5% from the prior-year quarter to $359 million.
Net interest margin (“NIM”) was 1.53%, increasing 8 basis points (bps) from the prior-year quarter.
Total operating expense rose 6.7% year over year to $475 million. The increase was mainly due to a rise in costs related to employee compensation and benefits, clearing and execution, communications, occupancy and equipment costs, and advertising expenses.
Average client trades per day increased 10.5% year over year to 457,243.
Further, at the end of the quarter, net new client assets totaled $18.8 billion, up 29.7% from the prior-year quarter end.
At the end of the quarter, TD Ameritrade reported total client assets of $672.4 billion, up 12.7% year over year.
Moreover, average spread-based balance was $94.5 billion, increasing 4.7% year over year, while average fee-based investment balance increased 15.5% to $150.7 billion.
Balance Sheet
As of Dec 31, 2014, TD Ameritrade’s cash and cash equivalents were $1.9 billion, compared with $1.5 billion as of Sep 30, 2014. Shareholders’ equity was $4.8 billion, compared with $4.7 billion as of Sep 30, 2014.
Share Repurchase Update
During first quarter of fiscal 2015, TD Ameritrade repurchased 3.7 million shares of its common stock at an average price of $32.39 per share.
Our Viewpoint
Innovations in online trading, long-term investment in products and services, delivery of advanced customer service, and creative marketing and sales are some of TD Ameritrade’s key strategies for boosting it’s trading and investing business.
Amid a volatile operating environment, the company witnessed a continuous rise in both organic client assets and trading volumes, which bode well, going forward. However, we remain cautious regarding a continuous rise in expenses, a low interest rate environment and stringent regulations, which may weigh on the company’s financials in the upcoming quarters.
At present, TD Ameritrade carries a Zacks Rank #3 (Hold).
Performance of Other Investment Brokers
Interactive Brokers Group, Inc. (IBKR) reported fourth-quarter 2014 adjusted earnings per share of 12 cents, beating the Zacks Consensus Estimate of 5 cents, driven by lower expenses.
Morgan Stanley (MS) reported fourth-quarter 2014 earnings from continuing operations (excluding one-time items and accounting adjustments) of 40 cents per share, which missed the Zacks Consensus Estimate of 47 cents.
The Charles Schwab Corp.’s (SCHW) fourth-quarter earnings of 25 cents per share beat the Zacks Consensus Estimate by a penny, driven by revenue growth.
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