TD Ameritrade Holding Corporation (AMTD - Free Report) reported a negative earnings surprise of 2.6% in first-quarter fiscal 2020 (ending Dec 31). Adjusted earnings of 74 cents per share lagged the Zacks Consensus Estimate of 76 cents. The figure also plunged 33.3% from the prior-year quarter’s reported tally.

The company’s results displayed lower revenues and escalating expenses in the fiscal first quarter. Fall in net interest margin (NIM) was also recorded. However, 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 $379 million or 70 cents per share compared with the $604 million or $1.07 reported in the prior-year quarter.

Revenues Down, Expenses Flare Up

Net revenues for the reported quarter came in at $1.29 billion, down 15.1% year over year. This decrease chiefly resulted from lower transaction-based and other revenues, partly offset by higher asset-based revenues. The reported figure comes in line with the Zacks Consensus Estimate.

Total asset-based revenues for the December-end quarter amounted to $958 million, up 1.2% year over year, driven by higher bank deposit account fees and investment product fees. This was partially muted by lower net interest revenues.

Yet, commissions and transaction fees slumped 43.2% from the prior-year quarter to $305 million. The quarter's NIM came in at 2.10%, contracting 8 basis points year over year.

Total operating expenses flared up 6.9% year over year to $770 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 first quarter increased 10.8% year over year to 1,028,239.

As of Dec 31, 2019, net new client assets totaled $28.7 billion, down 9.7% year over year on annualized basis. Total client assets came in at $1.43 trillion, up 23.3% year over year.

Average spread-based balance was $151.8 billion, up 5.2% year over year, and average fee-based investment balance was down 31.9%, to $179.5 billion.

Balance Sheet Position

As of Dec 31, 2019, TD Ameritrade’s cash and cash equivalents were $2.55 billion, down from the $2.85 billion reported as of Sep 30, 2019. Shareholders’ equity was $8.7 billion, almost in line with the reported figure as of Sep 30, 2019.

Capital Deployment

During the fiscal first quarter, TD Ameritrade repurchased 3.7 million shares for a total cost of $143 million. Notably, per terms of the acquisition agreement with The Charles Schwab Corporation (SCHW - Free Report) , the company terminated its stock-buyback program.

Our Viewpoint

The company put up a disappointing performance during the October-December period. Lower revenues affected by moving to zero on commissions and escalating expenses remain concerns. Furthermore, margin pressure during the quarter acted as a headwind.

However, higher average clients per day are anticipated to continue. Additionally, rising total client assets and anticipated strong investor engagement may keep supporting bottom-line growth, marching ahead.

TD Ameritrade Holding Corporation Price, Consensus and EPS Surprise

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Currently, TD Ameritrade carries a Zacks Rank #3 (Hold). 

Performance of Other Investment Banks

Charles Schwab’s fourth-quarter 2019 adjusted earnings of 63 cents per share lagged the Zacks Consensus Estimate by a penny. Also, the bottom line decreased 3% from the prior-year quarter. Results for the reported quarter excluded $25 million (1 cent per share) expenses relating to two pending acquisitions. Lower revenues and a slight rise in operating expenses hurt the results. Nonetheless, rise in client assets and net new assets along with higher new brokerage accounts number acted as tailwinds.

We now look forward to LPL Financial Holdings Inc. (LPLA - Free Report) and E*TRADE Financial (ETFC - Free Report), which are slated to announce results on Jan 30 and Jan 23, respectively.