July 17, 2012 / 12:22 PM / in 5 years

UPDATE 2-TD Ameritrade profit tops view as expenses fall

* Fiscal Q3 EPS 28 cents vs Street view 26 cents

* Revenue down 2.6 pct to $667.3 mln; Street view $660.8 mln

* Trading levels, net interest revenue fall

By John McCrank

July 17 (Reuters) - TD Ameritrade Holding Corp said on Tuesday quarterly profit dipped as client trading slowed and net interest revenue declined, but earnings topped expectations, helped by a reduction in expenses.

TD Ameritrade is the No. 1 U.S. discount broker by trading volume, and its results are often seen as a proxy for the mood of Main Street investors.

“Core metrics remained strong, expenses came down nicely, and fee-generating assets produced higher yields, which should drive near-term estimates higher,” said Alex Kramm, an analyst at UBS.

The Omaha, Nebraska-based brokerage earned $153.8 million, or 28 cents a share, in its fiscal third quarter ended June 30, down from $157.4 million, or 27 cents a share, a year earlier. Analysts, on average, expected 26 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 2.6 percent to $667.3 million but topped expectations for $660.8 million. The quarter was a difficult one for brokerages as many retail clients sat on the sidelines due to concerns about global economic growth.

The S&P 500 index fell 3 percent in the quarter.

TD Ameritrade derives more than 40 percent of its annual revenue from trading fees and commissions.

The firm’s clients made an average of 355,449 trades a day in the quarter, down from 369,716 a day a year earlier.

Commission and transaction fees dropped to $266.1 million from $281.6 million.

Near-zero interest rates have also taken a toll on TD Ameritrade and other brokerages, compressing net interest margins. Net interest revenue fell to $118.4 million in the quarter from $131.3 million a year earlier.

“TD Ameritrade had a strong quarter despite lower trading volumes and a difficult interest rate environment,” Chief Financial Officer Bill Gerber said in a statement. “Expenses declined this quarter as we made good traction on process improvements and increased our focus on containing expenses.”

Operating expenses declined to $413.1 million from $422.2 million a year earlier and $454 million in the prior quarter.

TD Ameritrade said clients added a net $9.7 billion in net new funds to their TD Ameritrade accounts in the quarter, for an annualized growth rate of 9 percent.

Total client assets were at $445 billion, up from $413.7 billion a year earlier but down from $452.4 billion in the prior quarter.

The company earned $206.3 million on fees from insured deposit accounts, up from $196.8 million a year earlier, while revenue from investment product fees rose to $54 million from $43.9 million.

Gerber said he expects the difficult environment to continue, but said the company would remain focused on expense management and allocating resources prudently to support the firm’s growth.

TD Ameritrade’s largest shareholder is Toronto Dominion Bank , Canada’s No. 2 lender, which holds a stake of around 45 percent.

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