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TD Ameritrade’s Spread-Based Revenue Rise on IDA in Fiscal 3Q16

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Attracting assets

TD Ameritrade (AMTD) posted strong organic growth results in fiscal 3Q16. Trends for asset gathering, trading, and fee-based assets were strong. The company is riding on this momentum with attractive product offerings, good service, and an effective multichannel sales and service model.

These offerings are producing strong organic growth and building long-term earning power for TD Ameritrade. In fiscal 3Q16, asset gathering has continued across the company’s offerings despite lower daily average trades resulting from seasonality.

TD Ameritrade’s insured deposit accounts (or IDAs) had fallen by $600 million to $83.4 billion on June 30, 2016, partially offset by a $500 million rise in average interest earnings assets to $22.7 billion.

Here’s how a few of TD Ameritrade’s peers in the brokerage industry have fared in terms of net profit margins:

  • Interactive Brokers Group (IBKR): 41.1%
  • E*TRADE (ETFC): 16.2%
  • Charles Schwab (SCHW): 21.5%

Together, these companies form 1.3% of the Financial Select Sector SPDR ETF (XLF).

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Spread revenues to rise further

TD Ameritrade’s (AMTD) spread-based revenue rose by 3% to $377 million, led by insured deposit accounts and partially offset by a decline in stock lending. The company’s net stock lending stands at $30 million for the quarter, falling by $2 million due to lighter demand. This was especially evident with the top ten hard-to-borrow names, partly due to the relatively quiet IPO market.

TD Ameritrade’s spread-based balances averaged $106 billion for the June quarter, consistent with the last quarter. However, they were up by $11 billion (11% on a year-over-year basis). The IDA has grown to record levels, up by $9 billion as compared to prior year’s quarter.

Average margin balances fell by $1 billion, but they were relatively flat sequentially. Balances were trending up near the end of the quarter, ending at $12 billion versus $11.3 billion on March 31, 2016. The mix of balances resulted in a lower net interest margin, both year-over-year and sequentially.

TD Ameritrade is focusing on controlled variables, maintaining strong organic growth, and investing in new technologies. It’s working to identify opportunities that could help it to build long-term earning power.

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