TD Ameritrade vs. Schwab: The Latest Quarterly Earnings

images of Schwab and TD Ameritrade signs

TD Ameritrade's latest results benefited from high trading volumes that offset lower interest rate-related revenue. The brokerage firm's strong fiscal third-quarter performance also highlights key differences between it and Charles Schwab ahead of their 2020 merger.

Net revenue for TD Ameritrade grew 6% from a year ago to about $1.6 billion in the period ending June 30. Schwab's sales fell 9% in the same quarter to roughly $2.5 billion.

Net income for TD Ameritrade was $569 million, up 3% from a year ago vs. $742 million for Schwab, down 21% year over year.

Total assets at TD Ameritrade are about $1.5 trillion, compared with some $4.1 trillion at Schwab.

TD Ameritrade's advisory assets — 47% of total assets — total roughly $700 billion, while SCHW's — 46% of total assets — are close to $1.9 trillion.

Net new assets at TD Ameritrade were $32.8 billion in the quarter ending June 30, with $12.8 billion in the RIA channel and $20 billion from retail, or DIY, investors.

Schwab's net new assets in Q2 were $24.7 billion for the RIA business and $22 billion for DIY investors.

TD Ameritrade "showcased strong asset growth" with an annualized net new asset growth rate of 11% and "client retention remaining strong on the institutional side — boding well for the pending merger with Schwab," said equity analyst Pauline Bell of CFRA Research, in a recent note.

Commissions, Trading Update

TD Ameritrade's trading revenue increased 37% from a year earlier to $652 million, while Schwab's dropped 7% to $183 million.

Average commissions per trade at TD Ameritrade were $1.46 in the quarter ending June 30, down from $6.92 a year ago. Schwab's average revenue per trade was $1.89 vs. $4.59 a year ago.

"While the headline may be that commissions were cut to $0 per trade in late 2019, TD Ameritrade and other brokers are still generating hundreds of millions in transaction revenue," said Michael Wong, director of equity research, financial services-North America, for Morningstar Research in his latest report.

"The $0-commission mainly applies to online equity and ETF trades. The retail brokers still charge a per contract fee for options and receive payments for trades from market makers," Wong explained.

Trading Frenzy

"The more than 300% increase in daily average trades has more than offset the decline in revenue per trade to about $3 from $9 a year ago," the analyst added.

DATs at TD Ameritrade were about 3.4 million in the quarter ending June 30. Schwab's figure was about half that at 1.6 million, a jump of 126% from a year ago.

Net interest revenues dropped 21% in the latest quarter, to roughly $303 million for TD Ameritrade. Charles Schwab's net interest income fell by 14% to $1.4 billion.

Overall, asset-related revenues at TD Ameritrade (including net interest income) weakened 14% from last year to $822 million. This segment at Schwab (excluding net interest income) grew 2% to $801 million.

When analyzing TD Ameritrade, Wong says he's built in "a 100% probability that its merger with Charles Schwab is completed by the end of 2020 and believe that shares are undervalued."

— Check out What to Make of Schwab's Mixed Q2 Results on ThinkAdvisor.