Each quarter StockBrokers.com examines the quarterly reports from the four publicly-traded online brokers. The third quarter earnings season is now complete, so it’s time to take a look back on the third quarter. The summer quarter is typically the slowest for trading volumes. How did the brokers fare during the annual summer slowdown? We’ll take a look at some fast facts from each broker’s results, and then we’ll try to figure out what it means for the sector overall. Here’s a look at results from Charles Schwab (SCHW), E*TRADE (ETFC), Interactive Brokers (IBKR), and TD Ameritrade (AMTD).

Before we dive deeper into the earnings, let’s look at how each broker did on the bottom line compared to the same quarter last year. Schwab reported earnings which were up 11 percent from last year. E*TRADE earnings jumped nearly 83 percent to 29 cents per share. Interactive Brokers saw earnings plunge from 32 cents per share last year to five cents per share this year. TD Ameritrade earnings edged forward to 38 cents per share versus 36 cents per share last year.

Charles Schwab Third Quarter Earnings Fast Facts:

Schwab gathered $34.7 billion in net new assets during the third quarter

Daily Average Revenue Trades (DARTs) were down two percent from the previous quarter and five percent from a year ago

Schwab has 9.31 million active brokerage accounts and $2.40 trillion in total client assets

Provision for loan losses dropped 75 percent to $1 million in the quarter

Charles Schwab continues to invest heavily in the full-service investing model. CEO Walt Bettinger made it clear in his comments during the conference call that he believes recent heightened volatility only makes the full-service model resonate even better with investors. Schwab reported that $1.19 trillion in client assets are now receiving some form of ongoing advisory service. That is up 15 percent from a year ago. These third quarter results came in right in line with analysts expectations on both the top and bottom lines. The results were impacted a bit by one-time fees which included moving some jobs from San Francisco to other locations to cut costs.

E*TRADE Third Quarter Earnings Fast Facts:

Analysts were only expecting 22 cents per share on the bottom line, but E*TRADE brought in 29 cents per share

DARTs were up six percent from a year ago. They dropped only one percent from the second quarter.

Annualized attrition rate at the broker is 9.1 percent

Margin balances are at an all-time high 

E*TRADE knocked the cover off the ball with these third quarter results. The company continues to reduce risk and make the balance sheet much more attractive. E*TRADE not only beat by a large margin on the bottom line, but they reported $440 million in revenue versus analysts estimates of $425 million. Total operating expenses did rise to $277 million. CEO Paul Idzik said he was happy with the level of engagement from clients during the typically slow summer months. E*TRADE ended the quarter with 3.1 million brokerage accounts. Net charge-offs were $10 million in the quarter compared to $14 million in the previous quarter.

Interactive Brokers Third Quarter Earnings Fast Facts:

Net revenue plunged 47.6 percent and earnings per share dropped from 32 cents to 5 cents

The market making business was the drag on this quarter’s results. The pre-tax loss here was $111.8 million compared to a $87.5 million profit last year.

Lower volatility hurt the market making business, but so did a major $16 million trading error.

The brokerage business stayed strong. DARTs were up an impressive 13 percent from the same quarter last year.

On the surface the numbers look ugly for Interactive Brokers, but the electronic brokerage unit is actually doing extremely well. Net revenue jumped almost 25 percent in the electronic brokerage unit. Pre-tax income in this business was up nearly 41 percent. Customer margin borrowings were 36 percent higher than a year ago. Pre-tax profit margins at the electronic brokerage unit was a whopping 63 percent versus 56 percent last year. The DARTs number here was the strongest in the industry. The market making business is a major drag on the company as a whole, but the electronic brokerage segment that we follow more closely is very strong.

TD Ameritrade Third Quarter Earnings Fast Facts

Net new assets jumped 32.7 percent to $13.4 billion in the quarter.

Total operating expenses were up by 6.3 percent to $457 million.

The mobile platform accounted for 13 percent of total trades in the quarter at Ameritrade. This compares to just 3 percent in 2010.

TD Ameritrade announce they expect to earn between $1.45 and $1.70 per share in Fiscal 2015.

TD Ameritrade beat analysts estimates in the third quarter. Analysts expected the company to report 36 cents per share like they did last year, but TD Ameritrade was able to bring in 38 cents per share on the bottom line. The rise in operating expenses was due to higher employee compensation as well as higher clearing and execution costs. During this earnings call, TD Ameritrade also announced a 25 percent dividend hike to a level of 15 cents per share.

Conclusion

The third quarter was a good one on the whole for the sector. The summer slowdown hurt some of the brokers more than others, but this year’s summer slowdown wasn’t as drastic as some in the past. It seems investors stayed more engaged with a stock market that continued to rise throughout the third quarter. Assets continue to grow at an impressive pace at all of the online brokerages. The balance sheets at all of the online brokers look much healthier than they did a couple years ago. We’ll need to keep a close eye on DARTs for the fourth quarter. Volatility rose for a bit in October, and the fourth quarter is generally one of the best for online brokerages. StockBrokers.com will be back in three months with the results from the final quarter of 2014.

Below is a yearly chart of all four of the online brokers.

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