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TD Ameritrade

(AMTD) - Get Report

shares slumped Tuesday as investor concerns about poor June trading volumes and the challenging interest rate environment trumped the online broker's better than expected profit in its fiscal third quarter.

The stock fell 3.3% to $15.30 in afternoon trades. Volume of 7million was already above the issue's trailing three-month daily average of 5.5 million. The shares are down roughly 18% year-to-date, but had bounced a bit headed into the second-quarter report after scraping a 52-week low of $14.72 on July 6.

Before the opening bell, TD Ameritrade reported earnings of $179.4 million, or 30 cents a share, for the three months ended June 30, up from a year-ago equivalent profit of $170.5 million, or 30 cents a share. Revenue rose nearly 13% year-over-year to $691.8 million in the latest three months from $613.8 million last year.

The average estimate of analysts polled by

Thomson Reuters

was for a profit of 28 cents a share in the June period on revenue of $682 million.

Analyst reaction to the report was generally positive. BMO Capital Markets left its outperform rating with a $23 price target on the stock intact and said net interest income and insured deposit fees came in a bit higher than expected, offsetting the impact of slightly lower commissions.

FBR Capital Markets reiterated its own outperform rating and $23 price target on the stock following the quarterly report, which it said it views as "confirmation of our thesis that the value of the business continues to grow and that the longer-term investor will eventually be rewarded."

But the firm also lowered its earnings estimates for TD Ameritrade, mainly because of lower trading activity. While the company itself touted the third quarter as delivering "record" DARTs, or daily average revenue trades, of 413,000, FBR said June saw a sharp 30% drop-off, and that the quarter's performance missed its estimate for DARTs of 456,000. For fiscal 2010, the firm now expects earnings of $1.04 a share, down from a prior estimate of $1.10. For fiscal 2011, it sees a profit of $1.29 a share, compared to its previous view of $1.44.

A point of interest from the report was that TD Ameritrade bought back 15 million of its common shares in the third quarter through July 2 at an average price of $17.25 each -- a 14% premium to the stock's closing price on July 2. The repurchase, which FBR said represented roughly 2.5% of the company's outstanding shares as of March 31, completed the company's current buyback authorization.

"With our recent share repurchase program completed, and plans to make investments in the next wave of our growth, we continue to take a thoughtful, opportunistic approach to deploying capital," CEO Fred Tomczyk said in a statement. "That approach will not change as we continue to examine ways to use our strong cash position to enhance the client experience and build long-term value for our shareholders."

TD Ameritrade's aggressive buyback approach echoed that of another financial firm.

JPMorgan Chase (JPM) - Get Report

also said it used excess capital to buy back $500 million worth of shares at the end of June and into July when it reported its second-quarter results last week. The move was somewhat of a surprise since investors have been waiting for the big money center bank to raise its dividend. Chairman and CEO Jamie Dimon said on the conference call that he was more inclined to do more share repurchases than raise the bank's dividend right now.

TD Ameritrade doesn't currently pay a dividend, and its excess cash is often mentioned when the subject of consolidation comes up with regard to the online brokers. FBR expects another buyback program or possibly a dividend.

"With the company sitting on $1.2 billion of liquid assets and generating close to $900 million in cash earnings annually, we expect the company to explore additional ways to return cash to shareholders going forward," the firm said, noting the 45% ownership cap for parent company TD Bank could become an issue. "We expect the company to explore adjusting the cap or initiating a dividend."

A promising development within TD Ameritrade's results was that, despite customer jitters from this spring's market volatility, the online broker was still able to produce double-digit growth in new client assets.

Consistent with at least the last five quarters, TD Ameritrade increased net new assets by $8.9 billion, or 10%, in the June-ending quarter (its fiscal third quarter). That growth rate was slightly below the 12-13% rise in assets in the preceding three quarters, but consistent with the TD Ameritrade's growth in the June-ending quarter of 2009.

TD Ameritrade's total client assets at the end of the quarter rose 24% from a year earlier, but fell 5% to $323.8 billion compared to the beginning of the three-month period. The last time TD Ameritrade had falling client assets was in the June-ending quarter of 2009, according to the earnings report.

Gross new accounts fell 6.4% from the March quarter to 175,000. The new accounts opened were roughly in line with the year earlier quarter. Approximately 73,000 accounts were closed in the three-month period.

TD Ameritrade gets roughly 47% of its revenue from client assets as opposed to trading commissions. Total asset-based revenue rose 23.5% from the year-earlier period and 8.1% from the March-ending quarter to $324.6 million.

And while trading commission and transaction fees rose 10.5% from the prior quarter, to $333 million, the fees actually slipped from the same period last year, as TD Ameritrade and its rival online brokers lower trading commissions once again in a bid to garner more customers.

FBR noted that TD Ameritrade's organic asset gathering growth rate is stronger than that of rival

Charles Schwab

(SCHW) - Get Report

and other asset managers, which have had negative growth on this metric.

Schwab on Friday beat Wall Street expectations by 2 cents with its second-quarter profit of 17 cents a share.

E*Trade Financial

(ETFC) - Get Report

is set to report its results after the bell on Thursday. Analysts expect the online broker to post a loss of 11 cents a share for the quarter.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.