updated 7/12/2005 2:26:00 PM ET 2005-07-12T18:26:00

Online brokerage Ameritrade Holding Corp., which recently agreed to buy rival TD Waterhouse USA, said Tuesday third-quarter earnings rose 20 percent from a year ago, meeting Wall Street expectations, and said it is on track to deliver record earnings for the fiscal year.

Net income rose to $74.7 million, or 18 cents per share, in the three months ended June 24 from $62.3 million, or 15 cents per share, a year ago. Revenue grew to $234.4 million from $220 million a year ago.

Analysts surveyed by Thomson Financial had expected a profit of 18 cents per share on revenue of $227.1 million.

Ameritrade not only kept costs down, it benefited from the Federal Reserve raising interest rates, allowing the Omaha, Neb.-based company to adjust its own rates, Chief Executive Officer Joe Moglia said in an interview.

“For example, we can charge more on margin loans,” he said. “We have $3.5 billion worth of margin loans.

“There are more areas where that comes into play, but when you add up the incremental income generated off of your assets, that certainly at least offsets the downward movement activity,” Moglia said.

Ameritrade said it expects to earn 75 cents to 80 cents per share for fiscal 2005, in line with analysts’ consensus estimate of 76 cents per share.

Ameritrade’s fiscal third-quarter earnings rose despite a drop in trade volume.

The company executed an average of 138,930 client trades per day during the period, a decrease of 15.2 percent from 163,906 average daily trades the year before. Overall trade volume declined to 8.9 million from 10.2 million a year ago, the company said.

Last quarter, when the company saw its profit slip 12 percent from the previous year, it blamed declining trade volume.

“Both financially and strategically, we kept our focus and delivered a record June quarter, maintaining our leading pretax margin among our publicly traded peers despite lower trading volumes. The company is also on track to deliver record earnings per share for this fiscal year,” Moglia said in a statement earlier today.

On June 22, Ameritrade signed a deal to acquire rival TD Waterhouse USA from TD Bank Financial Group for about $3 billion.

Ameritrade is set to become the largest online broker — at an estimated 239,000 average daily client trades — once the deal goes through to create the new TD Ameritrade in about six months.

The deal to buy TD Waterhouse followed Ameritrade’s rejection of unsolicited takeover offers reportedly worth at least $6 billion from E-Trade Financial Corp.

Ameritrade has shown that it can acquire competitors without losing their customers, as when it bought Datek, said Bill Doyle, an analyst with Forrester Research in Cambridge, Mass.

The purchase of TD Waterhouse should also work in Ameritrade’s favor, Doyle said.

“Odds are good that they’re going to be able to hold onto many of the customers and squeeze a lot of costs out that will eliminate lots of back office operations, a lot of redundant technologies and marketing expenses,” he said.

Moglia affirmed that strategy during the call.

“We think we can generate at least $200 million in incremental revenue just by having a strategic relationship with their bank,” he said. “We also think we can cut $378 million in costs by eliminating redundancies in both organizations.”

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