td ameritrade · our mission . 3. to be the better investment firm for . today’s investor . 4 six...
TRANSCRIPT
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TD Ameritrade 13th Annual Credit Suisse Financial Services Forum
Miami, FL
February 8, 2012
TD Ameritrade, Inc., member FINRA/SIPC/NFA, is a subsidiary of TD Ameritrade Holding Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2012 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.
2 SAFE HARBOR
This document contains forward-looking statements within the meaning of the federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions of the federal securities laws. In particular, any projections regarding our future revenues, expenses, earnings, capital expenditures, effective tax rates, client trading activity, accounts or stock price, as well as the assumptions on which such expectations are based, are forward-looking statements. These statements reflect only our current expectations and are not guarantees of future performance or results. These statements involve risks, uncertainties and assumptions that could cause actual results or performance to differ materially from those contained in the forward-looking statements. These risks, uncertainties and assumptions include general economic and political conditions and other securities industry risks, fluctuations in interest rates, stock market fluctuations and changes in client trading activity, credit risk with clients and counterparties, increased competition, systems failures, delays and capacity constraints, network security risks, liquidity risks, new laws and regulations affecting our business, regulatory and legal matters and uncertainties and other risk factors described in our latest Annual Report on Form 10-K, filed with the SEC on Nov. 18, 2011. These forward-looking statements speak only as of the date on which the statements were made. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by the federal securities laws.
3 OUR MISSION
To Be The Better Investment Firm For Today’s Investor
4 SIX INVESTMENT THEMES FOR TD AMERITRADE 1. Unique and differentiated business model
2. Market leadership in trading
3. Premier asset gatherer
4. Unique relationship with TD
5. Well-positioned for rising interest rates
6. Strong cash generation and strong financial position
CONTINUE TO BUILD LONG-TERM EARNINGS POWER AND DEPLOY/RETURN 40%-60% CAPITAL TO FURTHER ENHANCE SHAREHOLDER VALUE
5 1. UNIQUE AND DIFFERENTIATED
BUSINESS MODEL CLIENT NEEDS – TRADING, INVESTING, ADVICE
CLIENT-CENTRIC MULTI-CHANNEL DELIVERY
BROAD PRODUCT RANGE OPEN ARCHITECTURE
Web
Phone
Education
Branch
RIAs
• Tools and information
• Seminars and coaching
• Planning services
• Packaged products
• Cash management
A UNIQUE AND DIFFERENTIATED BUSINESS MODEL – WELL-ALIGNED WITH SECULAR GROWTH TRENDS
WELL-ALIGNED WITH SECULAR GROWTH TRENDS(1)
• Growth in the internet
• Growth in active traders/self-directed investors
• Growth in household financial assets & savings
• Advisors move toward independent models
(1) Sources: Cerulli, ICI, Federal Reserve Flow of Funds Report, Tower Group Active Trader Report.
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Return on Avg. Client Assets (bps)(1)
53%
46%
38% 38% 41 42
28 26
0
10
20
30
40
50
60
0%
10%
20%
30%
40%
50%
60%
FY08 FY09 FY10 FY11 FY12
Operating Margin
(1) Return on average client assets (ROCA) = annualized pre-tax income divided by average client assets.
EPS(3) $1.33 $1.10 $1.00 $1.11
(3) Earnings per diluted share (EPS).
UNIQUE AND DIFFERENTIATED BUSINESS MODEL
$1.00-$1.35
36-41%
23-31
(2)
(2) FY12 forecast per 10/25/11 outlook statement.
Forecasted Operating
Margin Range • Business model combined with TD Bank relationship drives: – Low capital intensity – High return on equity – Strong cash and capital
generation • Cash generation
approximates net income
– Industry-leading operating margin(4)
(4) Source: Based on last twelve months publicly available reports for E*Trade Financial and Charles Schwab.
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200
250
300
350
400
450
FY08 FY09 FY10 FY11 FY12
Trades Per Day & Activity Rate(2)
(1) Source: Internally estimated daily average revenue client trades (DARTS) based on last twelve months publicly available reports for E*Trade Financial and Charles Schwab.
(2) Funded account activity rate (AR%). Average client trades per day during the period divided by the average number of total funded accounts during the period.
(3) FY12 forecast per 10/25/11 outlook statement. (4) Pro-forma combined with thinkorswim funded activity rate (trades per day): FY08 – 7.2% (350K); FY09 – 8.1% (419K) (5) Source: Celent analysis, May 2010. (6) Source: Barron’s 16th annual online-broker review, March 14, 2011.
301
372 372
6.3%(4) 7.3%(4) 6.9%
(K)
370-430
6.5%-7.5%
2. MARKET LEADERSHIP IN TRADING(1)
• Market: 8-10% projected growth in active traders(5)
• Rated Best for Options Traders by Barron’s(6)
• Advanced trading platform with robust analytics, tools, and functionality
• Growth strategies – Tiered platform strategy: Trade Architect – Product proliferation: options, futures,
foreign exchange – Education – Mobile platform
• Dec Q ’11 update: 367K/6.5%(2)
Trades per Day Forecasted Trades per Day Range
(3)
399
7.2% AR%(2)
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$0$5
$10$15$20$25$30$35$40$45
FY08 FY09 FY10 FY11 FY12
Actual NNA ($B)(1) Forecasted NNA Range ($B)
(1) Net new assets (NNA) consists of total client asset inflows, less total client asset outflows, excluding activity from business combinations. Client asset inflows include interest and dividend payments and exclude changes in client assets due to market fluctuations. Net new assets are measured based on the market value of the assets as of the date of the inflows and outflows.
(2) NNA growth rate is annual net new assets as a % of client assets as of the beginning of the period. (3) FY12 forecast per 10/25/11 outlook statement. (4) Source: Annual NNA growth rate as a % of client assets as of the beginning of the period based on last twelve months of publicly available reports for
E*Trade Financial and Charles Schwab. (5) Barron’s 16th annual online-broker review, March 14, 2011. Tied with another Broker-Dealer.
$41.5
$22.8 $26.6
$33.9
8% 10% 12% 11% 7%-11%
$27-$42
• Industry leading asset gatherer(4) – Double-digit growth rate last three
years • Sales and service culture • Highest rated for Best Long-term
Investing by Barron’s(5)
• Maintain momentum in both retail and institutional
• Ongoing investments in sales, product platform, marketing
• Growth strategies: – Cash management – Retirement – TD cross-selling – Breakaway brokers
(3)
3. PREMIER ASSET GATHERER
NNA Growth(2)
$10.2/
11%
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(1) Client cash is held in FDIC-insured deposit accounts (IDA) at TD Bank, N.A. and TD Bank USA, N.A. TD Ameritrade, TD Bank, N.A.,TD Bank USA, N.A., TD Asset Management, TD Waterhouse U.K., and TD Waterhouse Canada are affiliated through The Toronto-Dominion Bank.
(2) As of December 31, 2011.
4. UNIQUE RELATIONSHIP WITH TD(1) TD OWNS ~ 45% OF TD AMERITRADE(2)
TD Ameritrade sweeps client cash from brokerage accounts into TD Bank ($59B as of
12/31/11)
TD Ameritrade/TD Bank cross-selling opportunities
Provider of wealth management services for TD Bank’s 1,300
US stores
TD Asset Management provides money market mutual funds to TD Ameritrade
clients ($5B as of 12/31/11)
Economics and rewards of retail deposit banking without risk or capital
requirements of banking
TD retains 6 bps TD Ameritrade
retains balance of management fee
TD Ameritrade provides access to US Markets for TD Waterhouse UK/Canada clients
10 5. WELL-POSITIONED FOR RISING
INTEREST RATES
$0
$20
$40
$60
$80
Dec '08 Dec '09 Dec '10 Dec '11
Money Market Mutual FundsInterest Earning AssetsIDA(1)
Ending Balances ($B)
$9.7
$8.9
$5.1
$13.1
$15.3(2)
$58.8
$46.1
$34.6
$60.1
$15.8
$68.0
$79.2
Immediate benefit with Fed Funds increases
Immediate benefit with additional benefit over time with re-pricing of laddered investment portfolio
Immediate benefit with Fed Funds increases, but capped
$28.3
$18.7
$54.8
$7.8
• Interest rate sensitive assets(3) up 16% year-over-year − Record $79B
• Continued focus on organic growth
• Well positioned for rising
interest rates – +100bps = ~ +$0.28 EPS(4)
(1) Client cash is held in FDIC-insured deposit accounts (IDA) at TD Bank, N.A. and TD Bank USA, N.A. TD Ameritrade, TD Bank, N.A. and TD Bank USA, N.A. are affiliated through The Toronto-Dominion Bank.
(2) Ending balances as of Dec. 31, 2011 consisted of $7.6B in client margin balances, $6.1B in segregated cash, and $1.7B in other balances. (3) Interest rate sensitive assets consist of spread-based assets and money market mutual funds. Ending balances as of Dec. 31, 2011. (4) Diluted EPS impact on spread-based and money market mutual fund revenues in the first twelve months following an interest rate increase.
Assumes fed funds increase results in a parallel shift to the LIBOR/SWAP yield curve. Sensitivity relates to first 100bps increase . * Certain totals may not foot due to rounding.
11 LIBOR SWAP CURVE - 2YR VS. 5YR SPREAD TREND
0.90%
1.37%
1.46%
1.33%
0.68%
0.54%
0.74%
0.83%
0.98% 1.05%
0.73%
0.89%
0.99%
0.56%
0.65%
0.73%
0.50%
0.70%
0.90%
1.10%
1.30%
1.50%
Actual Oct '11 GI Forecast Jan '12 GI Forecast Forwards
10/1/10 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12
• Spread has narrowed significantly since last Spring/Summer
• Managing extension
strategy based on market environment
(1) Source: Bloomberg end of day close. (2) Source: Global Insight Interest Rate Forecast for FY12 as of October 2011. (3) Source: Global Insight Interest Rate Forecast for FY12 as of January 2012. (4) Source: Bloomberg as of 12/31/11.
(1)
(2)
(3)
(4)
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Liquid Assets – Management Target (1)(2) ($M)
(1) See attached reconciliation of non-GAAP financial measures. (2) Management Target for Clearing subsidiary minimum capital requirement is 10% of aggregate debits. Management Target for TD Ameritrade,
Inc. minimum capital requirement is $50M. Trust subsidiary excess is excluded from Management Target. (3) Cash used for M&A, debt repayments, share repurchases, and dividends divided by net income. Excludes shares repurchased for payroll taxes
on equity award distributions.
6. STRONG CASH GENERATION AND STRONG FINANCIAL POSITION
• Continued strong and growing liquid
asset position – Liquid assets target $500M - $1,000M
• Readily available for deployment/return • Maintain optionality
• Strong cash generation/deployment – $1.7B or 95% returned/deployed to
shareholders FY09-FY11(3)
– 92% returned/deployed to shareholders Dec Q ‘11(3)
• Repurchased 1% of outstanding shares ($107M)
• $0.06 per share quarterly dividend ($33M)
$717 $760 $918
$0
$200
$400
$600
$800
$1,000
Dec '09 Dec '10 Dec '11
$B and %(3) Returned/Deployed to Shareholders
$0.8
$0.4 $0.5 130%
73% 80%
20%
60%
100%
140%
180%
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
FY09 FY10 FY11
13 DECEMBER QUARTER 2011 UPDATE
• Maintain strong momentum in organic growth • Focus on process and expense management already yielding results • Adapt IDA(1) extension strategy to environment
– Yield curve continues to be challenging
• Maintain strong balance sheet and return of capital strategy – Returned 92% of earnings to shareholders through share repurchases and
dividends – 30M shares remaining on stock repurchase authorization – Declared $0.06 per share quarterly cash dividend, payable on Feb 15, 2012
to all holders of record as of Feb 1, 2012
CONTINUE TO BUILD LONG-TERM EARNINGS POWER AND DEPLOY/RETURN CAPITAL TO FURTHER ENHANCE SHAREHOLDER VALUE
(1) Client cash is held in FDIC-insured deposit accounts (IDA) at TD Bank, N.A. and TD Bank USA, N.A. TD Ameritrade, TD Bank, N.A. and TD Bank USA, N.A. are affiliated through The Toronto-Dominion Bank.
CONTINUED EXECUTION OF STRATEGY
14 CREATING LONG-TERM SHAREHOLDER VALUE 1. Unique and differentiated business model
2. Market leadership in trading
3. Premier asset gatherer
4. Unique relationship with TD
5. Well-positioned for rising interest rates
6. Strong cash generation and strong financial position
CONTINUE TO BUILD LONG-TERM EARNINGS POWER AND DEPLOY/RETURN 40%-60% CAPITAL TO FURTHER ENHANCE SHAREHOLDER VALUE
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TD Ameritrade 13th Annual Credit Suisse Financial Services Forum
Miami, FL
February 8, 2012
TD Ameritrade, Inc., member FINRA/SIPC/NFA, is a subsidiary of TD Ameritrade Holding Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2012 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.
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• 3K average client trades per day = $0.01
• 0.05% funded activity rate(1) = $0.01
• $4.1B fee-based assets(2) = $0.01
• $0.5B spread-based assets(3) = $0.01
• 28K new accounts = $0.01
• +25bps fed move = +$0.07(4)
SENSITIVITY ANNUAL IMPACT TO EPS
(4) Impact on spread-based and money market mutual fund revenues in the first twelve months following an interest rate increase. Assumes fed funds increase results in a parallel shift to the LIBOR/SWAP yield curve. Sensitivity relates to first 100bps increase.
(1) Funded account activity rate. Average client trades per day during the period divided by the average number of funded accounts during the period.
(2) Client assets invested in money market mutual funds, other mutual funds and Company programs such as AdvisorDirect and Amerivest, on which we earn fee revenues.
(3) Client and brokerage-related asset balances, including client margin balances, segregated cash, insured deposit account balances, deposits paid on securities borrowing (excluding conduit-based assets) and other cash and interest-earning investment balances.
17 FISCAL 2012 OUTLOOK RANGE(1)
(1) See outlook statement published 10/25/2011. (2) Funded account activity rate. Average client trades per day during the period divided by the average number of total funded accounts during the period. (3) NNA (net new assets) consists of total client asset inflows, less total client asset outflows, excluding activity from business combinations. Client asset
inflows include interest and dividend payments and exclude changes in client assets due to market fluctuations. Net new assets are measured based on the market value of the assets as of the date of the inflows and outflows.
(4) Annual NNA growth rate as a % of client assets as of the beginning of the period. (5) NIM (net interest margin) is a measure of the net yield on our average spread-based assets. (6) Client cash is held in FDIC-insured deposit accounts (IDA) at TD Bank, N.A. and TD Bank USA N.A. TD Ameritrade, TD Bank, N.A. and TD Bank USA,
N.A. are affiliated through The Toronto Dominion Bank.
Financial Macro Assumptions Key Metrics
High
$1.35 EPS 10% Market Growth NNA(3) $42B / 11%(4)
41% Operating Margin
Activity Rate of 7.5%(2) TPD 430K
No change in Fed Funds Increasing Yield Curve
NIM(5) 1.85% / IDA(6) 1.40%
Low
$1.00 EPS 0% Market Growth NNA $27B / 7%
36% Operating Margin
Activity Rate of 6.5% TPD 370K
No change in Fed Funds or Yield Curve
NIM 1.70% / IDA 1.30%
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
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Dec. 31, Dec. 31, Dec. 31,2011 2010 2009
Liquid assets - management target 917,975$ 759,970$ 717,223$ Plus: Broker-dealer cash and cash equivalents 443,679 459,728 677,523
Trust company cash and cash equivalents 61,857 60,632 34,541 Investment advisory cash and cash equivalents 11,283 32,178 20,870
Less: Corporate short-term investments - - (38,237) Excess broker-dealer regulatory net capital (516,532) (419,125) (508,029) Cash and cash equivalents 918,262$ 893,383$ 903,891$
Note: The term "GAAP" in the following explanation refers to generally accepted accounting principles in the United States.
(1)
As of
Liquid assets – management target is a non-GAAP financial measure as defined by SEC Regulation G. We define liquid assets – management target as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments and (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 10% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of a minimum operational target established by management ($50 million in the case of our primary introducing broker-dealer, TD Ameritrade, Inc.). We include the excess capital of our broker-dealer subsidiaries in liquid assets – management target, rather than simply including broker-dealer cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from the broker-dealer subsidiaries to the parent company. Excess capital, as defined under clause (c) above, is generally available for dividend from the broker-dealer subsidiaries to the parent company. We consider liquid assets – management target to be a measure that reflects our liquidity that would be readily available for corporate investing and financing activities under normal operating circumstances. Liquid assets – regulatory threshold is a related metric that reflects our liquidity that would be available for corporate investing and financing activities under unusual operating circumstances. Our liquid assets metrics should be considered as supplemental measures of liquidity, rather than as substitutes for cash and cash equivalents.
TD AMERITRADE HOLDING CORPORATIONRECONCILIATION OF NON-GAAP FINANCIAL MEASURES
In thousands(Unaudited)
Liquid Assets - Management Target (1)
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