TD Ameritrade FY 2Q17 Earnings Call Notes

Tim Hockey – President and Chief Executive Officer

Investor engagement has been resilient

“Investor engagement has been resilient. High trading volumes despite ongoing volatility. We’re seeing very, very healthy trends and new funded account growth, and asset inflows from both new and existing accounts. Asset gathering itself is a quarterly record, and we’ve already met our previous fiscal year record for net new assets with nearly a quarter yet to go. ”

Close to receiving final approvals for Scottrade acquisition

“We believe we are close to receiving final regulatory approvals for the Scottrade acquisition and we hope to make everything official in the coming weeks.”

We are seeing very broad based engagement in the market

“Yes, so we have seen you know both this quarter was sort of the perfect storm in terms of those numbers right, so we saw our clients with net buying activities, so cash was down linked quarter and then we saw very strong returns in the markets, so the denominator was up, so I think that’s why you are seeing that percentage decline so significantly. We are seeing this quarter very broad-based engagement in the market, so everyone from brand-new customers opening their first account to very active traders seem to be engaged in the market. We saw a good activity across pretty much all of our products, futures were down a little bit year-over-year, because we had such a strong comparable. In terms of holdings, we are still seeing the trend where the ETF’s are increasing a bit as a percentage of assets. We continue to see good holdings in mutual funds and really across all of the products that we typically see.”

Broader retail engagement but multi decade los in the VIX

“Yes, so it’s actually a bit of a conundrum, on the one hand we’ve got broader retail engagement, generally as we say, if you look our June quarter after June quarter after June quarter, the engagement rates of our clients are up, their trading levels annualized are up, as we said their activity rate. And part of that is the shift to mobile, we know we get a lift in trading when a client becomes mobile active, again easier for them to do that business. So on the other end, the conundrum part is, as we said, we’re at multi-decade lows in the VIX, which tends to drive more trading activity. So, if you do get a bump in VIX, then with that broader based trading it will be interesting to see whether you get a real spike or not, but it’s sort of a steady drumbeat of higher growth rate in clients with slightly more trading levels even – even over and above the fact that we have volatility that’s quite low.”

TD Ameritrade FY 2Q17 Earnings Call Notes

Tim Hockey – President and Chief Executive Officer

Partnered with Dimensional funds

“You should expect efficiency to remain a top priority for us. We’re also looking at ways to further monetize our asset base. Our scale puts us in a great position to get creative and try new things. Product distribution as we’ve discussed on past calls is one area of focus, but there are others as well. For example, we recently joined forces with Dimensional Funds, the largest mutual fund family on our platform, in a strategic relationship that allows us to leverage each other’s vast distribution network. It also makes DFA’s funds available to advisors for a reduced rate and introduces new educational and practice management resources. We’re evaluating other opportunities as well and we’ll share more once details have been finalized.”

News flow drove strong engagement

“Engagement remained high as investors continued what they started last quarter, aligning our portfolios with the sectors they think will best benefit from the new administration. A high frequency of news and information coming out of Washington has helped prolong that activity, although market dynamics in general have been relatively tamed. Intraday volatility has been historically low. The VIX, for example, had its lowest quarterly average in more than 10 years and yet the number of accounts trading was up 10% from last year.”

Decreased commission rate to 6.95

“Throughout this quarter, we had a unique opportunity to offer even more value to our clients, decreasing our commission rate to 6.95 per equity trade. The strong organic growth we’ve experienced over the last ten years has helped position TD Ameritrade as a firm with tremendous scale. We expect that scale to only improve once we close on our acquisition of Scottrade, a company that has long been known as a value conscious player in the industry. In fact, the additional scale we achieve is the hedge against the lower commission environment.”

Snap was good for us

“When we talk about why the revenue has been fairly modest, what we’ve seen is that even though we’re starting to see a little bit of a pickup in IPOs, and particularly the Snap IPO is sort of a mega IPO that some of these really large ones that come out are above the sweet spot for our securities lending. So, it came out and sort of instantly had a lot of market liquidity, and so there wasn’t a lot of scarcity out there to drive rates up. So, Snap was good for us in a lot of ways. We saw strong trading. We saw a lot of clients that opened new account, that Snap was their first trade, but we didn’t see much selective securities lending around.”

Even if commission rates went to zero we’d still be profitable

“Yeah, so there is a few things. First of all, the good news is that even if commission rates went to zero tomorrow, we’d still be profitable and that’s before our integration with Scottrade and the scale enhancements we get as a result of that. So, we reached that critical mass size where we’re fully able to work with the competition in terms of the price structure that seems to make sense, having said that we’re quite comfortable with the pricing that we have in the marketplace. If you remember, there are zero dollar players in the marketplace now and have been for quite some time. It’s been tried for many, many times over the years. So, there are different revenue models at play in the industry and we happen to have a simple price all-in for the best platform on the street.”

TD Ameritrade 4Q16 Earnings Call Notes

Tim Hockey – President and CEO

Client call volumes up 17% since the election

“Overall client call volumes since the election were up 17% from last year, which on its own is a healthy increase but new client calls were up 37%. Call topics were overwhelmingly market related, a great opportunity to educate, provide guidance and introduce helpful solutions to our clients and our teams delivered. Asset inflows were up 6% from last year and new funded accounts were up more than 20%. ”

Long term investors sold long-held positions

“So, what specifically were our clients doing? Long-term investors sold [ph] long-held positions, as the markets rally. Traders continue to seek opportunities via effective rotation or trading on volatility and widely held symbols, namely in the finance, tech and infrastructure spaces. We said for years that news drives trading, and today, more often than not, social media is breaking that news.”

The election got less active traders engaged

“My sense, what happened and certainly post-election was that the less active traders reengaged. There was a significant uptick in our non-active trader segment. And so, in other words, you saw the results of the election and they said, it’s time to look at my portfolio, maybe it’s been a while reposition and you definitely saw some of the sector rotation you did. Going forward, I think you’ll see that actually activities start to peter [ph] out a little bit as people are now positioned. But generally my sense is that you’re going to see a more volatile set of market conditions over the next little while and that will drive more activity.”

Toronto Dominion 4Q16 Earnings Call Notes

Toronto-Dominion Bank (TD) CEO Bharat Masrani on Q4 2016 Results

The economic picture is brighter in the US

” the economic picture is brighter in the U.S. The Fed appears likely to raise rates in the coming months and the market has responded with bond yields rising and the U.S. dollar on the upswing. While there are global risks, these conditions in the U.S. if sustained, will enable us to deliver total bank adjusted EPS growth for 2017 inside our 7% to 10% medium term target range.”

Even though our effective tax rate is lower, we would expect it to go even lower if the statutory rate goes down

“I think Sumit the way you should think about that is the tax rate is established by reference to statutory rates that are in place at the time and then there is deducts from that. So for example as an example we participate in various community reinvestment activities that are subject to tax credits etcetera and so those tend to be deductions that get you to your effective tax rate. So if the overall tax rate would reduce, then yes we would have benefits come up.”

Mike Pedersen

Good growth in the US. It’s possible we could see moderation in auto lending

“Yes, so it’s Mike. So we’ve obviously seen very good revenue growth in the U.S. this year and based on what I see right now, I expect that to continue, but I expect our volumes to continue to be strong. I also expect our margins to increase based on what we’re seeing. It’s possible we’ll see a bit of moderation in categories like commercial and auto finance lending, but not seeing that yet. There are some signs that there’s a bit of pricing pressure in some of those sectors. So that may adjust our flows a bit but broadly speaking, I expect good growth across the categories that have produced good growth this year with improving margins.”

TD Ameritrade FY 3Q16 Earnings Call Notes

TD Ameritrade Holding (AMTD) Fredric John Tomczyk on Q3 2016 Results

Tomczyk’s last call

“today will be my last earnings call. Our CEO, transition has gone well. As of July 1, Tim Hockey has assumed oversight of all business and functional units, and has been engaged in lending our planning for 2017.”

Expect continued volatility

“after a volatile start to the calendar year, the markets in the June quarter were relatively toughened. That was of course until the historic Brexit poll at the end of June, which assured an about a volatility to close the quarter. This is a trend we would expect to continue. With heavy monetary stimulus from central banks and much of the world, we have record levels for both the equity and the fixed income markets at the same time, which is unusual. That said, the U.S. economy continues to progress, UK’s decision to exit their relationship with European Union, does have the potential to influence future Fed policy regarding rates.”

Timothy D. Hockey – President and Director, TD Ameritrade Holding Corp

News has been driving increased activity

“Traders increased their equity exposure throughout the period. For example on June 24, the day following the Brexit vote, was one of our strongest trading days ever. In advance of the vote, we prepared content and education to help investors understand its impact on the markets, which was helpful as request for education and guidance outpaced any other service need that day. The news also promoted an elevated interest in derivatives, which for the quarter were 44% of DARTs. A record 95,000 DARTs came from mobile devices in the quarter, comprising 21% of total DARTs. On June 24, that number was at even higher 172,000. Mobile volumes for futures and forex on that day were each more than double what we typically see. We believe we will continue to see more of these days, where news and events drive significant market activity.”

There are a lot of forces that are compressing margins generally

“there’re a lot of forces here that are compressing margins generally. And the RIAs aren’t immune to that. I can tell you that there is a lot of interest in how they can react and continue to offer great client experiences and grow in a post DOL world. And for example, our referrals for breakaway brokers were up 75% year-over-year, so we think there is lots of upside. But there are – like I said earlier, we’re all trying to figure out what’s the best to do in this new world as well.”

Stephen J. Boyle – Executive Vice President & Chief Financial Officer

Securities lending is at a low ebb, margin balance is towards a high

” I’d say securities lending is at a low ebb – certainly was in a low ebb during the quarter. And so again, hard to predict, but if you revert it to the norm, you might expect to see some increases there. Margin balance is – we’ve had pretty good margin balance growth over time. We hit a high towards the end of last year. So I think we’ll see that come back and forth. ”

Toronto Dominion 2Q16 Earnings Call Notes

The Toronto-Dominion Bank’s (TD) CEO Bharat Masrani on Q2 2016 Results

Overall credit quality remains strong

“While provisions for credit losses rose in both the retail and wholesale portfolios, this was largely a reflection of continued weakness in the oil & gas sector. Overall credit quality remains strong.”

Credit is a headwind however we’re adequately reserved

“. Overall, we’ve been saying for some time that we expected credit to be a headwind to earnings this year, given the benign PCL rates we reported in 2015. That is now materializing. However, we remain comfortable that we are adequately reserved, and losses will be manageable.”

Riaz Ahmed

Still assessing impact of wild fires

“I would like to take a moment to give you an update on Fort McMurray. We are continuing to assess the impact of the wildfires. We expect we will experience some losses in our banking businesses and higher claims in our insurance businesses in the third quarter. However, as a result of our smaller footprint in Alberta and because of mitigants [ph] including reinsurance in our general insurance business, mortgage insurance in our personal banking, and third party insurance held by our commercial banking customers, we do not expect the impact to be material.”

Mark Chauvin

Oil and gas producers are exhausting sources of liquidity

“further deterioration in the oil and gas producer portfolio occurred during the quarter, despite a recent strengthening in oil prices. This trend was expected as leverage borrowers exhaust available sources of liquidity.”

The recent increase in oil prices in not likely to have an immediate positive impact on oil impairments

” As expected, credit deterioration and loan impairment in oil impacted portfolios and regions are continuing. The recent increase in oil prices, while encouraging, is not likely to have an immediate positive impact. In the corporate and commercial segments, we are now seeing the impact of sustained low oil and gas prices, which is reflected for new impairments and related provisions in the segment this quarter. ”

Signs of deterioration continue in consumer lending portfolios but offset by better performance in rest of country

“The signs of deterioration in the consumer lending portfolios in impacted provinces seen last quarter are continuing, but to-date increases in credit losses have been largely offset by stronger than expected performance across the rest of the country.”

TD Ameritrade FY 2Q16 Earnings Call Notes

TD Ameritrade’s (AMTD) CEO Fred Tomczyk on Q2 2016

Did see slower growth from existing RIAs

“The institutional channel delivered solid results this quarter but saw a slower growth from existing RIAs, as a result of the market conditions during the quarter. That said, our new RIA sales pipeline is quite strong. And coming out of our National LINC Conference in February, we won more opportunities than we ever have before. We do not see the trend towards the RIA model slowing down and advisors remain optimistic about their outlook for the future as well.”

This is the kind of environment that drives increased activity

“As we’ve said before, this is the kind of environment that drives increased client trading activity. April trades to date are currently averaging 454,000 per day. Those who are trading remain quite active. ”

DOL rules still need more analysis

“the details around the application of the fiduciary standard and its associated obligations still need to be more fully analyzed and understood. IRA rollovers and education are two areas that we’re focused on and we’re investigating the best ways for us to sell to and to service IRA clients in light of the new rule.”

call center people are all series 7 licensed

” all of our call center people that interact with clients are licensed. So that is — we made that change probably seven or eight years ago and have stuck to that. In fact when you start in our call centers today, you have six months to get license. So, they all have Series 7 license, that’s the first point. ”

The heart of the DOL thing is around compensation for conflicts of interest

” in the DOL the sort of a bias against conflicts of interest, particularly with respect to how you compensate your people. So, anybody that’s got differential compensation or advantageous compensation, the presentation of proprietary products versus non-proprietary products, I think that’s an adjustment they’re going to have to make but we don’t have to make that adjustment. ”

Building a lot of robo sort of capabilities

“Well, we continue to believe that Amerivest is core of our money management strategy. When you think about what we’re building out, we’re building out an enhanced experience including goal setting and goal planning, performance tracking against that goal, embedding education, portfolio allocation systems, account linking and live person and chats. So, we’re building on a lot of functionality inside Amerivest. And so that will be the core engine. We continue to believe that for the broadest part of the market, it’s the combination of the technology and with some human help that is the right model.”

TD Ameritrade FY 1Q15 Earnings Call Notes

Fred Tomczyk

We’re still seeing a wait and see attitude from the broader client base

“January month-to-date, trades are averaging 579,000 trades per day. While trading is up and the number of clients trading are as up as well, we are still seeing a wait-and-see attitude from the broader client base. Those who are trading are doing so quite actively, but the average investor is waiting to see which way this market will turn next.”

Coming into what is typically our busiest time of the year

“We are coming into what is typically our busiest time of the year and our strongest trading quarter. With so much uncertainty, we would expect economic and geopolitical news to continue to driving investor sentiment throughout the near term.”

INterest rate increase is good for earnings

“We are also quite pleased that for the first time in nearly a decade, the Fed has raised interest rates. We have operated quite well through a prolonged difficult economic environment. And while challenges and uncertainties remain, this action is a positive from an earnings perspective. ”

The presidential election will undoubtedly have its own influence

“We can’t predict what specifically the year will bring, but we would expect geopolitical and global economic uncertainty to continue and the upcoming presidential election will undoubtedly have its own influence on investor sentiment and the markets. ”

Advisors are not growing as fast as they were

“the retail asset gathering is slightly up year-over-year and the institutional side is down. The institutional side is down largely to existing advisors. They are continuing to grow, but they are not growing as fast as they did last year at the same time. ”

It’s hard to gather assets in a flat market

“With respect to sort of pipelines, the pipelines are still very full and very robust with respect to breakaway brokers and sales opportunities. We have got a National Conference coming up, which is usually a big event for us where we do gather a lot of assets in the quarter following that conference, but the sales cycle just takes a bit of time here. But it’s not surprising to me I think the market was flat last year. So, it’s just a more challenging market for people to gather assets, but we continue to do quite well in that market.”

Breakaway broker movement is a secular trend we don’t see changing

“the trend to independence has been a long and very significant secular trend we don’t see changing. And so I think that’s an upside to the breakaway broker movement from our perspective. Having said that, in down markets like this, it’s usually a time where people just hold up, talk to their clients and are less apt to make that shift.’

It’s tough to differentiate in a flat market if you’re an advisor

“In our discussions with them, it’s much more the market environment. It really is basically the market was essentially flat last year, so we target to differentiate yourself. And so it’s just a different market. The environment as I said earlier most investors are a little bit tentative right now and taking a wait-and-see attitude. So, while they maybe talking to a lot of people, taking actions just slowed down a bit here.”

We would expect volatility to continue

“so far in January, we have a very different market that has a negative tone to it. It’s been good for trading volume. But I think as we move through the quarter and the balance of the year, from our point of view, we will continue to see volatility and it will all depend on geopolitical events. The price of oil seems to be a big factor right now, the growth rate in China and certainly, actions of the Fed and the Presidential election are all going to have influences on the market from here. It’s a very difficult market to call. But as we said at the beginning of the call, we would expect its volatility to continue here.”

Steve Boyle

Margin balances have held pretty well in January, cash is up

“Margin balances have held in pretty well in January, but we would expect in this kind of environment that we would see some declines in margin balances. Stock lending is always difficult to predict. Cash levels, free credits are up significantly, so cash is up.”

TD Ameritrade FY4Q15 Earnings Call Notes

Our clients decreased equity exposure in September and are awaiting direction from markets

“So far in October, intraday volatility and the VIX have both come in and our clients have decreased their equity exposure in September per our investment movement index and are now expressing some caution as they await direction from the markets.”

Margin balances did come down

“margin balances, as you would expect in the sell-off the market did come down a little bit and so that’s built into our expectations for next year. Stock lending as you mentioned is quite situation-specific. We’ve seen some good activity early in October here but that’s something that we tend to be cautious in our outlook on since it’s very relate — the revenue in particular is very related to certain IPOs and other market events.”

Trading has become very news and event driven

“And I continue to say the Federal Reserve banks around the world in the developing — developed countries have put a lot of stimulus into the system. And we’re now at the point where even China or Europe announces similar stimulus and we have a robust trading day. And so it’s become very news and very event-driven.”

I think there’s going to be volatility as stimulus is unwound

“And I continue to believe that there is no way that the U.S. Federal Reserve unwinds some of what they’ve done with all the stimulus over seven years, almost now that basically when they start to unwind it is going to be volatile. I think that’s – I think most people would agree with that”

We’ve got an election next year

“We’ve an election going on next year. That will probably take a bigger impact later in the year than earlier in the year, but I think between an election year, Federal Reserve tempering, what’s going on in the Middle East, the Federal Reserve banks in other parts of the world”

Our clients continue to have an appetite for tech stocks

“I think in this earnings season you saw some surprises on the downside, some surprises on the upside. The tech stocks continue to do well and quite an appetite in our client base. So it definitely could go higher, but we grow our number of funded accounts.”

Margin lending fell but came back

“some of our bigger margin clients that regularly use it, who tend to be a little bit more stable. I also think you have to look at the fact that we had a correction; everything came in and then basically the market’s come back pretty much. And so, I think it definitely did come down but it started to come back a bit as the market started to recover and as people saw an opportunity.”

The US equity market is the tallest midget in the room

“I also think in today’s world, I continue to say basically, it’s not obvious where you put your money, if you had to pick from a risk/reward basis the U.S. equity market seems like the best – the tallest midget in the room, so to speak.”

RIA breakaway pipelines remain strong

“we continue to see very good trends on the breakaways. Our pipelines are good. So we haven’t seen signs of it abating…With respect to the competitive environment it’s getting more competitive. There’s no question people have noticed our success there. ”

We’re not seeing clients over-extend themselves in margin

“I’d say we’re not seeing clients overextend themselves in margin or come back a lot. I think that the margin balances as a percentage of client assets have been fairly steady over time.”

TD Ameritrade FY 3Q15 Earnings Call Notes

No signs of breakaway broker trend slowing down

” We don’t see any signs of the breakaway broker trend slowing down. These advisors are attracted to our open-access technology model. We make it easy for them to move assets because they don’t have to worry about changing vendors, and we have the flexibility to add new technology as trends evolve.”

Margin loans at record levels and client cash at historic lows. People are increasingly turning to derivatives

“Margin loans are also at record levels and client cash as a percentage of total client assets remains near historic lows. In light of this low volatility in the equity markets, clients are increasingly turning to trading derivatives which were a record 44% of trades per day in the quarter and up 15% year over year.”

In a low volatility environment with most people fully invested, active traders are a higher percentage of volume

“Well, first off, I think we are in an environment where I think the retail investor is pretty fully invested and we’re having pretty low volatility in a narrow range market. So the market really is staying inside a very tight range. And so, when you have that kind of market, it’s really going to be your active traders trading certain symbols or names and using derivatives that are going to make-up a higher and higher percentage of your trade volume.”

We were surprised at how strong trading was given the low volatility. It’s picked up with the Greece resolution

“Now, to be quite honest, I mean, we were surprised at how strong trading was given how low volatility was during the quarter. And you can see so far in July, trading has been pretty strong with some resolution with respect to the Greece items, what’s happening with Greece and then it’s earnings season. So we’ve seen trading pick up a bit.”

Amerivest is robo-like but not robo

“we have Amerivest today which we would call robo-like but not a robo. And we believe in the best combination of digital and the human experience. We are investing to improve the investing experience, taking some things from the robo-advisors in terms of the ease of use, the leveraging of technology and newer technologies. And so, we think there’s lots of opportunity to improve the on-boarding experience and the post-sale experience, leveraging things that we’ve learned from the robo-advisors and in fact enhancing on those.”

Brokerage clients are not as sensitive to interest rate changes on cash yield

“our clients are just not as sensitive to interest rates on cash yield. That’s not to say that they are not sensitive to interest rates on margin loans or commission rates, but they are less sensitive on cash rates. And that’s been – we’ve had that – we’ve looked at it a number of times and continue to see that.”

Vs. robos, we think a combo of a person with a digital channel is the best way to target people who have money

“when we look at what the robos have done, I mean, you always look at new competitors and say is there something you can learn on it. We still believe that using the combination of a person with a digital channel which I think Vanguard is using and doing pretty well is the right combination and so we believe that’s the right model for the broadest part of the market for people that have money.”

Good luck on September’s potential rate hike

“Macrae Sykes – Gabelli & Company, Inc.
Great. And thank you. Best wishes for September’s potential rate hike.

Fredric J. Tomczyk – President, Chief Executive Officer & Director
Okay, well, thanks, Mac.

William J. Gerber – Chief Financial Officer & Executive Vice President
We’re hopeful.

Fredric J. Tomczyk – President, Chief Executive Officer & Director
We’re all hopeful.”