Goldman Sachs Conference December 11, 2008 1 TD AMERITRADE, Inc., member FINRA/SIPC, subsidiary of TD AMERITRADE Holding Corporation. TD AMERITRADE is a trademark jointly owned by TD AMERITRADE IP Company, Inc. and The Toronto-Dominion Bank. TD Bank Financial Group has an ownership interest in TD AMERITRADE Holding Corporation. 2008 TD AMERITRADE IP Company, Inc. All rights reserved. Used with permission.
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, 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, interest rates, market fluctuations and changes in client trading activity, increased competition, systems failures and capacity constraints, ability to service debt obligations, 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. 26, 2008 and our latest Quarterly Report on Form 10-Q filed thereafter. 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. 2
Our Mission Investment Firm of Choice for the Mass Affluent Investor One of the Best-Run Companies 3
Primary Strategic Objectives Retail Investors Focus Trading Assets Goal Maintain Leadership Position Build on Asset Gathering Momentum Approach Organic Acquisition 4
Approach to Serving the Individual Investor Client Needs Trading Investing Advice Multi-Channel Delivery Web Phone Branch RIA s Products Full range of trading products, tools and information; planning services; packaged products; cash management products 5
FY 09 EPS Guidance Range $1.33 $1.42 CAGR 33% (1) $0.81 $0.87 $1.06 $1.21 NIM Compression $1.10 $0.64 $0.32 (2) (2) (2) FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 (2) ROE 9.5% 23% 25% 33% 34% 31% 23-27% 6 (1) Compounded Annual Growth Rate for FY 03-FY 08 (2) Excludes investment gains/losses for FY 03-06. The corresponding GAAP EPS amounts including investment gains/losses are as follows: FY 03 = $0.25, FY 04 = $0.66, FY 05 = $0.82, FY 06 = $0.95. See reconciliation of financial measures.
Financial Performance Pre-Tax Margin & ROCA (1) 60% 0.45 Pre-Tax Margin FY 09 Range 45%-51% 50% 40% 30% 20% 10% 44% 48% 50% 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 Return on Avg. Client Assets FY 09 Range.36%-.46% 0% (2) FY06 FY07 FY08 0.00 bps (1) Pre-tax income divided by average client assets. FY 06 excludes investment gains and losses. (2) Pre-tax margin excludes investment gains/losses for FY 06. The corresponding GAAP pre-tax margin including investment gains/losses is 48%. See attached reconciliation of financial measures. 7
Trades Maintain Leadership Position Trades Per Day 23% 312K 316K 266K #1 Market Share (1) 253K Increase Client Engagement Educational Programs Risk Management Tools Options (2) Quality Execution (3) FY 07 FY 08 FY 09 8 (1) Source: Based upon publicly available reports for E*Trade Financial, Fidelity Investments, optionsxpress and Charles Schwab through September 30, 2008. (2) Options involve risks and are not suitable for all investors. (3) Please see important information in the Appendix.
Asset Gathering Opportunity Share of Wallet Upside 100% 80% 60% 40% 20% Opportunity Retail Share of Wallet 30% = $312B 20% = $130B 0% AMTD Full-Commission (1) (2) 9 (1) Analysis includes Retail clients only and is based on December 2006 TD AMERITRADE asset data. Calculations reflect an increase in TD AMERITRADE assets from 12.4% Share of Wallet (SOW). Source: IXI, TD AMERITRADE Market Intelligence analysis. (2) Source: SRI Macromonitor survey combining Merrill Lynch, Citigroup, Morgan Stanley, Wachovia and UBS.
Asset Gathering Good Traction Net New Assets (1) $30B Building on 08 Achievements 84% $22.8B $20B Dislocation Drives Opportunity Enhanced Service to Sales Activities $12.4B Expanded Cash Management Offering 5%* FY 07 8%* FY 08 7-11%* FY 09 New Advice-Embedded Products 10 (1) Net new assets consists of total client asset inflows, less total client asset outflows. 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. * NNA as a % of total beginning client assets.
Strong Growth in Annuitized Revenue Avg. Revenue Earning Assets Spread-Based Fee-Based 30% $96.3B $73.9B $70.8B $49.7B Revenue Growth/Mix Asset-Based Trans/Other 17% $2,177M $851M $1,326M $2,537M 41% $1,050M $1,487M $372M 59% $24.2B $25.5B FY'07 FY'08 FY'07 FY'08 FY 09 Guidance Spread-Based Assets: $26.3B-$29.3B Fee-Based Assets: $76.4B-$80.4B FY 09 Guidance Asset-Based Revenues: $1,378M-$1,563M Transaction/Other Revenues: $927M-$1,139M 11 Spread-based asset balances include client margin balances, segregated cash, the TD Bank USA, N.A. Money Market Deposit Account (FDIC-Insured) balances, deposits paid on securities borrowing and other cash and interest earning investment balances. Fee-based assets include money market funds, mutual funds, Amerivest and AdvisorDirect.
Strong Balance Sheet No credit risk in US Mortgage Market Strong cash generator FY 08 EBITDA $1.4B Prudent leverage ratio Debt Outstanding $1.4B No Dividends Minimal Share Repurchase Continue to build cash reserves Well positioned to be opportunistic through the cycle 12
Significant Differentiators SOW Opportunity Banking Arrangement Leverage TD Further Strong Balance Sheet Positioned Well for Long-Term Growth and Multiple Expansion 13
Goldman Sachs Conference December 11, 2008 TD AMERITRADE, Inc., member FINRA/SIPC, subsidiary of TD AMERITRADE Holding Corporation. TD AMERITRADE is a trademark jointly owned by TD AMERITRADE IP Company, Inc. and The Toronto-Dominion Bank. 2008 TD AMERITRADE IP Company, Inc. All rights reserved. Used with permission. 14
15 Appendix
FY 09 Vs. FY 08 Key Assumptions Trades Per Day (1) Average Commission Rate (1) FY 08 FY 09 Range 312K 266K-316K $12.97 $13.38-$13.88 Spread-Based Balances Net Interest Margin Fee-Based Balances Fee-Based Rate (2) (2) $25.6B 4.50% $71.2B 0.43% $26.3B-$29.3B 3.97%-4.07% $76.4B-$80.4B 0.40%-0.42% Expenses Excluding Advertising (3) $1.10B $1.07B-$1.16B Net New Assets $23B $20B-$30B 16 (1) 2008 includes approximately 10K mutual fund trades per day for which we received no commission. Excluding those, 2008 TPD are 302K and the commission rate was $13.40 a trade. These trades are excluded in the 2009 range. (2) FY 08 numbers are totals for year-end. FY 09 numbers are estimated average balances. (3) See attached reconciliation of financial measures.
Sensitivity Annual impact to EPS: 3K TPD = $0.01 $2B Fee-Based Assets = $0.01 $250M Spread-Based Assets = $0.01 25K New Accounts = $0.01 +/- 25bps Fed Move = +/- $0.02 17
Mass Affluent Opportunity - $13T U.S. Household Wealth Demographics by Household Wealth Segment Affluent (>$1M) 2007 HH 2 114M 3% 2007 HH Assets 1 $24T 2010 HH Assets 1 $29T CAGR 2007-2010 Mass-Affluent ($100K to $1M) 30M 26% 36% 36% 10% 3 Mainstream (<$100K) 71% 54% $13T 54% $16T 9% 4 10% 10% 6% 4 18 Distribution of Population by HH 2007 Distribution of Assets by HH 2010 Distribution of Assets by HH 1. SRI MacroMonitor 2006-2007 Survey applied to U.S. Federal Reserve Flow of Funds Accounts 2007:Q4. Excludes Pension Fund Reserves (i.e., DB/DC Plan Assets) and estimated assets of Nonprofit Organizations. 2. SRI MacroMonitor 2006-2007 Survey applied to U.S. Census Bureau - Current Population Survey 2006. 3. Based on historical data from Capgemini World Wealth Report. 4. Based on historical data from SRI MacroMonitor 2006-2007 Survey applied to U.S. Federal Reserve Flow of Funds Accounts 2007:Q4. TD AMERITRADE Internal Analysis.
Investors Reward Asset Gatherers Market Rewards steady earnings growth and an annuitized revenue stream P/E Multiples for Industry Segments Asset Gathering Broker Intermediaries Capital Intensive 17.5 Next 12 Months P/E 15.3 14.7 13.8 13.5 1 2 13.1 12.4 11.7 11.6 10.2 Asset Mgrs Private Banks Trust Banks Ins Brokers Reg'l Brokers Online Brokers Money Ctr Banks Reg'l Banks Nat'l Brokers Life Insurance 19 1 Includes: SF, SMHG, SWS, RJF ; Median: 13.5x 2 Includes: AMTD, TRAD, OXPS; Excludes: ETFC, SCHW; Median: 12.9x Source: Company reports and Merrill Lynch Research as of May 20, 2008
Important Information (3) There is no one single chart, or statistic, you can use to determine whether your brokerage firm is obtaining best execution. Rather, best execution is a weighing of the competing goals of obtaining the best price(s), as quickly as possible, for the entire amount of a client order. One of TD AMERITRADE's goals is to achieve high levels of improvement per share on as many orders as reasonably possible. That is how we measure ourselves against the competition. Chart data for TD AMERITRADE is calculated pursuant to SEC Rule 605, as provided by TD AMERITRADE Clearing, Inc., an affiliate of TD AMERITRADE, Inc., and derived from Thomson Transaction Analytics, a third-party vendor that is not affiliated with TD AMERITRADE, Inc. Industry statistics are derived from SEC Rule 605 data provided by Thomson Transaction Analytics and represent the volume-weighted average of all industry participants posting Rule 605 data. Except for the Limit Order Price Improvement Chart, order data is derived from market orders for at least 100 shares and up to 1999 shares. The Limit Order Price Improvement Chart is derived from marketable limit orders for at least 100 shares and up to 1999 shares. Market volatility, volume and system availability may delay account access and trade executions. Price can change quickly in fast market conditions, resulting in an execution price different from the quote displayed at order entry. Execution price, speed and liquidity and account access are affected by many factors, including market volatility, size and type of order and available market centers. TD AMERITRADE is obligated to seek the best price available for your order, taking into consideration the cost of execution and current market conditions, such as the NBBO, volume and liquidity. Price improvement is not guaranteed and will not occur in all situations. TD AMERITRADE acts as agent. Orders are filled by independent third parties. 20
21 Reconciliation of Financial Measures
TD AMERITRADE HOLDING CORPORATION RECONCILIATION OF FINANCIAL MEASURES In thousands, except percentages and per share amounts (Unaudited) Fiscal Year Ended Sept. 29, 2006 Sept. 30, 2005 Sept. 24, 2004 Sept. 26, 2003 Net Income Excluding Investment Gains/Losses (1) Net income, as reported $ 526,759 $ 339,753 $ 282,818 $ 108,641 Adjustments: Gain on sale of investments (81,422) - - - Fair value adjustments of investment-related derivative instruments 11,703 (8,315) (17,930) 46,668 Income tax effect of above adjustments 26,145 3,345 7,459 (18,667) Net income excluding investment gains/losses $ 483,185 $ 334,783 $ 272,347 $ 136,642 EPS Excluding Investment Gains/Losses (1) Diluted earnings per share, as reported $ 0.95 $ 0.82 $ 0.66 $ 0.25 Adjustments on a per share basis, net of income tax effect: Gain on sale of investments (0.09) - - - Fair value adjustments of investment-related derivative instruments 0.01 (0.01) (0.02) 0.07 EPS excluding investment gains/losses $ 0.87 $ 0.81 $ 0.64 $ 0.32 22 Quarter Ended Sept. 30, 2008 Net Income From Ongoing Operations (2) Net income, as reported $ 171,999 Adjustment: Losses on money market funds 35,628 Income tax effect of above adjustment (13,433) Net income from ongoing operations $ 194,194
Quarter Ended Sept. 30, 2008 Net Income From Ongoing Operations (2) Net income, as reported $ 171,999 Adjustment: Losses on money market funds 35,628 Income tax effect of above adjustment (13,433) Net income from ongoing operations $ 194,194 Quarter Ended Sept. 30, 2008 EPS From Ongoing Operations (3) Diluted earnings per share, as reported $ 0.29 Adjustment on a per share basis, net of income tax effect: Losses on money market funds 0.03 EPS from ongoing operations $ 0.32 Fiscal Year Ended Sept. 30, 2008 $ % of Rev. EBITDA (4) EBITDA $ 1,438,123 56.7% Less: Depreciation and amortization (36,899) (1.5%) Amortization of acquired intangible assets (59,275) (2.3%) Interest on borrowings (78,447) (3.1%) Pre-tax income $ 1,263,502 49.8% Quarter Ended Fiscal Year Ended Sept. 30, 2008 Sept. 30, 2007 Sept. 30, 2008 Sept. 30, 2009* Expenses Excluding Advertising (5) Expenses excluding advertising $ 326,707 $ 233,736 $ 1,101,486 $ 1,071,150 $ 1,159,150 Plus: Advertising 43,805 30,558 173,296 162,850 174,850 Total expenses $ 370,512 $ 264,294 $ 1,274,782 $ 1,234,000 $ 1,334,000 As of Sept. 30, 2008 June 30, 2008 Liquid Assets (6) Liquid assets $ 792,474 $ 660,427 Plus: Broker-dealer cash and cash equivalents 418,626 417,559 Trust company cash and cash equivalents 61,430 1,388,021 Investment advisory cash and cash equivalents 9,447 10,429 23 Less: Corporate short-term investments (14,491) - Excess trust Tier 1 capital (102,427) - Excess broker-dealer regulatory net capital (490,924) (547,679) Cash and cash equivalents $ 674,135 $ 1,928,757
* Represents the range of the October 23, 2008 Outlook Statement Note: The term "GAAP" in the following explanations refers to generally accepted accounting principles in the United States. (1) Net income and earnings per share (EPS) excluding investment gains/losses are Non-GAAP financial measures as defined by SEC Regulation G. We define net income excluding investment gains/losses as net income adjusted to remove the after-tax effect of non-brokerage investment-related gains/losses. We consider net income and EPS excluding investment gains/losses important measures of our financial performance. Gains/losses on non-brokerage investments and investment-related derivatives are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. Net income and EPS excluding investment gains/losses should be considered in addition to, rather than as a substitute for, GAAP net income and EPS. (2) Net income from ongoing operations is considered a Non-GAAP financial measure as defined by SEC Regulation G. We define net income from ongoing operations as net income (loss), adjusted to remove any significant unusual gains or charges. We consider net income from ongoing operations an important measure of the financial performance of our ongoing business. Unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. Net income from ongoing operations should be considered in addition to, rather than as a substitute for, GAAP net income. (3) EPS from ongoing operations is considered a non-gaap financial measure as defined by SEC Regulation G. We define EPS from ongoing operations as earnings (loss) per share, adjusted to remove any significant unusual gains or charges. We consider EPS from ongoing operations an important measure of the financial performance of our ongoing business. Unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. EPS from ongoing operations should be considered in addition to, rather than as a substitute for, GAAP earnings per share. (4) EBITDA (earnings before interest, taxes, depreciation and amortization) is considered a Non-GAAP financial measure as defined by SEC Regulation G. We consider EBITDA an important measure of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA is used as the denominator in the consolidated leverage ratio calculation for our senior credit facilities. The consolidated leverage ratio determines the interest rate margin charged on the senior credit facilities. EBITDA eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization. EBITDA should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities. 24 (5) (6) Expenses excluding advertising is considered a Non-GAAP financial measure as defined by SEC Regulation G. Expenses excluding advertising consists of total expenses, adjusted to remove advertising expense. We consider expenses excluding advertising an important measure of the financial performance of our ongoing business. Advertising spending is excluded because it is largely at the discretion of the Company, varies significantly from period to period based on market conditions and generally relates to the acquisition of future revenues through new accounts rather than current revenues from existing accounts. Expenses excluding advertising should be considered in addition to, rather than as a substitute for, total expenses. Liquid assets is considered a Non-GAAP financial measure as defined by SEC Regulation G. We define liquid assets as the sum of a) corporate cash and cash equivalents, b) corporate short-term investments, c) regulatory net capital of (i) our clearing broker-dealer subsidiaries in excess of 5% of aggregate debit items and (ii) our introducing broker-dealer subsidiary in excess of 120% of the minimum dollar net capital requirement and d) following the merger of our trust company subsidiaries in August 2008, Tier 1 capital of our trust company in excess of the minimum dollar requirement. We include the excess capital of our broker-dealer and trust subsidiaries in liquid assets rather than simply including broker-dealer and trust cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from these subsidiaries to the parent company. Prior to the merger of our trust company subsidiaries in August 2008, excess capital from our trust subsidiaries was excluded from liquid assets because, due to regulatory limitations, it was generally not available for corporate purposes. We consider liquid assets an important measure of our liquidity and of our ability to fund corporate investing and financing activities. Liquid assets should be considered as a supplemental measure of liquidity, rather than as a substitute for cash and cash equivalents.