TD AMERITRADE HOLDING CORPORATION Unless otherwise indicated, the terms "we," "us," "our" or "Company," or "TD Ameritrade" in this report refer toTD Ameritrade Holding Corporation and its wholly-owned subsidiaries. The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto included in the Company's annual report on Form 10-K for the fiscal year endedSeptember 30, 2019 , and the Condensed Consolidated Financial Statements and Notes thereto contained in this quarterly report on Form 10-Q. This discussion contains forward-looking statements within the meaning of theU.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words "may," "could," "would," "should," "believe," "expect," "anticipate," "plan," "estimate," "target," "project," "intend" and similar words or expressions. In particular, forward-looking statements contained in this discussion include our expectations regarding: the impact of the pandemic on our financial condition, results of operations and cash flows; the effect of changes in interest rates on our net interest spread; the effect of client trading activity on our results of operations; the amount of our net revenues, including certain asset-based and trading metrics for the next two quarters of fiscal year 2020; the amounts of our total operating expenses; our effective income tax rate; our capital and liquidity needs and our plans to finance such needs; and our plans to return capital to stockholders through cash dividends. InMarch 2020 , theWorld Health Organization declared the spread of the coronavirus ("COVID-19") a worldwide pandemic. The pandemic has negatively impacted the global economy and is affecting financial markets, causing significant market volatility and erosion of market value. We are actively monitoring the impact of COVID-19 on our business, financial condition, liquidity, operations, employees, clients and business partners. In response to the pandemic and for the protection of our employees, clients and business partners, we have implemented remote work arrangements for nearly 100% of our employees, have restricted business travel and have temporarily closed our retail branches. To date, with our ability to meet a vast majority of our clients' needs through our technology-based platforms and services, these arrangements have not materially affected our ability to maintain our business operations. The impact of the pandemic on financial markets resulted in heightened client engagement during the second quarter of fiscal year 2020. Additionally, in response to the pandemic, duringMarch 2020 theFederal Open Market Committee decreased the target range for the federal funds rate by 150 basis points (to between 0 to 0.25%). Based on information available as of the date of this report, we do not expect the pandemic to have a material adverse impact to our results of operations and cash flows in the near term; although, given the daily evolution of the pandemic and the global responses to curb its spread, we are currently unable to estimate the long-term effects of the pandemic on our financial condition, results of operations or cash flows. OnNovember 24, 2019 , we entered into an Agreement and Plan of Merger (the "Merger Agreement") with The Charles Schwab Corporation ("Schwab") andAmericano Acquisition Corp. , a wholly-owned subsidiary of Schwab. The Merger Agreement was included as Exhibit 2.1 to the Company's Form 8-K filed with theSecurities and Exchange Commission ("SEC") onNovember 27, 2019 . Upon the terms and subject to the conditions of the Merger Agreement,Americano Acquisition Corp. will merge with and into the Company (the "Merger"), with the Company surviving as a wholly-owned subsidiary of Schwab. Pursuant to and subject to the terms of the Merger Agreement, our stockholders will receive 1.0837 shares of Schwab's voting common stock for each share of the Company's common stock (the "Merger Consideration"); however, if the Merger Consideration issuable in respect of shares of the Company's common stock owned by The Toronto-Dominion Bank ("TD") and its affiliates as of immediately prior to the effective time of the Merger, together with any other shares of Schwab common stock then owned by TD and its affiliates, would equal a number of shares of Schwab common stock exceeding 9.9% (or such lower percentage of shares of Schwab common stock as theFederal Reserve Board permits TD to acquire in the Merger consistent with a determination that TD does not control Schwab for purposes of the Bank Holding Company Act of 1956, as amended, or the Home Owners' Loan Act of 1933, as amended) of the issued and outstanding shares of Schwab common stock as of immediately following the effective time of the Merger, then TD will receive one share of nonvoting common stock of Schwab in lieu of each such excess share of Schwab common stock. Completion of the Merger is subject to certain conditions, including obtaining the necessary approvals from stockholders of both the Company and Schwab, the satisfaction of certain regulatory approvals and other customary closing conditions. The parties expect the transaction to close during the second half of calendar year 2020. For the three and six months endedMarch 31, 2020 , we incurred$8 million and$34 million , respectively, of costs related to the proposed Merger, which are included in professional services on the Condensed Consolidated Statements of Income. There are risks, uncertainties and assumptions that could cause our actual results or performance to differ materially from those contained in our forward-looking statements. Among the risks, uncertainties and assumptions that could cause our actual results or performance to differ materially from those contained in our forward-looking statements are the risks, uncertainties and assumptions disclosed under Part II, Item 1A. - "Risk Factors," of this quarterly report on Form 10-Q. We are also subject to the risks, uncertainties and assumptions disclosed under Item 1A. - "Risk Factors" of, and elsewhere in, our annual report on Form 10-K for the fiscal year endedSeptember 30, 2019 , including, among others, economic, social and political conditions and other securities industry risks; interest rate risks; liquidity risks; client and counterparty credit risks; our ability to introduce new products 36
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and services and update or enhance existing products and services to remain competitive; clearing function risks; systemic risk; aggressive competition; information system risks, network security risks; investment advisory services risks; merger and acquisition risks; external service provider risks; employee misconduct risks; LIBOR phase-out risks; new laws, rules, regulations and regulatory guidance affecting our business; net capital requirements; extensive regulation and regulatory uncertainties; and litigation, investigations and proceedings involving our business, as well as the risk that our risk management practices may leave us exposed to unidentified or unanticipated risks. The forward-looking statements contained in this report speak only as of the date on which they were made. We undertake no obligation to publicly update or revise such statements, whether as a result of new information, future events or otherwise, except to the extent required by the federal securities laws. The preparation of our financial statements requires us to make judgments and estimates that may have a significant impact upon our financial results. Note 1 of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the fiscal year endedSeptember 30, 2019 , contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions. We believe that the following areas are particularly subject to management's judgments and estimates and could materially affect our results of operations and financial position: valuation of goodwill and acquired intangible assets; estimates of effective income tax rates, uncertain tax positions, deferred income taxes and related valuation allowances; and accruals for contingent liabilities. These areas are discussed in further detail under the heading "Critical Accounting Policies and Estimates" in Item 7 of our annual report on Form 10-K for the fiscal year endedSeptember 30, 2019 . The term "GAAP" refers toU.S. generally accepted accounting principles. We utilize non-GAAP calculations of earnings before interest, taxes, depreciation and amortization ("EBITDA") and liquid assets. We believe that these non-GAAP measures may be useful in evaluating the operating performance and liquidity of the business. Reference to these non-GAAP measures should not be considered as a substitute for results that are presented in a manner consistent with GAAP. These non-GAAP measures are provided to enhance investors' overall understanding of our financial performance. Glossary of Terms In discussing and analyzing our business, we utilize several metrics and other terms that are defined in the following Glossary of Terms. Italics indicate other defined terms that appear elsewhere in the Glossary. Asset-based revenues - Revenues consisting of (1) bank deposit account fees, (2) net interest revenue and (3) investment product fees. The primary factors driving our asset-based revenues are average balances and average rates. Average balances consist primarily of average client bank deposit account balances, average client margin balances, average segregated cash balances, average client credit balances, average fee-based investment balances and average securities borrowing and securities lending balances. Average rates consist of the average interest rates and fees earned and paid on such balances. Average client trades per day - Total trades divided by the number of trading days in the period. This metric is also known as daily average revenue trades ("DARTs"). Average commissions per trade - Total transaction fees and commissions revenue as reported on our consolidated financial statements, less order routing revenue, divided by total trades for the period. Transaction fees and commissions revenue primarily consist of order routing revenue, trading commissions and markups on riskless principal transactions in fixed-income securities. Basis point - When referring to interest rates, one basis point represents one one-hundredth of one percent. Bank deposit account fees - Revenues generated from a sweep program that is offered to eligible clients of the Company whereby clients' uninvested cash is swept toFDIC -insured (up to specified limits) money market deposit accounts at affiliated and non-affiliated third-party financial institutions participating in the program. Beneficiary accounts - Brokerage accounts managed by a custodian, guardian, conservator or trustee on behalf of one or more beneficiaries. Examples include accounts maintained under the Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA), guardianship, conservatorship and trust arrangements and pension or profit plan for small business accounts. Brokerage accounts - Accounts maintained by us on behalf of clients for securities brokerage activities. The primary types of brokerage accounts are cash accounts, margin accounts, IRA accounts and beneficiary accounts. Futures accounts are sub-accounts associated with a brokerage account for clients who want to trade futures and/or options on futures. Forex accounts are sub-accounts associated with a brokerage account for clients who want to engage in foreign exchange trading. Cash accounts - Brokerage accounts that do not have margin account approval. Client assets - The total value of cash and securities in brokerage accounts. Client cash and money market assets - The sum of all client cash balances, including client credit balances and client cash balances swept into bank deposit accounts or money market mutual funds. 37
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Client credit balances - Client cash held in brokerage accounts, excluding
balances generated by client short sales on which no interest is paid. Interest
paid on client credit balances is a reduction of net interest revenue. Client
credit balances are included in "payable to clients" on our consolidated
financial statements.
Client margin balances - The total amount of cash loaned to clients in margin
accounts. Such loans are secured by client assets. Interest earned on client
margin balances is a component of net interest revenue. Client margin balances
are included in "receivable from clients, net" on our consolidated financial
statements.
Consolidated duration - The weighted average remaining years until maturity of
our spread-based assets. For purposes of this calculation, floating rate
balances are treated as having a one-month duration. Consolidated duration is
used in analyzing our aggregate interest rate sensitivity.
Daily average revenue trades ("DARTs") - Total trades divided by the number of
trading days in the period. This metric is also known as average client trades
per day.
EBITDA - EBITDA (earnings before interest, taxes, depreciation and amortization)
is a non-GAAP financial measure. We consider EBITDA to be 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 covenant purposes under our senior revolving
credit facility. 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, GAAP pre-tax
income, net income and cash flows from operating activities.
Fee-based investment balances - Client assets invested in money market mutual
funds, other mutual funds and our programs such as AdvisorDirect,® Essential
Portfolios, Selective Portfolios and Personalized Portfolios on which we earn
fee revenues. Fee revenues earned on these balances are included in "investment
product fees" on our consolidated financial statements.
Forex accounts - Sub-accounts maintained by us on behalf of clients for foreign
exchange trading. Each forex account must be associated with a brokerage
account. Forex accounts are not counted separately for purposes of our client
account metrics.
Funded accounts - All open client accounts with a total liquidation value
greater than zero.
Futures accounts - Sub-accounts maintained by us on behalf of clients for
trading in futures and/or options on futures. Each futures account must be
associated with a brokerage account. Futures accounts are not counted separately
for purposes of our client account metrics.
Insured Deposit Account - We are party to an Insured Deposit Account ("IDA")
agreement with TD Bank USA, N.A. ("TD Bank USA "), TD Bank, N.A . and The
Toronto-Dominion Bank ("TD"). Under the IDA agreement, TD Bank USA and TD Bank,
N.A . (together, the "TD Depository Institutions") make available to our clients
FDIC -insured (up to specified limits) money market deposit accounts as either
designated sweep vehicles or as non-sweep deposit accounts. We provide
marketing, recordkeeping and support services for the TD Depository Institutions
with respect to the money market deposit accounts. In exchange for providing
these services, the TD Depository Institutions pay us an aggregate marketing fee
based on the weighted average yield earned on the client IDA assets, less the
actual interest paid to clients, a servicing fee to the TD Depository
Institutions and the cost of FDIC insurance premiums. Fee revenues earned under
this agreement are included in "bank deposit account fees" on our consolidated
financial statements.
Interest-earning assets - Consist of client margin balances, segregated cash,
deposits paid on securities borrowing and other cash and interest-earning
investment balances.
Interest rate-sensitive assets - Consist of spread-based assets and client cash
invested in money market mutual funds.
Investment product fees - Revenues earned on fee-based investment balances.
Investment product fees consists of fees earned on client assets invested in
money market mutual funds, other mutual funds and through investment programs
such as AdvisorDirect,® Essential Portfolios, Selective Portfolios and
Personalized Portfolios. Investment product fees also includes fees earned on
client assets managed by independent registered investment advisors utilizing
our trading and investing platforms.
IRA accounts (Individual Retirement Arrangements) - A personal trust account for
the exclusive benefit of a U.S. individual (or his or her beneficiaries) that
provides tax advantages in accumulating funds to save for retirement or other
qualified purposes. These accounts are subject to numerous restrictions on
additions to and withdrawals from the account, as well as prohibitions against
certain investments or transactions conducted within the account. We offer
traditional, Roth, Savings Incentive Match Plan for Employees (SIMPLE) and
Simplified Employee Pension (SEP) IRA accounts.
Liquid assets - Liquid assets is a non-GAAP financial measure that we consider
to be an important measure of our liquidity. Liquid assets may be utilized for
general corporate purposes and is defined as the sum of (1) corporate cash and
cash equivalents, (2) corporate investments, less securities sold under
agreements to repurchase, and (3) our regulated subsidiaries' net capital in
excess of minimum operational targets established by management. Corporate cash
and cash equivalents includes cash and cash equivalents from our investment
advisory subsidiaries. Liquid assets represents available capital, including any
capital from our
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regulated subsidiaries in excess of established management operational targets.
We include the excess capital of our regulated subsidiaries in the calculation
of liquid assets, rather than simply including regulated subsidiaries' cash and
cash equivalents, because capital requirements may limit the amount of cash
available for dividend from the regulated subsidiaries to the parent company.
Net capital in excess of minimum operational targets established by management
is generally available for dividend from the regulated subsidiaries to the
parent company. Liquid assets is based on more conservative measures of net
capital than regulatory requirements because we generally manage to higher
levels of net capital at our regulated subsidiaries than the regulatory
thresholds require. Liquid assets should be considered as a supplemental measure
of liquidity, rather than as a substitute for GAAP cash and cash equivalents.
Liquidation value - The net value of a client's account holdings as of the close
of a regular trading session. Liquidation value includes client cash and the
value of long security positions, less margin balances and the cost to buy back
short security positions. It also includes the value of open futures, foreign
exchange and options positions.
Margin accounts - Brokerage accounts in which clients may borrow from us to buy
securities or for any other purpose, subject to regulatory and Company-imposed
limitations.
Net interest margin ("NIM") - A measure of the net yield on our average
spread-based assets. Net interest margin is calculated for a given period by
dividing the annualized sum of bank deposit account fees and net interest
revenue by average spread-based assets.
Net interest revenue - Net interest revenue is interest revenues less brokerage
interest expense. Interest revenues are generated by charges to clients on
margin balances maintained in margin accounts, the investment of cash from
operations and segregated cash and interest earned on securities
borrowing/securities lending. Brokerage interest expense consists of amounts
paid or payable to clients based on credit balances maintained in brokerage
accounts and interest incurred on securities borrowing/securities lending.
Brokerage interest expense does not include interest on our non-brokerage
borrowings.
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.
Net new asset growth rate (annualized) - Annualized net new assets as a
percentage of client assets as of the beginning of the period.
Non-GAAP Net Income and Non-GAAP Diluted EPS - Non-GAAP net income and non-GAAP
diluted earnings per share ("EPS") are non-GAAP financial measures. We define
non-GAAP net income as net income adjusted to remove the after-tax effect of (1)
amortization of acquired intangible assets and (2) acquisition-related expenses
associated with the Company's business acquisitions. We consider non-GAAP net
income and non-GAAP diluted EPS as important measures of our financial
performance because they exclude certain items that may not be indicative of our
core operating results and business outlook and may be useful in evaluating the
operating performance of the business and facilitating a meaningful comparison
of our results in the current period to those in prior and future periods.
Amortization of acquired intangible assets is excluded because management does
not believe it is indicative of our underlying business performance.
Acquisition-related expenses are excluded as these costs are not representative
of the costs of running our on-going business. Non-GAAP net income and non-GAAP
diluted EPS should be considered in addition to, rather than as a substitute
for, GAAP net income and GAAP diluted EPS.
Order routing revenue - Revenues generated from payments and/or rebates received
from market centers. Order routing revenue is a component of transaction-based
revenues.
Securities borrowing - We borrow securities temporarily from other
broker-dealers in connection with our broker-dealer business. We deposit cash as
collateral for the securities borrowed, and generally earn interest revenue on
the cash deposited with the counterparty. We also incur interest expense for
borrowing certain securities.
Securities lending - We loan securities temporarily to other broker-dealers in
connection with our broker-dealer business. We receive cash as collateral for
the securities loaned, and generally incur interest expense on the cash
deposited with us. We also earn revenue for lending certain securities.
Securities sold under agreements to repurchase (repurchase agreements) - We sell
securities to counterparties with an agreement to repurchase the same or
substantially the same securities at a stated price plus interest on a specified
date. We utilize repurchase agreements to finance our short-term liquidity and
capital needs. Under these financing transactions, we receive cash from
counterparties and provide U.S. Treasury securities as collateral.
Segregated cash - Client cash and investments segregated in compliance with Rule
15c3-3 of the Securities Exchange Act of 1934 (the Customer Protection Rule) and
other regulations. Interest earned on segregated cash is a component of net
interest revenue.
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Spread-based assets - Client and brokerage-related asset balances, consisting of bank deposit account balances and interest-earning assets. Spread-based assets is used in the calculation of our net interest margin and our consolidated duration. Total trades - Revenue-generating client securities trades, which are executed by our broker-dealer and FCM/FDM subsidiaries. Trades generate revenue from order routing, commissions, markups on riskless principal transactions in fixed income securities and transaction fees. Trading days - Days in which theU.S. equity markets are open for a full trading session. Reduced exchange trading sessions are treated as half trading days. Transaction fees and commissions - Revenues earned on order routing, trading commissions and markups on riskless principal transactions in fixed-income securities. Revenues earned on trading commissions includes client trades in options (contract fees), futures, foreign exchange, mutual funds, fixed income securities, exchange-traded notes and closed-end funds. In addition, trading commissions are earned on client trades in common and preferred stock, exchange traded funds ("ETFs") and options which are processed through a broker or the interactive voice response phone system. Transaction-based revenues - Revenues generated from client trade execution, consisting primarily of order routing revenue, commissions, markups on riskless principal transactions in fixed income securities and transaction clearing fees. Results of Operations Changes in average client balances, especially bank deposit account, margin, credit and fee-based investment balances, may significantly impact our results of operations. Changes in interest rates also significantly impact our results of operations. We seek to mitigate interest rate risk by aligning the average duration of our interest-earning assets with that of our interest-bearing liabilities. We cannot predict the direction of interest rates or the levels of client balances. If interest rates rise, we generally expect to earn a larger net interest spread. Conversely, a falling interest rate environment generally would result in us earning a smaller net interest spread. Conditions in theU.S. equity markets significantly impact the volume of our clients' trading activity. There is a relationship between the volume of our clients' trading activity and our results of operations. We cannot predict future trading volumes in theU.S. equity markets. If client trading activity increases, we generally expect that it would have a positive impact on our results of operations. If client trading activity declines, we generally expect that it would have a negative impact on our results of operations. EffectiveOctober 3, 2019 , we reduced our online exchange-listed stock, exchange-traded funds ("ETF") (domestic and Canadian) and option trade commissions from$6.95 to$0 per trade (plus$0.65 per contract and no exercise or assignment fees on option trades). Financial Performance Metrics Net income, diluted earnings per share and EBITDA are key metrics we use in evaluating our financial performance. Net income and diluted earnings per share are GAAP financial measures and EBITDA is a non-GAAP financial measure. We consider EBITDA to be 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 covenant purposes under theTD Ameritrade Holding Corporation senior revolving credit facility. 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, GAAP pre-tax income, net income and cash flows from operating activities. 40
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The following table sets forth net income in dollars and as a percentage of net revenues for the periods indicated, and provides reconciliations to EBITDA (dollars in millions):
Three months ended March 31, Six months ended March 31,
2020 2019 2020 2019
% of Net % of Net % of Net % of Net
$ Revenues $ Revenues $ Revenues $ Revenues
Net income (GAAP) $ 446 30.1 % $ 499 34.4 % $ 824 29.7 % $ 1,103 37.2 %
Add:
Depreciation and
amortization 43 2.9 % 36 2.5 % 84 3.0 % 71 2.4 %
Amortization of acquired
intangible assets 30 2.0 % 31 2.1 % 60 2.2 % 62 2.1 %
Interest on borrowings 31 2.1 % 37 2.5 % 63 2.3 % 70 2.4 %
Provision for income
taxes 153 10.3 % 169 11.6 % 266 9.6 % 343 11.6 %
EBITDA (non-GAAP) $ 703 47.5 % $ 772 53.2 % $ 1,297 46.8 % $ 1,649 55.6 %
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Our net income decreased 11% for the second quarter of fiscal year 2020 compared
to the same period in the prior fiscal year, primarily due to an increase in
operating expenses, partially offset by an increase in net revenues, lower
income taxes and a decrease in interest on borrowings. Detailed analysis of net
revenues and expenses is presented later in this discussion.
Our EBITDA decreased 9% for the second quarter of fiscal year 2020 compared to
the same period in the prior fiscal year, primarily due to an increase in
operating expenses excluding depreciation and amortization, partially offset by
an increase in net revenues.
Our diluted earnings per share decreased 8% to $0.82 for the second quarter of
fiscal year 2020 compared to $0.89 for the second quarter of the prior fiscal
year due to lower net income, partially offset by a 3% decrease in the weighted
average diluted shares outstanding as a result of our stock repurchase programs.
Six Months Ended March 31, 2020 Compared to Six Months Ended March 31, 2019
Our net income decreased 25% for the first half of fiscal year 2020 compared to
the same period in the prior fiscal year, primarily due to a decrease in net
revenues, an increase in operating expenses and the effect of a $14 million
favorable legal settlement during the first half of the prior fiscal year. The
decreasing impact of these items on net income was partially offset by lower
income taxes and a decrease in interest on borrowings.
Our EBITDA decreased 21% for the first half of fiscal year 2020 compared to the
same period in the prior fiscal year, primarily due to a decrease in net
revenues, an increase in operating expenses excluding depreciation and
amortization and the effect of a $14 million favorable legal settlement during
the first half of the prior fiscal year.
Our diluted earnings per share decreased 22% to $1.52 for the first half of
fiscal year 2020 compared to $1.96 for the first half of the prior fiscal year
due to lower net income, partially offset by a 4% decrease in the weighted
average diluted shares outstanding as a result of our stock repurchase programs.
Operating Metrics
Our largest sources of revenues are asset-based revenues and transaction-based
revenues. For the first half of fiscal year 2020, asset-based revenues and
transaction-based revenues accounted for 68% and 28% of our net revenues,
respectively. Asset-based revenues consist of (1) bank deposit account fees,
(2) net interest revenue and (3) investment product fees. The primary factors
driving our asset-based revenues are average balances and average rates. Average
balances consist primarily of average client bank deposit account balances,
average client margin balances, average segregated cash balances, average client
credit balances, average fee-based investment balances and average securities
borrowing and lending balances. Average rates consist of the average interest
rates and fees earned and paid on such balances. The primary factors driving our
transaction-based revenues are total trades and average commissions per trade.
We also consider client account and client asset metrics, although we believe
they are generally of less significance to our results of operations for any
particular period than our metrics for asset-based and transaction-based
revenues.
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Asset-Based Revenue Metrics
We calculate the return on our bank deposit account balances and our
interest-earning assets using a measure we refer to as net interest margin. Net
interest margin is calculated for a given period by dividing the annualized sum
of bank deposit account fees and net interest revenue by average spread-based
assets. Spread-based assets consist of average bank deposit account balances and
average interest-earning assets, which include client margin balances,
segregated cash, deposits paid on securities borrowing and other cash and
interest-earning investment balances. The following table sets forth net
interest margin and average spread-based assets (dollars in millions):
Three months ended Six months ended
March 31, Increase/ March 31, Increase/
2020 2019 (Decrease) 2020 2019 (Decrease)
Average bank deposit account
balances $ 126,329 $ 114,728 $ 11,601 $ 121,072 $ 114,536 $ 6,536
Average interest-earning assets 36,769 31,045 5,724 36,334 30,523 5,811
Average spread-based balances $ 163,098 $ 145,773 $ 17,325
Bank deposit account fee revenue
$ 899 $ 858 $ 41 Net interest revenue 332 362 (30 ) 690 737 (47 ) Spread-based revenue$ 776 $ 792 $ (16 ) $ 1,589 $ 1,595 $ (6 ) Avg. annualized yield-bank deposit account fees 1.39 % 1.50 % (0.11 )% 1.46 % 1.48 % (0.02 )% Avg. annualized yield- interest-earning assets 3.56 % 4.66 % (1.10 )% 3.74 % 4.78 % (1.04 )% Net interest margin (NIM) 1.88 % 2.17 % (0.29 )% 1.99 % 2.18 % (0.19 )%
The following tables set forth key metrics that we use in analyzing net interest revenue, which is a component of net interest margin (dollars in millions):
Interest Revenue (Expense) Interest Revenue (Expense)
Three months ended Six months ended
March 31, Increase/ March 31, Increase/
2020 2019 (Decrease) 2020 2019 (Decrease)
Segregated cash $ 29 $ 33 $ (4 ) $ 67 $ 48 $ 19
Client margin balances 216 257 (41 ) 444 545 (101 )
Securities
lending/borrowing, net 67 49 18 143 103 40
Other cash and
interest-earning investments 21 25 (4 ) 43 45 (2 )
Client credit balances (1 ) (2 ) 1 (7 ) (4 ) (3 )
Net interest revenue $ 332 $ 362 $ (30 ) $ 690 $ 737 $ (47 )
Average Balance Average Balance
Three months ended Six months ended
March 31, % March 31, %
2020 2019 Change 2020 2019 Change
Segregated cash $ 9,292 $ 5,814 60 % $ 8,920 $ 4,336 106 %
Client margin balances 20,414 19,440 5 % 20,395 20,804 (2 )%
Securities borrowing 672 902 (25 )% 1,228 762 61 %
Other cash and interest-earning
investments 6,391 4,889 31 % 5,791 4,621 25 %
Interest-earning assets $ 36,769 $ 31,045 18 % $ 36,334 $ 30,523 19 %
Client credit balances $ 23,874 $ 19,190 24 % $ 22,319 $ 19,261 16 %
Securities lending 2,452 2,272 8 %
2,583 2,496 3 %
Interest-bearing liabilities
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Avg. Annualized Yield (Cost) Avg. Annualized Yield (Cost)
Three months ended Net Yield Six months ended Net Yield
March 31, Increase/ March 31, Increase/
2020 2019 (Decrease) 2020 2019 (Decrease)
Segregated cash 1.22 % 2.26 % (1.04 )% 1.49 % 2.18 % (0.69 )%
Client margin balances 4.18 % 5.28 % (1.10 )% 4.28 % 5.19 % (0.91 )%
Other cash and interest-earning
investments 1.31 % 2.03 % (0.72 )% 1.46 % 1.94 % (0.48 )%
Client credit balances (0.02 )% (0.05 )% 0.03 % (0.06 )% (0.04 )% (0.02 )%
Net interest revenue 3.56 % 4.66 % (1.10 )% 3.74 % 4.78 % (1.04 )%
The following table sets forth key metrics that we use in analyzing investment product fee revenues (dollars in millions):
Three months ended Six months ended
March 31, Increase / March 31, Increase /
2020 2019 (Decrease) 2020 2019 (Decrease)
Average fee-based
investment balances $ 176,756 $ 273,702 $ (96,946 ) $ 178,753 $ 268,614 $ (89,861 )
Average annualized
yield-investment product
fees 0.32 % 0.20 % 0.12 % 0.32 % 0.21 % 0.11 %
Investment product fee
revenue $ 144 $ 137 $ 7 $ 290 $ 280 $ 10 Transaction-Based Revenue Metrics The following table sets forth several key metrics regarding client trading activity, which we utilize in measuring and evaluating performance and the results of our operations:
Three months ended Six months ended
March 31, % March 31, %
2020 2019 Change 2020 2019 ChangeTotal trades (in millions) 130.31 52.48 148 %
195.09 110.01 77 % Average client trades per day 2,101,804 860,359 144 % 1,560,727 894,378 75 % Trading days 62.0 61.0 2 % 125.0 123.0 2 % Average commissions per trade$ 2.00 $ 7.01 (71 )%$ 2.21 $ 7.05 (69 )% Order routing revenue (in millions)$ 220 $ 119 85 %$ 355 $ 248 43 % Client Account and Client Asset Metrics The following table sets forth certain metrics regarding client accounts and client assets, which we use to analyze growth and trends in our client base: Three months ended Six months ended March 31, % March 31, % 2020 2019 Change 2020 2019 Change Funded accounts (beginning of period) 12,109,000 11,630,000 4 % 11,971,000 11,514,000 4 % Funded accounts (end of period) 12,671,000 11,763,000 8 % 12,671,000 11,763,000 8 % Percentage change during period 5 % 1 % 6 % 2 % Client assets (beginning of period, in billions)$ 1,430.2 $ 1,161.6 23 %$ 1,327.7 $ 1,297.5 2 % Client assets (end of period, in billions)$ 1,231.8 $ 1,297.1 (5 )%$ 1,231.8 $ 1,297.1 (5 )% Percentage change during period (14 )% 12 % (7 )% 0 % Net new assets (in billions)$ 45.4 $ 19.6 132 %$ 74.1 $ 51.5 44 % Net new assets annualized growth rate 13 % 7 % 11 % 8 % 43
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Table of Contents
Condensed Consolidated Statements of Income Data The following table summarizes certain data from our Condensed Consolidated Statements of Income for analysis purposes (dollars in millions):
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