TD Ameritrade 2018 Annual Report

34 Fiscal Year Ended September 30, 2018 Compared to Fiscal Year Ended September 30, 2017 Our net income increased 69% for fiscal year 2018 compared to fiscal year 2017, primarily due to an increase in net revenues and a lower effective tax rate, primarily due to the enactment of the Tax Cuts and Jobs Act (the "Act") on December 22, 2017. These increases were partially offset by increases in operating expenses and interest on borrowings, and an $11 million loss on sale of investments during fiscal year 2018. Net revenues and operating expenses increased primarily due to the Scottrade acquisition. Detailed analysis of net revenues and expenses is presented later in this discussion. Our EBITDA increased 38% for fiscal year 2018 compared to fiscal year 2017, primarily due to an increase in net revenues, partially offset by an increase in operating expenses excluding depreciation and amortization, and an $11 million loss on sale of investments during fiscal year 2018. Our diluted earnings per share increased 58% to $2.59 for fiscal year 2018 compared to $1.64 for fiscal year 2017, primarily due to higher net income, partially offset by a 7% increase in average diluted shares outstanding as a result of the issuance of our common stock in connection with the Scottrade acquisition. Details regarding our fiscal year 2019 expectations for net revenues and expenses are presented later in this discussion. Fiscal Year Ended September 30, 2017 Compared to Fiscal Year Ended September 30, 2016 Our net income increased 4% for fiscal year 2017 compared to fiscal year 2016, primarily due to an increase in net revenues, partially offset by an increase in operating expenses, a higher effective tax rate during fiscal year 2017 and an increase in interest on borrowings due to increases in our average debt outstanding and the average effective interest rate incurred on our debt. Our EBITDA increased 10% for fiscal year 2017 compared to fiscal year 2016, primarily due to an increase in net revenues, partially offset by an increase in operating expenses excluding depreciation and amortization. Our diluted earnings per share increased 4% to $1.64 for fiscal year 2017 compared to $1.58 for fiscal year 2016, primarily due to higher net income. Operating Metrics Our largest sources of revenues are asset-based revenues and transaction-based revenues. For fiscal year 2018, asset-based revenues and transaction-based revenues accounted for 62% and 36% 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.