TD Ameritrade 2018 Annual Report

39 Fiscal Year Ended September 30, 2018 Compared to Fiscal Year Ended September 30, 2017 Net Revenues Net revenues increased 48% to $5.45 billion during fiscal year 2018. We expect net revenues to increase to at least $5.75 billion, or approximately 6%, during fiscal year 2019 compared to fiscal year 2018. Depending on the level of investor engagement and the nature of the interest rate environment, fiscal year 2019 net revenues could be considerably higher. Commissions and transaction fees increased 42% to $1.97 billion, primarily due to the addition of approximately 3.5 million funded accounts as a result of the Scottrade acquisition on September 18, 2017, partially offset by lower average commissions per trade for fiscal year 2018 compared to fiscal year 2017. Average client trades per day increased 59% to 811,110 for fiscal year 2018 compared to 510,710 for fiscal year 2017. Order routing revenue increased 43% to $458 million due to higher trading volumes. Average commissions per trade decreased to $7.45 from $8.33, primarily due to our reduction in client pricing for online equity and option trades during the second quarter of fiscal 2017 and a higher percentage of equity trades, which earn somewhat lower average commissions per trade than option and futures trades. Effective March 6, 2017, we reduced our online equity and ETF trade commissions from $9.99 to $6.95 per trade and also lowered options pricing to $6.95 per trade (plus $0.75 per contract). We expect average commissions per trade to decrease by 2% to 3% in fiscal year 2019 as compared to fiscal year 2018, depending on the mix of client trading activity and other factors. Asset-based revenues increased 52% to $3.37 billion for fiscal year 2018, primarily due to increases in average spread-based assets, net interest margin earned on spread-based assets and average market fee-based investment balances. The growth in average spread-based and market fee-based investment balances is primarily due to the Scottrade acquisition and our success in attracting net new client assets. Net interest margin increased 39 basis points to 1.88% during fiscal year 2018, primarily due to the Federal Open Market Committee increasing the target range for the federal funds rate by 75 basis points (to between 1.00% and 1.25%) during fiscal year 2017 and by 100 basis points (to between 2.00% to 2.25%) during fiscal year 2018. The increase in net interest margin was also due to the impact of higher average client margin balances, which earn a larger net interest spread. Bank deposit account fees increased 39% to $1.54 billion, primarily due to a 24% increase in average bank deposit account balances and an increase of 14 basis points in the average yield earned on the bank deposit account assets. The growth in the average bank deposit account balances is primarily due to the Scottrade acquisition and our success in attracting net new client assets. The average yield earned on bank deposit account assets increased primarily due to floating-rate investment balances within the Insured Deposit Account ("IDA") portfolio benefiting from the federal funds rate increases during fiscal years 2017 and 2018, as described above, partially offset by higher interest rates paid to clients. Net interest revenue increased 84% to $1.27 billion due to a 58% increase in average client margin balances, primarily due to the Scottrade acquisition, increases in the average yields earned on client margin balances, segregated cash and other cash and interest-earning investments as a result of the federal funds rate increases during fiscal years 2017 and 2018, as described above, and an $83million increase in net interest revenue fromour securities borrowing/ lending program. Investment product fees increased 32% to $557 million, primarily due to a 37% increase in average market fee- based investment balances. The increase in market fee-based investment balances is primarily due to the Scottrade acquisition and growth in our advised solutions products. Other revenues increased 57% to $113 million, primarily due to favorable fair market value adjustments on investments held by our broker-dealer subsidiaries and increases in fees related to processing corporate securities reorganizations, proxy services and other fee revenue associated with additional accounts and transaction processing volumes resulting from the Scottrade acquisition. Operating Expenses Total operating expenses, which includes $445 million of acquisition-related expenses, increased 56% to $3.45 billion during fiscal year 2018. We expect total operating expenses to decrease to between $2.9 billion and $3.0 billion for fiscal year 2019.