Good day, everyone, and welcome to the TD AMERITRADE Holding Corporation first quarter fiscal year 2009 earnings results conference call. Today's call is being recorded. With us today from the company is President and Chief Executive Officer Fred Tomczyk and Chief Financial Officer Bill Gerber. At this time, I'll turn the call over to Bill Murray, Managing Director of Investor Relations, Communications and Public Affairs. Please go ahead, sir.

Thank you, [Gretchen]. Good morning, everyone, and welcome to the TD AMERITRADE December quarter earnings call. Hopefully you've had a chance to read our press release, which can be found on AMTD.com along with today's presentation. Before we begin, I'd like to familiarize you with the safe harbor disclosure and other disclosures under the federal securities laws. The call contains forward-looking statements involving risks, uncertainties and assumptions that may cause actual results to differ materially from those anticipated. Please review these risk factors, which are disclosed in our most recent annual report on Form 10-K. Management will be discussing some non-GAAP financial measures as well such as EBITDA and liquid assets. You can find a reconciliation of these financial measures to the most comparable GAAP financial measures in the slide presentation. This call is intended for investors and analysts and may not be reproduced in the media in whole or in part without prior consent of TD AMERITRADE. At this point I'd like to turn the call over to TD AMERITRADE President and CEO Fred Tomczyk, you will be followed by our CFO, Bill Gerber. Fred?

Thanks, Bill, and good morning, everyone and thank you for joining us on the call today. I'd like to start this morning by saying that we're pleased with our results for the December quarter, especially in light of the current difficult market environment. These certainly are unprecedented times. We're in a recession and credit crunch - that is at best halfway true and we're seeing unprecedented government intervention, low market valuations, and near zero interest rate levels. As you can see on Slide 3, we earned $0.31 per share, one of the better quarters in TD AMERITRADE's history. It's down from $0.40 a share a year ago, which was a record for us and included a $0.03 one-time tax benefit. Excluding the tax benefit, EPS is down 16% from the same time a year ago. The fundamentals of our business remain strong, as evidenced by our 49% pre-tax margins and $234 billion in client assets, including $52 billion in client cash. Client assets were down 22%, but this is at the same time that the NASDAQ and the S&P 500 were down about 40% from a year ago. The combination of asset gathering and increased levels of client cash helped cushion the impact of the market downturn. Strong organic growth is evident in our basic operating metrics - net new assets, new accounts and trades per day. Net new assets were just under $8 billion or 11% of beginning assets on an annualized basis. If you'll recall, we gave you a range of 7% to 11% on net new assets, so we're right at the top end of the range. We continue to see good traction on our asset gathering strategy. In addition, clients remain engaged in the market. Trades per day averaged 357,000 per day for the quarter, up…

Thanks, Fred. Good morning. As we all know, market conditions remain fragile, but TD AMERITRADE has again delivered solid financial results, actually one of the best quarters in our history. Our strong fundamentals indicate that we can weather this storm and come through it in an even better competitive position. Now let's take a closer look at our quarterly results on Slide 8. As I go through these comparisons, keep in mind that the December quarter last year was the best quarter in our company's history in terms of pre-tax income, net income, EBITDA and EPS. On Line 4 you will note that we earned $611 million in revenue, down $31 million or 5% from the same quarter last year. As Fred mentioned, we had a record quarter for trades per day, which drove a $27 million increase in transaction-based revenues as seen on Line 1. This was partially offset by lower commission rates - seen on Line 13 - which were down from $13.27 to $12.76. This was primarily due to two items - more free trades as our new account growth soared this last quarter and lower options trading volume as a percentage of total trades. On Line 2, asset-based revenues were down $56 million, primarily due to the current rate environment and lower margin debt levels, which I will get into on the next slide. Expenses were up $25 million, as expected, due to our investments in the business, which we have discussed each quarter over the last 18 months or so. Additionally, we spent $47 million in advertising, resulting in 217,000 new accounts with a cost per account of $215. The spread said this was the highest quarter of new accounts in almost 9 years and actually the second-best quarter ever. As you can see on…

(Operator Instructions) Your first question comes from Howard Chen - Credit Suisse.

Thanks for all the color on the net new asset gathering. Within that $7.8 billion, I guess, could you provide us an update or just for the entire fiscal year could you just provide an update on where your thoughts are for the breakaway broker opportunities and where RIA assets stand today.

RIA assets currently stand about 30% of our total assets, right around, I think, it's $80 billion or so. And I think we're happy with how our RIA business is doing. I think as we said last year, it was one of our more challenging years, but we're quite happy with the start to 2009. Having said that, on the breakaway broker market I think there's two things going on here. Number one, we're seeing sales activity and the number of people we're talking to at a very high level with all the dislocation going on at the full-service brokerage organizations. But I would say that the close rate on those sales activities are probably also at the other end of the spectrum at a low end. And I think there are lots of brokers right now that are getting - if you were a full-service broker today and your revenues were down significantly and your clients were feeling like the way they probably are, I think you'd be asking yourself, "Do I take the retention payment where I am or at another full-service broker or is this really the kind of market - do I want to step out and put my own money up?" And I think a lot of them are hesitating here, and it wouldn't surprise me to see that part of the market pull back a bit here for awhile. That's not to say that the long-term trends will fundamentally change. I think it will go back to the breakaway broker is very attractive. But I think we could see a bit of a lull here for a period of time because of the current market environment and their views.

And then, Bill, in the revised outlook statement specifically for that average fee-based rate earned and the step down that you assumed in the forward outlook, are you now baking in any money market fee waivers? What's driving that decline?

We are baking in money market fee waivers. We're expecting that the interest rate environment is going to continue and that we would waive to keep our clients at zero, so yes, that's built in.

Okay. And then could you elaborate on what other options you're potentially thinking other than waiving fees. Is there flexibility to purchase other types of securities in these funds? Are you proactively marketing different types of investment vehicles to the customer base?

We're not looking at purchasing other types of securities right now. I mean, we're not the asset manager, like some of our peers. TD Asset Management is the asset manager, and I think their view is to stay relatively conservative in this market. Having said that, we are looking at other alternatives. We do have a view that the FDIC-insured product for the sweep vehicles is actually probably a better product for most investors in today's market. The net yield you're earning on a money market mutual fund versus the FDIC-insured product are roughly comparable if not less, and the second side of that is I don't believe most investors today - and this is a concern of ours and I think we can market off it - that they don't understand the shortcomings of the government or the Treasury guaranteed program on money market mutual funds. So we do think that's a better product. We're still working through how we might market that and get people more into the FDIC-insured product, which is the better product for them. It gives them the guarantee they think they have and don't have in the money market mutual fund.

Within that spread-based revenue assumption, what's your revised outlook for margin loan balances going forward.

We expect margin loan to stay right at around where it is, around $4.2 billion.

Your next question comes from Richard Repetto - Sandler O'Neill & Partners L.P.

I guess the first question's on the net new assets and the strong number you put up, Fred, and could you give more specifics because before you'd talked a lot about sort of stopping the leakage, but it seems like we're at a different level here now. Just some more, I guess, specificity or more specifics.

We do think there's a couple of things going on, Rich. I think if you look at it year-over-year, we have said that we're quite happy with how our retail business has been doing and that continues. And on that side, it definitely is - we continue to see very good asset retention and client retention. You've seen the new account numbers. That definitely contributes. Our new accounts are up 49% year-over-year. And so we're quite happy on the retail side. What we've seen year-over-year is last year wasn't our best year in the RIA business in the wake of the Waterhouse conversion. We've talked about that before. It took us awhile to earn back our credibility in the market; we think we've done that. And that's starting to show up in some of our numbers.

And there isn't - how do I put this - you talked about from smaller brokers and the larger traditional investment banks, but is it weighted one towards the other? Are you seeing more because of the turmoil we're seeing, I guess, at the larger brokers?

Well, I think turmoil at the larger brokers is probably the number one contributor. I mean, as you recall, I think your comment at the last quarter was it was the first time in our history when we increased advertising in the fourth quarter, and that really did pay off as we hit it just right to take advantage of the dislocation in the market. And we were clearly there and very active during October and November.

On the expenses, Bill, so you're talking about trying to take out $60 million run rate and if you look at your guidance and the midpoint, it looks like you're baking in about, as best I can, around 30 or 40 in the year. Can you just give us a little color on the timing of these expenses takeouts because I know you've got a lot less floating rate debt to pay, that that's coming out of the expenses, too.

Right. Right. You're right, Rich. I mean, about two-thirds of it will hit in 2009 and then the run rate would be in full effect by 2010. So I agree.

So if two-thirds, you know, we're already a quarter, that means most of it comes out this quarter, then, the $60 million on a run rate basis?

A lot of it and, you know - yes. That's the easiest way of saying it, yes, without getting into too much detail.

And then lastly, on this waiver issue, can you tell us the exposure you have, like how much in client money is in - like we know, for example, Schwab's got $30 plus billion in the Treasury money market. Can you tell us how much is in the funds and what's the yield? I guess it'd be in sort of a Treasury fund that's probably in the most danger right now.

A lot of the funds are very low. We have about $30 billion in total money market funds and the vast majority of those, their yield is right now in the single digits.

And then the average - I'm trying to see how much room - you split that fee with TD Assessment Management. Can you tell me how the fee split is on that $30 billion?

Right. TD only takes about 10 basis points and we take the rest, so -

Which is 60?

No, about 80.

Your next question comes from Patrick O'Shaughnessy - Raymond James.

I was wondering if you could provide some updates on some of your asset gathering plans that you've talked about in the past, specifically maybe some of the things that you're trying to do at TD Bank to try to better work the relationship that you have?

Well, we talked about three areas that we're working with TD Bank. Number one was us originating more accounts and assets out of their customer base and branch network. Number two is increasing the breadth and depth of our banking-type products to our customer base. And three was working with TD Waterhouse in the U.K. The reality is that all those are at very early stages. They're really not impacting our asset gathering numbers as of yet. I'd say the last one, the one with TD Waterhouse U.K. is probably moving along the quickest because that clearly is a win-win for both organizations. The other two, because our partners at TD Bank USA are in the midst of a significant conversion I think that is their top priority and ought to be their top priority. And so on that one, until they get through that, which will be September, we will continue to pilot different programs but not really get at it, I would call, in real earnest and have any impact on us until probably 2010 fiscal.

Your next question comes from Daniel Harris - Goldman Sachs.

Could you guys just talk a little bit about the change in the commission rate that you guys have in the new outlook versus the old one? You talked a little bit about what we saw in 1Q, but do you expect the level of free trades and sort of a lower percentage of option trades to continue over the next few quarters?

No, not really. We're expecting that to kind of revert back to the mean. We think that the options trading, particularly the volatility, was so high this last quarter that options became fairly expensive and so as that volatility kind of moves back we would expect to see more options trades. And certainly the free trades, as we mentioned, the 217,000, was the second-best quarter in our history, only exceeded by one back in March of 2000, and so we would expect to see free trades probably abate as well. So right now we're expecting a range of right around $13.25 for the midpoint for the commission for the year or for the next nine months.

And then just with regards to something in the outlook statement and expenses, you've got revenues down roughly 12% or so on average and advertising down 3%. Is the thought here continue to spend at a similar level and hopefully take more market share or is that just not something that you had anticipated lowering at all anyway?

Our view on marketing, at $215 per account to $300 an account, if we can continue to do that and get the kind of new account flows and share of wallet lifts that we are seeing, we'll continue to make those investments through this cycle.

Given your net liquid assets, two things - one, does some of the change in regulatory capital, is that likely to change back in the next few quarters, I'm sorry, on the reserve fund, and then the second thing is is there any reason why you couldn't repurchase debt other than the fact that you'd like to hold more cash right now?

On the reserve fund, the reserve fund monies that remain are still in our liquid assets right now. It's about $100 million, a little over $100 million that's still there. We do expect to receive that during 2009, but we're not exactly sure on the timing of that. That's obviously up to the reserve fund. On what are we going to do with the cash and whether we're going to pay down the debt, our debt right now is at 1.77% interest rate pre-tax, so we really don't think that that would be a good use of our cash, to pay down the debt. We think we can do other things with it and look for opportunities that would make more money than that. But, as always, we will continue to look at that and if we feel as though paying down the debt is appropriate, we'll do so.

Your next question comes from Roger Freeman - Barclays Capital.

I just wanted to come back to money markets again for a second. When did you cut fees on the money market funds, because there's obviously been a downtick in yield, but it's not been that significant yet so just wondering when we sort see the full quarter effect of that.

Right. And it's on several different funds. It's not just one fund. We started waiving - I think the first time I actually waived was in early December, so now we are looking at the timing as really going through the rest of the next probably four to six months, assuming that the rate environment doesn't change, assuming, as one of the other questions said, that the funds don't start purchasing assets that are higher yielding to maintain a greater than zero percent interest rate for the clients. We just think it's the right thing to do to look at waiving our fee. It's a fluid situation, but that's essentially what's happening right now.

And a follow up to one of your answers before, so it sounds like most of the money market funds are in government-backed securities and that you have little in the way of prime money markets. Is that right?

It's not quite that explicit, but I think your basic premise is right. I think the majority is in government backed, but I don't think it's a 90-10 split or anything like that.

Do you have a good prime offering? Because we're seeing certainly shifts market wide from Treasury to prime.

There is a prime offering at TDAM and so people are certainly looking at that as well. That's another area. As one of the mitigating strategies, as Fred mentioned, we are looking at all of these potentials for shifting.

Then in terms of the margin rate, it was pretty strong; it was actually down very slightly, I think 5 basis points. How come that didn't go down more in the quarter? Margin lending yield.

Okay, the margin on the yield, sorry. It's more probably the mix in the tiers. What we're seeing is that, although the rate is down, the people who are deleveraging are at the lower rate levels.

And in terms of the options, you made an interesting comment about the volume and the impact of volatility. Do you not see customers shifting into selling volatility, i.e., selling covered calls, that sort of thing? I would have thought that might have been somewhat of an offset.

There is some of that definitely going on, Roger, and that is one of the education opportunities, to help people understand the benefits of selling covered calls, particularly in this market. Having said that, I think it's just the reality is that premiums paid for the volatility on the options has taken some of the traders to look more seriously at the leverage ETFs then they might otherwise would have in other markets.

And just lastly, margin utilization, can you comment on that? Margin balances I think were down 42% sequentially, S&P down 22%. How are people actually using available margin right now?

Margin utilization had been holding in pretty much at the same rate that we had seen until probably the beginning of October, and now we are seeing more deleveraging, so to speak, of the client relative to their total portfolio.

Your next question comes from Michael Vinciquerra - BMO Capital Markets.

On the net new assets, I just wanted to ask, where are you seeing the majority of flows from? Obviously your biggest opportunity is with your current client base, but I'm just curious, with all the new accounts you're adding, is that having a meaningful impact on the NNA or is it mostly from your own clients already?

Well, it's not one thing; it's a whole lot of things. If it was just one thing, we'd tell you that, but that is not what we're seeing. It's a combination of things. We continue to see our retention rates be quite good. We're still early in the share of wallet, but we're seeing some nice lift there. The new accounts are definitely contributing, and year-over-year you're seeing the RIA business come back to where it was pre-conversion and get back to being a decent and a healthy asset gatherer for us which you wouldn't have seen last year to the same degree.

So at this point, the new accounts coming in, we've seen a lift at many of the discount brokers; there's not a lot of people just coming in and testing and kind of testing out the tools before bringing assets in. Are you seeing just kind of the same funding percentages you've seen historically?

We're seeing decent funding percentages, but obviously the assets per new account are down with the market a bit.

And then, Bill, you mentioned the 1.77% rate on the debt. Do you guys not have any swaps in place at all? I mean, it's all floating rate at this point, so that's going to just, if rates stay low, you're going to benefit?

Right. We have not swapped. That's certainly something that we have looked at in the past and obviously are looking at now, but correct, it's a floating rate and we reset it. Right now we're resetting it every month based off of LIBOR.

And then finally just one follow up on the TOS deal. The main benefits come, you said, within 12 months after integration. How long do you think the integration's actually going to take once you close that deal?

As we said on our call, we said it would take upwards of 18 months to get the full integration, but we are looking at ways right now to get some of the benefits earlier, particularly on the revenue side. But I think it's premature for us to get there. We have ideas, but until we get into integration planning in earnest with the other side, which is not right now, I think it'd be premature for us to try to refine those numbers.

Your next question comes from Michael Carrier - UBS Investment Research.

When I'm looking at the net new assets and the account growth, obviously in this environment, despite, I guess the environment headwinds, you want to continue to spend on the advertising. I guess when you're looking through 2009, the pull back on advertising isn't that great. But if you look at, whether it's net new assets or account growth, if you went back to let's just call it 1% account growth and net new assets on an annualized basis only coming in at maybe 3% to 5%, is that an environment that you'd probably take another look at the advertising and say the incremental benefit that we're getting from spending just isn't there, so we're going to be pulling back on the amount that we're spending?

Absolutely. And as I said, if we're getting new accounts at these levels and net new assets at these levels, we'll continue to invest in advertising. But if the business fundamentals pull off because of the market environment and our cost per account starts to rise and it's just not working because of the environment, we would definitely consider pulling back on the advertising.

And then just on the outlook statement, when I look at the DARTs it looks like the average level for the year is in line with sort of the January level, like 310,000. And it seems, you know, relatively high just given the environment, but you're also generating a lot of new account growth. So I'm just trying to figure out like what makes you feel that the 310,000 is a good average rate? Is it something to do with the new account growth?

We actually have kept the same midpoint for the last nine months as we had in the initial, so I think we're averaging about 290 as our expectation; we will definitely keep watching that. And the outlook does have a range in there for the last nine months of about 270 to 320. That's what's baked into the high and low end of the range. So we do think that if there is a tapering off, we've built some of that into the outlook statement. Right now, again, we are seeing, as Fred said, 310 so far in January. Each month has been  we watch it very closely, as you can tell.

And then finally just on the spread-based revenues, you gave a lot of color on like the margin balances in the outlook. When you're looking at the MMDA product, and I know you guys have gone into it in the past in terms of the laddered approach to investing the assets, but I'm just trying to figure out like what are in your assumptions for the rest of the year given where rates are, meaning where does the MMDA kind of yield, baseline or bottom? And then if we were in their environment for an extended period of time, because the assets continue to re-rate, would there be ongoing pressure and then, same way, meaning if rates started to go up, would you see the benefit?

Right. Today what we are looking at in the MMDA program is the risk reward of extending very much, so our tendency is to stay a little bit shorter. We're just not getting paid for much in the way of the extension. The midpoint is just a little over 3% is what we're seeing in the last nine months. And certainly if the rates continue this low we would have to see, again, the asset mix. It just depends. If they stayed this way indefinitely what the rate could ultimately go to. But it's a tough interest rate environment on the investment side.

Your next question comes from Brian Bedell - Merrill Lynch.

Just to follow up quickly on the money market fund balances, are you assuming the $30 billion stays for 2009 and it does not - and your outlook statement does not include any mitigation strategies to shift those over to higher-yielding assets?

Correct. We have not put any of the mitigating strategies into the outlook statement yet, correct.

Okay. So there could only be really an upside to that if you're successful in shifting some clients over?

That's right.

On the NIM compression outlook, a couple of things. First of all, do you think you can hold margin rates relatively steady over the next 12 months or so?

Well, we're fairly confident they're not going to go much lower; we think zero's as far as they can go. But we think so. Brian, we think that the opportunity as far as price improvement is not really that great, but the rates have come down to a point where we feel that we're very competitive and we don't see really very much pressure in reducing those further.

And then on the MMDA, I guess the run up, just what is the average maturity of that portfolio right now?

The duration is slightly over two years. I think we're getting about $2 to $3 billion in run off every year.

Okay. And they're still being primarily invested in Canadian mortgage-backed securities on the short term?

They have been. As you recall, we switched to the notional basis last July 1st, but the vast majority of the funds are currently invested in the Canadian mortgage-backs, yes.

And then just the reason for the average commission drop in the outlook statement just from when you did it this last October versus now, is it really just a different assumption on the level of options in the mix or are there more assumptions of free trades baked in the new numbers?

It's actually the impact of what happened in the December quarter. When you blend it into the original outlook is what drives it down. So the last nine months we are continuing at the same commission rate that we had in the October outlook to this outlook. The last nine months is identical. It's just the effect that this quarter had $12.76 and when you blend that in for the entire year, that's what gets you to the $12.92 to $13.30.

So no structural change in what you're thinking about for free trades going forward?

No.

And then just on the momentum of the DARTs of the 310, January to date is that improving as we're getting into January or was that stronger in the beginning part of January?

As with any January, it's a little bumpy as you start the year, so it's very hard to draw many conclusions. Obviously, the first couple of days of the year were slow, but since then we've seen some decent trading levels.

And that was new account funding from the very good organic growth that you had in December to be kicking in over the next 30 to 60 days. Is that a fair statement?

That's a fair statement.

And just one last question just on the auction rate securities. Can you just update us on sort of the conversations that you're having with the regulators on that and what level of auction rate securities your clients have been holding?

Okay. Currently our clients have about $700 million in auction rate securities. This is an area where we are seeing some liquidity come to the market. There has been redemptions, almost $400 million, since really post-Christmas, and so we're pleased to see about that. We are cooperating with regulators in the discussions, although there's no finalization yet as to ultimately what the result will be.

And so kind of worst-case scenario you'd have to sort of buyback the $700 million? You'd hold it on your balance sheet until it matured, I guess, but you'd have that use of cash, I guess, temporarily?

That would be the worst case, I agree.

Your last question comes from Joel Jeffrey - Keefe, Bruyette & Woods.

Can you just give the percentage of the DARTs that came from options trades in the quarter?

It was 9.5%.

And then just lastly, in terms of the MMDA program, what was the rate that the Canadian MBS portfolio was paying?

I'm going to have to give you an estimate here, but I believe it's about 4.5%-ish. We can clarify that with you after the call, but that's about 4.5%.

And has that come down or has that been relatively constant?

Well, that piece of it has stayed flat because we bought it and we're just clipping coupons there.

And this concludes the question-and-answer session today. At this time I'll turn the conference back over to Fred Tomczyk.

Okay. Thank you, everyone, for joining us on the call today. We're obviously very happy with our start to the year. We were right on consensus. We're quite happy with our organic growth in the market, but, as we've said, we've got some headwinds here that we're facing. We're certainly not immune to them, like all of our peers and competitors, but management is putting in place a number of mitigating strategies. We'll continue to stay focused on growing our business and getting to the other side of the cycle. Thank you.

This concludes today's conference. I'd like to thank you for your participation. You may now disconnect your line.