Welcome to the TD Ameritrade Holding Corporation December quarter 2010 earnings results conference call. With us today from the company is President and Chief Executive Officer, Fred Tomczyk and Chief Financial Officer, Bill Gerber. At this time, I would like to turn the call over to Bill Murray, Managing Director of Investor Relations, Communications and Public Affairs. Please go ahead, Sir.

Thank you. Good morning everyone and welcome to the TD Ameritrade December quarter earnings call. Hopefully you have had a chance to get our press release and view our presentation. If not, they can be found on our website at www.AMTD.com. Before we begin, I would like to refer you to our safe harbor statement which is on slide two of the presentation as we will be referring to forward looking statements in today’s presentation. We would also like to review our description of risk factors contained in our most recent annual and quarterly reports, forms 10-Q and 10-K. As usual the 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. As we begin I will remind you that we have 20 covering analysts and we would like to get through as many as possible so we would appreciate your keeping your questions limited to two. With that I will turn it over to Fred Tomczyk, President and CEO and Bill Gerber, our CFO here to review the December quarter results and our major accomplishments. Fred?

Thanks Bill and good morning everyone. Thank you for joining us today. I am pleased to report we had another solid quarter maintaining our focus on our clients and driving organic growth. This focus has enabled us to take advantage of the markets to grow our business, strengthen our firm and position ourselves for the future. We feel very good about our business model, our strategy and our financial position and we remain positive about our ability to grow earnings over the longer term. On slide three you can see our highlights for the first quarter. EPS came in at $0.23 and reflects a $0.01 charge incurred on refinancing our debt, lower trading and continued investments in marketing which is working for us. After a strong October, trades began dropping off in mid-November and December as you are well aware and as a result we averaged 379,000 trades per day for the quarter. So far in January trades are averaging 408,000 per day, up 19% from December’s trading levels. Retail investors have re-engaged in the New Year. We ended the quarter with $34.6 billion in insured deposit account balances and this number increased to $39.1 billion January to date primarily due to the last step in our cash management strategy; moving $4.1 billion from free credits to the IDA in early January. When we started our cash management program we had a goal of moving between $10-14 billion into the IDA from money market mutual funds and client credits. We are very pleased that we were able to over-achieve on this effort and we have now migrated $20 billion. Our IDA balances have now doubled to close to $40 billion over the last year. This bodes well in helping mitigate the impact of a near zero interest rate environment and…

Thanks Fred. As we have said for many quarters now our strategy is to continue to operate the company with an eye on the future, most important to recognize is the fact that we continue to grow the key long-term revenue drivers and net new assets and new accounts despite the difficult environment. This strategy should result in significant revenue growth as the US economy improves. Furthermore, we are doing what we can to mitigate the near-term headwinds; principally the interest rate environment. I will touch on all of these things this morning but for now let’s start with our financial results for the December quarter on slide seven. This quarter we are providing year-over-year comparisons as we normally do but we also have a sequential quarter comparison since the September quarter was the first full quarter with thinkorswim in our results. We will start with the year-over-year comparisons. Virtually all of the variances are related to thinkorswim. Transaction base revenues for the quarter as seen on line one exceeded last year’s results primarily as a result of a 6% increase in trading activity year-over-year due to thinkorswim. Our commission rate was slightly up to $12.98 per trade from $12.76 last year. The primary drivers here were stronger payment for order flow and slightly lower promotional couponing costs. This transaction growth offsets most of the decline we realized in asset based revenues on line two which continues to be driven by the near zero interest rate environment. More of this in a moment. Other revenues on line three are up as a result of the education business we acquired from thinkorswim. All in, revenues were up slightly year-over-year. On the expense side we are adjusting our income statement a bit starting this quarter. We are moving corporate interest expense out…

(Operator Instructions) The first question comes from the line of Rich Repetto – Sandler O’Neill.

I guess my first question is a little bit more on this earnings run rate and in regard to interest rate sensitivity. Because I am a little bit…on the back on page 15 you have $0.07 for every 25 basis points. That would be $0.28 for 100 but then on page 10 you talked about $565 million in interest rate sensitivity which would be a lot more. I know you have the LIBOR floating rate but I am trying to see what is the real…it is a big difference between being almost 50% sensitive in EPS upside rather than half of that. Also, trying to understand this $10 billion extension how that impacts the run rate going forward. The earnings run rate.

The 25 basis points and the 100 basis points is the impact on the first 12 months. The $565 million is after obviously the whole portfolio reprices. So that is the key. The $10 billion net of all the costs and what we pay the clients, etc. it was extended at about 125 basis points net to us.

So 125 above what was prior?

Correct.

In the quarter. The quarter a lot of it was sitting and floating.

On trading activity you talked about intraday volatility as well as account growth being the drivers but we have seen a big uptick so far in trading so far in January. I am wondering if you can explain that and maybe I know people are going to ask about the Schwab price change as well the impact on trading.

The first comment on what is happening in January versus what was going on in December I think to put that in perspective it is up about 60,000 trades per day. Keep in mind that every 3,000 is $0.01 on an annualized basis. What has caused that? I think it is too early for me to declare if it is intraday volatility or not. I think it is a little bit more volatile but definitely what happened in the middle of December and I think you have written on this, from all the people we have talked to whether it is in the institutional side or the more active traders on the retail side, it just seems like towards the middle of November they all decided to lock their positions, protect themselves and take a break. We saw that go all the way through to the end of December and it seems like they certainly have come back in January and have re-engaged in the market. The second thing, with respect to Schwab, using a flat pricing structure is certainly something we can relate to. We have had that strategy for many years as you are aware. We have long believed in the value of having a very simple, straight forward and transparent pricing structure and that strategy was put in place based on a fair bit of client research. If you look at our growth over the last year I think that speaks well to that. It is not the only thing but it is one of the things that has worked for us. Having taken that, and if you look at where we are versus other players including the one that changed their pricing recently, our research and our experience through time tells us that small differences in pricing, i.e. if you are within $1 or $2 or even $3 it doesn’t matter as much as the technology, the tools and your ability to get good execution. As long as you do that and you are within a reasonable price point of the other players people will not move to that. It will not sway them from which firm they choose based on all of our research and our experience. We don’t mind competing with anyone on the trading side based on the strength of our technology, platform and our experience. So at this point I would say while we will monitor things as we always will any time any competitor makes a change, we have no plans to change any of our pricing at this point.

The next question comes from the line of Roger Freeman – Barclays Capital.

On the commission rate can you help us understand the sequential decline a little bit better given options were 21% of the mix versus I think 18% last quarter. How much of the decline is due to lower payments per order flow? I think to fly in the face of what others are saying like [big bang].

Let me get the percentage for you. If you have another question go ahead and I will get you this.

The second question would be on the fixed for floating. It certainly makes sense on a near-term basis. I guess I am just thinking in terms of your leverage to higher rates and why you would term out or hedge out basically that exposure over a 3-5 year period when rates are going up over that time?

The idea is we are not sure exactly when rates are going to go up so people predict they are not even going to move until early 2011. So we are going to enjoy the short-term benefit of the lower rate environment and as the interest rates go up obviously the $750 million will be impacted but as you can see on the schedule the difference between the fixed rate we are paying and the floating rate where it is right now the [trim] with LIBOR is going to have to go up fairly dramatically in order to exceed those fixed income rates. As such, as the rates go up the IDA will be repricing. Our margin loans will be repricing and so you will have much more power on the interest rate side and the asset side. By the way, 90% of the change on the rate was due to payment for order flow.

The next question comes from the line of Daniel Harris – Goldman Sachs.

I know we are only a couple of weeks into the New Year but I was wondering if you could talk about any trends that you have seen from the breakaway brokers that you have mentioned. It seems like the RIA channel has been attracting a lot of assets and I was wondering if you could talk about how that asset generation is going and whether that is coming from at all what you have seen over the last few quarters as brokers are signing onto the Ameritrade platform?

The breakaway broker market has been very active. I think a year ago we were very clear that there was a lot of activity. We had record activity levels but the close rate was very difficult because for a broker to breakaway in that environment was not easy. Obviously dealing with their revenues were lower, their clients were calling and probably their existing broker was giving them significant cash payments to stick around. I think what we have seen now is that now that things have stabilized we seem to have the worst of the recession behind us. They are starting to…the closing rate is starting to improve and the activity is still fairly high. I would say we have had success with the AdvisorLink program because when we thought about it was just something we started to push about six months ago. To break out on your own and put up all the expenses to start your own business is one thing. But to do that in that environment was very, very hard but the AdvisorLink program helps make that transition easier and our existing RIAs that do want to consolidate and grow their business it has been good for them. They have been very happy about it and the ones coming in it makes that transition that much easier.

So is it safe to say that for this quarter when you think about the close to $9 billion of net new assets a big chunk of that was coming from the RIA channel versus the retail?

Both channels did very, very well. We don’t break it down between the two. I think it would be a stretch to say it was a big chunk. I think both channels continue to do very well on the asset gathering side.

On the IDA balances, the 125 basis points of addition you are getting in terms of the extension what are the net new assets into the IDA being priced at? I think you had said previously it was about 175 basis points.

What are the net new assets being….

Into new assets…

I see. On a gross basis that is right.

So we should expect that annualized rate continues to cut down a little bit over the next few quarters?

Probably the rate will continue to trim down. Yes.

The next question comes from the line of Howard Chen – Credit Suisse.

You alluded to in your prepared remarks and I was hoping you could provide some more details on the early returns of cross-selling that legacy swim education franchise and maybe give an update on the TD Bank cross-selling efforts as well?

On the education side we made a number of changes to the way we run that program and it has worked quite well. With respect to the ones that have gone to our client base it has been very well received and we have seen very, very good response rates. Certainly a very big interest. It has been very successful but again I would emphasize that it is still very, very early. We have done some things with giving free education credits for transfers of assets to us from another broker and that has also worked well and shows some promise early. Both of those things continue to do well. I can tell you that particular channel, because we do look at investor education as a distribution channel, has been very busy and has a very busy spring. Their schedule is pretty hectic. So we continue to see very good appetite there. On the TD Bank side we continue to work through the three things we said we were going to work through this year which was some connections and abilities with TD Waterhouse both in the U.K. and Canada in terms of giving their clients access to our trading platform in the US and we have seen an appetite in those markets for people wanting to trade in the US because they see it as the most robust and most efficient end market in the world. On the TD Bank America’s Most Convenient Bank we have put in place a number of pilots. Again some of the early indications are very promising but it is still very, very early and so we have been up I think for a couple of months now and we have been pleasantly surprised by some of the early pilots. So we are regrouping right now, making sure we are learning and we will go from there.

On the EPS sensitivity to higher Fed funds I understand it is timing based but I am a bit surprised that $0.07 didn’t go up after the sharp increase in margin balances, pretty good asset gathering you experienced. Are there offsets on the negative side I am missing?

The money market funds certainly went way down and the IDA is now more laddered so as money gets moved out you kind of have to recalibrate the money that is now going to be available to be re-laddered and ultimately it is still about $0.07.

The next question comes from the line of Celeste Brown – Morgan Stanley.

You referred to your strong balance sheet and your free cash flow generation capabilities or that you expect over the course of 2010 and I know there is lots of discussion about big acquisitions that you can use your money for but how are you thinking about deploying cash in other ways? Either returning it to shareholders, building out a platform or doing something else to help drive MMA?

Now that we have done the debt refinancing I think that was a big step in the first quarter for us to position ourselves as I said last quarter for optionality. So we now have the flexibility to take advantage of whichever options we see in the market. I think where our thinking is right now is we are very much considering all of our various options. At this point in the year I think we very clearly said no, let’s just keep our powder dry. Let’s be patient here and see what opportunities come. We will continue to consider all trade options and share buybacks instituting a dividend and/or acquisitions. I think we can be a little bit patient here and keep all of those in front of us with our eyes wide open making sure we are in a very good position and we take advantage of any opportunity to drive shareholder value and add to our future earnings power.

The next question comes from the line of Patrick O'Shaughnessy – Raymond James.

I just have one question which is can you provide a little more detail on the extension of the insured deposit account assets? What type of products are you going to put them into and what type of rate do you expect to get on that? I guess the follow-up to that would be if you could talk about your level of comfort with the duration, I know you talked about it in the past about wanting to make sure those insured deposit account assets are kind of matching the duration of when people need to take money out of those accounts. If you could talk about that I would appreciate it.

First on the extension, the extension was probably on average of maybe 2-3 years and it was all in as I said earlier, just over 1.2% net yield to us. What we have been looking at is continuing to keep the portfolio shorter than I guess normal. We have normally said it should be closer to the 3-year range. We are certainly closer to the 2-year range right now. That is up by design because we do think the benefit or opportunity of rates going higher are certainly closer to us now than before. So the latter is by design getting a little bit shorter. We are continuing to do that but we don’t want to have all the money sitting overnight because of course the rates overnight are virtually zero. So we will be prudent on moving the money out. We have look at the money we know is coming in over the next 12 months including assessing new growth and new assets coming in. All those factors go into the determination of total liquidity. The bank is highly liquid so we feel very good about that.

The next question comes from the line of Mike Vinciquerra – BMO Capital Markets.

I just want to set the starting point for the March quarter in terms of the interest yields here. On the $50 billion in spread based assets, $39 billion you said now is in the IDA and I assume the other $11 billion is in the interest earning asset category. Can you tell us what the yield today is, the starting yield for this current quarter based on all the changes you are going through so we can set our models up?

It is going to be pretty close to 2%.

That is 2% on the IDA?

Right.

And on the [IDA] side?

2% of the total NIM.

I want to ask one question on the regulatory front. I know you have been participants with the ELP program over at Direct Edge and I also know that you probably are benefiting from the step up functionality at some of the exchanges like the CPOE and [inaudible] on the option side. If flashes essentially end up being banned in the coming months in both cases can you talk about the impact both to your ability to offer price improvement to your customers but also the potential for rising clearing costs or exchange costs if you start being [rotted] out to the make or take markets without the step ups in options?

That is a complicated subject. There are a couple of points we have made. We have been active, no question. Mainly it is not that we have a view one way or the other on flash orders or not which I think is part of what you are talking about. What we want to make sure of is if we are going to change any of the rules that it is done for the right reasons and we felt that early on in the debate there was some misinformation that was hurting retail investors. Based on all of our evidence that is in fact not true. So that is the first point. The second point is we have been active and from all the submissions we have seen is that the make or take or the [market maker] model there are definitely differences between the options market versus the equity market. I think there is a developing consensus to treat them differently as a result. Only time will tell whether that actually happens or not. So I think at this point in the process any impact on us would not be significant and would be rather insignificant. We feel very comfortable with the way we see most of the participants trending at this point in their views.

The next question comes from the line of Michael Hecht – JMP Securities.

I wanted to follow-up on the question about capital priorities in terms of the use of capital. With your ARS winding down pretty favorably with an otherwise low capital intense model the $1.1 billion of liquid assets on the balance sheet it sounds like you are weighing towards keeping the powder dry versus a potential cash dividend or buyback. Any specific thoughts I guess as it relates to the E-Trade and whether a deal there makes more or less sense today versus what you have said in the past because there has been a lot of speculation there.

There is always speculation there. I would say I am not going to provide any specific comments on any particular company. We have always said it has to make strategic and financial sense and any transaction we think makes strategic and financial sense we will work very, very hard at. We haven’t changed that view and we are not going to change that view at this time. I think right now we just continue to be patient and continue to try to execute our organic growth strategy and make sure we are aware of all opportunities in the market.

A follow-up, housekeeping on interest expense specifically can you just help us with, I am sorry if I missed it but I am coming up with the impact of the swap somewhere in the $9-10 million range a quarter. Is that right?

I think we are going to be around $10 million. We are going to be close right there.

The next question comes from the line of Michael Carrier – Deutsche Bank.

A question on the expenses. It looks like on the outlook statement the lower end of the expense range was taken down a bit. It could have been just due to some of the interest expense being shifted out into non-op. More importantly, when you look through the year on flexibility on expenses obviously you have advertising but anything additionally if you continue to see these, whether it is the activity rates come under pressure or the interest rate headwinds, how much more flexibility do you have on the expense side?

Some of those things that we have that we do hire professional services for temporary help and supplementing our regular staff. Those things we always look at. Obviously if there is pressure on the quarters then as you know a significant amount of our compensation expense is bonus based so the bonus would naturally shift down as well. There are a few items like that. We do think the data center when that eventually gets completed hopefully later this year that is going to bring down our expenses a little bit as well. Then of course the thinkorswim integration we are expecting to continue to have a small impact but a cut there. So there are areas we think naturally tend to have opportunity to be diminished if trading activity continued to be lower.

On the inflows, the 12% obviously that is healthy specifically relative to other competitors. When you are looking at the money that is coming in, any granularity or color on where these assets are going? Meaning are they in some of the long-term products? Are they into cash? Are they into securities?

I think they continue to reflect our overall asset mix. Some of the things we have seen are particular clients that have been, as you are aware, more interested in equity than equities and unlike the market on the mutual fund side where it has been largely bond funds and other equities ours is roughly split between equities and fixed income mutual funds for the long-term investors are going. The second thing is they continue to see clients right now certainly interested in technology stocks and actually resort stocks, particularly mining companies and the mix to cash continues as you can see. We have record cash levels. They continue to have a fair bit sitting in client cash and that is why you are seeing some of the record client cash right now.

The next question comes from the line of Joel Jeffrey – KBW.

I apologize if I missed this earlier but just on the expense side the comp rate was up a little bit more than I was looking for. Is there any color on that or is that sort of moving around 23% or so. Is that right? Is that going to continue or is that something that is just a seasonal thing?

We had some unusual things in severance and relocation expenses and thinkorswim related. So that is probably, it should probably come down a little bit in future quarters in percentage.

In terms of comments you made about some of your customers that had switched over to the swim platform that actually increased activity, is there essentially a revenue neutral event given the lower commission rates of swim?

No it is not because they are going onto what we call the Think TDA which means they are going on the new pricing schedule not the old pricing schedule.

So it is actually beneficial from a revenue standpoint?

That is right.

The next question comes from the line of Faye Elliott – Bank of America/Merrill Lynch.

Schwab just opened its prices down for its RIAs and I just wonder if you could give some color on how that compares to your price points for your RIA products and if you think that will affect business at all?

Actually I am not aware they have done anything specific to their RIA business. They did something quite awhile ago, 6-12 months ago, in the RIA channel which we haven’t seen any impact on our ability to gather assets in the RIA channel as a result.

But just recently when they lowered some of their products I guess from an annual rate of about $15,000 to $12,000 does that affect your offerings or how you have priced your offerings?

I am not quite sure what you are referring to with the 15 and the 10? We can talk about that offline.

That would be great. Also for modeling purposes if we could talk about the $10 billion moved out the curve did you say you do not plan to extend any more near-term?

As the cash comes in two things happen. New cash comes in the door every day with our net new asset gathering effort. Second, when items mature in the IDA and of course lastly is when clients sell securities and move cash to IDA. Those three of those could increase the cash there. Of course clients using their cash to buy securities or whatever or pull the money out for any reason would lower that cash. But what we looked at is trying to keep a certain amount liquid. We know what is coming in of course over each month, how much cash is going to come in, and as that happens then we roll the investments into the appropriate duration. So we will continue to look at durations. The $10 billion we just wanted to reference because it was obviously so significant that what happened is roughly 20% of the portfolio was rolled. So that we thought it was important to mention it.

So on a percentage basis would you say you would keep the same laddering structure?

We would keep the same laddering structure. We would look at again as I mentioned we will probably tend to keep it a little bit shorter than what our normal duration would be. Normal duration would be closer to three years. We are keeping it a little closer to two years now.

What are your thoughts for the market in terms of a little bit more active in terms of trading? Do you have any projections for out flow from your cash management accounts?

We look at that. We look at what happens when the clients start trading more actively. Normally, again in any particular period, you see clients who are buying and selling so the net/net there isn’t as much net cash moving as you might think. So you might be buying and I might be selling. So net/net we have done a pretty good job. We keep a good chunk of the cash very short to cover liquidity and we have multiple levels of liquidity within the bank. So we feel very good with our total levels within IDA.

But you don’t think you would tap any additional sources of liquidity?

No. Not at all.

I think with that we will end the call. I just want to thank everybody for their time and attention today. As we said, we are very happy with our asset gathering. It continues to go very, very well. We are actually encouraged by the trading level picking back up in the first part of January and as we look out into the year the combination of the continued organic growth, the extensions we have talked about today, the debt swap and the debt refinance we think we are very, very well positioned for improving earnings and very, very well positioned to take advantage of opportunities we see in the market to increase shareholder value. With that I will close the call and we will talk to you again next quarter. Thank you.

That does conclude today’s call. Thank you for your participation.