broker dealer marketing slides 3_30_2015

Discount Brokers

Teach-in

March 26, 2015

EQUITY I RESEARCH

RBC Capital Markets, LLC

Bulent Ozcan, CFA (Analyst) (212) 863-4818 [email protected]

This report is priced as of market close March 25, 2014 EST. All values in U.S. dollars unless otherwise noted. For Required Conflicts Disclosures, please see page 26.

RBC Capital Markets 2

Table of Contents

I. Our Recommendations

II. Key Industry Drivers

III. Company Tear Sheets

IV. Appendix - Comp Sheets and Models


Our Recommendations

Name Ticker RatingPrice

Target PriceImplied Return Key Message

Charles Schwab SCHW Outperform $38 $29.79 27.6%Strongest franchise among peers with favorable secular tailwinds; best positioned for higher interest rates

E*TRADE Financial ETFC Outperform $35 $27.59 26.9%A special situations story. Expect significant increase in excess capital

TD Ameritrade AMTD Sector Perform $43 $37.25 15.4%Great company that has a unique "regulation light" business model, but shares have the least upside in the group

II. Key Industry Drivers


Key Industry Themes

Higher interest rates We expect rising interest rates to significantly lift earnings for discount brokers Discount brokers tend to have low duration investment portfolios

Do-it-yourself investing Large numbers of investors leaving their financial advisors, question their value Discount brokers, with their focus on technology and low cost, are able to appeal to these investors

Growth in independent RIAs Wirehouses pushing their advisors to focus on wealthier clients leads to departures. We expect this trend to

accelerate in 2015 with more advisors becoming independent RIAs. Discount brokers could benefit from this as they serve as custodians

Increase in popularity of ETFs While a threat to active managers, increase in popularity of ETFs is a positive development for discount brokers Discount brokers charge ETF providers for shelf-space, their clients trading commissions, RIAs asset based fees for

ETFs sold commission free on their platform and Schwab offers proprietary ETFs

Trading volumes Trading volumes continue to be a meaningful revenue driver Volumes are low relative to levels seen prior to the financial crisis and our in-depth analysis does not point to

structural changes; but we stay away from making recommendations based on hopes of increasing volumes


Key Industry Drivers – Why Mass Affluent Investors Choose DIY Approach

• Mass affluent investors are continuing to question the value of using an advisor. This should bode well for discount brokers

• A Deloitte survey revealed that the percentage of mass affluent individuals using advisors has declined from 42 percent prior to the financial crisis to 33 percent after the crisis

• The chart below shows the reasons why fewer mass affluent investors are using financial advisors

• We do not expect the pendulum to swing back with more mass affluent going from DIY investing to using an advisor

Source: Deloitte; RBC Capital Markets

6%

7%

8%

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15%

19%

20%

23%

27%

27%

0% 5% 10% 15% 20% 25% 30%

I thought my financial advisor was not competent

I found another advisor who I thought was better for me

Transitioned to a more conservative portfolio and didn't need advice anymore

My financial advisor did not offer me the right investment options

The quality of advice received was poor/below my expectations

Had more time to manage investments on my own

Realized I enjoy managing investments on my own

Felt doing it on my own would yield better outcomes

Felt the cost of financial advice was no longer worth it

Didn't trust my advisor anymore, felt they were putting own interests ahead of mine


$27.1

$35.7

$62.6 $58.7 $55.9

$64.3

0%

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2010 2011 2012 2013 2014 2015E

Amount of Total AUM Leaving Wirehouses As % of Total AUM Moving

Key Industry Drivers – Independent RIA Opportunity

Top Custodians to RIAs by # of Accounts

Wirehouse Departures ($B)

• We expect wirehouse departures to accelerate, with more advisors choosing to become independent RIAs

• Wirehouses are pushing their advisors to drop smaller accounts in order to improve profitability

• We believe that discount brokers can benefit from this as they are custodians to independent RIAs

Source: InvestmentNews; RBC Capital Markets estimates

($ in billion)# of RIA clients

RIA Assets in Custody

Schwab Advisor Services 7,000 $1,081.0 TD Ameritrade Institutional 4,500 $300.0 Fidelity Institutional Wealth Services 2,948 n/aTrade-PMR Inc. 1,525 n/aInteractive Brokers 1,388 $150.0 Shareholders Service Group 1,255 n/aScottrade Advisor Services 1,100 n/aPershing Advisors Solutions 562 $106.4 Folio Institutional 325 n/aRaymond James Investment Advisors Division 285 $100.0 LPL Financial LLC 282 $78.0

Source: InvestmentNews; RBC Capital Markets

Client Assets Under Management ($mm)

$2,498

$2,025

$672

$290

$2,464

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14Bank of America Merrill Lynch Morgan Stanley

Ameritrade E*Trade

Charles Schwab

Source: InvestmentNews; RBC Capital Markets


$(800)

$(600)

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$-

$200

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$1,000

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Index domestic equity mutual funds

Domestic equity ETFs

Actively managed domestic equity mutual funds

Key Industry Drivers – Popularity of ETFs

ETF AUM

Flows into Passive Funds

• Our analysis indicates that actively managed funds continue to underperform

• ETF AUM in the US has grown at a 22.7% CAGR since 2005

• Worldwide, ETF AUM is expected to double from $2.4 trillion to over $5 trillion

• Discount brokers stand to benefit from this trend

Source: Morningstar; RBC Capital Markets

Source: ICI; RBC Capital Markets

Passively Managed, Long-term ETF AUM

276382

547465

686

886 934

1,201

1,474

1,735

0

200

400

600

800

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1,200

1,400

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

AUM

($B)


Key Industry Drivers – Rate Sensitivity

Federal Funds Rate

Interest Rate Sensitivity

32.6%

21.4%

8.9%

0.0%

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15.0%

20.0%

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30.0%

35.0%

SCHW ETFC AMTD

• This chart shows the impact on 2014 earnings per share for a 50 basis point increase in interest rates

• Charles Schwab’s earnings appear to be the most sensitive to rising interest rates

• TD Ameritrade is the least sensitive as a majority of revenues are from trading commissions

0%

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1955

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• Federal Funds rate is at record low levels

• Tom Porcelli, our Chief US Economist, expects the 3-month rate to rise to 90 bps by end of 2015

• Little risk from sudden move in rates. Michael Cloherty, our Head of US Rate Strategy, expects a gradual increase in rates

Source: Board of Governors of the Federal Reserve System; RBC Capital Markets

Source: RBC Capital Markets estimates


Key Industry Drivers – Trading Volumes

TD Ameritrade (AMTD)

E*TRADE Financial (ETFC)

Source: FactSet; Company Filings; RBC Capital Markets

Charles Schwab (SCHW)

• While trading volume used to be an important value driver, it does not appear to be the case more recently

• The scatter graphs show percentage change in share price and monthly trading volume since January 2009. There seems to be little correlation between change in the share price and trading volume at the companies

y = 0.077x + 0.0179R² = 0.014

(20.0%)

(15.0%)

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15.0%

20.0%

(40.0%) (30.0%) (20.0%) (10.0%) 0.0% 10.0% 20.0% 30.0% 40.0%

y = 0.0307x + 0.0138R² = 0.0016

(20.0%)

(15.0%)

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(40.0%) (30.0%) (20.0%) (10.0%) 0.0% 10.0% 20.0% 30.0% 40.0%

y = 0.2883x + 0.0178R² = 0.0698

(40.0%)

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(40.0%) (30.0%) (20.0%) (10.0%) 0.0% 10.0% 20.0% 30.0% 40.0%


How Do Discount Brokers Make Money?

• The chart to the right shows the revenue breakdown for Charles Schwab

• Today, fee-based revenues (asset management) and spread-based revenues (interest revenues) make up the largest portion of revenues at Schwab

39% 40%

15%

49%

21%

38%

7%

27% 42%

12%6%4%

0%

20%

40%

60%

80%

100%

120%

1990 2000 2014Commission revenues Interest revenues Asset management Other

15%

43%25%

38%

19% 60%

42%36%

10%

6% 5%2%

0%

20%

40%

60%

80%

100%

120%

SCHW AMTD ETFCCommission revenues Spread revenues Fee revenues Other

• Schwab has focused early on asset management and is the largest custodian to RIAs

• TD Ameritrade is still transaction oriented, but has been diversifying into fee based products

• E*TRADE is transaction oriented, but generates a large portion of revenues by investing its clients’ money

Source: Company reports

Source: Company reports


Product Offering of Public Discount Brokers

AMTD SCHW ETFCBrokerage

Full range of investment products Third-party research In-house research

Mutual fundsProprietary funds Third-party funds

Exchange Traded FundsProprietary funds Third-party funds

Advice - In-HouseInvestment advice Tailored portfolio construction Portfolio management Separately managed accounts Financial consultants ~700 1,200 300RIA relationships ~5,000 7,000 Number of branches 105 300+ 30

Corporate servicesRetirement plans (401k) Equity compensation plans

Banking servicesFull service bank

Trust servicesCustody services Administrative trustee services

Average retail client assets -estimate $100,000 $250,000 $65,000Average age of retail client Mid 40s Mid 50s Mid 40s

• Charles Schwab has transformed itself into a full-service brokerage house

• TD Ameritrade, similar to Charles Schwab, has become an asset gatherer

• E*TRADE, on the other hand, has returned to its roots and relies on a transaction oriented business model

Source: RBC Capital Markets

III. Company Tear Sheets


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03/20/2014 08/12/2014 01/05/2015

The Charles Schwab Corporation (Outperform rating; PT: $38)

Investment Thesis Valuation

Model

Holding Style

Our View: Charles Schwab stands out as having the strongest franchise amongst peers. We believe that its diversified business model will allow the firm to capitalize on numerous secular tailwinds to generate asset growth. Furthermore, the firm is the most asset sensitive and should benefit disproportionately from higher rates. We expect EPS to grow at a CAGR of over 25% over the next three years Potential Catalysts: • Growth in independent RIAs • Opportunity to grow advice-based revenues • Increase in popularity of ETFs • Robo-advisor opportunity • Higher interest rates • Expense saves

Differentiated Work: We have done an in-depth study of industry dynamics and extensive analysis around the company’s interest rate sensitivity RBC vs. Consensus: We are meaningfully above consensus price target. While we do not differ significantly from the street view on earnings, we believe that Charles Schwab’s business model and ability to capitalize on secular trends warrants a premium P/E multiple. We expect Schwab to generate the most significant margin expansion over the next three years relative to its peers

0% 20% 40% 60%

GARP

Index

Growth

Yield

($MM) 2012A 2013A 2014A 2015E 2016E 2017ERevenues $4,883 $5,435 $6,058 $6,555 $7,801 $8,542Op. Inc. 1,450 1,705 2,115 2,446 3,489 4,052 EPS $0.69 $0.78 $0.95 $1.10 $1.58 $1.82Margins 29.7% 31.4% 34.9% 37.3% 44.7% 47.4%NIM 163bps 152bps 164bps 166bps 175bps 182bps

Source: FactSet; RBC Capital Markets estimates

Price Chart (+2.7%)

RBC Price Target Market ValuationCY 2016 EPS $1.58 Market Cap ($m) $39,056P/E Multiple 26.0x Current Price $29.79Valuation $41 Consensus PT $32Price target $38 LTM P/E 24.5x Ke 10.7% 2015 P/E 26.9x Implied Upside 27.2% 2016 P/E 18.9x


E*TRADE Financial Corporation (Outperform rating; PT: $35)


Model

Our View: E*TRADE Financial is a special situations story with significant upside. Having realigned its legal entities, we expect excess capital at the parent company to grow from $310 million today to $1.4 billion over the next two years. We expect balance sheet growth to accelerate, as we view the $50B size limitation as a temporary constraint Potential Catalysts: • Realignment of legal entity structure • Growth in excess capital • Higher interest rates • Balance sheet growth

Differentiated Work: Detailed analysis on excess capital position and a deep dive into the firm’s interest rate sensitivity RBC vs. Consensus: We believe that the market underestimates the firm’s earnings power. Our EPS and PT are above consensus. We don’t believe that the street has modeled a reduction in safety buffer to cross the $50b mark in 2015. We are also assigning a value to the firm’s deferred tax assets

($MM) 2012A 2013A 2014A 2015E 2016E 2017ERevenues $1,899 $1,724 $1,814 $1,915 $2,129 $2,348Op. Inc. 383 305 633 662 772 1,003 EPS ($0.39) $0.29 $1.00 $1.29 $1.55 $2.09Margins 20.2% 17.7% 34.9% 34.6% 36.3% 42.7%NIM 239bps 233bps 255bps 263bps 283bps 299bps


Holding Style Price Chart (+8.4%)

0% 20% 40% 60%

GARP

Index

Growth

Yield

$15

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$29

03/20/2014 08/12/2014 01/05/2015

RBC Price Target Market ValuationCY 2016 EPS $1.55 Market Cap ($m) $7,996P/E Multiple 23.0x Current Price $27.59Valuation $36 Implied Upside 27.6%Valuation - PV $33 Consensus PT $28Value of DTA $2 LTM P/E 22.5x Price target $35 2015 P/E 24.1x Ke 11.0% 2016 P/E 18.3x


TD Ameritrade Holding Corporation (Sector Perform rating; PT: $43)


Model

Our View: There is a lot to like about TD Ameritrade. It is running a "regulation light" model, which we view as a unique, competitive advantage. We would describe the management team as extremely shareholder-friendly and view the firm as a likely takeover target. However, we are seeing more upside in other names in the sector Potential Catalysts: • TD Ameritrade is a capital return story. • "Regulation light" model provides the firm a competitive

advantage • Favorable secular trends • An attractive takeover target Differentiated Work: We have taken an in-depth look at secular trends, including the wealth transfer opportunity RBC vs. Consensus: Our earnings estimates are below consensus figures as we do not have high conviction on trading volumes rising meaningfully. While most see ETFC as a takeover target, we believe TD Bank could be a natural buyer of AMTD

($MM) 2012A 2013A 2014A 2015E 2016E 2017ERevenues $2,641 $2,764 $3,122 $3,352 $3,759 $4,109Op. Inc. 934 1,055 1,284 1,378 1,649 1,848 EPS $1.06 $1.22 $1.42 $1.53 $1.85 $2.10Margins 35.4% 38.2% 41.1% 41.1% 43.9% 45.0%NIM 172bps 152bps 153bps 154bps 162bps 164bps


Holding Style Price Chart (+4.3%)

0% 10% 20% 30% 40%

GARP

Growth

Index

Yield

$25

$30

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$40

03/20/2014 08/12/2014 01/05/2015

RBC Price Target Market ValuationCY 2016 EPS $1.92 Market Cap ($m) $20,247P/E Multiple 24.0x Current Price $37.25Valuation $46 Consensus PT $39Price target $43 LTM P/E 20.8x Ke 8.9% 2015 P/E 23.4x Implied Upside 15.6% 2016 P/E 18.6x

V. Comp Sheets & Models


Comp Sheet

`

Market Current Price 52-week Div. Enterprise Implied Company Ticker Rating Cap ($m) Price Target High Low Yield Value ($m) 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E Total Upside

Discount Brokers

Charles Schwab Corp SCHW Outperform $39,056 $29.79 $38 $31.73 $23.35 0.81% $19,224 $0.95 $1.10 $1.58 $0.95 $1.09 $1.54 24.5x 26.9x 18.9x 28.4%

TD Ameritrade Holding Corp AMTD Sector Perform 20,247 37.25 43 38.74 28.34 1.61% 16,285 1.46 1.61 1.92 1.46 1.67 2.09 20.8x 23.4x 18.6x 17.0%

E*Trade Financial Corp ETFC Outperform 7,996 27.59 35 28.65 18.20 0.00% 11,954 1.12 1.29 1.55 1.12 1.12 1.47 22.5x 24.1x 18.3x 26.9%

Interactive Brokers Group, Inc IBKR -- 1,978 33.83 -- 34.56 20.35 1.18% (10,777) -- -- -- 0.51 1.24 1.45 25.6x 26.6x 22.7x --

Mean -- -- -- -- -- 0.81% -- -- -- -- -- -- -- 23.4x 25.3x 19.7x 24.1%Median -- -- -- -- -- 0.81% -- -- -- -- -- -- -- 23.5x 25.4x 18.8x 26.9%Min -- -- -- -- -- 0.00% -- -- -- -- -- -- -- 20.8x 23.4x 18.3x 17.05%Max -- -- -- -- -- 1.61% -- -- -- -- -- -- -- 25.6x 26.9x 22.7x 28.4%

S&P 500 $18,512,397 $2,091.50 $2,119.59 $1,814.36 2.01% na na na na na na na na na na naS&P 500 / Asset Mgmt & Custody Banks 239,328 $224.32 229.79 188.92 1.81% na na na na na na na na na na naS&P Comp. 1500 / Asset Mgmt & Custody Banks 263,626 $242.91 247.39 205.51 1.84% na na na na na na na na na na naS&P Mid Cap 400 / Asset Mgmt & Custody Banks 20,718 $433.34 439.45 352.88 2.26% na na na na na na na na na na naS&P 500 / Financials 3,000,214 $328.61 337.84 286.83 1.81% na na na na na na na na na na na

P/EConsensus CY EPSCY EPS Estimates

Discount Brokers Coverage

Source: FactSet; RCB Capital Markets estimates

Priced as of 03/25/2015

YTD YTDCompany Ticker 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E Price Perf. Total Return

Discount Brokers

Charles Schwab Corp SCHW 8.3x 7.2x 5.2x 8.1x 7.2x 5.5x 3.3x 3.1x 2.8x 3.8x 3.5x 3.0x 30.0x 28.4x 21.2x 3.2x 2.9x 2.4x 14.4x 15.2x 9.1x (3.2%) (3.0%)

TD Ameritrade Holding Corp AMTD 11.0x 10.4x 8.8x 11.0x 9.9x 8.2x 4.1x 4.1x 4.2x 12.8x 11.2x 9.5x 22.3x 19.7x 16.8x 5.1x 4.8x 4.2x 17.7x 17.3x 14.6x 2.91% 3.38%

E*Trade Financial Corp ETFC 18.0x 15.6x 13.6x 16.3x 17.0x 14.2x 1.5x 1.3x 1.2x 2.2x 2.0x 1.8x 16.6x 16.4x 12.7x 6.6x 6.5x 5.9x na na na 11.52% 11.52%

Interactive Brokers Group, Inc IBKR -- -- -- -18.5x -12.2x -10.0x na na na na na na na na na -10.3x -7.9x -7.0x na na na 13.2% 13.5%

Mean 12.4x 11.1x 9.2x 11.8x 11.3x 9.3x 3.0x 2.8x 2.7x 6.3x 5.6x 4.8x 22.9x 21.5x 16.9x 5.0x 4.7x 4.2x 16.0x 16.2x 11.9x 3.73% 3.95%Median 11.0x 10.4x 8.8x 11.0x 9.9x 8.2x 3.3x 3.1x 2.8x 3.8x 3.5x 3.0x 22.3x 19.7x 16.8x 5.1x 4.8x 4.2x 16.0x 16.2x 11.9x 2.91% 3.38%Min 8.3x 7.2x 5.2x 8.1x 7.2x 5.5x 1.5x 1.3x 1.2x 2.2x 2.0x 1.8x 16.6x 16.4x 12.7x 3.2x 2.9x 2.4x 14.4x 15.2x 9.1x -3.25% -3.04%Max 18.0x 15.6x 13.6x 16.3x 17.0x 14.2x 4.1x 4.1x 4.2x 12.8x 11.2x 9.5x 30.0x 28.4x 21.2x 6.6x 6.5x 5.9x 17.7x 17.3x 14.6x 11.52% 11.52%

EV/EBITDA Estimates EV/EBITDA Consensus P/BV Consensus P/TBV Consensus P/CF EV/Sales EV/FCF


Valuation – LTM P/E Multiples

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TD Ameritrade (AMTD)

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E*TRADE Financial (ETFC)

Source: FactSet; RBC Capital Markets

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S&P 500

Charles Schwab (SCHW)


SCHW Model Source: Company filings; RBC Capital Markets estimates($ in million) Fiscal Year

1QA 2QA 3QA 4QA 1QE 2QE 3QE 4QE 2013A 2014A 2015E 2016E 2017EIncome Statement Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17Net revenues

Asset management and administration fees $611 $632 $649 $641 $645 $684 $697 $705 $2,315 $2,533 $2,731 $3,524 $3,789

Interest revenue 579 588 600 607 614 637 672 687 $2,085 $2,374 $2,610 $2,976 $3,362Interest expense (26) (26) (27) (23) (26) (26) (27) (24) (105) (102) (103) (106) (109)

Net interest revenue $553 $562 $573 $584 $588 $611 $645 $663 $1,980 $2,272 $2,507 $2,871 $3,253

Trading revenue 247 212 209 239 243 217 213 256 $913 $907 $929 $969 $1,009Other revenues 68 65 120 90 93 95 98 101 236 343 388 436 491 Provision for loan losses (1) 7 1 (3) - - - - 1 4 - - - Net Impairment losses on securities - - (1) - - - - - (10) (1) - - -

Total net revenue $1,478 $1,478 $1,551 $1,551 $1,569 $1,608 $1,653 $1,725 $5,435 $6,058 $6,555 $7,801 $8,542

Expenses excluding interestCompensation and benefits 528 520 593 543 554 546 593 570 $2,027 $2,184 $2,264 $2,331 $2,401Professional services 106 112 117 122 114 121 121 126 415 457 482 520 557 Occupancy and equipment 80 80 82 82 82 82 84 84 309 324 334 340 347 Advertising and market development 63 65 59 58 65 67 61 60 257 245 252 260 268 Communications 56 57 55 55 56 57 55 55 220 223 224 225 226 Depreciation and amortization 48 48 49 54 54 54 55 56 202 199 219 236 256 Other 75 75 78 83 80 82 84 88 300 311 334 398 436

Total expenses excluding interest $956 $957 $1,033 $997 $1,006 $1,010 $1,053 $1,039 $3,730 $3,943 $4,109 $4,311 $4,491

Income before taxes on income $522 $521 $518 $554 $563 $598 $600 $686 $1,705 $2,115 $2,446 $3,489 $4,052

Taxes on net income 196 197 197 204 213 226 227 259 634 794 925 1,319 1,532 Net income $326 $324 $321 $350 $350 $372 $373 $426 $1,071 $1,321 $1,522 $2,170 $2,520

Preferred stock dividends 8 22 9 21 8 22 9 21 61 60 60 60 60 Net income available to common stockholders $318 $302 $312 $329 $342 $350 $364 $405 $1,010 $1,261 $1,462 $2,110 $2,460

EBITDA $570 $569 $567 $608 $617 $652 $655 $742 $1,907 $2,314 $2,665 $3,726 $4,308

Earnings per share - basic $0.24 $0.23 $0.24 $0.25 $0.26 $0.27 $0.28 $0.31 $0.78 $0.96 $1.11 $1.59 $1.840 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $ $Earnings per share - diluted $0.24 $0.23 $0.24 $0.25 $0.26 $0.26 $0.27 $0.30 $0.78 $0.95 $1.10 $1.58 $1.82

Dividends declared per share - diluted $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.24 $0.24 $0.24 $0.33 $0.40Dividend pay-out ratio 24.5% 25.9% 25.1% 23.9% 23.0% 22.5% 21.7% 19.5% 30.9% 25.1% 21.6% 20.7% 21.8%

Weighted average share count - basic (million) 1,299 1,302 1,304 1,308 1,311 1,313 1,316 1,318 1,285 1,303 1,315 1,326 1,338 Dilution (mill ion) 12 11 12 12 12 12 12 12 8 12 12 12 12 Weighted average share count - diluted (million) 1,311 1,313 1,316 1,320 1,323 1,325 1,328 1,330 1,293 1,315 1,327 1,338 1,350

Profitability metricsPre-tax operating margin 35.3% 35.3% 33.4% 35.7% 35.9% 37.2% 36.3% 39.7% 31.4% 34.9% 37.3% 44.7% 47.4%Net interest margin (basis points) 164bps 165bps 164bps 163bps 163bps 164bps 168bps 170bps 152bps 164bps 166bps 175bps 182bpsReturn on average stockholders' equity (annualized) 13.3% 12.0% 11.8% 12.2% 12.4% 12.0% 12.0% 12.9% 11.1% 12.4% 12.4% 15.1% 14.7%ROTE 12.1% 10.9% 10.8% 11.1% 11.4% 11.0% 11.1% 12.0% 10.0% 11.3% 11.5% 14.1% 13.9%EBITDA as a percentage of revenues 38.6% 38.5% 36.6% 39.2% 39.3% 40.6% 39.6% 43.0% 35.1% 38.2% 40.7% 47.8% 50.4%

FY 2015FY 2014


ETFC Model Source: Company filings; RBC Capital Markets estimates($ in million) Fiscal Year

1QA 2QA 3QA 4QA 1QE 2QE 3QE 4QE 2013A 2014A 2015E 2016E 2017EIncome Statement Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17Net operating interest income

Operating interest income $322 $322 $319 $330 $315 $336 $358 $365 $1,220 $1,293 $1,375 $1,573 $1,765Operating interest expense (56) (52) (50) (47) (46) (46) (46) (46) (238) (205) (186) (192) (196)

Net operating interest income $266 $270 $269 $283 $268 $290 $312 $319 $982 $1,088 $1,189 $1,381 $1,569

Total non-interest incomeCommissions $128 $105 $108 $115 $121 $112 $114 $125 $420 $456 $472 $487 $511Fees and service charges 47 46 45 48 48 48 49 49 155 186 195 201 207 Principal transactions 10 - - - - - - - 73 10 - - - Gains on loans and securities, net 15 7 8 6 6 6 6 6 61 36 24 24 24 Net Impairment - - - - - - - - (2) - - - - Other revenues 9 10 10 9 9 9 9 9 36 38 36 36 36

Total non-interest income $209 $168 $171 $178 $184 $176 $178 $189 $742 $726 $726 $748 $778

Total net revenue $475 $438 $440 $461 $452 $466 $489 $507 $1,724 $1,814 $1,915 $2,129 $2,348

Provision for loan losses 4 12 10 10 15 15 15 15 144 36 60 100 20

Operating expense:Compensation and benefits 98 99 108 $107 $100 $101 $110 $109 $363 $412 $420 $429 $437Advertising and market development 34 33 21 32 35 34 22 33 109 120 125 130 135 Clearing and servicing 28 23 21 22 24 22 23 25 124 94 94 97 102 FDIC insurance premiums 24 19 18 18 20 21 22 23 103 79 87 100 113 Professional services 24 28 27 33 26 29 28 34 85 112 116 125 135 Occupancy and amortization 18 19 22 20 19 21 24 22 73 79 85 92 100 Communications 18 18 17 18 19 19 18 19 69 71 77 83 89 Depreciation and amortization 21 20 19 18 20 20 20 20 89 78 80 84 88 Amortization of other intangibles 5 6 5 6 6 6 6 6 23 22 24 24 24 Impairment of goodwill - - - - - - - - 142 - - - - Facil ity restructuring and other exit activities 3 1 2 2 2 2 2 2 28 8 8 8 8 Other operating expenses 17 18 17 18 18 19 20 20 66 70 77 85 94

Total operating expense $290 $284 $277 $294 $290 $294 $294 $314 $1,275 $1,145 $1,193 $1,257 $1,325

Income before other inc. (exp.) and inc. tax exp. $181 $142 $153 $157 $147 $156 $180 $179 $305 $633 $662 $772 $1,003

Other income (expense)Total other income (expense) ($37) ($30) ($28) ($86) ($15) ($13) ($13) ($13) ($111) ($181) ($53) ($50) ($50)

Income before income tax expense $144 $112 $125 $71 $132 $144 $167 $166 $195 $452 $610 $722 $952

Income tax expense 47 43 39 30 50 55 64 63 109 159 232 274 362 Net income $97 $69 $86 $41 $82 $89 $104 $103 $86 $293 $378 $447 $591

EBITDA $198 $167 $178 $122 $173 $182 $206 $205 $423 $665 $766 $880 $1,115

Earnings per share - basic $0.34 $0.24 $0.30 $0.14 $0.28 $0.31 $0.36 $0.36 $0.30 $1.02 $1.31 $1.58 $2.130 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Earnings per share - diluted $0.33 $0.24 $0.29 $0.14 $0.28 $0.30 $0.35 $0.35 $0.29 $1.00 $1.29 $1.55 $2.09

Dividends declared per share - diluted $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.28 $0.48

Weighted average share count - basic ('000) $288,051 $288,705 $288,843 289,209 288,824 288,447 288,078 287,715 286,991 288,705 288,266 283,360 276,791 Dilution ('000) 5,768 5,121 5,276 5,155 5,155 5,155 5,155 5,155 5,598 5,398 5,155 5,155 5,155 Weighted average share count - diluted ('000) $293,819 $293,826 $294,119 294,364 293,979 293,602 293,233 292,870 292,589 294,103 293,421 288,515 281,946

Profitability metricsOperating margin 38.1% 32.4% 34.8% 34.1% 32.5% 33.6% 36.8% 35.2% 17.7% 34.9% 34.6% 36.3% 42.7%Enterprise net interest spread (basis points) 247bps 255bps 254bps 269bps 257bps 256bps 269bps 270bps 233bps 255bps 263bps 283bps 299bpsPre-tax margin 30.3% 25.6% 28.4% 15.4% 29.2% 30.9% 34.2% 32.8% 11.3% 24.9% 31.8% 33.9% 40.6%Return on average stockholders' equity 7.8% 5.4% 6.5% 3.1% 6.1% 6.5% 7.4% 7.2% 1.8% 5.7% 6.8% 7.5% 9.3%ROTE 5.9% 4.1% 5.0% 2.4% 4.7% 5.0% 5.7% 5.6% 1.3% 4.4% 5.3% 5.9% 7.4%EBITDA as a percentage of revenues 41.7% 38.1% 40.5% 26.5% 38.3% 39.2% 42.1% 40.4% 24.5% 36.7% 40.0% 41.3% 47.5%

FY 2015FY 2014


AMTD Model Source: Company filings; RBC Capital Markets estimates($ in million) Fiscal Year

1QA 2QA 3QA 4QA 1QA 2QE 3QE 4QE 2013A 2014A 2015E 2016E 2017EIncome Statement Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17Transaction-based revenues:

Commissions and transaction fees $328 $374 $317 $332 $359 $378 $335 $339 1,171 1,351 1,411 1,497 1,595 Asset-based revenues:

Interest revenue $128 $148 $150 $161 $163 $160 $165 $169 476 587 658 728 791 Brokerage interest expense (1) (2) (1) (2) (2) (2) (2) (2) (7) (6) (8) (8) (8) Net interest revenue $127 $146 $149 $159 $161 $158 $163 $167 $469 $581 $650 $720 $783

Insured deposit account fees $208 $202 $202 $208 $207 $220 $231 $243 805 820 901 1,049 1,092 Investment product fees 72 75 79 83 83 86 90 95 250 309 353 452 595

Total asset-based revenues $407 $423 $430 $450 $451 $464 $484 $505 $1,524 $1,710 $1,903 $2,221 $2,470

Other revenues 17 15 16 13 9 9 9 10 69 61 37 40 43

Net revenues $752 $812 $763 $795 $819 $851 $828 $853 $2,764 $3,122 $3,352 $3,759 $4,109

Operating expenses:Employee compensation and benefits $183 $193 $189 $195 $199 $208 $204 $211 692 760 822 880 950 Clearing and execution costs 30 34 35 36 35 43 38 38 110 135 155 173 186 Communications 28 28 29 31 31 32 32 33 112 116 128 138 150 Occupancy and equipment costs 37 40 39 41 41 42 43 44 161 157 169 183 198 Depreciation and amortization 24 24 24 23 23 24 24 24 85 95 95 100 104 Amortization of acquired intangbile assets 23 22 22 23 23 24 24 24 91 90 95 100 104 Professional services 38 37 42 38 37 40 45 41 144 155 163 176 191 Advertising 63 94 48 45 64 98 50 47 239 250 258 266 276 Other 19 17 19 25 22 18 21 27 75 80 88 95 103

Total operating expenses $445 $489 $447 $457 $475 $529 $481 $488 $1,709 $1,838 $1,973 $2,110 $2,261

Operating income $307 $323 $316 $338 $344 $322 $347 $365 $1,055 $1,284 $1,378 $1,649 $1,848

Other expense (income) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest on borrowings $6 $6 $6 $6 $9 $8 $8 $8 24 24 33 32 32 Gain/loss on investments, net & Other - - - (10) 1 - - - (57) (10) 1 - -

Total other expense (income) $6 $6 $6 ($4) $10 $8 $8 $8 ($33) $14 $34 $32 $32

Pre-tax income $301 $317 $310 $342 $334 $314 $339 $357 $1,088 $1,270 $1,344 $1,617 $1,816

Provision for income taxes 109 123 120 131 123 119 129 136 413 483 507 614 690 Net income $192 $194 $190 $211 $211 $195 $210 $221 $675 $787 $837 $1,002 $1,126

EBITDA $354 $369 $362 $394 $389 $370 $395 $413 $1,288 $1,479 $1,567 $1,849 $2,056

Earnings per share - basic $0.35 $0.35 $0.34 $0.39 $0.39 $0.36 $0.39 $0.41 $1.23 $1.43 $1.54 $1.86 $2.12$ $ $ $ $ $ $ $ $ $ $ $ $Earnings per share - diluted $0.35 $0.35 $0.34 $0.38 $0.39 $0.36 $0.39 $0.41 $1.22 $1.42 $1.53 $1.85 $2.10

Dividends declared per share - diluted $0.62 $0.12 $0.12 $0.15 $0.15 $0.15 $0.15 $0.15 $0.86 $1.01 $0.60 $0.88 $1.04Dividend pay-out ratio 177.9% 34.1% 34.8% 38.9% 38.7% 41.8% 38.6% 36.7% 70.6% 71.1% 39.1% 47.5% 49.5%

Weighted average share count - basic (million shares) 551 551 551 547 544 543 542 541 549 550 542 538 532 Dilution (mill ion shares) 4 5 4 4 4 4 4 4 5 4 4 4 4 Weighted average share count - diluted (million shares) 555 556 555 551 548 547 546 545 554 554 546 542 536

Profitability metricsOperating margin 40.8% 39.8% 41.4% 42.5% 42.0% 37.9% 41.9% 42.8% 38.2% 41.1% 41.1% 43.9% 45.0%Net interest margin (basis points) 145bps 152bps 152bps 155bps 153bps 155bps 154bps 153bps 152bps 153bps 154bps 162bps 164bpsPre-tax margin 40.0% 39.0% 40.6% 43.0% 40.8% 36.9% 41.0% 41.8% 39.4% 40.7% 40.1% 43.0% 44.2%Return on average stockholders' equity (annualized) 16.6% 17.1% 16.3% 17.7% 17.6% 16.4% 17.1% 17.3% 14.8% 16.7% 16.9% 18.5% 18.9%ROTE 58.3% 59.4% 53.3% 56.0% 53.5% 48.7% 48.4% 46.7% 56.4% 54.3% 48.2% 45.3% 40.7%EBITDA as a percentage of revenues 47.1% 45.4% 47.4% 49.6% 47.5% 43.5% 47.7% 48.4% 46.6% 47.4% 46.8% 49.2% 50.0%

FY 2014 FY 2015


E*Trade Valuation and Price Target Impediments

Valuation Our 12-month price target for E*TRADE is $35. We arrive at our price target using a price-to-earnings multiple of 23.0x on our 2016 calendar year earnings estimate of $1.55 per diluted weighted average share, in line with its longer term, historical average. We then discount the resulting valuation using a cost of equity of 11.0%. The discount rate is based on a beta of 1.9x, a risk free rate of 4% and a market premium of 4%. The discount period is 0.8 years. This results in a valuation of $33.

Furthermore, we discount the $951 million of deferred tax assets (DTA) assuming that these will be realized over a four-year period. We discount the DTA using a cost of equity of 11.0%. Furthermore, we take a 10% haircut to compensate for a margin of error in respect to the timing. We estimate that the DTA could be worth approximately $2. This leads us to our price target of $35.

Price target impediments Drop in consumer confidence and commissions: A decline in trading volume and commission rates could negatively impact commission revenues and earnings. Trading volume is to a high degree dependent on market volatility. E*TRADE could be forced to reduce commission rates for its most active customers. Furthermore, margin borrowing/lending could decline significantly, leading to earnings shortfall.

Prolonged period of low interest rates: A prolonged low interest rate environment could compress net interest margins. We are assuming a gradual increase in interest rates over the coming years. A sharp increase in short term interest rates could lead to net interest margin compression and earnings below our estimate.

Unforeseen regulatory constraints could impact valuation: E*TRADE is a highly regulated entity. The holding company depends on dividend payments from its subsidiaries to pay for its debt obligations. Any regulatory action that could limit the company’s ability to “dividend-up” capital to the holding company could negatively impact the firm’s financial condition and have a direct impact on the firm’s ability to buy back shares or pay dividends. While the firm does not pay dividends at this time, we are assuming that the firm will commence paying dividends in 2016.

Balance sheet growth below our expectation could lead to an earnings miss: Changes in average balances, especially client margin, impact operating results. Revenues could fall short of our expectation were balance sheet growth to slow significantly or decline.

The company has significant exposure to mortgage loans which could result in losses: Performance of the loan portfolio can vary and the provisions for loan losses might not be adequate. Deteriorating performance could impact customer retention, earnings, book value and valuations of the company’s common shares.

Sharp decline in securities markets and deterioration in credit markets/housing: A sharp decline in securities markets could lead to losses as the value of collateral held in connection with margin receivables would decline. This could create collection issues with the margin receivable accounts. Likewise, the company continues to have a sizeable exposure to the housing market via its loan portfolios.

Deferred tax assets might not be realized: The firm has about $1.2 billion of deferred tax assets. E*TRADE might have to establish a valuation allowance against these reserves if it determines that not all of these assets will be realized. This could negatively impact earnings and valuation.

.


TD Ameritrade Holding Corporation Valuation and Price Target Impediments

Valuation We value TD Ameritrade Holding Corporation using a forward-looking P/E multiple approach. We understand that there are biases embedded in this approach as P/E multiples can be overly high during bull markets and depressed during bear markets. We are trying to compensate for this by taking an average P/E multiple over an extended period.

Our 12-month price target for TD Ameritrade is $43. We arrive at our price target using a price-to-earnings multiple of 24.0x on our 2016 calendar year earnings estimate of $1.92 per diluted weighted average share. We believe a 24x P/E multiple is justified given historical valuation. We then discount the resulting valuation using a cost of equity of 8.9%. The discount rate is based on a beta of 1.24x, a risk-free rate of 4%, and a market premium of 4%. The discount period is 0.8 years. This leads us to our price target of $43 per share.

Price target impediments Drop in consumer confidence and commissions could lead to earnings shortfall: A decline in trading volume and commission rates could negatively affect commission revenues and earnings. Trading volume is to a high degree dependent on market volatility. Usually, higher volatility would contribute to higher trading volume. However, a prolonged period of market volatility in declining markets could lead to a decrease in consumer confidence and thus trading activity.

Prolonged period of low interest rates could lead to NIM compression: A prolonged low interest rate environment could compress net interest spreads and reduce spread-based revenues. We assume an increase in interest rates over the coming years. A sharp increase in short-term interest rates could be detrimental to the firm's assets that have a longer duration than its liabilities. This could lead to a net interest margin compression and earnings below our estimate.

Unforeseen regulatory changes could affect profitability: TD Ameritrade is “lightly” regulated compared to its peers, as it outsources its banking activities to TD Bank. However, TD Ameritrade is considered a non-bank subsidiary of TD Bank under the Bank Holding Company Act of 1956. Should the firm be subject to tighter regulation, we would expect it to change its stated capital return policy of 40 percent to 60 percent of its earnings to investors. This would result in a decline in dividends and share buybacks, negatively affecting valuation.

Balance sheet growth below our expectation could lead to an earnings miss: Changes in average balances, especially client margin, credit, insured deposit account, and mutual fund balances, affect operating results. Revenues could fall short of our expectation were balance sheet growth to decline or reverse.

There are certain benefits that the firm derives from its relationship with TD Bank. Earnings could decline below our estimates should TD Bank terminate and/or modify its relationship with TD Ameritrade.TD Ameritrade has entered an insured deposit account agreement with TD Bank, which allows the firm to generate revenues without having to hold a significant amount of capital against deposits. Net revenues related to this agreement contributed 26% of total revenues in 2014. TD Ameritrade would have to hold a significant amount of capital should the relationship be terminated. Revenues would decline, as TD Ameritrade would have to move the cash into segregated cash accounts.


The Charles Schwab Corporation Valuation and Price Target Impediments

Valuation We value The Charles Schwab Corporation using a forward-looking P/E multiple approach. We understand that there are biases to this approach as P/E multiples can be overly high during bull markets and depressed during bear markets. We are trying to compensate for this by taking an average P/E multiple over an extended period.

Our 12-month price target for The Charles Schwab Corporation is $38. We arrive at our price target using a price-to-earnings multiple of 26.0x on our 2016 calendar year earnings estimate of $1.58 per diluted weighted average share. We then discount the resulting valuation using a cost of equity of 10.7%. The discount rate is based on a beta of 1.68x, a risk free rate of 4% and a market premium of 4%. The discount period is 0.8 years. This leads us to our price target of $38.

Our assumptions for 2016 are as follows: Net interest margins of 175 basis points by 2016; interest earnings assets of $162.9 billion; total funding sources of $158.3 billion; daily average revenue trades of 319,000; average revenue per revenue trade of $12.05; and a pre-tax margin of 44.7%. We believe a 26x P/E multiple is justified given historical valuation.

Price target impediments Prolonged period of low interest rates: Our price target assumes that interest rates will rise. The company is the most asset sensitive among its peers in our view. Consequently, we would have to adjust our price target and our earnings estimates should interest rates remain low for a prolonged period. This could lead to a decline in net interest margins.

Unforeseen regulatory changes could impact profitability: The Dodd-Frank Act had a tremendous impact on the financial services industry. With the elimination of the Office of Thrift Supervision, The Charles Schwab Corporation came under the supervision of the Federal Reserve and the OCC became the primary regulator of Schwab Bank. As the company points out, there are multiple studies mandated by the new legislation that could result in additional legislative or regulatory action.

Balance sheet growth could fall below our expectation, leading to earnings shortfall: The discount brokerage business is characterized by intense competition. Peers to attempt to gain market share by reducing trade commissions, offering higher crediting rates on deposits and require lower interest rates on loans, or reduce the fees they are charging for services. The firm also faces competition from wirehouses and traditional banks. Increased competition could lead to lower asset growth and a decline in profitability.

Losses from credit exposure could negatively impact shares: The company is subject to counterparty risk. Its exposure results from margin lending; clients’ options trading; securities lending; and mortgage lending. The firm has exposure to credit risk through its investments in US agency and non-agency mortgage-backed securities, corporate debt securities and commercial papers among others. Loans to clients are in the form of mortgages and home equity line of credit. A deterioration of the credit portfolio could result in increased loan provisions, charge-offs and negatively impact the company’s share price.

Drop in consumer confidence: A decline in trading volume could negatively impact commission revenues and earnings. Trading volume is to a high degree dependent on market volatility. However, a prolonged period of market volatility in declining markets could lead to a decrease in consumer confidence and thus trading activity.

Sharp decline in equity markets: The firm earns asset management related revenues based on assets under management in its proprietary funds and through custody fees on RIA assets. A sharp decline in markets could lead to lower asset management related earnings.


Required Disclosures

Conflicts Disclosures The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates.

Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in, this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

Royal Bank of Canada, together with its affiliates, beneficially owns 1 percent or more of a class of common equity securities of The Charles Schwab Corporation.

RBC Capital Markets has provided The Charles Schwab Corporation with non-investment banking securities-related services in the past 12 months.

RBC Capital Markets has provided The Charles Schwab Corporation with non-securities services in the past 12 months.

RBC Capital Markets, LLC makes a market in the securities of The Charles Schwab Corporation.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from The Charles Schwab Corporation during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-investment banking securities-related services to The Charles Schwab Corporation.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from The Charles Schwab Corporation during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to The Charles Schwab Corporation.

RBC Capital Markets, LLC makes a market in the securities of E*TRADE Financial Corporation.

RBC Capital Markets has provided TD Ameritrade Holding Corporation with non-securities services in the past 12 months.

RBC Capital Markets, LLC makes a market in the securities of TD Ameritrade Holding Corporation.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from TD Ameritrade Holding Corporation during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to TD Ameritrade Holding Corporation.

https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1


Required Disclosures (con’t)

Explanation of RBC Capital Markets Equity Rating System An analyst's "sector" is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector average.

Ratings Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months with a favorable risk-reward ratio.

Outperform (O): Expected to materially outperform sector average over 12 months.

Sector Perform (SP): Returns expected to be in line with sector average over 12 months.

Underperform (U): Returns expected to be materially below sector average over 12 months.

Risk Rating: As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility.



Distribution of Ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/Outperform, Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described above).

Distribution of ratings RBC Capital Markets, Equity Research

As of 31-Dec-2014

Investment Banking Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [Top Pick & Outperform] 897 52.92 290 32.33

HOLD [Sector Perform] 686 40.47 137 19.97

SELL [Underperform] 112 6.61 6 5.36


References to a Recommended List in the recommendation history chart may include one or more recommended lists or model portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Large Cap (RL 7), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: Midcap 111 (RL 9), the Guided Portfolio: ADR (RL 10), and the Guided Portfolio: Global Equity (U.S.) (RL 11). RBC Capital Markets recommended lists include the Strategy Focus List and the Fundamental Equity Weightings (FEW) portfolios. The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List.




Equity Valuation and Risks For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please see the most recent company-specific research report at www.rbcinsight.com or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

Conflicts Policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.

Dissemination of Research and Short-term Trade Ideas

RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firm’s proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time, include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term 'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. Analyst Certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s Financial Services LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

https://www.rbccm.com/global/file-414164.pdf


Disclaimer

RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets, LLC, RBC Europe Limited, RBC Capital Markets (Hong Kong) Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/ or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets.

Additional information is available on request. To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets, LLC. To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc.(member IIROC). Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada. To U.K. Residents: This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority ('FCA') and the Prudential Regulation Authority, in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FCA. However, targeted distribution may be made to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom. To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. This research report is not for retail investors as defined in section 761G of the Corporations Act. To Hong Kong Residents: This publication is distributed in Hong Kong by RBC Capital Markets (Hong Kong) Limited and Royal Bank of Canada, Hong Kong Branch (both entities which are regulated by the Hong Kong Monetary Authority (‘HKMA’) and the Securities and Futures Commission ('SFC')). Financial Services provided to Australia: Financial services may be provided in Australia in accordance with applicable law. Financial services provided by the Royal Bank of Canada, Hong Kong Branch are provided pursuant to the Royal Bank of Canada's Australian Financial Services Licence ('AFSL') (No. 246521). RBC Capital Markets (Hong Kong) Limited is exempt from the requirement to hold an AFSL under the Corporations Act 2001 in respect of the provision of such financial services. RBC Capital Markets (Hong Kong) Limited is regulated by the HKMA and the SFC under the laws of Hong Kong, which differ from Australian laws. To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch, a registered entity granted offshore bank licence by the Monetary Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch. Royal Bank of Canada, Singapore Branch accepts responsibility for this report and its dissemination in Singapore. To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd., a registered type one financial instruments firm and/or Royal Bank of Canada, Tokyo Branch, a licensed foreign bank.

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