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E*TRADE Financial Corporation Announces First Quarter 2019 Results

NEW YORK--(BUSINESS WIRE)--

E*TRADE Financial Corporation (ETFC):

First Quarter Results

  • Net income of $290 million; net income available to common shareholders of $270 million
  • Diluted earnings per common share of $1.09, which includes a net benefit of $19 million, or $0.08 per diluted share, related to benefits to provision for loan losses and communications expense(1)
  • Total net revenue of $755 million, a Company record(2)
  • Operating margin of 52 percent; adjusted operating margin of 50 percent (3)
  • Return on common equity of 19 percent; adjusted return on common equity of 18 percent(4)
  • Average interest-earning assets of $61.0 billion; net interest margin of 323 basis points
  • Daily Average Revenue Trades (DARTs) of 279,000, including derivative DARTs of 90,000
  • Margin receivables of $10.3 billion; average margin receivables of $9.8 billion
  • Net new accounts of 135,000
  • Net new retail and advisor services assets of $4.7 billion
  • Capital return to shareholders(5) of $155 million, including dividends of $35 million and share repurchases of $120 million

E*TRADE Financial Corporation (ETFC) today announced results for its first quarter ended March 31, 2019, reporting net income of $290 million, diluted earnings per common share of $1.09 and total net revenue of $755 million. Operating margin for the quarter was 52 percent and adjusted operating margin was 50 percent(3).

“We kicked off 2019 with an exceptionally strong quarter, generating record net revenue and a record adjusted operating margin, demonstrating the resiliency of our model across operating environments,” said Karl Roessner, Chief Executive Officer. “We generated solid account growth and asset flows in our retail channel, as customers remained highly engaged with the markets, and our institutional channels continued their momentum, with Corporate Services implementing nearly $7 billion in new client relationships. As we look ahead there is much to be excited about as we further invigorate our complementary retail and institutional customer channels, delivering exceptional value for our customers and our shareholders.”

The Company declared a quarterly cash dividend of $0.14 per share on the Company's outstanding shares of common stock. The dividend is payable on May 20, 2019, to shareholders of record as of the close of business on May 13, 2019.

The Company updated the structure of its customer activity metrics to better align to its customer channels: Retail, Corporate Services and Advisor Services.

Additionally, the Company has refined the presentation of certain customer activity metrics, as follows:

  • Trades: to capture only commissionable trades (this impacts DARTs, derivative DARTs %, and average commission per trade.)
  • Accounts: to align the reporting threshold for retail accounts at $25 or a trade within six months (this impacts gross new retail accounts and end of period retail accounts.)

These updates did not have any impact on the Company’s financial statements. The Company published a presentation detailing the changes and a summary spreadsheet containing metrics under both the prior and new methodology. The presentation and summary spreadsheet are available on the Company’s corporate website, about.etrade.com.

The Company will host a conference call beginning at 5 p.m. ET today to discuss the quarterly results. This conference call will be available to domestic participants by dialing 888-612-1053 while international participants should dial +1 303 223 2698. A live audio webcast and replay of this conference call will also be available at about.etrade.com.

Historical metrics and financials can be found on the E*TRADE Financial corporate website at about.etrade.com.

About E*TRADE Financial

E*TRADE Financial and its subsidiaries provide financial services including brokerage and banking products and services to traders, investors, stock plan administrators and participants and registered investment advisors (RIAs). Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC). Commodity futures and options on futures products and services are offered by E*TRADE Futures LLC (Member NFA). Managed Account Solutions are offered through E*TRADE Capital Management, LLC, a Registered Investment Advisor. Bank products and services are offered by E*TRADE Bank, and RIA custody solutions are offered by E*TRADE Savings Bank, both of which are national federal savings banks (Members FDIC). More information is available at www.etrade.com. ETFC-E

Important Notices
E*TRADE, E*TRADE Financial, E*TRADE Bank, E*TRADE Savings Bank, the Converging Arrows logo, and the E*TRADE logo are trademarks or registered trademarks of E*TRADE Financial Corporation.

Forward-Looking Statements
The statements contained in this press release that are forward looking, including statements regarding the Company's ability to continue to grow its retail and institutional channels, deliver value for its customers and shareholders, and pay additional dividends in the future, are “forward-looking statements” within the meaning of the federal securities laws, and are subject to a number of uncertainties and risks. Actual results may differ materially from those indicated in the forward-looking statements. The uncertainties and risks include, but are not limited to: risks related to macro trends of the economy in general; market volatility and its impact on trading volumes; fluctuations in interest rates; potential system disruptions and security breaches; our ability to attract and retain customers and develop new products and services; increased competition; increased restrictions resulting from financial regulatory reform or changes in the policies of our regulators, including with respect to approval of any future dividend or share repurchase; our ability to participate in consolidation opportunities in our industry, to complete consolidation transactions and to realize synergies or implement integration plans; adverse developments in litigation or regulatory matters; the timing and duration of, and the amount of shares repurchased and amount of cash expended in connection with, the share repurchase program; and the other factors set forth in our annual and current reports on Form 10-K, as amended, and Form 8-K previously filed with the Securities and Exchange Commission (including information in these reports under the caption “Risk Factors”). Any forward-looking statement included in this release speaks only as of the date of this communication; the Company disclaims any obligation to update any information, except as required by law.

© 2019 E*TRADE Financial Corporation. All rights reserved.

 
E*TRADE FINANCIAL CORPORATION
Consolidated Statement of Income
(In millions, except share data and per share amounts)
(Unaudited)
             
Three Months Ended
March 31, December 31, March 31,
2019     2018     2018
Revenue:
Interest income $ 555 $ 538 $ 468
Interest expense       (63 )     (56 )     (23 )

Net interest income

      492       482       445  
Commissions 122 123 137
Fees and service charges 118 108 105
Gains on securities and other, net 11 11 10
Other revenue       12       11       11  
Total non-interest income       263       253       263  
Total net revenue       755       735       708  
Provision (benefit) for loan losses (12 ) (12 ) (21 )
Non-interest expense:
Compensation and benefits 164 152 152
Advertising and market development 54 48 60
Clearing and servicing 30 32 36
Professional services 22 26 22
Occupancy and equipment 32 35 30
Communications 15 27 31
Depreciation and amortization 21 22 22
FDIC insurance premiums 4 4 9
Amortization of other intangibles 15 14 10
Restructuring and acquisition-related activities 1
Other non-interest expenses       18       21       23  
Total non-interest expense       375       382       395  
Income before income tax expense 392 365 334
Income tax expense       102       95       87  
Net income $ 290 $ 270 $ 247
Preferred stock dividends       20             12  
Net income available to common shareholders       $ 270       $ 270       $ 235  
 
Basic earnings per common share $ 1.10 $ 1.07 $ 0.88
Diluted earnings per common share $ 1.09 $ 1.06 $ 0.88
Weighted average common shares outstanding:
Basic (in thousands) 246,252 252,610 266,558
Diluted (in thousands) 246,934 253,463 267,699
 
Dividends declared per common share $ 0.14 $ 0.14 $
 
 
 
E*TRADE FINANCIAL CORPORATION
Consolidated Balance Sheet
(In millions, except share data)
(Unaudited)
         
March 31, December 31,
2019     2018
ASSETS
Cash and equivalents $ 523 $ 2,333
Cash segregated under federal or other regulations 677 1,011
Available-for-sale securities 24,971 23,153
Held-to-maturity securities 23,927 21,884
Margin receivables 10,267 9,560
Loans receivable, net(6) 1,965 2,103
Receivables from brokers, dealers and clearing organizations 597 760
Property and equipment, net 308 281
Goodwill 2,485 2,485
Other intangibles, net 476 491
Other assets       1,322       942  
Total assets       $ 67,518       $ 65,003  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 46,328 $ 45,313
Customer payables 10,600 10,117
Payables to brokers, dealers and clearing organizations 1,162 948
Other borrowings 300
Corporate debt 1,409 1,409
Other liabilities       937       654  
Total liabilities       60,736       58,441  
 
Shareholders' equity:
Preferred stock, $0.01 par value; shares authorized: 1,000,000; shares issued and outstanding at March 31, 2019: 403,000 689 689
Common stock, $0.01 par value; shares authorized: 400,000,000; shares issued and outstanding at March 31, 2019: 244,647,243 2 2
Additional paid-in-capital 5,342 5,462
Retained earnings 919 684
Accumulated other comprehensive loss       (170 )     (275 )
Total shareholders' equity       6,782       6,562  
Total liabilities and shareholders' equity       $ 67,518       $ 65,003  
 
 
                     
Key Performance Metrics(7)
 
Corporate (dollars in millions)      

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Operating margin %(3) 52 % 50 % 2 % 47 % 5 %
Adjusted operating margin %(3) 50 % 48 % 2 % 44 % 6 %
 
Employees 4,105 4,035 2 % 3,768 9 %
 
Return on common equity(4) 19 % 19 % % 15 % 4 %
Adjusted return on common equity(4) 18 % 18 % % 14 % 4 %
Common equity book value per share(8) $ 24.90 $ 23.83 4 % $ 23.41 6 %
Tangible common equity book value per share(8) $ 14.61 $ 13.52 8 % $ 15.03 (3 )%
 
Cash and equivalents $ 523 $ 2,333 (78 )% $ 498 5 %
Corporate cash (9) $ 329 $ 391 (16 )% $ 439 (25 )%
 
Average interest-earning assets $ 61,017 $ 60,128 1 % $ 59,837 2 %
Net interest margin (basis points) 323 320 3 297 26
 
 
Customer Activity (dollars in billions)      

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Commissionable trades (MM)(10) 17.0 17.4 (2 )% 18.3 (7 )%
Trading days 61.0 62.0 N.M. 61.0 N.M.
 
DARTs(10) 279,405 281,190 (1 )% 299,673 (7 )%
Derivative DARTs(10) 90,042 91,825 (2 )% 96,806 (7 )%
Derivative DARTs %(10) 32 % 33 % (1 )% 32 % %
 
Average commission per trade(10) $ 7.17 $ 7.00 2 % $ 7.51 (5 )%
 
Margin receivables $ 10.3 $ 9.6 7 % $ 10.5 (2 )%
 
 
                     
Key Performance Metrics(7)
 
Customer Activity (dollars in billions)      

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Gross new retail accounts(11)(12) 162,237 1,052,383 (85 )% 152,269 7 %
Gross new advisor services accounts 6,689 8,381 (20 )% 100 %
Gross new corporate services accounts       96,667       72,186       34 %     90,214       7 %
Gross new accounts       265,593       1,132,950       (77 )%     242,483       10 %
 
Net new retail accounts(11)(12) 80,830 951,351 (92 )% 55,909 45 %
Net new advisor services accounts (19 ) 1,178 (102 )% (100 )%
Net new corporate services accounts       54,154       28,154       92 %     39,953       36 %
Net new accounts       134,965       980,683       (86 )%     95,862       41 %
 
End of period retail accounts(12) 5,088,597 5,007,767 2 % 3,955,131 29 %
End of period advisor services accounts 151,222 151,241 % 100 %
End of period corporate services accounts       1,817,983       1,763,829       3 %     1,532,329       19 %
End of period accounts       7,057,802       6,922,837       2 %     5,487,460       29 %
 
Net new retail account growth rate(11) 6.5 % 93.8 % (87.3 )% 5.7 % 0.8 %
Net new advisor services account growth rate (0.1 )% 3.1 % (3.2 )% % (0.1 )%
Net new corporate services account growth rate 12.3 % 6.5 % 5.8 % 10.7 % 1.6 %
Net new total account growth rate(11) 7.8 % 66.0 % (58.2 )% 7.1 % 0.7 %
 
Net new retail assets(11)(13) $ 4.8 $ 19.8 (76 )% $ 5.3 (9 )%
Net new advisor services assets(13)       (0.1 )     0.2       (150 )%           (100 )%
Net new retail and advisor services assets       $ 4.7       $ 20.0       (77 )%     $ 5.3       (11 )%
 
Net new retail assets growth rate(11) 6.8 % 25.2 % (18.4 )% 7.6 % (0.8 )%
Net new advisor services assets growth rate (3.5 )% 3.9 % (7.4 )% % (3.5 )%
Net new retail and advisor services assets growth rate(11) 6.2 % 24.0 % (17.8 )% 7.6 % (1.4 )%
 
 
                     

Customer Activity (dollars in billions)

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Retail Assets

Security holdings(14) $ 261.1 $ 225.6 16 % $ 226.8 15 %
Cash and deposits       60.7       58.5       4 %     56.9       7 %
Retail assets       $ 321.8       $ 284.1       13 %     $ 283.7       13 %
 

Advisor Services Assets

Security holdings(14) $ 18.2 $ 16.4 11 % $ 100 %
Cash and deposits       1.0       1.7       (41 )%           100 %
Advisor services assets       $ 19.2       $ 18.1       6 %     $       100 %
 

Corporate Services Assets

Vested equity holdings(14) $ 92.1 $ 75.5 22 % $ 69.2 33 %
Vested options holdings       48.5       36.4       33 %     39.9       22 %
Corporate services vested assets       $ 140.6       $ 111.9       26 %     $ 109.1       29 %
Unvested holdings       115.4       94.4       22 %     95.3       21 %
Corporate services assets       $ 256.0       $ 206.3       24 %     $ 204.4       25 %
 

Total Customer Assets

Security holdings(14) $ 279.3 $ 242.0 15 % $ 226.8 23 %
Cash and deposits(11)(15)       61.7       60.2       2 %     56.9       8 %
Retail and advisor services assets       $ 341.0       $ 302.2       13 %     $ 283.7       20 %
Corporate services vested assets       140.6       111.9       26 %     109.1       29 %
Retail, advisor services, and corporate services vested assets       $ 481.6       $ 414.1       16 %     $ 392.8       23 %
Corporate services unvested holdings       115.4       94.4       22 %     95.3       21 %
Total customer assets       $ 597.0       $ 508.5       17 %     $ 488.1       22 %
                                                 

Net (buy) / sell activity

Retail net (buy) / sell activity $ (2.7 ) $ (2.0 ) N.M. $ (6.9 ) N.M.
Advisor services net (buy) / sell activity       (0.6 )     0.4       N.M.           N.M.
Net (buy) / sell activity       $ (3.3 )     $ (1.6 )     N.M.     $ (6.9 )     N.M.
 

Market Indices

Dow Jones Industrial Average 25,929 23,327 11 % 24,103 8 %
Nasdaq Composite 7,729 6,635 16 % 7,063 9 %
Standard & Poor's 500 2,834 2,507 13 % 2,641 7 %
 
 
                     
Capital      

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E*TRADE Financial

Tier 1 leverage ratio(16) 6.7 % 6.6 % 0.1 % 7.3 % (0.6 )%
Common Equity Tier 1 capital ratio(16) 30.1 % 31.1 % (1.0 )% 35.0 % (4.9 )%
Tier 1 risk-based capital ratio(16) 35.9 % 37.3 % (1.4 )% 41.4 % (5.5 )%
Total risk-based capital ratio(16) 36.3 % 37.8 % (1.5 )% 45.7 % (9.4 )%
 

E*TRADE Bank

Tier 1 leverage ratio(16) 7.1 % 7.1 % % 7.6 % (0.5 )%
Common Equity Tier 1 capital ratio(16) 33.9 % 34.9 % (1.0 )% 37.4 % (3.5 )%
Tier 1 risk-based capital ratio(16) 33.9 % 34.9 % (1.0 )% 37.4 % (3.5 )%
Total risk-based capital ratio(16) 34.2 % 35.2 % (1.0 )% 38.0 % (3.8 )%
 
 
                         

Average Balance Sheet Data

(dollars in millions)

Three Months Ended

 

March 31, 2019     December 31, 2018
Average Interest Average Average Interest Average
Balance     Inc./Exp.     Yield/Cost     Balance     Inc./Exp.     Yield/Cost
 
Cash and equivalents $ 607 $ 3 2.31 % $ 663 $ 4 2.17 %
Cash segregated under federal or other regulations 986 6 2.63 % 588 4 2.44 %
Investment securities 46,968 365 3.10 % 45,036 333 2.95 %
Margin receivables 9,766 126 5.24 % 11,065 140 5.03 %
Loans 2,058 28 5.48 % 2,196 30 5.50 %
Broker-related receivables and other       632     4     2.24 %     580     2     1.95 %
Total interest-earning assets 61,017 532 3.50 % 60,128 513 3.41 %
Other interest revenue(a)           23               25      
Total interest-earning assets       61,017     555     3.65 %     60,128     538     3.57 %
Total non-interest earning assets       4,991                 4,276            
Total assets       $ 66,008                 $ 64,404            
 
Deposits $ 45,186 $ 35 0.31 % $ 43,575 $ 25 0.23 %
Customer payables 10,462 9 0.34 % 10,070 9 0.34 %
Broker-related payables and other 999 1 0.49 % 1,597 3 0.86 %
Other borrowings 269 2 3.81 % 474 4 3.10 %
Corporate debt       1,409     14     3.91 %     1,409     14     3.91 %
Total interest-bearing liabilities 58,325 61 0.42 % 57,125 55 0.38 %
Other interest expense(b)           2               1      
Total interest-bearing liabilities       58,325     63     0.44 %     57,125     56     0.40 %
Total non-interest-bearing liabilities       1,183                 768            
Total liabilities       59,508                 57,893            
Total shareholders' equity       6,500                 6,511            
Total liabilities and shareholders' equity       $ 66,008                 $ 64,404            
Excess interest earning assets over interest bearing liabilities/ net interest income/ net interest margin       $ 2,692     $ 492     3.23 %     $ 3,003     $ 482     3.20 %
(a)     Represents interest income on securities loaned.
(b) Represents interest expense on securities borrowed.
 
 
     
Average Balance Sheet Data Three Months Ended
(dollars in millions) March 31, 2018
Average     Interest     Average
Balance     Inc./Exp.     Yield/Cost
 
Cash and equivalents $ 803 $ 3 1.42 %
Cash segregated under federal or other regulations 795 3 1.62 %
Investment securities 45,194 290 2.57 %
Margin receivables 9,466 103 4.41 %
Loans 2,629 33 5.07 %
Broker-related receivables and other       950       4       1.55 %
Total interest-earning assets 59,837 436 2.92 %
Other interest revenue(a)             32        
Total interest-earning assets       59,837       468       3.14 %
Total non-interest-earning assets       4,787              
Total assets       $ 64,624              
 
Deposits $ 43,178 $ 2 0.02 %
Customer payables 9,556 1 0.06 %
Broker-related payables and other 1,566 1 0.20 %
Other borrowings 932 7 3.12 %
Corporate debt       991       9       3.62 %
Total interest-bearing liabilities 56,223 20 0.14 %
Other interest expense(b)             3        
Total interest-bearing liabilities       56,223       23       0.17 %
Total non-interest-bearing liabilities       1,329              
Total liabilities       57,552              
Total shareholders' equity       7,072              
Total liabilities and shareholders' equity       $ 64,624              
Excess interest earning assets over interest bearing liabilities/ net interest income/ net interest margin       $ 3,614       $ 445       2.97 %
(a)     Represents interest income on securities loaned.
(b) Represents interest expense on securities borrowed.
 
 
             

Fees and Service Charges

(dollars in millions)

Three Months Ended

 

March 31, 2019     December 31, 2018     March 31, 2018
 
Order flow revenue $ 43 $ 44 $ 47
Money market funds and sweep deposits revenue(a) 21 18 17
Advisor management and custody fees 18 18 11
Mutual fund service fees 12 12 11
Foreign exchange revenue 8 4 8
Reorganization fees 6 4 3
Other fees and service charges       10       8       8
Total fees and service charges       $ 118       $ 108       $ 105
(a)     Includes revenue earned on average customer cash held by third parties based on the federal funds rate or LIBOR plus a negotiated spread or other contractual arrangements with the third party institutions.
 
 

Explanation of Non-GAAP Measures
Management believes that adjusting GAAP measures by excluding or including certain items is helpful to investors and analysts who may wish to use some or all of this information to analyze the Company’s current performance, prospects, and valuation. Management uses this non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods. Management believes that the non-GAAP measures discussed below are appropriate for evaluating the operating and liquidity performance of the Company.

Adjusted Operating Margin
Adjusted operating margin is calculated by dividing adjusted income before income taxes by net revenue. Adjusted income before income taxes excludes the provision (benefit) for loan losses. Management believes that excluding the provision (benefit) for loan losses from operating margin provides a useful measure of the Company's ongoing operating performance because management excludes this when evaluating operating margin performance. See endnote (3) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Adjusted Return on Common Equity
Adjusted return on common equity is calculated by dividing annualized adjusted net income available to common shareholders by average common shareholders' equity, which excludes preferred stock. Adjusted net income available to common shareholders excludes the after-tax impact of the provision (benefit) for loan losses. Management believes that excluding the provision (benefit) for loan losses from net income available to common shareholders provides a useful measure of the Company's ongoing operating performance because management excludes this when evaluating return on common equity performance. See endnote (4) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Tangible Common Equity Book Value per Share
Tangible common equity book value per share represents common shareholders’ equity, which excludes preferred stock, less goodwill and other intangible assets (net of related deferred tax liabilities) divided by common stock outstanding. The Company believes that tangible common equity book value per share is a measure of the Company’s capital strength. See endnote (8) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Corporate Cash
Corporate cash represents cash held at the parent company as well as cash held in certain subsidiaries, not including bank and brokerage subsidiaries, that can distribute cash to the parent company without any regulatory approval or notification. The Company believes that corporate cash is a useful measure of the parent company’s liquidity as it is the primary source of capital above and beyond the capital deployed in regulated subsidiaries. See endnote (9) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

It is important to note that these non-GAAP measures may involve judgment by management and should be considered in addition to, not as substitutes for, or superior to, measures prepared in accordance with GAAP. For additional information on the adjustments to these non-GAAP measures, please see the Company’s financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that will be included in the periodic report the Company expects to file with the SEC with respect to the financial periods discussed herein.

ENDNOTES

(1) Net income available to common shareholders of $270 million, or $1.09 per diluted share, includes net after-tax benefits of $19 million, or $0.08 per diluted share, related to the following items:

  • $12 million pre-tax, or $0.04 per diluted share, of benefit to provision for loan losses
  • $14 million pre-tax, or $0.04 per diluted share, of benefit related to a change in estimate for previous market data usage reported in communications expense

(2) Records based on the period during which metric has been reported by the Company.

(3) Operating margin is the percentage of net revenue that results in income before income taxes. The percentage is calculated by dividing income before income taxes by total net revenue. As noted above, adjusted operating margin is a non-GAAP measure. The following table provides a reconciliation of GAAP operating margin percentage to non-GAAP adjusted operating margin (dollars in millions):

      Q1 2019     Q4 2018     Q1 2018
Amount    

Operating
Margin %

    Amount    

Operating
Margin %

    Amount    

Operating
Margin %

                   
Income before income tax expense and operating margin $ 392 52 % $ 365 50 % $ 334 47 %
Provision (benefit) for loan losses       (12 )           (12 )           (21 )      
Adjusted income before income tax expense and adjusted operating margin       $ 380       50 %     $ 353       48 %     $ 313       44 %
 

(4) Return on common equity is calculated by dividing annualized net income available to common shareholders by average common shareholders' equity, which excludes preferred stock. As noted above, adjusted return on common equity is a non-GAAP measure. The following table provides a reconciliation of GAAP return on common equity percentage to non-GAAP adjusted return on common equity percentage (dollars in millions):

      Q1 2019     Q4 2018     Q1 2018
Amount    

Return
on
Common
Equity %

    Amount    

Return
on
Common
Equity %

    Amount    

Return
on
Common
Equity %

                   
Net income available to common shareholders and return on common equity $ 270 19 % $ 270 19 % $ 235 15 %
Add back impact of the following item:
Provision (benefit) for loan losses (12 ) (12 ) (21 )
Income tax impact       3             3             5        
Net of tax       (9 )           (9 )           (16 )      
Adjusted net income available to common shareholders and return on common equity       $ 261       18 %     $ 261       18 %     $ 219       14 %
 

(5) Capital return to shareholders represents the amount of earnings returned to shareholders through share repurchases and common stock dividends.

(6) The following table presents the allowance for loans losses (dollars in millions):

      March 31,     December 31,
2019     2018
 
Allowance for loan losses, beginning $ 37 $ 41
Provision (benefit) for loan losses (12 ) (12 )
(Charge-offs) recoveries, net       7       8  
Allowance for loan losses, ending       $ 32       $ 37  
 

Loan servicing expense was $3 million, $3 million, and $5 million for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, respectively.

(7) Amounts and percentages may not recalculate due to rounding. For percentage based metrics, the variance represents the current period less the prior period. Net new account and asset growth rates have been annualized.

(8) As noted above, tangible common equity book value and tangible common equity book value per share are non-GAAP measures. The following table provides a reconciliation of GAAP common equity book value and common equity book value per share to non-GAAP tangible common equity book value and tangible common equity book value per share at period end (dollars in millions, except per share amounts):

      Q1 2019     Q4 2018     Q1 2018
Amount    

Per
Share

    Amount    

Per
Share

    Amount    

Per
Share

                   
Common equity book value $ 6,093 $ 24.90 $ 5,873 $ 23.83 $ 6,200 $ 23.41
Less: Goodwill and other intangibles, net (2,961 ) (2,976 ) (2,645 )
Add: Deferred tax liabilities related to goodwill and other intangibles, net       442             436             426        
Tangible common equity book value       $ 3,574       $ 14.61       $ 3,333       $ 13.52       $ 3,981       $ 15.03
 

(9) As noted above, corporate cash is a non-GAAP measure. The following table provides a reconciliation of GAAP consolidated cash and equivalents to non-GAAP corporate cash at period end (dollars in millions):

      Q1 2019     Q4 2018     Q1 2018
       
Consolidated cash and equivalents $ 523 $ 2,333 $ 498
Less: Cash at regulated subsidiaries (518 ) (2,347 ) (493 )
Add: Cash on deposit at E*TRADE Bank(a)       324       405       434  
Corporate cash       $ 329       $ 391       $ 439  
(a)     Corporate cash includes the parent company's deposits placed with E*TRADE Bank. E*TRADE Bank may use these deposits for investment purposes; however, these investments are not included in consolidated cash and equivalents.
 

(10) Commissionable trades exclude trades related to no transaction fee mutual funds and commission-free exchange-traded funds, rebalancing trades associated with managed products, and other non-commissionable trades. This has impacted the presentation of DARTs, derivative DARTs %, and average commission per trade.

(11) Includes the impact of the Capital One retail account acquisition as follows:

      November 6, 2018
Capital One(a)
 
Retail accounts 912,065
Cash and deposits ($B) $ 1.6
Retail assets ($B) $ 15.1
(a)     Excluding the Capital One retail account acquisition impact presented above, the fourth quarter 2018 acquisition-adjusted annualized net new retail account growth rate was 3.9%, and the acquisition-adjusted annualized net new retail asset growth rate was 5.9%. For the same period, the acquisition-adjusted annualized net new total account growth rate was 4.6%, and the acquisition-adjusted annualized net new retail and advisor services asset growth rate was 5.8%.
 

(12) The Company aligned the reporting threshold for retail accounts at $25 or a trade within six months (this impacts gross new retail accounts and end of period retail accounts).

(13) Net new retail and advisor services assets exclude the effects of market movements in the value of retail and advisor services assets.

(14) In Q1 2019, the presentation of total customer assets was updated to present separately the vested equity holdings previously included in security holdings, among other changes.

(15) The following table provides the components of total cash and deposits (dollars in billions):

      Q1 2019     Q4 2018     Q1 2018
       
Sweep deposits $ 38.6 $ 39.3 $ 38.0
Customer payables 10.6 10.1 8.9
Savings, checking and other banking assets       7.7       6.0       5.0
Total on-balance sheet cash       56.9       55.4       51.9
Sweep deposits at unaffiliated financial institutions 3.0 3.0 3.4
Money market funds and other       1.8       1.8       1.6
Total customer cash held by third parties(a)       4.8       4.8       5.0
Total cash and deposits       $ 61.7       $ 60.2       $ 56.9
(a)     Customer cash held by third parties is held outside E*TRADE Financial and includes money market funds and sweep deposit accounts at unaffiliated financial institutions. Customer cash held by third parties is not reflected in the Company's consolidated balance sheet and is not immediately available for liquidity purposes.
 

(16) E*TRADE Financial and E*TRADE Bank's capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):

      ETFC     ETB
Q1 2019     Q4 2018     Q1 2019     Q4 2018
           
Shareholders’ equity $ 6,782 $ 6,562 $ 3,822 $ 3,557
Deduct:
Preferred stock       (689 )     (689 )            
Common Equity Tier 1 capital before regulatory adjustments       $ 6,093       $ 5,873       $ 3,822       $ 3,557  
Add:
Losses in other comprehensive income on available-for-sale debt securities, net of tax 170 275 170 275
Deduct:
Goodwill and other intangible assets, net of deferred tax liabilities (2,519 ) (2,540 ) (285 ) (287 )
Disallowed deferred tax assets       (166 )     (200 )     (67 )     (61 )
Common Equity Tier 1 capital       $ 3,578       $ 3,408       $ 3,640       $ 3,484  
Add:
Preferred stock       689       689              
Tier 1 capital       $ 4,267       $ 4,097       $ 3,640       $ 3,484  
Add:
Other       42       46       32       37  
Total capital       $ 4,309       $ 4,143       $ 3,672       $ 3,521  
 
Average assets for leverage capital purposes $ 66,277 $ 64,767 $ 51,609 $ 49,568
Deduct:
Goodwill and other intangible assets, net of deferred tax liabilities (2,519 ) (2,540 ) (285 ) (287 )
Disallowed deferred tax assets       (166 )     (200 )     (67 )     (61 )
Adjusted average assets for leverage capital purposes       $ 63,592       $ 62,027       $ 51,257       $ 49,220  
 
Total risk-weighted assets(a) $ 11,889 $ 10,970 $ 10,755 $ 9,994
 
Tier 1 leverage ratio (Tier 1 capital / Adjusted average assets for leverage capital purposes) 6.7 % 6.6 % 7.1 % 7.1 %
Common Equity Tier 1 capital / Total risk-weighted assets(a) 30.1 % 31.1 % 33.9 % 34.9 %
Tier 1 capital / Total risk-weighted assets 35.9 % 37.3 % 33.9 % 34.9 %
Total capital / Total risk-weighted assets 36.3 % 37.8 % 34.2 % 35.2 %
(a)     Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.
 

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