E*TRADE Financial Corp (ETFC) Q3 2018 Earnings Conference Call Transcript

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ETRADE Financial Corp (NASDAQ: ETFC)
Q3 2018 Earnings Conference Call
Oct. 18, 2018, 5:00 p.m. ET

Contents:

• Prepared Remarks

• Questions and Answers

• Call Participants

Prepared Remarks:

Operator

Good evening, and thank you for joining E*TRADE's Third Quarter 2018 Conference Call. Joining the call today are Chief Executive Officer, Karl Roessner, Executive Chairman of the Board, Rodger Lawson; and Chief Operating and Chief Financial Officer, Michael Pizzi.

Today's call may include forward-looking statements, including statements about E*TRADE's future operational and financial performance. Financial targets and growth expectations, strategic business initiatives, plans concerning capital deployment and outlook on the broader economic environment, which reflect management's current estimates or beliefs and are subject to risks and uncertainties that may cause actual results to differ materially.

During the call, the company will also discuss non-GAAP financial measures. For a reconciliation of such non-GAAP measures to the comparable GAAP figures and for a discussion of additional risks and uncertainties that may affect the future results of E*TRADE Financial, please refer to the company's earnings release furnished on Form 8-K along with the Form 10-Ks and 10-Qs and other documents, the company has filed with the SEC. All of these documents are also available at about.etrade.com.

Note that the company has not reconciled its forward-looking non-GAAP measures, including non-GAAP adjusted operating margin to the most directly comparable GAAP measures, because of the material items that impact the measure are out of the company's control and cannot be reasonably predicted.

This call will present information as of October 18th, 2018. The company disclaims any duty to update forward-looking statements made during the call. This call is being recorded and a replay will be available via phone and webcast later this evening at about.etrade.com. No other recordings or copies of the call are authorized or may be relied upon.

With that, I will now turn the call over to Mr. Roessner.

Karl Roessner -- Chief Executive Officer

Thanks, Christopher. Good evening, and thank you for joining our third quarter call. In September of 2016, we began a new journey of E*TRADE. A journey defined by a call to accelerate growth and to return to our roots as the undisputed leader for digitally inclined traders and investors. Over the course of the last two years we've made exceptional progress on this journey and we've created enormous value for our shareholders along the way.

We've truly positioned the company for continued success and for sustainable long term value creation. On behalf of E*TRADE's leadership team, I look forward to expanding on these statements in more detail. But we will begin with an overview of tonight's call. First, our Executive Chairman, Rodger Lawson will walk you through the Board's assessment of our performance and the impact of that assessment on the company's future.

Next, I will provide my thoughts on our progress and my team's vision for the future of E*TRADE. Finally, Mike Pizzi will follow with an update on our capital allocation plans and summarize our Q3 results. Then we will commence our customary Q&A.

In addition to our earnings press release, we have included supplementary pages in our investor presentation which highlight several of the key elements we will cover on the call this evening. It has been a very exciting and fulfilling two years and it is a pleasure to turn the page on this chapter in such a positive passion and I look forward to sharing our vision for the future.

With that, I'll hand the call over to our Executive Chairman, Rodger Lawson.

Rodger Lawson -- Executive Chairman of the Board

Thank you, Karl, and good evening, everyone. In the October 2016 having announced the acquisition of OptionsHouse, the Board set out a series of business driver related performance goals to serve as proof (inaudible) that we could reinvigorate growth, improve operating leverage and install a deeper sense of urgency in our ranks. As a Board, we want a confirmation that E*TRADE had bonafide a long term growth trajectory and could keep delivering meaningful value for our shareholders over time.

As many of you know, we also expressed if we couldn't achieve those goals over a reasonable period of time, which we outlined is 18 to 24 months, we would consider other strategic options to protect and enhance shareholder value, including a merger or even the sale of the company. Two years on the company has clearly reinvigorated its growth and delivered outstanding returns, while the specific driver goals we set represent only one aspect of the company's strong performance, we are pleased with having outperformance on three of the four benchmarks we laid out. The area where we've fallen short is net new asset growth, which is certainly improved but has lagged initial targets.

We do recognize however, this shortfall is substantially due to our historical lack of institutional customers capability. Our acquisition and successful integration of TCA is quickly addressing some of that legacy gap and Karl will talk more about why we are so optimistic about that opportunity. During the two year period, the Board has evaluated E*TRADE, not only against before 2016 growth goals, which has served as a guidepost for managing top line growth, but also against other important dimensions, our performance, including earnings growth, ROE expansion and shareholder value creation, all of which have exceeded our expectations.

Here are a few of the comments we have noted during this period. The company has meaningfully elevated its offerings for derivative engaged traders. Above and beyond, the capabilities we acquired with OptionsHouse. This has attracted more profitable trading activity and created a more resilient user base.

We have seen the company's ability to grow its top line channel with a record increase in the number of new client wins. This is a critical growth engine for us as we look to our future. The team successfully integrated two acquisitions, which has significantly expanded our capabilities and reach both for the present, but also for the future. Management has consistently demonstrated on ability to quickly react to a very competitive market landscape, while still expanding our share across our most profitable segments.

There has also been great focus on operating discipline, as well as, revenue growth both have reach are reflected in the expansion of E*TRADE's operating margin. Overall, therefore whether looking broadly across E*TRADE, at the specific business driver goals, the Board is very pleased with the evolution and progress of the company over the past few years. It's really been terrific. We're also very pleased with the total shareholder returns over that period during which we have significantly outpaced the performance of the market, the sector and our direct peers.

We have also been very focused, not just on the past but also growth prospects for the future. We believe this is critical to selecting the best path forward for E*TRADE and its shareholders. And looking at the future prospects we have considered in place substantial weight on the following areas. First, management's long term strategic plan. The Board's assessment of this multi-year plan is that it's positive and not on reasonably optimistic. It is a sound incredible plan and should generate material value growth for E*TRADE.

Second, the Board believes after receiving analysis and advice from our third-party advisors, that with good execution of management's plan there was material shareholder value upside in E*TRADE's future which is more compelling than we believe -- then what we believe will be generated from any likely near term transaction.

Critical elements in the assessments of managers multi-year plan as follows. First, with approximately 6 million accounts and approaching 0.5 trillion assets. The company has build significant scale across our areas of business. Beyond the current value profile of this base of customers and assets, we see meaningful potential to expand our products and therefore, I get engagements across this group, which can drive substantial increase in value with just modest improvements.

With the pending acquisition of one -- roughly 1 million accounts from Capital One, this potential will only expand. E*TRADE's positioning in our core trading segment has improved materially, and as a result, we believe we will continue to participate proportionally in any growth of trading activity in the US. We are confident with these growth expectations even considering the potential for future price -- price competition for other industry players. As part of that perspective, as we look out over the five year time horizon, we do not expect the trading, trade to grow to the sky and we do recognize the markets can go down as well as up.

Additionally, we have significant confidence that we will continue to involve, evolve and grow our presence in the stock plan business. Our capabilities and market share under E*TRADE corporate services remain industry leading, and we have every intention of maintaining that status. Karl and Mike will share more light in the importance of and contribution made by this business and their prepared comments in a moment.

Further, we believe the acquisition of TCA provides a sound foundation to influence our growth rates both because of the quality of the custodial platform, as well as our ability to expand relative to our existing total asset base. We expect the nature of our business model will evolve over the next few years, as we enhance our capabilities in Wealth Management both directly and indirectly.

When taken with the opportunities we have to expand the services we offer through transactional banking services like securities based lending, savings, offerings and digital payment solutions, we expect -- we have all suite of E*TRADE offerings to be extremely competitive.

We also believe that our progress in the RIA space, robo advisory, money management will enable us to increase our retention rate on corporate services proceeds which has been stable around 15% for some time. We think the historical absence of clear investment choices of plan participants whether self-directed or advised has restricted our ability to retain more corporate services assets. On the broadening of our capabilities will allow us to engage more deeply with these customers. Last but by no means least, we're obviously pleased with E*TRADE's ability, both currently and prospectively to generate excess capital.

As a Board and a management team, will be our intention to continue to return that capital to our shareholders. Simply put, if we can't use it, we will not fit in it. We have already demonstrated our commitment to return capital to shareholders by prior stock buybacks. And today Karl and Mike will lay our forthcoming Capital Management and return plans.

With the confidence, we've taken from our assessment of the company's future growth plans as well as the quality of management's execution, the Board's expectations for E*TRADE'S future growth are high. During our five-year planning horizon, we expect to see mid-teens growth in earnings per share aided in part by an expansion of our operating margin and also our return on equity of 20% or better. With this performance expectation, the Board's current view, therefore, is that we do not believe initiating a sale process is the best path for value creation for our shareholders.

I would have to add the following comments. First, we have no illusions of what our fiduciary responsibilities are, when it comes to assessing the performance and prospects of the company, we govern. And the options that may be available to us over the course of time. The Board will not waver in taking any steps to protect value for our shareholders. As I've said in the past, we want to grow shareholder value, not lose it. And second, we remain conscious of the facts that as the smallest player in a highly competitive environment, we have little wiggle room for failure. We don't see that situation changing. We must, for the foreseeable future continue to deliver an outsized impact through an unyielding focus and efficient execution.

Finally, as we look to the future, there are of course many material metrics, which are relevant to us. And I have little doubt we'll be focused on the more. However, over our five-year planning horizon, the Board will be most focused on EPS growth, the expansion as our major common denominator metrics to assess whether we are succeeding or not.

With that, I'll pass the commentary back to Karl.

Karl Roessner -- Chief Executive Officer

Thank you, Rodger. It's been a long road. And I am incredibly proud of our team. We revitalized our product set, we put our brand back on the map. We reclaimed our mantle as the home for active traders and we work tirelessly to make sure that our foundation from our risk framework to our operations and technology capabilities is sound.

Over the past 24 months, we have delivered meaningful financial growth including over 20% compounded annual growth in revenues up 30% CAGR in earnings per share and a remarkable 40% annualized growth in adjusted pre-tax income. We grew our balance sheet by 32%, expanded our adjusted operating margin by 1,100 basis points and improved our ROE by 900 basis points while returning over $1 billion to shareholders through stock repurchases. We accomplished this by delivering exceptional business growth and integrating a meaningful acquisition in OptionsHouse, which together allowed us to capitalize on a favorable market environment.

We are also setting ourselves up for the future with the closing of TCA in April and the upcoming acquisition of nearly 1 million accounts from Capital One, which is on track to close in the fourth quarter. To this end, we have improved our trailing 12-month DART to more than 260,000 up 73% from the pace of 24 months ago, driven by a greater number of accounts and an increase in activity per account, which grew from 12 to 18 trades. We more than doubled our derivatives DARTs from 38,000 in Q3 '16 to 86,000 in this most recent quarter.

We improved our organic net new brokerage assets from $9 billion to more than $14 billion during the trailing 12-month period. We more than doubled our piece of account growth from 88,000 in the 12 months ended in September 2016 to 215,000 over the past 12 months. And we grew our highest value accounts at more than double the rate of our total account growth. We've attracted net flows of 51% on our Q3 2016 managed asset balance scaling from $3.7 billion to more than $6 billion. We enjoyed the success of a low base which gives us confidence in our ability to continue scaling managed assets over time, given our improved capabilities to serve long term investors.

We on-boarded more than $26 billion of new corporate services stock plan assets from new clients since Q3 of 16. This is more than double the amount we brought in over the preceding 24-month period. We added $135 billion in gross new assets from existing corporate services clients. None of this could have happened without a tremendous team effort. Over the last two years, we acquired OptionsHouse and successfully integrated it within our platform with earning synergies this year running approximately $0.10 per share higher than what we originally communicated.

We acquired TCA. We launched Power E*TRADE. We reinvigorated our brand within irreverent new advertising campaign. We significantly upgraded our website and enhanced our active trading suite with truly differentiated enhancements. We were rated the number one mobile trading, options trading and web-based platform in the most recent StockBrokers.com survey. We achieved the number one loyalty and overall satisfaction rating for our stock plan platform Equity Edge Online for the seventh straight year. We definitely responded to competitive pricing by setting up a tiered offerings thereby retaining our most valuable active customers.

We reinforced our best-in-class risk organization and continued improving the company's overall risk profile, allowing us to reduce our bank and consolidated capital threshold by 100 basis points and 50 basis points respectively freeing up approximately 700 million in capital. We refinanced over $1.4 billion of debt and TRUPs yielding annual savings of approximately 20 million. We exhibited notable expense discipline confining expense increases to under half of our revenue growth. And this represents only a partial list of our accomplishments.

As most of you are aware, I never tire of discussing our corporate services stock plan channel, which is a real differentiator from our -- for our franchise. In addition to being a tremendous feeder channel of accounts and assets, the cash profile of our corporate services related customers is significantly better than that of our other customers, and thus delivers an outsized contribution to net interest income and to earnings. Over the last two years, corporate services related assets have grown by 30% more than assets in other retail accounts. And as of the end of the third quarter, corporate services related cash contributed 35% of all customer cash balances.

As most of you understand, our corporate services channel serves as a funnel to our broader brokerage business as stock grants turn into vested shares which translate to cash proceeds as well as to engagement with our broader suite of offerings. Due to the extraordinary success of our corporate services team, the volume of assets that is entered that funnel has never been greater than it is today. If we consider with some of the unvested, unexercised and vested, but yet to be transacted stock plans shares, the opportunity set of stock plan assets has increased from approximately 150 billion in Q3 of '16 to 260 billion today. Not only do we expect this to aid future net new asset flows but it should disproportionately contribute to growth in cash deposits.

Finally, with the addition of institutional custody services in concert with our focus on delivering an exceptionally easy to use digital wealth offering, we believe the opportunity to engage more deeply with the stock plan customers will expand significantly. Needless to say as we endeavor to retain more proceeds, each percentage point increase on a $260 billion(ph)base contributes meaningfully to net new assets.

While we are incredibly proud of our accomplishments, we are not resting on past results and we're exceedingly focused on adapting our model to position E*TRADE to where the market is headed. The self-directed trader will always be core to our strategy and we will continue to deliver exceptional product and a truly differentiated service experience for our most discerning and engaged customers.

With that said, we must focus our energy on competing more effectively in the digital work space. We've also been hard at work, building out our capabilities to serve a range of investor needs including meaningfully expanding our list of no-transaction fee mutual funds and ETFs, enhancing our financial consultant powered offerings for those clients who continue to prioritize human touch and relaunching our best-in-class robo solution, our core portfolios. These new capabilities have enabled us to surpass our 6 billion managed assets goal without material advertising focus.

We know that this will be the fastest growing segment of the wealth management market and we fully intend to align the power of our brand and our capabilities against this opportunity as this segment of the market continues to take flight. By incorporating TCA by E*TRADE, we're expanding our footprint to the RAS segment which will broaden our addressable market and serve as a critical retention tool for brokerage and stock plan accounts in search of higher-touch services. While this addition provides us a foothold in a new market plugging it into E*TRADE makes the platform considerably stronger. Adding the E*TRADE monitor to the platform is already bearing fruit, adding 1 billion in custodial assets since April.

We see this is an added tool for our financial consultants in meeting our clients investing needs while also creating meaningful opportunities for the RAS that we add to the program. In that vein, we are thrilled to announce the addition of Edelman Financial Services and industry stalwart to our platform and aim to connect their advisors to our national referral program, launching in the coming weeks.

Through this arrangement client assets from one of the preeminent advisors in the country will be custody with the E*TRADE, while our referral network will provide E*TRADE's financial consultants with the channel to connect clients in need of higher-touch services with RIAs on our platform. Since we announced the acquisition a year ago, TCA has more than $12 billion in commitments, and we're only just getting started. Just to contextualize that number, at the time we announced the acquisition, TCA had $17 billion in assets under custody.

So it should go without saying that this growth engine has been ignited in a very real way. With a solid foundation we look forward to delivering on concrete financial objectives. First, we are targeting sustainable mid-teens EPS growth for the next five years, amounting to an approximate doubling of our earnings power by 2023. Second, we plan to expand our operating margin from its current 48% level to 50% in 2020 and drive toward a mid '50s level by 2023.

Third, we look to expand our ROE from the current level of approximately 16% to beyond 20%. And fourth, we plan to achieve these targets while also returning meaningful capital to shareholders via dividends and buybacks, beginning immediately, with another $1 billion repurchase program and our initiation of a 14% quarterly dividend. Mr. Pizzi will provide additional details on our capital plan.

Before I turn the call over to Mike, I want to congratulate him on his recent promotion and the expansion of his role to include the COO title. Mike is an E*TRADE success story, progressing during his 15 year tenure from Portfolio Management to Bank Treasurer to Corporate Treasurer to Chief Risk Officer and more recently to Chief Financial Officer. This elevated role is a natural extension of Mike's position and I am confident, it will result in great things for this organization and for our shareholders.

With that I'd like to turn the call over to our COO and CFO, Mike Pizzi.

Michael Pizzi -- Chief Financial Officer and Chief Operating Officer

Thanks, Karl. It's been incredibly fulfilling to build my career at E*TRADE and is a privilege to help lead this great company into the future. Now let me begin by discussing our growth objectives in more detail and then I will lay our capital priorities and then briefly cover Q3 results. First, on our growth objectives. We are advancing from a set of goals that were narrowly defined by business metrics to broader financial targets such as earnings growth, return on equity and capital allocation, which are more directly aligned to delivering value for shareholders.

To meet these financial targets, we must flexibly react that the competitive and economic environment and pull on different levers to deliver earnings growth. With that as a context, I would like to dive into the targets that Roger and Karl set out. First, we plan to maintain an operating margin above 50% which we expect to reach by 2020. In a stable environment, we expect to expand this to mid-50s level by 2023. Over the last several years we have grounded our budgeting in an operating margin framework that transparently commits to balance top line growth with expense discipline.

This framework ensures that we are judicious on expense growth in favorable market environments and that we are disciplined on spending during more challenging revenue periods. Under this framework, we anticipate growing revenues 350 basis points to 400 basis points faster than expenses, which lead -- should lead to the steady and sustainable margin expansion.

Next, we are targeting mid-teens EPS growth. We're more than doubling of our EPS to a greater than $7 by 2023. Our target for earnings growth is not based on blind optimism. We anticipate achieving double-digit growth in pre-tax income with approximately two-thirds coming from revenue growth and one-third from margin expansion. We also plan to continue repurchasing our stock, which will contribute to our EPS growth over the five-year period. In terms of the inputs underlying this multi-year plan, we assume a few more Fed rate hikes, including two in 2019 and one, the following year. We assume continued strong engagement by our customers. But expect a far more moderate pace of DART and margin growth compared to the rapid expansion we saw this year.

Our model assumes the brokerage cash levels remain relatively in line with the current rates of approximately 13% of brokerage customer assets. Should cash levels moderate back to historical norms higher than 15%, we also expect a commensurate softening of dark activity and customer margin growth.

Finally, our model assumes modest contraction within commission per trade as competitive trends point to continued pricing pressure by others in the industry. This should be partially offset by a greater share of derivatives trading on our platform. The earnings growth modeled in our plan and the drivers I just covered are presented on slide 34 of the investor presentation. The earnings improvement in our plan comes primarily from consistent sweep deposit growth, among our core brokerage and stock plan customers and from the tremendous scale benefits we realized on each new incremental dollar of revenue.

We believe it is prudent to exercise conservatism on our modeling and therefore sign relatively modest growth to some of our emerging platforms that does not diminish our optimism about the potential in these areas, where our excitement about the strong foundations we have in place. From our digital wealth offerings to our institutional custody services we have truly differentiated solutions that will deepen engagement, improve retention and expand the wallet share among our existing brokerage and stock plan customers. Through these growth vectors we also see substantial opportunity to broaden our reach into new households. Success on these fronts could drive meaningful upside to the greater than $7 EPS target we laid out today.

As for capital plans, our business generates tremendous excess capital that creates capacity to balance reinvestment in the business with distribution to shareholders. Over the last two years, we have the unique opportunity to onboard nearly $9 billion in off-balance sheet deposits, which caused us to retain capital, despite the growth in our capital base we recently completed our $1 billion repurchase authorization more than three months ahead of plan.

We expect to generate even more excess capital going forward, given our earnings run rate is considerably higher than a couple of years ago and that the on-boarding of the third party deposits is now complete. With that backdrop and in consideration of the relative cheapest of our shares, we will be opportunistic in the pacing of our new $1 billion share buyback program with the ability to complete up to half during the fourth quarter of this year. We intend to complete the program by the end of 2019.

With respect to the initiation of a dividend to common shareholders, we are launching a payment of $0.14 payable on November 15th. While we anticipate our capital allocation will remain skewed toward share buybacks, given that they afford tactical flexibility, the initiation of the company's first common dividend program running in parallel provides us with ample avenues to efficiently return capital to shareholders. Taken together, this should speak to not only the quantum of excess capital generation, but also as a testament to the predictability and stability of our earnings going forward.

We hope and expect this would make E*TRADE a more appealing to a broader population of investors. This capital plan implies a payout in the 80% to 90% range, which we believe is appropriate considering our targets for double-digit earnings growth. We believe it is sustainable considering our improving capital efficiency and strong operating leverage, and we can always pause(ph)share repurchases to the extent that we find compelling inorganic growth opportunities.

Putting our earnings growth and capital objectives together, we plan to expand our ROE from its current 16% level on an adjusted basis to beyond 20% by 2023. An emphasis on ROE demands that we remain disciplined in how we allocate and return capital. We will always be focused on growing earnings, but if investments do not enhance shareholder value then we plan to return that capital to its rightful owners, our shareholders.

Finally, I would like to briefly cover Q3 results. For the quarter, we reported net income available to common shareholders of $261 million or $1 per diluted share, on record net revenues of $720 million, up $121 million from the year-ago quarter. We had a couple of unique items which benefited pre-tax earnings by $30 million, including a $34 million benefit to provision for loan losses and $5 million in gains related to the sale of our legacy equity investment in the Chicago Stock Exchange. This was partially offset by a $4 million early extinguishment of debt charge related to the refinancing of our TRUPs and $4 million in restructuring-related activities.

Our effective tax rate for the quarter included an $8 million income tax benefit related to the revaluation of our net deferred tax assets. This revaluation typically occurs during Q3 and excluding this benefit, our tax rate was closer to 26%. We expect the full year 2018 tax rate of approximately 26% and a go-forward rate of approximately 27%. As for core results, net interest income increased by $13 million as our net interest margin expanded by 8 basis points on relatively flat asset balances, driven by the impact of the Fed rate hike. Higher average margin balances and improved securities portfolio performance.

Our average deposit costs including customer payables was 18 basis points in Q3, up from 9 basis points last quarter. We expect our blended deposit costs to be 25 basis points in Q4. Following the Fed's September rate hike our average rate, average reinvestment rate in the securities portfolio is now under 300 basis point to 325 basis point range, similar to the prior quarter.

For the full year 2018, we are forecasting them to fall within the range of 305 basis points to 310 basis points assuming customer margin balances remain at current levels. Commission revenue of $117 million increased 17% year-over-year, but Feds fell 3% sequentially. DARTs were up modestly, but CPT was down $0.27 and there were fewer trading days in the quarter.

Our CPT of $7.04 was below our expected range as heightened equity volumes pressure derivative mix and the average number of contracts portrayed and stock plan trades declined. For Q4, we expect commission for trade to fall in the $7 to $7.05 range. Fees and service charges were mostly flat quarter-over-quarter, the average yield on third-party cash was up 5 basis points to 143 basis points in Q3. We anticipate generating roughly 150 basis points on third party cash in Q4.

With respect to expenses, non-interest expense was $380 million, down $4 million from the prior quarter. This quarter's adjusted operating margin, which excludes provision benefit and loss on early extinguishment of debt, was 48%, an improvement of 200 basis points from the prior quarter. We expect our full year 2018 adjusted operating margin to surpass 46% better than the 45% we commented on last quarter's call, given the strong results to date and the benefit of the September rate hike.

One important update to our expense efforts is the run rate savings, we recently achieved on the heels of the $50 billion threshold being lifted with the changes the Dodd-Frank Act. Through some restructuring, regulatory and enterprise risk management functions to reflect the current regulatory landscape and the improved risk profile of the company, we have cut 15 million from our expense base. This savings is embedded in our operating margin assumptions.

A final note on corporate cash. We ended the quarter at $517 million, down $426 million sequentially reflecting the $413 million redemption of TRUPs, the $309 million used to repurchase shares and the $24 million paid on preferred dividends. This was partly offset by $322 million of dividends to the parent from the bank and broker. For Q4, we anticipate approximately $330 million in total dividends to the parent.

And with that, we will open the call for questions.

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from the line of Steven Chubak with Wolfe Research. Please go ahead.

Steven Chubak -- Wolfe Research -- Analyst

Hey, good evening.

Karl Roessner -- Chief Executive Officer

Hi, Steven.

Steven Chubak -- Wolfe Research -- Analyst

Certainly I like to unpack here. Wanted to ask, just really dig into the five year earnings target that you guys outline and I thought you did a really nice job. Just speaking to the $7 earnings walk, and most of the assumptions there actually look to be quite reasonable. The two which are maybe referring the most products here are the modest reduction and commission per trade, just given some of the recent developments, we've seen on the pricing side, new entrants price wars, et cetera, as well as, the higher cash levels as a percentage of assets.

And certainly over the last few years we clearly seen that with rising markets and rates that cash level should continue to grind(ph)lower. And just given the long term earnings walk, I was hoping you could flesh out your long term views on both cash and commission pricing, seeing as those two really appear to be the most contentious.

Karl Roessner -- Chief Executive Officer

Yes, so let me start on the cash side. Looking at sort of the cash levels now, we are down to historic -- a level that we haven't seen since going back well over a decade to a pre-crisis environment roughly at 13% or so of credit cash per client assets. Looking at that, thinking it will continue to drop from here we felt that from a planning perspective it's best really to hold it flat.

Further reductions in cash balances from here, will probably mean higher margin balances, higher DART volumes, higher securities lending revenue much of some of the similar to the behavior you've seen here today. Holding it flat then just really gives you the dynamics that we show you in the investor deck that really just has the business generating cash both from the core count growth, as well as, the corporate services unit, which we gave some highlights on as to how that helps us generate cash. When we apply that over the five year period, we get to the cash type balances and balance sheet type levels that are going to drive that earnings power forwards that $7 type level.

Rodger Lawson -- Executive Chairman of the Board

And when you look at it on the commission side. I think when we look at our business model and how we've structured ourselves focused on our active traders set, there is a pretty large mix of derivatives trades in there. Our stock plan administration business and the executions that come through that channel. So there is not the situation where we see zero commission level. We have obviously stress this and included some of the pricing pressure that we foresee over the near term and the longer term in the plan, but we don't take it down to zero just given our business model and given where those fees come from.

Steven Chubak -- Wolfe Research -- Analyst

Got it. That's really helpful. Appreciate the responses on both of those items. So just a follow-up from me is going to be on the five-year margin target, your earnings work assumes that it approaches somewhere in the mid-50s, 55% over time, in the past some of your largely broker competitors have actually talked about a peak margin somewhere closer to 50%, simply because, competitive pressures, make it difficult for our profitability to really exceed that threshold and go much beyond that level, just hoping you could speak to some of the factors you see differentiate in terms of your business mix that will actually enable you to operate somewhere above 50% in closer to 55% on a sustained basis.

Karl Roessner -- Chief Executive Officer

And we see it right in kind of a historical performance, lifting our sort of operating margin 200 basis points over the past two year period. We are mainly digital from with only 30 branches, it gives us a pretty significant operating leverage base. We focus on using technology smartly to drive that and then sort of the earnings model and how we monetize cash gives us a clear advantage, without the real estate, with the balance sheet model that we're operating we think getting the 55% is very realistic.

Operator

And our next question comes from the line of Christian Bolu with Bernstein. Please go ahead.

Christian Bolu -- Bernstein -- Analyst

Hi, good afternoon, Roger, Karl and Mike, I guess a quick one for Roger, maybe a bit of a blunt question here, but to the extent there are meaningful cuts and commissions, say by Schwab fidelity in the near future. Does that change at all the Board's calculus around a takeout?

Rodger Lawson -- Executive Chairman of the Board

No, I don't think so. I don't think it makes a material difference in the short term. And if you believe that I'm not sure personnel I believe that, but I don't think it makes a material difference. I think there are a number of leaders that which in fact Mike has alluded to, which we pool in that particular process, maybe commissions will drop out there, but we're getting pretty close to the floor on all these commission rates anyway and the world has changed a great deal and that I would jokingly say is tough to follow up the floor when you get to a certain position in terms of rates. So actually personnel. I don't think it would, I think what would -- the only thing that would affect our perspective is if there were series of items the convinces that we couldn't get to the type of financial performance, Mike just described.

And I think it would, that would inform the Board's decision, we would think about it differently. But at the moment even changes in prices, and I alluded to that in my prepared comments, we don't anticipate that's going to make a material difference to our perspective in the foreseeable future.

Christian Bolu -- Bernstein -- Analyst

Okay, thank you. So Roger feels like your banking quite a lot here on the corporate services business, particularly around the amount of cash to comment on our business. I think it's fairly meaningful. We have heard to pitch around increasing retention rates for a while. Right. And you have high TCA and robos not least for a couple of quarters. Just help us understand, you actually seen an increase in retention rates. Can you actually speak to why you think this time is different, then we will see meaningful progress in retention rates over time?

Rodger Lawson -- Executive Chairman of the Board

Well, the one has been guilty about talking continuously about upping our retention rates. I seem to remember one of your -- I call it, exactly like -- hey, Rodgie you've been talking about as is Jesus was a baby, and I think in fact just some extent that is the case, but I think the dynamic that, and I think that was introducing Karl's comments and Mike's comments is the volume of cash, which comes naturally from that corporate services business and even during the last five, six quarters when we all know everyone in the industry has experienced a lot of money moving into the market, cash levels have come down, Mike just talked about that. The cash levels in the Corporate Services business have either modestly increased or stabilized. So I think Corporate Services in terms of its value to the institution has even with the 15% retention rate at the end of 12 months. This cash value contribute to the company has become more and more significant as we evaluate it. Going forward, if we can move that 15%, I think there are a number of things that we haven't done that we could do, Karl talked about them, Mike talked about them in terms of expanding the kind of product offerings which would encourage people to stay more -- to keep more money with each right.

We have a good -- but it's hard to believe, but we have a very good investment track record, you'll be hard-pressed to find, you need to be Sherlock Holmes looking through some of the information we have in order to help you do that, but the time record we generate it is very, very good, we just haven't brought it to the floor in the meaningful way. So I will go back and maybe I'll be accused a year from now saying, you did that one more year after Jesus was born in some terms when you're talking about it. What I do think that the cash level contribution rose in, rose in every year and that makes -- and Mike said it, that makes a very significant contribution to what we anticipate will contribute materially to the spread income we see in our five-year growth plan and spread income is an extremely significant part of it. So I would say our confidence in the power, particularly with the recent growth of Corporate Services, the cash is generating and if that is aided by a further expansion of retention rate, then I think you've got -- to grow more strongly.

Michael Pizzi -- Chief Financial Officer and Chief Operating Officer

And Christian, we're really focused on the experience for the end customer here that's one of the biggest things. There's a focus throughout the organization in our stock plan for the unit, as well as our retail brokerage unit to really focus on the impact we can have on the corporate client coming in and make sure that their service is impeccably delivered. Then the first interaction that that stock plan the customer has with us when they go into accept their reward or start their relationship with E*TRADE is it seamless as possible and then introducing them to what they can do next and their solutions that we have building out on our digital wealth platform at everything from our Robo to our prebuilt ETF offering that we have now and really concentrating our marketing and our efforts around the dates of those grants helping these individuals understand, educating them on what's available when they come into new family.

Well, that's where the focus comes from and that's where my confidence comes from that we can shift that 15% upwards. On the type of pool that we talked about during the prepared remarks one percentage point move is meaningful. So that's where we're coming from.

Karl Roessner -- Chief Executive Officer

I would just add Christian, we grew the pool from $150 billion to $260 billion. We have the leading product in the space and are growing quite considerably, even if the 15% remains we'll deliver significant value and that value is what we're reflecting in the plan. We don't make any heroic assumptions about that percentage going up higher to hit the financial targets that we imply.

Rodger Lawson -- Executive Chairman of the Board

That's for -- short answer, Christian.

Operator

And our next question comes the line of Richard Repetto with Sandler O'Neill. Please go ahead.

Richard Repetto -- Sandler O'Neill -- Analyst

Yeah, hi. Good evening, Roger; good evening. Karl and good evening, Mike.

Rodger Lawson -- Executive Chairman of the Board

Hi, Rich.

Richard Repetto -- Sandler O'Neill -- Analyst

How are you doing? I guess the first question, thank you for -- Roger for acknowledging, there is a potential for market corrections recessions, the risk of the zero commissions. You could even see some Fed easing over, I guess over five years. So I guess my question is, what discount rate I should shoot -- and I know the opportunities are out there, but what kind of risk or discount rate to use. If you could help us, would you suggest we use and what's the present value where we have to do all this? And you measure the risk versus these opportunities what present value you all come up?

Rodger Lawson -- Executive Chairman of the Board

Yeah, rich, I mean, I think calculating our cost of equity given sort of various measures of beta, the 10-year yield, it should be a pretty straightforward calculation, you're going to land depending on what assumptions you use in sort of a 9% to 10% range, maybe slightly higher, depending on sort of modeled assumptions. I think that's pretty standard in terms of -- sort of discounting, in sort of cash flow discounting, if you're trying to build some sort of DCF analysis of what we're modeling.

Karl Roessner -- Chief Executive Officer

Rich, can I just ask a couple of other comments? I think you and I think Patrick O'Shaughnessy with the -- two of the individuals written relatively comprehensive assessments of what I call revenue yield and everyone has a different name, but I'll call it revenue because I'm old fashion. And I think that it's pretty clear that we (multiple speakers) no, no, he's got younger, RIch, the I think if what this -- I think the revenue yield analysis this is an important one, because the model we have I think does deliver higher revenue yield. Now the point you made, I think in your last note was, yeah, guys, can you sustain that with growth? And of course, it's a right question. We all agree that's a right question.

I think when the board went through the multi-year plan, I mean, you know many of the member of the Board members and I think the reality is, this is not an easy group, it's a demanding group. We went through the plan, we went through in consumer detail. Actually, I think as we traverse the five-year plan without -- I would use Mike's comment, without any heroic assumptions around growth in some of the key driver metrics. We still are sustaining our -- a very, very attractive, high revenue yield, which clearly contributes to the margins the people who are questioning about.

So I think as we look forward, yeah, there could be a big market correction, I mean we'll all suffer with that, I'm not sure today count is a big market correction, I guess the sales comes down from 66 bucks to 50 bucks if you own a stock, you feel that's a pretty big market correction. So I think for each array, we've had a pretty significant market correction in the last few months and it could continue to happen and if it does, it does. But the essence of our model I think even if we do see that, I won't say there are natural hedges and everything that we do, but trading comes down, potentially margin comes down, cash goes up, there are many interesting trade-offs.

And as we've talked about this with the board, I think we've got ourselves reasonably comfortable, I mean the sky control, but we've got ourselves reasonably comfortable in the fact that this the kind of numbers that Mike talked about with the five-year horizon, a very achievable in most environments. We all lived through 2008, no one knew what most wells in 2008, it's a totally different world. But I think we believe even in negative scenarios that our revenue yield will hold up and our ability to deliver the kind of returns we're talking about will hold up. Time will tell, Rich.

Richard Repetto -- Sandler O'Neill -- Analyst

Yeah and I appreciate the insight. It's great to communicate with you on this. So I guess the follow-up question would be, I have done the discounting in the time that we had and present value what half of a multiple of earnings. But I guess the question is when we compare that, did you all seek out what the market would put on E*TRADE today? Did you actually seek out, get bids or have any interaction like that? And as long as we're on that subject as well and you've been guiding the process, Roger. Just trying to see what your future, I know the employer -- I think your employment contract ends at the end of the year and just want to see whether you'll still be guiding the ship here to the five-year and $7 of earnings.

Rodger Lawson -- Executive Chairman of the Board

Rich, let me start with the last one. When we had the -- I think -- I'v -- we went to the Barclay conference after we had the management changes in '16, because we figured it was best to get out, to get out there and explain what the hell we were doing. At that time, I think I talked about the fact that as we've made the changes I rationalized why we had confidence in Karl, while we had confidence in Mike. And I also explained, in fact the board had asked me, for two years, I would be Executive Chairman, so I moved from being Non-Executive Chairman on the life of luxury to becoming Executive Chairman which is what I did.

And so now we're into day-to-day life. I think frankly since then -- we've had our ups and downs, a lot of things have been happening, but I think we feel comfortable. I thought I know we feel comfortable that things are moving in the right direction. I think the need for an Executive Chairman has now -- certainly at this period of time is being removed. So we will be sticking to the original plan we discussed, I will step down at the end of this year into -- the end of December. And I will revert back to be Non-Executive Chairman, so I will no longer be part of management, Rich. I'll become -- I'll revert back to being a member of the board, but bear in mind, I'll be back to the status I was just before we made the changes we made the last time.

Karl Roessner -- Chief Executive Officer

And Rich on the question about whether or not we did a market share went out to third parties that wasn't something that the board persuades in its evaluation. But please keep in mind that we had a large investment bank come in, do the assessment for us in that assessment obviously included all of the current market information ability, capacity to pay, I mean you name it and go through it, the board looked at it, it's a very fully informed Board, they have the right legal counsel, they have the right banks here and they did what they needed to do to get themselves comfortable with the value creation that this management team believes that it can deliver over a period of time versus what could hypothetically be out there in the marketplace.

Rodger Lawson -- Executive Chairman of the Board

Just to confirm what Karl is saying and what Mike said earlier, we are well-informed. We didn't come in one day and tossed the coin, this was a lot of work, which was done to get into this position. And so there are no hockey sticks in this plan. There are no ridiculous aspirational goals, which can never be fulfilled. So it was very, very serious consideration and I mean the bottom line of it is the comments which we made in the prepared segments, we clearly felt this was where we are at the moment is a better path forward than the alternative, which I know a lot of other people speculated about.

Operator

And our next question comes the line of Chris Harris with Wells Fargo. Please go ahead.

Chris Harris -- Wells Fargo -- Analyst

Thanks. Hi, guys. So, deposit growth and balance sheet growth is a clear challenge for everyone in the industry right now, I know the puts and takes in your operating model here. Just want to ask you guys directly, if we assume that the balance sheet kind of stays flat, do you still think you can hit mid-teens EPS growth target under that scenario?

Rodger Lawson -- Executive Chairman of the Board

Chris, let me answer the question this way. If you look at sort of the puts and takes sort of the current balance sheet, we are in another record year of customer net buying. So it will be two subsequent years of very high levels of customer net buy. That should in theory drive your cash balances down, we're holding relatively flat. That flatness is caused by the dynamics of our business in terms of growth, in terms of Corporate Services.

So if you're saying the environment is to see a continual market environment where we see this level of engagement and this level of interest, then what we're going to see is sort of higher dark volumes, higher margin balances as really offsets the lower cash growth and that's exactly what you've seen in the current year. We have to look at that scenario but I would feel really good about the value that that scenario would deliver over the same five years.

Chris Harris -- Wells Fargo -- Analyst

Okay. Thank you.

Operator

And our next question comes the line of Kyle Voigt with KBW. Please go ahead.

Kyle Voigt -- KBW -- Analyst

Hi, good evening. Just another question on the 50% operating margin target by 2020. Just wondering in a scenario where pricing may come under more pressure than you anticipate. Do you still believe that you have the expense flexibility to hit that 50% target, maybe you could talk about what levers you have on the expense side? Thanks.

Rodger Lawson -- Executive Chairman of the Board

Well, we grew our operating margin rate through the last cut and the environment had a lot to do with that. But we grew through that period. So, in looking at it, yeah, obviously in the period in which you have to make a pricing adjustment, you'll suffer a deterioration in operating margin. But if you pick up on the growth trend right thereafter, you'll get right back on driving it forward. As far as expense levers, there are numerous expense levers that -- we've been very disciplined and that would cause us to be even more discipline about how we allocate sort of the dollars and money that we spend to achieve the 50% target.

Operator

And our next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Good evening, folks. I mean, just going back to the valuation analysis for independent new trade versus a sales scenario. Rodger, in that analysis, do you guys run that or have you run that on a scenario basis? In other words, is your sort of DCF base purely on the outlook for Slide 34 or do you also consider a percentage chance for a scenario of obviously an adverse environment over that period where the margins would be much lower or the Commission for trade cut would be much lower or do you know the Fed will be cutting, is that part of what gets put into the valuation analysis?

Rodger Lawson -- Executive Chairman of the Board

Look, we certainly look to multiple scenarios with them, the outside advisors in terms of how we reach the range of valuation that we saw over the course of next five years, whether we tested every single upside-downside scenario I think is it's questionable, but I would say 90% of the scenarios we could envisage we tested. And I think in the context of that looking at the markets at this moment in time and there is little doubt that the decision to remain independent in terms of the intrinsic value, it would probably create for our shareholders what I would characterize as a no-brainer. It was so very, very straightforward, that may change, I mean, I think it's little down, Karl, that may change over time, but it's certainly, I think it's crystal clear at the moment based on the analytics we did.

Brian Bedell -- Deutsche Bank -- Analyst

So, even in running an adverse scenario, you wouldn't come up with a valuation that was potentially lower than what someone would be willing to pay for E*TRADE?

Karl Roessner -- Chief Executive Officer

Lower than, well, I'm not sure I understand the question, I think we are confident.

Brian Bedell -- Deutsche Bank -- Analyst

Yep, say if you've got a scenario where things are moving adversely such as a Fed cutting environment or and/or commission paid being more challenged than the modest reduction you have in the scenario, just the valuation that you would come up with for your company under this adverse scenarios, did that also exceed what a third-party valuation would be?

Karl Roessner -- Chief Executive Officer

Well, of course it depends who the buyer is and what they are offering and if someone comes along and offers $100 a share count, I'm sure we would think seriously about it. But I think the reality is the answer to your question is yes, it did. I think we feel very, very comfortable with the value that was being generated here in relation to any probable realistic scenario that we could see in terms of the sale environment.

Operator

And our next question comes the line of Dan Fannon with Jefferies. Please go ahead.

Dan Fannon -- Jefferies -- Analyst

Thanks. I guess just another question on the process and you highlighted EPS growth and ROE expansion are the primary metrics that you're going to be focused on, five years is a long time period. So how should we think about the pace of that in terms of the reevaluation the Board will take, are we going to hear from you once a year in terms of coming in and updating us or just want to get a sense of what the -- if there is limited growth here to start or expansion for the first year or two, does that -- is that something that a short enough time period to reevaluate?

Karl Roessner -- Chief Executive Officer

So, Dan, I think the easiest way to explain this one is this is as I've said a very engaged Board. So Rodger in his role as Executive Chairman is obviously part of the management team has been engaged and involved with us as he sort of steps down and goes into his Chairman role again, I would fully imagine that he will continue to be engaged with us. He won't be on the earnings calls going forward unless we have something obviously maybe about something. But the process the Board goes through, they do their scrutiny of where we are in the valuation of this company and they evaluate what we can produce for our shareholders on a regular basis, right? This is a Board that takes their fiduciary duties very seriously. So I don't want to pin the Board to a time frame or event-driven or other items, but I can just tell you rest assured, this is a Board that will look at all scenarios and if there is something that can impact the value that we can deliver to our shareholders, they'll absolutely act on it.

Rodger Lawson -- Executive Chairman of the Board

Dan, let me add a couple of other items. As I go, go back to Richard Repetto's questions, I go back to the non-Executive Chairman and it is being part of the process of being Executive Chairman. The company is run by the CEO and wise management team and we are very conscious of making certain, there is the appropriate relationship between Board and management, I'm kind of a hybrid or sort of among growing the middle of the moment. But before we'd move to this structure, and again just be perfectly blunt. We move to the structure, we had what the Board believed in Karl, we are supporting Karl. Karl was my recommendation to takeover CEO, the board supported that totally, Karl was General Counsel, it is not normal to promote General Counsel.

He came in and he did a terrific job, part of my process was to be here as what shall I say transitional figure. I've always started to keep my mouth shut anyway, but the point is, I was here as a transitional figure. But before we have to change, the Board is very active. I'm just echoing Karl's comments and I would imagine that is not going to change. We are not going to disappear into the ether as a result of this.

So you should expect the Board will continue to be very involved. With regard to the other part of your question, which I think is a good question and I've certainly thought about it. I don't want to get into Oh my god you missed your net new asset growth by quarter 1%, you should jump out the window. I don't -- we don't want to go through that process all over again, but we are conscious of as a Board about the fact that how do we evaluate this overtime in terms of are we performing and I'm not being evasive, that will be an ongoing process and there are some metrics I remember occasions at Fidelity when I tried to preach to the media about the value of a Fidelity managed dollar versus the value of a Vanguard managed dollar, it went into their index funds. I totally was preaching to the unconverted, I made zero progress. So as we look to the future, there may well be issues of asset flows that's why I made the comment about the revenue yield in terms of Richard's observations.

But we will -- there will be periods when we see numbers which make us a little uncomfortable, but we will continuously come back to the issue of what other financial returns that we're generating because those financial returns will obviously generate shareholder value. I don't think any fixed here when we're going to make any decisions, we will not really come in every other Thursday and decide, but I think you could -- you can -- I always say, I think you can assume, I can definitely tell you with this board you could assume we're constantly reviewing are these metrics in line, are we delivering, the earlier questions from Kyle about will we be able -- are we truly attain the potential values, the shareholder values that we anticipated. So it's going to continue to be an active process, it will still be a pain in the neck, I'm sure that that's the way it's going to be.

Operator

And our next question comes from the line of Michael Cyprys with Morgan Stanley. Please go ahead.

Michael Cyprys -- Morgan Stanley -- Analyst

Hi, good afternoon. Thanks for taking the question. Just on revenue streams, how satisfied would you say that you are with the diversity of revenue today at E*TRADE, its about two-thirds interest income, how are you thinking about diversifying it and which revenue line do you see the biggest room for growth looking out?

Rodger Lawson -- Executive Chairman of the Board

Listen, one of the (inaudible) it is a very, very good question. I think the -- clearly the large part of our revenue stream is from spread income and say, oh, my God, you're a regional bank, when you're looking things like that, but in reality, a lot -- the genesis of a lot of those revenue streams is not regional bank. I mean Mike talked about Corporate Services, we see what's happening in our retail brokerage space.

So as we look at those, those are clearly going to be important revenue streams and important margin streams of the company, Mike and karl talked, I'm uncomfortable articulate about (inaudible). As we look though to the future, RIA, manage money banking services, I do think -- I really do think the Board believes that they will become more important elements of our earnings, but even by 2023 they will more than pay for lunch, but they're not going to be the dominant -- as dominant as a spread income it is in the company. I would however add, let's just take the issues of manage money.

I said earlier, I think our competence is much greater than the Street realizes, it will be really in terms of revenue quite a small proportion of our revenue, but as retention elements and one of the Board members suggested as a defensive element, it really does keep a lot of clients in-house. So it also adds therefore that issue of spread income because it plans frequently cash flows. So even now through the 23 period, I would say less than a third of our total revenue is going to be coming out of those, what you might characterize as newer spaces or spaces that we've been developing over the last 18 months or so, but we only have told in.

Michael Pizzi -- Chief Financial Officer and Chief Operating Officer

Yeah, I think you have to look at it holistically in that same way, that we will always be focused on our active trader sort of core customer population, so when you talk about some of these other items that we have and that we've gone to in the RA channel with TCA, on expanding what we're doing on the Corporate Services side and making sure that we're driving that funnel looking at our digital wealth solutions even the simple core portfolios the Robo, the free built ETFs, managed solutions that we have. Those are all about forming and our bank products, where we talk about bank products, those are about forming a deeper and broader relationship with our customer set to drive more share of wallet to E*TRADE or to make them a more holistic E*TRADE customer.

When you look at the bank products for example if you can help someone become a banking customer with E*TRADE on the data that we have, they have three times more assets with us. They are two times higher in wallet share, three times higher revenue with us, they do twice as many trades and they trade about half the time or half as much as our normal customer set does. So that relationship building that's driving at our core which is going to continue we believe to keep those cash balances that Mike talked about at the right levels or growing while we engage and drive additional revenue streams. So it's all part of sort of the holistic message. So I think Rodger has got spot on in terms of the way that it will split out over time. I don't believe you'll see an enormous diversification of revenue streams, what you will see is a broader and deeper client relationship where we have more of their funds with us.

Rodger Lawson -- Executive Chairman of the Board

And the only thing I would add to that is that -- the key drivers on the net interest side, you have the margin book, you have securities lending, those are core to our business. It's been a record quarter on margin again, $11.2 billion for the quarter end. There's a lot of things that go through net interest and a good bit of it is related to the core of our business and the growth of that business.

Michael Cyprys -- Morgan Stanley -- Analyst

Okay, great. Just a follow-up on the operating margin mid '50s. Can you just talk about what's embedded there in terms of investments back into the business for growth and how do you know you're investing enough for growth, just given increased competition and disruptors in the space?

Michael Pizzi -- Chief Financial Officer and Chief Operating Officer

We look actively in terms of project list, in terms of resourcing, in terms of where to draw the line, in terms of things to fund and investments to make in the overall business. We understand the power of technology, how to improve in terms of operation efficiency and driving that investment. That's a lot of the work that we're doing right now really within the company. As we really -- looking forward we've evaluated the environment, we are looking at the amount we're spending, we look at what reasonably can be put to work and we think we're making the right investments. Obviously if disruption changes the industry or we need to spend more, we're going to talk to you about that and we're going to do what we need to do to maintain competitiveness and position within the industry.

Rodger Lawson -- Executive Chairman of the Board

Mike, just another thing as a plug for karl and Mike and that is I think part of the rationale for moving to see officer role, we have some very, very strong people within the company, but while to ensure that we didn't lose, we didn't lose anything in terms of operating efficiency and Mike made the comments in his prepared remarks about continuing to grow our operating leverage. And I think Karl and I talked about this a few days ago. We understand the challenges in the marketplace. I'm sure the things we don't see that will come along. But I mean, I do think we view money is fungible and I think we will make whatever harsh decisions we have to make in terms of allocation of resources to ensure that even in our scale not outmaneuvered by some people who have larger budgets. But I think actually and I say supply for these guys, I don't think the management is in the credit for the discipline in terms of execution around efficiencies and driving operating margin and they are old, I think we'll contribute to answering your question, I think your question is a good question by the way and I think its a very relevant question.

Operator

And our next question comes the line of Patrick O'Shaughnessy with Raymond James. Please go ahead.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good afternoon, maybe just one from me and you guys might disagree with this characterization, but at least in my perception E*TRADE's external communications about the criteria to remain independent does seem to morph between September 2016 its day, with initially a much greater emphasis on those tangible growth factors and things like net new asset growth, things that you discussed at the Barclays conference, third quarter '16 earnings call, can you talk about why the evaluation criteria appears -- expanded over time?

Rodger Lawson -- Executive Chairman of the Board

Well, I mean -- I don't know we have extended that much over time Patrick, well, like good evening Patrick, so long time since I've heard your voice. I think the -- I don't think that morphed that much over time. But I mean, I think one of the intriguing things I kind of touched on it earlier, all those drivers, all those things are very, very important. We had $6.2 billion in terms of that managed money, but that was one of our targets, well done, you know, the reality is, it will doesn't make a material difference in terms I think of our bottom line or EPS at this stage of the game.

But as we -- as we've gone through that period and we've been focused on those operational drivers, three of which I would argue, other than the one which on you focused on we had did. I would say that is -- it has changed very positively the discipline of the company, in terms of how we approach how we manage. And I think that I would say no services, Patrick, the financial results that has been delivered by the company speak for themselves in terms of the progress as we made over those two years. I think also it's given us a realistic appreciation of net new asset flow.

I mean really when Rich was asking the question on that, I read your book, Patrick and I think in fact when you were talking about revenue yield I can't remember what I call, is it ROCA, I can't even remember, but what I call revenue yield, but we look to that and I think as we've gone through this period, I think we recognize there are other drivers, we all live in land or other drivers of our revenue yield and therefore our contribution to our gross margins that we haven't seen.

So yes, we made -- we missed on the ROCA target, we hit all the other ones, but I think the most important thing has come out of it. I'm going to face new E*TRADE that sounds too theatrical, but I do think there is, all the things that we've made -- the comments we've made in our prepared remarks, it has changed the attitude toward the company and that is also by the way why I told to the end about EPS growth rate and ROE, they're a gazillion things we'll look out and I'm sure you guys will look at more than I will because you have actually have more detail and knowledge. But what is nice about the ROE and EPS, it fundamentally drives valuation if you believe it over a period of time and I think there is a nice straightforward common denominator metrics. So long way to answer your question, but I'd say, we have been focused on them, but they have enabled the company and its performance to much more aggressively by focusing on them, Patrick, than we originally thought would happen.

Patrick O'Shaughnessy -- Raymond James -- Analyst

All right. That's helpful. Thank you, Rodger.

Rodger Lawson -- Executive Chairman of the Board

You're welcome.

Operator

And our next question comes from the line of Craig Siegenthaler with Credit Suisse. Please go ahead.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks. I just wanted to come back to the net new asset organic growth rate, in some of your earlier comments on the RA custody channel, do you think there's an opportunity to improve the gap versus Schwab and Ameritrade? And also have you thought about also reporting an adjusted metric that also includes inflows from your Corporate Services business?

Karl Roessner -- Chief Executive Officer

Yeah, obviously, I think we can improve our growth rate with what we're doing in E*TRADE Advisor Services. The $12 billion of pipeline that we announced today is a pretty amazing number. We have 12 billion of commitments to move onto the platform. We bought the business, it was about 17, 18 billion and we've onboarded a $1 billion since April. When you look at sort of our quarterly flows, what is an amount of assets work coming from that channel, well, you can see quite clearly that it's going to pick up the percentage growth rate in assets.

Now in corporate services, yeah, when we have customers who do not take an action, they sort of just allow their stock divest. We don't report that in net new assets. We wait for that customer to take an action and sell that stock. We're giving you that breakout really for the first time in the investor deck, that's a very conservative way of looking at net new assets. We've historically that's the way we've done it and we thought it that's the right way, but if you actually took that vesting and put it through net new and moved it from the unvested portion in, you'd get a much higher rate of net new asset growth.

Craig Siegenthaler -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

And our next question comes from the line of Devin Ryan with JMP Securities. Please go ahead.

Devin Ryan -- JMP Securities -- Analyst

Hey, great. Thanks, good evening. So, you guys highlighted M&A a couple of times in the prepared remarks and I think the view was that any M&A during the past two year assessment period would be modest which makes sense, but now that we're through that, do you expand what you're thinking about or open to, I mean, then I guess is there anything larger that maybe you could make sense to enter with a scale deal. And then just more broadly, you have any other update on the types of things you might be looking at?

Karl Roessner -- Chief Executive Officer

Yeah, I think but for the most part our focus remains the same, right? What can we do to deliver better for our customers? So there are product set or are there additional capabilities that our customers are looking for whether that would be through the RA custody channel through our retail brokerage channel or on the Corporate Services side. And obviously if there's any kind of scale play in Corporate Services or something we can do to accelerate the growth that the RA channel we'll look at that.

The one thing that I would say is, we were pretty restrictive in terms of discussing transformative or larger scale M&A during the last two years. What I would say is we will remain disciplined. We will continue to run anything that we look at through the same capital lens that we've used in the past, to make sure that that will either generate or drive significant value for our shareholders or we're not going to do it. But I'm not going to say anything about not looking at larger transactions or larger deals that may be able to drive shareholder value over time.

Devin Ryan -- JMP Securities -- Analyst

Okay, great. Thank you. And then Just a quick follow-up here. So cover related to TCA, internal referrals have been huge for your custodian peers and so appreciate some of that color. Do you have any stats internally of either whether it would be in the corporate stock plan or the self directed brokerage side. How many assets you're actually losing to RA relationships or any thoughts on that? And then just on the economics, can you just help us with what those will look like if you keep those assets in-house and some others around 25 basis points?

Karl Roessner -- Chief Executive Officer

So I think this might be actually the shortest answer of the evening and I apologize for that. We don't disclose those stats. We do know where they transfer to and when they go. We do have some pretty good data on the conversations that or had with our FC channel and folks come to E*TRADE and ask whether or not we have an RA channel or have some that can provide them with advice.

So there is a reason that we went out after the RA platform that we did in terms of the custody platform at TCA. And the other part of that is our referral network and some of the pieces that are going to place will really start to fall in line over the next few weeks. So more to come on that channel and including what we believe it drives and what value we're deriving from it, but we look at it just a phenomenal tool to help us with both maintaining our stock plan customers and also driving additional value from both existing retail and future retail come to us.

Operator

And our next question comes from the line of Michael Carrier with Bank of America Merrill Lynch. Please go ahead.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

All right. Thanks, guys. Rodger, just a question for you. The growth has been healthy and management's plan, it seems reasonable. I guess just curious given where we are in the cycle for rates, retail engagement in your eyes, competition heating up net new asset targets, bit tougher to hit. Why not look at maybe a dual track the management plan and then also seeing what bids are out there, just given the known synergies in industry consolidation?

Rodger Lawson -- Executive Chairman of the Board

Well, actually I'm glad you asked that question Michael, I was going to make a comment at the end, because two or three good questions have been asked about that. The Board really effectively assesses valuation every year on this company. I think I mentioned that the first time at the Barclays conference a couple of years ago, but it is a process that's gone on for a reasonably lengthy period of time. We're not casual about it. We recognize where E*TRADE has come from and it allows us rising from the debt effectively, but getting into such a strong position now.

But each year as we've gone through that process we've done valuation. I will say that we have looked at times that I recall one period when I think the stock was eleven bucks a share, I joined in 2011, myself and Becky Saeger both joined in the same time. The stock was 8 bucks I think. It probably dropped, that was great for year ago. But then, when it was around $11, we did a very, very thorough assessment of valuation. We did something similar and then there were -- we had comments from people, we respected people who understood they said we should do that. So the $11 we did it and I think in the low 20's as well and extremely thorough evaluation. We didn't talk to third parties on the outside, we did it pretty much in the same basis we've just done it.

And obviously we made the decisions at the appropriate -- that time we should say we are going forward. And I would argue in spite of the fact that market is being lousy in the course of the last six or eight weeks that the board made and is very similar goal, we had very modest changes. We made very wise decisions in terms of shareholder value. So what I would say rather than start has running and I'm running parallel experiences which I think I mean destructive of value.

I think we do trust our judgment and in terms of using the kind of processes we've used to evaluate. I'd also say, it is the reality we know I use the word we know we produce responsibilities actually we do and we're open minded, some comes along and wants to talk to us, that may well be an interesting opportunity all I know is you know Michael, we would look at it very seriously and we do what we did when we look to those two prior examples I gave you. They were not formal offers, but they were certainly formal discussion.

So I think the process we have -- we don't want to destroy value and we don't want to stop as running, we want much stability, people to work here with their tails off to bring this company back to, I think if you look at our margins, a highly competitive state. And so I think a process that which we should do as a board in terms of evaluating our value, the way we approach it I think is a more sanguine and a more responsible way of handling in.

Operator

And our next question comes from line of Brennan Hawken with UBS. Please go ahead.

Brennan Hawken -- UBS -- Analyst

Good evening, thanks for taking the question and thanks for the patient, it's been a long call. So my question is for Rodger, you laid out these targets two years ago. What's often held up as the most important metric for the group is net new assets, it's the target that you missed in and you missed the range by a pretty wide margin. So, I know that you laid out that you don't have the RA business and that might be the reason, but you knew you didn't have the RA business when you laid the targets out. So there are a lot of investors that have got involved in your stock based upon targets hitting the targets or pursuing a sale and now you're telling us that you didn't even get any bids. So can you just explain that with a little bit more of a justification as to why you wouldn't pursue that process a bit more thoroughly?

Rodger Lawson -- Executive Chairman of the Board

All right, so I would like to go back to the beginning on the conference, the Barclays conference in September, actually immediately after that conference, we met with various investors like I remember meeting with TROW. They made it very clear that they felt that we we're deluding ourselves because of the absence of that channel. I think we probably expected more in terms of where that would we could grow it. We probably underestimate it a bit. We underestimate what we anticipated might be the growth rate from our business.

In terms of going forward another comment which I kind of alluded to when I talked to about Rich and Patrick's observations about revenue yield, the model we have is not exactly shabby, it does generates a very, very high level of revenue yield. We're very, very pleased with that, even though our growth rate in assets, net new assets is not as great as others in the marketplace and forgive me, I think it was down, Dan asked the question about did we expect to effectively to grow the same rate sort of a competition. And the answer is no. I don't think we expect to grow at the pace of some large Schwab. Schwab is a machine in terms of how it raises assets and I think that even TD, I think as we very effectively raising asset for its RA channel, we don't expect to grow that rate.

But we look at it and I would say truthfully, Brennan, I think we put our money where our mouth is in terms of how we develop to the financial performance of the company. I don't think I can't remember precisely, I know I should, but I can't. The time we had that conference, our stock was $0.26 or $0.27, I mean, OK, we were all crying at the moment because it's become a set back in the market for whatever reason, but it's affecting is all pretty much.

We probably, marginally I'm sure some of money figured, we weren't going to sell and therefore get the hell out of it. But in practical terms, we have delivered a lot of value, I mean material value. So in the sense, I don't think there is anything we need to be ashamed of and as I said earlier, soon I'm going to jump out of the window because we didn't hit on net new asset flows, that scale is very, very valuable, we rescale matters, size matters. And I would rather see is having more flows than that, but we're not going to chase after them or overpay for them we'll build them in a considered realistic way.

So we feel extremely comfortable with what we've done and the key question and your question is a fair question, I'm not offended by, the question is a fair question. I think as we go forward we really believe we could deliver these values, I mean shareholders reiterate, got turned upside down in 2007 and 2008, we're not going to give away value now, if we really see the and the board sees that value.

Brennan Hawken -- UBS -- Analyst

That's fair, that's fair, but I guess one other way of looking at it would be that there's been tremendous earnings growth which is totally true and totally valid, but here we're standing toward the tail end of what's been a great cycle. Interest rates have been a huge tailwind, the management team has done a great job of not botching it which prior previous E*TRADE management teams maybe a different story, but isn't this a time to look around you've got this wonderful setup given you laid out the two year target, you guys are small and it's a scale business increasingly. And so there are many who argue that this could be an opportune time to actually go through and assess some bids and so I guess that's the difficulty that (multiple speakers) with you.

Rodger Lawson -- Executive Chairman of the Board

So, Brennan, let me come back and try to give you more color in the sense that we look around all the time, we don't sit in our retail, assume you know there's nothing happening around this new well. We look around all the time. So to whatever premium we could prognosticate from where we are today, the plans we look at, we believe whatever evaluation methodology we use, we believe the plans we have will deliver considerably more value than taking or understanding of what's going on afford into a more serious engagement with someone. So we made -- we made as a board a realistic decision there is more value, remaining independent and growing through the plan than what we see in terms of what's out there in the marketplace, if someone wants to come along and offers a 100 bucks a share we know our responsibilities.

Brennan Hawken -- UBS -- Analyst

All right. Thanks for entertaining my pressing questions. Appreciate it.

Rodger Lawson -- Executive Chairman of the Board

You're welcome, Brennan.

Operator

And our last question comes from the line --

Karl Roessner -- Chief Executive Officer

Sorry, go ahead, Christopher.

Operator

Our last question comes from the line of Chris Allen with Compass Point. Please go ahead.

Christopher Allen -- Compass Point -- Analyst

Good evening guys. Just wanted to ask two quick questions. One on TCA the $12 billion and the pipeline is impressive, maybe if you could give us some color just in terms of how did TCA clients use them for the sole provider, I'm trying to think about who's coming on Board to tap into the E*TRADE referral program versus using them as a sole provider to think about organic growth on a longer-term there. And then secondarily any update on October DARTs and margin balances, just a number of client inquiries on that one.

Karl Roessner -- Chief Executive Officer

Yeah, sure. So the TCA channel is pretty widespread in terms of the uptake we've seen. We are right now sizing and scoping the referral programs both for the national and then we'll have regional and local programs, many of TCAs, you know there are lots of TCAs, existing RAs are interested in getting involved with that. And we announced that in the prepared remarks that Edelman Financial has joined us as well, which we're quite excited about. So that sort of where we are I think that business is a very nice business for us, in terms of the custody platform, it gives us a lot of optionality and lot of opportunity to engage a little differently with our retail clients and our stock plan administration plans as they come through the pipeline. On the DARTs number, to date we're up about 8% from the end of September and our margin balance is sitting at about $11.5 million as of yesterday.

Christopher Allen -- Compass Point -- Analyst

Thanks, guys.

Karl Roessner -- Chief Executive Officer

Yep.

Okay, so that's it for this call. I appreciate everybody joining and I look forward to speaking with you next quarter. Thanks a lot.

Operator

Ladies and gentlemen, that does conclude the call for today. We thank you for your participation and ask you please disconnect your lines.

Duration: 86 minutes

Call participants:

Karl Roessner -- Chief Executive Officer

Rodger Lawson -- Executive Chairman of the Board

Michael Pizzi -- Chief Financial Officer and Chief Operating Officer

Steven Chubak -- Wolfe Research -- Analyst

Christian Bolu -- Bernstein -- Analyst

Richard Repetto -- Sandler O'Neill -- Analyst

Chris Harris -- Wells Fargo -- Analyst

Kyle Voigt -- KBW -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Dan Fannon -- Jefferies -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

Craig Siegenthaler -- Credit Suisse -- Analyst

Devin Ryan -- JMP Securities -- Analyst

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Brennan Hawken -- UBS -- Analyst

Christopher Allen -- Compass Point -- Analyst

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