Charles Schwab 2007 Annual Report Download - page 29

LETTER FROM THE CEO | 27
(In Millions, Except Per Share Amounts and as Noted) 2006-07 2007 2006 2005
Net revenues 16% $ 4,994 $ 4,309 $ 3,619
Expenses excluding interest 11% $ 3,141 $ 2,833 $ 2,592
Net income 96% $ 2,407 $ 1,227 $ 725
Income from continuing
operations per share – basic 33% $ .93 $ .70 $ .49
Income from continuing
operations per share – diluted 33% $ .92 $ .69 $ .48
Basic earnings per share 105% $ 1.99 $ .97 $ .56
Diluted earnings per share 107% $ 1.97 $ .95 $ .55
Dividends declared per common share 48% $ .200 $ .135 $ .089
Special dividend declared per common share 100% $ 1.00 $ - $ -
Weighted-average common shares
outstanding – diluted (5% ) 1,222 1,286 1,308
Closing market price per share (at year end) 32% $ 25.55 $ 19.34 $ 14.67
Book value per common share (at year end) (19% ) $ 3.22 $ 3.96 $ 3.45
Net revenue growth 16% 19% 6%
Pre-tax profi t margin from continuing operations 37.1% 34.3% 28.4%
Return on stockholders’ equity 55% 26% 16%
Full-time equivalent employees
(at year end, in thousands) 7% 13.3 12.4 11.6
Net revenues per average
full-time equivalent employee (in thousands) 7% $ 387 $ 362 $ 319
Note: All amounts are presented on a continuing operations basis to exclude the impact of the sale of U.S. Trust Corporation, which was completed on July 1, 2007.
800,000. In addition, total brokerage
accounts rose for the fi rst time in fi ve
years, by 5 percent to 7 million; banking
accounts rose nearly 80 percent, to
262,000; and both acquisitions and
organic growth helped us serve 1.2
million retirement plan participants by
year end 2007, more than double the
2006 total.
We also believe our formula works
because clients recognize and value
our commitment to Schwab’s fi nancial
health. An important aspect of that com-
mitment is risk management. While
conceding that it’s impractical to elimi-
nate all risks in our business, we are
extremely thorough and thoughtful in
determining the nature and extent of the
fi nancial risks we are willing to assume
as part of running the company. The
absence of any signifi cant damage to
Schwab during the mortgage and credit
market meltdowns of 2007 stood in stark
contrast to the experience of other fi rms
whose fi nancial performance is more
dependent on the magnitude of the risks
they assume. Careful risk management
also limits the capital we need to sup-
port business growth, thereby facilitating
the return of excess amounts to stock-
holders. Aided by the sale of U.S. Trust,
we were able to return a total of $4.2
billion in excess equity during 2007 via
a combination of regular and special
dividends, share repurchases, and a
stock tender offer.
All in all, a superb year for Schwab,
but is meaningful progress possible
from here? Absolutely. Based on a
planning scenario that assumed a 4.25
percent Fed Funds rate and 7.5 percent
equity market appreciation, our initial
expectations for 2008 included double-
digit revenue growth, a pre-tax profi t
margin of 39 percent, 20-plus percent
growth in earnings from continuing op-
erations, and an ROE in excess of 30
percent. We recognize, however, that
short-term rates and equity market
returns are currently below the levels
assumed in our plan, and that Schwab
and its clients continue to face a tough
environment. To the extent these condi-
tions persist in 2008, we would expect
to balance expense management that
addresses the environment’s effects on
our revenues against our need to invest
appropriately to drive future growth.
Schwab is more capable than ever, and
the company is just beginning to demon-
strate what it can accomplish in this new
era of combined client focus and operating
discipline. We hope to continue earning
your support as we apply our formula in
pursuit of the opportunities ahead.
Sincerely,
Joe Martinetto
Executive Vice President and
Chief Financial Offi cer
FINANCIAL HIGHLIGHTS | 27
GROWTH RATE
1-YEAR