Charles Schwab 2008 Annual Report Download - page 38

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THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)
- 24 -
Financial information for the Company’s reportable segments is presented in the following table:
Growth Rate
For the year ended December 31, 2007-2008 2008 2007 2006
Investor Services:
Net revenues 1% $ 3,385 $ 3,352 $ 2,940
Expenses excluding interest - (2,107) (2,115) (1,982)
Contribution margin 3% $ 1,278 $ 1,237 $ 958
Advisor Services:
Net revenues 12% $ 1,250 $ 1,121 $ 966
Expenses excluding interest (4%) (612) (639) (562)
Contribution margin 32% $ 638 $ 482 $ 404
Corporate and Retirement Services:
Net revenues - $ 504 $ 506 $ 373
Expenses excluding interest 6% (389) (367) (268)
Contribution margin (17%) $ 115 $ 139 $ 105
Unallocated and other:
Net revenues N/M $ 11 $ 15 $ 30
Expenses excluding interest N/M (14) (20) (21)
Contribution margin N/M $ (3) $ (5) $ 9
Total:
Net revenues 3% $ 5,150 $ 4,994 $ 4,309
Expenses excluding interest (1%) (3,122) (3,141) (2,833)
Contribution margin 9% $ 2,028 $ 1,853 $ 1,476
N/M Not meaningful.
Investor Services
Net revenues increased in 2008 by $33 million, or 1%, from 2007 primarily due to increases in trading revenue and net
interest revenue, partially offset by the decrease in other revenue. Trading revenue increased due to higher daily average
revenue trades. Net interest revenue increased due to higher levels of interest-earning assets, partially offset by the impact of a
decrease in the average net yield earned on these assets. The decrease in other revenue was primarily due to losses on
investments in the Company’s securities available for sale portfolio. Expenses excluding interest were relatively flat in 2008
as compared to 2007 as a result of lower incentive compensation expense, offset by a charge for individual client complaints
and arbitration claims related to Schwab YieldPlus Fund investments in 2008.
Net revenues increased in 2007 by $412 million, or 14%, from 2006 due to increases in net interest revenue and asset
management and administration fees. Net interest revenue increased due to higher levels of market interest rates and changes
in the composition of interest-earning assets, including increases in securities available for sale and loans to banking clients.
Asset management and administration fees increased as a result of higher balances of client assets in the Company’s
proprietary mutual funds and Mutual Fund OneSource service, as well as balances participating in advisory and managed
account service programs. Expenses excluding interest increased in 2007 by $133 million, or 7%, from 2006 primarily due to
higher client servicing and other related expenses, as well as higher market development expense.
Advisor Services
Net revenues increased in 2008 by $129 million, or 12%, from 2007 due to increases in trading revenue and asset
management and administration fees, offset by the decrease in net interest revenue. Trading revenue increased due to higher
daily average revenue trades. Asset management and administration fees increased as a result of higher balances of client
assets in the Company’s proprietary funds. Net interest revenue decreased due to the impact of a decrease in the average net
yield earned on interest-earning assets. Expenses excluding interest decreased in 2008 by $27 million, or 4%, from 2007
primarily due to lower incentive compensation expense.