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Year Ended April 30, 2008 2007 2006
(in 000s)Consumer Financial Services – Operating Results
Service revenues:
Financial advisor production revenue $ 219,895 $ 199,673 $ 190,474
Other 89,272 68,661 32,256
309,167 268,334 222,730
Net interest income on:
Margin lending 42,184 52,163 54,152
Banking activities 54,384 23,963 –
96,568 76,126 54,152
Provision for loan loss reserves (42,004) (3,622) –
Other 221 (1,187) 4,430
Total revenues
(1)
363,952 339,651 281,312
Cost of services:
Compensation and benefits 159,413 136,105 135,256
Occupancy 27,454 26,886 26,970
Other 36,688 27,418 21,132
223,555 190,409 183,358
Amortization of intangible assets 21,365 36,625 36,625
Selling, general and administrative 108,904 92,806 94,164
Total expenses 353,824 319,840 314,147
Pretax income (loss) $ 10,128 $ 19,811 $ (32,835)
Supplemental information
Revenues:
(1)
Broker-dealer $ 312,136 $ 301,306 $ 281,312
Bank 51,816 38,345 –
$ 363,952 $ 339,651 $ 281,312
Pretax income (loss):
Broker-dealer $ (1,356) $ (3,275) $ (32,835)
Bank 11,484 23,086 –
$ 10,128 $ 19,811 $ (32,835)
(1)
Total revenues, less interest expense and loan loss reserves on mortgage loans held for investment.
FISCAL 2008 COMPARED TO FISCAL 2007 – Consumer Financial Services’ revenues, net of interest expense and
provision for loan loss reserves, for fiscal year 2008 increased $24.3 million, or 7.2%, over the prior year. The
increase was due to increases at HRB Bank of $13.5 million and HRBFA of $10.8 million.
Financial advisor production revenue was up $20.2 million, or 10.1%, from the prior year primarily due to higher
annualized production per advisor driven by an increase in fee-based account revenue and annuity transactions.
The following table summarizes the key drivers of production revenue:
Year Ended April 30, 2008 2007
Client trades 969,364 907,075
Average revenue per trade $ 120.22 $ 126.54
Ending balance of assets under administration (billions) $ 32.1 $ 33.1
Annualized productivity per advisor $233,000 $216,000
Other service revenues increased $20.6 million, primarily due to increases in fees received in connection with
the H&R Block Prepaid Emerald MasterCard»program of $19.2 million.
Net interest income on margin lending activities declined $10.0 million, or 19.1%, due to declining interest rates
and balances. In fiscal year 2008, the Federal Funds rate was reduced by a total of 325 basis points. As this rate is
reduced, we reduce the rates on margin and other asset balances, and therefore, net interest income is reduced. We
expect the impact of the current year rate reductions on fiscal year 2009 full year results to be a reduction in net
interest income of approximately $14 million. In addition to the decline of interest income from margin lending
activities, we also expect to see a year over year decline in interest earned on sweep accounts of approximately
$8 million.
Net interest income on banking activities increased $30.4 million from the prior year due to interest income
received on our new Emerald Advance loan products and an increase in average mortgage loans held for
28 H&R BLOCK 2008 Form 10K