HR Block 2008 Annual Report Download - page 62

SHORT-TERM BORROWINGS –The following table shows HRB Bank’s short-term borrowings for fiscal years
2008 and 2007:
Balance Rate Balance Rate
Year Ended April 30, 2008 2007
(dollars in 000s)
Ending balance of FHLB advances $ 25,000 2.64% $ 75,000 5.31%
Average balance of FHLB advances 13,743 5.32% 16,055 5.18%
The maximum amount of FHLB advances outstanding during fiscal years 2008 and 2007 was $179.0 million.
NEW ACCOUNTING PRONOUNCEMENTS
See Item 8, note 1 to our consolidated financial statements for a discussion of recently issued accounting
pronouncements.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
We report our financial results in accordance with generally accepted accounting principles (GAAP). However, we
believe certain non-GAAP performance measures and ratios used in managing the business may provide additional
meaningful comparisons between current year results and prior periods by excluding certain items that do not
represent results from our basic operations. Reconciliations to GAAP financial measures are provided below.
These non-GAAP financial measures should be viewed in addition to, not as an alternative for, our reported GAAP
results.
Year Ended April 30, 2008 2007
Banking Ratios
(dollars in 000s)
Efficiency Ratio:
Total Consumer Financial Services expenses $ 449,825 $ 325,709
Less: Interest and non-banking expenses (387,229) (309,498)
Non-interest banking expenses $ 62,596 $ 16,211
Total Consumer Financial Services revenues $ 459,953 $ 388,090
Less: Non-banking revenues and interest expense (341,658) (343,876)
Banking revenue – net of interest expense $ 118,295 $ 44,214
53% 37%
Net Interest Margin:
Net interest income – banking
(1)
$ 78,498 $ 23,963
Divided by average bank earning assets $ 1,417,366 $ 863,737
5.54% 2.77%
Pretax Return on Average Assets:
Pretax banking income $ 11,484 $ 23,086
Divided by average bank assets $ 1,442,868 $ 888,320
0.80% 2.60%
(1)
Excludes revenue sharing with Tax Services on Emerald Advance activities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL
INTEREST RATE RISK –We have a formal investment policy that strives to minimize the market risk exposure of
our cash equivalents and available-for-sale (AFS) securities, which are primarily affected by credit quality and
movements in interest rates. These guidelines focus on managing liquidity and preserving principal and earnings.
Most of our interest rate sensitive assets and liabilities are managed at the subsidiary level.
Our cash equivalents are primarily held for liquidity purposes and are comprised of high quality, short-term
investments, including qualified money market funds. Because our non-restricted cash and cash equivalents have
a relatively short maturity, our portfolio’s market value is relatively insensitive to interest rate changes. We hold
investments in fixed-income securities at our captive insurance subsidiary. See the table below for sensitivities to
changes in interest rates. See additional discussion of interest rate risk included below in Consumer Financial
Services and Discontinued Operations.
As our short-term borrowings are generally seasonal, interest rate risk typically increases through our third
fiscal quarter and declines to zero by fiscal year-end. While the market value of short-term borrowings is relatively
42 H&R BLOCK 2008 Form 10K