DALLAS, Nov. 5, 2014 /PRNewswire/ -- SWS Group, Inc.
(NYSE: SWS) ("SWS" or the "Company") today reported a net loss of
$307,000, or $0.01 per diluted share, for its first quarter of
fiscal 2015 on net revenues of $61.5
million, as compared to net income of $323,000, or $0.01
per diluted share, on net revenues of $69.0
million for the first quarter of fiscal 2014.
"For the first quarter of fiscal 2015, we reported pre-tax
profits in each of our four operating segments, with improved
results in our Clearing, Retail and Banking segments compared to
last year," said James H. Ross,
Chief Executive Officer of SWS Group, Inc. "We continue to expect
completion of the merger with Hilltop Holdings Inc. ("Hilltop") by
the end of the calendar year with a special meeting of stockholders
scheduled for November 21, 2014."
The largest contributor to the $7.5
million decrease in fiscal 2015 first quarter net revenues,
as compared to last fiscal year's first quarter, was a $3.8 million decline in net gains on principal
transactions, which was driven by decreases in municipal finance
and taxable fixed income trading gains on less robust trading
activity than the Company experienced last year. Commissions
revenue was down $2.9 million for the
fiscal 2015 first quarter, as compared to the fiscal 2014 first
quarter, primarily due to a $2.2
million decrease in the Retail segment and a $656,000 decrease in the Institutional segment.
These decreases were offset by a $555,000 increase in net interest revenues for
the fiscal 2015 first quarter, as compared to the same period last
fiscal year. The increase was primarily due to a $653,000 increase in net interest income in the
stock loan business from a 24 percent increase in average stock
borrowed portfolio balances combined with a 12 basis point increase
in the net interest spread in the stock lending business.
Fiscal 2015 first quarter operating expenses decreased
$6.8 million, or 10 percent, as
compared to the first quarter of fiscal 2014. The largest
contributor to the decrease was a $7.7
million decline in commissions and other employee
compensation expense due to staff reductions made in September 2013 and lower variable compensation
due to weaker business segment revenues. In addition, for the three
months ended September 30, 2014, the
Company recorded a $4.4 million gain
on the change in valuation of its outstanding warrants, which
included a $506,000 gain upon the
exercise by Oak Hill Capital Partners III, L.P. ("OHCP") and Oak
Hill Capital Management Partners III, L.P. (collectively with OHCP,
"Oak Hill") of 75 percent of their
warrants, as compared to a $2.0
million gain for the three months ended September 30, 2013. Oak
Hill's exercise of their warrants on September 26, 2014, led to $338,000 of additional interest expense for the
write-off of deferred debt issuance costs and a $4.1 million loss on the early extinguishment of
the corresponding debt.
Subsequent to the end of the fiscal 2015 first quarter, on
October 2, 2014 Hilltop exercised its
warrant to purchase 8,695,652 shares of SWS common stock for
$5.75 per share paid by automatically
reducing the amount due to Hilltop as lenders by $50 million.
Following Hilltop's exercise of its warrant on October 2, 2014, the Company estimated tangible
book value to be $8.32 per share (see
Non-GAAP reconciliation below).
Clearing Segment
The Clearing segment reported pre-tax income of $1.3 million on net revenues of $5.1 million for the fiscal 2015 first quarter,
as compared to a pre-tax loss of $227,000 on net revenues of $4.7 million for the first quarter of fiscal
2014.
The 10 percent increase in Clearing segment net revenues for the
fiscal 2015 first quarter, as compared to the first quarter of
fiscal 2014, was primarily due to an increase in other revenue,
driven by a $364,000 increase in
third party servicing fees. Clearing fee revenue decreased
$239,000, primarily due to a 19
percent decrease in the number of general securities tickets
processed and an 8 percent decrease in the number of
correspondents, as compared to last year's quarter. These decreases
were partially offset by a 10 percent increase in revenue per
ticket to $13.90 in the first quarter
of fiscal 2015, from $12.63 in the
first quarter of fiscal 2014.
Operating expenses in the Clearing segment decreased
$1.0 million, or 21 percent, to
$3.9 million for the fiscal 2015
first quarter, from $4.9 million for
the same period last fiscal year. The largest contributor to the
decrease was a $933,000 decline in
operations and information technology expense, as compared to last
fiscal year's quarter.
Retail Segment
For the first quarter of fiscal 2015, the Retail segment
reported pre-tax income of $2.5
million on net revenues of $27.8
million, as compared to pre-tax income of $2.3 million on net revenues of $29.8 million in the first quarter of fiscal
2014.
The $2.1 million decrease in
Retail segment net revenues for the fiscal 2015 first quarter, as
compared to the same period last fiscal year, was primarily due to
a $2.2 million decline in commission
revenues with decreases in both the Private Client Group and SWS
Financial Services businesses. The decreases were driven by a
reduction in the number of both employee and independent registered
representatives, as well as an overall decline in customer
activity. The decrease in commission revenues was partially offset
by a $343,000 increase in other
revenues, primarily due to an increase in third party servicing
fees in the fiscal 2015 first quarter, as compared to the first
quarter of fiscal 2014.
Operating expenses in the Retail segment decreased $2.3 million, or 9 percent, to $25.2 million for the fiscal 2015 first quarter,
from $27.6 million for the fiscal
2014 first quarter. The largest contributor to the decrease was a
$2.0 million decrease in commissions
and other employee compensation expense, primarily due to reduced
headcount and lower variable compensation on lower revenues in the
quarter, as compared to the same period last fiscal year. In
addition, operations and information technology expenses decreased
$299,000, while occupancy, equipment
and computer service costs decreased $228,000. Partially offsetting these decreases,
was a $318,000 increase in
advertising and promotional expense for the fiscal 2015 first
quarter, as compared to the same period last fiscal year.
Institutional Segment
The Institutional segment reported pre-tax income of
$4.5 million on net revenues of
$23.4 million for the fiscal 2015
first quarter, as compared to pre-tax income of $6.2 million on net revenues of $28.0 million for the first quarter of fiscal
2014.
The 16 percent decrease in Institutional segment net revenues
was primarily due to a $3.9 million
decline in net gains on principal transactions due to reduced
trading activity, as compared to the same period last fiscal year,
with the municipal finance business down $2.5 million and the taxable fixed income
business down $1.4 million. In
addition, investment banking and advisory fees decreased
$888,000, primarily due to reduced
underwriting transactions in the quarter, as compared to the same
period last fiscal year, while tighter spreads and a decline in
municipal new issue volume led to a $656,000 decrease in commissions revenue for the
segment. Municipal finance commissions revenue declined
$1.1 million, while taxable fixed
income commissions revenue declined $849,000, as compared to last fiscal year's first
quarter. These decreases were partially offset by a $1.3 million increase in portfolio trading
commissions revenue due to increased customer activity in the
quarter. Net interest revenue in the segment increased $868,000 for the fiscal 2015 first quarter, as
compared to the fiscal 2014 first quarter, primarily due to a 24
percent increase in the average stock borrowed portfolio balances
and a 12 basis point increase in the net interest spread earned in
the stock lending business.
Institutional segment operating expenses decreased 13 percent in
the first quarter of fiscal 2015 to $18.9
million, from $21.8 million in
the fiscal 2014 first quarter. The largest contributor to the
decrease was a $2.6 million decline
in commissions and other employee compensation due to staff
reductions made in September 2013 and
lower variable compensation paid on lower revenues in this year's
quarter.
Banking Segment
The Banking segment reported pre-tax income of $2.6 million on net revenues of $9.3 million for the fiscal 2015 first quarter,
as compared to pre-tax income of $1.2
million on net revenues of $9.1
million for the fiscal 2014 first quarter.
Operating expenses in the segment decreased $1.2 million, or 15 percent, primarily due to a
$898,000 decrease in commissions and
other employee compensation and a $194,000 decrease in regulatory assessments in
the fiscal 2015 first quarter, as compared to the same period last
fiscal year. The Company's banking subsidiary, Southwest
Securities, FSB (the "Bank"), recorded a $170,000 loan loss recapture in the fiscal 2015
first quarter, as compared to a $466,000 loan loss recapture in last fiscal
year's quarter.
At September 30, 2014, the Bank's
non-performing assets were $21.4
million, a decrease of 26.7 percent from $29.3 million at September
30, 2013. Total classified assets were $39.9 million at September
30, 2014, or 21.9 percent of capital plus allowance for loan
losses, as compared to $58.7 million,
or 32.6 percent of capital plus allowance for loan losses at
September 30, 2013.
At September 30, 2014, the Bank's
Tier 1 (core) capital ratio was 14.5 percent and total risk-based
capital ratio was 25.6 percent, compared to a Tier 1 (core) capital
ratio of 13.5 percent and total risk-based capital ratio of 27.3
percent at September 30, 2013.
About SWS Group
SWS Group, Inc. is a Dallas-based holding company offering a broad
range of investment and financial services through its
subsidiaries. The Company's common stock is listed and traded
on the New York Stock Exchange under the symbol SWS. SWS
Group, Inc. subsidiaries include Southwest Securities, Inc., SWS
Financial Services, Inc., and Southwest Securities, FSB.
Important Information for Investors and Shareholders
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of such jurisdiction. Hilltop has filed with the
Securities and Exchange Commission ("SEC") a registration statement
on Form S-4 (Registration No. 333-196367) containing a definitive
proxy statement of SWS that also constitutes a prospectus of
Hilltop, and SWS and Hilltop will each file other documents with
respect to the proposed transaction and the definitive proxy
statement/prospectus will be mailed to shareholders of SWS.
Investors and security holders of SWS are urged to read the
definitive proxy statement/prospectus and other documents filed
with the SEC carefully and in their entirety because they contain
important information. Investors and security holders of SWS may
obtain free copies of the registration statement and the definitive
proxy statement/prospectus and other documents filed with the SEC
by SWS or Hilltop through the website maintained by the SEC at
www.sec.gov. Copies of the documents filed with the SEC by SWS are
available free of charge on SWS's internet website at www.swst.com
or by contacting SWS's Investor Relations Department at (214)
859-1800. Copies of the documents filed with the SEC by Hilltop are
available free of charge on Hilltop's internet website at
www.hilltop-holdings.com or by contacting Hilltop's Investor
Relations Department at (214) 252-4029.
SWS, Hilltop, their respective directors and certain of their
executive officers and other members of management and employees
may be considered participants in the solicitation of proxies in
connection with the proposed transaction. Information about the
directors and executive officers of SWS is set forth in Amendment
No. 1 to its Annual Report on Form 10-K for the year ended
June 30, 2014, which was filed with
the SEC on September 26, 2014.
Information about the directors and executive officers of Hilltop
is set forth in its most recent proxy statement, which was filed
with the SEC on May 2, 2014. Other
information regarding the participants in the proxy solicitations
and a description of their direct and indirect interests, by
security holdings or otherwise, are contained in the definitive
proxy statement/prospectus and other relevant materials to be filed
with the SEC when they become available.
Forward-Looking Statements
This news release contains forward-looking statements.
Readers are cautioned that any forward-looking statements,
including those predicting or forecasting future events or results,
which depend on future events for their accuracy, embody
projections or assumptions, or express the intent, belief or
current expectations of the company or management, are not
guarantees of future performance and involve risks and
uncertainties. Actual results may differ materially as a
result of various factors, some of which are out of the Company's
control, including, but not limited to, volume of trading in
securities, volatility of securities prices and interest rates,
liquidity in capital and credit markets, availability of lines of
credit, customer margin loan activity, creditworthiness of the
Company's correspondents, trading counterparties and customers,
demand for housing, general economic conditions, especially in
Texas and New Mexico, changes in the commercial lending
and regulatory environments and other factors discussed in the
Company's Amendment No. 1 to the Annual Report on Form 10-K/A and
in the Company's other reports filed with and available from the
Securities and Exchange Commission.
Segment
Results
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues
|
|
Pre-Tax
Income
|
|
Three Months
Ended
|
|
Three Months
Ended
|
|
Sept. 30,
2014
|
|
Sept. 30,
2013
|
|
Sept. 30,
2014
|
|
Sept. 30,
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Clearing
|
$
|
5,147
|
|
$
|
4,674
|
|
$
|
1,251
|
|
$
|
(227)
|
Retail
|
|
27,760
|
|
|
29,838
|
|
|
2,519
|
|
|
2,251
|
Institutional
|
|
23,387
|
|
|
28,003
|
|
|
4,486
|
|
|
6,205
|
Bank
|
|
9,312
|
|
|
9,087
|
|
|
2,591
|
|
|
1,195
|
Other consolidated
entities
|
|
(4,100)
|
|
|
(2,607)
|
|
|
(11,430)
|
|
|
(9,269)
|
Consolidated
|
$
|
61,506
|
|
$
|
68,995
|
|
$
|
(583)
|
|
$
|
155
|
Non-GAAP Reconciliation: Estimated Tangible Book Value per
share as of October 2, 2014
SWS has included the presentation of Estimated
Tangible Book Value per share as of October
2, 2014. Estimated Tangible Book Value per share is a
non-GAAP financial measure as defined in Item 10(e) of Regulation
S-K. Estimated Tangible Book Value per share as of October 2, 2014 reflects book value per share
less goodwill and does not take into account any change in book
value that occurred between September 30,
2014 and October 2, 2014 other
than the exercise of Hilltop's warrant. While book value changes on
a daily basis, we are not aware of any material changes to book
value during that time period beyond what is depicted in the table
below. SWS believes that the presentation of this non-GAAP
financial measure provides useful information. While management
believes this non-GAAP financial measure is useful in evaluating
SWS, this information should be considered as supplemental in
nature and not as a substitute for, or superior to, the related
financial information prepared in accordance with GAAP.
Stockholders Equity
as reported on 9/30/2014
|
355,411
|
Less: Goodwill as
reported on 9/30/2014
|
(7,552)
|
Tangible Book Value
as reported on 9/30/2014
|
347,859
|
|
|
Estimated
effects of Hilltop (HTH) warrant exercise
(10/2/2014)
|
|
Equity from HTH
warrant exercise(1)
|
61,130
|
Loss on early
extinguishment of debt(2)
|
(5,476)
|
Gain on early warrant
exercise(2)
|
303
|
Write-off of deferred
debt issuance costs(2)
|
(451)
|
Estimated increase in
book value after HTH warrant exercise on 10/2/2014
|
55,506
|
|
|
Estimated Tangible
Book Value at 10/2/2014
|
403,366
|
|
|
Common shares
outstanding on 9/30/2014
|
39,454
|
Deferred compensation
plan shares on 9/30/2014
|
308
|
Additional common
shares issued to HTH on 10/2/2014
|
8,696
|
Estimated shares
outstanding at 10/2/2014
|
48,458
|
|
|
Estimated Tangible
Book Value per share at 10/2/2014(3)
|
$ 8.32
|
___________
|
(1) Represents the
issuance of 8,695,652 shares to Hilltop at $7.03 per share upon
exercise of its
warrant.
|
(2) Income statement
items shown above reflect no tax expense.
|
(3) The depiction
above does not account for the remaining 2,173,913 warrant shares
owned by Oak Hill.
|
SWS GROUP, INC. AND
SUBSIDIARIES
Consolidated
Statements of Financial Condition
September 30, 2014
and June 30, 2014
(In thousands,
except par values and share amounts)
|
|
|
September
30,
2014
|
|
June 30,
2014
|
Assets
|
(Unaudited)
|
|
|
Cash and cash
equivalents
|
$
107,543
|
|
$
99,620
|
Assets segregated for
regulatory purposes
|
181,982
|
|
190,240
|
Receivable from
brokers, dealers and clearing organizations
|
2,240,439
|
|
1,992,941
|
Receivable from
clients, net of allowances
|
250,256
|
|
253,579
|
Loans, net
|
650,174
|
|
614,356
|
Securities owned, at
fair value
|
270,102
|
|
235,625
|
Securities held to
maturity
|
11,482
|
|
12,549
|
Securities purchased
under agreements to resell
|
74,961
|
|
72,582
|
Goodwill
|
7,552
|
|
7,552
|
Securities available
for sale
|
447,473
|
|
494,848
|
Other
assets
|
76,581
|
|
102,014
|
Total assets
|
$ 4,318,545
|
|
$ 4,075,906
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
Short-term
borrowings
|
$
100,000
|
|
$
59,000
|
Payable to brokers,
dealers and clearing organizations
|
2,108,206
|
|
1,913,976
|
Payable to
clients
|
350,731
|
|
354,494
|
Deposits
|
971,689
|
|
1,000,139
|
Securities sold under
agreements to repurchase
|
48,948
|
|
39,343
|
Securities sold, not
yet purchased, at fair value
|
160,296
|
|
121,355
|
Drafts
payable
|
26,507
|
|
27,641
|
Advances from Federal
Home Loan Bank
|
76,202
|
|
77,130
|
Long-term debt,
net
|
55,655
|
|
87,769
|
Warrants
|
14,292
|
|
27,796
|
Other
liabilities
|
50,608
|
|
57,391
|
Total liabilities
|
3,963,134
|
|
3,766,034
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
Preferred stock of
$1.00 par value. Authorized 100,000 shares; none
issued
|
—
|
|
—
|
Common stock of $0.10
par value. Authorized 60,000,000 shares, issued 39,833,879
and outstanding 39,453,530 shares at September 30, 2014; issued
33,312,140 and outstanding 32,757,177 shares at June 30,
2014
|
3,983
|
|
3,331
|
Additional paid-in capital
|
368,723
|
|
324,480
|
Accumulated
deficit
|
(10,746)
|
|
(10,439)
|
Accumulated other
comprehensive income – unrealized holding loss, net of
tax
|
(5,485)
|
|
(4,519)
|
Deferred
compensation, net
|
3,265
|
|
3,189
|
Treasury
stock (380,349 shares at September 30, 2014 and 554,963 shares at
June 30, 2014, at cost)
|
(4,329)
|
|
(6,170)
|
Total stockholders' equity
|
355,411
|
|
309,872
|
Total liabilities and
stockholders' equity
|
$ 4,318,545
|
|
$ 4,075,906
|
SWS GROUP, INC. AND
SUBSIDIARIES
Consolidated
Statements of Comprehensive Loss
For the three months
ended September 30, 2014 and 2013
(In thousands,
except per share and share amounts)
(Unaudited)
|
|
|
Three
Months
Ended
September 30,
2014
|
Three
Months
Ended
September 30,
2013
|
Revenues:
|
|
|
Net revenues from clearing
operations
|
$
2,053
|
$
2,293
|
Commissions
|
27,648
|
30,523
|
Interest
|
23,471
|
21,174
|
Investment banking, advisory
and administrative fees
|
11,266
|
11,315
|
Net gains on principal
transactions
|
4,346
|
8,175
|
Other
|
5,512
|
6,563
|
Total
revenue
|
74,296
|
80,043
|
|
|
|
Interest expense
|
12,790
|
11,048
|
Net revenues
|
61,506
|
68,995
|
|
|
|
Non-interest
expenses:
|
|
|
Commissions and other
employee compensation
|
44,824
|
52,563
|
Occupancy, equipment and
computer service costs
|
7,237
|
7,752
|
Communications
|
3,005
|
3,348
|
Floor brokerage and clearing organization
charges
|
1,274
|
1,112
|
Advertising and
promotional
|
843
|
650
|
Recapture of provision for
loan loss
|
(170)
|
(466)
|
Other
|
5,408
|
5,848
|
Total non-interest
expenses
|
62,421
|
70,807
|
|
|
|
Other gains
(losses):
|
|
|
Unrealized gain on
warrants valuation
|
4,439
|
1,967
|
Loss on early
extinguishment of debt
|
(4,107)
|
--
|
(Loss) income before
income tax benefit
|
(583)
|
155
|
Income tax
benefit
|
(276)
|
(168)
|
Net (loss)
income
|
(307)
|
323
|
Net loss recognized
in other comprehensive loss
|
(966)
|
(757)
|
Comprehensive
loss
|
$
(1,273)
|
$
(434)
|
|
|
|
(Loss) earnings
per share – basic
|
|
|
Net
(loss) income
|
$
(0.01)
|
$
0.01
|
Weighted
average shares outstanding – basic
|
33,461,302
|
32,952,684
|
|
|
|
(Loss)
earnings per share – diluted
|
|
|
Net
(loss) income
|
$
(0.01)
|
$
0.01
|
Weighted
average shares outstanding – diluted
|
33,461,302
|
32,952,684
|
SOURCE SWS Group, Inc.