DALLAS, Aug. 26 /PRNewswire-FirstCall/ -- SWS Group, Inc.
(NYSE:SWS) today reported net income of $23.6 million, or diluted
earnings per share (EPS) of 87 cents, on net revenues of $381.6
million for fiscal 2009, compared with net income of $31.9 million,
or diluted EPS of $1.17, on net revenues of $301.6 million for
fiscal 2008. Net revenue is total revenue less interest expense.
For the fourth quarter ended June 26, 2009, SWS recorded net income
of $3.6 million, or diluted EPS of 13 cents, on net revenues of
$99.0 million, compared with net income of $8.4 million, or diluted
EPS of 31 cents, on net revenues of $87.8 million in the fourth
quarter of the prior fiscal year. Diluted EPS for fiscal 2009 and
the June quarter was reduced by 12 cents when the company
classified the impairment of two common stocks it holds for
investment as "other than temporary." Accounting rules required
recording the decline in market value of the stocks - NYSE Euronext
(NYX) and U.S. Home Systems, Inc. (USHS) - through the income
statement. The prior year's fourth quarter included a $1.1 million,
or 4 cents per diluted share, extraordinary gain from the
acquisition of M.L. Stern & Co. Income from continuing
operations was $23.6 million, or diluted EPS of 87 cents, in fiscal
2009, compared with $30.9 million, or diluted EPS of $1.13, in the
prior fiscal year. Fourth quarter income from continuing operations
was $3.6 million, or 13 cents per diluted share, versus $7.3
million, or 27 cents per diluted share, in the fourth quarter a
year ago. "All of our business segments were profitable in fiscal
2009 - a year marked by a credit crisis, volatile markets and deep
recession," said President and Chief Executive Officer Donald W.
Hultgren. "Parts of the company performed extraordinarily well, and
our business managers demonstrated their skill and experience in a
very tough environment. All in all we are pleased with the results
and believe we are well positioned to benefit as the economy and
markets improve." Mr. Hultgren said the institutional segment, led
by taxable fixed income, had its best year with $181.1 million in
net revenues and $63.7 million in pre-tax income. "Our operating
expenses have increased," Mr. Hultgren said, "in part because we
took advantage of opportunities for expansion of both our brokerage
and banking businesses by recruiting experienced advisors and
bankers while they were available." The company injected a total of
$25 million of capital into its subsidiary bank, Southwest
Securities, FSB, $15 million in the third quarter and $10 million
in the fourth quarter of fiscal 2009, to strengthen the balance
sheet and support additional growth. The company's net revenues
increased $80 million from fiscal 2008 to fiscal 2009. Commissions
increased $67.6 million, net gains on principal transactions
increased $26.2 million, and net interest increased $2.3 million.
Most of the commission revenue gain came from the institutional
segment, which recorded a $46.7 million increase. Greater
volatility and lack of liquidity resulted in wider spreads that in
turn led to increased client activity, primarily in the fixed
income business. The retail segment benefitted from recording a
full year of M.L. Stern revenue, $35.2 million, versus only one
quarter of revenue, $9.6 million, in fiscal 2008 when that
acquisition was made. These increases in commission revenue were
partially offset by decreases for SWS Financial Services, Inc.,
$2.2 million, and the private client group of Southwest Securities,
Inc., $2.4 million. The increase in net gains on principal
transactions resulted primarily from greater market volatility and
increased customer activity in our fixed income business. The
increase in net interest resulted primarily from an increase in the
average loan balances at the bank. The increase in these revenues
was partially offset by a $12.6 million decline from a variety of
sources of other revenue including a $3.5 million decrease in
revenue from the sale of insurance products, $2.9 million increase
in losses related to a limited partnership venture capital fund,
$1.9 million decrease in regulatory fees collected, and $1.7
million in net losses on the sale of real estate owned (REO)
property at the bank. Operating expenses increased $90.7 million
for fiscal 2009 as compared with operating expenses for the prior
fiscal year. Commissions and other employee compensation increased
$55.2 million. Occupancy, equipment and computer service costs
increased $5.9 million, and other expense increased $24.6 million.
The increase in commissions and other employee compensation
included a full year of M.L. Stern expenses, $32.8 million, for
fiscal 2009 versus three months, $8.6 million, for fiscal 2008, as
the acquisition was finalized at the start of the fourth quarter
last fiscal year. The rest of the increase resulted from variable
compensation because of increased profitability in the
institutional segment. Most of the increase in occupancy, equipment
and computer service costs was because of the M.L. Stern
acquisition. Other expenses increased as a result of a $9.8 million
increase in the provision for loan loss, a $5.4 million write-off
that resulted from our exposure to Lehman Brothers at the time of
its bankruptcy, $5 million in losses recognized on the company's
investment in NYX and USHS stock, $4 million in REO, other loan
related expenses and Deposit Insurance Fund (DIF) assessments, and
$1.6 million in increased legal fees. Net revenue for the fourth
quarter was $99 million, an increase of 13 percent over net revenue
for the fourth quarter of fiscal 2008. Fourth quarter pre-tax
income declined to $5.3 million from $11.4 million in the fourth
quarter of the prior fiscal year. The increase in net revenues for
the fourth quarter was driven by increased net gains on principal
transactions and commission revenues in the fixed income businesses
offset by declines in investment banking and clearing revenues. The
decline in pretax income was due primarily to the increased loan
loss provision, REO expenses, and DIF assessments at the bank
coupled with the other than temporary impairment of the company's
investments in NYX and USHS. Institutional Segment Institutional
segment net revenues increased 50 percent and pre-tax income rose
41 percent from fiscal 2008 to fiscal 2009. Increased commissions
in the taxable fixed income and municipal businesses accounted for
the additional revenues as volumes in both areas improved
significantly. A decline in corporate finance and public finance
advisory fees and portfolio trading revenues partially offset the
increases. Net gains on principal transactions increased 277
percent year to year with the municipal business unit increasing
$5.4 million and the taxable fixed income unit increasing $16
million. Net interest revenue, primarily generated in the
institutional segment from securities lending, declined 10 percent.
Average securities lending balances declined $938 million as a
result of market disruptions and other factors while the spread
earned on securities lending balances increased due to unusually
high spreads in the first two quarters of fiscal 2009. Operating
expenses for the segment increased 55 percent primarily because
increased revenues resulted in $33.8 million in additional
commission expense. Clearing Segment The clearing segment posted a
28 percent decrease in net revenues to $26.6 million and a 55
percent decrease in pre-tax income to $5.2 million in fiscal 2009
as compared with fiscal 2008. Southwest Securities processed 9.4
million securities transactions compared with 31.6 million in the
prior fiscal year. The departure of one high volume trading
customer and substantially reduced volume from another accounted
for the large decline in tickets processed. The segment recorded a
79 cent increase in revenue per ticket as general securities
correspondents comprised a larger portion of the volume than in the
prior year. Average margin balances declined 43 percent and spreads
earned on customer deposits decreased because of lower interest
rates. Operating expenses for the segment decreased $4.2 million
year to year as a result of reduced employee compensation and other
expense. The clearing segment served 203 correspondents at the end
of fiscal 2009 compared with 201 at the end of the prior fiscal
year. Retail Segment The retail segment recorded net revenues of
$114.4 million in fiscal 2009. Pre-tax income declined 70 percent
to $3.6 million from $12.1 million in the prior fiscal year. Total
customer assets rose slightly from $11.4 billion to $11.5 billion
year to year. Net interest revenue earned by the retail segment
decreased 50 percent from the prior fiscal year primarily as a
result of reduced spreads earned on customer deposits. Operating
expenses increased to $110.8 million primarily because of a 29
percent increase in commission expense driven by the additional
commission expense stemming from the acquisition of M.L. Stern. In
addition, operating expenses increased because of the addition of
new branches, increased expenses for computer services, licenses
and fees, professional and legal services, and shared information
and technology expenses. Banking Segment The banking segment's net
revenues increased 24 percent to $66.7 million in fiscal 2009 while
pre-tax income declined 36 percent to $11.3 million. The bank's
average gross loan balance increased to $1.3 billion from $1.1
billion at the end of the prior fiscal year. The banking segment's
year-to-year operating expenses increased 53 percent to $55.4
million because of an increase of $9.8 million in the provision for
loan losses, an increase of $3.1 million in compensation expense
that included establishing five new banking centers in fiscal 2009
and various other expenses. The bank's allowance for probable loan
losses stood at $14.7 million at the end of fiscal 2009. 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. Forward-Looking Statements This release
contains forward-looking statements regarding the company's future
overall performance. 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 our control, including,
but not limited to, the volume of trading in securities, the
volatility of securities prices and interest rates, customer margin
loan activity, creditworthiness of our correspondents and
customers, demand for housing, and those factors discussed in our
Annual Report on Form 10-K and in our other reports filed with and
available from the Securities and Exchange Commission. FINANCIAL
STATEMENTS FOLLOW Segment Results (In thousands) Fiscal 2009 Fiscal
2008 ----------- ----------- Pretax Pretax Net Revenue Income Net
Revenue Income ----------- ------ ----------- ------ Clearing
$26,565 $5,233 $37,138 $11,611 Retail 114,386 3,581 92,249 12,055
Institutional 181,102 63,708 120,739 45,140 Banking 66,710 11,281
53,970 17,701 Other consolidated entities (7,142) (45,374) (2,465)
(37,398) ----------------------------------------------
Consolidated $381,621 $38,429 $301,631 $49,109
============================================== 4th Quarter 2009 4th
Quarter 2008 ---------------- ---------------- Pretax Pretax Net
Revenue Income Net Revenue Income ----------- ------ -----------
------ Clearing $5,793 $985 $8,175 $1,418 Retail 27,633 (1,498)
31,521 2,776 Institutional 45,020 16,689 34,760 14,245 Banking
20,030 4,703 14,735 3,734 Other consolidated entities 533 (15,629)
(1,402) (10,809) ----------------------------------------------
Consolidated $99,009 $5,250 $87,789 $11,364
============================================== Non-GAAP
Reconciliation SWS has included below a presentation of adjusted
income from continuing operations and adjusted diluted earnings per
share from continuing operations, which exclude the impact of the
loss realized from our investments in NYX and USHS common stock.
SWS believes this presentation is useful to investors because it is
more indicative of SWS' income and diluted earnings per share from
ongoing operations. Management has provided this information to
assist the reader in understanding the impact of our investments in
NYX and USHS common stock for fiscal 2009. While management
believes these non-GAAP financial measures are 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. (In
thousands, except per share amounts) Fiscal Fiscal Fourth Fourth
Year Year Qtr. Qtr. 2009 2008 2009 2008 ---- ---- ---- ---- Income
from continuing operations-GAAP $23,631 $30,854 $3,608 $7,310
Impact of investment in marketable equity securities 3,231 - 3,231
- ----- --- ----- --- Adjusted income from continuing operations
$26,862 $30,854 $6,839 $7,310 ====== ====== ===== ===== EPS from
continuing operations -diluted-GAAP $0.87 $1.13 $0.13 $0.27 Impact
of investment in marketable equity securities 0.12 - 0.12 - ----
--- ---- --- Adjusted EPS from continuing operations $0.99 $1.13
$0.25 $0.27 ==== ==== ==== ==== SWS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition June 26, 2009 and
June 27, 2008 (In thousands, except par values and share amounts)
June 26, June 27, 2009 2008 ------- ------- Assets Cash and cash
equivalents $96,253 $39,628 Assets segregated for regulatory
purposes 313,153 322,575 Receivable from brokers, dealers and
clearing organizations 1,892,739 2,849,982 Receivable from clients,
net of allowances 158,032 286,945 Loans held for sale 262,780
359,945 Loans, net 1,138,602 925,758 Securities owned, at market
value 175,030 198,573 Securities purchased under agreements to
resell 21,622 9,862 Goodwill 7,552 7,552 Marketable equity
securities available for sale 4,094 6,964 Other assets 129,182
110,467 ------- ------- Total assets $4,199,039 $5,118,251
========== ========== Liabilities and Stockholders' Equity
Short-term borrowings $10,000 $86,800 Payable to brokers, dealers
and clearing organizations 1,853,544 2,794,377 Payable to clients
426,300 556,029 Deposits 1,292,366 1,071,973 Securities sold under
agreements to repurchase 4,462 6,342 Securities sold, not yet
purchased, at market value 53,236 26,511 Drafts payable 27,457
19,657 Advances from Federal Home Loan Bank 117,492 166,250 Other
liabilities 73,825 67,306 ------ ------ Total liabilities 3,858,682
4,795,245 Commitments and contingencies Stockholders' equity:
Preferred stock of $1.00 par value. Authorized 100,000 shares; none
issued - - Common stock of $.10 par value. Authorized 60,000,000
shares, issued 28,309,139 and outstanding 27,262,923 shares at June
26, 2009; issued 28,269,134 and outstanding 27,195,609 shares at
June 27, 2008 2,831 2,827 Additional paid-in capital 271,131
269,360 Retained earnings 75,918 62,100 Accumulated other
comprehensive income - unrealized holding loss, net of tax 180
(1,194) Deferred compensation, net 2,639 1,994 Treasury stock
(1,046,216 shares at June 26, 2009 and 1,073,525 shares at June 27,
2008, at cost) (12,342) (12,081) ------- ------- Total
stockholders' equity 340,357 323,006 ------- ------- Total
liabilities and stockholders' equity $4,199,039 $5,118,251
========== ========== SWS GROUP, INC. AND SUBSIDIARIES Consolidated
Statements of Income and Comprehensive Income For the three and
twelve months ended June 26, 2009 and June 27, 2008 (In thousands,
except per share and share amounts) Three Three Twelve Twelve
Months Months Months Months Ended Ended Ended Ended June 26, June
27, June 26, June 27, 2009 2008 2009 2008 ------- ------- -------
------- Revenues: Net revenues from clearing operations $2,767
$3,319 $11,541 $13,951 Commissions 43,589 35,790 179,003 111,368
Interest 48,534 68,792 211,873 281,422 Investment banking, advisory
and administrative fees 8,654 11,093 36,382 37,517 Net gains on
principal transactions 12,703 2,720 34,831 8,653 Other 5,897 6,059
12,047 24,616 ----- ----- ------ ------ Total revenue 122,144
127,773 485,677 477,527 Interest expense 23,135 39,984 104,056
175,896 ------ ------ ------- ------- Net revenues 99,009 87,789
381,621 301,631 ------ ------ ------- ------- Non-Interest
Expenses: Commissions and other employee compensation 61,580 55,811
239,003 183,830 Occupancy, equipment and computer service costs
8,648 7,726 32,994 27,093 Communications 3,289 2,888 13,124 10,091
Floor brokerage and clearing organization charges 832 1,031 3,497
2,257 Advertising and promotional 1,432 1,430 4,547 3,861 Other
17,978 7,539 50,027 25,390 ------ ----- ------ ------ Total
non-interest expenses 93,759 76,425 343,192 252,522 ------ ------
------- ------- Income from continuing operations before income tax
expense 5,250 11,364 38,429 49,109 Income tax expense 1,642 4,054
14,798 18,255 ----- ----- ------ ------ Income from continuing
operations 3,608 7,310 23,631 30,854 Discontinued operations:
Income from discontinued operations - - - 29 Income tax expense - -
- (9) Minority interest - - - (3) --- --- --- --- Income from
discontinued operations - - - 17 --- --- --- --- Income before
extraordinary gain 3,608 7,310 23,631 30,871 Extraordinary gain,
net of tax of $571 - 1,061 - 1,061 --- ----- --- ----- Net income
3,608 8,371 23,631 31,932 Net gain (loss) recognized in other
comprehensive income 3,980 (494) 1,374 (2,611) ----- ---- -----
------ Comprehensive income $7,588 7,877 $25,005 $29,321 ======
===== ======= ======= Three Three Twelve Twelve Months Months
Months Months Ended Ended Ended Ended June 26, June 27, June 26,
June 27, 2009 2008 2009 2008 ------- ------- ------- -------
Earnings per share - basic Income from continuing operations $0.13
$0.27 $0.87 $1.13 Income from discontinued operations - - - -
Income from extraordinary gain - 0.04 - 0.04 --- ---- --- ---- Net
income $0.13 $0.31 $0.87 $1.17 ===== ===== ===== ===== Weighted
average shares outstanding - basic 27,132,912 26,940,762 27,104,449
27,227,848 ========== ========== ========== ========== Earnings per
share - diluted Income from continuing operations $0.13 $0.27 $0.87
$1.13 Income from discontinued operations - - - - Income from
extraordinary gain - 0.04 - 0.04 --- ---- --- ---- Net income $0.13
$0.31 $0.87 $1.17 ===== ===== ===== ===== Weighted average shares
outstanding - diluted 27,235,104 27,129,046 27,233,139 27,378,437
========== ========== ========== ========== DATASOURCE: SWS Group,
Inc. CONTACT: Jim Bowman, Vice President, Corporate Communications,
Southwest Securities, +1-214-859-9335, Web Site:
http://www.swsgroupinc.com/
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