Exhibit 99.1
SWS Reports Significant Increase in Second Fiscal Quarter Earnings
Net Income Totaled $12.9 Million on Net Revenues of $74.3 Million
DALLAS, Feb. 6, 2007 – SWS Group, Inc. (NYSE: SWS) today reported net income of $12.9 million, or diluted earnings per share (EPS) of 48 cents, on net revenues of $74.3 million for the company’s second fiscal quarter ended Dec. 29, 2006. Net revenue is defined as total revenue less interest expense.
Net income and EPS from continuing operations increased 59 percent and 55 percent, respectively, and net revenues increased 14 percent from the prior year’s second quarter when SWS earned $8.1 million, or diluted EPS of 31 cents, on net revenues of $65.3 million. Book value per share increased 10 percent to $11.71 from $10.67.
SWS recorded net revenues from continuing operations in the first half of fiscal 2007 of $144.6 million, net income of $23 million and diluted EPS of 85 cents, compared with net revenues of $129.4 million, income of $14.8 million and diluted EPS from continuing operations of 56 cents a year earlier.
All references in this press release and accompanying financial statements to amounts per share and number of shares outstanding have been restated to give retroactive effect to the 3-for-2 stock split declared Nov. 30, 2006. The additional shares were distributed on Jan. 2, 2007.
“Financial market conditions and the general business environment improved during the second quarter,” said Chief Executive Officer Donald W. Hultgren. “Our business segments continued to perform well, and the company made excellent progress.”
Second quarter net revenues increased $9 million from year-ago levels and were positively impacted by a $2.3 million increase in the value of the company’s holding of NYSE Group, Inc.
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SWS Group Announces Second Quarter Results / 2
(NYX) stock. Additionally, the company received $2.3 million in tax-free proceeds from a company-owned insurance contract. The company uses corporate-owned insurance as one component of its deferred compensation plan. Continuing the trend from the first quarter of fiscal 2007, the company’s results benefited from loan growth at the bank and increased average balances and spreads in the company’s securities lending business. Commission and fee revenue growth in the retail segment also contributed to increased net revenue.
Six-month net revenues rose $15.2 million. In addition to the items impacting the quarter, six-month results reflect increases in investment banking, advisory and administrative fees of $2.3 million as a result of increased fees from corporate finance. A $1 million decline in clearing revenues and a $2.8 million decline in commissions also impacted the first half of fiscal 2007. The decrease in clearing revenues was attributable to lower revenue from general securities correspondents, and the decrease in commissions reflected the sale of a line of business – institutional sales – in the third quarter of the prior fiscal year.
Operating expenses increased $2.2 million for the second quarter as compared with the second quarter results in the prior fiscal year. The largest increase – commissions and other employee compensation – was primarily a result of increased business profitability. Operating expenses for the six-month period increased $4 million. As in the quarter-to-quarter comparison, the largest increase for the six-month period was in commissions and other employee compensation, also largely the result of increased business profitability.
Active markets benefit the company’s clearing business, and rising equity indices suggest a good environment for its retail brokerage segment. Average daily volume on the New York Stock Exchange rose 11.4 percent for fiscal 2007. From the end of the second quarter of fiscal 2006 to the second quarter of fiscal 2007, the Dow Jones Industrial Average increased 16.3 percent, the S&P 500 Index rose 13.6 percent, and the Nasdaq Composite Index was up 9.5 percent.
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SWS Group Announces Second Quarter Results / 3
“We are encouraged by the increased volumes and positive direction of the securities markets,” Hultgren said. “A continuation of current market trends should bode well for the company’s financial performance.” Hultgren noted that Southwest Securities’ new Private Client Group office in North Dallas opened on January 29 with nine financial advisors and expansion space for over 20 additional advisors.
“The company is closely monitoring the housing market in North Texas,” Hultgren said. “To date, the company’s banking subsidiary is performing well with no significant deterioration in loan performance.”
Year-to-date, Southwest Securities processed 8,231,010 securities transactions, an increase of 66 percent over the 4,969,401 transactions processed in the first half of the prior fiscal year. Clearing revenues decreased despite the improvement in transaction volume, as much of the additional business was from high-volume trading customers who use fewer services and thus pay lower fees per transaction than general securities correspondents. The correspondent count at the end of the second quarter was 215, down one from a year earlier.
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., Southwest Securities, FSB, SWS Financial Services, Inc., and Southwest Insurance Agency.
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, volume of trading in securities, volatility of securities prices and interest rates, customer margin loan activity, credit worthiness 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 TABLES FOLLOW
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SWS Group Announces Second Quarter Results / 4
SWS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 29, 2006 and June 30, 2006
(In thousands, except par values and share amounts)
| December 29, 2006 | June 30, 2006 | |||||||
| Assets | (Unaudited) | |||||||
Cash | $ | 80,425 | $ | 41,674 | ||||
Assets segregated for regulatory purposes | 338,792 | 345,028 | ||||||
Receivable from brokers, dealers and clearing organizations | 2,694,493 | 2,821,512 | ||||||
Receivable from clients, net of allowances | 337,117 | 373,245 | ||||||
Loans held for sale, net | 128,209 | 124,874 | ||||||
Loans, net | 712,747 | 642,541 | ||||||
Securities owned, at market value | 158,053 | 159,004 | ||||||
Securities purchased under agreements to resell | 44,633 | 63,636 | ||||||
Goodwill | 7,552 | 7,552 | ||||||
Marketable equity securities available for sale | 4,224 | 3,593 | ||||||
Other assets | 84,307 | 75,192 | ||||||
Total assets | $ | 4,590,552 | $ | 4,657,851 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Short-term borrowings | $ | 10,680 | $ | 30,500 | ||||
Payable to brokers, dealers and clearing organizations | 2,622,955 | 2,775,564 | ||||||
Payable to clients | 597,276 | 617,697 | ||||||
Deposits | 803,842 | 705,894 | ||||||
Securities sold under agreements to repurchase | 10,002 | 7,719 | ||||||
Securities sold, not yet purchased, at market value | 82,023 | 96,909 | ||||||
Drafts payable | 26,633 | 29,144 | ||||||
Advances from Federal Home Loan Bank | 59,337 | 47,094 | ||||||
Other liabilities | 57,914 | 57,217 | ||||||
Total liabilities | 4,270,662 | 4,367,738 | ||||||
Minority interest in consolidated subsidiaries | 883 | 641 | ||||||
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 27,927,174 and outstanding 27,247,393 shares at December 29, 2006; issued 27,424,611 and outstanding 26,591,891 shares at June 30, 2006 | 2,792 | 1,828 | ||||||
Additional paid-in capital | 266,857 | 255,331 | ||||||
Retained earnings | 53,201 | 37,968 | ||||||
Accumulated other comprehensive income – unrealized holding gain (loss), net of tax | 1,656 | 1,225 | ||||||
Deferred compensation, net | 1,604 | 1,610 | ||||||
Treasury stock (679,781 shares at December 29, 2006 and 832,720 shares at June 30, 2006, at cost) | (7,103 | ) | (8,490 | ) | ||||
Total stockholders’ equity | 319,007 | 289,472 | ||||||
Total liabilities and stockholders’ equity | $ | 4,590,552 | $ | 4,657,851 | ||||
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SWS Group Announces Second Quarter Results / 5
SWS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income
For the three and six months ended December 29, 2006 and December 30, 2005
(In thousands, except per share and share amounts)
(Unaudited)
Three Months Ended December 29, | Three Months Ended December 30, | Six Months Ended December 29, | Six Months Ended December 30, | |||||||||||||
Revenues: | ||||||||||||||||
Net revenues from clearing operations | $ | 3,056 | $ | 3,449 | $ | 6,127 | $ | 7,166 | ||||||||
Commissions | 24,360 | 25,057 | 43,299 | 46,127 | ||||||||||||
Interest | 74,877 | 50,868 | 144,782 | 102,960 | ||||||||||||
Investment banking, advisory and administrative fees | 8,050 | 6,931 | 18,425 | 16,107 | ||||||||||||
Net gains on principal transactions | 5,655 | 3,844 | 13,853 | 8,844 | ||||||||||||
Other | 9,111 | 6,855 | 14,769 | 12,571 | ||||||||||||
Total revenue | 125,109 | 97,004 | 241,255 | 193,775 | ||||||||||||
Interest expense | 50,802 | 31,727 | 96,607 | 64,333 | ||||||||||||
Net revenues | 74,307 | 65,277 | 144,648 | 129,442 | ||||||||||||
Non-Interest Expenses: | ||||||||||||||||
Commissions and other employee compensation | 40,837 | 37,469 | 81,681 | 75,292 | ||||||||||||
Occupancy, equipment and computer service costs | 5,489 | 5,930 | 10,829 | 11,567 | ||||||||||||
Communications | 2,103 | 2,250 | 4,289 | 4,652 | ||||||||||||
Floor brokerage and clearing organization charges | 1,106 | 798 | 2,276 | 2,093 | ||||||||||||
Advertising and promotional | 604 | 673 | 1,059 | 1,326 | ||||||||||||
Other | 4,841 | 5,653 | 10,467 | 11,653 | ||||||||||||
Total non-interest expenses | 54,980 | 52,773 | 110,601 | 106,583 | ||||||||||||
Income from continuing operations before income tax expense | 19,327 | 12,504 | 34,047 | 22,859 | ||||||||||||
Income tax expense | 6,422 | 4,379 | 11,059 | 8,108 | ||||||||||||
Income from continuing operations | 12,905 | 8,125 | 22,988 | 14,751 | ||||||||||||
Discontinued operations: | ||||||||||||||||
Income from discontinued operations | 45 | 1,047 | 86 | 1,801 | ||||||||||||
Income tax expense | (14 | ) | (345 | ) | (27 | ) | (599 | ) | ||||||||
Minority interest | (5 | ) | (62 | ) | (9 | ) | (91 | ) | ||||||||
Income from discontinued operations | 26 | 640 | 50 | 1,111 | ||||||||||||
Income before cumulative effect of change in accounting principles | 12,931 | 8,765 | 23,038 | 15,862 | ||||||||||||
Cumulative effect of change in accounting principles, net of tax of $40 | — | — | — | 75 | ||||||||||||
Net income | 12,931 | 8,765 | 23,038 | 15,937 | ||||||||||||
Net income recognized in other comprehensive income | 456 | 202 | 431 | 460 | ||||||||||||
Comprehensive income | $ | 13,387 | $ | 8,967 | $ | 23,469 | $ | 16,397 | ||||||||
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SWS Group Announces Second Quarter Results / 6
Three Months Ended December 29, | Three Months Ended December 30, | Six Months Ended December 29, | Six Months Ended December 30, | |||||||||
Earnings per share – basic | ||||||||||||
Income from continuing operations | $ | 0.48 | $ | 0.31 | $ | 0.86 | $ | 0.57 | ||||
Income from discontinued operations | — | 0.03 | — | 0.04 | ||||||||
Cumulative effect of change in accounting principles, net of tax | — | — | — | — | ||||||||
Net income | $ | 0.48 | $ | 0.34 | $ | 0.86 | $ | 0.61 | ||||
Weighted average shares outstanding – basic | 26,836,292 | 26,030,746 | 26,654,548 | 26,011,387 | ||||||||
Earnings per share – diluted | ||||||||||||
Income from continuing operations | $ | 0.48 | �� | $ | 0.31 | $ | 0.85 | $ | 0.56 | |||
Income from discontinued operations | — | 0.02 | — | 0.04 | ||||||||
Cumulative effect of change in accounting principles, net of tax | — | — | — | 0.01 | ||||||||
Net income | $ | 0.48 | $ | 0.33 | $ | 0.85 | $ | 0.61 | ||||
Weighted average shares outstanding – diluted | 27,147,538 | 26,277,206 | 26,950,070 | 26,219,651 | ||||||||
CONTACT: | Jim Bowman, Vice President – Corporate Communications, (214) 859-9335 | |
| jbowman@swst.com |
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