SWS Group, Inc. Reports Financial Results for First Quarter of Fiscal 2014

  SWS Group, Inc. Reports Financial Results for First Quarter of Fiscal 2014

PR Newswire

DALLAS, Nov. 5, 2013

DALLAS, Nov. 5, 2013 /PRNewswire/ -- SWS Group, Inc. (NYSE: SWS) ("SWS" or the
"Company") today reported net income of $323,000, or $0.01 per diluted share,
for its first quarter of fiscal 2014 on net revenues of $69.0 million, as
compared to a net loss of $5.6 million, or $0.17 per diluted share, on net
revenues of $74.1 million for the first quarter of fiscal 2013.

The fiscal 2014 first quarter results include approximately $1.2 million in
severance expense associated with a 7 percent reduction in staff that the
Company initiated during the quarter.

"After carefully evaluating opportunities to improve operating results
through both cost-cutting and revenue initiatives, we took action in the first
quarter by reducing staffing levels across all of our business lines to better
align expenses with current revenues, while still allowing us to provide
clients with the superior service they have come to expect," said James H.
Ross, Chief Executive Officer of SWS Group, Inc. "While these actions will
make SWS a stronger organization and help us execute our strategic business
plan, we regret the impact they have had on our highly valued employees. We
are focused on enhancing our shareholder returns and will continue to pursue
additional opportunities to achieve this objective, through both targeted
cost-cutting efforts and revenue growth initiatives."

Net revenues decreased $5.1 million in the first quarter of fiscal 2014, as
compared to the same period last fiscal year, primarily due to a $4.2 million
decrease in net interest revenue and a $1.8 million decrease in commission
revenue. The decline in fiscal 2014 first quarter net interest revenue, as
compared to the same quarter last fiscal year, was driven in large part by a
$2.8 million decrease in net interest revenue in the Company's banking segment
and a $1.1 million decrease in institutional segment net interest revenue. The
decline in commission revenue was primarily due to a $2.6 million decrease in
the Institutional segment, partially offset by a $786,000 increase in
commission revenue in the Retail segment.

Fiscal 2014 first quarter operating expenses decreased 17 percent, or $14.3
million, as compared to the same quarter last fiscal year, primarily due to a
$10.2 million decrease in the change in value of the Company's outstanding
warrants, a $2.2 million decrease in other expenses and a $1.7 million
decrease in commissions and other employee compensation expense. For the three
months ended September 30, 2013, the Company recorded a $2.0 million gain on
the warrant valuation, as compared to an $8.2 million loss on the warrant
valuation for the three months ended September 28, 2012. The decrease in other
expenses for the first quarter of fiscal 2014, as compared to the same period
last fiscal year, was driven by a $776,000 decrease in legal fees, primarily
in the Retail segment, and a $756,000 decrease in real estate owned (REO)
related expenses at the Company's banking subsidiary, Southwest Securities,
FSB (the "Bank"). The primary contributor to the decrease in commissions and
other employee compensation expense was a $1.6 million decrease in
Institutional segment commission expense and incentive compensation due to a
decline in the segment's overall revenue in the first quarter of fiscal 2014,
as compared to the first quarter of fiscal 2013.

Clearing Segment

The Clearing segment reported a pre-tax loss of $227,000 on net revenues of
$4.7 million for the first quarter of fiscal 2014, as compared to pre-tax
income of $195,000 on net revenues of $5.0 million for the first quarter of
fiscal 2013.

The decrease in Clearing segment net revenues was driven by a $276,000
decrease in net interest revenue, primarily due to a 7 percent decrease in
margin balances, and a $161,000 decrease in other revenues, primarily due to a
decline in revenue sharing with money market fund providers. These decreases
were partially offset by a $153,000 increase in clearing fee revenue due to a
change in the mix of tickets processed, which led to an increase in revenue
per ticket from $8.54 in the fiscal 2013 first quarter, to $12.63 in the
fiscal 2014 first quarter. Clearing customer assets increased to $16.1 billion
at September 30, 2013, from $15.2 billion at September 28, 2012.

Operating expenses in the Clearing segment increased $138,000 to $4.9 million
in the first quarter of fiscal 2014, as compared to $4.8 million in the first
quarter of fiscal 2013. The primary contributor to the increase in operating
expenses was an 11 percent increase in operations and technology expenses,
partially offset by a 32 percent decrease in salaries and incentive
compensation due to departmental restructuring.

Retail Segment

For the first quarter of fiscal 2014, the Retail segment reported pre-tax
income of $2.3 million on net revenues of $29.8 million, as compared to
pre-tax income of $319,000 on net revenues of $28.1 million in the first
quarter of last fiscal year.

The 6 percent increase in net revenues was driven by improved performance in
the segment's Private Client Group, due to increased retail client activity
and success in retaining key producers. Private Client Group net revenues
increased 16 percent to $18.9 million in the first quarter of fiscal 2014,
from $16.2 million in the first quarter of fiscal 2013. Turnover in the
segment's independent registered representative business contributed to a 10
percent decrease in net revenues at SWS Financial Services in the first
quarter of fiscal 2014, as compared to the first quarter last fiscal year.
Total customer assets increased to $14.5 billion at September 30, 2013, from
$13.8 billion at September 28, 2012.

Operating expenses in the Retail segment decreased slightly to $27.6 million
in the fiscal 2014 first quarter, from $27.7 million in the first quarter of
fiscal 2013, primarily due to a $703,000 decrease in legal expenses, offset by
a $651,000 increase in commissions and other employee compensation expense.
While overall compensation expense increased 3 percent, the relative mix of
revenues between Private Client Group and SWS Financial Services resulted in a
lower blended compensation ratio, improving segment profitability.

Institutional Segment

The Institutional segment reported pre-tax income of $6.2 million for the
fiscal 2014 first quarter on net revenues of $28.0 million, as compared to
pre-tax income of $9.9 million on net revenues of $32.9 million for the fiscal
2013 first quarter.

The 15 percent decrease in Institutional segment net revenues was primarily
due to a $2.6 million decrease in commission revenues, a $1.1 million decrease
in net interest revenue and a $1.0 million decrease in net gains on principal
transactions. The largest contributor to the decrease in commission revenue
was a $2.5 million decrease in portfolio trading, primarily due to a decline
in the number of shares executed for the three months ended September 30,
2013, as compared to the same period last fiscal year.

The decrease in fiscal 2014 first quarter net interest revenue, as compared to
the same quarter last fiscal year, was primarily due to a 29 basis point
decrease in the average net interest spread in the Company's stock loan
business, partially offset by a 17 percent increase in the average stock loan
balances.

The largest contributor to the decrease in net gains on principal transactions
was a $2.0 million decrease in taxable fixed income trading gains, partially
offset by a $923,000 increase in municipal finance trading gains, in the first
quarter of fiscal 2014, as compared to the first quarter last fiscal year. The
decrease in taxable fixed income trading gains was driven by the challenging
market environment.

Institutional segment operating expenses decreased 5 percent to $21.8 million
for the first quarter of fiscal 2014, from $23.0 million for the first quarter
of fiscal 2013. The primary contributor to the decrease was a $1.9 million
decrease in compensation expense as a result of reduced segment revenues,
partially offset by a $492,000 increase in operations and technology expense
and a $260,000 increase in quotations.

Banking Segment

The Banking segment reported pre-tax income of $1.2 million on net revenues of
$9.1 million for the first quarter of fiscal 2014, as compared to pre-tax
income of $1.3 million on net revenues of $11.6 million for the first quarter
of fiscal 2013. The primary contributor to the decrease in net revenues was a
$2.8 million decrease in net interest, driven by a 32 percent decrease in
average loan balances and an 80 basis point decrease in the net yield on
interest earning assets in the first quarter of fiscal 2014, as compared to
the first quarter of fiscal 2013.

The Bank's operating expenses in the first quarter of fiscal 2014 decreased 24
percent, to $7.9 million from $10.4 million for the first quarter of last
fiscal year. The primary contributors to the decrease in operating expenses
consisted of a $640,000 decrease in commissions and other employee
compensation, as compared to the same period last year, and a $466,000 loan
loss recapture for the three months ended September 30, 2013. The Bank did not
record a loan loss provision or recapture for the fiscal 2013 first quarter.
Other operating expenses at the Bank decreased $1.3 million in the fiscal 2014
first quarter, as compared to the first quarter of fiscal 2013, primarily due
to a $756,000 decrease in REO related expenses, including a $358,000 decrease
in the REO loss provision, a $258,000 decrease in outside services and a
$272,000 decrease in regulatory fees.

At September 30, 2013, the Bank's allowance for loan losses was $12.2 million,
or 2.85 percent of loans held for investment excluding purchased mortgage
loans and loans measured at fair value, compared to $20.9 million, or 4.28
percent of loans held for investment excluding purchased mortgage loans at
September 30, 2012.

The Bank's non-performing assets were $29.3 million at September 30, 2013, a
decrease of 57 percent from $67.8 million at September 30, 2012. Total
classified assets were $58.7 million, or 33 percent of capital plus allowance
for loan losses at September 30, 2013, compared to $100.7 million, or 53
percent of capital plus allowance for loan losses at September 30, 2012.

At September 30, 2013, the Bank's Tier 1 (core) capital ratio was 13.5 percent
and total risk-based capital ratio was 27.3 percent, compared to a Tier 1
(core) capital ratio of 12.7 percent and total risk-based capital ratio of
19.2 percent at September 30, 2012.

Conference Call

SWS Group will hold a conference call to discuss its results for the fiscal
2014 first quarter on Wednesday, November 6, 2013, at 10:00 a.m. Eastern Time
(9:00 a.m. Central Time). The conference call will be broadcast live over the
internet: http://www.videonewswire.com/event.asp?id=96279. An archive of the
webcast will also be posted to the Company's website at www.swst.com.

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.

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 Annual
Report on Form 10-K 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,  Sept. 28,  Sept. 30, Sept. 28,
                                  2013       2012       2013       2012
Clearing      $  4,674  $  4,958 $  (227) $    
                                                                   195
Retail 29,838     28,066     2,251      319
Institutional    28,003     32,895     6,205      9,925
Bank                     9,087      11,633     1,195      1,281
Other consolidated entities   (2,607)    (3,443)    (9,269)    (20,752)
Consolidated          $ 68,995   $ 74,109  $   155 $  
                                                                   (9,032)

Non-GAAP Reconciliation

SWShas includedthe presentation ofAdjusted Pre-tax Loss, which is Income
(Loss) before income tax expense (benefit), excluding the impact of the
valuation adjustment for the warrants held by Hilltop and Oak Hill and the
impact of the loan loss recapture for the banking segment. Adjusted Pre-tax
Loss is a non-GAAP financial measure as defined by Securities and Exchange
Commission rules. SWS believes that the presentation of this non-GAAP
financial measure provides useful information by excluding these items, which
may not be indicative of the Company's core operating results. 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.

                                              Three Months Ended
(In thousands)                                Sept. 30, 2013 Sept. 28, 2012
Income (loss) before income tax expense       $     155  $    (9,032)
(benefit)
Loan loss recapture                      (466)           --
Valuation adjustment for warrants     (1,967)         8,185
Adjusted pre-tax loss (non-GAAP)       $   (2,278)  $     (847)





SWS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, 2013 and June 30, 2013
(In thousands, except par values and share amounts)
                                          September 30,
                                                             June 30, 2013
                                           2013
Assets                                    (Unaudited)
Cash and cash equivalents                 $     128,996  $     111,046
Restricted cash and cash equivalents      30,048             30,047
Assets segregated for regulatory purposes 234,818            164,737
Receivable from brokers, dealers and      2,042,491          1,698,474
clearing organizations
Receivable from clients, net of           280,453            286,446
allowances
Loans, net                                529,259            608,583
Securities owned, at fair value           324,741            209,633
Securities held to maturity               15,726             17,423
Securities purchased under agreements to  116,390            51,996
resell
Goodwill                                  7,552              7,552
Securities available for sale             573,121            503,276
Other assets                              87,897             91,160
 Total assets                         $   4,371,492    $   3,780,373
Liabilities and Stockholders' Equity
Short-term borrowings                     $     162,500  $     131,500
Payable to brokers, dealers and clearing  1,885,500          1,532,971
organizations
Payable to clients                        427,512            335,655
Deposits                                  988,724            993,719
Securities sold under agreements to       95,107             37,012
repurchase
Securities sold, not yet purchased, at    211,498            134,735
fair value
Drafts payable                            22,900             28,889
Advances from Federal Home Loan Bank      101,999            97,565
Long-term debt, net                       84,205             83,102
Warrants                                  22,230             24,197
Other liabilities                         54,532             65,742
 Total liabilities                    4,056,707          3,465,087
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
33,312,140 and outstanding 32,668,239     3,331              3,331
shares at September 30, 2013; issued
33,312,140 and outstanding 32,629,213
shares at June 30, 2013
 Additional paid-in capital             324,255            325,030
Accumulated deficit                       (3,038)            (3,361)
Accumulated other comprehensive income –  (6,091)            (5,334)
unrealized holding loss, net of tax
 Deferred compensation, net             3,418              3,352
 Treasury stock (643,901 shares at
September 30, 2013 and 682,927 shares at  (7,090)            (7,732)
June 30, 2013, at cost)
 Total stockholders' equity     314,785            315,286
 Total liabilities and stockholders'  $   4,371,492    $   3,780,373
equity



SWS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
For the three months ended September 30, 2013 and September 28, 2012
(In thousands, except per share and share amounts)
(Unaudited)
                                       Three Months        Three Months

                                       Ended               Ended

                                       September 30, 2013  September 28, 2012
Revenues:
 Net revenues from clearing        $       2,293 $       2,139
operations
 Commissions                       30,523              32,323
 Interest                          21,174              26,625
 Investment banking, advisory and  11,315              10,670
administrative fees
 Net gains on principal            8,175               8,482
transactions
 Other                             6,563               6,185
Total revenue                          80,043              86,424
 Interest expense                  11,048              12,315
 Net revenues                 68,995              74,109
Non-interest expenses:
 Commissions and other employee    52,563              54,259
compensation
 Occupancy, equipment and computer 7,752               7,697
service costs
 Communications                    3,348               3,219
 Floor brokerage and clearing      1,112               1,023
organization charges
 Advertising and promotional       650                 668
 (Recapture) provision for loan    (466)               --
loss
 Other                             5,848               8,090
Total non-interest expenses            70,807              74,956
Other gains (losses):
Unrealized gain (loss) on warrants     1,967               (8,185)
valuation
Income (loss) before income tax        155                 (9,032)
benefit
Income tax benefit                     (168)               (3,388)
Net income (loss)                      323                 (5,644)
Net gain (loss) recognized in other    (757)               2,298
comprehensive loss
Comprehensive loss                     $     (434)    $    (3,346)
Earnings (loss) per share – basic
 Net income (loss)                   $      0.01    $      (0.17)
 Weighted average shares outstanding 32,952,684          32,801,381
– basic
Earning (loss) per share – diluted
 Net income (loss)                   $      0.01    $    (0.17)
 Weighted average shares outstanding 32,952,684          32,801,381
– diluted



SOURCE SWS Group, Inc.

Website: http://www.swsgroupinc.com
Contact: Ben Brooks, Corporate Communications, 214.859.6351, bdbrooks@swst.com
 
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