SWS Group Inc. (SWS, Financial) filed Quarterly Report for the period ended 2008-12-31.
SWS Group Inc. is a full-service securities and banking firm using technology to deliver a broad range of investment and related financial services to their clients which include individual and institutional investors broker/dealers corporations governmental entities and financial intermediaries. SWS Group Inc. has a market cap of $395.28 million; its shares were traded at around $14.54 with a P/E ratio of 12.9 and P/S ratio of 0.83. The dividend yield of SWS Group Inc. stocks is 2.5%. SWS Group Inc. had an annual average earning growth of 29.1% over the past 5 years.
We have one investment in a venture capital investment partnership which we account for on the equity method of accounting, which is reflective of fair value. This venture capital fund invests in small businesses in various stages of development and operating in a variety of industries. During the first and second quarters of fiscal 2009, we recorded a $1.1 million loss and $1.4 million loss, respectively, for a total loss of $2.5 million on this joint venture. A prolonged downturn in the economy could lead to a continued decline in the fair value of this investment. At December 31, 2008, this investment was recorded at $268,000. Additionally, the company has a commitment to invest an additional $1 million in this partnership under certain circumstances.
quarter. This increase can be attributed to residential construction and lot and land development loans. Resulting losses from the deteriorating asset quality continue to be at manageable levels with net charge-offs for the quarter at $410,000 compared to $304,000 in the first quarter of fiscal 2009. This represents a 15% loss on problem loans liquidated during fiscal 2009 to date. Deterioration is also evident in the increased loan loss provision expense of $1.8 million this quarter compared to $934,000 in the first quarter of fiscal 2009. The loan loss provision was $2.7 million during the first half of fiscal 2009 and $1.7 million during the first half of fiscal 2008. We anticipate loan loss provision expense to continue at the fiscal 2009 levels for the next few quarters. Mortgage rates continue to be at or near historic lows which should help mitigate losses associated with the residential construction loan portfolio.
Net income for the three and six-month periods ended December 31, 2008 was $9.0 million and $16.1 million, respectively, an increase of $1.8 million and $1.1 million from net income for the comparable three and six-month periods ended December 31, 2007, respectively. Net income for the six-month period ending December 31, 2007 includes income of $17,000 from discontinued operations. The three and six-month periods ended December 31, 2008 and December 31, 2007 contained 66 and 129 and 63 and 127 trading days, respectively.
Net revenues increased for the first half of fiscal 2009 by $48.2 million as compared to the same period of fiscal 2008. The largest components of the increase were in commissions, $40.8 million; net interest, $9.3 million and net gains on principal transactions, $6.8 million. The increase in commissions is due primarily to a $24.1 million increase in the institutional segment primarily in the fixed income business as greater volatility and increased client activity led to wider spreads and more transactions. Also contributing to the increase in commissions is the increase in our retail segment of $16.7 million. The increase in our retail segment is primarily due to the acquisition of M.L Stern. M.L. Stern recorded commission revenue of $19.0 million for the first six-months of fiscal 2009. These commission revenue increases were partially offset by a $1.2 million decrease in commissions for SWS Financial and a $1.1 million decrease in commissions for our Private Client Group. The increase in net interest is due primarily to a 91 basis point increase in the spread in the stock loan business as well as an increase in the average loan balance at the Bank of 31%. The increase in net gains on principal transactions is driven by activity in the fixed income business primarily from the volatility in the market and increased customer activity. These increases were offset by a decrease in other revenue of $9.5 million. This decrease is due to $2.9 million increase in our losses related to our limited partnership venture capital fund, a $3.1 million increase in our losses on our deferred compensation plan, with a corresponding decrease in compensation expenses on our deferred compensation plan, a $1.6 million decrease in revenue from the sale of our insurance products and a decrease of $1.1 million in SEC fees collected with a corresponding decrease in other expenses.
Operating expenses increased $45.6 million for the six-months ended December 31, 2008 as compared to the same period of fiscal 2008. The largest increases were in commissions and other employee compensation, $32.3 million; occupancy, equipment and computer service costs, $2.9 million and other expenses, $8.3 million. The increase in commissions and other employee compensation is due primarily to the acquisition of M.L. Stern. M.L. Sterns commission and other employee expenses were $16.1 million for the six-months ended December 31, 2008. The remainder of the increase is due to variable compensation in the institutional segment and additional headcount at the Bank from fiscal 2008 to fiscal 2009. The increase in occupancy, equipment and computer service costs is due primarily to the acquisition of M.L. Stern. The increase in other expenses is primarily due to the $5.4 million write-off of the Lehman counterparty exposure, an increase in the provision for loan losses of $1.1 million, and increases in purchased mortgage loan losses, real estate expenses and Savings Association Insurance Fund (SAIF) assessments of $1.8 million.
Read the The complete Report
SWS Group Inc. is a full-service securities and banking firm using technology to deliver a broad range of investment and related financial services to their clients which include individual and institutional investors broker/dealers corporations governmental entities and financial intermediaries. SWS Group Inc. has a market cap of $395.28 million; its shares were traded at around $14.54 with a P/E ratio of 12.9 and P/S ratio of 0.83. The dividend yield of SWS Group Inc. stocks is 2.5%. SWS Group Inc. had an annual average earning growth of 29.1% over the past 5 years.
Highlight of Business Operations:
In order to take advantage of attractive tax-free yields for the company, we began investing in certain auction rate municipal bonds in the spring of 2008. At the end of the first and second quarters of fiscal 2009, we held $95.0 million and $39.4 million, respectively of auction rate municipal bonds. In the second quarter of fiscal 2009, we sold $55.6 million of the auction rate municipal bonds and, subsequent to the end of the second quarter of fiscal 2009, we sold another $14.9 million of these bonds, reducing our holdings to $24.5 million, which represents one security. This security is investment grade credit, is valued at par and as of January 31, 2009 is yielding approximately 1% per year. While management does not expect any reduction in the cash flow from this bond, prolonged failure of this auction could indicate an impairment in the value due to lack of liquidity. The company currently has the ability to hold this investment. We expect the issuer of this bond to refinance their debt.We have one investment in a venture capital investment partnership which we account for on the equity method of accounting, which is reflective of fair value. This venture capital fund invests in small businesses in various stages of development and operating in a variety of industries. During the first and second quarters of fiscal 2009, we recorded a $1.1 million loss and $1.4 million loss, respectively, for a total loss of $2.5 million on this joint venture. A prolonged downturn in the economy could lead to a continued decline in the fair value of this investment. At December 31, 2008, this investment was recorded at $268,000. Additionally, the company has a commitment to invest an additional $1 million in this partnership under certain circumstances.
quarter. This increase can be attributed to residential construction and lot and land development loans. Resulting losses from the deteriorating asset quality continue to be at manageable levels with net charge-offs for the quarter at $410,000 compared to $304,000 in the first quarter of fiscal 2009. This represents a 15% loss on problem loans liquidated during fiscal 2009 to date. Deterioration is also evident in the increased loan loss provision expense of $1.8 million this quarter compared to $934,000 in the first quarter of fiscal 2009. The loan loss provision was $2.7 million during the first half of fiscal 2009 and $1.7 million during the first half of fiscal 2008. We anticipate loan loss provision expense to continue at the fiscal 2009 levels for the next few quarters. Mortgage rates continue to be at or near historic lows which should help mitigate losses associated with the residential construction loan portfolio.
Net income for the three and six-month periods ended December 31, 2008 was $9.0 million and $16.1 million, respectively, an increase of $1.8 million and $1.1 million from net income for the comparable three and six-month periods ended December 31, 2007, respectively. Net income for the six-month period ending December 31, 2007 includes income of $17,000 from discontinued operations. The three and six-month periods ended December 31, 2008 and December 31, 2007 contained 66 and 129 and 63 and 127 trading days, respectively.
Net revenues increased for the first half of fiscal 2009 by $48.2 million as compared to the same period of fiscal 2008. The largest components of the increase were in commissions, $40.8 million; net interest, $9.3 million and net gains on principal transactions, $6.8 million. The increase in commissions is due primarily to a $24.1 million increase in the institutional segment primarily in the fixed income business as greater volatility and increased client activity led to wider spreads and more transactions. Also contributing to the increase in commissions is the increase in our retail segment of $16.7 million. The increase in our retail segment is primarily due to the acquisition of M.L Stern. M.L. Stern recorded commission revenue of $19.0 million for the first six-months of fiscal 2009. These commission revenue increases were partially offset by a $1.2 million decrease in commissions for SWS Financial and a $1.1 million decrease in commissions for our Private Client Group. The increase in net interest is due primarily to a 91 basis point increase in the spread in the stock loan business as well as an increase in the average loan balance at the Bank of 31%. The increase in net gains on principal transactions is driven by activity in the fixed income business primarily from the volatility in the market and increased customer activity. These increases were offset by a decrease in other revenue of $9.5 million. This decrease is due to $2.9 million increase in our losses related to our limited partnership venture capital fund, a $3.1 million increase in our losses on our deferred compensation plan, with a corresponding decrease in compensation expenses on our deferred compensation plan, a $1.6 million decrease in revenue from the sale of our insurance products and a decrease of $1.1 million in SEC fees collected with a corresponding decrease in other expenses.
Operating expenses increased $45.6 million for the six-months ended December 31, 2008 as compared to the same period of fiscal 2008. The largest increases were in commissions and other employee compensation, $32.3 million; occupancy, equipment and computer service costs, $2.9 million and other expenses, $8.3 million. The increase in commissions and other employee compensation is due primarily to the acquisition of M.L. Stern. M.L. Sterns commission and other employee expenses were $16.1 million for the six-months ended December 31, 2008. The remainder of the increase is due to variable compensation in the institutional segment and additional headcount at the Bank from fiscal 2008 to fiscal 2009. The increase in occupancy, equipment and computer service costs is due primarily to the acquisition of M.L. Stern. The increase in other expenses is primarily due to the $5.4 million write-off of the Lehman counterparty exposure, an increase in the provision for loan losses of $1.1 million, and increases in purchased mortgage loan losses, real estate expenses and Savings Association Insurance Fund (SAIF) assessments of $1.8 million.
Read the The complete Report
