Penson quarterly profit and revenues up

For the second quarter of 2007, total revenues increased 48%, to $104.0 million compared to $70.3 million in the June 2006 quarter. Total revenues calculated to reflect net interest income increased 31%, to $64.4 million compared to $49.1 million in the year ago quarter. Income from continuing operations of $7.6 million was up 36% from $5.6 million in the corresponding year ago period, and earnings per diluted share from continuing operations increased 12%, to $0.28, from $0.25, on 24% more average shares outstanding. The increase in outstanding shares reflects Penson's May 2006 IPO and first quarter 2007 share payments for the Schonfeld, GHCO and CCS acquisitions.

For the six months ended June 30, 2007, revenues increased 36%, to $189.0 million compared to $139.4 million for the corresponding 2006 period. Total revenues calculated to reflect net interest income increased 26%, to $121.1 million compared to $95.8 million in 2006. Income from continuing operations rose 48%, to $14.7 million, compared to $9.9 million. Income from continuing operations per diluted share increased 13%, to $0.54, from $0.48, on 32% more average shares outstanding.

"Compared to the year ago quarter, we performed well this quarter, with revenue growth across the board, and record operating income from continuing operations," said Philip A. Pendergraft, Chief Executive Officer. "The performance, however, was less than analysts' and our earlier expectations for the quarter, primarily due to lower net interest income, as we previously announced. Key factors were a change in the mix of correspondent balances and the temporary use of larger than expected bank borrowings to finance institutional customer proprietary trading assets. We are disappointed with our overall results and committed to doing everything in our control to improve our performance in the remainder of the year. We have already begun implementing a series of steps to improve net interest income and margin, including substantially reducing borrowing costs."

Analysis of Second Quarter 2007 Results

(All comparisons are to the corresponding year-ago period unless otherwise indicated)

Starting with the June 2007 quarter, Penson is reclassifying from the "other" revenue category commission fees, primarily involving futures trading from its Penson GHCO subsidiary acquired on February 16, 2007, into a new "clearing and commission fees" revenue line. All prior periods have been reclassified. On that basis, revenue from clearing and commission fees increased 32% to $28.0 million, reflecting nearly a full quarter's volume from the Schonfeld active trading correspondent business and a full quarter of the Penson GHCO futures business. Penson had 236 correspondents at June 30, 2007.

Gross interest revenue increased 57%, to $61.2 million, reflecting greater assets and higher rates. Revenue from average daily interest earning asset based balances increased 52%, to $42.1 million from $27.7 million. Balances grew 50%, to $3.46 billion from $2.30 billion in the year ago quarter. Yield was 4.69% versus 4.58% in the year ago quarter and spread narrowed to 1.41% compared to 2.07% in the June 2006 quarter. Revenue from average daily interest earning conduit stock loans increased 71%, to $19.1 million from $11.2 million. Yield and spread expanded compared to the June 2006 quarter, to 4.58% versus 4.54% and 0.47% versus 0.39%, respectively.

Technology revenues increased 36%, to $3.8 million, primarily as a result of increases in recurring revenues. In the "other" category, which excludes commission fees as noted above, revenue expanded 48%, to $11.1 million, reflecting increases in trading revenues in equities and foreign exchange, and equity and option execution fees.

Operating margin was 11.5%, versus 12.2% in the June 2006 quarter and 13.4% in the March 2007 quarter, due primarily to the change in net interest margin, which was partially offset by the benefits of increased operating leverage in Penson's other businesses, including improved profitability of Penson's UK operation, a reduced loss for the Nexa technology business and a reduction in interest expense on long term debt.

Tax rate was 37% in the June 2007 quarter versus 35% in the year ago quarter.

Actions Being Taken

To increase net interest income and margin, Mr. Pendergraft said:

• Penson has started opening customer portfolio margin accounts, which is anticipated to have a positive impact on margin loan balances and on net interest margin.
• Penson has created a new position of corporate treasurer, for which it is currently in the process of recruiting. The treasurer's role will involve expanding net interest income and margin through the proactive management of Penson's more than $6 billion balance sheet.

As previously announced, Penson Financial Services, Inc. has expanded its marketing with the appointment of two securities industry veterans with extensive electronic trading expertise, Dan Weingarten and Sean Malloy, to new positions as Senior Vice Presidents, US Sales and Marketing.

Separately, Daniel P. Son, President of Penson Worldwide, Inc., announced that Penson will proceed with previously announced plans to buy up to $25 million of its common shares. The Company will finance the repurchase program with available cash and funds from an existing bank credit facility. Penson has received the consent of the bank group under the Company's credit facility.

Penson may repurchase shares in the open market or in privately negotiated transactions in accordance with applicable insider trading laws and other securities laws and regulations. The timing and extent of the repurchase will depend upon market conditions and other corporate considerations including self-imposed black-out periods during which the Company and its insiders are prohibited from trading in its common stock.

Read the statement here:

Download the document now 11.3 kb (PDF File)