Penson reported net revenues of $76.5 million, net income of $6.1 million and diluted earnings per common share of $0.24 for the quarter. On a sequential quarterly basis, net revenues increased 15%, net income increased 262%, and diluted EPS increased 243%. Compared to the year ago quarter, net revenues increased 3%, and both net income and diluted earnings per share increased 4%.

Non-interest revenues of $56.4 million increased 5% on a year over year and 8% on a sequential quarterly basis, with growth in clearing and commission fees, technology and "other" revenues, reflecting strong trading volumes, primarily in April and May.

Net interest revenues of $20.0 million, while off 4% year over year, increased 38% on a sequential quarterly basis, primarily due to an 8% increase in customer interest earning balances and a 34 basis point increase in the spread on these balances.

Comment

"As expected, the second quarter came in significantly stronger than the first quarter of this year, with especially solid performances at our U.S. and Canadian clearing operations and in our technology business," said Philip A. Pendergraft, Chief Executive Officer. "Trading volumes rebounded, assets and customer balances grew, interest spread increased, and profit margin expanded. These trends, combined with our new product launches in the foreign exchange and execution services areas, and our growing pipeline of new correspondents, give us continued confidence in the potential of our business to grow even in these difficult economic times. As always, quarter to quarter performance will be somewhat reflective of overall industry volumes and performance."

Analysis of Second Quarter 2009 Results

Clearing and commission fees of $38.2 million increased 2% year over year and 9% sequentially, with strong volumes in options throughout the quarter and in equities in April and May. Technology revenue of $6.5 million increased 27% year over year and 14% sequentially, reflecting increased revenue related to trading volumes. "Other" revenues of $11.8 million increased 5% year over year and 3% sequentially due to continued expansion in Penson's execution services business, which more than offset lower trade aggregation revenues caused by changes in pricing by exchanges during the quarter.

Net interest revenue of $17.8 million from correspondent customer interest earning asset-based balances, while level with the year ago quarter, increased 36% sequentially. Spread expanded to 1.36% from 1.02% in the March 2009 quarter, and balances expanded 8%, to $4.8 billion. The higher spread resulted from a strong rebound in customer stock lending, a recovery in margin lending and the Company's previously announced insured bank deposit investment program. Penson has achieved its full year 2009 goal, moving approximately $2.0 billion of excess customer segregated funds into higher yielding FDIC-insured bank accounts, resulting in an average balance of $1.3 billion of these assets invested in such deposits for the June 2009 quarter.

Net interest revenue of $2.2 million from conduit stock lending, which was lower than the year ago quarter, increased 57% sequentially. Spread expanded to a record 1.38%, caused primarily by higher than normal revenues from hard to borrow securities, and balances expanded 6%, to $656.5 million.

Operating expenses (excluding interest expense on long-term debt) of $64.6 million increased 1% year over year and 2% sequentially. As a result of revenues growing faster than expenses and strong expense controls, operating margin (also excluding interest expense on long-term debt) expanded to 15.6% for the June 2009 quarter, compared to 14.3% in the year ago quarter and 5.1% in the March 2009 quarter.

Interest expense on long-term debt was higher compared to the year ago and sequential quarters, due to the increase in the Company's debt capital through the previously announced convertible notes financing and bank credit agreement.

New Business

At the end of the June 2009 quarter, Penson had 294 revenue generating correspondents compared with 300 at the end of the March 2009 quarter and 295 at the end of the year ago quarter. Due to Penson's concentration on increasing the quality of the firms it serves, the impact on revenues of this reduction was not meaningful. Securities clearing operations in the US, Canada and UK totaled 252 correspondents, compared to 256 in the year ago quarter. Penson GHCO futures operations served 42 introducing brokerage firms in the first quarter, compared to 39 in the year ago quarter. Not reflected in the above numbers is a "pipeline" of 30 new correspondents that are expected to begin contributing to revenue in the third and fourth quarters of 2009.

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