Penson to Acquire Ridge Clearing Contracts from Broadridge; Enters into Outsourcing Arrangement with Broadridge for Technology Services and Selected Processing Functions; Both Companies to Offer Each Other's Services Penson Will Become No. 2 Clearer in US by Correspondent Count, Significantly Increase Revenues and Margins

DALLAS, Nov 02, 2009 (BUSINESS WIRE) -- --Penson Reports Results for 3rd Quarter Ended Sept. 30, 2009 Penson Worldwide, Inc. (NASDAQ: PNSN), a leading provider of execution, clearing, settlement, custody and technology products and services to the global financial services industry, announced it has entered into a global strategic relationship with Broadridge Financial Solutions, Inc. (NYSE: BR) that is expected to significantly expand revenues and margins of Penson's securities clearing and execution businesses.

The relationship is based on a series of agreements that involve: (1) Penson acquiring the clearing contracts of Broadridge's Ridge correspondent clearing and execution business for consideration in the form of a promissory note and stock; (2) if needed, Broadridge providing certain financing; (3) Broadridge supplying technology and certain processing functions on an outsourced basis for Penson's US, Canadian and UK securities clearing brokers; and (4) the two companies offering each other's services to various customers and prospects on a global basis.

"We see this as a 'game changer' for Penson," said Penson co-founders, CEO Philip A. Pendergraft and President Daniel P. Son. "We will add significantly to our correspondent and revenue base, and improve our scale and operating leverage, leading to higher overall margins. This is an important step towards our vision of building the pre-eminent independent clearing and execution services firm." With over $2.1 billion in revenues in fiscal year 2009 and more than 40 years of experience, Broadridge (www.broadridge.com) of Lake Success, NY is a leading global provider of technology-based solutions to the financial services industry.

AGREEMENT HIGHLIGHTS Acquisition: Penson will acquire the clearing contracts of the Ridge clearing business for approximately $60-70 million. This business, for the fiscal year ended June 30, 2009, had approximately $75 million in annualized net revenues, more than 100 correspondents, and approximately $1.0 billion in customer balances, consisting of segregated cash, and margin and stock loans. The transaction will make Penson the nation's No. 2 securities clearing firm based on a total of approximately 400 correspondents, and increase net revenues and customer interest earning balances by 20-25% and 15-18%, respectively.

Payment & Financing: Penson will pay Broadridge a portion of the purchase price in stock equal to the lesser of (i) the number of shares of common stock equal to one third of the Purchase Price as determined at closing, (ii) the number of shares of common stock equal to 9.9% of the issued and outstanding shares of Penson immediately prior to the closing, or (iii) 2,517,451 shares of common stock. Broadridge will provide financing for the balance in the form of a seller note to be issued by Penson. In addition, Penson expects to raise additional regulatory capital, currently estimated at approximately $50 million, to support the Ridge business after closing. If Penson has not otherwise raised this additional capital by closing, it may borrow this amount from Broadridge.

Outsourcing: Penson has entered into a 10-year contract with Broadridge, which will take effect at closing, for the outsourcing of back office technology services and certain securities processing functions. Broadridge will charge Penson to service Ridge correspondents, based on their contractual revenue run rate at the time of closing. Outsourcing these functions to Broadridge is expected to enable Penson to save more than 20% on the technology and services outsourced from Penson's existing securities clearing operations in the US, Canada and the UK.

The benefit of the larger scale provided by Broadridge is expected to enhance margins post conversion and position Penson for further margin expansion as its business continues to grow. In addition, Broadridge offers a unique bundle of tightly integrated global services enabling Penson to offer more value to its existing and future securities clearing correspondents. It is anticipated that Penson's existing operations will begin converting to the Broadridge solutions in the third quarter of 2010, and be completed by the end of 2011.

Sales: Broadridge will enter into a joint selling agreement with Penson and refer correspondents seeking securities clearing services to Penson. In turn, Penson will refer to Broadridge prospects interested in key outsourcing services provided by Broadridge.

Approvals & Closing: The transactions have been approved by the Boards of both companies and Penson's bank group; are subject to customary closing conditions, including regulatory and other approvals; and are expected to close within six months. At closing, the final purchase price will be adjusted based on the accepted correspondents' contractual annualized revenue run rate at the time.

BENEFIT HIGHLIGHTS The agreement is expected to provide Penson with significant financial and strategic benefits, according to Messrs. Pendergraft and Son.

Increasingly Accretive to Earnings and Cash Flow: "Our plan is that this transaction should be modestly accretive to EPS in the year following closing, depending on the final cost of financing, with the impact increasing as the conversion process is completed," said Mr. Pendergraft. "From a cash flow perspective, we expect the transaction to be even more meaningful, providing an estimated $6-10 million in incremental positive cash flow during the first year, increasing to an estimated $15-20 million by the third year." Diversifies Correspondent Base: "The majority of our correspondents serve technology-enabled active retail and professional traders," said Mr. Son. "On the other hand, Ridge correspondents are focused more in the traditional retail and institutional arena." Enhances Industry Offerings: "Outsourcing to Broadridge will enable Penson to fully serve two major segments of the brokerage industry," Mr. Son added.

"Penson already has excellent products and services for execution and technology oriented correspondents, while Broadridge will provide us with best of class capabilities for asset gatherers, including wealth management tools for the growing registered investment advisor (RIA) business." Facilitates Expansion: "By outsourcing certain securities processing functions to Broadridge, Penson will be able to focus more on customer-facing, value added, internal and third party products and services," said Mr. Son. "All of this, plus gaining a well-respected strategic partner and new stockholder, should facilitate Penson's expansion in both existing and new markets." J.P. Morgan Securities Inc. is acting as financial advisor to Penson Worldwide, Inc.

THIRD QUARTER 2009 RESULTS Penson announced net revenues of $72.2 million, net income of $3.9 million and diluted earnings per common share of $0.15 for the third quarter ended September 30, 2009.

"Net revenues declined $4.3 million from the second quarter largely due to external factors, causing us to miss our third quarter financial targets," said Mr. Pendergraft. "Net interest revenues from customer balances declined $2.6 million, primarily due to a change in mix and lower interest rates earned on deposits in money market accounts. Clearing and commission fees declined $1.3 million due to lower trading volumes in equities and higher margin futures, which were partially offset by strong options volumes." "Even so, we continued to set the stage for future growth," added Mr.

Pendergraft. "Operating expenses (excluding interest expense on long term debt) fell 6% year over year and 3% on a sequential quarter basis. We received approval to launch our Australian clearing business, with our first correspondent expected to convert shortly. Our new institutional FX offering for correspondents is gaining traction, with the formal launch of our retail platform scheduled for the fourth quarter. We continued to improve the quality of our correspondent base without affecting revenues. Average interest earning customer balances hit a record $5.4 billion, up 12.5% from the second quarter, reflecting growth from existing correspondents, continued rebounds in margin and stock lending, and new business." Additional Analysis (on a sequential quarter basis) -- "Other" revenues of $12.6 million increased 6%, reflecting continued expansion of Penson's execution services business.

-- Technology revenues of $6.3 million fell 3%, as a large license agreement ended in August, as anticipated.

-- Penson's average balance of excess customer segregated funds in FDIC-insured bank accounts increased 54%, to $2.0 billion.

-- Contractually required minimum payments to certain correspondents exceeded Penson's earnings on end customer deposits in money market accounts late in the quarter, resulting in an expense of $115,000, versus net interest revenue of $1.0 million in the second quarter. Subsequent to the third quarter, Penson made substantial progress renegotiating these contracts.

-- Net interest revenue from conduit stock lending declined $0.9 million, to $1.3 million reflecting a lower spread of 0.75%, as demand for hard to borrow securities subsided, as anticipated, partially offset by a 6.3% increase in average balances.

-- Interest expense was higher, reflecting increased long-term debt (from the June 2009 convertible notes financing and bank credit agreement), supplying capital to support future growth.

New Business At September 30, 2009, Penson had 287 revenue generating correspondents compared with 294 at the end of the June 2009 quarter and 300 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 244 correspondents, compared to 258 in the year ago quarter. Penson GHCO futures operations served 43 introducing brokerage firms, compared to 42 in the year ago quarter.

Not reflected in the above numbers is a "pipeline" of 27 new correspondents that are expected to begin contributing to revenue in the fourth quarter of 2009 and the first quarter of 2010.

CONFERENCE CALL Penson will host a conference call Tuesday, November 3, 2009, at 10:00 AM Eastern Time (9:00 AM Central Time) to discuss the Broadridge transaction and 2009 third quarter results. The call will be accessible live via a webcast on the Penson Investor Relations section of www.penson.com. A webcast replay will be available shortly thereafter.

About Penson Worldwide: www.penson.com The Penson Worldwide group of companies provides execution, clearing, custody, settlement and technology infrastructure products and services to financial services firms and others servicing the global financial services industry. The Penson Worldwide group of companies includes Penson Financial Services, Inc., Penson Financial Services Canada Inc., Penson Financial Services Ltd., Nexa Technologies, Inc., Penson GHCO, Penson Financial Services Australia Pty Ltd and Penson Asia Limited, among other companies. Headquartered in Dallas, Texas, Penson has served the clearing needs of the global financial services industry since 1995. Penson Worldwide - Building the Best Clearing and Execution Services Firm in the World.

Penson Financial Services, Inc. is a member of the New York Stock Exchange, NYSE Alternext, Chicago Stock Exchange, FINRA, the Chicago Board Options Exchange (CBOE), OneChicago, the International Securities Exchange (ISE), the NYSE Arca Exchange, the Options Clearing Corp (OCC), the MSRB, NSCC, ICMA, DTC, Euroclear, SIPC and is a participant of the Boston Options Exchange (BOX). Penson Financial Services Canada Inc. is a participating organization with the Toronto Stock Exchange, the Montreal Exchange, the CNQ Exchange and the TSX Venture Exchange, is regulated by the Investment Industry Regulatory Organization of Canada, is a member of the CIPF, CDCC and CDS and subscribes to various Canadian ATSs. Penson Financial Services Ltd. is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Penson GHCO is a registered Futures Commission Merchant and clearing member at the Chicago Mercantile Exchange, Chicago Board of Trade, London International Financial Futures Exchange, and ICE Futures.

Penson Forward-Looking Statements The statements in this news release relating to matters that are not current or historical facts are forward-looking statements. Such forward-looking statements are based on current plans, estimates and expectations. Forward-looking statements are based on known and unknown risks, assumptions, uncertainties and other factors. Penson's actual results, performance, or achievements may differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Penson undertakes no obligation to publicly update or revise any forward-looking statement.

Penson Worldwide, Inc. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2009 2008 2009 2008 Revenues Clearing and commission fees $ 36,911 $ 40,215 $ 110,219 $ 114,076 Technology 6,266 6,190 18,383 16,089 Interest, gross 25,096 47,250 77,973 140,662 Other 12,551 11,267 35,837 32,344 Total revenues 80,824 104,922 242,412 303,171 Interest expense from securities operations 8,601 25,620 26,951 79,061 Net revenues 72,223 79,302 215,461 224,110 Expenses Employee compensation and benefits 27,204 28,197 85,321 86,497 Floor brokerage, exchange and clearance fees 8,544 8,568 24,719 21,063 Communications and data processing 11,745 10,274 33,870 29,041 Occupancy and equipment 7,422 7,810 22,032 22,125 Other expenses 7,652 11,507 24,533 27,795 Interest expense on long-term debt 3,480 885 6,041 3,047 66,047 67,241 196,516 189,568 Income before income taxes 6,176 12,061 18,945 34,542 Income tax expense 2,309 4,583 7,275 13,085 Net income $ 3,867 $ 7,478 $ 11,670 $ 21,457 Earnings per share -- basic $ 0.15 $ 0.30 $ 0.46 $ 0.85 Earnings per share -- diluted $ 0.15 $ 0.29 $ 0.46 $ 0.84 Weighted average common shares outstanding -- basic 25,411 25,108 25,334 25,227 Weighted average common shares outstanding -- diluted 25,765 25,811 25,570 25,517 Penson Worldwide, Inc. Condensed Consolidated Statements of Financial Condition (In thousands) September 30, December 31, 2009 2008 (unaudited) ASSETS Cash and cash equivalents $ 146,525 $ 38,825 Cash and securities -- segregated under federal and other regulations 3,345,945 2,383,948 Receivable from broker-dealers and clearing organizations 435,864 318,278 Receivable from customers, net 1,418,348 687,194 Receivable from correspondents 109,344 135,092 Securities borrowed 1,299,345 964,080 Securities owned, at fair value 281,655 429,531 Deposits with clearing organizations 443,287 327,544 Property and equipment, net 34,776 28,428 Other assets 399,404 226,275 Total assets $ 7,914,493 $ 5,539,195 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Payable to broker-dealers and clearing organizations $ 415,573 $ 345,094 Payable to customers 5,396,852 3,575,401 Payable to correspondents 276,120 161,422 Short-term bank loans 363,406 130,846 Notes payable 113,605 75,000 Securities loaned 885,120 842,034 Securities sold, not yet purchased, at fair value 71,245 48,383 Accounts payable, accrued and other liabilities 99,949 96,548 Total liabilities 7,621,870 5,274,728 Stockholders' Equity Total stockholders' equity 292,623 264,467 Total liabilities and stockholders' equity $ 7,914,493 $ 5,539,195 Penson Worldwide, Inc. Supplemental Data Nine Months Three Months Ended Ended September 30, December 31, March 31, June 30, September 30, September 30, (in thousands) 2008 2008 2009 2009 2009 2009 Interest revenue Interest on asset based balances $ 28,662 $ 17,335 $ 15,766 $ 20,414 $ 18,656 $ 54,836 Interest on conduit borrows 16,921 6,296 4,891 9,388 6,555 20,834 Money market 1,667 1,464 1,379 1,039 (115 ) 2,303 Total interest revenue 47,250 25,095 22,036 30,841 25,096 77,973 Interest expense Interest expense on liability based balances 11,860 7,129 4,099 3,690 3,366 11,155 Interest on conduit loans 13,760 4,509 3,447 7,114 5,235 15,796 Total interest expense 25,620 11,638 7,546 10,804 8,601 26,951 Net interest revenue $ 21,630 $ 13,457 $ 14,490 $ 20,037 $ 16,495 $ 51,022 Average daily balance (1) Interest earning average daily balance $ 4,953,260 $ 4,296,705 $ 4,450,567 $ 4,796,250 $ 5,395,192 $ 4,880,670 Interest paying average daily balance 4,110,895 3,744,894 4,063,743 4,350,120 4,760,552 4,391,472 Conduit borrow 2,180,813 773,694 617,165 656,539 697,698 657,134 Conduit loan 2,171,518 762,266 614,609 655,171 695,567 655,116 Average interest rate on balances (1) Interest earning average daily balance 2.31 % 1.61 % 1.42 % 1.70 % 1.38 % 1.50 % Interest paying average daily balance 1.15 % 0.76 % 0.40 % 0.34 % 0.28 % 0.34 % Spread 1.16 % 0.85 % 1.02 % 1.36 % 1.10 % 1.16 % Conduit borrow 3.10 % 3.26 % 3.17 % 5.72 % 3.76 % 4.23 % Conduit loan 2.53 % 2.37 % 2.24 % 4.34 % 3.01 % 3.21 % Spread 0.57 % 0.89 % 0.93 % 1.38 % 0.75 % 1.02 % (1) Excludes money market revenues and balances. Money market balances are not recorded on the PWI balance sheet. Fed rate Average 2.00 % 1.06 % 0.25 % 0.25 % 0.25 % 0.25 % Ending 2.00 % 0.25 % 0.25 % 0.25 % 0.25 % 0.25 % SOURCE: Penson Worldwide, Inc.

CONTACT: Penson Public Relations: Intermarket Communications Andy Yemma, 212-754-5450 [e-mail] or Erica Fidel, 212-754-5448 [e-mail] or Penson Investor Relations: Anreder & Company Gary Fishman, 212-532-3232 [e-mail] or Steven Anreder, 212-532-3232 [e-mail] Copyright Business Wire 2009 -0- KEYWORD: United States

North America

Texas INDUSTRY KEYWORD: Technology

Data Management

Professional Services

Banking

Finance SUBJECT CODE: Earnings

Conference Call

Webcast