INTL FCStone announces 4Q results, interest expense increase 50% to $7.5 million YoY

Commodities and Forex broker INTL FCStone Inc. (NASDAQ:INTL) just announced its financial results for the fiscal fourth quarter and full fiscal year ended September 30, 2016.

Sean M. O’Connor, CEO of INTL FCStone Inc., stated:

We achieved continued good results in the fourth quarter, which was boosted by a bargain purchase gain on the Sterne Agee acquisition. We sustained our strong momentum and financial performance achieved in 2015 and achieved a record EPS for 2016. We recorded an ROE of over 13% for the year overall which we believe is a ‘best in class’ performance. We expanded our footprint and capabilities during the year with the addition of the Sterne Agee securities clearing and independent wealth management businesses, rounding out our clearing and execution offering and adding 50 correspondent clearing clients with over 120,000 accounts and over 500 independent advisors and $12 billion of assets under management. In addition, in October 2016 we acquired the ICAP oils voice brokerage business in the U.K. which is a well recognized franchise.

Overall interest income decreased $4.3 million to $12.4 million in the fourth quarter, primarily as a result of the unrealized fluctuations in the marked-to-market (MTM) valuations in U.S. Treasury notes discussed below. Partially offsetting these fluctuations, INTL FCStone’s domestic fixed income institutional business interest income increased $1.2 million over the prior year and the newly acquired Sterne Agee businesses added an incremental $1.1 million.

The company’s interest income has primarily been driven by the average customer equity in its Commercial Hedging and CES segments, as well as short term interest rates. Interest income in its Commercial Hedging and CES (excluding the Sterne Agee businesses) segments increased $1.3 million, to $4.0 million in the fourth quarter, due to the interest income impact of average customer equity increasing 17% versus the prior year period.

Corporately in the fourth quarter, INTL FCStone recorded pre-tax unrealized losses of $2.1 million and $1.5 million on its U.S. Treasury notes and interest rate swaps, respectively, held as part of the continued implementation of the company’s interest rate management strategy, which includes the purchase of medium term U.S. Treasury notes and the utilization of interest rate swaps.

Interest expense increased 50% to $7.5 million in the fourth quarter compared to $5.0 million in the prior year. The increase in interest expense is primarily related to $1.3 million of higher expense from the fixed income institutional business as well as $0.7 million of additional interest expense related to higher average borrowings on the parent level syndicated facility and a $0.7 million increase in interest paid to customers.

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