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Commodities and Forex broker INTL FCStone Inc. (NASDAQ:INTL) just announced its financial results for the fiscal year 2017 first quarter ended December 31, 2016.
Overall interest income increased $1.7 million to $10.4 million in the first quarter, primarily due to $1.3 million in incremental interest revenue from our acquired correspondent securities clearing and independent wealth management businesses of Sterne Agee in the fourth quarter of fiscal 2016, as well as our domestic fixed income institutional business increasing interest income $1.0 million over the prior year.
Historically, our interest income has primarily been driven by the average customer equity in our Commercial Hedging and Clearing and Execution Services (CES) segments, as well as short term interest rates. Interest income in our Commercial Hedging and CES (excluding the Sterne Agee businesses) segments increased $1.3 million in the first quarter, due to the interest income impact of average customer equity increasing 14% versus the prior year period and improvement in short term rates.
Corporately in the first quarter, we recorded pre-tax unrealized losses of $4.6 million and $1.0 million on our U.S. Treasury notes and interest rate swaps, respectively, held as part of the continued implementation of our interest rate management strategy, which includes the purchase of medium term U.S. Treasury notes and from time-to-time, the utilization of interest rate swaps. Under this strategy, we do not actively trade in such instruments and generally intend to hold these investments to their maturity date, however as a broker-dealer, unrealized fluctuations in the marked-to-market (“MTM”) valuations of these investments are included in operating revenues in the current period. During the first quarter, we exited our interest rate swaps and purchased additional U.S. Treasury notes with similar durations. The table below reflects the after-tax impact on net income of these MTM fluctuations for the last 5 fiscal quarters.
Sean M. O’Connor, CEO of INTL FCStone Inc., stated:
We achieved record operating revenues of $185.5 million, up 23% due largely to the addition of the Sterne Agee securities clearing and independent wealth management businesses as well as the ICAP energy voice execution business. Diluted EPS was $0.34, down 26% from a year ago although four out of five of our segments achieved growth in operating revenues and segment income. Securities segment income was down 41% largely because of prior period gains in Argentina related to the significant devaluation in the Peso. Global Payments realized an increase in segment income of 32%, largely due to a 53% increase in transactional volume. Physical Commodities segment income was up 200% as both precious metals and agricultural activities performed better, while the financial results in Commercial Hedging marginally improved over the prior year. Segment income for Clearing and Execution Services was up 63% due to improved results in exchange listed futures and options as well as the inclusion of the recently acquired Sterne Agee and ICAP businesses.