A.G. Edwards Reports Third Quarter Performance, YTD Net Earnings Up 17%

Net earnings for A.G. Edwards, Inc., a financial services holding company, for the quarter were $54 million, or $0.71 per diluted share, on net revenues of $674 million. For the same quarter last year, net earnings were $49 million, or

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Net earnings for A.G. Edwards, Inc., a financial services holding company, for the quarter were $54 million, or $0.71 per diluted share, on net revenues of $674 million. For the same quarter last year, net earnings were $49 million, or $0.63 per diluted share, on net revenues of $638 million.

For the first nine months of fiscal 2006, net earnings were $159 million, or $2.06 per diluted share, on net revenues of $2.0 billion. For the same period last year, net earnings were $136 million, or $1.72 per diluted share, on net revenues of $1.9 billion.

Results for the third quarter of fiscal 2006 included an $11 million increase in non-compensation expenses, or $0.07 per diluted share, for reserves and settlements for various legal and regulatory matters when compared to the same quarter last year. Additionally, the third-quarter results reflected a $3.5 million benefit, or $0.05 per diluted share, resulting from the resolution of certain tax matters related to technology research and development tax credits.

“Our third-quarter results maintained the trend of growing client interest in our fee-based programs and services, which have enhanced the value our financial consultants bring to their client relationships and have contributed to our improved performance,” said Robert L. Bagby, chairman and chief executive officer. “We continue to focus on our technology expenses and achieving the benefits of our Gateway Initiative.

Commission revenues for the third quarter increased 1% ($2 million) compared to last year’s third quarter, primarily due to increased investor interest in annuities. For this year’s first nine months versus the same period last year, commission revenues decreased 2% ($13 million), mainly reflecting a shift in investor interest from individual mutual funds to fee-based, fund-advisory programs.

Asset-management and service-fee revenues for the third quarter increased 15% by $36 million. For fiscal 2006’s first nine months, these revenues increased 16% or by $105 million versus last year’s first nine months.

Revenues from principal transactions in the third quarter fell 10% ($6 million) compared to the same quarter last year. Compared to the first nine months of fiscal 2005, principal-transaction revenues in this year’s first nine months decreased 22% ($42 million). The decreases in both periods continued to reflect a lower volume of fixed-income transactions, with more transactions in shorter-term securities given the current interest-rate environment.

Investment-banking revenues for the third quarter of fiscal 2006 fell flat compared to the same quarter last year, as greater revenues from management fees and municipal underwritings were offset by lower revenues from corporate and government debt issues. For the first nine months, investment-banking revenues increased 5% ($8 million) versus the same period last year. This period reflects higher revenues from equity underwritings in a number of sectors, along with higher revenues from municipal underwritings of new issues and refinancings.

Interest revenue net of interest expense in the third quarter increased 43% ($13 million) from the year-ago quarter. For the first nine months, net interest revenue increased 39% ($34 million) over last year’s first nine months. Both the third-quarter and nine- month results reflect an increased prime rate resulting in higher interest rates charged on margin balances. The third-quarter results additionally reflect an increase in average inventory of securities held for sale to clients.

Other revenue decreased 71% ($10 million) in the third quarter and decreased 43% ($12 million) for the first nine months compared to the same periods last year. Last year’s third-quarter and nine- month results included gains of $8 million and $10 million, respectively, on the sale of shares in the Chicago Mercantile Exchange and the mark-to-market on other shares in this exchange the firm held at that time. Additionally, the decrease in the nine-month period reflects a $6 million Sept. 11, 2001 business-interruption settlement received in the first half of last year, partially offset by increases in private-equity investment valuations.

During the third quarter, non-interest expenses increased 6% ($34 million) compared to last year’s third quarter. For the first nine months of fiscal 2006, non-interest expenses increased 3% ($57 million) compared to the same period last fiscal year.

Compensation and benefits increased 5% ($20 million) in the third quarter and increased 4% ($45 million) in the first nine months of fiscal 2006 versus the respective periods last year. The results in both periods mainly reflect higher commissionable revenue as well as higher incentive compensation due to increased firm profitability. The nine-month results also reflect increases in administrative salaries and related benefits. Additionally, as a result of its early adoption of Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment,” the firm did not recognize an expense for stock awards in either period for fiscal 2006. Last year’s third quarter and first nine months respectively included restricted stock-award expense of approximately $6.6 million, or $0.04 per diluted share, and $22.3 million, or $0.13 per diluted share.

Non-compensation-related expenses increased 9% ($14 million) in the third quarter and increased 2% ($11 million) in the first nine months compared to the respective time periods last year. The increases in both periods predominately reflect increases in reserves and settlements for various legal and regulatory matters. These increases were partially offset in both periods by lower technology consulting expenses associated with the completion of various projects under the firm’s Gateway Initiative.

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