Stifel Financial Corporation (SF)

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Stifel Financial Corp. (SF)

Q3 2008 Earnings Call Transcript

November 3, 2008 16:30 pm ET

Executives

James M. Zemlyak - Executive Vice President and Chief Financial Officer

Ronald Kruszewski - Chairman, Chief Executive Officer, President

Analyst

Joel Jeffrey - KBW

Presentation

Operator

Good afternoon. My name is Berneil and I will be your conference operator today. At this time, I would like to welcome everyone to the 2008, Third Quarter’s Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn the call over to Mr. Zemlyak, Chief Financial Officer of Stifel Financial. Please go ahead sir.

James M. Zemlyak - Executive Vice President and Chief Financial Officer

Thank you, operator. Good afternoon, everyone. This is Jim Zemlyak, CFO of Stifel Financial Corp. I would like to welcome everyone to our conference call today to discuss our third quarter and 2008 year-to-date results. Please note that this conference call is being recorded. If you’d like a copy of today's presentation you may download the slides or view it on www.stifel.com.

Before we begin today's call, I would like to remind listeners that this presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not statements of fact or guarantees of performance. They are subject to risks, uncertainties, and other factors that may cause actual future results to differ materially from those discussed in the statements.

To supplement our financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance and liquidity. These non-GAAP measures should only be considered together with the company's GAAP results. And finally, for a discussion of risks and uncertainties in our business, please see the business factors affecting the company and the financial services industry in the company's Annual Report on Form 10-K and MD&A results in the company's quarterly reports on Form 10-Q.

With that, I would like to turn the call over to Chairman, CEO, and President, of Stifel Financial Mr. Ron Kruszewski.

Ronald Kruszewski - Chairman, Chief Executive Officer, President

Thanks Jim. Welcome everyone. Let's get started by saying that we are pleased to report another very good quarter, especially in light of the certainly unprecedented market events and the turmoil that these times are presenting us with almost endless opportunity to continue to grow our franchise.

I say that recognizing that even though business has been very good and growth has been very good, I note, as I'm sure everyone on this call knows, that we just completed one of the worst months in the history of the Dow, down somewhat 14, the S&P down 17, NASDAQ almost 18% for the month. And certainly that can have a chilling effect on activity when clients open their statements. That said, business has been very good.

With respect to the third quarter of 2008, again I remind everyone that if you want to view our slides, they are online, and I'm going to outline my remarks in conjunction with the slides. So, first of all, with the third quarter, we are pleased to report record net revenues per quarter, an all-time record of almost 219 million up 20% from the comparable quarter of 2007. Revenue growth and Private Client, Equity Capital Markets and our small bank was offset by investment banking witnesses and certainly our Fixed Income Group had a big – a lot to say that 20% increase.

Our GAAP net income was 12.8 million or $0.46 a diluted share up 59%. Core net income which is how we have been in measuring our progress totaled $0.60 per diluted share, which was 17% over the comparable quarter. Core earnings, pretax margin 13%. We have had margin compression, both as a result of a subdued activity on the banking side and plus a lot of growth, additions of offices. I will talk about that in a moment.

Our annualized return on average equity was 14%, I say that with -- we only employed about three times leverage to achieve those results. And during the quarter and frankly at the end of the quarter, we successfully completed a public offering of a million 1,495,000 shares at $45 a share. We think that offering was very timely.

With respect to year-to-date again record nine month revenues of almost 640 million up 16% compared to 2007. Again our Private Client Group had record revenue of 11% Fixed Income record revenue of 185%.

Our GAAP net income was $1.44 up on 115%. Book value totaled $22.21 which was up 22% and core net income for the nine months was $1.88 a share, which is up 11%. Again pretax margins 13%, return on average equity 15%. All things considered in this market I think congratulations to a number of my partners at the firm for just truly very remarkable and balanced results.

If you turn the page, you look at the income statement. Again I have talked about most of the things on here, and we’ll talk a little bit about the balance that allowed us to achieve record revenue and 20% quarter-over-quarter over growth, but all in all, nothing really unusual.

If you took a look at our growth strategy, we just think that the disruption in the Private Client market present significant opportunities. Yes, Wachovia with Wells Fargo, Merril, [BA Bay], Lehman, Bear Stearns, there is just literally thousands of financial advisors that are considering their future. And it is just a lot of opportunity for a firm like ours.

Read the rest of this transcript for free on seekingalpha.com