Stifel Financial Corporation (SF)

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Stifel Financial Corp. (SF)

Q4 2008 Earnings Call Transcript

February 12, 2009 11:00 am ET

Executives

Jim Zemlyak – SVP, Treasurer, and CFO

Ron Kruszewski – Chairman, President, and CEO

Analysts

Guy Mozaki [ph] – Bank of America

Darren Woodman – Woodman Capital Management

Joel Jeffrey – KBW

David Trone – Fox-Pitt

Michael Isenberg [ph]

Michael Wong – Morningstar

Dave [ph] – FBR Capital Markets

Presentation

Operator

Good morning. My name is Ardae and I will be your conference operator today. At this time, I would like to welcome everyone to the Stifel Financial fourth quarter and annual 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).

I would now like to turn the call over to James Zemlyak, Chief Financial Officer

Jim Zemlyak

Thank you, operator. Good morning, everyone. This is Jim Zemlyak, CFO of Stifel Financial Corp. I would like to welcome everyone to our conference call today to discuss our fourth quarter and 2008 fiscal results. Please note that this conference call is being recorded. If you’d like to follow on with today’s slides and 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, and CEO, and President, of Stifel Financial Mr. Ron Kruszewski.

Ron Kruszewski

Thanks Jim. Welcome everyone. As we do on all of our calls, we follow along with slides. So, I will be addressing slides and hopefully everyone in the call has those. I thought the way to start would be to restate the code I put in our earnings release which was simply put 2008 was uniquely challenging for the financial services industry.

Our Company has been fortunate – many of the issues which plagued a number of our brother in. While we are mindful of this environment, we consider this a time of unparalleled opportunity for our Company.

Going forward, we will continue on the long-term building of shareholder value primarily to the addition of talented and entrepreneurial people. And I would like to take the time to congratulate and thank our hard working associates for record results in the most difficult of environments in 2008, and also thank our clients for their continued confidence in Stifel Financial.

So, turning to the fourth quarter highlights, we recorded net revenues of $228 million, 8% higher than the comparable quarter in 2007. It was a balanced business model which drove those record revenues, frankly balanced Fixed Income offset declines in equity and Private Client which is historically what happens when the economy is performing like it does. Those revenues drove a record core net income of $21.7 million, $0.72 per diluted shares. So, it was up 6%. It was not a record core net income. We had some share of – increase in shares due to our offering in September.

It was a second best quarter on a core EPS basis. Our pre-tax margins were 16%, equal with last year. On a GAAP basis, net income was $17.8 million, $0.59 diluted share. Book value increased to $22.75, which was up 24%. And at the end of the year on the acquisition of Butler Wick which added 18 Private Client branch offices and 75 financial advisors.

For the quarter, our annualized return on equity was about 15%. Year to date, pleased to announce record net revenues of almost $868 million, up 14% over 2007. This marks the thirteenth consecutive record net revenues and it was driven again record revenues from Fixed Income capital markets, Private Client Group and Stifel Bank.

Core net income for the year of $73.1 million, $2.60 a diluted share. So, it was 9% up in net income. EPS was flat at $2.60 year over year. For the year, despite the environment, we still were able to maintain pre-tax margins of 14% and return on equity of 15%.

On a GAAP basis $57 million, $2.04 a diluted share, up significantly, and as I said book value of $22.75. If we turn the page and just look at the summary income statement, I think what this will show is year over year pretty consistent ratios, comp to revenues 64%. OpEx slightly higher due to our both – due to some write-down’s but also the opening of a number of Private Client Group offices. So, we’ve taken some margin compression.

Looking at the source of revenues. For the quarter, I’m – not unsurprisingly commissions were down 8%, principle transactions. This is all compared to the previous year’s quarter. Principle transaction again driven primarily by our Fixed Income capital markets, almost doubled. Investment banking, no surprise again down 50%. So, the combination of all that drove operating revenues up 8% and net revenues up 8%.

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