Stifel Financial Corporation (SF)

SF 
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Stifel Financial Corporation (SF)

Q1 2008 Earnings Call Transcript

May 12, 2008 11:00 am ET

Executives

Jim Zemlyak – EVP, CFO and Co-COO

Ron Kruszewski – Chairman, President and CEO

Analysts

Guy Moszkowski – Merrill Lynch

David Trone – Fox-Pitt Kelton

Lauren Smith – Keefe, Bruyette & Woods

Presentation

Operator

Good afternoon. My name is Jacob and I will be your conference operator today. At this time, I would like to welcome everyone to the Stifel Financial first quarter earnings 2008 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. Mr. Zemlyak, you may begin your conference.

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 first quarter 2008 fiscal results. Please note that this conference call is being recorded. If you would like a copy of today's presentation you may down load slides and view it from 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 meanings of the Private Securities Litigation Reform Act of 1985. These statements are not statements of fact or guarantees of performance. They are subjects 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 of results in the company's quarterly report on Form 10-Q.

Before I turn the call over to our Chairman, CEO and President of Stifel Financial Ron Kruszewski, I would like to review the business highlights. Before I start, I want to remind everyone that the first quarter included one month of Ryan Beck in 2007 and did not include Stifel Bank and Trust, which closed April 1st of 2007.

Net revenue of $211.5 million, a 35% increase over the prior year first quarter, and down slightly from the first quarter of 2007. GAAP net income of $14.3 million, or $0.81 per diluted share, a 62% increase over the prior year first quarter, and a 4% increase from the fourth quarter of 2007. Core net income of $18.3 million, or $1.03 per share, a 39% increase over the prior year first quarter, and 11% decrease from the fourth quarter of 2007, and Ron will review in detail the difference between GAAP and Core.

Commission and principal transactions increased 64.7 million, 74% over the previous year first quarter. Asset management and service fees increased 56% to $30.3 million as compared to the prior year first quarter.

For the three months ended March 31, 2008, utilizing Core earnings, pretax margins were 14%. For the three months ended March 31st 2008, utilizing Core earnings, annualized return on average equity was 17%.

At March 31, 2008, our equity was $436.8 million, resulting in a book value per share of $28.07. The number of Financial Advisors increased to 972 from 956. And the Fixed Income Capital Markets recorded record net revenues of $44 million and record income before taxes of $14.9 million.

With that, I will turn the call over to Ron.

Ron Kruszewski

Thanks, Jim. Good morning everyone. First of all, we had in summary a very good quarter in what can best be described as turbulent and difficult markets. As Jim stated the numbers, I'm pleased to report it's our second best quarter ever in terms of net revenue, essentially flat with our record quarter of all time. Third best with respect to Core net income and actually our best quarter ever with respect to GAAP net income.

And our ability to have this kind of a quarter in the difficult markets is in many respects the result of our conservative balance sheet. We have assets of $1.6 billion supported by over $530 million of equity and trust preferred securities. And even with this leverage of just over three times leverage, we achieved a 17% annualized return on average equity if you utilize our Core earnings as the earnings number.

You know, during the quarter a lot went on. We completed a secondary offering of our common stock. We didn't have any primary shares in that offering. We completed it. We actually priced the offering in probably the most difficult times right in the midst of the Bear Stearns takeover and that was – but during that time we were able to sell the majority of BankAtlantic's position in Stifel Financial and I would like to take the opportunity now to welcome our new investors and thank them for their confidence in our company.

I am also pleased to announce that we are going to have a 50% stock dividend in the form of a three-for-two stock split will be distributed June 12th to shareholders of record of May 29th. This, I believe, underscores our confidence in our business going forward and will also serve to add liquidity to our common stock.

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