Stifel Financial Corporation (SF)

SF 
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Stifel Financial Corp. (SF)

Q2 2008 Earnings Call Transcript

August 12, 2008 10:00 am ET

Executives

Jim Zemlyak – SVP, Treasurer, and CFO

Ron Kruszewski – Chairman, President and CEO

Analysts

Joel Jeffrey – KBW

Presentation

Operator

Good morning. My name is Yaazi and I will be your conference operator today. At this time I would like to welcome everyone to the Stifel Financial second 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. Jim Zemlyak, Chief Financial Officer, 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 second quarter 2008 fiscal 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 from our website, 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 of results in the company's quarterly report on Form 10-Q.

Let me begin the call by going over our second quarter business highlights. Net revenues of $209 million, down slightly from the prior year second quarter and the first quarter of 2008. We reported GAAP net income of $12.3 million, or $0.45 per diluted share, a 752% increase over the prior year second quarter and a 14% decrease from the first quarter of 2008. Core net income of $16.3 million, or $0.60 per diluted share, a 13% decrease from the prior year second quarter and a 11% decrease from the first quarter of 2008, again core is after acquisition related charges, which were adjusted, which Ron will discuss later in the presentation.

Commission and principal transactions revenue increased $34.8 million, 31% over the previous year second quarter. Investment banking revenue declined 67% to $20.9 million from the prior year second quarter. Asset management and service fee revenue increased 17% to $30 million as compared to the prior year second quarter. For the three months ending June 30, 2008, utilizing Core earnings, pretax margin was 13%. And for the three months ended June 30th of 2008, utilizing Core earnings, annualized return on average equity was 14%. The Fixed Income Capital Markets segment recorded net revenue of $34.7 million, a 231% increase over the second quarter of ‘07. And lastly, we had a 3-for-2 stock split distributed on June 12th of 2008 to shareholders of record as of May 29, 2008.

We move forward to our next slide, which is our year-to-date business highlights. Net revenue of $420.4 million, a 14% increase for the six months as compared to ‘07. Our GAAP net income of $26.7 million, or $0.99 per diluted share, a 160% increase for the six months. Book value per common share increased to $19.75 as of June 30, a 14% increase from 12/31/07. Core net income of $34.6 million, or $1.29 per diluted share, an 8% increase for the year as compared to 2007.

Our Private Client Group and Fixed Income Capital Markets net revenue increased 16% and 213% respectively in the first six months as compared to the prior year. Commission and principal transactions revenue increased 49% to $301 million from the prior year months. Investment banking revenue declined 60% to $42.8 million from the prior year six months. Again the prior year six months and second quarter results include the firm's largest investment banking transaction, which contributed $24.7 million in Q2 of ’07.

Asset management and service fee revenue increased 34% to $60.2 million from the prior year six months. For the six months ending June 30 of ‘08, utilizing Core earnings, pretax margin was 14%. And for the six months ending June 30, ‘08, utilizing Core earnings, return on average equity was 16%.

I’d like to turn the call over to our Chairman and CEO, Ron Kruszewski.

Ron Kruszewski

Thank you, Jim. What I’d like to talk about, first of all, as I’ve said, given the difficult market conditions, we are pleased to report what I think was a very strong quarter. The quarter would be characterized by balance, balance in our businesses as the investment banking, which was weak across the industry but was offset by strong Private Client business, actually record Private Client business, a very strong Fixed Income Capital Markets, and within Equity Capital Markets, our cash equities business or our slow business has been very strong and something that we are gratified that we are getting traction on our business model, our research driven business model.

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