Stifel Financial Corp (SF) 2004 Q1 法說會逐字稿

Good afternoon by name is Jeremy and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Stifel Financial first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Mr. Zemlyak, you may begin your conference.

Good afternoon everyone. This is Jim Zemlyak, the CFO of Stifel Financial Corp. On behalf of the Company, I would like to welcome everyone to our conference call to discuss operating results for the first-quarter of 2004. Please note is conference call is being recorded.

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 forward-looking statements are not statements of fact or guarantees a performance and are subject to risks, uncertainties and other factors that may cause actual future results to differ materially from those discussed in the statements. For discussion of these risks and uncertainties please see the business factors affecting the Company in the financial services industry and management's discussion and analysis of results in the Company's annual report on Form 10k for the fiscal year ended December 31st, 2003, and management discussion analysis results and the Company's quarterly reports on Form 10-Q.

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

Thank you Jim. Welcome to everyone on the call and thank you for your time. We released earnings yesterday before the open and we will review our press release and the relevant numbers on our call today. If you need a copy of Stifel's earnings press release may be viewed or obtained at our website at www.Stifel.com.

Our first quarter ending March 31st, 2004 represented a record quarter for both revenues and net income, simply put we had a great quarter. Investor sentiment was and is strong and that provided the foundation for record results both revenue and operating contribution for our Private Client Group. Also an improving environment for capital formation helped drive our Equity Capital Markets group to excellent although not record results.

Fixed Income Capital Markets posted relatively flat results but we see a strong pipeline in this segment for the rest of the year. Of course, as long as interest rates are somewhat cooperative. Now the numbers. Remember these results are for the quarter ending March 31st, 2004.

Net revenues which are defined as total revenues less interest expense were approximately 67.5 million which was an all-time record, up 58 percent from the 2003 first quarter and also up 9 percent from the previous record quarter which was the fourth quarter of 2003. Net income for the quarter totaled a record 6.9 million; it was up 852 percent from the prior first-year quarter and up 3 percent from the fourth quarter 2003.

Diluted earnings per share totaled 76 cents for the quarter compared to 9 cents for the first quarter of 2003. It's important to note that the current quarter -- quarterly results include a $1 million tax benefit which was approximately 11 cents per diluted share which resulted from the settlement of a state tax matter covering a number of tax years for the Company.

At March 31st, 2004 the Company's equity was almost 115 million, resulting in book value per share of 1555. Annualized return on average equity was a 26 percent, a number that we frankly are pleased with. 26 percent for the quarter ending March 31st. During the quarter, the Company under existing board authorization repurchased 29,517 shares at an average cost of 1935 per share. As previously stated, our quarterly results were driven in large part by record revenues in our Private Client Group and a strong performance for Equity Capital Markets. This coupled with strong expense controls contribute to our earnings. All three business segments posted year-over-year revenue gains.

First, our Private Client Group, our Private Client Group net revenues for the first quarter of 2004 were a record 52.3 million which was up 58 percent from the first quarter of 2003 and up 16 percent from the fourth quarter of 2003. Our Private Client Group recorded a record operating contribution of 14.4 million which was 242 percent over the first quarter of 2003 and 37 percent over the immediately preceding quarter.

Equity Capital Markets recorded net revenues of 10.9 million which was up 93 percent over the first quarter of last year and up 5 percent from the fourth quarter of 2003. Operating contribution totaled 3.6 million, up significantly from the first quarter of 2003, but it was down 21 percent from the 2003 fourth quarter.

The Company was lead or co-manager for the quarter on 22 equity debt, closed-end funds or trust preferred offerings for the first quarter of 2004 compared to 7 last year and 18 in the fourth quarter of 2003. For the quarter, Fixed Income Capital Markets posted net revenues of almost 4 million which was an increase of 1 percent from the prior year first quarter but down 27 percent from the fourth quarter of 2003. During the 2004 first quarter, fixed income recorded an operating contribution of 353,000 compared to an operating contribution of 973,000 in the first quarter of 2003 and it was down from an operating contribution of almost 2 million in the last quarter of 2003.

For the quarter, our Fixed Income Capital Markets group was a senior or co-manager on 43 offerings compared to 38 offerings in the same period on year earlier and 47 in the fourth quarter of 2003. If you look at and/or examine our earnings release for the -- and look at the quarterly segment results, you will note that capital markets combined both equity and fixed income posted a combined 5.3 million and 2.3 million increase in revenue and operating contribution respectfully. So it is 5.3 million in revenues and 2.3 in operating contribution. If you compare that to the increase in the quarterly revenues in operating contribution of 19.2 million with respect to revenues, and an increase of 10.2 million with respect to operating contribution, you will see the most significant increase in quarterly revenues and income and frankly our performance can be attributable to our Private Client Group segment.

The quarter ending March 2004 marked a twelve-month period of favorable market conditions. For the trailing year, ending March 31st, 2004, if you just look at it as a year ending March 31st, 2004, Stifel Financial reported total revenue of 246 million and net income was over 21 million which would be up over 30 percent and 10 times respectfully over the comparable prior twelve months.

Earnings per diluted share for this period would be 247, pre-tax profit margins of 14 percent and return on average equity of 23 percent; again would be for the year ending March 31st, 2004. As of the market close today, Stifel Financial closed at $23.40 which represents a PE of 944 based on trailing twelve-month earnings and approximately 1.7 times tangible book value. The 9.4 PE for Stifel Financial compares to an industry average of approximately 18.7 and a price to tangible book --Stifel's price to tangible book of 1.72 compares to an industry average of approximately 2.9 times.

Finally, if you look at some of Stifel's statistical data you will note I think I said book value per share totals 1555; total headcount remained the same year-over-year and the number of IEs also remained the same. As I said on the last conference call, or conference call for the end of the year, it doesn't mean that we haven't been recruiting. We have been recruiting, but we've also been pairing the ranks of the investment executives. And as such our average productivity is up significantly year-over-year per investment executives.

Total client assets grew to over 21 billion at March 31st, 2004 compared to 16.2 billion at March 31st, 2003. We believe our outstanding first quarter and trailing twelve-month results underscore the earnings power of our Company. Looking forward, while we're mindful that market conditions can change quickly, we believe that our strategy and what we've been doing bodes well for future continued growth of our Company.

With that, thank you for your time and I'll answer any questions anyone may have. Operator.

(OPERATOR INSTRUCTIONS) Adam Lane (ph) .

Thank you. Congratulations. It was really a great quarter. One question, the comp to revenue line, that looked a little high. Can you comment on that, and can you give us your sense of -- both looked high vis-à-vis the other quarters but also looked high vis-à-vis the industry, can you make some comments on that?

Well, first of all, the comp -- you are very perceptive and a good question. The comp to revenue ratio is high but it is historically high in the first quarter. The primary reason for that is that like most securities firms a big chunk of our benefits expense relating to payroll taxes, the excess -- I forget what all of them are, I can read them on the income statement, are always a big jump over any other quarter. And that's due to the fact that we pay a lot of our annual compensation in February. This is not unlike what you will hear from other firms in similar situated in that our comp will do -- will be high in the quarter. With respect to and -- that is the primary reason.

We had a great quarter, we estimate compensation to the best of our ability. A lot of our compensation is subjective and we try to forecast year-end compensation results and as such you take that combined with the higher expense ratio for payroll taxes, that's going to drive a higher comp to net revenue number for the quarter. I'm not sure I completely answered that but I hope I did.

I will just ask it one other way. Do you have a target for the full year, forget the quarter, for the full year target of comp to revenue?

We do not. We do not do our financials to a full year number, but I think if you look over the past couple of years, you will see a trend and you will see where in its ended up. I think that that is indicative for the full years. I think the full years are much more consistent than quarter-to-quarter.

Thank you.

(OPERATOR INSTRUCTIONS) There are no further questions at this time.

That's great. Everyone, thank you for your time and we will talk to you next quarter. Goodbye.

This concludes today's conference call. You may now disconnect.