Stifel Financial Corp (SF) 2005 Q2 法說會逐字稿

Good morning. My name is Amber and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the second quarter financial earnings release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will a question and answer period. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Jim Zemlyak. Please begin your conference , sir.

Thank you, Amber. Good morning, everyone. This is Jim Zemlyak. I'm the CEO of Stifel Financial Corp. On behalf of the Company I would like to welcome everyone to our conference call to discuss financial results for the second quarter of 2005. Please note, this 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 of performance. They are subject to risks, uncertainties, and other factors that may cause actual future results to differ materially from those discussed in these statements. For a discussion of these risks and uncertainties, please see the business factors affecting the Company and the financial services industry in the Company's annual report on form 10-K, and management's discussion and analysis of results in the Company's quarterly reports on form 10-Q.

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

Thank you, Jim. Good morning, everyone. Today's agenda, what I would like to do is give you just a quick overview of our quarter. I'll hand it off to Jim who will review the detailed numbers. Then I'll finish, I think on this call, with a view of our businesses, but maybe from a 40,000-foot level as to how we see the general forward trends, how they're impacting each of our businesses.

Yesterday we reported quarterly net income of 5.6 million, or $0.46 per diluted share. That was on net revenues of 64 million, which compares to net income of 5 million or $0.41 per diluted share, net revenues of 59.4 million for the comparable quarter. As such, net revenues increased 8% while net income and diluted earnings per share increased 12%. On a sequential basis, net revenues increased 6% and net income increased 29%. Again, as compared to the first quarter of 2005.

For the six months, we reported net income of 10 million, or $0.81 per diluted share on net revenues of 124.2 million, which compares to 11.9 million of net income, or $0.90 per diluted share on revenues of 126.9 million for 2004.

The prior year's results included, as we've said before, a $1 million tax benefit, or $0.08 per diluted share, in last year's results. If you exclude that tax benefit from the prior year result, our diluted earnings per share of $0.81 cents would compare to $0.89, or a decline of about 9%.

In general, the equity markets have contributed to a difficult business environment. At June 30th, 2005, for the year at that time, the Dow, S&P 500, and Nasdaq are down 4.7, 1.7, and 5.4%. The flattening yield curve has also contributed to this difficult environment. As I'm sure everyone knows, the Federal Reserve Board raised the Fed Funds rate yesterday to 3.5%, and all indications are they'll continue their measured pace of rate increases.

Of course energy prices have remained volatile, and certainly upward trending, apparently unabated at this time.

Despite the aforementioned difficult market conditions, all three of Stifel's business segments turned in solid performances, with increases in net revenues for all segments during the second quarter as compared to the second quarter of 2004. We've asked Jim if he would like a little bit at the detailed numbers.

Thanks, Ron.

The highlights for the second quarter; net revenues increased 8% to 64 million from 59.4 million in the prior year second quarter. As Ron mentioned, net revenues from all three business segments increased from the prior year.

Investment banking revenues increased 17% to 15.7 million, resulting principally from an increase in corporate finance advisory fees, an increase in lead and co-lead equity debt, closed-in fund, and trust preferred offerings. Asset management fees -- service fees increased 12% to 10.6 million, primarily as a result of increased fees on managed accounts, as assets under management and number of accounts increased from 1.2 -- 1.6 billion from 1.4 billion in the prior period.

Net interest revenue increased 51% to 33.1 [ph] million, principally as the result of increased interest revenue on customer accounts due to an increase in short-term rates. Margin interest increased 45% to 3.5 million, resulting from a 44% increase in the average rate charged to those accounts.

Total non-interest expense increased 7% to 54.7 million, resulting principally from increased employee comp and benefits. As to comp and benefits, this includes transition pay, principally up-front notes and accelerated payouts in connection with the Company's expansion efforts in the private client group. Excluding transition pay of 2.2 million and 2.1 million from the '05 and '04 periods respectively, compensation as a percentage of net revenue was 61.5% and 61% in '05 and '04 respectively.

Other operating expenses decreased 6% to 4.1 million, principally from decreased litigation expense due to decreased claims and a decrease in our corporate insurance expense, due primarily to improved pricing on our insurance renewals. As a result of the 8% increase in net revenue and 7% decrease in non-interest expense, the Company's income before taxes increased 12% to 9.3 million.

As to our 3 business segments, an overview for the quarter, Private Client Group net revenues for the second quarter of '05 were 48.3 million, an increase of 8% from the second quarter of '04 and a 2% increase from the first quarter of '05. PCG recorded an operating contribution of 11.6 million, a 1% increase from the second quarter of '04 and a 3% increase from the first quarter of this year.

Equity Capital Market, ECM, recorded net revenues of 9.4 million, a 2% increase from the same quarter last year and a 9% increase from the first quarter of '05. ECM operating contribution totaled 3.3 million, a 20% increase from the second quarter of '04 and a 22% increase from the first quarter of '05.

The company Ladder Co. managed 24 equity debt closed end or trust preferred offerings during the second quarter of '05 compared to 17 in the same period one year earlier and 20 during the first quarter 2005.

Fixed Income Capital Markets posted net revenues of 4.6 million, an increase of 9% from the prior year second quarter and an increase of 12% from the previous quarter. During the 2005 second quarter, Fixed Income recorded an operating contribution of 885,000, an increase of 49% from the prior year second quarter and an increase of 63% from the previous quarter. The Fixed Income Capital Markets area senior or co-managed 51 offerings during the second quarter of '05, compared to 37 offerings in the same period one year earlier and 27 offerings during the first quarter of 2005.

At June 30th, 2005, the Company's equity was 138.5 million, resulting in a book value per share of 14.25. During the first half of '05, the Company repurchased 453,592 shares under the existing board authorization, at an average cost of 20.7 per share.

Now I would like to turn the call back to Ron to finish up with a little color.

Thanks, Jim.

That is certainly a lot of numbers there, and I think that I would summarize maybe all of those numbers by saying that when you look at our results compared to the industry results for the quarter, without looking at any specific other names within our industry, the -- our Company posted very solid results, especially considering some of the results that have been posted during the second quarter of 2005.

Maybe what I would like to finish up with a little bit is a review of our business. Again, you know, from a high level. You know, first of all, over the long run, you know, we are very -- and remain very excited about both the securities industry business in general, and certainly Stifel Nicolaus's position within the industry.

All three of our business segments are being driven by the same factors, albeit in different ways. First of all, our primary product is, has been, and will remain, advice, which we deliver through trusted relationships. This intellectual capital, coupled with the good will of our clients, will continue to drive our business model.

Second is consolidation within our industry, especially within the so-called regional firm segment. Since 1992, there have been nearly 200 mergers or acquisitions involving U.S. brokerage firms, many of which were regional firms or investment banks focused on the middle market. This consolidation has fueled the growth in our private client business, primarily because we have both platform and culture, which attracts financial consultants who have become disenfranchised by the large multi-layered firms.

On the capital market side, there has been a mass exodus of firms who provide services to the middle market corporate America. You know, nearly 85 to 90% of all U.S. companies have market capitalizations below $2.5 billion, and we intend to serve this market.

In addition, the financing for infrastructure will drive our tax exempt fixed income business while providing attractive bonds for our investing clients. We just simply are very excited about what we think is a growing industry, which consolidation is driving our growth model. We intend to remain an independent firm with -- and take advantage of the fact that there are very few firms like Stifel Nicolaus left in our sector of the business model.

So, in conclusion, we achieved excellent results during the quarter in a difficult environment. We strive to achieve 15% ROE across market cycles. For the quarter our annualized average ROE was 17% while our pre-tax margins were 15%.

With that, Amber -- I believe it's Amber -- we will take any questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] Sir, there's no response at this time.

Well, that means we answered everyone's questions in our presentation. So with that, I wish everyone a happy end of the summer. May everyone enjoy their vacations and we will talk to you in November. Take care, and good-bye.

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