Stifel Financial Corp (SF) 2007 Q2 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Stifel second-quarter earnings 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 Mr. Zemlyak, Chief Financial Officer. Sir, you may begin your conference.

Thank you. Good morning, everyone. This is Jim Zemlyak. I'm the CFO of Stifel Financial Corp. On behalf of the Company, I would like to welcome everyone to our conference call to discuss the second-quarter results of our 2007 fiscal year. Please note that this conference call is being recorded. If you would like a copy of today's presentation, you may download this 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 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 the statements.

To supplement our financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures of financial performance and liquidity. These non-GAAP measures should only be considered together with the Company's GAAP results.

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 report on Form 10-K.

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

Thanks, Jim. For those of you that would like to get a copy of our press release, we released yesterday and our press release is out and on www.stifel.com. As I always do, I would like to just start with the quote I used in the press release, which was that our Company posted outstanding results in a quarter characterized by both favorable equity markets and a hostile fixed income environment.

The integration of Ryan Beck is proceeding smoothly and on schedule. We are especially pleased with the endorsement of our business platform by the Ryan Beck financial consultants, as evidenced by the fact that we have experienced virtually no attrition since the closing of our merger.

Looking forward, we see continued volatility in the markets and a potential retrenchment within the securities industry. Historically, while this environment may impact short-term results, it is during those times that our firm has added to our capabilities, and we see many opportunities to do likewise today. At these times -- said another way, it's in the times where the industry retrenches that Stifel Financial has been able to grow by adding primarily just quality associates that are impacted by the retrenchment that has happened many times in my 25 plus years, and we see it potentially occurring again.

If you would look at the second-quarter highlights, before I turn it back over to Jim, we had record quarterly revenue of $220 million, up 106%. I'll comment now that all of these numbers look huge on the revenue increase side, and it's primarily because of the fact -- the activity that has occurred from the successful integration of our Legg Mason Capital Markets business, which we merged with on December 1, 2005, and the Ryan Beck transaction, which closed on February 28, 2007. But included also, we acquired a bank on April 2, 2007 that has not insignificant yet to numbers, but we believe will be. We also acquired the Private Client business of Miller Johnson Steichen Kinnard, which we call MJSK. That closed late last year.

As a result of just Ryan Beck and the MJSK acquisitions, our Company has added over 1,000 associates -- 1013, to be precise -- and 51 offices. But you couple with that over 400 associates in the Legg Mason Capital Markets business as a backdrop for these numbers, which are increasing just significantly.

So a lot of these numbers are up 100%. I'll go out on a limb and say we're not going to grow 100% every year, so we will have to talk about what I believe is the issue, and that is, can we successfully integrate all of these acquisitions and bring our revenue growth to the bottom line? That's really what I'll try to focus on in this call.

Our Private Client Group, Equity Capital Markets -- both of them achieved record revenue and profitability for both the three and the six months ended June 30th. On our fixed income side, we will talk a little bit about it, but the fixed income had a very difficult quarter. In fact, we recorded an operating contribution loss for the quarter, and we will talk a little bit about that. It was primarily due to some trading losses in our fixed income inventory, which was the results of, primarily, widening credit spreads and what was a very difficult market with respect to trying to hedge, where often the hedge and what you are trying to hedge moved in the same direction.

But that was a difficult environment. We can talk more about that.

Commission and principal transactions were up significantly. We'll talk a little bit about our investment investment banking revenues, which increased for the quarter. They were were almost $64 million, up 300% from the prior year, up significantly also for the six months. Included in those numbers was one large transaction where we recorded gross revenue of about $24 million. It was the People's conversion transaction.

Asset management and service fees are up significantly. As I said, in the quarter we acquired First Service Financial, which we renamed Stifel Bank and Trust. That closed on the first day of the second quarter. They converted their charter from Missouri Bank to Missouri Trust Company.

During the quarter, we completed two trust preferreds. The first one might have been done in the first quarter early, but what we did was that we were able to, in the private markets, the CDO markets, do two $35 million trust preferreds, one at 6.78%, which was fixed for five years. We swapped the floating for fixed; they actually flowed at 1.70% over LIBOR.

So in sum, we had $70 million of trust preferred that -- new, and then we called our 9% trust preferred. The calling of the 9% trust preferred resulted in a charge to earnings of about $0.04 a share. But that's included in core earnings, and that related to the writing off of deferred offering expenses from when we did that deal some five years ago when we issued that.

People's asked me -- and they talk about that. I'll just comment on the debt. We look at the debt differently. Some people say it's leveraged. I don't believe that; I want to just comment that our trust preferred is very, very good capital for the firm. Any financial institution operates with a form of leverage, in terms of the fact that assets always exceed equity in every financial firm.

This trust preferred is 30-year-plus paper with no covenants, and no ability for people to call it back, which is what is causing a lot of the turmoil in the markets today, is the lack of liquidity, people pulling back their liquidity. This trust preferred is excellent capital.

When I met with our Board, they asked how we would price it today if we were trying to do it. My comment was that that wouldn't matter, because I don't think it would get done today. That's how difficult the credit markets have gotten. So we can come back a little bit to that.

The last thing in terms of the updates is the Ryan Beck update. I'm just pleased to say that that integration has again exceeded our expectations, as have most of our integrations. Today, we have converted most of the Ryan Beck -- I think 33 of 37 offices are converted. That's on the operational side.

What I'm most pleased about is just the melding of the people and the capabilities. We have had some recent meetings where we have gotten the senior people together, and it has just been an excellent cultural fit between our organizations. I said earlier, it's evidenced by the fact that we have had almost no attrition -- I think less than a handful -- and that was done early in the transition. But everyone else has hit the ground and hit the ground running.

It has been, up to this point, a seamless integration. We'll complete in August, early September. But as I said also, the integration of Ryan Beck, done right, will take some time. While we are ahead of schedule, we are still absorbing some additional expenses. We expect that to continue throughout the end of this year, as we have told you in the past, and we expect it to continue into early 2008.

With that, Jim, why don't you go over some of the relevant numbers?

Thanks, Ron. We reported unaudited quarterly net income of (inaudible) or $0.08 per diluted share on record revenue of $220.6 million for the quarter ended June 30, 2007. For the comparable quarter of 2006, net income was $2.3 million or $0.16 per diluted share on revenue of $107.4 million. After adjusting for acquisition-related charges of $17.4 million net of tax -- again, this relates to the Ryan Beck and Legg Mason capital markets acquisition, which Ron will go into detail later in the presentation -- our non-GAAP income and EPS or our core earnings were $18.9 million and $1.09 per share for the second quarter of 2007, compared to 2006 second-quarter core earnings of $7 million and core EPS of $0.50.

For the six months ended June 30, 2007 we posted net income of $10.3 million or $0.63 per diluted share on revenue of $383.1 million, compared with $2.8 million or $0.20 per diluted share on revenue of $220.9 million for the same period one year earlier. Our core earnings, after adjusting for acquisition-related charges of $21.7 million net of tax for the six months ended June 30th, were $32 million or $1.96 a share, compared to $18.1 million or $1.31 a share for the six months ended June 30th.

As Ron noted, included in the 2007 second-quarter and six-month core earnings was an after-tax charge of $652,000 or $0.04 per diluted share for the write-off of deferred issuance costs relating to the 9% trust called on July 13th of 2007. Included in the six-month 2006 core earnings is a $2 million after-tax or $0.15 per diluted share for the gain on the Company's sale of the New York Stock Exchange membership seat.

I'll turn it back to Ron to go into the detail sectors.

Thanks, Jim. If you are following along on the slides, we're on page nine of the slides, which are our second-quarter segment comparisons. I'll talk and try to add a little color to each segment. The Private Client Group, first -- again, an excellent quarter with all numbers up significantly relating, to this point, to our successful integration or our successful almost completed integration of our various acquisitions. The Private Client business up from the quarter sequentially is up 38%. I think the takeaway for the Private Client Group is both the increase in the assets under management of some $55 billion of clients under administration. The other would be that the way that we have looked at the business, our pre-tax contribution in the Private Client business is some 22%, which is really where we expect this to be. Although it was a very good quarter, I would think that it could be higher on a run rate basis, but we're still absorbing some of the duplicate of expenses.

I will note that on a segment basis, we have put two things in merger-related expenses as it relates to Ryan Beck. One -- and I'll talk about it -- one is a change in their deferred compensation. I talked about it in the first quarter, and I'll come back to that.

But on the operating side, the primary expense that we have reclassed to merger-related is the duplicative charge of clearing, where they were paying their clearing agent. We feel the majority of those expenses are duplicative. That goes away. But a lot of the other efficiencies -- the efficiencies to be had are still being shown in this segment. So, as I've said, it's going to take the rest of the year to realize those synergies.

Again, the Private Client segment -- all in all, an excellent quarter and excellent prospects. So I'll come back to that.

On the Equity Capital Markets side, two takeaways or three from that -- first is if you will look, commissions and principal transactions, which is really our flow business -- as I've watched the street, there has been a lot of pressure on the brokerage business institutionally. Our commission business is up 30% quarter to quarter, 22% year to date, and it is up also sequentially for the quarter -- I'm looking for that number. But I think sequentially for the quarter, it was up -- here we go, 20% for the quarter. So that business is -- I think it's showing the strength of our research platform and that our clients do value our research.

The other takeaway on the Equity Capital Markets is Investment Banking. In the Investment Banking, if you will look at the slide, our Investment Banking business has been nothing short of fantastic. For the quarter, total Investment Banking of $63.9 million, which is up 48% sequentially and 300% from the prior-year quarter. In Investment Banking, we look at it two ways -- capital raising and advisory. On the capital raising side, the revenues were $34 million, up significantly, and advisory fees almost $30 million, double from the sequential comparison and up over 200% from the prior year.

Included in those numbers, though, as I've said, is the People's transaction, which was a significant transaction for us. If you look at it, we graphically show you the charge -- we have talked now on a number of calls about the importance of getting the Investment Banking business back on track because of what we felt a year ago was the decimation, if you will, of our pipeline, mostly on the capital raisings. So we have been tracking our capital raising revenue, and there's a chart in the presentation that shows capital raising revenues increasing quite significantly from a year ago. The first quarter it was $5.2 million, and in the just recently completed quarter it was over $34 million.

What I will say is that that kind of growth rate -- we continue wanting to grow that business, but the second quarter does have the benefit of one large transaction. So I would just caution everyone to understand that those numbers will continue to grow, but we will have to look at the benefit that we had from that one transaction.

On the advisory side, a year ago it was a little under $10 million, and this quarter it was $30 million. Again, the Investment Banking business is doing quite well here at Stifel Financial.

On the fixed-income side, revenues for the quarter down 1% from the prior year, down 28% sequentially, simply a difficult quarter. Our loss on the contribution is -- on a contribution basis, almost entirely related to inventory losses, which was related -- not related, caused by the widening of spreads.

No one likes to lose money. Very difficult market. What I will tell you, as I've told you in the past, we don't prop trade. We don't have inventories that we're trading. We had no subprime in our inventory. It was a high-grade agency, high-grade MBS that was hedged. Of course, it's hard to hedge liquidity events, which -- in this case, the liquidity caused a lot of the high-grade hedges to increase in value while credit spreads are widening.

The short answer to what happened was that they moved the same way, resulting in an inventory loss, which resulted in the loss for the quarter. We, of course, believe that that's not the norm, but it was a difficult quarter for fixed income.

The Banking segment -- I won't spend a lot of time; I will just tell you that the people in our bank have made phenomenal progress into the integration into Stifel Financial. We look at some of our competitors that do this quite well and look to replicate their success in our bank, and we see that. But for the quarter, net revenues of $1 million -- the Bank always reports net -- it's really reflective of net interest margin and the contribution of 25%.

The Bank, three months into this, I believe, had a presentation on the Bank's progress and was very pleased. We have the website up and running on the consumer products. We have the incentive programs completely rolled out, and the Bank is continuing to do what it always did on the commercial and industrial lending side. So I'm very pleased with the progress of the Bank.

The next thing to look at, quickly, is our other segment analysis. We break that into two comprise. One is acquisition-related and then other, which is the overhead areas of the firm. First of all, the other is up significantly, as you would expect. As you double revenues, you also have to add the infrastructure.

What I look at is our goal to achieve 15% pretax margins, which we do on a core basis. That's how we look at wanting to achieve 25% contribution margins in our operating businesses, and we look at overhead, so that at the end of the day we are achieving 15% pretax margins. We do, and we have.

Acquisition-related other is what I'll focus on for a moment, which is the impact of our recent mergers. I'll start with the Legg Mason acquisition. As we have said, those charges continue through the end of 2008. For the quarter, they were $5.5 million. We estimate that they are about $6 million a quarter. This quarter, they were $5.5 million. The Ryan Beck charges were the big ones for the quarter -- again, all acquisition-related.

The primary item in the Ryan Beck was where we accelerated vesting requirements and their historical deferred compensation plans, a non-cash charge we had estimated would be $18 million to $20 million. It was a little bit closer to $22 million for the quarter, and that was primarily the result of an increase in our stock price, because we have allowed the Ryan Beck associates to swap their equity interest in Ryan Beck for Stifel, and then we went through the process of accelerating the vesting under 123(R), which is the stock-based comp. We're required to take a charge for that. That resulted in the $22 million.

Net-net, that plus, as I said, the aforementioned operating expenses, our Ryan Beck charges for the quarter were $24 million, combined $29 million for the quarter, about $1 a share, all of which we expected. The Ryan Beck numbers we built into our acquisition pricing. But the way you have to account for acquisitions, not all of that, obviously, goes into the acquisition value. You have to run some of this through your income statement, hence merger-related charges.

The important thing is what do we look at going forward. Legg Mason forecasts have not changed. We believe that will be about $6 million a quarter for Q3 and Q4. Ryan Beck, we believe, will be $2 million next quarter, $1 million in the fourth quarter, and then we will be done with our merger-related expenses for Ryan Beck. So next quarter, you can look at about $8.2 million; fourth quarter, $7.2 million. Then if you look at the next slide, we show the annual impact, which is Legg Mason continuing through 2008 (technical difficulty) and then Ryan Beck will be done this year. Then in fiscal 2009, we don't see any acquisition-related expenses. So next year, as we have been forecasting for a year and a half now, acquisition-related expenses next year will be $25 million, primarily stock-based compensation with Legg Mason.

On the balance sheet, shareholders' equity and assets up. Primarily, assets are up because of the Bank and they will continue to grow as we grow the Bank, as they obviously make loans, and that is going to increase our balance sheet. Shareholders' equity has increased significantly since the end of the year; it's $388 million. We are well-capitalized -- $388 million of equity plus $100 million in trust preferred, which I've said has no covenants, and it's attractive financing. So we have almost $500 million in capital supporting now $1.6 billion in assets. We are well-capitalized, book value of $26.04.

Our equity roll-forward -- we try to show all of you on the call why our equity continues to increase at far in excess of our earnings. Again, that's because of stock-based compensation. We started the year at $220 million. Our GAAP earnings are $10 million -- again, there's a slide on this -- which would get you to $230 million of equity. You add to that stock-based compensation of about $22 million. As I've said, we converted the Ryan Beck deferred compensation plan. That resulted, on the equity side, of adding to $16 million to our equity accounts as we move that from a liability to equity upon vesting. The Ryan Beck transaction in and of itself is $119 million, which is the value of the equity we issued plus the warrants. Then we have repurchased a little under $1 million worth of shares.

Add that all up, and equity goes from $220 million to $388 million. On the statistical data, as I've talked about, I've talked about assets equity and book value per share. Financial advisors stand at 956 plus about 180 to 190 independent contractors you would add to that. Full-time associates are north of 2,700. We have 177 locations and, again, in excess of $58 million.

So the last comment I will make is one that I know, as I've been listening to calls, everyone talks about -- I'll anticipate a question, and that's either what's our view or what's the impact on this firm of the subprime -- whatever you want to call it -- meltdown, I guess, that's going on in the marketplace.

I will comment that, first, we have no direct investment in subprime in our inventories, in our trading accounts. We don't commit capital to the sector in any capacity on a principal basis. We have not underwrite any of the structured finance transactions. We have no residual interest.

The long and the short of it is we have no direct investment in subprime. But to say you have no subprime exposure -- I believe no firm can say that, whether you are a financial services firm or whether you make shoes, because the subprime -- what's going on can impact the economy. To the extent that it impacts the economy and would cause a recession, for example, that, of course, is going to impact every firm. I would view that as our biggest exposure to subprime, is the impact that it can have on the overall economy, which gets magnified in financial services as to the impact in financial services.

Liquidity drove this market up, and lack of liquidity is causing a lot of volatility today. But we are very well-positioned in terms of our structure. We're not a big trading house, so we have ample capital and ample liquidity today.

With that, operator, I would be glad to take some questions.

(OPERATOR INSTRUCTIONS). Brent Staaland, Stifel Nicolaus.

Why don't we go to the next question?

David from Fox.

It's David Trone of Fox-Pitt Kelton. So I know you had expected that, with the Ryan Beck acquisition, you wanted to sort that out and you were going to put the brakes on recruiting. But now A.G. Edwards happened, so how do you think about that now? If you are recruiting -- attempting to recruit some of those guys, how well is it going so far?

Well, we put the brakes, if you will, on maybe going 100 miles an hour in recruiting. We never stop recruiting, David. That would not be true; we're always recruiting. What I did say was that we were recruiting 400 of our new partners at Ryan Beck, and we had to make sure that that integration, first and foremost, had to go well. We could not ignore the new people because we were chasing new new people.

But the answer is that the integration has gone very well. The A.G. Edwards announcement creates, obviously, a lot of uncertainty there. From our perspective, there is going to be a number of people everywhere, but and A.G. Edwards also, where they want to work at the regional firm environment. There's just not very many regional firms left. We are one of them, and we will benefit from people that want to work in our environment.

So, to answer your question, we're recruiting like we always do, and we're recruiting feverishly. So how is it going? It's going like it always is. It depends. It's one at a time.

With all the concerns in the market starting to, now, seep into the mainstream news, your retail clients -- what kind of feedback are you getting from them in terms of their jitters over some of the volatility in the market?

I would say that the feedback is -- I'm always generally -- not amazed -- the relative calm that exists from clients who have seen this before. So, again, that's a general statement. Whenever you have extreme upheaval -- and for us, it's not as much in the credit markets. For us, it will be the equity markets that could -- if they really continue to take a pommelling, and then that in turn creates an environment post other upheavals in the equity markets, whether it be after 1987 or 1990 1998, which wasn't as bad. But if it causes volume and investor confidence to invest in those markets, that, of course, has a negative impact on the Private Client Group, just because there's just not as much activity.

But I would say that, generally, things are fine. There have been some -- as we all know, there have been some rather sudden bankruptcies, which always causes some concern. But that's a very small segment.

On Investment Banking, what is the outlook? I know your quarter was really helped a lot by the one transaction. Obviously, it counts, but then again, what are you seeing in the pipeline going forward? Would the current environment change your thinking about the second half of the year?

Well, the quarter was helped. But even if you take that out, we had a fantastic quarter for Investment Banking. The Ryan Beck merger added a lot of things, but two things that have come through in these financial statements -- one is an excellent Private Client Group, which I've already talked to.

The other is an Investment Banking Group that has been historically and can be quite productive. They certainly were productive this quarter. Their Ryan Beck Financial Institutions Group has melded very well with Stifel's. So that business, all things being equal, is going to be up nicely. The pipeline is very robust; it's as good as it has ever been.

My cautionary note is that, to the extent the markets become very volatile or in disarray, that impacts all aspects of the capital raising market, from the largest firms to the regional firms. So we're watching that closely. But our platform to continue to generate relatively superior returns in Investment Banking is as good as it's ever been.

Lauren Smith, KBW.

A couple questions. One, just continuing on the private client side, could you give us a sense for what current average productivity looks like with your FAs, as well as your independent contractor?

Yes. First of all, we measure -- and we maybe have to change this. I just want to say that we measure average productivity by revenue that hits our financial consultants' pay grid. That's historically how it has been. The industry has changed by sort of dividing total revenue by FAs, which makes it hard for comparison.

I just want to say that, because -- and I don't have the number where some of the firms have quoted $600,000, $700,000 average productivity. That includes all revenue. We look at revenue that we pay our financial consultants on; we think that's probably the relevant number. For us, I think it's about $430,000 per guy. Obviously, it's much higher if you include all other revenue.

On the independent contractor side, it's probably, in the average production, probably in the $120,000 range. That's a much smaller -- as you know, a lot of these independent contractors -- they have financial planning businesses, but it's an aside, usually, sometimes, to other businesses, too, at least in our model. So that's lower. We accept that lower because it's completely a variable model. But we're pleased with our productivity of our Private Client Group. We think it compares very favorably with all the regional firms, and just very hard to compare to the national firms.

Are you focused on growing the IC side, or is it more on the more traditional channel?

We want to grow both channels. Certain, my focus is on the more traditional channel, but the IC channel is growing nicely. Our focus today -- most of the opportunities that are out there for growth are on the traditional side.

Switching gears to the Bank, could you give us -- deposits, I guess, are at $140 million, loans $95 million. If we were to think out the next one, two, three years, even, what kind of growth do you think -- I know it's a new acquisition, so it hasn't been on board all that long. But what kind of growth do you think we could be looking at?

I think I said on the last call that the way to look at that is to look at growth of other de novo banks -- without giving you projections, look at growth of banks and how they have grown. So if you take a $100 million bank and look at how it's grown to $1 billion, both in profitability and in all kinds of growth, that would give you a base for a stand-alone bank. We have a significant advantage over any stand-alone bank, in that we have built-in funding and we have built-in clients to sell our lending products to.

The reason I don't want to give a number of the lending side is the reason I never give any numbers about anything, and that is that what I worry about is growing a Bank too fast, for whatever reason. We are very pleased that we didn't decide to go buy a bigger bank and then maybe be dealing with some of the issues that, as we all know, the banks have certainly had difficult in terms of their equity value.

So, to project forward on the Bank, it's going to be a significant contributor. It's going to grow, but it's going to grow prudently. It's going to be a big, important factor for our ability to recruit and retain our financial consultants. You can look at -- I often look at Raymond James has done a fabulous job of building their bank, and we'd like to look at them as a model. They have had theirs a lot longer, but it's certainly becoming a significant contributor to them, and I believe it will be for us. But sorry, I really can't and don't want to project loan growth.

No, that color is helpful. Looking at the portfolio, the loan portfolio, could you just give us a little color on the residential real estate portion? I guess it's about 19% or 20% of the total, just what kind of loans are those? Is there anything there that we might need to be concerned about or thinking about?

I always, again, say anytime you have a loan, you become not concerned about it when you get your money back. But what I can say is that when we -- we just closed on the Bank, and part of the closing on the Bank was that we went through every single loan and escrowed those loans that we were worried about back in March.

So today, if you look in -- when we filed our Q, I think we say we have non-accrual loans of about $900,000, and I think we also say that those are all escrowed. So today, there's really -- I have any concern. We just were able to pick what loans we wanted not four months ago.

That said, real estate in the banking business -- it's interesting as to how that works. First of all, I want to say that I don't see any concerns. I think that this bank was very conservative. But real estate, in general, can -- you have people quit buying homes, which means developments quit getting brought, which means contractors might not be able to sell their homes, which means they may not be able to pay their receivables.

We don't see any -- that's not what keeps me up at all today. Our Bank is -- credit quality is very strong, as you would expect; we just bought it.

On the Fixed Income Capital Markets, could you just give us a sense -- because I just simply don't know the answer -- what your inventory book mix looks like, and do you think everything has been marked pretty appropriately? Things have really deteriorated since the end of June, and just sort of how you're thinking about that, in light of the past few weeks.

As I said, we have no subprime exposure, almost no -- today, I think, no high-yield exposure. The vast majority of our inventories are agencies and high-quality MBS.

I will tell you our inventories are significantly down from where they were in June. I do not look at our fixed income inventories as something today that's causing me any concern. We were pretty aggressive in our write-downs in June, and a lot of those are realized. I don't want to tell you they are coming back, because they are not.

But our fixed income inventories today are appropriate for both the volatility in the market and the fact that we are in the business. You can't not carry inventory. So you should not look at our inventories, as of today, as I sit here right here today, and be overly concerned.

At this time, we have no further questions.

Well, very good. We will continue building our Company. We appreciate everyone's support, and look forward to talking to you next quarter. I will finish by saying, as markets being as volatile as they are, our opportunities to continue to grow this franchise have never been greater. Thank you. Bye.

This concludes today's second-quarter earnings call. You may now disconnect.