Stifel Financial Corp (SF) 2012 Q4 法說會逐字稿

Good afternoon. My name is Candace and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth-quarter and full-year 2012 earnings conference call. (Operator Instructions). Thank you. Mr. Jim Zemlyak, CFO of Stifel, you may begin your conference.

Thank you, Candace. Good afternoon. I'm Jim Zemlyak, CFO of Stifel. We'd like to welcome everyone to our conference call today to discuss our fourth-quarter and full-year 2012 financial results.

Please note that this conference call is being recorded. If you'd like a copy of today's presentation, you may download slides from our website at 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're 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 reports on Form 10-Q.

I will now turn over the call to the Chairman, CEO, and President of Stifel, Ron Kruszewski.

Thank you, Jim. Welcome, everyone, and good afternoon.

2012, both the fourth quarter and the year, were good years. 2012 represented Stifel's 17th consecutive year of record net revenue. This is a significant accomplishment, particularly given past market cycles. We remain focused on our goal of delivering superior client services, which has benefited all of our constituencies -- clients, shareholders, and our associates alike.

Our fourth-quarter results finished the year with record revenues. Both segments, our Global Wealth Management, our Institutional group, reflected strong underlying performance, even in light of the political and economic uncertainty which was present during the fourth quarter.

We continue to selectively add talent to the professionals to expand our product offering and gain market share. At the end of last year, we finished our acquisition, so to speak, of Miller Buckfire, which is a preeminent franchise in restructuring advisory, and most recently closed our merger with KBW, the leading financial services investment bank.

As we've done in the past, we'll continue to position Stifel to take advantage of opportunities.

Turning to our financial results for the quarter, we posted record quarterly revenues of $426 million, which was up 17% from a year ago. Net income was $40 million, or $0.63 per diluted share, which compares with net income of $27 million, or $0.43 per diluted share, last year.

Results for the quarter included gains on our investment in Knight Capital of a little over $13 million. This gain was offset by normal compensation accruals on that gain and merger-related and other unusual expenses of approximately $4 million. Those expenses consisted of about $2 million in merger-related expenses for KBW and Miller Buckfire, a $1.5 million provision for loan loss on our bank -- I'm not quite sure I would call that unusual. We had a lot of new loan activity and you have to book the loan losses upfront when you book loans in our bank, but that was $1.5 million of frontloading that expense, so to speak. And we had $0.5 million in advertising expenses related to our new advertising campaign, which I'll discuss later.

If you take everything together, the net after-tax impact of these items was a gain of $0.02 per diluted share for the quarter.

Pretax margins were 15%, which compares with 15% in the year-ago quarter. Also, we had a benefit in the quarter of an effective tax rate of 35%, which was primarily due to certain tax benefits as the result of the Miller Buckfire acquisition, and those tax benefits were offset by an increase in the valuation allowance of our deferred tax asset. But net net, our tax rate was lower than it has been in previous quarters.

Looking at the year, as I've previously said, we posted our record revenues for our 17th consecutive year. Revenues totaled $1.6 billion, which was up 14% compared to 2011. Net income of nearly $139 million, or $2.20 per diluted share, compared with net income of $84 million, or $1.33 a share, in 2011.

The results for 2012, as I previously stated, included our gain on investment in Knight of $39 million pretax, which was $0.14 per diluted share after tax.

The results for 2011 also included previously disclosed litigation and merger-related expenses of $0.47 per diluted share. Our margins for the year in 2012 were 14%, compared to 10% in 2011.

If you look at our discussion of our legacy business, 2012 was the year of investment and growth at Stifel. As I've mentioned on previous calls, we're always making investments in our business. During 2012, we hired 152 financial advisers, opened a number of new offices, and we're active in our fixed-income division where we added 77 fixed-income sales and trading professionals.

For the year, our core businesses, which excluded these investments, generated diluted EPS of $2.38 with compensation ratio of 62.6 and a pretax margin of 15.6%.

If you look at our investments, we generated revenues in these investments of approximately $46 million, while total expenses were $64 million. This impacted our earnings per share by 18% and reduced our margins by 160 basis points. The EPS was more significant, however, in the first half of the year than in the second half, $0.13 versus $0.05. And as our investments mature, we expect them to contribute nicely to our growth, as they have in the past. We remain committed to our strategy of investing in down cycles and we continue to position the Company to take advantage of opportunities.

The next slide reviews our source of revenues. Commission revenues increased 8.5% to $134 million. The increase was due to higher mutual fund commissions and listed and OTC transactions. For the full year, commissions were down due to lower trading volumes.

Principal transaction revenues increased 4% for the quarter to $98 million from $94 million in the year-ago fourth quarter, and it was due to strong fixed-income trading volumes and tightening credit spreads. For the full year, these same trends continued, with revenues increasing 19%.

Investment banking revenues increased 35% from the prior-year quarter to $76 million. The year-over-year increase was a result of an increase in both equity and fixed-income capital raising revenues, offset by a slight decline in advisory revenue. For the full year, revenues increased -- investment banking revenues increased 44% on increases in both capital markets and advisory.

Asset management revenues increased 23% to $69 million from $56 million. The increase is due to both an increase in the value of assets and fee-based accounts and an increase in fee-based accounts. For the full year, revenues increased 13%.

Looking at the next slide, we compare our brokerage revenues year over year and quarter over quarter. Commissions and principal transactions, combined, increased 7% and were flat sequentially. Quarter over quarter, taxable debt increased 5.6% and muni debt decreased to 18%, while equities increased 46%. The increases in taxable was due to increase in our government business and in equity to an increase in corporate equity trading.

Both of these were offset by a decrease in our muni area because we took some losses in December due primarily to the malaise that occurred in the market due to year-end tax discussions regarding marginal tax rates on muni debt. It really caused some disruption in the market in December and we incurred some losses.

On a full-year basis, taxable and muni are attributable to strong fixed-income trading volumes, tighter credit spreads, and, lest I forget, our acquisition of Stone & Youngberg in October 2011, which I will say, looking back not a year, was a very successful transaction. It met all of our projections and goals, and the integration was as smooth as any one that we have done.

The next slide reviews our noninterest expenses. Compensation and benefits as a percentage of net revenues was 62.8% in the fourth quarter, compared to 64.1% a year ago. For the full year, our comp ratio was 63.5%, which was within our targeted range of 62% to 64%. Transition pay as a percentage of net revenues has been pretty consistent, about 5%, and non-comp operating expenses were $94.6 million, or 22.6% of net revenues.

And I'll come back and look a little bit at our non-comp operating expenses. As I said, about $4 million of that was what I would consider -- it's not unusual, the nonrecurring.

Full-year noninterest expenses were consistent with my previous comments. I'm going to skip over at this slide that looks at noninterest expenses.

On a segment basis, revenues in both Global Wealth Management and our Institutional group for the quarter were strong, and for the year both recorded record net revenues. Quarter over quarter, Global Wealth revenues were up 14%, while our Institutional revenues increased 23%. And for the year, our Global Wealth increased 10% and our Institutional revenues increased 22%.

Looking at it overall, as firm split, we had about 62% of our revenues from Global Wealth and 38% from the Institutional group. Our Global Wealth had an excellent year with operating contributions up 14% to $268 million. Our Institutional group's operating contribution totaled $96 million, which was up significantly from 2011, up 52%, although I will note that we recorded the Knight gain in our Institutional group.

Looking at Global Wealth results, the next slide, this segment continued to perform very well with margins of 27% in the fourth quarter. Net revenues for the quarter of $255 million were up 14%. Asset management and service fees increased due to an increase in client assets through market performance and nice inflows.

Net interest revenues increased as a result of the growth in net interest earning assets at Stifel Bank, and sales credits in this -- for investment banking were higher due to improved activity in our capital markets. Fee-based assets were up 6% to $20.8 billion, driven primarily by market appreciation.

Looking at Stifel Bank, net revenues for the quarter were a little over $22 million, up 16%, and for the year, they were $80 million, up 38%. Importantly, asset quality remains high. We've had less than $200,000 in trailing 12-month charge-offs and six basis points of nonperforming assets.

Our assets of $3.7 billion as of the year-end is up 61%, and we continue to have significant on balance sheet liquidity in our bank. Our investment portfolio is $2.3 billion, up 66%. The portfolio is short with an average life of just around two years. Our loan portfolio totals now over $1 billion, and we had deposits that we've swept of $3.3 billion. It's up 62%. But our access to total cash balances are probably in excess of $10 billion to $11 billion.

As always, the Bank will continue to prudently grow assets on a risk-adjusted basis.

Next slide looks our Institutional group results. Revenues for the quarter, up 23% to $165 million, driven by across-the-board increases. In other revenues, as I've said, we recorded our gains in Knight of $13 million. If you look at our pretax operating income for the quarter, it was $21.5 million, up 100% from the fourth quarter of 2011, and our margins were 13%, compared to 8% a year ago.

If you look at our Institutional group revenues on the next slide, you'll see that our Institutional brokerage revenues were $84 million, up 5%. Institutional equity brokerage revenues were $42 million, up 3%, and fixed-income brokerage revenues were also $42 million, which were up 7%.

Investment banking revenues, up 25%, to $65 million.

Capital raising, within investment banking, we had capital-raising revenues of $38 million, up 64%. We had both strong results in our equity and especially strong results in our fixed-income capital-raising revenues. The environment for IPOs had slowed, however, and were delayed due to year-end issues, while the secondary calendar was very active and investors continue to search for yield.

For the full year, the number of equity transactions increased, and we improved our percentage of booked managed deals, which, as you know from prior calls, has been a focus of ours. Our percentage of booked managed deals increased to 31% versus 27% in 2011.

And while the current new issue market isn't as robust as this time last year, we're in a good position to capture our share. Our equity backlog is up from year-end, and it's also important to note that the jobs act visibility in some case is limited, given confidential filings. So you don't really see our backlog, is what I'm trying to say.

Advisory fee revenues for the quarter were almost $27 million, but were slightly down from the fourth quarter of last year. For the full year, advisory revenues were up an impressive 28% in a market where M&A volumes were down in excess of 25%.

And if you look at 2012 rankings, if you combine Stifel Nicolaus and KBW pro forma in middle-market M&A volume, it's approximately $250 million in announced what I would call middle-market M&A. We would rank number one in terms of number of deals done and number three in terms of dollar volume. And this is one of many compelling reasons for our merger. The backlog for legacy Stifel is solid, and so far this year we've closed eight deals.

The next slide looks at our capital structure. As of the end of the year, total assets were $7 billion. Our capitalization, debt, and equity was $2 billion. Book value per share of $27.24. We issued $150 million of senior notes in December, resulting in an increase of our debt-to-equity ratio to 31%. And in total in 2012, we issued $325 million in senior notes, pursuing our strategy of increasing our leverage from a very conservative three times levered to something higher than that. We're not going to be 30 to 1, but I have noted that I felt that our leverage can be more. Our leverage ratio at the end of the year stood at 3.6%.

Looking at other financial data, as we've stated in the past, we look to manage the leverage on our broker dealer. It was two times and our leverage in the bank was about 13.5 times. We believe those are reasonable ratios of leverage to fund our future growth.

Recruiting is active. So far in 2013, we've hired approximately 30 financial advisors. Our full-time associates are up 5%. This is organic growth and hiring for Miller Buckfire. And our total client assets under administration, up 13% to $138 billion at the end of the year.

The next slide looks at our Level III assets. As in past calls, our Level III assets, the majority are auction rate securities with a carrying value of $169 million at year-end. Other investments consist primarily of $30 million in private equity funds.

Turning to the KBW merger, I would say that the integration with KBW is going very well. We closed a week ago on February 15 of this year. Tom Michaud and Michael Zimmerman joined Stifel's Board of Directors. Key employees, as you know, 95 of them signed letters. They remain with the Firm.

Starting next quarter, we'll report core versus non-core earnings as we want to show and will lay out, as we have in prior mergers, how our cost saves will be rolled in and how we'll look at expenses, but we'll lay all of that out on the next call.

I'd also like to address some of the concerns that I've been hearing. One is I've been reading reports about overlapping research coverage. I've heard personnel changes and some comments with respect to branding.

I'll start with branding. We're going to, as I've said -- KBW is the premier financial services firm and brand in the industry. Our strategy is to become the dominant category player, financial services, through KBW, which is a Stifel company, and we're going to continue on that and that has not changed.

And with respect to our integration, our goal is to put the best team on the field in financial services. That has resulted in effectively Stifel contributing its research and banking to the KBW brand in financial services, and in some cases we have Stifel analysts that are now under the KBW brand, but there's been some confusion. I don't really understand why it's that confusing on the Street, but I will tell you that from my perspective, things are going very well.

KBW had -- look on the next slide -- had a strong fourth quarter. Revenues in the fourth quarter for KBW were $71 million and $246 million for the full year in what I believe was a trough year in financial services. If you look at KBW pro forma for the full year, our revenues would be $1.9 billion. And we still have work to do, but we believe and I continue to believe this would be a powerful combination that will add to shareholder value.

Looking at branding, over the course of last year we took a close look at our multiple brands, which were Stifel Nicolaus, Stifel Nicolaus Weisel, Stifel Financial, et cetera, and we decided to promote a single unified identity under Stifel. Our brands, such as KBW, we will still have other brands, Stifel Bank & Trust, but they will be also labeled as a Stifel company. So you'll see us in branding going to just Stifel to represent our various companies that we do business under.

And with this rollout, we've upgraded, improved Stifel.com. If you go to our new website, you'll see a new improved www.Stifel.com. We've introduced a research app for the iPad and we have commercial airing on CNBC and Bloomberg, which started today, all with the goal of getting the Stifel brand known in communities and within the constituency with which we try to do business.

So, I thank you for your interest in Stifel. We're excited about our market position and the opportunities ahead. My view -- it's the market, I usually comment or I have in the past as I feel the market, at least as it's valuing financial stocks, are ahead of itself considering what I think are the fundamentals. I do not feel that way today.

I feel that the markets -- you know, there's a lot of comment about what happened today and maybe with what was going on with the Fed's viewpoint last week. Look, the market has been almost straight up. I think it needs a reason to go back. But the fundamental aspects of the market, I believe, are sound and provide a foundation for us to begin to reap some of the investments that we've made in previous years.

So I look forward to updating you on our progress, which will include KBW, next quarter, and I'd be glad now, operator, to open the call for questions.

(Operator Instructions). Devin Ryan, Sandler O'Neill.

Hi, good afternoon. So, we're obviously starting to see some inflows into equity funds. So I'd just love to get your sense of whether you're seeing that translate to any change in investor engagement or investor behavior, like money flowing into equity products within wealth management?

Yes, Devin, I think that we've definitely seen a rotation where money is flowing to equity and equity-linked products versus fixed income. At some point, that had to change, or otherwise there would be no more money in the equity markets.

But there is no question that that has changed. It'll be interesting to see how the markets react to this kind of a selloff and what kind of pullback we could get here. It seems that the pattern of the last three years is a very good start to the year. Something happens in Europe and you kind of go into a malaise.

I don't think that that's going to happen this year. I think the news out of Italy, while surprising, I do not think reverses the trend of overall improvement in the Eurozone.

But certainly, when you got by the fiscal cliff, the markets became a risk on trade. I think people forgot there still is risk in the markets, and we saw a little bit of that today.

Okay. And then, just the loan growth in the bank. Can you just talk a little bit about that outsized growth and what drove that? Was there one particular category and just, you know, is this level sustainable? Just love some color, just given that it was such a large jump quarter to quarter.

Yes, we've seen opportunities on a risk-adjusted basis. I've been optimistic about our ability to put on quality assets in the bank. We've added capabilities, and you're beginning to see, again, we're building infrastructure to do this. So I felt that we had some opportunities. We funded some opportunities. That's why you see those loan loss provisions.

But I have said, and will continue to say, that the bank will continue to be a contributor to our profit. You're going to continue to see the bank grow, albeit on a relatively conservative basis.

As I've said, Devin, many times, to grow the bank overnight wholesale, a lot of what we put on were what I considered natural flow product from our -- leveraging our relationships into the bank.

Okay, got it. Just from a category perspective, are we talking about commercial loans, I'm assuming, given the provision?

Yes, there is a slide -- there was -- exactly. It was commercial and SBA loans, but it was definitely a higher preponderance of our increase was we certainly put on more loans than we had in previous, and in those loans are C&I and primarily a greater proportion of C&I loans.

Okay, great. And then, just lastly, in terms of the $4 million of, call it, unusual expense, some of the deal-related expense is not going to recur going forward or is maybe not normal. But this advertising expense, just as an example, is that something that is now going to be running through, just as you are doing this branding initiative?

Well, I think, first of all, we went and -- those were the costs that related to actually going to shoot some commercials and getting advertising agencies and the talent, et cetera. But I think you'll see some increase.

Obviously, we're running ads now and I think it was the shooting of the comp, the commercials, where we felt were probably more of one time. But we're going to be increasing our budget for advertising for branding. There's no question. It's something we need to do.

Got it. Okay, thanks, Ron.

Hugh Miller, Sidoti & Company.

I guess one question on the recruiting environment. I believe -- did you mention that so far this quarter you guys have hired 30 advisors?

Yes, hired or signed up, I'm not exactly sure where they are in the process of getting here, but yes, I did say that.

Okay, and can you just talk about that environment? I realize that the fourth quarter tends to be kind of slow for bringing people over, and then people will look to make a move in the first quarter. But are you noticing any difference in trend in the willingness for people to kind of make a move and seeing opportunities from particular brokers or anything like that?

I think the environment -- the fourth quarter is always a slower quarter in terms of recruiting. I don't know that the environment today is any more robust, if you will, than we've seen for the last six months or so.

I think what you're seeing us do is be -- we're going to be a little more aggressive. We've been somewhat less aggressive, and if you saw the advertising today that we're doing, it's both with an eye toward branding, but it's also directly targeting recruiting. I don't know if you saw those, Hugh.

I did, I did.

Okay. Those are targeting our recruiting efforts.

Okay. One housekeeping question, just with regard to the tax rate in the quarter, you know, just coming in a bit below expectations. I'm not sure if there was anything in particular that was influencing it during the quarter or some type of year-end true-up. But color on that would certainly be helpful.

Look, as I said, it was a combination of two things that offset each other. I didn't give the components, but in one case we had some tax benefits relating to one of our acquisitions, which was offset, but not completely offset, by an increase in the valuation allowance for some deferred items and some of our foreign companies. And so, net net, we had a slight benefit to earnings through our tax rate.

Got you, okay. And then, looking at a follow-up on the growth at Stifel Bank, you gave us some good color there on the loan portfolio. And obviously, we saw an increase in the securities portfolio, as well. Just, you know, I realize you guys have a tremendous amount of liquidity that you can tap into, but can you just talk to us a bit about the strategic rationale for kind of growing the securities portfolio at this point and how we should be thinking about that going forward?

The rationale is that if we can, on a reasonable-risk basis, achieve -- we look at each investment to achieve an ROE threshold against the capital we have to put into hold those investments.

But the short story is that even with interest rates as low as they are, where the yield curve is we can add to the investment portfolio at an acceptable ROE hurdle and keep credit risk and interest rate risk minimal. We do cash flow hedges, and as you can see from our net interest margin, we're not exactly reaching for credit yield.

So the answer is that this environment has been conducive to allowing us to add to that portfolio. We just simply don't want to grow very fast in any cycle, whether it be an interest rate cycle or a credit cycle. So our growth has been balanced.

I think the takeaway should be that given our capital structure and so long as we can continue to add quality assets, which I believe we can, there remains a fair amount of growth within our bank to absorb our overcapitalization that exists when you just look at our balance sheet. So, net net, there is increased earnings potential and, I think, acceptable risk levels that will emanate out of the bank.

Okay, okay. And the last question I had was just with regards to the comp ratio in the Institutional group, and I realize that you had some unusual items that kind of flowed in this particular quarter with payouts on the CKG investment and other things like that. But it just kind of crept up a bit more than what we were expecting. I was wondering, are you seeing anything with regards to the recruiting environment that is kind of causing you guys to pay up a little bit more on the comp ratio as well? Any color there is certainly helpful.

I think you said it right the first way, and that is that we believe that we are investing and we're building the capabilities of this Firm to gain market share in a market that otherwise could be flat, if not even declining a little bit.

What we see is a lot of restructuring in the largest firms as they rebuild their business models to achieve their own return on equity hurdles, letting a lot of people go, which I believe are very good people that we can add to. Those investments, though, do depress margins, as you make investments in either individual people or business verticals.

So I hear you on the comp ratio increasing. We're cognizant of that. We are continuing to invest in this business because we believe that we are going to be well positioned for improving fundamentals in the institutional business.

Great. Thank you very much.

Chris Harris, Wells Fargo Securities.

First question for me is just on the margin. I want to follow up on that last point. So, Ron, I know we've got a lot of moving variables as we think about 2013. You've certainly got the KBW integration going on. We've got the new branding initiatives that you alluded to. How should we be thinking about margin as we look in 2013? I know there are some things that will affect it, obviously revenue being a big component, but where do you see the upside in the margin as you look out in your business plan over the next four quarters?

Look, I think the margins -- as margin improvement comes from -- as our investments where we've been losing money begin to pay off, as I've shown on our legacy slide, our margins will improve because we won't lose $15 million to $20 million on $40 million of revenue. That turns around, and you'll get some margin improvement there. We've shown how that has been, I think, 160 basis points.

But we've also -- so a lot of the investments will begin to bear fruit. And that's a lot of it.

But all that said, our stated goal is through market cycles to have pretax margins of about 15%. And we would have been above that in what I would consider okay markets in 2012. So as I look forward, if you were going to say that our margins should be in the low 60s and low 20s, low 60s in comp, low 20s in OpEx, and in the mid-teens for margins, I wouldn't argue with you.

Okay, great. Then, with respect to KBW, I know you guys just closed the deal. Are all of the expense synergies at this point been fully realized or how should we be thinking about that? And then, do you have some sense as to what the actual dollar amount of the synergies will be as we kind of build out our model for 2013 here?

Well, look, we approach it different. First of all, it would be a Herculean effort to realize the cost saves when we closed the deal a week ago, effectively.

And a lot of those cost saves take time, which, Chris, is why we'll lay out the next quarter, as it relates to our OpEx, the duplicative expenses. We set those aside. I always view it as purchase price, and we'll say what we think they're going to be for the next -- for the remainder of this year because we actually -- you can't -- the accountants don't let you charge them off all at once, and you can't cancel contracts immediately. So there is a transition period of duplicative expenses that always occurs, and we've done this a number of times and we'll do it again as we show what those are.

I think what we've said was somewhere in the high 50s, the low 60s, depending on what your revenue estimate is. There are certainly variable expenses that you add to our base. Last year, we had $360 million of OpEx, ex KBW, and you're going to add the OpEx, which I've said was anywhere from $55 million to $65 million, depending on your revenue estimate for KBW.

So that's the way I would look at it. It would be what are we going to show in core expenses, and we will identify the duplicative expenses that make that not achievable on day one.

Okay, that makes sense. When do you expect to have kind of all of those synergies worked out through the system so you won't be kind of double counting? I mean, is it a year or (multiple speakers)

Normally, normally they become insignificant within the year. If you asked me today, I would say that the longest we've ever reported non-core, which again is an identified list of contracts, duplicative space, all the things that we are getting rid of, we put those in a segment and then show the burndown of those, if you will. But that will start in Q1 and wouldn't go past the end of this year, no later than Q1 of 2014 would be the latest that we've ever done that.

But we'll lay that out in a lot of detail on the next call.

Okay. Last question for me and I'll let some other guys get in here, question on the fixed-income division. I know you guys have added a lot to the headcount here. I think you had mentioned, Ron, 77 new employees over the last year. Stop me if I'm misquoting you, and then, obviously, you've had some M&A. How are you feeling about the current size of your fixed-income division? Do you still think there is opportunity to incrementally add here and where exactly do you think there might be more opportunities?

I think the fixed-income market is huge, highly fragmented, and been under tremendous disarray, and we believe that the fixed-income market, we can make more investments. There's a lot of market share for us to gain without burdening the balance sheet overly.

And so, we have seen a lot of opportunity within fixed income, have invested, but if you're saying do I think we're at the -- toward the end of what we see as the opportunity curve or framework, I would say absolutely not.

Okay, great. Thank you very much.

David Trone, JMP Securities.

I had a quick question for you. I was actually pleasantly surprised at the KBW number that you put in there on slide 22. We were only looking for about $58 million, and $70 million is a pretty nice number. Are you able to give any kind of color? Is that really banking strength or what?

Yes, well, look, I think I didn't really get into that. I just -- but I would -- as you would expect, the flow business with the uncertainty and year-end issues, the flow business would have been not as -- probably didn't get to your numbers. I don't know what your numbers are, and they had strong banking revenues relative to each other, okay, over prior quarters.

It was a good quarter. It demonstrated the strength of their franchise. Had they not had the disruption of our merger, I think it would've been a bit better, okay, in terms of the factors I talked about. So I'm pleased with that and believe that there is -- that that space can generate a lot of revenue and believe that when we get this integration better done, you're going to see good things out of our Institutional group and especially our equity business and especially our FIG business. We'll see.

The $71 million, I was pleased with, when I saw it, too.

Yes, great. Okay, thank you very much, Ron.

And we have no further questions at this time. I'll turn the call back to Mr. Kruszewski for closing remarks.

Well, as always, I always appreciate everyone's interest in Stifel. I remain optimistic as to our opportunities, our ability to gain market share, our ability to increase earnings and increase our earnings per share in book value. I think things feel pretty good. We have a lot of work to do on some of our integrations, which we'll report next quarter, and I look forward to a great 2013. I thank you for your support and we'll talk next quarter. Thank you very much.

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