Stifel Financial Corp. Reports First Quarter Results; Record Quarterly Revenues of $114 Million,...
ST. LOUIS -- Stifel Financial Corp. (NYSE: SF) today reported unaudited quarterly Core Earnings of $11.1 million, or $0.83 per diluted share, on record net revenues of $109.5 million for the quarter ended March 31, 2006. As more fully described below, Core Earnings is a non-Generally Accepted Accounting
Core Earnings
As a result of the acquisition of the LM Capital Markets business, the Company will begin reporting Core Earnings; a non-GAAP measure. Core Earnings represents GAAP net income before acquisition related charges, principally compensation expense recorded for stock based awards offered to key associates of LM Capital Markets and accounted for under Statement of Accounting Standards No. 123 (Revised 2004)("SFAS No. 123R"). Management believes Core Earnings provides investors, rating agencies, and financial analysts with a more meaningful measure of the Company's operating performance. Core Earnings, for the quarter ended March 31, 2006, were $11.1 million or $0.83 per diluted share. Included in Core Earnings is $0.16 per diluted share for the gain on the Company's New York Stock Exchange membership seat. Core Earnings excludes acquisition charges of approximately $17.8 million or $0.79 per diluted share. Included in these acquisition related charges are: 1) a compensation charge of approximately $9.8 million for the difference between the $25.00 per share offering price and the grant date fair value of $34.27 per share for the private placement of its common stock to key associates of the LM Capital Markets business; 2) compensation charges of $7.7 million for amortization of units awarded to LM Capital Markets associates, severance, and contractually based compensation above standard performance based compensation; and 3) other non-compensation acquisition charges of $300,000. See Reconciliation of Core Earnings table.
Chairman and Chief Executive Officer, Ronald J. Kruszewski, commented, "Our record first quarter revenues and Core Earnings underscore our excitement about our merger with LM Capital Markets. The integration of people and technology has been seamless and we are well positioned to continue our historical growth, albeit from a higher plateau."
First Quarter Discussion
Net revenues for the quarter increased 82% to $109.5 million from $60.2 million in the prior year first quarter and increased 45% from the fourth quarter of 2005. Commission and principal transaction revenues increased 98% to $69.8 million from $35.3 million from the same period last year and increased 55% from the fourth quarter of 2005. Investment banking revenues increased 14% to $15.7 million in the first quarter of 2006 from $13.7 million in the prior year first quarter, and increased 6% from the fourth quarter of 2005. Asset management and service fees increased 43% to $13.5 million from $9.5 million in the first quarter of 2005 and increased 9% from the fourth quarter of last year. Net interest increased 34% to $3.1 million from $2.3 million in the prior year first quarter, but decreased 2% from the fourth quarter of 2005. Other revenues increased $8.0 million to $7.4 million in the first quarter, and increased $7.1 million from the fourth quarter of 2005.
Total non-interest expenses in the 2006 first quarter were $108.7 million, up 105% from $52.9 million in the same period of 2005, and increased 61% from the fourth quarter of 2005. Employee compensation and benefits increased 113% to $86.7 million from $40.7 million in the prior year first quarter and increased 73% from the fourth quarter of 2005. As a percentage of net revenues, compensation and benefits totaled 79.2% in the first quarter of 2006, 67.6% in the 2005 comparable quarter, and 66.2% in the fourth quarter of 2005. A portion of compensation and benefits includes transition pay in connection with the Company's continuing expansion efforts. In addition, compensation and benefits includes $17.4 million, primarily stock based compensation, in acquisition related charges for payments in connection with the LM Capital Markets acquisition. Excluding these expenses, compensation and benefits as a percentage of net revenues totaled 60.4% in the first quarter of 2006, 63.8% in the 2005 comparable quarter, and 59.2% in the fourth quarter of 2005. The Company excludes transition and acquisition related expenses in its analysis of compensation and benefits, a non-GAAP measure, because it believes exclusion of transition pay and acquisition related compensation is a more useful tool in measuring compensation as a percentage of net revenues.
Excluding compensation and benefits and non-compensation acquisition related charges, non-interest expenses increased 77% from the prior year first quarter and increased 23% from the fourth quarter of 2005.
Business Segment Results for the Three Months Ended March 31, 2006:
--Private Client Group ("PCG") net revenues for the first quarter of 2006 were $55.7 million, an increase of 18% from the first quarter of 2005, and a 10% increase from the fourth quarter of 2005. PCG recorded an operating contribution of $12.9 million, a 15% increase from the first quarter of 2005, and a 2% increase from the fourth quarter of last year.
--Equity Capital Markets ("ECM") recorded record net revenues of $33.8 million, a 292% increase from the same quarter last year and a 97% increase from the fourth quarter of 2005. ECM operating contribution totaled $7.1 million, a 160% increase from the first quarter of 2005 and a 36% increase from the fourth quarter of 2005.
--Fixed Income Capital Markets ("FICM") posted record net revenues of $11.9 million, an increase of 190% from the prior year first quarter and an 83% increase from the previous quarter. During the 2006 first quarter, FICM recorded an operating contribution of $1.7 million, an increase of 209% from the prior year first quarter, and an increase of 73% from the previous quarter.
--Other Segment posted net revenues of $8.2 million which included the previously discussed gain on the NYSE membership seat. During the first quarter, the Other Segment recorded an operating loss of $20.9 million which included acquisition related charges, primarily stock based compensation, of $17.8 million previously discussed, compared to the prior year quarter operating loss of $7.2 million.
Stock Based Compensation
In connection with the LM Capital Markets acquisition, on January 2, 2006, the Company granted 1,807,610 restricted stock units to key associates of the LM Capital Markets. The units were granted with a fair value of $37.59 per unit. The majority of the units vest ratably over a three-year period and accordingly the Company incurred a non-cash compensation charge of $5.5 million, net of estimated forfeitures, for the first quarter of 2006.
On January 23, 2006, the Company completed its private placement of 1,052,220 shares of its common stock at $25.00 per share. The shares were purchased by key associates of the LM Capital Markets. The Company is required to charge to compensation the difference of $25.00 per share and the fair value, as determined in accordance with SFAS No. 123R "Share-Based Payment", of $34.27 per share. As a result, the Company incurred a non-cash compensation charge of $9.8 million in the quarter ended March 31, 2006.
Conference Call Information
Stifel Financial Corp. will hold a conference call May 9, 2006, at 10:00 a.m. EDT. This call will be Web cast and slides can be accessed on the Investor Relations portion of the Stifel Financial Corp. website at www.stifel.com, as well as on all sites within Thomson/CCBN's Investor Distribution Network. To participate on the call, please dial 888-676-3684 and request the Stifel Financial Corp. earnings call.
Company Information
Stifel Financial Corp. operates 112 offices in 25 states and the District of Columbia through its principal subsidiary, Stifel Nicolaus, and 2 European offices through Stifel Nicolaus Ltd. Stifel Nicolaus provides securities brokerage, investment banking, trading, investment advisory, and related financial services, primarily, to individual investors, professional money managers, businesses, and municipalities. To learn more about Stifel, please visit the Company's web site at www.stifel.com.
Forward-Looking Statements
Statements in this news release contain forward-looking statements within the meaning of federal securities laws. Actual results are subject to risks and uncertainties, including both those specific to the Company and those specific to the industry, which could cause results to differ materially from those contemplated. The risks and uncertainties include, but are not limited to, general economic conditions, actions of competitors, regulatory actions, changes in legislation, and technology changes. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this news release. The Company does not undertake any obligation to publicly update any forward-looking statements.
Stifel Financial Corp.
Summary of Results of Operations (Unaudited)
($ In Thousands, Except Per Share Amounts)
--------------------------------------------------------
Three Months Ended
--------------------------------------------------------
% % %
of Net of Net of Net
3/31/2006 Revenues 12/31/2005 Revenues 3/31/2005 Revenues
---------------------------------------------------------
Revenues
--------------
Commissions $49,309 45.0% $33,663 44.5% $24,335 40.4%
Investment
banking 15,729 14.4% 14,779 19.5% 13,741 22.8%
Principal
transactions 20,509 18.7% 11,405 15.1% 10,981 18.2%
Asset
management
and service
fees 13,498 12.3% 12,435 16.4% 9,451 15.7%
Other 7,358 6.7% 243 0.3% (655) -1.1%
---------- ----------- ----------
Total
operating
revenues 106,403 97.1% 72,525 95.8% 57,853 96.1%
---------- ----------- ----------
Interest
revenue 7,191 6.6% 5,585 7.4% 3,440 5.7%
---------- ----------- ----------
Total
revenues 113,594 103.7% 78,110 103.2% 61,293 101.8%
---------- ----------- ----------
Less: Interest
expense 4,063 3.7% 2,388 3.2% 1,105 1.8%
---------- ----------- ----------
Net
revenues 109,531 100.0% 75,722 100.0% 60,188 100.0%
---------- ----------- ----------
Non-Interest
Expenses
--------------
Employee
compensation
and benefits 86,694 79.2% 50,114 66.2% 40,689 67.6%
Occupancy and
equipment
rental 7,495 6.8% 6,561 8.7% 5,505 9.1%
Communication
and office
supplies 6,413 5.9% 3,958 5.2% 2,561 4.3%
Commissions
and floor
brokerage 1,267 1.2% 1,350 1.8% 844 1.4%
Other
operating
expenses 6,879 6.3% 5,735 7.6% 3,325 5.5%
---------- ----------- ----------
Total non-
interest
expenses 108,748 99.3% 67,718 89.4% 52,924 87.9%
---------- ----------- ----------
Income before
income taxes 783 0.7% 8,004 10.6% 7,264 12.1%
---------- ----------- ----------
Provision for
income taxes 307 0.3% 3,234 4.3% 2,906 4.8%
---------- ----------- ----------
Net
income $476 0.4% $4,770 6.3% $4,358 7.2%
========== =========== ==========
----------------------
Percent Change From
----------------------
12/31/2005 3/31/2005
----------- ----------
Revenues
------------
Commissions 46% 103%
Investment banking 6% 14%
Principal transactions 80% 87%
Asset management and service fees 9% 43%
Other 2928% n/a
----------------------
Total operating revenues 47% 84%
----------------------
Interest revenue 29% 109%
----------------------
Total revenues 45% 85%
----------------------
Less: Interest expense 70% 268%
----------------------
Net revenues 45% 82%
----------------------
Non-Interest Expenses
----------------------
Employee compensation and benefits 73% 113%
Occupancy and equipment rental 14% 36%
Communication and office supplies 62% 150%
Commissions and floor brokerage -6% 50%
Other operating expenses 20% 107%
----------------------
Total non-interest expenses 61% 105%
----------------------
Income before income taxes -90% -89%
----------------------
Provision for income taxes -91% -89%
----------------------
Net income -90% -89%
======================
----------------------------------------------------------------------
Per Share Information
----------------------------------------------------------------------
--------------------------------- ----------------------
Three Months Ended Percent Change From
--------------------------------- ----------------------
3/31/2006 12/31/2005 3/31/2005 12/31/2005 3/31/2005
---------- ----------- ---------- ----------- ----------
Earnings Per
Share:
Basic $0.04 $0.48 $0.44 -92% -91%
Diluted $0.04 $0.38 $0.35 -89% -89%
Number of Shares for
Earnings Per Share
Computations:
Basic
shares 11,254 9,983 9,830 13% 14%
Diluted
shares 13,422 12,710 12,415 6% 8%
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
----------------------------------------------------------------------
Stifel Financial Corp.
Summary of Segment Data & Statistical Information (Unaudited)
($ In Thousands, Except Per Share Amounts)
----------------------------------------------------------------------
Segment Data
----------------------------------------------------------------------
---------------------------------------------------------
Three Months Ended Percent Change From
---------------------------------------------------------
Net Revenues 3/31/2006 12/31/2005 3/31/2005 12/31/2005 3/31/2005
----------------------------------------------------------------------
Private
client $55,684 $50,677 $47,159 10% 18%
Equity
capital
markets 33,798 17,165 8,614 97% 292%
Fixed income
capital
markets 11,875 6,476 4,095 83% 190%
Other 8,174 1,404 320 482% 2454%
---------------------------------------------------------
Total net
revenues $109,531 $75,722 $60,188 45% 82%
---------------------------------------------------------
Operating Contribution
----------------------
Private client $12,914 $12,674 $11,188 2% 15%
Equity capital
markets 7,100 5,229 2,730 36% 160%
Fixed income
capital
markets 1,675 971 542 73% 209%
Other/unallocated
overhead (20,906) (10,870) (7,196) n/a n/a
---------------------------------------------------------
Income before
income taxes $783 $8,004 $7,264 -90% -89%
---------------------------------------------------------
----------------------------------------------------------------------
Statistical Information
----------------------------------------------------------------------
---------------------------------------------------------
Three Months Ended Percent Change From
---------------------------------------------------------
3/31/2006 12/31/2005 3/31/2005 12/31/2005 3/31/2005
---------------------------------------------------------
Total
Operating
Revenues $106,403 $72,525 $57,853 47% 84%
-------------------------------------
Net Operating
Interest 4,462 4,538 3,101 -2% 44%
Non-Interest
Expenses (1) 90,865 63,370 50,124 43% 81%
-------------------------------------
Adjusted
EBITDA (2) 20,000 13,693 10,830 46% 85%
-------------------------------------
Amortization
and
Depreciation 2,611 4,348 2,800 -40% -7%
Acquistion
related unit
amortization 5,521 0 0 n/a n/a
Discount on
Private
Placement 9,751 0 0 n/a n/a
Interest on
Long-Term
Debt (3) 1,334 1,341 766 -1% 74%
-------------------------------------
Income before
income taxes 783 8,004 7,264 -90% -89%
-------------------------------------
Provision for
income taxes 307 3,234 2,906 -91% -89%
-------------------------------------
Net
income $476 $4,770 $4,358 -90% -89%
=====================================
Earnings Per
Share:
Diluted $0.04 $0.38 $0.35 -89% -89%
Stockholders'
Equity $196,275 $155,093 $132,873 27% 48%
Book Value
Per Share $16.77 $15.31 $13.59 10% 23%
Total Assets $891,043 $842,001 $436,479 6% 104%
Investment
Executives 473 467 438 1% 8%
Full-Time
Employees 1,626 1,618 1,163 0% 40%
Locations 114 115 89 -1% 28%
Total Client
Assets $28,732,000 $26,735,000 $20,207,000 7% 42%
----------------------------------------------------------------------
(1)Non-interest expenses exclude depreciation and amortization of
intangibles, employment incentives, and acquisition related
charges. Employment incentives include up-front loans and
restricted stock units. Acquisition related charges include
amortization of restricted stock units and the charge for the
discount on the private placement of the Company stock to the LM
Capital Markets employees.
(2)Adjusted EBITDA, which is defined as net income before income
taxes, depreciation, amortization of intangibles and employment
incentives, and interest on long-term debt, represents a non-GAAP
financial measure. A reconciliation of adjusted EBITDA to net
income, the most directly comparable measure under accounting
principles generally accepted in the United States (GAAP), is
included in the table above. The Company believes that adjusted
EBITDA is a useful measure of financial performance because of its
focus on the Company's results from operations before income
taxes, depreciation, amortization, and interest. The Company also
believes that this measure is an alternative financial measure of
performance used by investors, rating agencies, and financial
analysts to estimate the value of a company and evaluate its
ability to meet debt service requirements.
(3)Long-term debt is composed of 9% $34.5 million Debenture to Stifel
Financial Capital Trust I issued April 25, 2002 and of 6.38% $35.0
million Debenture to Stifel Financial Capital Trust II issued on
August 12, 2005.
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
Stifel Financial Corp.
Summary of Core Earnings (Unaudited) (1)
($ In Thousands, Except Per Share Amounts)
---------------------------------------------------------
Three Months Ended
---------------------------------------------------------
% % %
of Net of Net of Net
3/31/2006 Revenues 12/31/2005 Revenues 3/31/2005 Revenues
---------------------------------------------------------
Revenues
---------- ----------- ----------
Net revenues $109,531 100.0% $75,722 100.0% $60,188 100.0%
---------- ----------- ----------
Non-Interest Expenses
---------------------
Employee
compensation
and benefits 69,246 63.2% 47,814 63.1% 40,689 67.6%
Occupancy and
equipment
rental 7,368 6.7% 6,445 8.5% 5,505 9.1%
Communication
and office
supplies 6,287 5.7% 3,866 5.1% 2,561 4.3%
Commissions
and floor
brokerage 1,267 1.2% 1,266 1.7% 844 1.4%
Other
operating
expenses 6,785 6.2% 5,018 6.6% 3,325 5.5%
---------- ----------- ----------
Total non-
interest
expenses 90,953 83.0% 64,409 85.1% 52,924 87.9%
---------- ----------- ----------
Income before
income taxes 18,578 17.0% 11,313 14.9% 7,264 12.1%
---------- ----------- ----------
Provision for
income taxes 7,474 6.8% 4,572 6.0% 2,906 4.8%
---------- ----------- ----------
Net
income $11,104 10.1% $6,741 8.9% $4,358 7.2%
========== =========== ==========
----------------------
Percent Change From
----------------------
12/31/2005 3/31/2005
----------- ----------
Revenues
--------- -----------------------
Net revenues 45% 82%
----------------------
Non-Interest Expenses
---------------------
Employee compensation and benefits 45% 70%
Occupancy and equipment rental 14% 34%
Communication and office supplies 63% 145%
Commissions and floor brokerage 0% 50%
Other operating expenses 35% 104%
----------------------
Total non-interest expenses 41% 72%
----------------------
Income before income taxes 64% 156%
----------------------
Provision for income taxes 63% 157%
----------------------
Net income 65% 155%
======================
----------------------------------------------------------------------
Per Share Information
----------------------------------------------------------------------
--------------------------------------------------------
Percent
Three Months Ended Change From
--------------------------------------------------------
3/31/2006 12/31/2005 3/31/2005 12/31/2005 3/31/2005
--------------------------------------------------------
Earnings Per
Share:
Basic $0.99 $0.68 $0.44 46% 123%
Diluted $0.83 $0.53 $0.35 56% 136%
Number of
Shares for
Earnings Per
Share
Computations:
Basic
shares 11,254 9,983 9,830 13% 14%
Diluted
shares 13,422 12,710 12,415 6% 8%
Note: Certain prior period amounts have been reclassified to
conform to the current period presentation.
(1) See "Reconciliation of Core Earnings" table on the following page.
Stifel Financial Corp.
Reconciliation of Core Earnings
($ In Thousands, Except Per Share Amounts)
----------------------------------
Three Months Ended
----------------------------------
3/31/2006 12/31/2005 3/31/2005
---------- ----------- ----------
GAAP Net Income $ 476 $ 4,770 $ 4,358
Acquisition related charges, net of
tax
Private placement compensation 5,824 - - - -
Acquisition related compensation 4,597 1,370 - -
Other non-compensation charges 207 601 - -
---------- ----------- ----------
Core Earnings (1) $ 11,104 $ 6,741 $ 4,358
========== =========== ==========
Earnings per Share:
GAAP Earnings Per Basic Share $ 0.04 $ 0.48 $ 0.44
Acquisition related charges 0.95 0.20 - -
---------- ----------- ----------
Core Earnings Per Basic Share $ 0.99 0.68 0.44
========== =========== ==========
GAAP Earnings Per Diluted Share $ 0.04 $ 0.38 $ 0.35
Acquisition related charges 0.79 0.15 - -
---------- ----------- ----------
Core Earnings Per Diluted Share $ 0.83 0.53 0.35
========== =========== ==========
(1) Core Earnings excludes acquisition related charges incurred in the
1st quarter of 2006 and the 4th quarter of 2005. A reconciliation
of Core Earnings to Net Income, the most directly comparable
measure under GAAP, is included in the table above. The Company
believes that Core Earnings is a useful measure of financial
performance because of its focus on the Company's results from
operations. The Company also believes that this measure is an
alternative financial measure of performance used by investors,
rating agencies, and financial analysts to estimate the value of a
company and evaluate its ability to meet debt service
requirements.
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