Quarterly Analyst Conference Call – Text Summary
Highlights of Raymond James Financial, Inc. Analyst Conference Call, July 23, 2008
Conference Leader: Tom James, Chairman & CEO
Mr. James welcomed everyone to the 3rd quarter analysts’ conference call and began by commenting that the third quarter comparisons are good relative to the rest of the street.
Our net revenues achieved a new record at $742 million for the quarter, with a slight decline in gross revenues from the prior year due to the level of interest rates.
Securities commissions increased 5% over same quarter last year. The increase was mostly derived from an increase in Fixed Income institutional commissions. However, both institutional categories were up over last year, as the equity side continued to have very good activity. Fixed income commissions benefited as well as we have a major effort underway to distinguish securitized pools from each other so that we can give good recommendations to clients about how to upgrade their portfolios.
We have added 12 or 13 fixed income salesmen in our Memphis office during the last quarter as a result of Bear Stearns deal with JPMorgan. RJA continues to do very well as a result of their recruiting efforts and RJFS has seen increased positive recruiting as well. However, the continued drip of bad information in the market place does have some impact on the retail commission flows and considering this, the private client group is actually doing extremely well in my view. We are hopeful that conditions will improve. RJ Limited has also added sales people and we are doing better in the UK.
Interest income is still impacted by low rates and somewhat lower spreads which occur whenever rates are low. Spreads are down from where we expected them to be but our volume of client cash deposits is growing, not just at the bank but also at the broker/dealer.
Net trading profits were up for the quarter which is a reflection of the increased profitability of fixed income trading that is offsetting the continuing losses for execution facilitation on the institutional equity side of the business.
There was an increase in “other” revenues in the quarter to quarter comparison due to fair value adjustments in the proprietary capital segment.
We continue to have a higher commission / compensation expense increase on the firm level than we have in commissions and fee/revenue. That would be troubling except for the fact that it is related to the continuing rapid rate of recruiting which tends to increase the non-direct payout compensation factors.
Communication and information processing were reasonably well controlled. We have had big increases in occupancy and equipment costs year over year, which primarily reflects the expense associated with new offices.
Expenses in total were up at the same percentage as net revenues, which resulted in a record net income for the quarter, almost $70 million. Net income per diluted share was at $0.59 vs. $0.57 last year.
Pre-tax margins were at 14.2%, after tax margins at 8.65% on gross revenues.
Net interest income is up considerably, which is mainly bank related.
Tax rate is higher than our average annual projected rates due to declines in market price of securities held in COLI.
Private Client Group has seen a decline in revenues due to lower interest rates. Pre-tax income declined a greater percentage due to some unusual factors including compensation expense related to stock options previously granted to independent contractor FA’s which is impacted by stock price changes.
There was also a decline in the Asset Management Group because assets are down as a result of the market decline.
Capital markets were up despite equity capital markets continuing to be depressed, especially in investment banking. Fixed income has generated near record revenue levels in terms of institutional commissions and is generating very good trading profits.
RJ Bank continues to generate consternation on behalf of certain analysts despite experiencing excellent profit results while managing asset growth at a sustainable level.
On a year to date basis for nine months, net revenues were up 10% and net income down 1% from last year.
Questions and Answers:
Lee Matheson from K J Harrison & Partners:
In terms of the Private Client Group and the additions of advisors where are the upfront payments are trending?
Tom James:
It’s up on an average slightly in our firm only because we are recruiting people with higher than average gross production. The average is 60-100% up front. We are benefiting from the fact that we have stayed out of the frey. We still have productivity growth in both firms in spite of all these factors that I have mentioned. The key is to make sure we are making wise investments and not buying production on it’s way down as opposed to production on it’s way up.
Lee Matheson from K J Harrison & Partners:
Can you give me an idea of what non-bank cash level was from a corporate level balance sheet?
Jeff Julien:
It is over $400 million, but a lot of that is not readily available for dividend to the parent. In terms of true parent pre-cash, without reducing the capitalization level of some of our subs we have substantially deployed our free-cash at this point in time.
Lee Matheson from K J Harrison & Partners:
Can you reiterate the share buy back program and what the activity was under that?
Jeff Julien:
It was nominal this quarter, no open market purchases.
Tom James:
Remember that our discipline is somewhat different than others. We don’t do it on a consistent basis. It is opportunistic based on price vs. a multiple of book value.
Lee Matheson from K J Harrison & Partners:
Are you scouting for an acquisition, like some of the publicly traded mid-market investment banks?
Tom James:
Regarding broker/dealers, I am well aware of the smaller investment banks out there that have reasonably good franchises but unfortunately you can not just fold them in. When doing the analysis you must decide what earning power you are really adding. You also need to be prepared to sustain some current losses during the period of inactivity. Heretofore, when we performed these analyses we have had a little difficulty with our own staff being comfortable with wanting to go through the process of making these evaluations of current and external staff. But it certainly is a possibility given the current market and it’s something we are looking at. We are evaluating potential opportunities in that space but we haven’t done any more than that. In the meantime, it’s probably at least equally as opportunistic for us to hire some of these individuals that are still with companies they are nervous about or who have been cut back as a result of gross across the board cuts. On the asset management side, we continue to be very active in looking at companies. We recently participated in a process and came in second.
Doug Sipkin from Wachovia:
On the retail business, can you explain what drove the drop in retail revenues?
Tom James:
It is the interest that I mentioned. In March, we moved some assets out of the broker/dealer into the bank ($550 million). In addition, rates have declined producing less gross interest revenue.
Doug Sipkin from Wachovia:
What would have to happen to have interest spreads widen at the broker/dealer level?
Jeff Julien:
When rates start rising a little. This happened before in the 2001-2003 timeframe when rates were down into drill bit sizes and we saw some compression of spread because of the percentage differential in rates. With rates at this lower level we are seeing some compression in spread. We see it in the stock loan business as well. It’s not just in the customer cash vs. overnight investment side.
Doug Sipkin from Wachovia:
I was under the impression that you were going to see a little bit of a bounce back this quarter because of the fact that the Fed cut rates so much.
Jeff Julien:
We did but not to the degree we thought it would be. Even as we sit here today, the most common spread we look at in the broker/dealer is between a customer cash deposit and the overnight interest rate which has historically been about a 65 b.p.s. spread, and today is sitting at about 40 b.p.s.
Doug Sipkin from Wachovia:
In an environment of rising interest rates that dynamic would benefit you?
Jeff Julien:
That’s correct.
Doug Sipkin from Wachovia:
The non-comp expenses moved up quite a bit this quarter. Would you characterize any of the $137 million as a little bit of an outlier or more like a new realistic type of rate given the revenue base?
Jennifer Ackart:
There wasn’t anything particularly large or unusual.
Tom James:
I think that’s probably where we are. As I said, if you are running at an inflation rate of 4-6% you have to get more growth in commissions and fees than these levels to have any margin expansion.
Doug Sipkin from Wachovia:
Can you talk a little more about the bank? In looking at these net margins for the quarter, can they go higher? Where do you see them going if they can continue to move up?
Steve Raney:
That was a function of a couple of things at the very beginning of March so you didn’t see the full impact of this last quarter. In the March quarter end we had changed the pricing methodology that we were using on the RJBank deposit program. We had determined that one of the main benchmarks that we were using contained a lot of money market funds that had riskier assets in them. We didn’t feel that was appropriate given the profile of the bank and the FDIC insurance so we made that change in benchmark at the very beginning of March. So now the full impact of that pricing differential is in this quarter. Coupled with that, as you know, the assets that we have been adding have been at better spreads. I would say that I don’t think this level is sustainable. It is probably 20-30 b.p.s. higher than what I would say is more long term sustainable.
Jeff Julien:
There are two other things that happened during the quarter that make it non-sustainable. One is, I think we had an artificially high LIBOR rate relative to our cost of funding. Our entire commercial portfolio is keyed off of LIBOR. Secondly, the Fed continued to cut rates during the quarter. We have about $2.2 billion of residential loans that are in that five year fixed rate period before they flip to floating rate and our cost of funding those dropped as the Fed continued to lower rates. We don’t think we will see that anymore.
Doug Sipkin from Wachovia:
Can you chime in on the credit quality? I don’t think it’s a surprise that non-accruals jumped a good amount. I don’t know if that relates to some of the developmental stuff or just general normal seasoning. Any expectations for where that sort of non-accrual or non-performing percentage can go to over time?
Steve Raney:
When you are starting from a real low base that can be very lumpy and affected by a handful of names. We did add some corporate loans to the non-accruals that are larger loans than we have had in non-accrual before. Previously non-accruals were almost exclusively residential loans. Almost all of that the increase was related to the residential acquisition and development, home builder type loan. The charge offs in the quarter were also related to those same credits. About $3.5 million of the $5 million that we had in charge offs were related to our corporate portfolio with about $1.5 million in charge offs related to our residential portfolio. In terms of looking forward, I would anticipate some additional loans going into non-accrual status. We have had an increase in our watch loans that are not in non-accrual status now but we would expect some increase in that just given the continued softness, particularly in the residential acquisition and development space. We have total outstanding loans of $110 million in that industry segment. That came down by about one third over the last 12 months or so and we have not added anything in that space in 18 months.
Doug Sipkin from Wachovia:
If the markets get crushed again and the stock goes back to $21 or $22, do you have enough capital to buy back like you did in the first quarter?
Jeff Julien:
We are not devoid of credit and cash. We have about $100 million in cash and credit lines that we could actually use for that today. Once we put into play the term debt in the next 30-45 days we will have taken what I call a “belt and suspenders” approach. We are going to have excess cash on the balance sheet as well as credit lines backing that up and then we will be in a position to comfortably repurchase.
William Tanona from Goldman Sachs:
Of the charge offs we have seen this quarter when were those loans actually put on?
Steve Raney:
About $1.5 million of them were residential loans and we are going to see that as a normal flow. I don’t have the origination of those particular loans, there were roughly six or seven loans. The other three loans in our corporate portfolio were all originated in the 2005 time frame and one loan was in early 2006.
William Tanona from Goldman Sachs:
In following up on the non-performing loans, what do you think is the right level in terms of non-performing loans given your mix of business?
Steve Raney:
That’s a hard number to anticipate. We are obviously looking at the past due pipeline information on our residential portfolio although the 90 day plus loans have increased, the pipeline of loans 30 days past due has gotten lower in the last quarter. We do continue to see some softening, particularly in the residential acquisition and development portfolio. Almost without exception that entire portfolio is at least on a watch list and I would say that’s it is up in the air as to what will happen to all of those names. I would anticipate some of those names to deteriorate further and some even winding up in non-accrual status. All of those loans have some sort of collateral support but as you can tell from what happened with these charge offs this last quarter, when go through the evaluation of our collateral position when a loan is going 90 days past due or the borrower is having problems, we have seen material deteriation in the collateral values. Then we are getting new appraisals and discounting that further. Using that math I would anticipate some additional charge offs.
William Tanona from Goldman Sachs:
Where do you ultimately feel comfortable in terms of reserves?
Steve Raney:
It is sometimes hard to compare institutions in terms of the asset mix. We don’t have any consumer loans, credit card or auto loans which typically have higher reserves associated with them. Our residential loans have a certain reserve going in that tends to be a more homogeneous product offering. Our corporate loans are based on the risk profile of each individual loan when we book the loan, it could vary by almost 100 b.p.s. We feel like we have been conservative in the way we have reserved against these assets and we have also been very proactive in downgrading loans early on in the process. When we are downgrading loans we’re actually taking additional reserves against that particular asset. We have seen an increase in reserves in the last five quarters, this has been partly a reflection of the credit deteriation. We haven’t really changed the methodology. We have seen no evidence of a need to change the methodology and feel we have adequate reserves.
William Tanona from Goldman Sachs:
The bank saw a pretty big jump in consumer loans this quarter with an increase of to about $77 million. Was that one transaction or what was driving that big jump?
Steve Raney:
That was related to a couple of corporate loan transactions in the “consumer goods” space. One was a soft drink company and the other is a vending company that provides catering to theme parks and sports facilities.
There being no further questions, the conference call ended.
Highlights of Raymond James Financial, Inc. Analyst Conference Call, April 23, 2008
Conference Leader: Tom James, Chairman & CEO
Mr. James welcomed everyone to the 2nd quarter analysts’ conference call and began by commenting that the firm was pleased with the results, but only in light of the conditions in which the financial services industry finds itself now. The market has obviously impacted investment advisory fees as assets under management have declined due to market action, not due to a lack of net sales.
Mr. James continued that there has been some compression in net interest spreads at the Broker Dealer that relates specifically to what we pay out in our client interest program, as well as in our bank deposit program where we match Heritage money market rates. When rates are rapidly moving down as a result of Fed action, the Heritage rates do not move down as quickly but our earning assets adjust immediately. In the last two quarters this has amounted to around $5 - $7 million per quarter. Once interest rates begin to move up as inflation concerns mount, we will see the reverse dynamic and actually have some benefit from the move as rates increase.
Mr. James stated that in terms of net trading profits, the firm suffered this quarter, which mostly happened in January and February with some recovery in March, largely in the Fixed Income market.
Mr. James continued by saying that one of the things that has distinguished the firm in the past 18 months is developing the capacity to actually analyze underlying collateral pools of mortgage securities. When a firm can do that, it really does bring value added content to its clients. The run rate of fixed income commissions has been anywhere between 2.5 and 3 times last years’ run rates and up 30% in Institutional Equity. This has offset some of the other revenue lines such as the trading results and Investment Banking, which is down as well.
Mr. James stated that he was impressed that the overall gross revenues were up 9% with lower interest rates in the mix. Net revenues actually grew faster because of the decline in interest rates on the gross level.
All of these factors led to year over year earnings being flat and up from last quarter to $0.50 per diluted share.
Mr. James continued by reporting that Raymond James Bank’s reported profits were negatively impacted by the additions to loan loss reserves and that earnings from newly generated loan balances have not shown yet. The Bank also experienced low overnight investment rates. However, these factors will have less impact on future profits as the overnight rates near a bottom and the planned growth rate slows.
Mr. James reported that net income for the first half of the fiscal year was at $116 million, down 3% from the previous year of $119 million. Mr. James is confident that the firm should be able to match or improve last years’ results as long as some of the negative factors begin to dissipate in the market place.
Private Client Group had a 5% increase in revenues. The firm continues to strongly recruit.
Capital Markets activity in both new issuance and M&A continued to be slow with revenues gaining only 16% despite healthy gains in commission volumes.
Asset Management revenues were up 2%.
Raymond James Bank revenues were up 86% which reflected the asset growth. Net interest earnings growth was both volume and spread related.
Emerging markets comparisons were down due to Turkey and because the market malaise has actually slipped into the emerging markets.
Proprietary Capital is expected to improve with the recent purchase of two companies as part of our Merchant Banking effort.
Questions and Answers:
Lee Matheson from K J Harrison & Partners:
Of the 10% gross amount of write down you took on the available for sell securities, how much was agency vs. non-agency paper?
Tom James:
These write downs are really mark to market that goes directly to the equity section and it is not an earnings write down. We do not see any material risk in terms of actual loss in those securities, which have an average life of two years.
Jeff Julien:
About $300 million were in agency securities. The total write down is at about 8.5% to 9% total.
Lee Matheson from K J Harrison & Partners:
What is the yield pick up on the deferred amortization residential mortgages vs. just going with the traditional immediate amortization?
Jeff Julien:
Incentive for the interest only is that’s predominately the product that’s being sold in the marketplace right now. With only experiencing about 6% principal amortization the first five years of a 30 year amortization, clients are not seeing dramatically lower payments by going interest only. We are doing it because of availability of product in the market.
Lee Matheson from K J Harrison & Partners:
Is there any concentration risk within the deposit gathering side of the bank?
Jeff Julien:
It is a broad cross-section of our client base. Certain types of accounts such as custodial accounts are exclusively using the bank so I would say it’s somewhat by account type.
Joel Jeffrey from Keefe Bruyette & Woods:
How was compensation expense impacted by the $6 million referenced in the release?
Jeff Julien:
It was impacted by that due to accounting rules that require mark to market treatment on equity compensation instruments issued to independent contractors.
Joel Jeffrey from Keefe Bruyette & Woods:
Had the $6 million been included would there been any kind of offset from an increase in share count?
Jeff Julien:
No, it is strictly related to where the stock price is. If it wasn’t there it would mean the stock price was higher.
Joel Jeffrey from Keefe Bruyette & Woods:
Would you give us a breakdown of the investment banking revenue?
Jeff Julien:
For the quarter M&A domestically was $7.8 million and underwriting fees domestically were $3.8 million. Canada in total was $7.3 million. Real estate syndication of tax credit housing properties had revenues of $6 million in the quarter.
Joel Jeffrey from Keefe Bruyette & Woods:
What were the total buy backs for the quarter? Is there anything remaining on the authorization?
Jeff Julien:
We repurchased 2.8 million shares for $60 million. We exhausted our authorization which had been outstanding for several years. The Board of Directors recently a new authorization for $75 million, which we have not made a dent in yet.
Doug Sipkin from Wachovia:
Does the impact from the Fed cuts of $5 to $7 million per quarter fall straight to the bottom line pre-tax or is there some cost associated with that?
Jeff Julien:
Other than some general bonus accruals, it falls directly to pretax income.
Doug Sipkin from Wachovia:
What is the dramatic rise in yield in the bank attributed to?
Jeff Julien:
We added $1 billion in net loans in the December quarter and we are now getting the interest earnings impact from those loans. Additionally we added $.5 billion in the March quarter. As the Fed continues to cut rates, our $2.3 billion portfolio of residential mortgages on the bank’s books, which are substantially all 5/1 arms and have a very short average life, are in the fixed rate period, thus our spread has increased on these as our cost of funding has declined. Further, since mortgage rates have not been dramatically affected there hasn’t been a flurry of refinances.
Doug Sipkin from Wachovia:
How should we be thinking about loan growth going forward?
Jeff Julien:
It’s dependent on what the marketplace is doing. Assuming attractive loans continue to be available in the marketplace, we are probably going to try to manage a 25% to 30% growth in the bank’s total assets over the next year.
Doug Sipkin from Wachovia:
Given you have done a lot of recruiting, can we be thinking that front money costs may be slowing down at some point in the future?
Tom James:
We are still filling up the pipeline in terms of seven year contracts outstanding for FA’s. This means it will take seven years to exhaust what we have expended to date. If we continue to recruit at the same absolute pace, this expense will begin to diminish as a percentage of total gross commissions.
There being no further questions, the conference call ended.
Highlights of Raymond James Financial, Inc. Analyst Conference Call, January 24, 2008
Conference Leader: Tom James, Chairman & CEO
Mr. James welcomed everyone to the 1st quarter analysts’ conference call and began with the comment that contrary to the way the stock acted today the firm did not take any big write off or any losses on the balance sheet.
The results, from Mr. James’ perspective, during the December quarter were actually quite good. The only segment that was negatively impacted to any great degree was Investment Banking.
At the end of November the firm released monthly statistics to give analysts an opportunity to make course corrections based on what trends were present in the industry. The firm reported they were doing well on the private client group front with commissions up year to year. They also reported at that time that volatile markets had reduced investment banking business and negatively affected trading results and that falling interest rates were adversely affecting spreads on interest earnings. Also mentioned was that the loan portfolio was continuing to grow as the firm took advantage of very favorable discounts available in the loan secondary market.
Year over year, we had a 14% increase in net revenues and a 16% increase in non-interest expense growth, which brings us to $56 million in earnings after taxes, down 5% from the December 2006 quarter.
Investment advisory fees continued to grow and were up 13% due to new net sales and low market erosion.
Interest income grew on a gross basis largely because of the bank, with record breaking amounts of new cash flows into our cash depositories, including Heritage Cash Trust, our CIP program and the bank.
Financial service fees were up 10% year over year due to normal business growth.
Other revenues were up 30% due to many factors that were not all necessarily recurring events. Half of the growth occurred due to general business growth and the other half was a result of isolated events.
Gross revenue increased 17% and net revenue increased 14% due to the factors mentioned and the high quality of brokers that have been added.
Not surprisingly, net income is down 5% mainly due to investment banking’s differential which is also being seen in some other investment firms.
Earnings per share were off by 6% on a year over year basis from 50 cents to 47 cents per diluted share.
The Capital Markets segment had a decline in pretax earnings of roughly $10.4 million from the prior year.
Asset Management segment grew 17% in pretax profits.
Raymond James Bank was up 129% in pretax earnings in spite of the interest spread compression factors that were discussed earlier.
Emerging markets were down due to the company reserving for all earnings related to Turkey.
Proprietary Capital does not yet show a profit, but we recently reported the purchase of a second platform company, Sirchie.
Mr. James feels that the effective use of capital being shifted to RJ Bank and other areas will substantially increase the earnings power of the overall corporation.
Mr. James also points out that the levels of business activity have increased in fixed income, in spite of the market upset.
Mr. Julien reports that recurring revenues were at 63% for the quarter.
Mr. James reports that Canada is doing well and that the securities operations in the U.K. continue to make progress towards becoming a profitable entity. Foreign operations, except for Turkey, are doing reasonably well.
Questions and Answers:
Kyle Kavanaugh from Palisade Capital:
Did you cover the “Other Segment” line in with a $2.5 million loss?
Jeff Julien:
The revenue item in this segment is interest on capital, which over the past year we have deployed into the bank and other areas.
William Tanona from Goldman Sachs:
I’m not 100% clear in regards to why the pre-tax earnings in PCG are not comparable to the growth in revenues.
Tom James:
There are two levels of responses to this question. The first is that compared to last year’s quarter we actually had $3 million of lower net interest earnings because of spreads on margin lending and overnight cash balances were down this quarter vs. last year due to a fact we are in a declining interest rate environment. In addition, roughly $4.5 million of bonus accruals in that area were reversed into earnings last year and we did not have any reversals like that in this quarter. The B part of this answer refers to longer term trend analysis which relates to economic accounting for recruiting.
William Tanona from Goldman Sachs:
Do you amortize front money on a straight line basis?
Tom James:
Yes.
William Tanona from Goldman Sachs:
With the Fed lowering rates this week can you quantify what the impact will be to you for the bottom line?
Tom James:
Not exactly. This is temporary and transitional and should not be a factor by the end of next quarter.
William Tanona from Goldman Sachs:
What types of loans are you putting into the bank and how do you feel about the credit quality that you’ve added recently?
Jeff Julien:
We have about $7 billion total footings at the bank, of which $5.7 billion is currently invested in loans. The breakdown of that is $3.4 in commercial / corporate loans and $2.3 billion in residential loans. Our ratio of addition is roughly two thirds of the loan production has been corporate / commercial vs. residential. In the corporate / commercial space we typically have been in a BB, BB+ types of credit.
William Tanona from Goldman Sachs:
What’s the largest commercial asset class or sector your company is concentrated in and where are the two or three largest areas of the county for residential loans?
Jeff Julien:
The biggest single industry is healthcare at about 6%. The two states that we have the biggest concentration of residential mortgages are Florida and California.
Erin Cadell from Hovde Capital:
What was the provision for credit losses for the quarter?
Jeff Julien:
$12 million.
Erin Cadell from Hovde Capital:
What are the balances of residential loans in Florida and California?
Jeff Julien:
California is about $400 million and Florida is about $250 million.
Erin Cadell from Hovde Capital:
Can you give a broad guideline as to what the typical kind of LTV’s are and what percentage are purchase vs. originated within the bank?
Jeff Julien:
They are predominantly purchased. The weighted average of our LTV is 67% on the residential side.
Douglas Sipkin from Wachovia Securities:
What is the actual loan amount booked this quarter?
Jeff Julien:
Just under $1 billion and was roughly 70/30 corporate to residential.
Douglas Sipkin from Wachovia Securities:
Would you consider a buyback if the stock continues where it is?
Tom James:
No comment.
Douglas Sipkin from Wachovia Securities:
How would you characterize your investment banking pipeline?
Tom James:
The activity is down but there are deals in the pipeline that are material.
Douglas Sipkin from Wachovia Securities:
Is the reason that the comp rate was higher than anticipated was because of mix shift of less capital markets revenue and more retail revenue with a higher payout?
Tom James:
You are correct.
Douglas Sipkin from Wachovia Securities:
What is the weighted average life of your front money deals?
Tom James:
It’s between six and seven years.
Lauren Smith from Keefe, Bruyette & Woods:
Can you refresh our memory as to what you have left remaining on your buy back?
Jeff Julien:
The Board authorized $75 million at the discretion of management and we have used very little of it so it’s still over $70 million.
There being no further questions, the conference call ended.
Highlights of Raymond James Financial, Inc. Analyst Conference Call, October 24, 2007
Conference Leader: Tom James, Chairman & CEO
- Mr. James welcomed everyone to the 4th quarter conference call, and first noted that we have had an excellent fourth quarter and thought the year was a very good year especially in light of the market conditions that we’ve faced.
- Pretax profits were $95.6 million for the quarter, which were up 21% from the prior year quarter.
- Diluted earnings per share were $0.53 for the quarter.
- The after tax margin on net revenue was 7.51%, up from 7.35% in last year’s fourth quarter. Our return on equity was 14.65%.
- For the year, we had an 11% increase in net revenues and an 11% increase in non-interest expense growth, which brings us down to $250 million in earnings after taxes, up 17%.
- An after-tax margin of 8% for the year, 9.6% on net revenues, and a return on equity of 15.6% were roughly in line with last year.
- We had good results in investment banking during the quarter.
- The revenues in the quarter were up by 20% in the Private Client Group and up roughly 50% in pretax profit. The number of FAs increased in the fourth quarter due to recruiting efforts.
- Revenues in Capital Markets were up. We were actually down a little bit in net earnings which relates to domestic institutional commission business and obviously the fixed income difficulties in trading during this particular quarter.
- The Equity Capital Markets side was reasonably good. It was especially good in Canada. We’ve got contributions from all of our North American operations and in fact even our Latin American venture had a good Equity Capital markets year and quarter and they continue to do well.
- We continued to experience reasonable growth in asset management during this period.
- The bank displays lower earnings for the quarter, down from $6 million to $2 million, because of all the reserves related to the dramatic loan growth.
- Emerging markets were an improvement over last year but again shows reduced results even though Latin America has done extremely well. We have continued to be very conservative about our Turkish operations because of the current open tax situation. The future of our business is uncertain due to the uncertainty surrounding this assessment. We are maintaining a conservative outlook even though I think they have generally done a good job at building a good business in Turkey.
Questions and Answers:
Douglas Sipkin from Wachovia Securities:
Is your reserve methodology of reserving upfront of 1% to 1.5% consistent with regional banks or is it more aggressive?.
Steve Raney:
The corporate loan risk rating system we use is rather sophisticated and is based on estimation on our part during the underwriting process and a risk rating is assigned based on these factors. The range is between 110 bps to 180 bps for commercial loans. This is standard procedure for all banks.
Douglas Sipkin:
What was the incremental provision this quarter for the bank?.
Steve Raney:
The actual loan loss provision this quarter was roughly $19 million.
Douglas Sipkin:
What are the loans at the end of the quarter?.
Steve Raney:
The total loans were $4.7 billion.
Douglas Sipkin:
Your last statement projected incremental bank earnings $0.19 in 2008 and $.035 in 2009. Is that still consistent with what you are seeing?.
Tom James:
I am a little more reluctant than Jeff Julien to try to project these numbers with any more certainty than I would have with the rest of our business because of the speed of the ramp which effectively should accelerate the benefits of the bank sweep program.
Douglas Sipkin:
What were the bank deposits at quarter end?.
Steve Raney:
The deposits were $5.6 billion.
Douglas Sipkin:
Would the bank consider providing more credit statistics to help investors understand the loan growth?.
Tom James:
Yes, we would consider doing that in the future. Right now our actual loan loss is so low there is not much to report.
Douglas Sipkin:
How much did the tax credit funds operation impact the quarter?.
Tom James:
Revenue was $16 million, up $5 million from last year. The impact was not significant.
There being no further questions, the conference call ended.
