Stifel Financial Corp.
Q1 2008 Earnings Call Transcript

Published: 12 May 2008

[Operator:]

Good afternoon. My name is Jacob and I will be your conference operator today. At this time, I would like to welcome everyone to the Stifel Financial first quarter earnings 2008 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator instructions) Thank you. Mr. Zemlyak, you may begin your conference.

[Jim Zemlyak:]

Thank you, operator. Good morning, everyone, this is Jim Zemlyak, CFO of Stifel Financial Corp. I would like to welcome everyone to our conference call today to discuss our first quarter 2008 fiscal results. Please note that this conference call is being recorded. If you would like a copy of today's presentation you may down load slides and view it from 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 meanings of the Private Securities Litigation Reform Act of 1985. These statements are not statements of fact or guarantees of performance. They are subjects 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 report on Form 10-Q. Before I turn the call over to our Chairman, CEO and President of Stifel Financial Ron Kruszewski, I would like to review the business highlights. Before I start, I want to remind everyone that the first quarter included one month of Ryan Beck in 2007 and did not include Stifel Bank and Trust, which closed April 1st of 2007. Net revenue of $211.5 million, a 35% increase over the prior year first quarter, and down slightly from the first quarter of 2007. GAAP net income of $14.3 million, or $0.81 per diluted share, a 62% increase over the prior year first quarter, and a 4% increase from the fourth quarter of 2007. Core net income of $18.3 million, or $1.03 per share, a 39% increase over the prior year first quarter, and 11% decrease from the fourth quarter of 2007, and Ron will review in detail the difference between GAAP and Core. Commission and principal transactions increased 64.7 million, 74% over the previous year first quarter. Asset management and service fees increased 56% to $30.3 million as compared to the prior year first quarter. For the three months ended March 31, 2008, utilizing Core earnings, pretax margins were 14%. For the three months ended March 31st 2008, utilizing Core earnings, annualized return on average equity was 17%. At March 31, 2008, our equity was $436.8 million, resulting in a book value per share of $28.07. The number of Financial Advisors increased to 972 from 956. And the Fixed Income Capital Markets recorded record net revenues of $44 million and record income before taxes of $14.9 million. With that, I will turn the call over to Ron.

[Ron Kruszewski:]

Thanks, Jim. Good morning everyone. First of all, we had in summary a very good quarter in what can best be described as turbulent and difficult markets. As Jim stated the numbers, I'm pleased to report it's our second best quarter ever in terms of net revenue, essentially flat with our record quarter of all time. Third best with respect to Core net income and actually our best quarter ever with respect to GAAP net income. And our ability to have this kind of a quarter in the difficult markets is in many respects the result of our conservative balance sheet. We have assets of $1.6 billion supported by over $530 million of equity and trust preferred securities. And even with this leverage of just over three times leverage, we achieved a 17% annualized return on average equity if you utilize our Core earnings as the earnings number. You know, during the quarter a lot went on. We completed a secondary offering of our common stock. We didn't have any primary shares in that offering. We completed it. We actually priced the offering in probably the most difficult times right in the midst of the Bear Stearns takeover and that was – but during that time we were able to sell the majority of BankAtlantic's position in Stifel Financial and I would like to take the opportunity now to welcome our new investors and thank them for their confidence in our company. I am also pleased to announce that we are going to have a 50% stock dividend in the form of a three-for-two stock split will be distributed June 12th to shareholders of record of May 29th. This, I believe, underscores our confidence in our business going forward and will also serve to add liquidity to our common stock. So, if you look at the quarter, and I'm on Page 3 of the slides, as Jim mentioned net revenue increased 35%, which was driven in large part by the addition of Ryan Beck's Private Client business and simply an exceptional quarter for our Fixed Income Capital Markets Group offset by a difficult quarter for investment banking. The investment banking industry-wide has had experienced a very difficult quarter and we were not immune from that. I think the difference that for Stifel Financial though can be summed up in a word and it is balance. We have a lot of balance in our revenue from both Private Client Fixed Income, investment banking, our flow business. So, had we pre-announced that our investment banking was going to be down 31%, yeah, we would have this kind of quarter. Initially a lot of people would have been surprised. I think it underscores the balance in our firm in that we have other businesses that are complementary. Because the numbers quarter-to-quarter are skewed by the Ryan Beck Private Client business, we did say – I said in my quote that if you exclude Ryan Beck's Private Client revenue net revenues were still up 12% from the first quarter of 2007. Commissions were up 40%, down a little bit sequentially. Principal transactions up significantly to – up 152%. I anticipate the question that I get on this all the time is what drove principal transactions. And again, it's simply the results from Fixed Income primarily flow business and fixed income. Our flow business in that segment is all principal transactions. So, it's not trading. It's just flow business and Fixed Income. Investment banking, as I stated, was down almost 50%, and down 31% sequentially. A little skewed as I will comment in a minute by the fact that closed-end offerings flow through investment banking and we had a number of closed-end offerings in the first quarter of '07 and none or maybe one in the first quarter of 2008. So, that also skews that line item. But, as I have said, it was a difficult quarter for investment banking. Asset management and service fees continues a nice steady growth in that business of 56% and 2% sequentially. So, all in all, a very good quarter on the revenue side. I will point out that other revenue was a negative $1.2 million versus last year it was $1.4 million – it was $4.1 million in the fourth quarter. And the primary reason for that were mark to market losses. We recorded $2.4 million of losses in the first quarter of '08 compared to gains of $400,000 in the first quarter of '07 and we had $1.9 million of gains in the fourth quarter of 2007. The primary item there, we have some general marks, but the primary item is the fluctuation in our remaining shares from the New York Stock Exchange seat. And it's just as simple as that. It does fluctuate and we have a number of shares and that's down. So, it's unrealized but it does fluctuate. If we go forward and look at – on the expense side of our income statement, the – again, in general, met all of our metrics in a very difficult quarter again. Pretax margins of almost 14.5%. Our comp and benefit line item historically is higher in the first quarter primarily due to payroll taxes, employee benefits. The way we start the year is if you look historically our comp and benefit ratio is highest usually in the first quarter of any year. Operating expenses coming better under control. I think we told everyone that we were looking to get those operating expenses below 20% of net revenue. While it is driven in part by revenue I can tell you that we have continued to get expenses out of the integration of Ryan Beck and we are always mindful of expenses. So, OpEx in at 19%, which was down from 22% in the sequential quarter is – shows our progress in that area. If you flip to the next slide, which is Page 5, you can look at the segments again. This will underscore the balance in the firm. While the comparisons to the first quarter are all generally up except for Equity Capital Markets, they were impacted certainly on the Private Client by the addition of Ryan Beck although our Private Client business was still up. I think it's about 9% excluding Ryan Beck. It was up 34% quarter-to-quarter, down slightly 4% sequentially. Fixed Income Capital Markets, and I will come back to these in a minute, up over 200% in revenue, 600 – 700% in pretax contribution. So a very strong quarter in Fixed Income Capital Markets. If we look at them individually – let's take a look at the Private Client Group first. In the Private Client side the highlights were that net revenue, as I said, up 34%, commissions and principal transactions all up nicely. The one item that was down, as I said, was investment banking, down 67% in the Private Client business. That was due, again, to both the overall difficult market conditions for managed and co-managed equity offerings, but also the lack of any closed-end fund offerings in Q1 of 2008 as compared to Q1 of 2007. So, if you look at the segment sequentially, while revenue and pretax income declined 4% and 7% respectively from the record – we had a record preceding quarter – I believe our results were, frankly, outstanding given market conditions. We continue the growth. We added 32 Financial Advisors. We opened five new offices in the quarter and you can look at the press release and it will give you the details on those offices. If you look at Equity Capital Markets, there are two things to talk about here. One, is that while our investment banking line item – and if you look here, you will see it was down 48% from ‘07 and 41% sequentially. That again is the same thing you have seen across the industry. The difficult markets – I remember when I was on the road selling our stock, I think we were the only company out – us and Visa were the only ones out even doing a deal. You couple that with the freeze up in the credit markets that has impacted our M&A business and the ability to finance M&A and that will explain the weakness in investment banking. Just to look at that, I will say that our backlog remains strong. We believe that the market – and I think it's going to have to be led by the market – we believe the market is going to improve in the second half of the year and consequently our business is poised to rebound nicely when the market also improves. We are not going to lead the market out of this. But we are well positioned that as the market improve we will improve also. The other item that – to take note of is our flow business which continues to improve. We continue to add analysts. We continue to add to our capabilities and our flow business increased 41% over the comparable quarter of 2007. So, it's just very, very good results as it relates to just our research-driven model in Equity Capital Markets. Contributions, again, margins down to 14% as you would expect considering the weaknesses that I have already talked about. Fixed Income Capital Markets, simply a great quarter. Revenue of $44 million, up over 200% from 2007, up over 85% from the fourth quarter of 2007. A lot of it is simply the market – the steepening of the yield curve and frankly I believe a lot of the clients coming back to us. We lost a lot of clients when there was a lot of the structured product going around the Street. We did not manufacture nor have the ability to sell that. With the turmoil in that market, we have seen a lot of our business come back. So this has been – was a tremendous quarter. I never want to annualize – looking forward, I never want to annualize results that are up over 200%. But I can tell you that I believe we have seen an uptick in this business that is going to continue. I am not – we had – we were going through some difficult markets in the last year and a half and we see truly some systemic type changes in this business that bodes favorably for our Fixed Income Capital Markets business. The margins, again, comp and benefits below 60%. OpEx below 10%, margins over 30%, was just a – was a great, great quarter, and again underscores the balance of our firm. If you look at the Bank, the net revenues increased 11%, loans increased 16%, assets up 16%. Net-net, we continue to grow the Bank in a balanced and prudent manner. We are not looking – it would be very easy to explode the growth in the Bank. We are not doing that. Our strategic rationale is to use the Bank to provide products to our clients, banking products to our clients. If you look at the ratios of assets and loans, deposits, all nice growth. Our allowance for loan losses is 1.15%, and our nonperforming loans to total loans are at 1.42%. Basically, the credit quality of the Bank has been and continues to be very strong. If you look at the Other segment, you will see the increase in the loss of the Other segment primarily due to the mark to market losses versus a gain last year as the primary driver of why the Other segment shows a larger loss than it does in the past. Next, let's look at the reconciliation of GAAP to Core earnings. This will be, as I have said, we will not utilize non-GAAP measures at the end of 2008 for if you look at this, you will see – I'm on Page 12 of the slide. You will see that our Core business generated diluted earnings per share of $1.03. Acquisition-related expenses for the quarter were $0.22, primarily again stock-based compensation related to the Legg Mason transaction of a couple years ago plus some remaining OpEx and Ryan Beck very small now, but it's $0.22. So, if you look at this in our press release, you will see that Core earnings, $1.03, acquisition related of $0.22 results in GAAP earnings of $0.81. Last year the same math would be Core income of $0.86, acquisition related of $0.28, down to $0.58. If you flip the slide, people told me this has been helpful, so we will continue to do this. This is the reconciliation, Page 13 shows our acquisition-related charges and our estimates for 2008. As you can see, in 2009 they go away. We are estimating that for 2008 they will – we will have $0.88 in acquisition-related charges. It is the one number we have been forecasting. There is no change in this forecast over the last year or so. If you flip the page, you will look at the quarterly impact on Page 14. The actual impact for Q1 was $0.22, and you will see that we estimate that for Q2 through Q4 it will remain at $0.22 a share, again primarily a debit to expense and a credit to equity as we amortize the stock-based comp. And then in ' 09 those charges go away as that amortization is complete. If you look at the balance sheet, a couple of things that we can talk about. One is our assets at $1.6 billion as I have already said supported by $532 million of capital, $437 million of equity, $95 million of trust preferred. We are very well capitalized. Conservative balance sheet. Book value of $28.07, as Jim said. We did start showing the – our level 1, 2, and 3 assets and I will tell you that as of the end of the quarter we had total securities at fair value of $238 million, and of those we had trading securities of level 3 of $15 million, and available for sale securities, that's in the bank, category level 3 of $19 million. So, in total, that's what some $35 million in round numbers of level 3 assets. The primary reason for this – this is an increase, although this is the first quarter that we are showing this. A significant portion of those are that we categorized our inventory in auction rate securities as level 3 even though the Street and a lot of – well, lot of what we own are the auction rate preferreds and while some of them – a lot of them are starting to get called at par, we felt that for valuation purposes we needed to characterize them as level 3. We also own some student loan auction rate securities. Those are less clearest as to the outcome on those. But the primary assets that we have in level 3 now are these auction rate securities. Frankly, I'm pleased with our relatively low level of auction rate securities as compared to many of our brethren on the Street. If you look at Page 16, we will talk about our capitalization. I will point out, as I have in the past, is that while we adopted the provisions of 157 or 159, I forget which accounting –157, we did not adopt the one that would allow us to mark our liabilities to market. We felt as a company that although many people have adopted that standard we felt that it is just moving things around and we were not – we just decided not to do it. But I will take the benefit of pointing out that had we done it, our trust preferred securities based on our recent trade in it would – we would be able to mark that liability at 60 versus par. And so you have seen many firms taking that gain through their income statement. We have not, nor are we going to, but rest assured there is a lot of value in our capital structure with $95 million of trust preferred at LIBOR plus 170 to 185 for 30 years. So, there is a lot of value there. Finally, the last slide just shows some financial data. The Financial Advisors, I have talked about. The increase is not as many people as we hired because in the first quarter is when we have our highest attrition the way we go through our process. If we are going to have people depart usually for performance issues, they will do so in the first quarter of any given year, but you will see an increase in locations, associates, Financial Advisors. The only decline is in client assets and that's really the mark to market of our client assets, with the markets being down our client assets are down, although we did experience net inflows of client assets. So, I will take questions. I think just a great quarter. And we look forward to not sailing into the wind but getting a little wind at our back as the markets and the environment for financial services improve. With that, operator, I will be pleased to take any questions. Operator?

[Operator:]

I am here, sir.

[Ron Kruszewski:]

We will take questions.

[Operator:]

(Operator instructions) Our first question comes from Guy Moszkowski.

[Guy Moszkowski:]

Good morning, Ron.

[Ron Kruszewski:]

Hey, Guy.

[Guy Moszkowski:]

How are you?

[Ron Kruszewski:]

Good.

[Guy Moszkowski:]

Good. Just a couple of follow-up questions if you got a minute for them. In Private Client, what percentage of your commissions and principal transactions is actually commissions now more or less and is that very different from before the Ryan Beck acquisition?

[Ron Kruszewski:]

So, how much are commissions versus principal transactions?

[Guy Moszkowski:]

Yes, because the way you give it's a combined number of commissions and PTM. Just wondering in Private Client sort of how that breaks out.

[Ron Kruszewski:]

I will be – in Private Client – and the reason we do that, Guy, is that we do not believe that in Private Client the breakdown between commissions and principal transactions is meaningful in many respects; it's not anything that we track. Fixed income business tends to be principal transactions UIT's whether a stock is done principal versus agency today, but to answer your question, principal transactions – of that principal transactions is were in the number of about $77 million, commissions are about $47 million, principal transactions about 430 million give or take. Any significant change with Ryan Beck, I would say no. I think that the balance was about the same as it relates to principal and commissions. Whether the breakdown between those two, I have no idea because I don't look at that, Guy.

[Guy Moszkowski:]

Okay, that's fair. And then just turning to Fixed Income for a moment and I can see, and you did point this out that the comp ratio and some of your other expense ratios were down quite a bit versus the benchmark quarters. Is that just the benefit of operating leverage as a result of a very strong volume or is there some shift in the economics again because of the acquisition?

[Ron Kruszewski:]

No, I think it's – I think you got it right the first time. It was – a 200% increase in revenue should have some operating leverage to it, and it does. I would like to have 200% increases in all our businesses, but it is – there was really no significant trading gains or anything that drove that out of the ordinary. I'll talk about that if there were. In fact, for the quarter we had some trading losses. So, I would characterize it as just that last marginal dollar comes in at huge profit margins and we had a lot of last marginal dollars last quarter.

[Guy Moszkowski:]

And do you think that some part of that increase which was acquisition driven is therefore probably sustainable?

[Ron Kruszewski:]

Yes. I mean I – first of all, I think that if you looked at it in general, to give some sense of the size of the business, I would not annualize the first quarter. But I believe on a going-forward basis our run rate in this business is a $100 million business. So, you can sort of look at it that way given normal markets, the people we have hired. Give you some ideas – I mean I was looking at this when I was talking to Joe Sullivan who runs this group for us. I mean just – we have added, since last year we have increased our sales force 31%. We have opened a bunch of new accounts. We have – we added Ryan Beck, some nice capabilities there. So it's just – the business just has grown and couple that with a steepening of the yield curve, and then very importantly I think a shift in client sentiment toward doing business with the regional firms like us. Put that all in a mix and it was a nice quarter. So, going forward, I wouldn't annualize $44 million. I would like to but I am not going to do that as I sit here today and – but we do think it's – last year that we did some $60 million in revenue and we think we are on a run rate of $100 million give or take.

[Guy Moszkowski:]

Great. That's real helpful. Let me just ask one more question about the Bank and I know that we are talking about small numbers at this point but the loan loss provision was up quite a bit versus last quarter even if the allowance fell as a percentage of loans. Maybe you could just refresh us a little bit on the composition of the loan book and what's characterizing what appears to be an increase in underlying losses?

[Ron Kruszewski:]

Well, I think and again it's that – the – where we put a loan on the books and you start to grow a bank by adding any loans, you provide for it when you book the loan.

[Guy Moszkowski:]

Yes.

[Ron Kruszewski:]

And so as you are growing the bank you will see an increasing – what appears to be an increasing provision, net charge-off I think what you have to look at, but you are going to see an increasing provision as we add loans. The goal here for us is to put loans on our books. We did have a – we have a mortgage origination group that is originating a fair amount of loans, selling the majority of them off, and our goal is to, if you will, cherry pick – I hate to use that word, but I can't think of another one – the loan, selectively add loans to our portfolio. But, as we add loans or as we book any loans and we are going to grow this, I think you will see the loan loss provisions appearing to be out-sized. Similar to – if you look at some of our other competitors that will explain that increase in loan loss provisions because they are adding loans.

[Guy Moszkowski:]

Yes. Now, that's fair. And the composition of the loan book roughly I mean what are we really looking at in terms of what these assets are?

[Ron Kruszewski:]

I think there is two things to look at. One is, Guy, is that we bought a commercial bank that – and I need to find my – yeah, let me – thanks – if you look at it, and we filed it in our Q today, you will see commercial real estate of about $40 million, another commercial of $30 million, residential of $26 million, HELOC's of $10 million, consumer of another 5 million give or take. The important thing is that a lot of the bank, when we bought the bank, it had over $100 million of commercial, not that – I mean commercial is a bad word today – but we completely under wrote that portfolio. As we go forward, we see this loan portfolio skewing toward consumer is what we are going to do. But, our composition of loans is on – it's footnote with the Q. And you will see both the composition and the increase from the preceding quarter.

[Guy Moszkowski:]

Okay, terrific. Thanks, Ron. Thanks for the information.

[Ron Kruszewski:]

Okay, Guy.

[Operator:]

Our next question comes from David Trone.

[David Trone:]

Hi. A couple quick questions, just to follow-up on the Fixed Income things that you were talking about. Could you expand on when you say corporate debt, what specifically are you focused on there?

[Ron Kruszewski:]

Do you mean what are we selling?

[David Trone:]

Yes.

[Ron Kruszewski:]

Well, our taxable business, first of all, and a lot of it was driven by taxable. Our muni business tends to be back-end loaded the way – states we are in. They vote November. Deals get done in the second half of the year. That's historic for us. And most of our business was on the taxable side in the first quarter. And it was very balanced, give or take 40% mortgages, 20, 25% in agencies, another 20% in what we call a tentative spread, which would be the CDO products, 10% credit and other, give or take. And so it's balanced, but again it's primarily a flow business, David. We are buying and selling to our clients.

[David Trone:]

Okay. Sounds good. And then on the expense side, you had an unusually low like 500K expense on the brokerage and the floor and the commissions expense I mean that usually runs about $2 million. Anything unusual there that maybe I missed it?

[Ron Kruszewski:]

No, you didn't miss it, you caught it. I guess I should I should have actually commented on that, although we get it every year, it was a little unusual. We as the industry will receive rebates from – based on volume from EC and so and when we get that, we book it as a credit. It was a million four. It accounts for most of the difference that you are pointing out there.

[David Trone:]

Okay. Okay great. And the mark to market losses you mentioned in the release, 2.4, that was municipal?

[Ron Kruszewski:]

No, that was primarily our exchange seat. We still own shares in the New York Stock Exchange.

[David Trone:]

Okay, got you. You did mention that. Sorry about that.

[Ron Kruszewski:]

That's okay. We – all in all, we were able to avoid a lot of the losses experienced in the Street.

[David Trone:]

Okay, great. Thanks a lot.

[Ron Kruszewski:]

Thanks, David.

[Operator:]

Our next question comes from Lauren Miles [ph].

[Lauren Smith:]

Do you mean Lauren Smith, because then that would be me.

[Ron Kruszewski:]

Hi, Lauren.

[Lauren Smith:]

How are you, Ron? Most of my questions have been answered. Just I guess one or two follow-ups. When you mention trading losses, I mean clearly it's a difficult equity trading environment, and I am just wondering if you can characterize for us how much of an increase there was in trading losses. Like if you typically run I don't know 10% or 15% a year or a quarter, what was it like this quarter?

[Ron Kruszewski:]

You are talking about losses that we use to facilitate flow business?

[Lauren Smith:]

Yes.

[Ron Kruszewski:]

I would say it was generally the same. It was up, but as a percentage of our revenue, about the same. Again, our trading group in Equity Capital Markets has done a nice job of keeping capital commitments and revenues properly in check. So there was nothing unusual there that would change the amount of losses that we incurred as a percentage of the revenue we generated. It was generally consistent.

[Lauren Smith:]

Okay. And then switching to the Private Client Group segment data, clearly I am looking at the non-comp expenses. I mean it was down sequentially and up year-on-year a lot. You opened five offices in the quarter. Have we seen – were all those expenses captured in the quarter or how should we think about a run rate going forward?

[Ron Kruszewski:]

Well, I think that, we would like this segment – and if we broke it out this segment absent new offices and absent some of the hiring incentives, we did just do a major merger with Ryan Beck. We are not breaking out those hiring incentives. We are just running them through the segment because we want to get away from Core, non-Core, but it's not insignificant. Our business absent opening new offices generates in excess of 25% margin – probably between 25% and 30% margins, and then we invest. So the – we are going to talk about maybe – in fact, maybe we will think about having an analyst day if any of you actually come to see us, and talk about breaking out the – our investment in new offices, which tends to be significant. I can tell you we have had some – we have had some great success out west and we are opening a lot of offices, but that has not come without some costs both in the fourth quarter of last year and this year. And a lot of the costs just to transfer accounts is significant, Lauren. So, to help you here, I believe that if you look at margins in this range, 21% to 23%, I know that is a wide range. It's going to just depend on how many offices we open and how much of an investment we are going to make in those new offices. Net-net, all of these new offices are future significant contributors to both the value of this company and to the profitability of the Private Client Group. So, I probably didn't answer your question, but sorry.

[Lauren Smith:]

A little bit. When we think out the next 12, 18, 24 months, I mean, do you think you might be opening at a similar pace new offices or do you feel like you really have filled in the geographic gaps and you are really where you want to be at this juncture?

[Ron Kruszewski:]

You know, I'm just thinking of people shuddering as I answer this question in terms of how I do this. Listen, (inaudible) we are going to open plenty of offices. I mean that's our whole business plan is to be opportunistic to open offices. We are nowhere near where we are going to be as we build this Private Client Group. Everyday we look at do we have the infrastructure in place as I said, when we were on the road to go from a 1000 FA's to 3000 to 4000 FA's. Now, I'm not going to give you a time on that. But to do that, we are in nowhere at all satisfied with where we are and we believe that our business model, our culture, and where this market is going is one of the primary strategic advantages of our company. And so nowhere at all are we geographically pleased. We probably have plans to open in three or four states today. So, it is a major growth engine of our company.

[Lauren Smith:]

Terrific, thanks. Just one minor cleanup, just so we can kind of normalize, 2.4million in losses in 1Q08, we know it's from ICC [ph] that was versus 400,000 in 1Q and 1.9 million in 4Q?

[Ron Kruszewski:]

Yes, of profits.

[Lauren Smith:]

Okay, profits.

[Ron Kruszewski:]

And those $400,000 of profit and $1.9 million of profit versus $2.4 million of loss. But I think it is fair when you are looking at this. I think the $2.4 million was certainly unusual as compared to the other quarters. But as the other person pointed out, we did have a benefit of the DTC credit also. I would want to point that out too. So we – $2.4 million losses and we had a $1.5 million credit in the quarter too that went through brokerage and clearing. Just so we are fair about that.

[Lauren Smith:]

Appreciate it. Thanks much.

[Ron Kruszewski:]

You are welcome.

[Operator:]

At this time we have no more questions in queue.

[Ron Kruszewski:]

Okay. Well, to everyone, thank you for your time. To our new shareholders, appreciate your investment and confidence in the company. We look forward to reporting to you some time in early August with respect to the second quarter of 2008. Thank you very much.

[Operator:]

Ladies and gentlemen, thank you for joining us today. This does conclude today's conference call. You may now disconnect your lines.