Stifel Financial Lags on Q1 Earnings, Revs Up - Analyst Blog

Stifel Financial Corp. SF reported its first-quarter 2014 net income of 69 cents per share from continuing operations. Though earnings lagged the Zacks Consensus Estimate of 70 cents, it compared favorably with the prior-year quarter figure of 58 cents.

Results benefited from an improved top line and a strong capital position. However, higher operating expense was a downside.

On a GAAP basis, Stifel Financial reported net income from continuing operations of $48.0 million or 63 cents per share, compared with net income of $14.6 million or 21 cents per share in the prior-year quarter. Results for both quarters included certain non-recurring items.

Performance in Detail

Net revenues were recorded at $546.7 million, up 24.7% year over year. Additionally, it outpaced the Zacks Consensus Estimate of $539.0 million. The results were driven by higher global wealth management and institutional group revenues.

Global Wealth Management and Institutional Group segments' net revenues increased 11.3% and 44.2%, respectively, on a year-over-year basis. Other revenues were a negative $0.4 million compared with negative $1.7 million in the prior-year quarter.

Stifel Financial's non-interest expenses were $468.6 million, up 12.9% from the year-ago quarter. The mounting non-interest operating expenses was due to a rise in all the expenses including higher compensation and benefits expenses, elevated non-compensation operating expenses, higher occupancy and equipment rental and other operating expenses.

Credit Quality

Credit quality improved in the quarter. Allowance as a percentage of loans fell to 0.94% from 1.01% in the prior-year quarter. Moreover, non-performing assets as a percentage of total assets declined to 0.03% from 0.04% in the preceding-year quarter.

Capital Position

Stifel Financial' capital position was strong during the quarter. As of Mar 31, 2014, total assets jumped 15.0% to $9.4 billion from $8.1 billion as of Mar 31, 2013. Book value came in at $32.09 per share, up from $30.13 in the prior-year quarter. Stockholders' equity increased 10.0% year over year to $2.1 billion.

As of Mar 31, 2014, the company's Tier 1 leverage capital ratio was 15.1% and Tier 1 risk-based capital ratio was 25.9%.

Acquisitions

Stifel Financial's previously announced deal to acquire De La Rosa & Co., a California-based public finance investment banking boutique, was closed on Apr 3, 2014.

Concurrent to the first-quarter earnings release, the company declared its plan to acquire Oriel Securities, the London-based stock-broking and investment banking firm. Though the terms have not been disclosed, the deal is expected to close by third-quarter 2014.

Our Viewpoint

Stifel Financial with its solid business model and strategic acquisitions is well poised for growth. While the sluggish economic recovery, regulatory issues and low interest rate environment remain headwinds for the bank, we believe that its sound capital position, improving credit quality and robust top-line performance will help it in the long run.

Stifel Financial currently carries a Zacks Rank #3 (Hold). Other investment brokerage firms worth considering include Investment Technology Group Inc. ITG, E*TRADE Financial Corporation ETFC and Piper Jaffray Companies PJC. All of these stocks hold a Zacks Rank #1 (Strong Buy).