Market Overview

Stifel Reports Second Quarter 2018 Financial Results

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  • Net revenues of $742.7 million, increased 2.4% compared with the year-ago quarter.
  • Record net revenues and pre-tax operating income in Global Wealth Management.
  • Net income available to common shareholders of $84.9 million, or $1.04 per diluted common share.
  • Non-GAAP net income available to common shareholders of $98.8 million, or $1.22 per diluted common share.
  • Record client assets of $277.7 billion, increased 7.6% compared with the year-ago quarter and 1.1% sequentially.
  • Repurchased approximately 0.8 million shares of the Company's common stock at an average price of $56.28 per share.
  • Business Bancshares, Inc. acquisition expected to close in third quarter of 2018.

ST. LOUIS, July 30, 2018 (GLOBE NEWSWIRE) -- Stifel Financial Corp. (NYSE:SF) today reported net income available to common shareholders of $84.9 million, or $1.04 per diluted common share on net revenues of $742.7 million for the three months ended June 30, 2018, compared with net income available to common shareholders of $50.5 million, or $0.63 per diluted common share, on net revenues of $725.6 million for the second quarter of 2017.

For the three months ended June 30, 2018, the Company reported non-GAAP net income available to common shareholders of $98.8 million, or $1.22 per diluted common share. The Company's reported GAAP net income for the three months ended June 30, 2018 was primarily impacted by merger-related and litigation-related expenses. Details discussed below and in the "Non-GAAP Financial Matters" section.

Chairman's Comments

"I am very pleased with our performance this quarter and year-to-date as total net revenue in the second quarter was up 2% year-on-year driven by a nearly 20% increase in our recurring revenues. Additionally, the growth in higher margin businesses such as our bank helped to drive our quarterly compensation ratio to its lowest level in more than seven years. This resulted in a 36% year-on-year increase in non-GAAP EPS as well as a nearly 15% return on common equity and a 24% return on tangible common equity in the quarter. Barring a significant change in market conditions in the second half of the year, we expect that increases in investment banking and recruiting activity, along with continued balance sheet growth and a more favorable compensation ratio, will lead to improved results versus the first half of the year," stated Ronald J Kruszewski, Chairman and CEO of Stifel.

     
Financial Highlights (Unaudited) Three Months Ended  
(in 000s, except per share data) GAAP 6/30/18     GAAP 6/30/17     % Change     GAAP  3/31/18     % Change       Non-
GAAP (1) 6/30/18
    Non-
GAAP (1) 6/30/17
    %
Change
 
Net revenues $ 742,732     $ 725,647       2.4     $ 750,358       (1.0 )     $ 742,541     $ 725,647       2.3  
Net income $ 87,287     $ 52,811       65.3     $ 88,761       (1.7 )     $ 101,131     $ 73,991       36.7  
Preferred dividend   2,344       2,344             2,344               2,344       2,344        
Net income available to common shareholders $ 84,943     $ 50,467       68.3     $ 86,417       (1.7 )     $ 98,787     $ 71,647       37.9  
Earnings per diluted common share $ 1.07     $ 0.66       62.1     $ 1.09       (1.8 )     $ 1.24     $ 0.92       34.8  
Earnings per diluted common share available to common shareholders $ 1.04     $ 0.63       65.1     $ 1.06       (1.9 )     $ 1.22     $ 0.90       35.6  
Compensation ratio   59.5 %     62.5 %             61.0 %               59.0 %     61.4 %        
Non-compensation ratio   24.5 %     26.0 %             23.0 %               22.5 %     22.3 %        
Pre-tax operating margin (2)   16.0 %     11.5 %             16.0 %               18.5 %     16.3 %        
                                                                 

For the six months ended June 30, 2018, the Company reported net income available to common shareholders of $171.4 million, or $2.10 per diluted common share on net revenues of $1.5 billion, compared with net income available to common shareholders of $113.6 million, or $1.41 per diluted share, on net revenues of $1.4 billion for the six months ended June 30, 2017.

For the six months ended June 30, 2018, the Company reported non-GAAP net income available to common shareholders of $192.6 million, or $2.36 per diluted common share.

   
Financial Highlights (Unaudited) Six Months Ended
(in 000s, except per share data) GAAP
6/30/18
    GAAP
6/30/17
    %
Change
    Non-
GAAP (1)
6/30/18
    Non-
GAAP (1)
6/30/17
    %
Change
Net revenues $ 1,493,090     $ 1,401,178     6.6     $ 1,493,090     $ 1,403,162     6.4
Net income $ 176,048     $ 118,323     48.8     $ 197,278     $ 135,840     45.2
Preferred dividend   4,688       4,688           4,688       4,688    
Net income available to common shareholders $ 171,360     $ 113,635     50.8     $ 192,590     $ 131,152     46.8
Earnings per diluted common share $ 2.16     $ 1.47     46.9     $ 2.42     $ 1.69     43.2
Earnings per diluted common share available to common shareholders $ 2.10     $ 1.41     48.9     $ 2.36     $ 1.63     44.8
Compensation ratio   60.3 %     63.5 %           59.8 %     61.9 %    
Non-compensation ratio   23.8 %     24.9 %           22.4 %     22.6 %    
Pre-tax operating margin (3)   15.9 %     11.6 %           17.8 %     15.5 %    
                                         

Brokerage Revenues

Brokerage revenues, defined as commissions and principal transactions, were $255.9 million, a 4.5% decrease compared with the second quarter of 2017 and a 2.9% decrease compared with the first quarter of 2018.

  Three Months Ended  
(in 000s) 6/30/18   6/30/17   % Change     3/31/18   % Change  
Global Wealth Management $ 159,290   $ 168,085     (5.2 )   $ 162,734     (2.1 )
Institutional brokerage:                                
Equity capital markets   45,266     50,869     (11.0 )     48,085     (5.9 )
Fixed income capital markets   51,330     49,013     4.7       52,738     (2.7 )
Total institutional brokerage   96,596     99,882     (3.3 )     100,823     (4.2 )
Total brokerage revenues $ 255,886   $ 267,967     (4.5 )   $ 263,557     (2.9 )
                                 
  • Global wealth management brokerage revenues were $159.3 million, a 5.2% decrease compared with the second quarter of 2017 and a 2.1% decrease compared with the first quarter of 2018.
  • Institutional equity brokerage revenues were $45.3 million, an 11.0% decrease compared with the second quarter of 2017 and a 5.9% decrease compared with the first quarter of 2018.
  • Institutional fixed income brokerage revenues were $51.3 million, a 4.7% increase compared with the second quarter of 2017 and a2.7% decrease compared with the first quarter of 2018.

Investment Banking Revenues

Investment banking revenues were $161.1 million, a 13.1% decrease compared with the second quarter of 2017 and an 8.7% decrease compared with the first quarter of 2018.

       
    Three Months Ended  
(in 000s)   6/30/18   6/30/17   % Change     3/31/18   % Change  
Capital raising:                                
Global Wealth Management   $ 7,968   $ 10,641   (25.1 )   $ 7,688     3.6  
                                 
Equity capital markets     44,087     45,664   (3.5 )     52,707     (16.4 )
Fixed income capital markets     22,025     46,495   (52.6 )     18,294     20.4  
Institutional Group     66,112     92,159   (28.3 )     71,001     (6.9 )
Total capital raising (4)     74,080     102,800   (27.9 )     78,689     (5.9 )
Advisory fees (4)     87,004     82,461   5.5       97,673     (10.9 )
Total investment banking   $ 161,084   $ 185,261   (13.1 )   $ 176,362     (8.7 )
                                 
  • Global wealth management capital raising revenues were $8.0 million, a 25.1% decrease compared with the second quarter of 2017 and a 3.6% increase compared with the first quarter of 2018.
  • Institutional equity capital raising revenues were $44.1 million, a 3.5% decrease compared with the second quarter of 2017 and a 16.4% decrease compared with the first quarter of 2018.
  • Institutional fixed income capital raising revenues were $22.0 million, a 52.6% decrease compared with the second quarter of 2017 and a 20.4% increase compared with the first quarter of 2018.
  • Advisory fee revenues were $87.0 million, a 5.5% increase compared with the second quarter of 2017 and a 10.9% decrease compared with record advisory fee revenues in the first quarter of 2018.

Effective January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which provides accounting guidance on the recognition of revenues from contracts and requires gross presentation of certain costs that were previously offset against revenue. This change was applied prospectively from January 1, 2018 and there is no impact on our previously presented results. With our adoption of the new revenue recognition standard on January 1, 2018, capital raising and advisory fee revenues are no longer presented net of the related out-of-pocket deal expenses. As a result, capital raising and advisory fee revenues and other operating expenses are higher in the second quarter of 2018 by an identical $7.6 million, with no impact to net income.

Asset Management and Service Fee Revenues

Asset management and service fee revenues were a record $199.6 million, a 15.4% increase compared with the second quarter of 2017 and a 1.9% increase compared with the first quarter of 2018. The increase from the comparative period in 2017 is primarily attributable to the growth in the value of fee-based accounts. See asset management and service fee break-down below.

Net Interest Income

Record net interest income of $117.1 million, a 26.9% increase compared with the second quarter of 2017 and a 5.3% increase compared with the first quarter of 2018. The increase is primarily due to higher interest rates, as well as growth of interest-earning assets and interest-bearing liabilities.

  • Interest income was $154.4 million, a 41.7% increase compared with the second quarter of 2017 and a 12.1% increase compared with the first quarter of 2018.
  • Interest expense was $37.3 million, a 124.0% increase compared with the second quarter of 2017 and a 40.9% increase compared with the first quarter of 2018.

Compensation and Benefits Expenses

For the quarter ended June 30, 2018, compensation and benefits expenses were $442.2 million, which included $4.1 million of merger-related and severance expenses (non-GAAP adjustments). This compares with $453.9 million in the second quarter of 2017 and $457.9 million in the first quarter of 2018. Excluding the non-GAAP adjustments, compensation and benefits as a percentage of net revenues were 59.0% in the second quarter of 2018 (non-GAAP measure).

           
  Three Months Ended     Six Months Ended  
  6/30/18     6/30/17     6/30/18     6/30/17  
GAAP compensation and benefits $ 442,170     $ 453,876     $ 900,063     $ 890,263  
As a percentage of net revenues   59.5 %     62.5 %     60.3 %     63.5 %
Non-GAAP adjustments: (5)                              
Merger-related   (3,186 )     (5,551 )     (6,639 )     (15,356 )
Severance   (889 )     (2,420 )     (1,175 )     (6,955 )
    (4,075 )     (7,971 )     (7,814 )     (22,311 )
Non-GAAP compensation and benefits $ 438,095     $ 445,905     $ 892,249     $ 867,952  
As a percentage of non-GAAP net revenues   59.0 %     61.4 %     59.8 %     61.9 %
                               

Non-Compensation Operating Expenses

For the quarter ended June 30, 2018, non-compensation operating expenses were $182.2 million, which included merger-related and litigation-related expenses (non-GAAP adjustments) of $14.9 million. This compares with $188.6 million in the second quarter of 2017 and $172.9 million in the first quarter of 2018. Excluding the non-GAAP adjustments, non-compensation operating expenses as a percentage of net revenues for the quarter ended June 30, 2018 were 22.5% (non-GAAP measure).

           
  Three Months Ended     Six Months Ended  
  6/30/18     6/30/17     6/30/18     6/30/17  
GAAP non-compensation expenses $ 182,215     $ 188,573     $ 355,126     $ 348,698  
As a percentage of net revenues   24.5 %     26.0 %     23.8 %     24.9 %
Non-GAAP adjustments: (5)                              
Merger-related   (8,892 )     (6,849 )     (14,915 )     (12,174 )
Litigation-related   (6,000 )     (20,000 )     (6,000 )     (20,000 )
    (14,892 )     (26,849 )     (20,915 )     (32,174 )
Non-GAAP non-compensation expenses $ 167,323     $ 161,724     $ 334,211     $ 316,524  
As a percentage of non-GAAP net revenues   22.5 %     22.3 %     22.4 %     22.6 %
                               

Provision for Income Taxes

The GAAP effective income tax rate for the quarter ended June 30, 2018 was26.2%. This compares with an effective income tax rate of 36.5% for the second quarter of 2017 and 25.8% for the first quarter of 2018. The adjusted non-GAAP effective income tax rate for the quarter ended June 30, 2018 was26.2%.

The provision for income taxes for the three months ended June 30, 2018 was primarily impacted by the tax reform enacted in the fourth quarter of 2017 that, among other things, lowered the federal corporate income tax rate from 35% to 21%.

           
  Three Months Ended     Six Months Ended  
  6/30/18     6/30/17     6/30/18     6/30/17  
GAAP provision for income taxes $ 31,060     $ 30,387     $ 61,853     $ 43,894  
GAAP effective tax rate   26.2 %     36.5 %     26.0 %     27.1 %
Non-GAAP adjustments: (5)                              
Merger-related, litigation-related, and severance   5,102       13,428       7,814       21,840  
Other   (170 )           (315 )      
Excess tax benefits from stock-based compensation         212             17,155  
    4,932       13,640       7,499       38,995  
Non-GAAP provision for income taxes $ 35,992     $ 44,027     $ 69,352     $ 82,889  
Non-GAAP effective tax rate   26.2 %     37.3 %     26.0 %     37.9 %
                               

Conference Call Information

Stifel Financial Corp. will host its first quarter 2018 financial results conference call on Monday, July 30, 2018, at 5:00 p.m. Eastern time. The conference call may include forward-looking statements.

All interested parties are invited to listen to Stifel's Chairman and CEO, Ronald J. Kruszewski, by dialing (800) 651-2240 and referencing conference ID #2197478. A live audio webcast of the call, as well as a presentation highlighting the Company's results, will be available through the Company's web site, www.stifel.com. For those who cannot listen to the live broadcast, a replay of the broadcast will be available through the above-referenced web site beginning approximately one hour following the completion of the call.

Company Information

Stifel Financial Corp. (NYSE:SF) is a financial services holding company headquartered in St. Louis, Missouri, that conducts its banking, securities, and financial services business through several wholly owned subsidiaries. Stifel's broker-dealer clients are served in the United States through Stifel, Nicolaus & Company, Incorporated; Keefe Bruyette & Woods, Inc.; Miller Buckfire & Co., LLC; Century Securities Associates, Inc.; and Eaton Partners LLC, and in the United Kingdom and Europe through Stifel Nicolaus Europe Limited. The Company's broker-dealer affiliates provide securities brokerage, investment banking, trading, investment advisory, and related financial services to individual investors, professional money managers, businesses, and municipalities. Stifel Bank & Trust offers a full range of consumer and commercial lending solutions. Stifel Trust Company, N.A. and Stifel Trust Company Delaware, N.A. offer trust and related services. To learn more about Stifel, please visit the Company's web site at www.stifel.com.

Forward-Looking Statements

This earnings release contains certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  All statements in this earnings release not dealing with historical results are forward-looking and are based on various assumptions.  The forward-looking statements in this earnings release are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements.  Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among other things, the following possibilities:  the ability to successfully integrate acquired companies or the branch offices and financial advisors; a material adverse change in financial condition; the risk of borrower, depositor, and other customer attrition; a change in general business and economic conditions; changes in the interest rate environment, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation and regulation; other economic, competitive, governmental, regulatory, geopolitical, and technological factors affecting the companies' operations, pricing, and services; and other risk factors referred to from time to time in filings made by Stifel Financial Corp. with the Securities and Exchange Commission.  Forward-looking statements speak only as to the date they are made. Stifel Financial Corp. disclaims any intent or obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.


   
Summary Results of Operations (Unaudited)  
  Three Months Ended   Six Months Ended  
(in 000s, except per share amounts) 6/30/18   6/30/17   %
Change
  3/31/18   %
Change
  6/30/18   6/30/17   %
Change
 
Revenues:                                                
Commissions $ 166,902   $ 172,264     (3.1 ) $ 165,775     0.7   $ 332,677   $ 347,538     (4.3 )
Principal transactions   88,984     95,703     (7.0 )   97,782     (9.0 )   186,766     212,560     (12.1 )
Brokerage Revenues   255,886     267,967     (4.5 )   263,557     (2.9 )   519,443     560,098     (7.3 )
                                                 
Capital raising   74,059     102,800     (28.0 )   78,690     (5.9 )   152,749     176,716     (13.6 )
Advisory fees   87,004     82,461     5.5     97,672     (10.9 )   184,676     135,397     36.4  
Investment banking   161,063     185,261     (13.1 )   176,362     (8.7 )   337,425     312,113     8.1  
Asset management and service fees   199,568     172,914     15.4     195,801     1.9     395,369     335,653     17.8  
Other income   9,073     7,198     26.0     3,357     170.3     12,430     15,950     (22.1 )
Operating Revenue   625,590     633,340     (1.2 )   639,077     (2.1 )   1,264,667     1,223,814     3.3  
Interest Revenue   154,421     108,951     41.7     137,734     12.1     292,155     209,904     39.2  
Total Revenue   780,011     742,291     5.1     776,811     0.4     1,556,822     1,433,718     8.6  
Interest Expense   37,279     16,644     124.0     26,453     40.9     63,732     32,540     95.9  
Net Revenue   742,732     725,647     2.4     750,358     (1.0 )   1,493,090     1,401,178     6.6  
                                                 
Non-interest Expenses:                                                
Compensation and benefits   442,170     453,876     (2.6 )   457,893     (3.4 )   900,063     890,263     1.1  
Occupancy and equipment rental   53,596     57,892     (7.4 )   57,595     (6.9 )   111,191     110,437     0.7  
Communication and office supplies   36,639     34,192     7.2     33,499     9.4     70,138     68,036     3.1  
Commissions and floor brokerage   10,095     11,232     (10.1 )   9,365     7.8     19,460     21,955     (11.4 )
Provision for loan losses   4,277     5,856     (27.0 )   2,043     109.3     6,320     11,990     (47.3 )
Other operating expenses   77,608     79,401     (2.3 )   70,409     10.2     148,017     136,280     8.6  
Total non-interest expenses   624,385     642,449     (2.8 )   630,804     (1.0 )   1,255,189     1,238,961     1.3  
Income before income taxes   118,347     83,198     42.2     119,554     (1.0 )   237,901     162,217     46.7  
Provision for income taxes   31,060     30,387     2.2     30,793     0.9     61,853     43,894     40.9  
Net income   87,287     52,811     65.3     88,761     (1.7 )   176,048     118,323     48.8  
Preferred dividends   2,344     2,344         2,344         4,688     4,688      
Net income available to common shareholders $ 84,943   $ 50,467     68.3   $ 86,417     (1.7 ) $ 171,360   $ 113,635     50.8  
Earnings per common share:                                                
Basic $ 1.18   $ 0.74     59.5   $ 1.20     (1.7 ) $ 2.39   $ 1.66     44.0  
Diluted $ 1.04   $ 0.63     65.1   $ 1.06     (1.9 ) $ 2.10   $ 1.41     48.9  
                                                 
Weighted average number of common shares outstanding:                                                
Basic   71,692     68,556     4.6     71,999     (0.4 )   71,843     68,471     4.9  
Diluted   81,299     80,021     1.6     81,789     (0.6 )   81,548     80,391     1.4  
                                                 
Cash dividends declared per common share $ 0.12   $   n/m   $ 0.12       $ 0.24   $   n/m  
                                             


   
Summary Segment Results (Unaudited)  
  Three Months Ended     Six Months Ended  
(in 000s) 6/30/18     6/30/17   %
Change
    3/31/18     %
Change
    6/30/18     6/30/17   %
Change
 
Net revenues:                                                          
Global Wealth Management $ 497,327     $ 451,990     10.0     $ 485,575       2.4     $ 982,902     $ 894,722     9.9  
Institutional Group   252,825       276,153     (8.4 )     270,078       (6.4 )     522,903       513,620     1.8  
Other   (7,420 )     (2,496 )   (197.3 )     (5,295 )     (40.1 )     (12,715 )     (7,164 )   (77.5 )
  Total net revenues $ 742,732     $ 725,647     2.4     $ 750,358       (1.0 )   $ 1,493,090     $ 1,401,178     6.6  
                                                           
Operating expenses:                                                          
Global Wealth Management $ 309,432     $ 298,753     3.6     $ 308,804       0.2     $ 618,236     $ 599,433     3.1  
Institutional Group   216,801       223,261     (2.9 )     225,508       (3.9 )     442,309       420,856     5.1  
Other   98,152       120,435     (18.5 )     96,492       1.7       194,644       218,672     (11.0 )
  Total operating expenses $ 624,385     $ 642,449     (2.8 )   $ 630,804       (1.0 )   $ 1,255,189     $ 1,238,961     1.3  
                                                           
Operating contribution:                                                          
Global Wealth Management $ 187,895     $ 153,237     22.6     $ 176,771       6.3     $ 364,666     $ 295,289     23.5  
Institutional Group   36,024       52,892     (31.9 )     44,570       (19.2 )     80,594       92,764     (13.1 )
Other   (105,572 )     (122,931 )   (14.1 )     (101,787 )     3.7       (207,359 )     (225,836 )   (8.2 )
  Income before income taxes $ 118,347     $ 83,198     42.2     $ 119,554       (1.0 )   $ 237,901     $ 162,217     46.7  
                                                           
As a percentage of net revenues:                                                          
Compensation and benefits                                                          
  Global Wealth Management   47.8       50.7             49.8               48.8       51.1        
  Institutional Group   59.3       59.6             59.0               59.2       60.0        
Non-comp. operating expenses                                                          
  Global Wealth Management   14.4       15.4             13.8               14.1       15.9        
  Institutional Group   26.5       21.2             24.5               25.4       21.9        
Income before income taxes                                                          
  Global Wealth Management   37.8       33.9             36.4               37.1       33.0        
  Institutional Group   14.2       19.2             16.5               15.4       18.1        
Consolidated pre-tax margin   16.0       11.5             16.0               15.9       11.6        
                                                           


   
Stifel Financial Corp.  
                       
Financial metrics (unaudited): As of and For the Three Months Ended  
(in 000s, except percentages and per share amounts) 6/30/18     6/30/17     3/31/18  
Total assets $ 22,608,169     $ 19,533,575     $ 21,715,342  
Total equity   2,954,362       2,845,309       2,917,540  
Book value per common share $ 39.34     $ 39.47     $ 38.49  
Return on common equity (6)   12.5 %     7.9 %     13.0 %
Non-GAAP return on common equity (1) (6)   14.5 %     11.1 %     14.0 %
Return on tangible common equity (7)   20.7 %     13.4 %     21.5 %
Non-GAAP return on tangible common equity (1) (7)   24.0 %     18.8 %     23.3 %
Tier 1 common capital ratio (8)   16.4 %     18.2 %     16.6 %
Tier 1 risk based capital ratio (8)   18.4 %     20.5 %     18.7 %
Tier 1 leverage capital ratio (8)   9.5 %     10.3 %     9.6 %
Pre-tax margin on net revenues   16.0 %     11.5 %     16.0 %
Non-GAAP pre-tax margin on net revenues (1) (2)   18.5 %     16.3 %     17.3 %
Effective tax rate   26.2 %     36.5 %     25.8 %
Non-GAAP effective tax rate (1)   26.2 %     37.3 %     25.8 %
                       


Statistical Information (unaudited): As of and For the Three Months Ended  
(in 000s) 6/30/18     6/30/17     % Change     3/31/18     % Change  
Financial advisors (9)   2,267       2,277       (0.4 )     2,266     n/m  
Locations   398       399       (0.3 )     397       0.3  
Total client assets $ 277,708,000     $ 258,097,000       7.6     $ 274,651,000       1.1  
Fee-based client assets $ 91,275,000     $ 79,177,000       15.3     $ 89,031,000       2.5  
Client money market and insured product $ 15,703,000     $ 17,831,000       (11.9 )   $ 16,659,000       (5.7 )
Secured client lending (10) $ 3,174,639     $ 2,999,461       5.8     $ 3,119,473       1.8  
                                       


  Asset Management and Service Fee Break-down  
  Three Months Ended  
(in 000s) 6/30/18     6/30/17     % Change     3/31/18     % Change  
Private Client Group (11) $ 149,457     $ 123,205       21.3     $ 146,769       1.8  
Asset Management   27,606       25,677       7.5       27,104       1.9  
Third-party Bank Sweep Program   11,601       14,724       (21.2 )     11,603     n/m  
Other (12)   10,904       9,308       17.1       10,325       5.6  
Total asset management and service fee revenues $ 199,568     $ 172,914       15.4     $ 195,801       1.9  
                                       
  Three Months Ended  
(in millions) 6/30/18     6/30/17     % Change     3/31/18     % Change  
Private Client Group (11) $ 67,807     $ 58,126       16.7     $ 66,255       2.3  
Asset Management   29,679       28,002       6.0       29,086       2.0  
Elimination (13)   (6,211 )     (6,951 )     (10.6 )     (6,310 )     (1.6 )
Total fee-based assets $ 91,275     $ 79,177       15.3     $ 89,031       2.5  
                                       
Individual Program Banks $ 3,153     $ 4,530       (30.4 )   $ 3,676       (14.2 )
                                       
ROA (bps) (14)                                      
Private Client Group (11)   90.2       90.6               90.9          
Asset Management   37.2       36.7               37.3          
Individual Program Banks   134.0       99.0               121.7          


   
Stifel Bank & Trust - a component of Global Wealth Management  
                           
Selected operating data (unaudited): Three Months Ended     Six Months Ended  
(in 000s, except percentages) 6/30/18     6/30/17     % Change     3/31/18     % Change     6/30/18     6/30/17     % Change  
Net Interest Income $ 114,200     $ 90,795       25.8     $ 107,627       6.1     $ 221,827     $ 174,814       26.9  
Bank loan loss provision   4,277       5,856       (27.0 )     2,043       109.3       6,320       11,991       (47.3 )
Charge-offs         2,953     n/m       (14 )   n/m       (14 )     2,953     n/m  
Net Interest Margin   2.97 %     2.77 %     7.2       2.89 %     2.8       2.93 %     2.71 %     8.1  
                                                               


Financial Metrics (unaudited): As of  
(in 000s, except percentages) 6/30/18     6/30/17     3/31/18  
Total Assets $ 15,844,499     $ 13,598,260     $ 15,154,798  
Total Equity   1,089,624       978,626       1,081,041  
Total Loans, net (includes loans held for sale)   7,557,982       6,299,669       7,337,749  
Total Deposits   13,890,849       12,050,474       13,329,623  
Available-for-sale securities, at fair value   3,468,832       3,448,548       3,705,918  
Held-to-maturity securities, at amortized cost   4,516,441       3,304,090       3,842,889  
Residential real estate   2,703,935       2,248,528       2,634,069  
Commercial and industrial   2,677,096       2,064,052       2,553,671  
Securities-based loans   1,845,592       1,755,592       1,809,281  
Commercial real estate   127,253       71,517       101,591  
Loans held for sale   210,611       139,676       261,467  
Common equity tier 1 capital ratio (8)   14.4 %     14.9 %     14.6 %
Tier 1 capital ratio (8)   14.4 %     14.9 %     14.6 %
Total capital ratio (8)   15.4 %     15.7 %     15.6 %
Tier 1 leverage ratio (8)   7.2 %     7.2 %     7.2 %
                       
Credit Metrics:                      
Allowance for loan losses $ 73,775     $ 54,202     $ 69,497  
Allowance as a percentage of retained loans   0.99 %     0.88 %     0.97 %
Net charge-offs as a percentage of average loans   0.00 %     0.05 %     0.00 %
Total nonperforming assets $ 18,696     $ 21,219     $ 21,826  
Nonperforming assets as % of total assets   0.12 %     0.15 %     0.14 %
                       


  Global Wealth Management Summary Results of Operations (Unaudited)  
  Three Months Ended     Six Months Ended  
(in 000s) 6/30/18   6/30/17   %
Change
    3/31/18   %
Change
    6/30/18   6/30/17   %
Change
 
Revenues:                                                    
Commissions $ 118,129   $ 120,344     (1.8 )   $ 119,205     (0.9 )   $ 237,334   $ 240,921     (1.5 )
Principal transactions   41,161     47,741     (13.8 )     43,529     (5.4 )     84,690     98,658     (14.2 )
  Brokerage revenues   159,290     168,085     (5.2 )     162,734     (2.1 )     322,024     339,579     (5.2 )
                                                     
Asset management and service fees   199,557     172,889     15.4       195,789     1.9       395,346     335,553     17.8  
Net interest   124,987     95,698     30.6       118,455     5.5       243,442     185,393     31.3  
Investment banking   8,049     10,641     (24.4 )     7,688     4.7       15,737     22,495     (30.0 )
Other income   5,444     4,677     16.4       909     498.9       6,353     11,702     (45.7 )
   Net revenues   497,327     451,990     10.0       485,575     2.4       982,902     894,722     9.9  
Non-interest expenses:                                                    
Compensation and benefits   237,879     229,158     3.8       241,760     (1.6 )     479,639     457,629     4.8  
Non-compensation operating expenses   71,553     69,595     2.8       67,044     6.7       138,597     141,804     (2.3 )
   Total non-interest expenses   309,432     298,753     3.6       308,804     0.2       618,236     599,433     3.1  
Income before income taxes $ 187,895   $ 153,237     22.6     $ 176,771     6.3     $ 364,666   $ 295,289     23.5  
                                                     
As a percentage of net revenues:                                                    
Compensation and benefits   47.8     50.7             49.8             48.8     51.1        
Non-compensation operating expenses   14.4     15.4             13.8             14.1     15.9        
Income before income taxes   37.8     33.9             36.4             37.1     33.0        


     
  Institutional Group Summary Results of Operations (Unaudited)  
  Three Months Ended     Six Months Ended  
(in 000s) 6/30/18   6/30/17   %
Change
    3/31/18   %
Change
    6/30/18     6/30/17   %
Change
 
Revenues:                                                      
Commissions $ 48,773   $ 51,920     (6.1 )   $ 46,570     4.7     $ 95,343     $ 106,617     (10.6 )
Principal transactions   47,823     47,962     (0.3 )     54,253     (11.9 )     102,076       113,902     (10.4 )
Brokerage revenues   96,596     99,882     (3.3 )     100,823     (4.2 )     197,419       220,519     (10.5 )
Capital raising   66,112     92,159     (28.3 )     71,001     (6.9 )     137,113       154,221     (11.1 )
Advisory fees   86,922     82,461     5.4       97,673     (11.0 )     184,595       135,397     36.3  
Investment banking   153,034     174,620     (12.4 )     168,674     (9.3 )     321,708       289,618     11.1  
Other (15)   3,195     1,651     93.5       581     449.9       3,776       3,483     8.4  
  Net revenues   252,825     276,153     (8.4 )     270,078     (6.4 )     522,903       513,620     1.8  
Non-interest expenses:                                                      
Compensation and benefits   149,984     164,532     (8.8 )     159,344     (5.9 )     309,328       308,172     0.4  
Non-compensation operating expenses   66,817     58,729     13.8       66,164     1.0       132,981       112,684     18.0  
  Total non-interest expenses   216,801     223,261     (2.9 )     225,508     (3.9 )     442,309       420,856     5.1  
Income before income taxes $ 36,024   $ 52,892     (31.9 )   $ 44,570     (19.2 )   $ 80,594     $ 92,764     (13.1 )
                                                       
As a percentage of net revenues:                                                      
Compensation and benefits   59.3     59.6             59.0             59.2       60.0        
Non-compensation operating expenses   26.5     21.2             24.5             25.4       21.9        
Income before income taxes   14.2     19.2             16.5             15.4       18.1        
                                                       


Non-GAAP Financial Measures

The Company utilized certain non-GAAP calculations as additional measures to aid in understanding and analyzing the Company's financial results for the three and six months ended June 30, 2018 and 2017 and the three months ended March 31, 2018. Specifically, the Company believes that the non-GAAP measures provide useful information by excluding certain items that may not be indicative of the Company's core operating results and business outlook. The Company believes that these non-GAAP measures will allow for a better evaluation of the operating performance of the business and facilitate a meaningful comparison of the Company's results in the current period to those in prior and future periods. Reference to these non-GAAP measures should not be considered as a substitute for results that are presented in a manner consistent with GAAP. These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance. The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. These non-GAAP measures primarily exclude expenses which management believes are, in some instances, non-recurring and not representative of on-going business.

A limitation of utilizing these non-GAAP measures is that the GAAP accounting effects of these charges do, in fact, reflect the underlying financial results of the Company's business and these effects should not be ignored in evaluating and analyzing its financial results. Therefore, the Company believes that GAAP measures and the same respective non-GAAP measures of the Company's financial performance should be considered together. 

The following table provides details with respect to reconciling net income and earnings per diluted common share on a GAAP basis for the three and six months ended June 30, 2018 and 2017 and the three months ended March 31, 2018 to net income and earnings per diluted common share on a non-GAAP basis for the same period.


   
    Three Months Ended
    Six Months Ended  
(in 000s)   6/30/18     6/30/17     3/31/18     6/30/18     6/30/17  
GAAP net income   $87,287     $52,811     $88,761     $176,048     $118,323  
Preferred dividend   2,344     2,344     2,344     4,688     4,688  
Net income available to common shareholders   84,943     50,467     86,417     171,360     113,635  
                               
Non-GAAP adjustments:                              
Merger-related (16)   11,887     12,400     9,667     21,554     29,514  
Severance   889     2,420     286     1,175     6,955  
Litigation-related (17)   6,000     20,000         6,000     20,000  
Provision for income taxes (18)   (4,932 )   (13,640 )   (2,567 )   (7,499 )   (38,952 )
Total non-GAAP adjustments   13,844     21,180     7,386     21,230     17,517  
Non-GAAP net income available to common shareholders   $98,787     $71,647     $93,803     $192,590     $131,152  
                               
Weighted average diluted shares outstanding   81,299     80,021     81,789     81,548     80,391  
                               
GAAP earnings per diluted common share   $1.07     $0.66     $1.09     $2.16     $1.47  
Non-GAAP adjustments   0.17     0.26     0.09     0.26     0.22  
Non-GAAP earnings per diluted common share   $1.24     $0.92     $1.18     $2.42     $1.69  
                               
GAAP earnings per diluted common share available to common shareholders   $1.04     $0.63     $1.06     $2.10     $1.41  
Non-GAAP adjustments   0.18     0.27     0.09     0.26     0.22  
Non-GAAP earnings per diluted common share available to common shareholders   $1.22     $0.90     $1.15     $2.36     $1.63  
                               


Footnotes

(1) Reconciliations of the Company's GAAP results to these non-GAAP measures are discussed within and under "Non-GAAP Financial Measures."
(2) Non-GAAP pre-tax margin for the three months ended June 30, 2018 of 18.5% is calculated by adding non-GAAP adjustments of $18.8 million to our GAAP income before income taxes of $118.3 million and dividing it by non-GAAP net revenues for the quarter of $742.5 million. Reconciliations of the Company's GAAP results to certain non-GAAP measures is discussed within and under "Non-GAAP Financial Measures."
(3) Non-GAAP pre-tax margin for the six months ended June 30, 2018 of 17.8% is calculated by adding non-GAAP adjustments of $28.7 million to our GAAP income before income taxes of $237.9 million and dividing it by non-GAAP net revenues for the quarter of $1.5 billion. Reconciliations of the Company's GAAP results to certain non-GAAP measures is discussed within and under "Non-GAAP Financial Measures."
(4) Excludes revenue included in the Other segment.
(5) See further discussion of non-GAAP adjustments under "Non-GAAP Financial Measures."
(6) Computed by dividing annualized net income by average common shareholders' equity or, in the case of non-GAAP return on common equity, computed by dividing non-GAAP net income by average common shareholders' equity.
(7) Computed by dividing annualized net income by average tangible shareholders' equity or, in the case of non-GAAP return on tangible common equity, computed by dividing non-GAAP net income by average tangible shareholders' equity. Tangible common shareholders' equity equals total common shareholders' equity less goodwill and identifiable intangible assets.
(8) Capital ratios are estimates at time of the Company's earnings release.
(9) Includes 106, 119, and 109 independent contractors at June 30, 2018, June 30, 2017, and March 31, 2018, respectively.
(10) Includes client margin balances held by our broker-dealer subsidiaries and securities-based loans held at Stifel Bank.
(11) Includes Private Client Group and Trust Business.
(12) Includes fund networking fees, retirement fees, transaction/handling fees, and ACAT fees.
(13) Asset management assets included in Private Client Group or Trust accounts.
(14) Return on assets is calculated based on prior period-end balances for Private Client Group, period-end balances for Asset Management, and average quarterly balances for individual Program Banks.
(15) Includes net interest, asset management and service fees, and other income.
(16) Primarily related to charges attributable to integration-related activities, signing bonuses, amortization of restricted stock awards and promissory notes issued as retention, professional fees, and amortization of intangible assets acquired. These costs were directly related to acquisitions of certain businesses and are not representative of the costs of running the Company's on-going business.
(17) Primarily related to costs associated with the Company's legal matters.
(18) See details of non-GAAP adjustments under "Provision for Income Taxes."


Media Contact:  Neil Shapiro (212) 271-3447
Investor Contact:  Joel Jeffrey (212) 271-3610
www.stifel.com/investor-relations

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