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Stifel Reports First Quarter 2019 Financial Results

Stifel Reports First Quarter 2019 Financial Results
  • Net revenues of $770.4 million, increased 2.7% 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 $96.9 million, or $1.22 per diluted common share.
  • Non-GAAP net income available to common shareholders of $104.5 million, or $1.32 per diluted common share.
  • Record client assets of $300.0 billion, increased 9.2% compared with the year-ago quarter and 11.2% sequentially.
  • Bank net interest margin of 3.17% increased 28 basis points sequentially.
  • Non-GAAP return on tangible common equity of 22.3%.
  • Increase in quarterly dividend by 25% to $0.15 per common share.
  • Repurchased approximately 1.0 million shares of the Company’s common stock at an average price of $53.25.

ST. LOUIS, April 30, 2019 (GLOBE NEWSWIRE) -- Stifel Financial Corp. (SF) today reported net income available to common shareholders of $96.9 million, or $1.22 per diluted common share on net revenues of $770.4 million for the three months ended March 31, 2019, compared with net income available to common shareholders of $86.4 million, or $1.06 per diluted common share, on net revenues of $750.4 million for the first quarter of 2018.

For the three months ended March 31, 2019, the Company reported non-GAAP net income available to common shareholders of $104.5 million, or $1.32 per diluted common share. The Company’s reported GAAP net income for the three months ended March 31, 2019 was primarily impacted by merger-related expenses. Details discussed below and in the “Non-GAAP Financial Matters” section.

Chairman’s Comments

“Stifel generated record first quarter results highlighting the diversity of our business model. Net revenue of $770 million increased 3% from last year’s first quarter record and we achieved non-GAAP pre-tax margins of 19% and return on tangible equity of 22%. Our Global Wealth Management segment posted record net revenues and record pre-tax income, overcoming the expected decline in asset management revenue resulting from the market sell off in the fourth quarter of 2018. Our Institutional Group generated strong advisory, public finance, and fixed income brokerage revenue that helped to minimize the impact of the government shutdown on our equities business. As we look forward, we are optimistic about our business prospects for the remainder of 2019 and beyond,” stated Ronald J. Kruszewski, Chairman and Chief Executive Officer of Stifel.

Financial Highlights (Unaudited)   Three Months Ended  
($ in 000s, except per share data)   GAAP
3/31/19
    GAAP
3/31/18
    %
Change
    GAAP
12/31/18
    %
Change
      Non-
GAAP (1)
3/31/19
    Non-
GAAP (1)
3/31/18
    %
Change
 
Net revenues   $ 770,420     $ 750,358       2.7     $ 793,449       (2.9 )     $ 770,420     $ 750,549       2.6  
Net income applicable to Stifel Financial Corp.   $ 99,207     $ 88,761       11.8     $ 114,062       (13.0 )     $ 106,864     $ 96,147       11.1  
Preferred dividend     2,344       2,344             2,344               2,344       2,344        
Net income available to common shareholders   $ 96,863     $ 86,417       12.1     $ 111,718       (13.3 )     $ 104,520     $ 93,803       11.4  
Earnings per diluted common share   $ 1.25     $ 1.09       14.7     $ 1.41       (11.3 )     $ 1.35     $ 1.18       14.4  
Earnings per diluted common share available to common shareholders   $ 1.22     $ 1.06       15.1     $ 1.38       (11.6 )     $ 1.32     $ 1.15       14.8  
Compensation ratio     59.5 %     61.0 %             56.5 %               59.0 %     60.5 %        
Non-compensation ratio     22.6 %     23.0 %             23.8 %               22.0 %     22.2 %        
Pre-tax operating margin (2)     17.9 %     16.0 %             19.7 %               19.0 %     17.3 %        

Brokerage Revenues

Brokerage revenues, defined as commissions and principal transactions, were $259.5 million, a 1.5% decrease compared with the first quarter of 2018 and a 4.4% increase compared with the fourth quarter of 2018.

    Three Months Ended  
($ in 000s)   3/31/19     3/31/18     % Change     12/31/18     % Change  
Global Wealth Management   $ 153,194     $ 162,734       (5.9 )   $ 157,331       (2.6 )
Institutional brokerage:                                        
Equity capital markets     38,881       48,085       (19.1 )     48,705       (20.2 )
Fixed income capital markets     67,406       52,738       27.8       42,463       58.7  
Total institutional brokerage     106,287       100,823       5.4       91,168       16.6  
Total brokerage revenues   $ 259,481     $ 263,557       (1.5 )   $ 248,499       4.4  
  • Global Wealth Management brokerage revenues were $153.2 million, a 5.9% decrease compared with the first quarter of 2018 and a 2.6% decrease compared with the fourth quarter of 2018.
  • Institutional equity brokerage revenues were $38.9 million, a 19.1% decrease compared with the first quarter of 2018 and a 20.2% decrease compared with the fourth quarter of 2018.
  • Institutional fixed income brokerage revenues were $67.4 million, a 27.8% increase compared with the first quarter of 2018 and a 58.7% increase compared with the fourth quarter of 2018.

Investment Banking Revenues

Investment banking revenues were $161.8 million, an 8.2% decrease compared with the first quarter of 2018 and a 19.6% decrease compared with the fourth quarter of 2018.

    Three Months Ended  
($ in 000s)   3/31/19     3/31/18     % Change     12/31/18     % Change  
Capital raising:                                        
Global Wealth Management   $ 8,223     $ 7,688       7.0     $ 7,915       3.9  
                                         
Equity capital markets     27,859       52,707       (47.1 )     51,839       (46.3 )
Fixed income capital markets     20,863       18,294       14.0       30,390       (31.3 )
Institutional Group     48,722       71,001       (31.4 )     82,229       (40.7 )
Total capital raising (3)     56,945       78,689       (27.6 )     90,144       (36.8 )
Advisory fees (3)     104,895       97,673       7.4       111,089       (5.6 )
Total investment banking   $ 161,840     $ 176,362       (8.2 )   $ 201,233       (19.6 )
  • Global Wealth Management capital raising revenues were $8.2 million, a 7.0% increase compared with the first quarter of 2018 and a 3.9% increase compared with the fourth quarter of 2018.
  • Institutional equity capital raising revenues were $27.9 million, a 47.1% decrease compared with the first quarter of 2018 and a 46.3% decrease compared with the fourth quarter of 2018.
  • Institutional fixed income capital raising revenues were $20.9 million, a 14.0% increase compared with the first quarter of 2018 and a 31.3% decrease compared with the fourth quarter of 2018.
  • Advisory fee revenues were $104.9 million, a 7.4% increase compared with the first quarter of 2018 and a 5.6% decrease compared with the fourth quarter of 2018.

Asset Management and Service Fee Revenues

Asset management and service fee revenues were $195.3 million, a 0.3% decrease compared with the first quarter of 2018 and a 7.0% decrease compared with the fourth quarter of 2018. See Asset Management and Service Fee Break-down table.

Net Interest Income

Record net interest income of $141.7 million, a 27.3% increase compared with the first quarter of 2018 and an 11.8% increase compared with the fourth quarter of 2018. The increase is primarily due to growth of interest-earning assets and interest-bearing liabilities, as well as higher interest rates.

  • Interest income was $191.1 million, a 38.7% increase compared with the first quarter of 2018 and a 3.5% increase compared with the fourth quarter of 2018.
  • Interest expense was $49.4 million, an 86.9% increase compared with the first quarter of 2018 and a 14.6% decrease compared with the fourth quarter of 2018.

Compensation and Benefits Expenses

For the quarter ended March 31, 2019, compensation and benefits expenses were $458.1 million, which included $3.9 million of merger-related and severance expenses (non-GAAP adjustments). This compares with $457.9 million in the first quarter of 2018 and $448.4 million in the fourth quarter of 2018. Excluding the non-GAAP adjustments, compensation and benefits as a percentage of net revenues were 59.0% in the first quarter of 2019 (non-GAAP measure).

    Three Months Ended  
 ($ in 000s)   3/31/19     3/31/18  
GAAP compensation and benefits   $ 458,114     $ 457,893  
As a percentage of net revenues     59.5 %     61.0 %
Non-GAAP adjustments: (4)                
Merger-related and severance     (3,932 )     (3,739 )
Non-GAAP compensation and benefits   $ 454,182     $ 454,154  
As a percentage of non-GAAP net revenues     59.0 %     60.5 %

Non-Compensation Operating Expenses

For the quarter ended March 31, 2019, non-compensation operating expenses were $174.5 million, which included $4.3 million of merger-related expenses (non-GAAP adjustments). This compares with $172.9 million in the first quarter of 2018 and $189.1 million in the fourth quarter of 2018. Excluding the non-GAAP adjustments, non-compensation operating expenses as a percentage of net revenues for the quarter ended March 31, 2019 were 22.0% (non-GAAP measure).

    Three Months Ended  
($ in 000s)   3/31/19     3/31/18  
GAAP non-compensation expenses   $ 174,497     $ 172,911  
As a percentage of net revenues     22.6 %     23.0 %
Non-GAAP adjustments: (4)                
Merger-related     (4,259 )     (6,023 )
Non-GAAP non-compensation expenses   $ 170,238     $ 166,888  
As a percentage of non-GAAP net revenues     22.0 %     22.2 %

Provision for Income Taxes

The GAAP effective income tax rate for the quarter ended March 31, 2019 was 27.8%. This compares with an effective income tax rate of 25.8% for the first quarter of 2018 and 26.9% for the fourth quarter of 2018. The adjusted non-GAAP effective income tax rate for the quarter ended March 31, 2019 was 26.6%.

    Three Months Ended  
($ in 000s)   3/31/19     3/31/18  
GAAP provision for income taxes   $ 38,370     $ 30,793  
GAAP effective tax rate     27.8 %     25.8 %
Non-GAAP adjustments: (4)                
Merger-related and severance     2,203       2,712  
Other     (1,669 )     (145 )
      534       2,567  
Non-GAAP provision for income taxes   $ 38,904     $ 33,360  
Non-GAAP effective tax rate     26.6 %     25.8 %


Conference Call Information

Stifel Financial Corp. will host its first quarter 2019 financial results conference call on Tuesday, April 30, 2019, at 8:00 a.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 (877) 876-9938 and referencing conference ID #6179475. 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. (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; and Century Securities Associates, Inc., 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 and Stifel Bank offer 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  
($ in 000s, except per share amounts)   3/31/19     3/31/18     % Change       12/31/18     % Change  
Revenues:                                          
Commissions   $ 155,449     $ 165,775       (6.2 )     $ 167,039       (6.9 )
Principal transactions     104,032       97,782       6.4         81,460       27.7  
Brokerage Revenues     259,481       263,557       (1.5 )       248,499       4.4  
                                           
Capital raising     56,950       78,690       (27.6 )       90,144       (36.8 )
Advisory fees     104,890       97,672       7.4         111,089       (5.6 )
Investment banking     161,840       176,362       (8.2 )       201,233       (19.6 )
Asset management and service fees     195,267       195,801       (0.3 )       210,063       (7.0 )
Other income     12,209       3,357       263.7         6,996       74.5  
Operating Revenues     628,797       639,077       (1.6 )       666,791       (5.7 )
Interest Revenue     191,071       137,734       38.7         184,534       3.5  
Total Revenues     819,868       776,811       5.5         851,325       (3.7 )
Interest Expense     49,448       26,453       86.9         57,876       (14.6 )
Net Revenues     770,420       750,358       2.7         793,449       (2.9 )
                                           
Non-interest Expenses:                                          
Compensation and benefits     458,114       457,893       0.0         448,375       2.2  
Occupancy and equipment rental     58,862       57,595       2.2         57,158       3.0  
Communication and office supplies     35,697       33,499       6.6         36,786       (3.0 )
Commissions and floor brokerage     10,956       9,365       17.0         11,169       (1.9 )
Provision for loan losses     2,283       2,043       11.7         5,122       (55.4 )
Other operating expenses     66,699       70,409       (5.3 )       78,908       (15.5 )
Total non-interest expenses     632,611       630,804       0.3         637,518       (0.8 )
Income before income tax expense     137,809       119,554       15.3         155,931       (11.6 )
Provision for income taxes     38,370       30,793       24.6         41,869       (8.4 )
Net income     99,439       88,761       12.0         114,062       (12.8 )
Net income applicable to non-controlling interests     232           n/m             n/m  
Net income applicable to Stifel Financial Corp.     99,207       88,761       11.8         114,062       (13.0 )
Preferred dividends     2,344       2,344               2,344        
Net income available to common shareholders   $ 96,863     $ 86,417       12.1       $ 111,718       (13.3 )
Earnings per common share:                                          
Basic   $ 1.35     $ 1.20       12.5       $ 1.56       (13.5 )
Diluted   $ 1.22     $ 1.06       15.1       $ 1.38       (11.6 )
                                           
Cash dividends declared per common share   $ 0.15     $ 0.12       25.0       $ 0.12       25.0  
                                           
Weighted average number of common shares outstanding:                                          
Basic     71,700       71,999       (0.4 )       71,666       0.0  
Diluted     79,210       81,789       (3.2 )       80,706       (1.9 )


Summary Segment Results (Unaudited)  
    Three Months Ended  
($ in 000s)   3/31/19     3/31/18     % Change     12/31/18     % Change  
Net revenues:                                        
Global Wealth Management   $ 510,610     $ 485,575       5.2     $ 509,256       0.3  
Institutional Group     261,286       270,078       (3.3 )     286,640       (8.8 )
Other     (1,476 )     (5,295 )     72.1       (2,447 )     39.7  
Total net revenues   $ 770,420     $ 750,358       2.7     $ 793,449       (2.9 )
                                         
Operating expenses:                                        
Global Wealth Management   $ 316,120     $ 308,804       2.4     $ 320,296       (1.3 )
Institutional Group     229,082       225,508       1.6       244,488       (6.3 )
Other     87,409       96,492       (9.4 )     72,734       20.2  
Total operating expenses   $ 632,611     $ 630,804       0.3     $ 637,518       (0.8 )
                                         
Operating contribution:                                        
Global Wealth Management   $ 194,490     $ 176,771       10.0     $ 188,960       2.9  
Institutional Group     32,204       44,570       (27.7 )     42,152       (23.6 )
Other     (88,885 )     (101,787 )     (12.7 )     (75,181 )     18.2  
Income before income taxes   $ 137,809     $ 119,554       15.3     $ 155,931       (11.6 )
                                         
As a percentage of net revenues:                                      
Compensation and benefits                                        
Global Wealth Management     48.5       49.8               48.5          
Institutional Group     61.0       59.0               62.0          
Non-comp. operating expenses                                        
Global Wealth Management     13.4       13.8               14.4          
Institutional Group     26.7       24.5               23.3          
Income before income taxes                                        
Global Wealth Management     38.1       36.4               37.1          
Institutional Group     12.3       16.5               14.7          
Consolidated pre-tax margin     17.9       16.0               19.7          


Financial metrics (unaudited): As of and For the Three Months Ended  
($ in 000s, except percentages and per share amounts) 3/31/19   3/31/18   12/31/18  
Total assets $ 24,183,559   $ 21,715,342   $ 24,519,598  
Total Stifel Financial shareholders' equity $ 3,376,623   $ 2,917,540   $ 3,167,593  
Book value per common share (5) $ 43.18   $ 38.49   $ 42.62  
Return on common equity (6)   12.7 %   12.7 %   14.9 %
Non-GAAP return on common equity (1) (6)   13.7 %   13.7 %   16.9 %
Return on tangible common equity (7)   20.6 %   21.0 %   24.1 %
Non-GAAP return on tangible common equity (1) (7)   22.3 %   22.8 %   27.3 %
Tier 1 common capital ratio (8)   15.9 %   16.6 %   16.8 %
Tier 1 risk based capital ratio (8)   18.5 %   18.7 %   18.2 %
Tier 1 leverage capital ratio (8)   9.8 %   9.6 %   9.3 %
Pre-tax margin on net revenues   17.9 %   16.0 %   19.7 %
Non-GAAP pre-tax margin on net revenues (1)   19.0 %   17.3 %   21.9 %
Effective tax rate   27.8 %   25.8 %   26.9 %
Non-GAAP effective tax rate (1)   26.6 %   25.8 %   25.6 %


Statistical Information (unaudited):   As of and For the Three Months Ended  
($ in 000s, except financial advisors and locations)   3/31/19     3/31/18     % Change     12/31/18     % Change  
Financial advisors (9)     2,061       2,008       2.6       2,051       0.5  
Independent contractors     99       109       (9.2 )     101       (2.0 )
Total financial advisors     2,160       2,117       2.0       2,152       0.4  
Locations     407       397       2.5       404       0.7  
Total client assets   $ 299,993,000     $ 274,651,000       9.2     $ 269,862,000       11.2  
Fee-based client assets   $ 99,579,000     $ 89,031,000       11.8     $ 90,174,000       10.4  
Client money market and insured product   $ 14,928,000     $ 16,659,000       (10.4 )   $ 16,109,000       (7.3 )
Secured client lending (10)   $ 3,175,240     $ 3,119,473       1.8     $ 2,893,074       9.8  


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    Asset Management and Service Fee Break-down (unaudited)  
Asset Management and Service Fee Revenues:   Three Months Ended  
($ in 000s)   3/31/19     3/31/18     % Change     12/31/18     % Change  
Private Client Group (11)   $ 148,092     $ 146,769       0.9     $ 159,775       (7.3 )
Asset Management     28,469       27,104       5.0       28,670       (0.7 )
Third-party Bank Sweep Program     8,562       11,603       (26.2 )     11,062       (22.6 )
Other (12)     10,144       10,325       (1.8 )     10,556       (3.9 )
Total asset management and service fee revenues   $ 195,267     $ 195,801       (0.3 )   $ 210,063       (7.0 )
                                         
Fee-based Assets:   Three Months Ended  
($ in millions)   3/31/19     3/31/18     % Change     12/31/18