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Stifel Reports In-Line Q3 Earnings

Zacks Equity Research

Stifel Financial Corp.’s (SF) third-quarter 2013 earnings per share of 53 cents were in line with the Zacks Consensus Estimate. The reported earnings also compared unfavorably with 60 cents per share earned in the prior-year quarter.

Results reflected organic growth aided by increase in revenues and growth in loans and deposits. However, rise in expenses was a plausible concern.

Including some one-time items, the company reported GAAP net income of $74.9 million, up from $37.4 million in the prior-year quarter.

Notably, on Aug 21, 2013, the company announced its intention to discontinue the business operations of its Canadian subsidiary, Stifel Nicolaus Canada, Inc., which is expected to be closed by the end of the second quarter of 2014.

Quarter in Detail

Total revenue came in at $478.6 million, up 15.6% year over year. The rise was mainly due to higher revenues in the Global Wealth Management unit as well as the Institutional Group unit. However, total revenue was below Zacks Consensus Estimate of $489.0 million.

Global Wealth Management unit reported revenues of $274.7 million, up 9.5% year over year. Additionally, Institutional Group reported revenues of $205.1 million, up 24.6% from the prior-year quarter. The Other segment reported negative revenues of $1.2 million compared with negative revenues of $1.4 million in the prior-year quarter.

The company’s total non-interest expense (on GAAP basis) was $447.6 million, up 26.8% year over year. The rise was due to increase in compensation and benefits expenses, occupancy and equipment rental costs, communications and office supplies expenses, commission and floor brokerage expenses as well as other operating expenses.

Balance Sheet

As of Sep 30, 2013, total assets were $4.5 billion, up 40.9% year over year. Net retained loans were $1.6 billion, up 42.2% from the prior-year quarter. Further, total deposits rose 44.6% year over year to $4.2 billion.

Capital Position

Stifel Financial maintained a strong capital position in the quarter. Book value per share was $31.46, up 18.2% year over year. The company's Tier 1 leverage capital ratio was 14.8% as of Sep 30, 2013 and Tier 1 risk-based capital ratio was 23.2% as of Sep 30, 2013. Stockholders' equity in the reported quarter increased 40% to $2.0 billion from $1.4 billion as of Sep 30, 2012.

Asset Quality

Stifel Financial’s asset quality deteriorated in the quarter. The company’s allowance as a percentage of loans was 1.23%, up from 0.85% in the prior-year quarter and 1.10% in the prior quarter. Additionally, nonperforming assets as a percentage of total assets was 0.32%, up from 0.07% in the prior-year quarter and 0.03% in the prior quarter.

Performance of Competitors

Among other investment brokers, Charles Schwab Corporation’s (SCHW) third-quarter 2013 earnings beat the Zacks Consensus Estimate and Interactive Brokers Group, Inc.’s (IBKR) results were in line with the same. On the other hand, TD Ameritrade Holding Corp.’s (AMTD) fiscal fourth-quarter 2013 earnings (ended Sep 30) beat the Zacks Consensus Estimate.

Our Viewpoint

Stifel Financial’s ability to grow revenues amid the volatile operating environment bodes well going forward. Further, rising trading activities will likely boost the company’s financials. Moreover, the interest rate scenario, though still low, is expected to be stable and consequently aid the company’s profit-making activities in the medium term. However, the stringent regulatory environment and rising expenses remain matters of concern.

Stifel Financial currently carries a Zacks Rank #3 (Hold).

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