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Stifel Reports First Quarter 2019 Financial Results

April 30, 2019 6:00 AM

ST. LOUIS, April 30, 2019 (GLOBE NEWSWIRE) -- Stifel Financial Corp. (NYSE: 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) GAAP3/31/19 GAAP3/31/18 %Change GAAP12/31/18 %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

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)

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.

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. (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; 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

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 % Change
Private Client Group (11) $73,553 $66,255 11.0 $66,097 11.3
Asset Management 32,952 29,086 13.3 30,269 8.9
Elimination (13) (6,926) (6,310) 9.8 (6,192) 11.9
Total fee-based assets $99,579 $89,031 11.8 $90,174 10.4
Individual Program Banks $1,875 $3,676 (49.0) $2,569 (27.0)
ROA (bps) (14)
Private Client Group (11) 89.6 90.9 89.4
Asset Management 34.6 37.3 37.9
Individual Program Banks 153.3 121.7 159.3

Net Interest Income Analysis (Unaudited):
Three Months Ended
March 31, 2019 March 31, 2018 December 31, 2018
($ in millions, except percentages) AverageBalance InterestIncome/Expense AverageInterestRate AverageBalance InterestIncome/Expense AverageInterestRate AverageBalance InterestIncome/Expense Average InterestRate
Interest-earning assets:
Cash and federal funds sold $1,124.9 $7.8 2.78% $351.4 $1.4 1.64% $689.1 $4.3 2.52%
Financial instruments owned 1,277.4 6.3 1.98 1,142.4 4.9 1.73 1,275.9 5.8 1.81
Margin balances 1,258.5 13.4 4.27 1,276.6 11.0 3.43 1,245.0 13.2 4.24
Investments:
Asset-backed securities 4,698.9 49.0 4.17 4,431.2 36.9 3.33 4,909.1 49.2 4.01
Mortgage-backed securities 1,531.4 9.0 2.35 1,746.1 9.6 2.20 1,599.4 9.0 2.18
Corporate fixed income securities 954.5 7.2 3.01 1,293.6 8.1 2.51 1,143.9 8.4 2.98
State and municipal securities 50.1 0.3 2.38 74.1 0.3 1.36 72.8 0.3 2.02
Total Investments 7,234.9 65.5 3.62 7,545.0 54.9 2.91 7,725.2 66.9 3.47
Loans:
Commercial and industrial 3,419.8 40.8 4.78 2,478.0 26.7 4.32 3,245.7 38.9 4.79
Residential real estate 2,927.9 22.5 3.07 2,636.9 18.3 2.77 2,844.8 21.1 2.96
Securities-based loans 1,799.5 19.1 4.25 1,796.6 15.3 3.41 1,844.9 19.3 4.18
Commercial real estate 336.5 4.7 5.60 104.5 1.0 3.78 322.1 4.8 5.94
Loans held for sale 179.0 1.8 4.09 200.6 1.8 3.65 236.5 2.3 3.97
Other 319.0 4.4 5.36 50.2 0.5 4.01 280.2 3.7 5.43
Total Loans 8,981.7 93.3 4.15 7,266.8 63.6 3.50 8,774.2 90.1 4.11
Other interest-bearing assets 736.3 4.8 2.61 768.0 1.9 0.97 836.5 4.2 2.00
Total interest-earning assets/interest income 20,613.7 191.1 3.71 18,350.2 137.7 3.00 20,545.9 184.5 3.59
Interest-bearing liabilities:
Short-term borrowings 68.2 0.5 3.10 160.4 0.9 2.31 58.7 0.5 3.09
Senior notes 1,016.1 11.1 4.38 1,015.1 11.1 4.38 1,016.0 11.0 4.38
Deposits 15,282.3 28.1 0.73 13,151.6 8.1 0.25 14,631.2 33.0 0.90
FHLB 461.4 1.7 1.45 902.9 3.3 1.44 994.2 4.6 1.85
Other interest-bearing liabilities 1,588.3 8.0 2.03 1,268.8 3.1 0.95 1,532.0 8.8 2.27
Total interest-bearing liabilities/interest expense $18,416.3 $49.4 1.07% $16,498.8 $26.5 0.64% $18,232.1 $57.9 1.27%
Net interest income/margin $141.7 2.75% $111.2 2.43% $126.6 2.47%

Stifel Bancorp, Inc. (15) - a component of Global Wealth Management
Selected operating data (unaudited):Three Months Ended
($ in 000s, except percentages)3/31/19 3/31/18 % Change 12/31/18 % Change
Net interest income$134,564 $107,627 25.0 $121,790 10.5
Bank loan loss provision$2,283 $2,043 11.7 $5,122 (55.4)
Charge-offs$56 $14 300.0 $— n/m
Net interest margin 3.17% 2.89% 9.7 2.89% 9.7

Financial Metrics (unaudited): As of
($ in 000s, except percentages) 3/31/19 3/31/18 12/31/18
Total assets $16,802,553 $15,154,798 $17,818,887
Total shareholders' equity 1,227,087 1,081,041 1,203,243
Total loans, net (includes loans held for sale) 8,850,905 7,337,749 8,723,172
Total deposits 15,049,877 13,329,623 15,863,613
Available-for-sale securities, at fair value 2,997,801 3,705,918 3,064,257
Held-to-maturity securities, at amortized cost 4,100,357 3,842,889 4,215,533
Commercial and industrial 3,314,564 2,553,671 3,304,234
Residential real estate 2,928,228 2,634,069 2,875,014
Securities-based loans 1,860,989 1,809,281 1,786,966
Commercial real estate 361,950 101,591 318,961
Loans held for sale $144,216 $261,467 $205,557
Stifel Bank & Trust:
Common equity tier 1 capital ratio (8) 13.7% 14.6% 14.4%
Tier 1 capital ratio (8) 13.8% 14.6% 14.6%
Total capital ratio (8) 14.9% 15.6% 15.6%
Tier 1 leverage ratio (8) 7.1% 7.2% 7.1%
Stifel Bank:
Common equity tier 1 capital ratio (8) 17.5% n/a 12.3%
Tier 1 capital ratio (8) 17.5% n/a 12.3%
Total capital ratio (8) 18.6% n/a 13.5%
Tier 1 leverage ratio (8) 7.5% n/a 9.9%
Credit Metrics:
Allowance for loan losses $88,172 $69,497 $85,833
Allowance as a percentage of retained loans 1.00% 0.97% 1.00%
Net charge-offs as a percentage of average loans 0.00% 0.00% 0.00%
Total nonperforming assets $21,276 $21,826 $24,455
Nonperforming assets as % of total assets 0.13% 0.14% 0.14%

Global Wealth Management Summary Results of Operations (Unaudited)
Three Months Ended
($ in 000s) 3/31/19 3/31/18 % Change 12/31/18 % Change
Revenues:
Commissions $109,927 $119,205 (7.8) $117,006 (6.1)
Principal transactions 43,267 43,529 (0.6) 40,325 7.3
Brokerage revenues 153,194 162,734 (5.9) 157,331 (2.6)
Asset management and service fees 195,253 195,789 (0.3) 210,051 (7.0)
Net interest 145,295 118,455 22.7 132,402 9.7
Investment banking 8,223 7,688 7.0 7,915 3.9
Other income 8,645 909 851.0 1,557 455.2
Net revenues 510,610 485,575 5.2 509,256 0.3
Non-interest expenses:
Compensation and benefits 247,473 241,760 2.4 246,750 0.3
Non-compensation operating expenses 68,647 67,044 2.4 73,546 (6.7)
Total non-interest expenses 316,120 308,804 2.4 320,296 (1.3)
Income before income taxes $194,490 $176,771 10.0 $188,960 2.9
As a percentage of net revenues:
Compensation and benefits 48.5 49.8 48.5
Non-compensation operating expenses 13.4 13.8 14.4
Income before income taxes 38.1 36.4 37.1

Institutional Group Summary Results of Operations (Unaudited)
Three Months Ended
($ in 000s) 3/31/19 3/31/18 % Change 12/31/18 % Change
Revenues:
Commissions $45,522 $46,570 (2.3) $50,034 (9.0)
Principal transactions 60,765 54,253 12.0 41,134 47.7
Brokerage revenues 106,287 100,823 5.4 91,168 16.6
Capital raising 48,722 71,001 (31.4) 82,229 (40.7)
Advisory fees 104,895 97,673 7.4 111,089 (5.6)
Investment banking 153,617 168,674 (8.9) 193,318 (20.5)
Other (16) 1,382 581 137.8 2,154 (35.8)
Net revenues 261,286 270,078 (3.3) 286,640 (8.8)
Non-interest expenses:
Compensation and benefits 159,411 159,344 0.0 177,782 (10.3)
Non-compensation operating expenses 69,671 66,164 5.3 66,706 4.4
Total non-interest expenses 229,082 225,508 1.6 244,488 (6.3)
Income before income taxes $32,204 $44,570 (27.7) $42,152 (23.6)
As a percentage of net revenues:
Compensation and benefits 61.0 59.0 62.0
Non-compensation operating expenses 26.7 24.5 23.3
Income before income taxes 12.3 16.5 14.7

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 months ended March 31, 2019 and 2018, and December 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 months ended March 31, 2019 and 2018, and December 31, 2018 to net income and earnings per diluted common share on a non-GAAP basis for the same period.

Three Months Ended
($ in 000s) 3/31/19 3/31/18 12/31/18
GAAP net income applicable to Stifel Financial Corp. $99,207 $88,761 $114,062
Preferred dividend 2,344 2,344 2,344
Net income available to common shareholders 96,863 86,417 111,718
Non-GAAP adjustments:
Merger-related and severance (17) 8,191 9,953 17,714
Litigation-related — — 18
Provision for income taxes (18) (534) (2,567) (2,660)
Total non-GAAP adjustments 7,657 7,386 15,072
Non-GAAP net income available to common shareholders $104,520 $93,803 $126,790
Weighted average diluted shares outstanding 79,210 81,789 80,706
GAAP earnings per diluted common share $1.25 $1.09 $1.41
Non-GAAP adjustments 0.10 0.09 0.19
Non-GAAP earnings per diluted common share $1.35 $1.18 $1.60
GAAP earnings per diluted common share available to common shareholders $1.22 $1.06 $1.38
Non-GAAP adjustments 0.10 0.09 0.19
Non-GAAP earnings per diluted common share available to common shareholders $1.32 $1.15 $1.57

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 March 31, 2019 of 19.0% is calculated by adding non-GAAP adjustments of $8.2 million to our GAAP income before income taxes of $137.8 million and dividing it by non-GAAP net revenues for the quarter of $770.4 million. Reconciliations of the Company’s GAAP results to certain non-GAAP measures is discussed within and under “Non-GAAP Financial Measures.”
(3)Excludes revenue included in the Other segment.
(4)See further discussion of non-GAAP adjustments under “Non-GAAP Financial Measures.”
(5)Book value per common share represents shareholders’ equity (excluding preferred stock and non-controlling interests) divided by period end common shares outstanding.
(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)Reflects change in the definition of producing brokers as of January 1, 2019. Prior period amounts have been restated to conform with current period presentation.
(10)Includes client margin balances held by our broker-dealer subsidiaries and securities-based loans held at our bank subsidiaries.
(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 (ROA) 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 Stifel Bank & Trust and Stifel Bank, formerly known as The Business Bank of St. Louis, which was acquired on August 31, 2018.
(16)Includes net interest, asset management and service fees, and other income.
(17)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.
(18)See details of non-GAAP adjustments under “Provision for Income Taxes.”

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

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Source: Stifel Financial Corporation

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