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Stifel Reports Third Quarter 2019 Financial Results

October 30, 2019 6:00 AM

ST. LOUIS, Mo., Oct. 30, 2019 (GLOBE NEWSWIRE) -- Stifel Financial Corp. (NYSE: SF) today reported net income available to common shareholders of $104.6 million, or $1.34 per diluted common share on record net revenues of $821.6 million for the three months ended September 30, 2019, compared with net income available to common shareholders of $101.5 million, or $1.25 per diluted common share, on net revenues of $738.3 million for the third quarter of 2018.

For the three months ended September 30, 2019, the Company reported non-GAAP net income available to common shareholders of $117.1 million, or $1.50 per diluted common share. The Company’s reported GAAP net income for the three months ended September 30, 2019 was primarily impacted by merger-related expenses. Details discussed below and in the “Non-GAAP Financial Matters” section.

Chairman’s Comments

“I am pleased with our performance in the third quarter. We generated record net revenue of $822 million, a pre-tax margin greater than 20%, and return on tangible common equity of more than 24%. Our record results and the growth in the business validate of our long-term strategy to build a diversified financial services firm that can consistently generate strong performance in various market conditions. This was illustrated by our record wealth management revenue and our second strongest institutional revenues in our history despite less than optimal market conditions. As I look forward, I am optimistic about our business as the investments we’ve made in our firm will continue to drive revenue growth,” stated Ronald J. Kruszewski, Chairman and Chief Executive Officer of Stifel.

Financial Highlights (Unaudited) Three Months Ended
($ in 000s, except per share data) GAAP 9/30/19 GAAP 9/30/18 % Change GAAP 6/30/19 % Change Non-GAAP (1) 9/30/19 Non-GAAP (1) 9/30/18 % Change
Net revenues $821,572 $738,342 11.3 $800,787 2.6 $821,572 $738,367 11.3
Net income applicable to Stifel Financial Corp. $109,414 $103,858 5.3 $109,085 0.3 $121,990 $112,405 8.5
Preferred dividends 4,844 2,343 106.7 5,288 (8.4) 4,844 2,343 106.7
Net income available to common shareholders $104,570 $101,515 3.0 $103,797 0.7 $117,146 $110,062 6.4
Earnings per diluted common share $1.40 $1.27 10.2 $1.38 1.4 $1.56 $1.38 13.0
Earnings per diluted common share available to common shareholders $1.34 $1.25 7.2 $1.31 2.3 $1.50 $1.35 11.1
Compensation ratio 59.2% 57.2% 58.3% 58.1% 56.5%
Non-compensation ratio 22.5% 23.8% 23.2% 21.7% 22.9%
Pre-tax operating margin (2) 18.3% 19.0% 18.5% 20.2% 20.6%

For nine months ended September 30, 2019, the Company reported net income available to common shareholders of $305.2 million, or $3.87 per diluted common share on record net revenues of $2.4 billion, compared with net income available to common shareholders of $272.9 million, or $3.35 per diluted common share, on net revenues of $2.2 billion for the nine months ended September 30, 2018.

For the nine months ended September 30, 2019, the Company reported non-GAAP net income available to common shareholders of $333.0 million, or $4.22 per diluted common share.

Financial Highlights (Unaudited) Nine Months Ended
($ in 000s, except per share data) GAAP 9/30/19 GAAP 9/30/18 % Change Non-GAAP (1) 9/30/19 Non-GAAP (1) 9/30/18 % Change
Net revenues $2,392,779 $2,231,432 7.2 $2,392,779 $2,231,457 7.2
Net income applicable to Stifel Financial Corp. $317,706 $279,906 13.5 $345,513 $309,683 11.6
Preferred dividends 12,476 7,031 77.4 12,476 7,031 77.4
Net income available to common shareholders $305,230 $272,875 11.9 $333,037 $302,652 10.0
Earnings per diluted common share $4.03 $3.44 17.2 $4.38 $3.80 15.3
Earnings per diluted common share available to common shareholders $3.87 $3.35 15.5 $4.22 $3.72 13.4
Compensation ratio 59.0% 59.3% 58.3% 58.7%
Non-compensation ratio 22.8% 23.8% 22.1% 22.5%
Pre-tax operating margin (3) 18.2% 16.9% 19.6% 18.8%

Brokerage Revenues

Brokerage revenues, defined as commissions and principal transactions, were $261.8 million, an 8.5% increase compared with the third quarter of 2018 and a 0.1% increase compared with the second quarter of 2019.

Three Months Ended
($ in 000s) 9/30/19 9/30/18 % Change 6/30/19 % Change
Global Wealth Management $160,117 $158,818 0.8 $162,388 (1.4)
Institutional brokerage:
Equity capital markets 41,037 43,904 (6.5) 40,670 0.9
Fixed income capital markets 60,613 38,446 57.7 58,387 3.8
Total institutional brokerage 101,650 82,350 23.4 99,057 2.6
Total brokerage revenues $261,767 $241,168 8.5 $261,445 0.1

Investment Banking Revenues

Investment banking revenues were $198.8 million, a 17.6% increase compared with the third quarter of 2018 and a 10.7% increase compared with the second quarter of 2019.

Three Months Ended
($ in 000s) 9/30/19 9/30/18 % Change 6/30/19 % Change
Capital raising:
Global Wealth Management $9,855 $7,722 27.6 $10,559 (6.7)
Equity capital markets 53,006 65,000 (18.5) 59,156 (10.4)
Fixed income capital markets 31,082 20,553 51.2 26,997 15.1
Institutional Group 84,088 85,553 (1.7) 86,153 (2.4)
Total capital raising (4) 93,943 93,275 0.7 96,712 (2.9)
Advisory fees (4) 104,847 75,717 38.5 82,905 26.5
Total investment banking (4) $198,790 $168,992 17.6 $179,617 10.7

Asset Management and Service Fee Revenues

Asset management and service fee revenues were $217.6 million, an 8.4% increase compared with the third quarter of 2018 and a 3.1% increase compared with the second quarter of 2019. See Asset Management and Service Fee Break-down table.

Net Interest Income

Net interest income of $134.7 million, an 11.0% increase compared with the third quarter of 2018 and a 0.3% decrease compared with the second quarter of 2019. See Net Interest Income Analysis table.

Compensation and Benefits Expenses

For the quarter ended September 30, 2019, compensation and benefits expenses were $486.2 million, which included $8.8 million of merger-related and severance expenses (non-GAAP adjustments). This compares with $422.3 million in the third quarter of 2018 and $466.9 million in the second quarter of 2019. Excluding the non-GAAP adjustments, compensation and benefits as a percentage of net revenues were 58.1% in the third quarter of 2019 (non-GAAP measure).

Three Months Ended Nine Months Ended
($ in 000s) 9/30/19 9/30/18 9/30/19 9/30/18
GAAP compensation and benefits $486,160 $422,324 $1,411,135 $1,322,387
As a percentage of net revenues 59.2% 57.2% 59.0% 59.3%
Non-GAAP adjustments: (5)
Merger-related and severance (8,827) (5,475) (16,063) (13,289)
Non-GAAP compensation and benefits $477,333 $416,849 $1,395,072 $1,309,098
As a percentage of non-GAAP net revenues 58.1% 56.5% 58.3% 58.7%

Non-Compensation Operating Expenses

For the quarter ended September 30, 2019, non-compensation operating expenses were $184.7 million, which included $6.0 million of merger-related expenses (non-GAAP adjustments). This compares with $175.5 million in the third quarter of 2018 and $185.9 million in the second quarter of 2019. Excluding the non-GAAP adjustments, non-compensation operating expenses as a percentage of net revenues for the quarter ended September 30, 2019 were 21.7% (non-GAAP measure).

Three Months Ended Nine Months Ended
($ in 000s) 9/30/19 9/30/18 9/30/19 9/30/18
GAAP non-compensation expenses $184,658 $175,488 $545,099 $530,614
As a percentage of net revenues 22.5% 23.8% 22.8% 23.8%
Non-GAAP adjustments: (5)
Merger-related (6,023) (5,277) (13,699) (20,192)
Litigation-related — (774) (3,507) (6,774)
(6,023) (6,051) (17,206) (26,966)
Non-GAAP non-compensation expenses $178,635 $169,437 $527,893 $503,648
As a percentage of non-GAAP net revenues 21.7% 22.9% 22.1% 22.5%

Provision for Income Taxes

The GAAP effective income tax rate for the quarter ended September 30, 2019 was 27.1%. This compares with an effective income tax rate of 26.1% for the third quarter of 2018 and 25.9% for the second quarter of 2019. The adjusted non-GAAP effective income tax rate for the quarter ended September 30, 2019 was 26.0%.

Three Months Ended Nine Months Ended
($ in 000s) 9/30/19 9/30/18 9/30/19 9/30/18
GAAP provision for income taxes $40,632 $36,672 $117,227 $98,525
GAAP effective tax rate 27.1% 26.1% 27.0% 26.0%
Non-GAAP adjustments: (5)
Merger-related, litigation-related, and severance 3,994 3,166 8,949 10,980
Other (1,720) (162) (3,487) (477)
2,274 3,004 5,462 10,503
Non-GAAP provision for income taxes $42,906 $39,676 $122,689 $109,028
Non-GAAP effective tax rate 26.0% 26.1% 26.2% 26.0%

Conference Call Information

Stifel Financial Corp. will host its third quarter 2019 financial results conference call on Wednesday, October 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 (888) 676-3684 and referencing conference ID #1347575. 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 and Stifel Bank & Trust 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 Nine Months Ended
($ in 000s, except per share amounts) 9/30/19 9/30/18 % Change 6/30/19 % Change 9/30/19 9/30/18 % Change
Revenues:
Commissions $163,920 $158,016 3.7 $164,981 (0.6) $484,350 $490,693 (1.3)
Principal transactions 97,847 83,152 17.7 96,464 1.4 298,343 269,918 10.5
Brokerage revenues 261,767 241,168 8.5 261,445 0.1 782,693 760,611 2.9
Advisory fees 104,847 75,717 38.5 82,911 26.5 292,648 260,393 12.4
Capital raising 93,943 93,295 0.7 96,706 (2.9) 247,599 246,044 0.6
Investment banking 198,790 169,012 17.6 179,617 10.7 540,247 506,437 6.7
Asset management and service fees 217,628 200,743 8.4 211,171 3.1 624,066 596,112 4.7
Other income 8,747 6,127 42.8 13,505 (35.2) 34,461 18,557 85.7
Operating revenues 686,932 617,050 11.3 665,738 3.2 1,981,467 1,881,717 5.3
Interest revenue 178,784 169,760 5.3 187,940 (4.9) 557,795 461,915 20.8
Total revenues 865,716 786,810 10.0 853,678 1.4 2,539,262 2,343,632 8.3
Interest expense 44,144 48,468 (8.9) 52,891 (16.5) 146,483 112,200 30.6
Net revenues 821,572 738,342 11.3 800,787 2.6 2,392,779 2,231,432 7.2
Non-interest expenses:
Compensation and benefits 486,160 422,324 15.1 466,861 4.1 1,411,135 1,322,387 6.7
Occupancy and equipment rental 58,649 54,035 8.5 61,055 (3.9) 178,566 165,226 8.1
Communication and office supplies 36,817 33,330 10.5 35,069 5.0 107,583 103,468 4.0
Commissions and floor brokerage 10,542 11,338 (7.0) 11,008 (4.2) 32,506 30,798 5.5
Provision for loan losses 929 6,924 (86.6) 2,353 (60.5) 5,565 13,244 (58.0)
Other operating expenses 77,721 69,861 11.3 76,459 1.7 220,879 217,878 1.4
Total non-interest expenses 670,818 597,812 12.2 652,805 2.8 1,956,234 1,853,001 5.6
Income before income taxes 150,754 140,530 7.3 147,982 1.9 436,545 378,431 15.4
Provision for income taxes 40,632 36,672 10.8 38,225 6.3 117,227 98,525 19.0
Net income 110,122 103,858 6.0 109,757 0.3 319,318 279,906 14.1
Net income applicable to non-controlling interests 708 — n/m 672 5.4 1,612 — n/m
Net income applicable to Stifel Financial Corp. 109,414 103,858 5.3 109,085 0.3 317,706 279,906 13.5
Preferred dividends 4,844 2,343 106.7 5,288 (8.4) 12,476 7,031 77.4
Net income available to common shareholders $104,570 $101,515 3.0 $103,797 0.7 $305,230 $272,875 11.9
Earnings per common share:
Basic $1.47 $1.41 4.3 $1.43 2.8 $4.21 $3.80 10.8
Diluted $1.34 $1.25 7.2 $1.31 2.3 $3.87 $3.35 15.5
Cash dividends declared per common share $0.15 $0.12 25.0 $0.15 — $0.45 $0.36 25.0
Weighted average number of common shares outstanding:
Basic 71,197 71,919 (1.0) 72,519 (1.8) 72,512 71,824 1.0
Diluted 78,144 81,484 (4.1) 79,079 (1.2) 78,826 81,425 (3.2)

Summary Segment Results (Unaudited)
Three Months Ended Nine Months Ended
($ in 000s) 9/30/19 9/30/18 % Change 6/30/19 % Change 9/30/19 9/30/18 % Change
Net revenues:
Global Wealth Management $534,571 $498,161 7.3 $532,433 0.4 $1,577,614 $1,481,063 6.5
Institutional Group 290,222 245,952 18.0 270,602 7.3 822,110 768,855 6.9
Other (3,221) (5,771) 44.2 (2,248) (43.3) (6,945) (18,486) 62.4
Total net revenues $821,572 $738,342 11.3 $800,787 2.6 $2,392,779 $2,231,432 7.2
Operating expenses:
Global Wealth Management $331,748 $314,784 5.4 $340,081 (2.5) $987,949 $933,020 5.9
Institutional Group 241,599 211,647 14.2 231,300 4.5 701,981 653,956 7.3
Other 97,471 71,381 36.6 81,424 19.7 266,304 266,025 0.1
Total operating expenses $670,818 $597,812 12.2 $652,805 2.8 $1,956,234 $1,853,001 5.6
Operating contribution:
Global Wealth Management $202,823 $183,377 10.6 $192,352 5.4 $589,665 $548,043 7.6
Institutional Group 48,623 34,305 41.7 39,302 23.7 120,129 114,899 4.6
Other (100,692) (77,152) 30.5 (83,672) 20.3 (273,249) (284,511) (4.0)
Income before income taxes $150,754 $140,530 7.3 $147,982 1.9 $436,545 $378,431 15.4
As a percentage of net revenues:
Compensation and benefits
Global Wealth Management 49.0 48.5 49.3 48.9 48.7
Institutional Group 59.1 59.4 57.6 59.2 59.2
Non-comp. operating expenses
Global Wealth Management 13.1 14.7 14.6 13.7 14.3
Institutional Group 24.1 26.7 27.9 26.2 25.9
Income before income taxes
Global Wealth Management 37.9 36.8 36.1 37.4 37.0
Institutional Group 16.8 13.9 14.5 14.6 14.9
Consolidated pre-tax margin 18.3 19.0 18.5 18.2 16.9

Financial metrics (unaudited):As of and For the Three Months Ended
($ in 000s, except percentages and per share amounts)9/30/19 9/30/18 6/30/19
Total assets$24,160,777 $23,760,048 $24,343,597
Total Stifel Financial shareholders' equity 3,501,715 3,161,569 3,429,126
Book value per common share (6)$46.34 $41.25 $44.68
Return on common equity (7) 13.2% 13.8% 13.4%
Non-GAAP return on common equity (1) (7) 14.8% 15.0% 14.3%
Return on tangible common equity (8) 21.6% 22.4% 21.5%
Non-GAAP return on tangible common equity (1) (8) 24.2% 24.3% 23.1%
Tier 1 common capital ratio (9) 15.6% 16.6% 15.6%
Tier 1 risk based capital ratio (9) 18.1% 17.9% 18.0%
Tier 1 leverage capital ratio (9) 10.0% 9.6% 10.0%
Pre-tax margin on net revenues 18.3% 19.0% 18.5%
Non-GAAP pre-tax margin on net revenues (1) (2) 20.2% 20.6% 19.8%
Effective tax rate 27.1% 26.1% 25.9%
Non-GAAP effective tax rate (1) 26.0% 26.1% 25.9%

Statistical Information (unaudited): As of and For the Three Months Ended
($ in 000s, except financial advisors and locations) 9/30/19 9/30/18 % Change 6/30/19 % Change
Financial advisors (10) 2,097 2,045 2.5 2,097 —
Independent contractors 96 104 (7.7) 96 —
Total financial advisors 2,193 2,149 2.0 2,193 —
Locations 426 404 5.4 413 3.1
Total client assets $311,819,000 $289,136,000 7.8 $305,233,000 2.2
Fee-based client assets $108,138,000 $96,008,000 12.6 $103,824,000 4.2
Client money market and insured product $14,246,000 $15,121,000 (5.8) $13,674,000 4.2
Secured client lending (11) $3,299,359 $3,185,710 3.6 $3,251,723 1.5

Asset Management and Service Fee Break-down (unaudited)
Asset Management and Service Fee Revenues: Three Months Ended
($ in 000s) 9/30/19 9/30/18 % Change 6/30/19 % Change
Private Client Group (12) $172,124 $152,021 13.2 $164,554 4.6
Asset Management 30,650 27,555 11.2 29,485 4.0
Third-party Bank Sweep Program 4,907 11,029 (55.5) 6,869 (28.6)
Other (13) 9,947 10,138 (1.9) 10,263 (3.1)
Total asset management and service fee revenues $217,628 $200,743 8.4 $211,171 3.1
Fee-based Assets: Three Months Ended
($ in millions) 9/30/19 9/30/18 % Change 6/30/19 % Change
Private Client Group (12) $85,163 $71,463 19.2 $80,983 5.2
Asset Management 33,698 31,091 8.4 33,156 1.6
Elimination (14) (10,723) (6,546) 63.8 (10,315) 4.0
Total fee-based assets $108,138 $96,008 12.6 $103,824 4.2
Individual Program Banks $1,225 $2,953 (58.5) $1,459 (16.0)
ROA (bps) (15)
Private Client Group (12) 85.0 89.7 89.5
Asset Management 36.4 35.5 35.6
Individual Program Banks 145.3 134.0 163.6

Consolidated Net Interest Income Analysis (Unaudited):
Three Months Ended
September 30, 2019 September 30, 2018 June 30, 2019
($ in millions, except percentages) Average Balance Interest Income/ Expense Average Interest Rate Average Balance Interest Income/ Expense Average Interest Rate Average Balance Interest Income/ Expense Average Interest Rate
Interest-earning assets:
Cash and federal funds sold $1,056.3 $5.7 2.15% $387.8 $2.3 2.35% $750.4 $4.3 2.31%
Financial instruments owned 1,157.8 5.7 1.96 1,171.4 5.7 1.96 1,320.5 6.4 1.94
Margin balances 1,308.3 13.3 4.08 1,324.0 13.1 3.95 1,291.5 13.7 4.23
Investments:
Asset-backed securities 4,367.8 42.4 3.88 4,967.2 48.2 3.88 4,508.4 46.0 4.08
Mortgage-backed securities 1,253.4 6.6 2.10 1,668.4 9.1 2.18 1,470.9 8.6 2.33
Corporate fixed income securities 743.7 5.7 3.06 1,286.7 9.2 2.85 915.0 6.9 3.02
State and municipal securities 34.3 0.2 2.27 73.2 0.3 1.99 48.0 0.2 1.85
Other 4.5 — 5.98 8.7 — 1.48 — — —
Total Investments 6,403.7 54.9 3.43 8,004.2 66.8 3.34 6,942.3 61.7 3.56
Loans:
Commercial and industrial 3,330.2 39.7 4.77 2,950.2 34.1 4.62 3,337.4 41.3 4.95
Residential real estate 3,003.8 23.2 3.08 2,753.7 19.8 2.88 2,953.7 22.5 3.05
Securities-based loans 1,959.3 19.9 4.06 1,848.2 18.2 3.94 1,916.3 20.2 4.21
Commercial real estate 377.2 5.2 5.52 192.4 2.4 4.98 354.3 5.0 5.63
Loans held for sale 209.7 1.7 3.21 224.5 2.5 4.38 178.6 1.8 4.02
Other 444.9 5.7 5.23 142.5 1.8 5.12 377.9 5.1 5.38
Total Loans 9,325.1 95.4 4.09 8,111.5 78.8 3.88 9,118.2 95.9 4.21
Other interest-bearing assets 678.7 3.8 2.19 747.4 3.1 1.66 831.6 5.9 2.86
Total interest-earning assets/interest income 19,929.9 178.8 3.59 19,746.3 169.8 3.44 20,254.5 187.9 3.71
Interest-bearing liabilities:
Short-term borrowings 21.0 0.1 2.63 35.3 0.3 2.89 29.8 0.2 3.16
Senior notes 1,016.6 11.1 4.38 1,015.7 11.2 4.43 1,016.2 11.1 4.38
Deposits 14,926.2 24.8 0.67 14,003.2 25.9 0.74 14,660.7 29.3 0.80
FHLB 270.1 1.1 1.70 1,028.8 4.2 1.65 550.2 2.9 2.12
Other interest-bearing liabilities 1,673.0 7.0 1.66 1,591.7 6.9 1.73 1,764.4 9.4 2.10
Total interest-bearing liabilities/interest expense $17,906.9 $44.1 0.99% $17,674.7 $48.5 1.10% $18,021.3 $52.9 1.17%
Net interest income/margin $134.7 2.70% $121.3 2.46% $135.0 2.67%

Stifel Bancorp, Inc. (16) Net Interest Income Analysis (Unaudited):
Three Months Ended
September 30, 2019 September 30, 2018 June 30, 2019
($ in millions, except percentages) Average Balance Interest Income/ Expense Average Interest Rate Average Balance Interest Income/ Expense Average Interest Rate Average Balance Interest Income/ Expense Average Interest Rate
Interest-earning assets:
Cash and federal funds sold $540.8 $3.2 2.36% $29.4 $0.2 2.06% $330.6 $1.8 2.15%
Investments 6,403.7 54.9 3.43 8,004.2 66.8 3.34 6,942.3 61.7 3.56
Loans 9,325.1 95.4 4.09 8,111.5 78.8 3.88 9,118.2 95.9 4.21
Other interest-bearing assets 46.7 0.4 3.04 73.9 0.7 4.19 57.2 0.6 4.38
Total interest-earning assets/interest income 16,316.3 153.9 3.77 16,219.0 146.5 3.61 16,448.3 160.0 3.89
Interest-bearing liabilities:
Deposits 14,926.2 24.8 0.67 14,003.2 25.9 0.74 14,660.7 29.3 0.80
FHLB 270.1 1.1 1.70 1,028.8 4.2 1.65 550.2 2.9 2.12
Other interest-bearing liabilities 1.7 0.1 6.49 28.1 0.2 3.17 1.7 0.1 6.73
Total interest-bearing liabilities/interest expense $15,198.0 26.0 0.68% $15,060.1 30.3 0.81% $15,212.6 32.3 0.85%
Net interest income/margin $127.9 3.14% $116.2 2.87% $127.7 3.11%

Stifel Bancorp, Inc. (16) - a component of Global Wealth Management
Selected operating data (unaudited):Three Months Ended Nine Months Ended
($ in 000s, except percentages)9/30/19 9/30/18 % Change 6/30/19 % Change 9/30/19 9/30/18 % Change
Net interest income$127,942 $116,204 10.1 $127,714 0.2 $390,220 $338,031 15.4
Bank loan loss provision 929 6,924 (86.6) 2,353 (60.5) 5,565 13,244 (58.0)
Charge-offs 56 — n/m 54 3.7 166 14 n/m
Net interest margin 3.14% 2.87% 27 bps 3.11% 3 bps 3.14% 2.91% 23 bps

Financial Metrics (unaudited): As of
($ in 000s, except percentages) 9/30/19 9/30/18 6/30/19
Total assets $16,442,707 $17,005,070 $16,645,984
Total shareholders' equity 1,234,932 1,200,250 1,236,318
Total loans, net (includes loans held for sale) 9,367,233 8,516,052 9,127,836
Total deposits 14,836,646 14,502,952 14,901,061
Available-for-sale securities, at fair value 3,448,207 3,347,819 2,702,211
Held-to-maturity securities, at amortized cost 2,878,516 4,562,021 3,957,629
Commercial and industrial 3,315,706 3,127,435 3,338,127
Residential real estate 3,043,271 2,792,269 2,984,725
Securities-based loans 1,986,339 1,836,450 1,962,528
Commercial real estate 387,868 328,814 367,283
Loans held for sale 265,330 262,063 163,511
Stifel Bank & Trust:
Common equity tier 1 capital ratio (9) 13.1% 14.2% 13.4%
Tier 1 capital ratio (9) 13.1% 14.2% 13.4%
Total capital ratio (9) 14.3% 15.2% 14.5%
Tier 1 leverage ratio (9) 7.3% 7.0% 7.2%
Stifel Bank:
Common equity tier 1 capital ratio (9) 17.9% 13.8% 17.7%
Tier 1 capital ratio (9) 17.9% 13.8% 17.7%
Total capital ratio (9) 19.1% 15.0% 18.9%
Tier 1 leverage ratio (9) 7.0% 12.5% 7.3%
Credit Metrics:
Allowance for loan losses $91,360 $80,700 $90,472
Allowance as a percentage of retained loans 0.99% 0.97% 1.00%
Net charge-offs as a percentage of average loans 0.00% 0.00% 0.00%
Total nonperforming assets $18,031 $24,352 $21,111
Nonperforming assets as % of total assets 0.11% 0.14% 0.13%

Global Wealth Management Summary Results of Operations (Unaudited)
Three Months Ended Nine Months Ended
($ in 000s) 9/30/19 9/30/18 % Change 6/30/19 % Change 9/30/19 9/30/18 % Change
Revenues:
Commissions $118,061 $117,795 0.2 $120,284 (1.8) $348,272 $355,129 (1.9)
Principal transactions 42,056 41,023 2.5 42,104 (0.1) 127,427 125,713 1.4
Brokerage revenues 160,117 158,818 0.8 162,388 (1.4) 475,699 480,842 (1.1)
Asset management and service fees 217,616 200,735 8.4 211,156 3.1 624,025 596,081 4.7
Net interest 137,937 127,341 8.3 137,599 0.2 420,831 370,783 13.5
Investment banking 9,855 7,722 27.6 10,559 (6.7) 28,637 23,459 22.1
Other income 9,046 3,545 155.2 10,731 (15.7) 28,422 9,898 187.1
Net revenues 534,571 498,161 7.3 532,433 0.4 1,577,614 1,481,063 6.5
Non-interest expenses:
Compensation and benefits 261,681 241,713 8.3 262,321 (0.2) 771,475 721,352 6.9
Non-compensation operating expenses 70,067 73,071 (4.1) 77,760 (9.9) 216,474 211,668 2.3
Total non-interest expenses 331,748 314,784 5.4 340,081 (2.5) 987,949 933,020 5.9
Income before income taxes $202,823 $183,377 10.6 $192,352 5.4 $589,665 $548,043 7.6
As a percentage of net revenues:
Compensation and benefits 49.0 48.5 49.3 48.9 48.7
Non-compensation operating expenses 13.1 14.7 14.6 13.7 14.3
Income before income taxes 37.9 36.8 36.1 37.4 37.0

Institutional Group Summary Results of Operations (Unaudited)
Three Months Ended Nine Months Ended
($ in 000s) 9/30/19 9/30/18 % Change 6/30/19 % Change 9/30/19 9/30/18 % Change
Revenues:
Commissions $45,859 $40,220 14.0 $44,697 2.6 $136,078 $135,563 0.4
Principal transactions 55,791 42,130 32.4 54,360 2.6 170,916 144,206 18.5
Brokerage revenues 101,650 82,350 23.4 99,057 2.6 306,994 279,769 9.7
Advisory fees 104,847 75,717 38.5 82,905 26.5 292,647 260,312 12.4
Capital raising 84,088 85,553 (1.7) 86,153 (2.4) 218,963 222,666 (1.7)
Investment banking 188,935 161,270 17.2 169,058 11.8 511,610 482,978 5.9
Other (17) (363) 2,332 (115.6) 2,487 (114.6) 3,506 6,108 (42.6)
Net revenues 290,222 245,952 18.0 270,602 7.3 822,110 768,855 6.9
Non-interest expenses:
Compensation and benefits 171,534 146,187 17.3 155,779 10.1 486,724 455,515 6.9
Non-compensation operating expenses 70,065 65,460 7.0 75,521 (7.2) 215,257 198,441 8.5
Total non-interest expenses 241,599 211,647 14.2 231,300 4.5 701,981 653,956 7.3
Income before income taxes $48,623 $34,305 41.7 $39,302 23.7 $120,129 $114,899 4.6
As a percentage of net revenues:
Compensation and benefits 59.1 59.4 57.6 59.2 59.2
Non-compensation operating expenses 24.1 26.7 27.9 26.2 25.9
Income before income taxes 16.8 13.9 14.5 14.6 14.9

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 September 30, 2019 and 2018, and June 30, 2019. 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 nine months ended September 30, 2019 and 2018, and the three months ended June 30, 2019 to net income and earnings per diluted common share on a non-GAAP basis for the same period.

Three Months Ended Nine Months Ended
($ in 000s) 9/30/19 9/30/18 6/30/19 9/30/19 9/30/18
GAAP net income applicable to Stifel Financial Corp. $109,414 $103,858 $109,085 $317,706 $279,906
Preferred dividend 4,844 2,343 5,288 12,476 7,031
Net income available to common shareholders 104,570 101,515 103,797 305,230 272,875
Non-GAAP adjustments:
Merger-related and severance (18) 14,850 10,777 6,721 29,762 33,506
Litigation-related (19) — 774 3,507 3,507 6,774
Provision for income taxes (20) (2,274) (3,004) (2,654) (5,462) (10,503)
Total non-GAAP adjustments 12,576 8,547 7,574 27,807 29,777
Non-GAAP net income available to common shareholders $117,146 $110,062 $111,371 $333,037 $302,652
Weighted average diluted shares outstanding 78,144 81,484 79,079 78,826 81,425
GAAP earnings per diluted common share $1.40 $1.27 $1.38 $4.03 $3.44
Non-GAAP adjustments 0.16 0.11 0.10 0.35 0.36
Non-GAAP earnings per diluted common share $1.56 $1.38 $1.48 $4.38 $3.80
GAAP earnings per diluted common share available to common shareholders $1.34 $1.25 $1.31 $3.87 $3.35
Non-GAAP adjustments 0.16 0.10 0.10 0.35 0.37
Non-GAAP earnings per diluted common share available to common shareholders $1.50 $1.35 $1.41 $4.22 $3.72

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 September 30, 2019 of 20.2% is calculated by adding non-GAAP adjustments of $14.8 million to our GAAP income before income taxes of $150.8 million and dividing it by non-GAAP net revenues for the quarter of $821.6 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 nine months ended September 30, 2019 of 19.6% is calculated by adding non-GAAP adjustments of $33.3 million to our GAAP income before income taxes of $436.5 million and dividing it by non-GAAP net revenues of $2.4 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) Book value per common share represents shareholders’ equity (excluding preferred stock and non-controlling interests) divided by period end common shares outstanding.(7) 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.(8) 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.(9) Capital ratios are estimates at time of the Company’s earnings release.(10) 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.(11) Includes client margin balances held by our broker-dealer subsidiaries and securities-based loans held at our bank subsidiaries.(12) Includes Private Client Group and Trust Business.(13) Includes fund networking fees, retirement fees, transaction/handling fees, and ACAT fees.(14) Asset management assets managed in Private Client Group or Trust accounts.(15) 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.(16) Includes Stifel Bank & Trust and Stifel Bank, formerly known as The Business Bank of St. Louis, which was acquired on August 31, 2018, and Stifel Trust Company, N.A.(17) Includes net interest, asset management and service fees, and other income.(18) 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.(19) Primarily related to costs associated with Company’s legal matters.(20) 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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