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Stifel Reports Third Quarter 2020 Results

October 27, 2020 4:10 PM

ST. LOUIS, Oct. 27, 2020 (GLOBE NEWSWIRE) -- Stifel Financial Corp. (NYSE: SF) today reported net income available to common shareholders of $110.6 million, or $1.46 per diluted common share on net revenues of $883.3 million for the three months ended September 30, 2020, compared with net income available to common shareholders of $104.6 million, or $1.34 per diluted common share, on net revenues of $821.6 million for the third quarter of 2019.

For the three months ended September 30, 2020, the Company reported non-GAAP net income available to common shareholders of $120.5 million, or $1.59 per diluted common share. The Company’s reported GAAP net income for the three months ended September 30, 2020 was primarily impacted by merger-related expenses. Details discussed below and in the “Non-GAAP Financial Matters” section.

Chairman’s Comments

“The financial performance during the quarter, and over the past few years, has been driven by a diverse business mix that’s enabled both our Institutional Group and Wealth Management segments to generate strong growth. This diversification is illustrated by record nine month Wealth Management revenues despite significant declines in net interest income and deposit sweep fees, both a result of the Federal Reserve’s implementation of a zero rate environment. Likewise, we achieved record nine-month Institutional Group revenues as record capital raising and brokerage revenues more than compensated for the 13% decline in advisory revenue,” stated Ronald J. Kruszewski, Chairman and Chief Executive Officer of Stifel.

Mr. Kruszewski continued, “Simply, Stifel is a growth company with diversified, balanced, and synergistic businesses. Over the last 12 months, Wealth Management, under both brokerage and fee-based models, has contributed 46% of net revenues. Institutional revenues, comprised of equity and fixed income, investment banking and trading, made up 41% of net revenues, while net interest income accounted for the remaining 13%. The complementary nature of these businesses is reflected in our return on tangible common equity, which is 23% over the past 12 months.”

Financial Highlights (Unaudited) Three Months Ended
($ in 000s, except per share data) GAAP9/30/20 GAAP9/30/19 %Change GAAP6/30/20 %Change Non-GAAP (2)9/30/20 Non-GAAP (2) 9/30/19 %Change
Net revenues $883,300 $821,572 7.5 $895,817 (1.4) $883,300 $821,572 7.5
Net income applicable to Stifel Financial Corp. $120,527 $109,414 10.2 $107,887 11.7 $130,422 $121,990 6.9
Preferred dividends 9,897 4,844 104.3 4,843 104.4 9,897 4,844 104.3
Net income available to common shareholders $110,630 $104,570 5.8 $103,044 7.4 $120,525 $117,146 2.9
Earnings per diluted common share $1.59 $1.40 13.6 $1.45 9.7 $1.72 $1.56 10.3
Earnings per diluted common share available to common shareholders $1.46 $1.34 9.0 $1.39 5.0 $1.59 $1.50 6.0
Compensation ratio 60.4% 59.2% 61.1% 59.6% 58.1%
Non-compensation ratio 21.7% 22.5% 22.9% 21.0% 21.7%
Pre-tax operating margin (3) 17.9% 18.3% 16.0% 19.4% 20.2%

For the nine months ended September 30, 2020, the Company reported net income available to common shareholders of $295.4 million, or $3.90 per diluted common share on record net revenues of $2.7 billion, compared with net income available to common shareholders of $305.2 million, or $3.87 per diluted common share, on net revenues of $2.4 billion for the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, the Company reported non-GAAP net income available to common shareholders of $327.8 million, or $4.33 per diluted common share.

Financial Highlights (Unaudited) Nine Months Ended
($ in 000s, except per share data) GAAP9/30/20 GAAP9/30/19 %Change Non-GAAP (2)9/30/20 Non-GAAP (2)9/30/19 %Change
Net revenues $2,692,151 $2,392,779 12.5 $2,692,330 $2,392,779 12.5
Net income applicable to Stifel Financial Corp. $315,003 $317,706 (0.9) $347,377 $345,513 0.5
Preferred dividends 19,584 12,476 57.0 19,584 12,476 57.0
Net income available to common shareholders $295,419 $305,230 (3.2) $327,793 $333,037 (1.6)
Earnings per diluted common share $4.16 $4.03 3.2 $4.59 $4.38 4.8
Earnings per diluted common share available to common shareholders $3.90 $3.87 0.8 $4.33 $4.22 2.6
Compensation ratio 61.6% 59.0% 60.7% 58.3%
Non-compensation ratio 22.9% 22.8% 22.2% 22.1%
Pre-tax operating margin (4) 15.5% 18.2% 17.1% 19.6%

Net Revenues

Net revenues were $883.3 million for the third quarter of 2020, a 7.5% increase from the third quarter of 2019 and a 1.4% decrease from the second quarter of 2020. Net revenues, compared with the third quarter of 2019, reflected significantly higher brokerage revenues, increased capital raising revenues, and asset management and service fees, partially offset by lower net interest income and advisory fee revenues. Net revenues, compared with the second quarter of 2020, reflected increased asset management and services fees and capital raising revenues, partially offset by lower advisory fee revenues, principal transaction fee revenues, net interest income, and commission revenues.

The operating environment continued to recover during the third quarter of 2020 from the impact of the COVID-19 pandemic earlier in the year as global economic activity significantly rebounded following a sharp decrease in the second quarter, market volatility declined modestly, and monetary and fiscal policy remained accommodative. As a result, global equity prices increased and credit spreads tightened compared with the end of the second quarter of 2020.

Brokerage Revenues

Brokerage revenues, defined as commissions and principal transactions, were $313.5 million, a 19.8% increase compared with the third quarter of 2019 and an 8.6% decrease compared with the second quarter of 2020.

Three Months Ended
($ in 000s) 9/30/20 9/30/19 % Change 6/30/20 % Change
Global Wealth Management $162,627 $160,117 1.6 $159,123 2.2
Institutional brokerage:
Equity capital markets 54,204 41,037 32.1 63,193 (14.2)
Fixed income capital markets 96,706 60,613 59.5 120,731 (19.9)
Total institutional brokerage 150,910 101,650 48.5 183,924 (17.9)
Total brokerage revenues (5) $313,537 $261,767 19.8 $343,047 (8.6)

Investment Banking Revenues

Investment banking revenues were $218.1 million, a 9.7% increase compared with the third quarter of 2019 and a 0.5% increase compared with the second quarter of 2020.

Three Months Ended
($ in 000s) 9/30/20 9/30/19 % Change 6/30/20 % Change
Capital raising:
Global Wealth Management $8,113 $9,855 (17.7) $8,016 1.2
Equity capital markets 78,462 53,006 48.0 63,277 24.0
Fixed income capital markets 50,717 31,082 63.2 47,904 5.9
Institutional Group 129,179 84,088 53.6 111,181 16.2
Total capital raising (5) 137,292 93,943 46.1 119,197 15.2
Advisory fees (5) 80,842 104,847 (22.9) 97,838 (17.4)
Total investment banking $218,134 $198,790 9.7 $217,035 0.5

Asset Management and Service Fee Revenues

Asset management and service fee revenues were $230.8 million, a 6.0% increase compared with the third quarter of 2019 and a 16.0% increase compared with the second quarter of 2020. The increase from the comparative period in 2019 is primarily attributable to higher asset values and strong fee-based asset flows. See Asset Management and Service Fee Break-down table.

Net Interest Income

Net interest income was $100.6 million, a 25.3% decrease compared with the third quarter of 2019 and a 12.7% decrease compared with the second quarter of 2020. See Net Interest Income Analysis table.

Compensation and Benefits Expenses

For the quarter ended September 30, 2020, compensation and benefits expenses were $533.6 million, which included $6.8 million of merger-related and severance expenses (non-GAAP adjustments). This compares with $486.2 million in the third quarter of 2019 and $547.2 million in the second quarter of 2020. Excluding the non-GAAP adjustments, compensation and benefits as a percentage of net revenues were 59.6% in the third quarter of 2020 (non-GAAP measure).

The increase in compensation and benefits expenses, compared with the third quarter of 2019, is primarily attributable to higher volume and revenue-related expense and investments.

Three Months Ended Nine Months Ended
($ in 000s) 9/30/20 9/30/19 9/30/20 9/30/19
GAAP compensation and benefits $533,638 $486,160 $1,657,991 $1,411,135
As a percentage of net revenues 60.4% 59.2% 61.6% 59.0%
Non-GAAP adjustments: (6)
Merger-related and severance (6,770) (8,827) (22,907) (16,063)
Non-GAAP compensation and benefits $526,868 $477,333 $1,635,084 $1,395,072
As a percentage of non-GAAP net revenues 59.6% 58.1% 60.7% 58.3%

Non-Compensation Operating Expenses

For the quarter ended September 30, 2020, non-compensation operating expenses were $191.3 million, which included $6.2 million of merger-related expenses (non-GAAP adjustments). This compares with $184.7 million in the third quarter of 2019 and $205.7 million in the second quarter of 2020. Excluding the non-GAAP adjustments, non-compensation operating expenses as a percentage of net revenues for the quarter ended September 30, 2020 were 21.0% (non-GAAP measure).

The increase in non-compensation operating expenses, compared with the third quarter of 2019, is primarily attributable to volume-related expenses, net provisions for regulatory matters, and professional fees, partially offset by decreases in travel and conference-related expenses as a result of COVID-19. In addition, the third quarter of 2020 was positively impacted by the adjustments associated with the accounting for credit losses under the CECL standard (7).

Three Months Ended Nine Months Ended
($ in 000s) 9/30/20 9/30/19 9/30/20 9/30/19
GAAP non-compensation expenses $191,269 $184,658 $617,701 $545,099
As a percentage of net revenues 21.7% 22.5% 22.9% 22.8%
Non-GAAP adjustments: (6)
Merger-related (6,219) (6,023) (19,672) (13,699)
Litigation-related — — — (3,507)
(6,219) (6,023) (19,672) (17,206)
Non-GAAP non-compensation expenses $185,050 $178,635 $598,029 $527,893
As a percentage of non-GAAP net revenues 21.0% 21.7% 22.2% 22.1%

Provision for Income Taxes

The GAAP effective income tax rate for the quarter ended September 30, 2020 was 23.9%. This compares with an effective income tax rate of 27.1% for the third quarter of 2019 and 24.5% for the second quarter of 2020. The adjusted non-GAAP effective income tax rate for the quarter ended September 30, 2020 was 23.9%.

Three Months Ended Nine Months Ended
($ in 000s) 9/30/20 9/30/19 9/30/20 9/30/19
GAAP provision for income taxes $37,866 $40,632 $101,456 $117,227
GAAP effective tax rate 23.9% 27.1% 24.4% 27.0%
Non-GAAP adjustments: (6)
Merger-related, litigation-related, and severance 3,084 3,994 10,370 8,949
Other 10 (1,720) 14 (3,487)
3,094 2,274 10,384 5,462
Non-GAAP provision for income taxes $40,960 $42,906 $111,840 $122,689
Non-GAAP effective tax rate 23.9% 26.0% 24.4% 26.2%

Conference Call Information

Stifel Financial Corp. will host its third quarter 2020 financial results conference call on Wednesday, October 28, 2020, at 9:30 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 6093315. 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, including its Eaton Partners business division; Keefe, Bruyette & Woods, Inc.; Miller Buckfire & Co., LLC; and Century Securities Associates, Inc. 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 website at www.stifel.com. For global disclosures, please visit www.stifel.com/investor-relations/press-releases.

Cautionary Note Regarding 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. For information about the risks and important factors that could affect the Company’s future results, financial condition and liquidity, see “Risk Factors” in Part II, Item 1A of the Company’s Quarterly Reports on Form 10-Q for the three months ended March 31, 2020 and June 30, 2020 and “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Forward-looking statements speak only as to the date they are made. The Company 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.

Statements about the effects of the COVID-19 pandemic on the Company’s business, results, financial position and liquidity may constitute forward-looking statements and are subject to the risk that the actual impact may differ, possibly materially, from what is currently expected.

Summary Results of Operations (Unaudited)
Three Months Ended Nine Months Ended
($ in 000s, except per share amounts) 9/30/20 9/30/19 %Change 6/30/20 % Change 9/30/20 9/30/19 %Change
Revenues:
Commissions $172,654 $163,920 5.3 $177,028 (2.5) $560,780 $484,350 15.8
Principal transactions 140,883 97,847 44.0 166,017 (15.1) 445,566 298,343 49.3
Brokerage revenues 313,537 261,767 19.8 343,045 (8.6) 1,006,346 782,693 28.6
Advisory fees 80,842 104,847 (22.9) 97,838 (17.4) 254,752 292,648 (12.9)
Capital raising 137,292 93,943 46.1 119,197 15.2 359,885 247,599 45.3
Investment banking 218,134 198,790 9.7 217,035 0.5 614,637 540,247 13.8
Asset management and service fees 230,782 217,628 6.0 198,939 16.0 667,496 624,066 7.0
Other income 20,258 8,747 131.6 21,514 (5.8) 50,979 34,461 47.9
Operating revenues 782,711 686,932 13.9 780,533 0.3 2,339,458 1,981,467 18.1
Interest revenue 114,411 178,784 (36.0) 128,368 (10.9) 403,956 557,795 (27.6)
Total revenues 897,122 865,716 3.6 908,901 (1.3) 2,743,414 2,539,262 8.0
Interest expense 13,822 44,144 (68.7) 13,084 5.6 51,263 146,483 (65.0)
Net revenues 883,300 821,572 7.5 895,817 (1.4) 2,692,151 2,392,779 12.5
Non-interest expenses:
Compensation and benefits 533,638 486,160 9.8 547,174 (2.5) 1,657,991 1,411,135 17.5
Occupancy and equipment rental 68,598 58,649 17.0 66,264 3.5 200,935 178,566 12.5
Communication and office supplies 40,123 36,817 9.0 43,046 (6.8) 124,293 107,583 15.5
Commissions and floor brokerage 13,254 10,542 25.7 15,177 (12.7) 43,273 32,506 33.1
Provision for credit losses (1,353) 929 n/m 19,210 n/m 33,925 5,565 509.6
Other operating expenses 70,647 77,721 (9.1) 61,986 14.0 215,275 220,879 (2.5)
Total non-interest expenses 724,907 670,818 8.1 752,857 (3.7) 2,275,692 1,956,234 16.3
Income before income taxes 158,393 150,754 5.1 142,960 10.8 416,459 436,545 (4.6)
Provision for income taxes 37,866 40,632 (6.8) 35,073 8.0 101,456 117,227 (13.5)
Net income 120,527 110,122 9.4 107,887 11.7 315,003 319,318 (1.4)
Net income applicable to non-controlling interests — 708 n/m — — — 1,612 n/m
Net income applicable to Stifel Financial Corp. 120,527 109,414 10.2 107,887 11.7 315,003 317,706 (0.9)
Preferred dividends 9,897 4,844 104.3 4,843 104.4 19,584 12,476 57.0
Net income available to common shareholders $110,630 $104,570 5.8 $103,044 7.4 $295,419 $305,230 (3.2)
Earnings per common share:
Basic $1.57 $1.47 6.8 $1.46 7.5 $4.17 $4.21 (1.0)
Diluted $1.46 $1.34 9.0 $1.39 5.0 $3.90 $3.87 0.8
Cash dividends declared per common share $0.17 $0.15 13.3 $0.17 — $0.51 $0.45 13.3
Weighted average number of common shares outstanding:
Basic 70,627 71,197 (0.8) 70,527 0.1 70,814 72,512 (2.3)
Diluted 75,850 78,144 (2.9) 74,387 2.0 75,712 78,826 (4.0)

Summary Segment Results (Unaudited)
Three Months Ended Nine Months Ended
($ in 000s) 9/30/20 9/30/19 %Change 6/30/20 %Change 9/30/20 9/30/19 %Change
Net revenues:
Global Wealth Management $526,836 $534,571 (1.4) $505,782 4.2 $1,615,574 $1,577,614 2.4
Institutional Group 363,365 290,222 25.2 398,096 (8.7) 1,093,699 822,110 33.0
Other (6,901) (3,221) n/m (8,061) n/m (17,122) (6,945) n/m
Total net revenues $883,300 $821,572 7.5 $895,817 (1.4) $2,692,151 $2,392,779 12.5
Operating expenses:
Global Wealth Management $347,906 $331,748 4.9 $349,457 (0.4) $1,086,152 $987,949 9.9
Institutional Group 286,524 241,599 18.6 315,047 (9.1) 892,069 701,981 27.1
Other 90,477 97,471 (7.2) 88,353 2.4 297,471 266,304 11.7
Total operating expenses $724,907 $670,818 8.1 $752,857 (3.7) $2,275,692 $1,956,234 16.3
Operating contribution:
Global Wealth Management $178,930 $202,823 (11.8) $156,325 14.5 $529,422 $589,665 (10.2)
Institutional Group 76,841 48,623 58.0 83,049 (7.5) 201,630 120,129 67.8
Other (97,378) (100,692) (3.3) (96,414) 1.0 (314,593) (273,249) 15.1
Income before income taxes $158,393 $150,754 5.1 $142,960 10.8 $416,459 $436,545 (4.6)
As a percentage of net revenues:
Compensation and benefits
Global Wealth Management 52.7 49.0 51.1 51.7 48.9
Institutional Group 58.0 59.1 60.6 60.2 59.2
Non-comp. operating expenses
Global Wealth Management 13.3 13.1 18.0 15.5 13.7
Institutional Group 20.9 24.1 18.5 21.4 26.2
Income before income taxes
Global Wealth Management 34.0 37.9 30.9 32.8 37.4
Institutional Group 21.1 16.8 20.9 18.4 14.6
Consolidated pre-tax margin 17.9 18.3 16.0 15.5 18.2

Financial metrics (unaudited):As of and For the Three Months Ended
($ in 000s, except percentages and per share amounts)9/30/20 9/30/19 6/30/20
Total assets$25,549,182 $24,160,777 $25,624,225
Total Stifel Financial shareholders' equity$4,030,687 $3,501,715 $3,884,060
Book value per common share (8)$50.95 $46.34 $48.84
Return on common equity (9) 12.8% 13.2% 12.6%
Non-GAAP return on common equity (2) (9) 14.0% 14.8% 14.1%
Return on tangible common equity (1) 20.4% 21.1% 20.7%
Non-GAAP return on tangible common equity (1) (2) 22.2% 23.7% 23.2%
Tier 1 common capital ratio (10) 15.4% 15.6% 15.3%
Tier 1 risk based capital ratio (10) 19.2% 18.1% 19.3%
Tier 1 leverage capital ratio (10) 11.3% 10.0% 11.0%
Pre-tax margin on net revenues 17.9% 18.3% 16.0%
Non-GAAP pre-tax margin on net revenues (2) (3) 19.4% 20.2% 17.8%
Effective tax rate 23.9% 27.1% 24.5%
Non-GAAP effective tax rate (2) 23.9% 26.0% 24.5%

Statistical Information (unaudited): As of and For the Three Months Ended
($ in 000s, except financial advisors and locations) 9/30/20 9/30/19 % Change 6/30/20 % Change
Financial advisors 2,177 2,097 3.8 2,138 1.8
Independent contractors 94 96 (2.1) 94 —
Total financial advisors 2,271 2,193 3.6 2,232 1.7
Locations 451 426 5.9 447 0.9
Total client assets $325,159,000 $311,819,000 4.3 $306,235,000 6.2
Fee-based client assets $115,162,000 $108,138,000 6.5 $106,218,000 8.4
Client money market and insured product $20,367,000 $14,246,000 43.0 $18,664,000 9.1
Secured client lending (11) $2,783,138 $3,299,359 (15.6) $2,563,773 8.6

Asset Management and Service Fee Break-down (unaudited)
Asset Management and Service Fee Revenues: Three Months Ended
($ in 000s) 9/30/20 9/30/19 % Change 6/30/20 % Change
Private Client Group (12) $190,799 $172,124 10.8 $164,403 16.1
Asset Management 27,539 30,650 (10.2) 23,769 15.9
Third-party Bank Sweep Program 1,623 4,907 (66.9) 522 210.9
Other (13) 10,821 9,947 8.8 10,245 5.6
Total asset management and service fee revenues $230,782 $217,628 6.0 $198,939 16.0
Fee-based Assets: Three Months Ended
($ in millions) 9/30/20 9/30/19 % Change 6/30/20 % Change
Private Client Group (12) $99,374 $85,163 16.7 $91,360 8.8
Asset Management 27,196 33,698 (19.3) 25,706 5.8
Elimination (14) (11,408) (10,723) 6.4 (10,848) 5.2
Total fee-based assets $115,162 $108,138 6.5 $106,218 8.4
Individual Program Banks $4,691 $1,225 282.9 $3,007 56.0
ROA (bps) (15)
Private Client Group (12) 83.5 85.0 81.6
Asset Management 40.5 36.4 37.0
Individual Program Banks 15.2 145.3 7.1

Consolidated Net Interest Income Analysis (Unaudited):
Three Months Ended
September 30, 2020 September 30, 2019 June 30, 2020
($ in millions, except percentages) AverageBalance InterestIncome/Expense AverageInterestRate AverageBalance InterestIncome/Expense AverageInterestRate AverageBalance InterestIncome/Expense AverageInterestRate
Interest-earning assets:
Cash and federal funds sold $1,789.8 $1.1 0.25% $1,056.3 $5.7 2.15% $1,674.0 $1.0 0.24%
Financial instruments owned 801.3 2.9 1.46 1,157.8 5.7 1.96 761.7 2.9 1.50
Margin balances 872.5 5.8 2.66 1,308.3 13.3 4.08 981.5 6.4 2.59
Investments:
Asset-backed securities 4,838.7 25.3 2.09 4,367.8 42.4 3.88 4,842.0 32.6 2.70
Mortgage-backed securities 824.0 3.2 1.55 1,253.4 6.6 2.10 877.2 4.6 2.09
Corporate fixed income securities 551.8 3.5 2.50 743.7 5.7 3.06 648.9 4.2 2.59
State and municipal securities 2.4 — 1.97 34.3 0.2 2.27 12.2 0.1 2.19
Other 4.9 — 2.07 4.50 — 5.98 5.3 — 2.02
Total Investments 6,221.8 32.0 2.06 6,403.7 54.9 3.43 6,385.6 41.5 2.60
Loans:
Commercial and industrial 4,036.3 30.1 2.98 3,330.2 39.7 4.77 4,095.4 31.8 3.10
Residential real estate 3,711.2 26.1 2.81 3,003.8 23.2 3.08 3,589.2 25.6 2.85
Securities-based loans 1,787.1 9.2 2.05 1,959.3 19.9 4.06 1,789.2 9.9 2.22
Commercial real estate 400.0 3.8 3.76 377.2 5.2 5.52 402.6 4.0 3.98
Loans held for sale 460.1 2.6 2.25 209.7 1.7 3.21 486.7 3.3 2.68
Other 602.9 4.5 3.02 444.9 5.7 5.23 546.3 4.6 3.36
Total Loans 10,997.6 76.3 2.77 9,325.1 95.4 4.09 10,909.4 79.2 2.90
Other interest-bearing assets 547.7 (3.7) (2.69) 678.7 3.8 2.19 476.3 (2.6) (2.15)
Total interest-earning assets/interest income 21,230.7 114.4 2.16 19,929.9 178.8 3.59 21,188.5 128.4 2.42
Interest-bearing liabilities:
Short-term borrowings — — — 21.0 0.1 2.63 11.4 0.1 2.83
Senior notes 1,411.8 15.4 4.37 1,016.6 11.1 4.38 1,195.0 13.1 4.38
Deposits 16,379.2 1.5 0.04 14,926.2 24.8 0.67 16,676.5 2.3 0.05
FHLB 157.1 0.5 1.31 270.1 1.1 1.70 250.8 0.7 1.09
Other interest-bearing liabilities 1,071.6 (3.6) (1.34) 1,673.0 7.0 1.66 1,179.2 (3.1) (1.03)
Total interest-bearing liabilities/interest expense $19,019.7 $13.8 0.29% $17,906.9 $44.1 0.99% $19,312.9 $13.1 0.27%
Net interest income/margin $100.6 1.90% $134.7 2.70% $115.3 2.18%

Stifel Bancorp, Inc. (16) Net Interest Income Analysis (Unaudited):
Three Months Ended
September 30, 2020 September 30, 2019 June 30, 2020
($ in millions, except percentages) AverageBalance InterestIncome/Expense AverageInterestRate AverageBalance InterestIncome/Expense AverageInterestRate AverageBalance InterestIncome/Expense AverageInterestRate
Interest-earning assets:
Cash and federal funds sold $786.0 $0.3 0.14% $540.8 $3.2 2.36% $961.1 $0.3 0.13%
Investments 6,221.8 32.0 2.06 6,403.7 54.9 3.43 6,385.6 41.5 2.60
Loans 10,997.6 76.3 2.77 9,325.1 95.4 4.09 10,909.4 79.2 2.90
Other interest-bearing assets 42.9 0.2 2.86 46.7 0.4 3.04 46.7 0.3 2.46
Total interest-earning assets/interest income 18,048.3 108.8 2.41 16,316.3 153.9 3.77 18,302.8 121.3 2.65
Interest-bearing liabilities:
Deposits 16,379.2 1.5 0.04 14,926.2 24.8 0.67 16,676.5 2.3 0.05
FHLB 157.1 0.5 1.31 270.1 1.1 1.70 250.8 0.7 1.09
Other interest-bearing liabilities 1.5 — 6.08 1.7 0.1 6.49 1.5 — 6.71
Total interest-bearing liabilities/interest expense $16,537.8 2.0 0.05% $15,198.0 26.0 0.68% $16,928.8 3.0 0.07%
Net interest income/margin $106.8 2.37% $127.9 3.14% $118.3 2.59%

Stifel Bancorp, Inc. (16) - a component of Global Wealth Management
Selected operating data (unaudited):Three Months Ended Nine Months Ended
($ in 000s, except percentages)9/30/20 9/30/19 % Change 6/30/20 % Change 9/30/20 9/30/19 % Change
Net interest income$106,812 $127,942 (16.5) $118,298 (9.7) $358,241 $390,220 (8.2)
Credit loss provision/(release) (4,731) 929 n/m 19,210 n/m 30,547 5,565 448.9
Charge-offs 23 56 (58.9) 150 (84.7) 193 166 16.3
Net interest margin 2.37% 3.14% (77) bps 2.59% (22) bps 2.67% 3.14% (47) bps

Financial Metrics (unaudited): As of
($ in 000s, except percentages) 9/30/20 9/30/19 6/30/20
Total assets $17,854,768 $16,442,707 $18,123,326
Total shareholders' equity 1,378,981 1,234,932 1,378,096
Total loans, net (includes loans held for sale) 10,932,235 9,367,233 10,923,212
Total deposits 16,400,001 14,836,646 16,302,281
Available-for-sale securities, at fair value 2,823,885 3,448,207 3,172,160
Held-to-maturity securities, at amortized cost 3,395,115 2,878,516 3,083,126
Commercial and industrial 4,080,939 3,315,706 4,149,307
Residential real estate 3,804,836 3,043,271 3,710,657
Securities-based loans 1,841,516 1,986,339 1,716,786
Commercial real estate 386,957 387,868 406,788
Loans held for sale 281,475 265,330 474,899
Stifel Bank & Trust:
Common equity tier 1 capital ratio (10) 11.7% 13.1% 12.4%
Tier 1 capital ratio (10) 11.7% 13.1% 12.4%
Total capital ratio (10) 13.0% 14.3% 13.9%
Tier 1 leverage ratio (10) 7.2% 7.3% 7.2%
Stifel Bank:
Common equity tier 1 capital ratio (10) 18.0% 17.9% 18.8%
Tier 1 capital ratio (10) 18.0% 17.9% 18.8%
Total capital ratio (10) 19.3% 19.1% 20.1%
Tier 1 leverage ratio (10) 7.3% 7.0% 7.1%
Credit Metrics:
Allowance for credit losses $135,275 $91,360 $139,949
Allowance as a percentage of retained loans 1.26% 0.99% 1.32%
Net charge-offs as a percentage of average loans 0.00% 0.00% 0.00%
Total nonperforming assets $14,615 $18,031 $14,602
Nonperforming assets as % of total assets 0.08% 0.11% 0.08%

Global Wealth Management Summary Results of Operations (Unaudited)
Three Months Ended Nine Months Ended
($ in 000s) 9/30/20 9/30/19 %Change 6/30/20 %Change 9/30/20 9/30/19 %Change
Revenues:
Commissions $120,600 $118,061 2.2 $116,156 3.8 $373,653 $348,272 7.3
Principal transactions 42,027 42,056 (0.1) 42,967 (2.2) 127,976 127,427 0.4
Brokerage revenues 162,627 160,117 1.6 159,123 2.2 501,629 475,699 5.5
Asset management and service fees 230,765 217,616 6.0 198,921 16.0 667,446 624,025 7.0
Net interest 108,181 137,937 (21.6) 121,564 (11.0) 368,427 420,831 (12.5)
Investment banking (17) 8,113 9,855 (17.7) 8,016 1.2 26,462 28,637 (7.6)
Other income 17,150 9,046 89.6 18,158 (5.6) 51,610 28,422 81.6
Net revenues 526,836 534,571 (1.4) 505,782 4.2 1,615,574 1,577,614 2.4
Non-interest expenses:
Compensation and benefits 277,903 261,681 6.2 258,291 7.6 834,564 771,475 8.2
Non-compensation operating expenses 70,003 70,067 (0.1) 91,166 (23.2) 251,588 216,474 16.2
Total non-interest expenses 347,906 331,748 4.9 349,457 (0.4) 1,086,152 987,949 9.9
Income before income taxes $178,930 $202,823 (11.8) $156,325 14.5 $529,422 $589,665 (10.2)
As a percentage of net revenues:
Compensation and benefits 52.7 49.0 51.1 51.7 48.9
Non-compensation operating expenses 13.3 13.1 18.0 15.5 13.7
Income before income taxes 34.0 37.9 30.9 32.8 37.4

Institutional Group Summary Results of Operations (Unaudited)
Three Months Ended Nine Months Ended
($ in 000s) 9/30/20 9/30/19 %Change 6/30/20 %Change 9/30/20 9/30/19 %Change
Revenues:
Commissions $52,054 $45,859 13.5 $60,875 (14.5) $187,127 $136,078 37.5
Principal transactions 98,856 55,791 77.2 123,049 (19.7) 317,590 170,916 85.8
Brokerage revenues 150,910 101,650 48.5 183,924 (17.9) 504,717 306,994 64.4
Advisory fees 80,842 104,847 (22.9) 97,838 (17.4) 254,733 292,647 (13.0)
Capital raising 129,179 84,088 53.6 111,181 16.2 333,442 218,963 52.3
Investment banking 210,021 188,935 11.2 209,019 0.5 588,175 511,610 15.0
Other (18) 2,434 (363) n/m 5,153 (52.8) 807 3,506 (77.0)
Net revenues 363,365 290,222 25.2 398,096 (8.7) 1,093,699 822,110 33.0
Non-interest expenses:
Compensation and benefits 210,754 171,534 22.9 241,420 (12.7) 658,162 486,724 35.2
Non-compensation operating expenses 75,770 70,065 8.1 73,627 2.9 233,907 215,257 8.7
Total non-interest expenses 286,524 241,599 18.6 315,047 (9.1) 892,069 701,981 27.1
Income before income taxes $76,841 $48,623 58.0 $83,049 (7.5) $201,630 $120,129 67.8
As a percentage of net revenues:
Compensation and benefits 58.0 59.1 60.6 60.2 59.2
Non-compensation operating expenses 20.9 24.1 18.5 21.4 26.2
Income before income taxes 21.1 16.8 20.9 18.4 14.6

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, 2020, September 30, 2019, and June 30, 2020. 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, 2020 and 2019, and the three months ended June 30, 2020 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) 9/30/20 9/30/19 6/30/20 9/30/20 9/30/19
GAAP net income applicable to Stifel Financial Corp. $120,527 $109,414 $107,887 $315,003 $317,706
Preferred dividend 9,897 4,844 4,843 19,584 12,476
Net income available to common shareholders 110,630 104,570 103,044 295,419 305,230
Non-GAAP adjustments:
Merger-related and severance (19) 12,989 14,850 16,259 42,758 29,762
Litigation-related (20) — — — — 3,507
Provision for income taxes (21) (3,094) (2,274) (3,968) (10,384) (5,462)
Total non-GAAP adjustments 9,895 12,576 12,291 32,374 27,807
Non-GAAP net income available to common shareholders $120,525 $117,146 $115,335 $327,793 $333,037
Weighted average diluted shares outstanding 75,850 78,144 74,387 75,712 78,826
GAAP earnings per diluted common share $1.59 $1.40 $1.45 $4.16 $4.03
Non-GAAP adjustments 0.13 0.16 0.17 0.43 0.35
Non-GAAP earnings per diluted common share $1.72 $1.56 $1.62 $4.59 $4.38
GAAP earnings per diluted common share available to common shareholders $1.46 $1.34 $1.39 $3.90 $3.87
Non-GAAP adjustments 0.13 0.16 0.16 0.43 0.35
Non-GAAP earnings per diluted common share available to common shareholders $1.59 $1.50 $1.55 $4.33 $4.22

Footnotes

(1)Annualized return on average tangible common shareholders’ equity (“ROTE”) is calculated by dividing annualized net income applicable to common shareholders by average tangible shareholders’ equity or, in the case of non-GAAP ROTE, calculated by dividing non-GAAP net income applicable to common shareholders by average tangible shareholders’ equity. Tangible common shareholders’ equity equals total Stifel Financial common shareholders’ equity less goodwill and identifiable intangible assets and the deferred taxes on goodwill and intangible assets. Average deferred taxes on goodwill and intangible assets was $49.6 million, $45.3 million, and $48.5 million, as of September 30, 2020 and 2019, and June 30, 2020, respectively. Historical periods have been restated to conform with the current period presentation.
(2)Reconciliations of the Company’s GAAP results to these non-GAAP measures are discussed within and under “Non-GAAP Financial Measures.”
(3)Non-GAAP pre-tax margin for the three months ended September 30, 2020 of 19.4% is calculated by adding non-GAAP adjustments of $13.0 million to our GAAP income before income taxes of $158.4 million and dividing it by non-GAAP net revenues for the quarter of $883.3 million. Reconciliations of the Company’s GAAP results to certain non-GAAP measures is discussed within and under “Non-GAAP Financial Measures.”
(4)Non-GAAP pre-tax margin for the nine months ended September 30, 2020 of 17.1% is calculated by adding non-GAAP adjustments of $42.8 million to our GAAP income before income taxes of $416.5 million and dividing it by non-GAAP net revenues of $2.7 billion. Reconciliations of the Company’s GAAP results to certain non-GAAP measures is discussed within and under “Non-GAAP Financial Measures.”
(5)Excludes revenue included in the Other segment.
(6)See further discussion of non-GAAP adjustments under “Non-GAAP Financial Measures.”
(7)In the first quarter of 2020, the Company adopted ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments,” which amends several aspects of the measurement of credit losses on certain financial instruments, including replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (CECL) model. For further information about ASU No. 2016-13, see Note 2 “Summary of Significant Accounting Policies” in Part II, Item 8 “Financial Statements and Supplementary Data” in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
(8)Book value per common share represents shareholders’ equity (excluding preferred stock and non-controlling interests) divided by period end common shares outstanding.
(9)Annualized return on average common shareholders’ equity (“ROE”) is calculated by dividing annualized net income applicable to common shareholders by average Stifel Financial common shareholders’ equity or, in the case of non-GAAP ROE, calculated by dividing non-GAAP net income applicable to commons shareholders by average Stifel Financial common shareholders’ equity.
(10)Capital ratios are estimates at time of the Company’s earnings release.
(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, Stifel Bank, Stifel Trust Company, N.A, and Stifel Trust Company Delaware, N.A.
(17)Includes capital raising and advisory fees.
(18)Includes net interest, asset management and service fees, and other income.
(19)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.
(20)Primarily related to costs associated with Company’s legal matters.
(21)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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