Stifel Financial Corp. Reports Third Quarter 2012 Financial Results

ST. LOUIS, MO--(Marketwire - Nov 5, 2012) -

Highlights for the three months ended September 30, 2012:

• Record net revenues of $420.1 million.
• Net income of $37.7 million, or $0.60 per diluted share.
• Stockholders' equity was $1.43 billion and book value per share was $26.62.

Highlights for the nine months ended September 30, 2012:

• Record net revenues of $1.2 billion increased 13% from the comparable period in 2011.
• Record net income of $98.6 million, or $1.57 per diluted share.

Stifel Financial Corp. (NYSE: SF) today reported unaudited net income of $37.7 million, or $0.60 per diluted share, on record net revenues of $420.1 million for the three months ended September 30, 2012, compared with net income of $22.3 million, or $0.35 per diluted share, on net revenues of $334.2 million for the third quarter of 2011.

For the nine months ended September 30, 2012, the Company reported record net income of $98.6 million, or $1.57 per diluted share, on net revenues of $1.2 billion, compared with net income of $57.1 million, or $0.90 per diluted share¹, on net revenues of $1.1 billion during the comparable period in 2011. Included in net revenues for the three and nine months ended September 30, 2012 is $25.6 million in realized and unrealized gains recognized on the Company's investment in Knight Capital Group, Inc. The after-tax impact of these gains was $0.09 per diluted share.

"I am pleased with our third quarter results, which included record net revenues, as well as with our record net revenues and net income for the first nine months of 2012. Our results highlight the soundness of our balanced business model, particularly against a challenging economic backdrop. In the quarter, both the Global Wealth Management and Institutional Group segments performed well," commented Ronald J. Kruszewski, Chairman, President and CEO of Stifel Financial. "We continue to invest in businesses that expand our client services, and which we believe will return shareholder value. Opportunities drive our growth. Today's announcement of our merger with KBW furthers our goal of creating the premier middle-market investment bank with a specialized focus on the financial services industry."

Summary Results of Operations (Unaudited)

			Three Months Ended														Nine Months Ended
(in 000s)			9/30/12			9/30/11			% Change			6/30/12			% Change		9/30/12			9/30/11			% Change
	Net revenues		$	420,080		$	334,214		25.7			$	374,407		12.2		$	1,194,820		$	1,059,684		12.8
	Net income		$	37,710		$	22,304		69.1			$	26,136		44.3		$	98,619		$	57,118		72.7
Earnings per share:
	Basic		$	0.70		$	0.43		62.8			$	0.49		42.9		$	1.84		$	1.09		68.8
	Diluted		$	0.60		$	0.35		71.4			$	0.42		42.9		$	1.57		$	0.90		74.4
Weighted average number of common shares outstanding:
	Basic			53,601			52,367		2.4				53,569		0.1			53,471			52,610		1.6
	Diluted			63,054			63,152		(0.2	)			62,678		0.6			62,817			63,174		(0.6	)

Business Segment Results

Summary Segment Results (Unaudited)

			Three Months Ended																		Nine Months Ended
(in 000s)			9/30/12				9/30/11				% Change			6/30/12				% Change			9/30/12				9/30/11				% Change
Net revenues:
	Global Wealth Management		$	251,728			$	219,498			14.7			$	240,029			4.9			$	740,105			$	683,589			8.3
	Institutional Group 2			169,679				113,259			49.8				135,297			25.4				453,480				373,168			21.5
	Other			(1,327	)			1,457			(191.1	)			(919	)		(44.4	)			1,235				2,927			(57.8	)
			$	420,080			$	334,214			25.7			$	374,407			12.2			$	1,194,820			$	1,059,684			12.8
Pre-tax operating income:
	Global Wealth Management		$	68,370			$	55,612			22.9			$	61,353			11.4			$	198,901			$	172,510			15.3
	Institutional Group 2			33,427				9,152			265.2				17,546			90.5				74,677				52,496			42.3
	Other 3			(40,120	)			(25,741	)		55.9				(35,025	)		14.5				(108,773	)			(131,424	)		(17.2	)
			$	61,677			$	39,023			58.1			$	43,874			40.6			$	164,805			$	93,582			76.1

Global Wealth Management

For the quarter ended September 30, 2012, the Global Wealth Management ("GWM") segment generated pre-tax operating income of $68.4 million, compared with $55.6 million in the third quarter of 2011 and $61.4 million in the second quarter of 2012. Net revenues for the quarter were $251.7 million, compared with $219.5 million in the third quarter of 2011, and $240.0 million in the second quarter of 2012. The increase in net revenues over the comparable period in 2011 is primarily attributable to: (1) higher principal transactions revenues, offset by a decrease in commissions revenue; (2) higher sales credits from investment banking underwritings; (3) growth in asset management and service fees as a result of an increase in assets under management and positive gains in market performance; and (4) increased net interest revenues as a result of the growth of net interest-earning assets at Stifel Bank. The increase in net revenues from the second quarter of 2012 was primarily attributable to: (1) higher sales credits from investment banking underwritings; (2) an increase in principal transactions revenues; and (3) increased net interest revenues as a result of the growth of net interest-earning assets at Stifel Bank.

• The Private Client Group reported net revenues of $229.4 million, a 14% increase compared with the third quarter of 2011 and a 4% increase compared with the second quarter of 2012.
• Stifel Bank reported net revenues of $22.3 million, a 27% increase compared with the third quarter of 2011 and a 17% increase compared with the second quarter of 2012.

Institutional Group

For the quarter ended September 30, 2012, the Institutional Group segment generated pre-tax operating income of $33.4 million, compared with $9.2 million in the third quarter of 2011 and $17.5 million in the second quarter of 2012. Net revenues for the quarter were $169.7 million, compared with $113.3 million in the third quarter of 2011 and $135.3 million in the second quarter of 2012. The increase in net revenues from the comparable period in 2011 was driven by: (1) an increase in advisory fees; (2) an increase in fixed income capital raising revenues; (3) higher fixed income institutional brokerage revenues; and (4) the realized and unrealized gains recognized on the Company's investment in Knight Capital Group, Inc. Offsetting these increases was a decrease in equity institutional brokerage revenues. The increase in net revenues from the second quarter of 2012 was primarily attributable to: (1) an increase in fixed income institutional brokerage revenues; and (2) the realized and unrealized gains recognized on the Company's investment in Knight Capital Group, Inc.

Institutional brokerage revenues were $82.8 million, a 5% increase compared with the third quarter of 2011 and a 10% increase compared with the second quarter of 2012.

• Equity brokerage revenues were $38.0 million, a 20% decrease compared with the third quarter of 2011 and a 1% decrease compared with the second quarter of 2012.
• Fixed income brokerage revenues were $44.8 million, a 41% increase compared with the third quarter of 2011 and a 23% increase compared with the second quarter of 2012.

Investment banking revenues were $59.6 million, a 76% increase compared with the third quarter of 2011 and a 1% increase compared with the second quarter of 2012.

• Equity capital raising revenues were $17.5 million, a 7% increase compared with the third quarter of 2011 and a 1% decrease compared with the second quarter of 2012.
• Fixed income capital raising revenues were $14.9 million, a 194% increase compared with the third quarter of 2011 and a 2% increase compared with the second quarter of 2012.
• Advisory fee revenues were $27.2 million, a 118% increase compared with the third quarter of 2011 and a 2% increase compared with the second quarter of 2012.

Consolidated Compensation and Benefits Expenses

For the quarter ended September 30, 2012, compensation and benefits expenses were $267.7 million, compared with $210.6 million in the third quarter of 2011 and $239.4 million in the second quarter of 2012.

Compensation and benefits as a percentage of net revenues was 64% in the third quarter of 2012, compared with 63% in the third quarter of 2011 and 64% in the second quarter of 2012. Transition pay, which primarily consists of amortization of upfront notes, signing bonuses and retention awards, as a percentage of net revenues was 5% in the third quarter of 2012, consistent with the third quarter of 2011 and the second quarter of 2012.

Consolidated Non-Compensation Operating Expenses

For the quarter ended September 30, 2012, non-compensation operating expenses were $90.8 million, compared to $84.6 million in the third quarter of 2011 and $91.2 million in the second quarter of 2012.

Non-compensation operating expenses as a percentage of net revenues for the quarter ended September 30, 2012 was 22% compared with 25% in the third quarter of 2011 and 24% in the second quarter of 2012. The lower ratio in the third quarter of 2012 was driven by the impact of higher revenues.

Provision for Income Taxes

The effective income tax rate for the quarter ended September 30, 2012 was 39% compared with 43% in the third quarter of 2011 and 40% in the second quarter of 2012.

Statement of Financial Condition (Unaudited)

Total assets increased 24% to $6.1 billion as of September 30, 2012 from $4.9 billion as of September 30, 2011. The increase is primarily attributable to growth of Stifel Bank, the Company's bank subsidiary, which as of September 30, 2012 has grown its assets to $3.2 billion from $2.3 billion as of September 30, 2011. As of September 30, 2012, Stifel Bank's investment portfolio of $2.1 billion has increased 45% from September 30, 2011, with more than 99% of the investment portfolio comprised of investment grade securities, of which more than 71% were Government-Sponsored Enterprise guaranteed MBS or AAA-rated investments. The Company's broker-dealer subsidiary's gross assets and liabilities, including trading inventory, stock loan/borrow, receivables and payables from/to brokers, dealers and clearing organizations and clients, fluctuate with business levels and overall market conditions.

Total stockholders' equity as of September 30, 2012 increased $165.4 million, or 13%, to $1.427 billion from $1.262 billion as of September 30, 2011. Book value per share was $26.62 as of September 30, 2012. The Company repurchased $9.1 million, or 0.3 million shares, of its common stock pursuant to existing Board repurchase authorizations during the nine months ended September 30, 2012.

As of September 30, 2012, the Company reported total securities owned and investments at fair value of $2.4 billion, which included securities categorized as Level 3 of $214.5 million. The Company's Level 3 assets include auction rate securities with a fair value of $162.8 million, and private equity and other fixed income securities with a fair value $51.7 million as of September 30, 2012.

Conference Call Information

Stifel Financial Corp. will host its third quarter 2012 financial results conference call on Monday, November 5, 2012, at 8:30 a.m. Eastern time. The conference call may include forward-looking statements.

All interested parties are invited to listen to the Company's Chairman, President, and CEO, Ronald J. Kruszewski, by dialing (800) 651-2240 and referencing conference ID #64728788. 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 clients are served through Stifel, Nicolaus & Company, Incorporated in the U.S., through Stifel Nicolaus Canada Inc. in Canada, and through Stifel Nicolaus Europe Limited in the United Kingdom and Europe. 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 offers a full range of consumer and commercial lending solutions. Stifel Trust Company, N.A. offers trust and related services. To learn more about Stifel Financial, 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 thousands, except per share amounts)				9/30/12			9/30/11			% Change			6/30/12			% Change			9/30/12			9/30/11			% Change
Revenues:
	Commissions			$	127,966		$	143,243		(10.7	)		$	127,427		0.4			$	378,696		$	437,344		(13.4	)
	Principal transactions				102,979			76,650		34.4				91,564		12.5				310,776			249,250		24.7
	Investment banking				72,938			37,673		93.6				67,363		8.3				210,739			143,509		46.8
	Asset management and service fees				62,881			58,253		7.9				65,311		(3.7	)			189,010			172,914		9.3
	Other income				31,922			540		*				5,418		489.2				50,634			11,352		346.0
		Operating revenues			398,686			316,359		26.0				357,083		11.7				1,139,855			1,014,369		12.4
	Interest revenue				27,306			24,161		13.0				27,181		0.5				79,744			64,246		24.1
		Total revenues			425,992			340,520		25.1				384,264		10.9				1,219,599			1,078,615		13.1
	Interest expense				5,912			6,306		(6.2	)			9,857		(40.0	)			24,779			18,931		30.9
		Net revenues			420,080			334,214		25.7				374,407		12.2				1,194,820			1,059,684		12.8
Non-interest expenses:
	Compensation and benefits				267,652			210,573		27.1				239,374		11.8				761,730			671,678		13.4
	Occupancy and equipment rental				33,061			30,914		6.9				32,320		2.3				96,172			89,962		6.9
	Communications and office supplies				19,976			18,838		6.0				20,797		(3.9	)			61,146			56,198		8.8
	Commission and floor brokerage				8,031			7,400		8.5				7,747		3.7				23,390			20,943		11.7
	Other operating expenses				29,683			27,466		8.1				30,295		(2.0	)			87,577			127,321		(31.2	)
		Total non-interest expenses			358,403			295,191		21.4				330,533		8.4				1,030,015			966,102		6.6
Income before income taxes					61,677			39,023		58.1				43,874		40.6				164,805			93,582		76.1
	Provision for income taxes				23,967			16,719		43.4				17,738		35.1				66,186			36,464		81.5
Net income				$	37,710		$	22,304		69.1			$	26,136		44.3			$	98,619		$	57,118		72.7
Earnings per share:
	Basic			$	0.70		$	0.43		62.8			$	0.49		42.9			$	1.84		$	1.09		68.8
	Diluted			$	0.60		$	0.35		71.4			$	0.42		42.9			$	1.57		$	0.90		74.4
Weighted average number of common shares outstanding:
	Basic				53,601			52,367		2.4				53,569		0.1				53,471			52,610		1.6
	Diluted				63,054			63,152		(0.2	)			62,678		0.6				62,817			63,174		(0.6	)
* Percentage not meaningful.

(in thousands, except per share, employee and location amounts)
			9/30/12			9/30/11			% Change		6/30/12			% Change
Statistical Information:
	Book value per share		$	26.62		$	24.48		8.7		$	25.63		3.9
	Financial advisors 4			2,042			1,961		4.1			2,028		0.7
	Full-time associates			5,266			4,942		6.6			5,196		1.3
	Locations			338			313		8.0			332		1.8
	Total client assets 5		$	136,015,000		$	110,797,000		22.8		$	131,026,000		3.8

Global Wealth Management Summary Results of Operations (Unaudited)

				Three Months Ended															Nine Months Ended
(in 000s)				9/30/12			9/30/11			% Change			6/30/12			% Change			9/30/12			9/30/11			% Change
Revenues:
	Commissions			$	89,393		$	92,029		(2.9	)		$	88,423		1.1			$	268,839		$	287,384		(6.5	)
	Principal transactions				58,801			48,836		20.4				55,628		5.7				173,474			156,262		11.0
	Asset management and service fees				62,871			58,007		8.4				65,169		(3.5	)			188,626			172,354		9.4
	Net interest				22,283			15,016		48.4				18,233		22.2				58,163			39,586		46.9
	Investment banking				13,347			3,737		257.2				8,531		56.5				34,348			16,460		108.7
	Other income				5,033			1,873		168.7				4,045		24.4				16,655			11,543		44.3
		Net revenues			251,728			219,498		14.7				240,029		4.9				740,105			683,589		8.3
Non-interest expenses:
	Compensation and benefits				146,882			128,244		14.5				140,984		4.2				431,623			403,782		6.9
	Non-compensation operating expenses				36,476			35,642		2.3				37,692		(3.2	)			109,581			107,297		2.1
		Total non-interest expenses			183,358			163,886		11.9				178,676		2.6				541,204			511,079		5.9
Income before income taxes				$	65,921		$	55,612		22.9			$	61,353		11.4			$	198,901		$	172,510		15.3
As a percentage of net revenues:
	Compensation and benefits				58.3			58.4						58.7						58.3			59.1
	Non-compensation operating expenses				14.5			16.3						15.7						14.8			15.7
	Income before income taxes				27.2			25.3						25.6						26.9			25.2

Stifel Bank & Trust (Unaudited)
Key Statistical Information
(in 000s, except percentages)			9/30/12				9/30/11				% Change		6/30/12				% Change
Other information:
	Assets		$	3,228,021			$	2,311,371			39.7		$	3,058,971			5.5
	Investment securities			2,133,494				1,470,812			45.1			1,849,622			15.3
	Retained loans, net			746,120				567,341			31.5			709,079			5.2
	Loans held for sale			209,358				114,452			82.9			117,166			78.7
	Deposits			2,923,671				2,120,763			37.9			2,776,684			5.3
	Allowance as a percentage of loans			0.85	%			0.67	%					0.88	%
	Non-performing assets as a percentage of total assets			0.07	%			0.08	%					0.08	%

Institutional Group Summary Results of Operations (Unaudited)

				Three Months Ended															Nine Months Ended
(in 000s)				9/30/12			9/30/11			% Change			6/30/12			% Change			9/30/12			9/30/11			% Change
Revenues:
	Commissions			$	38,574		$	51,214		(24.7	)		$	39,004		(1.1	)		$	109,858		$	149,960		(26.7	)
	Principal transactions				44,178			27,815		58.8				35,936		22.9				137,302			92,988		47.7
	Capital raising				32,386			21,436		51.1				32,202		0.6				106,951			80,654		32.6
	Advisory fees				27,205			12,500		117.6				26,630		2.2				69,440			46,395		49.7
	Investment banking				59,591			33,936		75.6				58,832		1.3				176,391			127,049		38.8
	Other 6				27,336			294		*				1,525		*				29,929			3,171		*
		Net revenues			169,679			113,259		49.8				135,297		25.4				453,480			373,168		21.5
Non-interest expenses:
	Compensation and benefits				104,913			74,813		40.2				84,754		23.8				283,691			234,006		21.2
	Non-compensation operating expenses				31,339			29,294		7.0				32,997		(5.0	)			95,112			86,666		9.7
		Total non-interest expenses			136,252			104,107		30.9				117,751		15.7				378,803			320,672		18.1
Income before income taxes				$	33,427		$	9,152		265.2			$	17,546		90.5			$	74,677		$	52,496		42.3
As a percentage of net revenues:
	Compensation and benefits				61.8			66.0						62.6						62.6			62.7
	Non-compensation operating expenses				18.5			25.9						24.4						20.9			23.2
	Income before income taxes				19.7			8.1						13.0						16.5			14.1
* Percentage not meaningful.

Institutional Group Brokerage & Investment Banking Revenues (Unaudited)

					Three Months Ended															Nine Months Ended
(in 000s)					9/30/12			9/30/11			% Change			6/30/12			% Change			9/30/12			9/30/11			% Change
Institutional brokerage:
	Equity				$	37,956		$	47,185		(19.6	)		$	38,466		(1.3	)		$	120,594		$	141,278		(14.6	)
	Fixed income					44,796			31,844		40.7				36,474		22.8				126,566			101,670		24.5
Institutional brokerage						82,752			79,029		4.7				74,940		10.4				247,160			242,948		1.7
Investment banking:
	Capital raising:
		Equity				17,527			16,382		7.0				17,651		(0.7	)			66,728			67,386		(1.0	)
		Fixed income				14,859			5,054		194.0				14,551		2.1				40,223			13,268		203.2
			Capital raising			32,386			21,436		51.1				32,202		0.6				106,951			80,654		32.6
	Advisory fees					27,205			12,500		117.6				26,630		2.2				69,440			46,395		49.7
Investment banking					$	59,591		$	33,936		75.6			$	58,832		1.3			$	176,391		$	127,049		38.8

¹ Included in the results for the nine months ended September 30, 2011 were the estimated costs of settlement and litigation-related expenses of $29.4 million after tax, or $0.47 per diluted share, respectively, associated with the civil lawsuit and related regulatory investigation in connection with the previously disclosed matter involving five Southeastern Wisconsin school districts and certain merger-related expenses.

² Results for the three and nine months ended September 30, 2012 include $25.6 million in realized and unrealized gains recognized on the Company's investment in Knight Capital Group, Inc.

³ Results for the nine months ended September 30, 2011 include litigation-related charges and merger-related expenses of $47.5 million pre-tax.

⁴ Includes 154, 160 and 156 independent contractors at September 30, 2012 and 2011 and June 30, 2012, respectively.

⁵ Includes money market and FDIC-insured balances. Prior period amounts have been adjusted to conform to the current period presentation.

⁶ Includes net interest and other income. Other income for the three and nine months ended September 30, 2012 include $25.6 million in realized and unrealized gains recognized on the Company's investment in Knight Capital Group, Inc.