SOURCE: Stifel

Stifel

May 08, 2014 16:01 ET

Stifel Reports First Quarter 2014 Financial Results

ST. LOUIS, MO--(Marketwired - May 8, 2014) -  Stifel Financial Corp. (NYSE: SF

  • Net revenues of $546.7 million, increased 25% compared with the year-ago quarter.
  • Non-GAAP net income from continuing operations of $52.0 million, or $0.69 per diluted common share.
  • Net income from continuing operations of $48.0 million, or $0.63 per diluted common share.

Stifel Financial Corp. (NYSE: SF) today reported net income from continuing operations of $48.0 million, or $0.63 per diluted common share on net revenues of $546.7 million for the three months ended March 31, 2014, compared with net income from continuing operations of $14.9 million, or $0.22 per diluted common share, on net revenues of $438.6 million for the first quarter of 2013.

For the three months ended March 31, 2014, the Company reported non-GAAP net income from continuing operations of $52.0 million, or $0.69 per diluted common share. These non-GAAP results exclude merger-related expenses associated with the Company's recent acquisitions for a total of $4.1 million (after-tax). A reconciliation of the Company's GAAP results to these non-GAAP measures is discussed below under "Non-GAAP Financial Measures."

Chairman's Comments

"During the first quarter we delivered solid results. Contributions from Global Wealth Management and Institutional Group drove a 25% year-over-year increase in total net revenues. We continue to attract experienced financial advisors, and total client assets reached a record $168 billion. Investment banking produced nice results driven by both advisory and equity transactions. In the quarter, we continued to benefit from our expansion in the Institutional Group," said Ronald J. Kruszewski, Chairman, President, and CEO of Stifel Financial Corp.

Kruszewski continued, "On April 3, 2014 we closed the previously announced acquisition of De La Rosa & Co., a California-based public finance investment banking boutique. We have integrated this impressive group into our current platform and are excited about their contribution to Stifel's fixed income capabilities going forward."

"Furthermore, today we announced the acquisition of Oriel Securities, which will significantly expand Stifel's depth, expertise, and reach in London, a vital global financial center. We are excited to partner with Oriel to grow our business internationally."

   
Summary Results of Operations (Unaudited)  
   
    Three Months Ended  
  (in 000s, except per share amounts)   3/31/14     3/31/13     % Change     12/31/13     % Change  
  Net revenues   $ 546,746     $ 438,604     24.7     $ 562,526     (2.8 )
  Net income from continuing operations   $ 47,973     $ 14,936     221.2     $ 52,126     (8.0 )
  Net income   $ 47,382     $ 14,619     224.1     $ 48,269     (1.8 )
                                       
  Non-GAAP net income from continuing operations1   $ 52,028     $ 40,058     29.9     $ 59,819     (13.0 )
Earnings per basic common share:                                    
  Income from continuing operations   $ 0.73     $ 0.25     192.0     $ 0.82     (11.0 )
  Loss from discontinued operations     (0.01 )     (0.01 )   --       (0.06 )   (83.3 )
  Earnings per basic common share   $ 0.72     $ 0.24     200.0     $ 0.76     (5.3 )
                                     
Earnings per diluted common share:                                    
  Income from continuing operations   $ 0.63     $ 0.22     186.4     $ 0.69     (8.7 )
  Loss from discontinued operations     --       (0.01 )   (100.0 )     (0.05 )   (100.0 )
  Earnings per diluted common share   $ 0.63     $ 0.21     200.0     $ 0.64     (1.6 )
                                       
  Non-GAAP net income from continuing operations1   $ 0.69     $ 0.58     19.0     $ 0.79     (12.7 )
Weighted average number of common shares outstanding:                                    
  Basic     66,037       60,054     10.0       64,859     1.8  
  Diluted     75,691       69,189     9.4       75,495     0.3  
                                     
                                     
                                     
Business Segment Results  
   
Summary Segment Results (Unaudited)  
   
    Three Months Ended  
(in 000s)   3/31/14     3/31/13     % Change   12/31/13     % Change  
Net revenues:                                  
  Global Wealth Management   $ 297,183     $ 266,957     11.3   $ 292,836     1.5  
  Institutional Group     249,977       173,300     44.2     267,282     (6.5 )
  Other     (414 )     (1,653 )   74.9     2,408     (117.2 )
    $ 546,746     $ 438,604     24.7   $ 562,526     (2.8 )
Operating contribution: 2                                  
  Global Wealth Management   $ 79,676     $ 69,499     14.6   $ 79,022     0.8  
  Institutional Group     45,622       28,230     61.6     48,590     (6.1 )
  Other     (40,726 )     (33,739 )   20.7     (37,184 )   9.5  
    $ 84,572     $ 63,990     32.2   $ 90,428     (6.5 )
                                   
As a percentage of net revenues:                                  
  Compensation and benefits                                  
    Global Wealth Management     58.6       59.0           57.4        
    Institutional Group     61.6       61.6           62.0        
  Non-comp. operating expenses                                  
    Global Wealth Management     14.6       15.0           15.6        
    Institutional Group     20.1       22.1           19.8        
  Income before income taxes                                  
    Global Wealth Management     26.8       26.0           27.0        
    Institutional Group     18.3       16.3           18.2        
    Other     (7.4 )     (7.7 )         (6.5 )      
      15.4       14.6           16.0        
                             

Global Wealth Management

For the quarter ended March 31, 2014, the Global Wealth Management segment generated record pre-tax operating income of $79.7 million, compared with $69.5 million in the first quarter of 2013 and $79.0 million in the fourth quarter of 2013. Net revenues for the quarter were a record $297.2 million, compared with $267.0 million in the first quarter of 2013, and $292.8 million in the fourth quarter of 2013. The increase in net revenues from the first quarter of 2013 is primarily attributable to (1) growth in asset management and service fees; (2) increased net interest revenues; and (3) an increase in commission revenues, offset primarily by (1) a decrease in investment gains (included in other revenues); and (2) a decline in principal transaction revenues.

  • The Private Client Group reported net revenues of $263.3 million, an 8% increase compared with the first quarter of 2013 and a 3% increase compared with the fourth quarter of 2013.
  • Stifel Bank reported net revenues of $33.9 million, a 42% increase compared with the first quarter of 2013 and an 8% decrease compared with the fourth quarter of 2013.

Institutional Group

For the quarter ended March 31, 2014, the Institutional Group segment generated pre-tax operating income of $45.6 million, compared with $28.2 million in the first quarter of 2013 and a record $48.6 million in the fourth quarter of 2013. Net revenues for the quarter were $250.0 million, compared with $173.3 million in the first quarter of 2013 and a record $267.3 million in the fourth quarter of 2013. The increase in net revenues from the first quarter of 2013 was primarily attributable to (1) an increase in advisory fees; (2) an increase in equity capital raising revenues; and (3) higher institutional brokerage revenues, offset by a reduction in other revenues as a result of gains recorded on the investment in Knight Capital during the first quarter of 2013.

Institutional brokerage revenues were $124.4 million, a 31% increase compared with the first quarter of 2013 and a 12% increase compared with the fourth quarter of 2013.

  • Equity brokerage revenues were $65.8 million, a 34% increase compared with the first quarter of 2013 and a 9% increase compared with the fourth quarter of 2013.
  • Fixed income brokerage revenues were $58.6 million, a 29% increase compared with the first quarter of 2013 and a 15% increase compared with the fourth quarter of 2013.

Investment banking revenues were $122.4 million, an 86% increase compared with the first quarter of 2013 and an 18% decrease compared with record investment banking revenues in the fourth quarter of 2013.

  • Equity capital raising revenues were $44.5 million, a 93% increase compared with the first quarter of 2013 and a 5% decrease compared with the fourth quarter of 2013.
  • Fixed income capital raising revenues were $19.4 million, a 24% increase compared with the first quarter of 2013 and a 32% increase compared with the fourth quarter of 2013.
  • Advisory fee revenues were $58.5 million, an 116% increase compared with the first quarter of 2013 and a 34% decrease compared with the fourth quarter of 2013.

Consolidated Compensation and Benefits Expenses

For the quarter ended March 31, 2014, compensation and benefits expenses were $346.8 million, which included merger-related expenses of $2.3 million, compared with $314.9 million in the first quarter of 2013, which included merger-related expenses of $33.8 million, and $353.2 million in the fourth quarter of 2013, which included merger-related expenses of $5.9 million.

Excluding merger-related expenses, compensation and benefits as a percentage of net revenues was 62.8% in the first quarter of 2014, compared with 63.8% in the first quarter of 2013 and 61.5% in the fourth quarter of 2013. Transition pay, which primarily consists of amortization of retention awards, signing bonuses, and upfront notes, as a percentage of net revenues was 4.3% in the first quarter of 2014, compared with 4.7% in the first quarter of 2013 and 4.0% in the fourth quarter of 2013. 

Consolidated Non-Compensation Operating Expenses

For the quarter ended March 31, 2014, non-compensation operating expenses were $121.8 million, which included $2.5 million of merger-related expenses, compared with $102.7 million in the first quarter of 2013, which included $6.6 million in merger-related expenses, and $131.3 million in the fourth quarter of 2013, which included $4.3 million in merger-related expenses.

Excluding merger-related expenses, non-compensation operating expenses as a percentage of net revenues for the quarter ended March 31, 2014 was 21.8%, compared with 21.8% in the first quarter of 2013 and 22.5% in the fourth quarter of 2013.

Provision for Income Taxes

The effective income tax rate for the quarter ended March 31, 2014 was 38.6% compared with 36.9% in the first quarter of 2013, and 33.2% in the fourth quarter of 2013.

Assets and Capital

Assets

  • Assets increased 15% to $9.4 billion as of March 31, 2014 from $8.1 billion as of March 31, 2013. The increase is primarily attributable to growth of Stifel Bank, the Company's bank subsidiary, which as of March 31, 2014 has grown its assets to $5.0 billion from $3.8 billion as of March 31, 2013.
  • At March 31, 2014, the Company's Level 3 assets of $224.5 million, or 2% of total assets, consisted of $123.7 million of auction rate securities and $100.8 million of private equity, municipal securities, and other fixed income securities. The Company's Level 3 assets as a percentage of total assets measured at fair value was 7% at March 31, 2014.
  • Non-performing assets as a percentage of total assets as of March 31, 2014 was 0.03%.

Capital

  • The Company's Tier 1 leverage capital ratio was 15.1% at March 31, 2014 and Tier 1 risk-based capital ratio was 25.9% at March 31, 2014.
  • At March 31, 2014, book value per common share was $32.09 based on 65.5 million shares outstanding.
  • Stockholders' equity as of March 31, 2014 increased $196.5 million, or 10%, to $2.1 billion from $1.9 billion as of March 31, 2013.

Non-GAAP Financial Measures

The Company utilized non-GAAP calculations of presented net revenues, compensation and benefits, non-compensation operating expenses, income before income taxes, provision for income taxes, net income, compensation and non-compensation operating expense ratios, pre-tax margin and diluted earnings per share as additional measures to aid in understanding and analyzing the Company's financial results for the three months ended March 31, 2014. 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. These non-GAAP amounts exclude certain compensation and non-compensation operating expenses associated with the recent acquisitions.

A limitation of utilizing these non-GAAP measures of net revenues, compensation and benefits, non-compensation operating expenses, income before income taxes, provision for income taxes, net income, compensation and non-compensation operating expenses ratios, pre-tax margin and diluted earnings per share is that the GAAP accounting effects of these merger-related 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 of net revenues, compensation and benefits, non-compensation operating expenses, income before income taxes, provision for income taxes, net income, compensation and non-compensation operating expense ratios, pre-tax margin and diluted earnings per share 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 revenues, compensation and benefits, non-compensation operating expenses, income before income taxes, provision for income taxes, net income, compensation and non-compensation operating expense ratios, pre-tax margin and diluted earnings per share on a GAAP basis for the three months ended March 31, 2014 to the aforementioned expenses on a non-GAAP basis for the same period.

     
    Three Months Ended March 31, 2014
(in 000s, except per share amounts)   Non-GAAP   Non-Core     GAAP
Net revenues   $ 548,435   $ (1,689 )   $ 546,746
                     
Non-interest expenses:                    
  Compensation and benefits     344,487     2,284       346,771
  Non-compensation operating expenses     119,376     2,471       121,847
    Total non-interest expenses     463,863     4,755       468,618
Income from continuing operations before income taxes     84,572     (6,444 )     78,128
  Provision for income taxes     32,544     (2,389 )     30,155
Net income from continuing operations   $ 52,028   $ (4,055 )   $ 47,973
                     
Earnings per common share:                    
  Basic   $ 0.79   $ (0.06 )   $ 0.73
  Diluted   $ 0.69   $ (0.06 )   $ 0.63
                       
As a percentage of net revenues:                    
  Compensation and benefits     62.8             63.4
  Non-compensation operating expenses     21.8             22.3
  Income before income taxes     15.4             14.3
                     

Conference Call Information

Stifel Financial Corp. will host its fourth quarter and full-year 2013 financial results conference call on Thursday, May 8, 2014, at 4:30 p.m. Eastern time. The conference call may include forward-looking statements.

All interested parties are invited to listen to Stifel's Chairman, President, and CEO, Ronald J. Kruszewski, by dialing (888) 676-3684 and referencing conference ID #40668612. 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 through Stifel Nicolaus Europe Limited and Keefe, Bruyette & Woods 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, please visit the Company's web site at www.stifel.com.

Forward-Looking Statements

This earnings release contains certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this earnings release not dealing with historical results are forward-looking and are based on various assumptions. The forward-looking statements in this earnings release are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among other things, the following possibilities: the ability to successfully integrate acquired companies or the branch offices and financial advisors; a material adverse change in financial condition; the risk of borrower, depositor, and other customer attrition; a change in general business and economic conditions; changes in the interest rate environment, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation and regulation; other economic, competitive, governmental, regulatory, geopolitical, and technological factors affecting the companies' operations, pricing, and services; and other risk factors referred to from time to time in filings made by Stifel Financial Corp. with the Securities and Exchange Commission. Forward-looking statements speak only as to the date they are made. Stifel Financial Corp. disclaims any intent or obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

   
   
Summary Results of Operations (Unaudited)  
    Three Months Ended  
(in 000s)   3/31/14     3/31/13     % Change     12/31/13     % Change  
Revenues:                                    
  Commissions   $ 159,416     $ 145,867     9.3     $ 152,451     4.6  
  Principal transactions     126,461       107,264     17.9       118,815     6.4  
  Investment banking     132,304       76,905     72.0       158,860     (16.7 )
  Asset management and service fees     89,170       68,912     29.4       83,928     6.2  
  Other income     5,200       20,419     (74.5 )     19,391     (73.2 )
    Operating revenues     512,551       419,367     22.2       533,445     (3.9 )
  Interest revenue     42,826       29,806     43.7       40,711     5.2  
    Total revenues     555,377       449,173     23.6       574,156     (3.3 )
  Interest expense     8,631       10,569     (18.3 )     11,630     (25.8 )
    Net revenues     546,746       438,604     24.7       562,526     (2.8 )
                                     
Non-interest expenses:                                    
  Compensation and benefits     346,771       314,912     10.1       353,207     (1.8 )
  Occupancy and equipment rental     40,532       33,519     20.9       42,178     (3.9 )
  Communications and office supplies     24,818       22,457     10.5       25,692     (3.4 )
  Commission and floor brokerage     9,028       8,837     2.2       8,448     6.9  
  Other operating expenses     47,469       35,221     34.8       55,012     (13.7 )
    Total non-interest expenses     468,618       414,946     12.9       484,537     (3.3 )
                                     
Income from continuing operations before income taxes     78,128       23,658     230.2       77,989     0.2  
  Provision for income taxes     30,155       8,722     245.8       25,863     16.6  
Net income from continuing operations     47,973       14,936     221.2       52,126     (8.0 )
                                     
Discontinued operations:                                    
  Loss from discontinued operations, net of tax     (591 )     (317 )   86.4       (3,857 )   (84.7 )
Net income   $ 47,382     $ 14,619     224.1     $ 48,269     (1.8 )
                                     
Earnings per basic common share:                                    
  Income from continuing operations   $ 0.73     $ 0.25     192.0     $ 0.82     (11.0 )
  Loss from discontinued operations     (0.01 )     (0.01 )   --       (0.06 )   (83.3 )
    Earnings per basic common share   $ 0.72     $ 0.24     200.0     $ 0.76     (5.3 )
                                     
Earnings per diluted common share:                                    
  Income from continuing operations   $ 0.63     $ 0.22     186.4     $ 0.69     (8.7 )
  Loss from discontinued operations     --       (0.01 )   (100.0 )     (0.05 )   (100.0 )
    Earnings per diluted common share   $ 0.63     $ 0.21     200.0     $ 0.64     (1.6 )
                                     
Weighted average number of common shares outstanding:                                    
  Basic     66,037       60,054     10.0       64,859     1.8  
  Diluted     75,691       69,189     9.4       75,495     0.3  
                                     
                                     
                                     
(in thousands, except per share, employee and location amounts)  
   
    3/31/14   3/31/13   % Change   12/31/13   % Change  
Statistical Information:                            
  Book value per common share   $ 32.09   $ 30.13   6.5   $ 32.30   (0.7 )
  Financial advisors 3     2,081     2,063   0.9     2,077   0.2  
  Full-time associates     5,831     5,680   2.7     5,862   (0.5 )
  Locations     359     357   0.6     357   0.6  
  Total client assets   $ 168,423,000   $ 147,119,000   14.5   $ 165,570,000   1.7  
                             
                             
                             
Global Wealth Management Segment  
Summary Results of Operations (Unaudited)  
   
    Three Months Ended  
(in 000s)   3/31/14   3/31/13   % Change     12/31/13   % Change  
Revenues:                              
  Commissions   $ 107,739   $ 102,086   5.5     $ 104,149   3.4  
  Principal transactions     53,766     56,307   (4.5 )     55,809   (3.7 )
  Asset management and service fees     89,130     68,934   29.3       82,964   7.4  
  Net interest     35,262     21,486   64.1       31,092   13.4  
  Investment banking     9,926     11,103   (10.6 )     9,568   3.6  
  Other income     1,360     7,041   (80.7 )     9,254   (85.2 )
    Net revenues     297,183     266,957   11.3       292,836   1.5  
Non-interest expenses:                              
  Compensation and benefits     174,168     157,596   10.5       167,980   3.7  
  Non-compensation operating expenses     43,339     39,862   8.7       45,834   (5.4 )
    Total non-interest expenses     217,507     197,458   10.2       213,814   1.7  
Income before income taxes   $ 79,676   $ 69,499   14.6     $ 79,022   0.8  
                               
As a percentage of net revenues:                              
  Compensation and benefits     58.6     59.0           57.4      
  Non-compensation operating expenses     14.6     15.0           15.6      
  Income before income taxes     26.8     26.0           27.0      
                               
                               
                               
                               
Stifel Bank & Trust (Unaudited)  
   
Key Statistical Information  
(in 000s, except percentages)   3/31/14     3/31/13     % Change     12/31/13     % Change  
Other information:                                    
  Assets   $ 4,994,215     $ 3,832,281     30.3     $ 5,021,943     (0.6 )
  Investment securities     3,083,902       2,440,146     26.4       3,062,549     0.7  
  Retained loans, net     1,495,124       886,597     68.6       1,412,136     5.9  
  Loans held for sale     102,367       165,698     (38.2 )     109,110     (6.2 )
  Deposits     4,605,260       3,556,568     29.5       4,663,323     (1.2 )
                                       
  Allowance as a percentage of loans     0.94 %     1.01 %           0.89 %      
  Non-performing assets as a percentage of total assets     0.03 %     0.04 %           0.03 %      
                                     
                                     
                                     
Institutional Group Summary Results of Operations (Unaudited)  
    Three Months Ended  
(in 000s)   3/31/14   3/31/13   % Change     12/31/13   % Change  
Revenues:                              
  Commissions   $ 51,677   $ 43,781   18.0     $ 48,302   7.0  
  Principal transactions     72,695     50,957   42.7       63,005   15.4  
                                 
  Capital raising     63,878     38,746   64.9       61,311   4.2  
  Advisory fees     58,500     27,056   116.2       87,981   (33.5 )
  Investment banking     122,378     65,802   86.0       149,292   (18.0 )
  Other 4     3,227     12,760   (74.7 )     6,683   (51.7 )
    Net revenues     249,977     173,300   44.2       267,282   (6.5 )
Non-interest expenses:                              
  Compensation and benefits     154,016     106,821   44.2       165,779   (7.1 )
  Non-compensation operating expenses     50,339     38,249   31.6       52,913   (4.9 )
    Total non-interest expenses     204,355     145,070   40.9       218,692   (6.6 )
Income before income taxes   $ 45,622   $ 28,230   61.6     $ 48,590   (6.1 )
                               
As a percentage of net revenues:                              
  Compensation and benefits     61.6     61.6           62.0      
  Non-compensation operating expenses     20.1     22.1           19.8      
  Income before income taxes     18.3     16.3           18.2      
                               
                               
                               
                       
Institutional Group Brokerage & Investment Banking Revenues (Unaudited)  
   
    Three Months Ended  
(in 000s)   3/31/14   3/31/13   % Change   12/31/13   % Change  
Institutional brokerage:                            
  Equity   $ 65,768   $ 49,238   33.6   $ 60,204   9.2  
  Fixed income     58,604     45,500   28.8     51,103   14.7  
Institutional brokerage     124,372     94,738   31.3     111,307   11.7  
                             
Investment banking:                            
  Capital raising:                            
    Equity     44,476     23,031   93.1     46,634   (4.6 )
    Fixed income     19,402     15,715   23.5     14,677   32.2  
      Capital raising     63,878     38,746   64.9     61,311   4.2  
  Advisory fees:     58,500     27,056   116.2     87,981   (33.5 )
Investment banking   $ 122,378   $ 65,802   86.0   $ 149,292   (18.0 )
                             
                             
(1) A reconciliation of the Company's GAAP results to these non-GAAP measures is discussed under "Non-GAAP Financial Measures."
(2) A reconciliation of the Company's GAAP results to these non-GAAP measures is discussed under "Non-GAAP Financial Measures."
(3) Includes 141, 148 and 143 independent contractors at March 31, 2014, March 31, 2013, and December 31, 2013, respectively.
(4) Includes net interest and other income.
   

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