SOURCE: Stifel Financial Corp.

Stifel Financial Corp.

May 09, 2016 16:00 ET

Stifel Reports First Quarter 2016 Financial Results

ST. LOUIS, MO --(Marketwired - May 09, 2016) -

Quarterly Highlights

  • Net revenues of $620.0 million, increased 10.5% compared with the year-ago quarter.
  • Net income of $27.1 million, or $0.36 per diluted common share, a 37.2% decline from the year ago quarter.
  • Non-GAAP net income of $43.4 million, or $0.57 per diluted common share.

Stifel Financial Corp. (NYSE: SF) today reported net income of $27.1 million, or $0.36 per diluted common share on net revenues of $620.0 million for the three months ended March 31, 2016, compared with net income of $43.1 million, or $0.56 per diluted common share, on net revenues of $561.0 million for the first quarter of 2015.

For the three months ended March 31, 2016, the Company reported non-GAAP net income of $43.4 million, or $0.57 per diluted common share, compared with non-GAAP net income of $49.9 million, or $0.65 per diluted common share for the first quarter of 2015. These non-GAAP results primarily exclude merger-related expenses associated with the Company's acquisitions.

Chairman's Comments

"The diversity of Stifel's business model that has evolved through both organic growth and acquisitions was highlighted in the quarter as the firm generated record quarterly revenue and sequential improvement in EPS. The growth in our private client business, Stifel Bank & Trust, and our institutional fixed income business more than offset the negative impact that increased market volatility had on the equity capital markets business during the quarter," stated Ronald J. Kruszewski, Chairman and CEO of Stifel.

"After a year of substantial investment into the business, we began to realize some of the benefits of these growth initiatives as the scale of our operations continued to increase during the first quarter of 2016. That said, we remain committed to optimizing our current capital base, managing our expense base, and taking the necessary steps to achieve our key financial targets."

   
Summary Results of Operations (Unaudited)  
   
    Three Months Ended  
(in 000s)   3/31/16   3/31/15   % Change     12/31/15   % Change  
    Net revenues   $ 619,974   $ 560,982     10.5     $ 581,286   6.7  
    Net income   $ 27,055   $ 43,097     (37.2 )   $ 11,172   142.2  
    Non-GAAP net income 1   $ 43,354   $ 49,940     (13.2 )   $ 40,211   7.8  
                                 
Earnings per common share:                                
  Basic   $ 0.40   $ 0.62   $ (35.5 )   $ 0.16   150.0  
  Diluted   $ 0.36   $ 0.56   $ (35.7 )   $ 0.14   157.1  
  Non-GAAP net income 1   $ 0.57   $ 0.65   $ (12.3 )   $ 0.51   11.8  
Weighted average number of common shares outstanding:                                
    Basic     67,579     68,006     (0.6 )     68,150   (0.8 )
    Diluted     76,086     77,359     (1.6 )     79,355   (4.1 )
                                 
1 A reconciliation of the Company's GAAP results to these non-GAAP measures is discussed under "Non-GAAP Financial Measures."
   

Brokerage Revenues

Brokerage revenues, defined as commissions plus principal transactions, were $318.9 million, a 13.7% increase compared with the first quarter of 2015 and an 8.2% compared with the fourth quarter of 2015.

  • Global wealth management brokerage revenues were $173.0 million, a 9.5% increase compared with the first quarter of 2015 and a 4.0% increase compared with the fourth quarter of 2015.
  • Institutional equity brokerage revenues were $62.3 million, a 0.8% increase compared with the first quarter of 2015 and a 13.6% increase compared with the fourth quarter of 2015.
  • Institutional fixed income brokerage revenues were $83.6 million, a 37.8% increase compared with the first quarter of 2015 and a 13.7% increase compared with the fourth quarter of 2015.

Investment Banking Revenues

Investment banking revenues were $100.7 million, a 19.5% decrease compared with the first quarter of 2015 and a 2.1% decrease compared with the fourth quarter of 2015.

  • Equity capital raising revenues were $25.5 million, a 47.8% decrease compared with the first quarter of 2015 and a 37.0% decrease compared with the fourth quarter of 2015.
  • Fixed income capital raising revenues were $27.8 million, a 3.9% increase compared with the first quarter of 2015 and a 6.3% decrease compared with the fourth quarter of 2015.
  • Advisory fee revenues were $47.4 million, a 4.2% decrease compared with the first quarter of 2015 and a 53.7% increase compared with the fourth quarter of 2015.

Asset Management and Service Fee Revenues

Asset management and service fee revenues were $144.5 million, a 26.9% increase compared with the first quarter of 2015 and an 11.8% increase compared with the fourth quarter of 2015.

Compensation and Benefits Expenses

For the quarter ended March 31, 2016, compensation and benefits expenses were $411.1 million, which included $16.4 million of merger-related expenses. This compares with $355.7 million in the first quarter of 2015 and $399.0 million in the fourth quarter of 2015.

Excluding merger-related expenses, compensation and benefits as a percentage of net revenues was 63.6% in the first quarter of 2015, compared with 62.5% in the first quarter of 2015 and 64.8% in the fourth quarter of 2015.

Excluding merger-related expenses, transition pay, which primarily consists of amortization of retention awards, signing bonuses, and upfront notes, was 4.2% of net revenues in the first quarter of 2015, compared with 4.1% in the first quarter of 2015 and 3.9% in the fourth quarter of 2015.

Non-Compensation Operating Expenses

For the quarter ended March 31, 2016, non-compensation operating expenses were $164.9 million, which included merger-related expenses of $10.1 million. This compares with $135.2 million in the first quarter of 2015 and $171.2 million in the fourth quarter of 2015.

Excluding merger-related expenses, non-compensation operating expenses as a percentage of net revenues for the quarter ended March 31, 2015 was 25.0%, compared with 23.2% in the first quarter of 2015 and 25.4% in the fourth quarter of 2015.

Provision for Income Taxes

The effective income tax rate for the quarter ended March 31, 2016 was 38.4% compared with 38.5% in the first quarter of 2015.

Assets and Capital

Assets

  • Assets increased 51.6% to $14.2 billion as of March 31, 2016 from $9.4 billion as of March 31, 2015.
  • At March 31, 2016, the Company's Level 3 assets of $58.0 million, or 0.4% of total assets, consisted of $52.2 million of auction rate securities and $5.8 million of partnership interests, private company investments, private equity, and fixed income securities. The Company's Level 3 assets as a percentage of total assets measured at fair value was 1.7% at March 31, 2016.
  • Non-performing assets as a percentage of total assets as of March 31, 2016 was 0.28% .

Capital

  • Shareholders' equity as of March 31, 2016 increased 2.3% to $2.41 billion from $2.36 billion as of March 31, 2015.
  • During the three months ended March 31, 2016, the Company repurchased 2.7 million shares of the Company's common stock for approximately $91.4 million.
  • At March 31, 2016, book value per common share was $36.37 based on 66.5 million common shares outstanding. This represents a 4.4% increase from March 31, 2015.
  • At March 31, 2016, the Company's Tier 1 leverage capital and Tier 1 risk-based capital ratios were 11.6% and 21.3%, respectively, compared to 17.5% and 29.9%, respectively, at March 31, 2015.

Conference Call Information

Stifel Financial Corp. will host its first quarter 2016 financial results conference call on Monday, May 9, 2016, at 5:00 p.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 #88960277. A live audio webcast of the call, as well as a presentation highlighting the Company's results, will be available through the Company's web site, www.stifel.com. For those who cannot listen to the live broadcast, a replay of the broadcast will be available through the above-referenced web site beginning approximately one hour following the completion of the call.

Company Information

Stifel Financial Corp. (NYSE: SF) is a financial services holding company headquartered in St. Louis, Missouri, that conducts its banking, securities, and financial services business through several wholly owned subsidiaries. Stifel's broker-dealer clients are served in the United States through Stifel, Nicolaus & Company, Incorporated; Keefe Bruyette & Woods, Inc.; Miller Buckfire & Co., LLC; and Century Securities Associates, Inc., and in the United Kingdom and Europe through Stifel Nicolaus Europe Limited. The Company's broker-dealer affiliates provide securities brokerage, investment banking, trading, investment advisory, and related financial services to individual investors, professional money managers, businesses, and municipalities. Stifel Bank & Trust offers a full range of consumer and commercial lending solutions. Stifel Trust Company, N.A. and Stifel Trust Company Delaware, N.A. offer trust and related services. To learn more about Stifel, please visit the Company's web site at www.stifel.com.

Forward-Looking Statements

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

       
    Summary Results of Operations (Unaudited)  
    Three Months Ended  
(in thousands, except per share amounts)   3/31/16   3/31/15   % Change     12/31/15     % Change  
Revenues:                                
  Commissions   $ 197,930   $ 180,302   9.8     $ 187,287     5.7  
    Principal transactions     120,948     100,205   20.7       107,464     12.5  
  Brokerage Revenues     318,878     280,507   13.7       294,751     8.2  
                                 
  Investment banking     100,658     125,089   (19.5 )     102,811     (2.1 )
    Asset management and service fees     144,532     113,869   26.9       129,319     11.8  
  Other income     7,231     11,800   (38.7 )     18,251     (60.4 )
Operating Revenue     571,299     531,265   7.5       545,132     4.8  
  Interest Revenue     62,786     42,736   46.9       48,639     29.1  
Total Revenue     634,085     574,001   10.5       593,771     6.8  
  Interest Expense     14,111     13,019   8.4       12,485     13.0  
Net Revenue     619,974     560,982   10.5       581,286     6.7  
                                 
Non-interest Expenses:                                
  Compensation and benefits     411,113     355,693   15.6       398,966     3.0  
    Occupancy and equipment rental     57,255     44,170   29.6       61,667     (7.2 )
  Communication and office supplies     36,660     29,234   25.4       34,652     5.8  
    Commissions and floor brokerage     11,732     10,069   16.5       10,895     7.7  
  Other operating expenses     59,301     51,750   14.6       64,024     (7.4 )
      Total non-interest expenses     576,061     490,916   17.3       570,204     1.0  
                                 
Income before income taxes     43,913     70,066   (37.3 )     11,082     296.3  
  Provision for income taxes     16,858     26,969   (37.5 )     (90 )   nm  
Net income   $ 27,055   $ 43,097   (37.2 )   $ 11,172     142.2  
Earnings per common share:                                
  Basic     0.40   $ 0.62   (35.5 )     0.16     150.0  
  Diluted   $ 0.36   $ 0.56   (35.7 )   $ 0.14     157.1  
                                 
Weighted average number of common shares outstanding:                                
  Basic     67,579     68,006   (0.6 )     68,150     (0.8 )
  Diluted     76,086     77,359   (1.6 )     79,355     (4.1 )
                                 
   
Statistical Information  
  (in thousands, except per share amounts)    
    3/31/16   3/31/15   % Change   12/31/15   % Change  
Statistical Information:                            
   Book value per share   $ 36.37   $ 34.83   4.4   $ 37.19   (2.2 )
    Financial advisors2     2,849     2,097   35.9     2,891   (1.5 )
   Full-time associates     7,100     6,140   15.6     7,133   (0.5 )
    Locations     401     368   9.0     402   (0.2 )
   Total client assets   $ 232,013,000   $ 188,616,000   23.0   $ 234,070,000   (0.9 )
                             
2 Includes 688, 134, and 719 independent contractors at March 31, 2016, March 31, 2015, and December 31, 2015, respectively.
   
   
Business Segment Results  
    Summary Segment Results (Unaudited)  
    Three Months Ended  
(in 000s)   3/31/16     3/31/15     % Change     12/31/15     % Change  
Net revenues:                                    
  Global Wealth Management   $ 379,805     $ 329,410     15.3     $ 347,216     9.4  
  Institutional Group     241,276       238,607     1.1       246,325     (2.0 )
  Other     (1,107 )     (7,035 )   84.3       (12,255 )   (91.0 )
    $ 619,974     $ 560,982     10.5     $ 581,286     6.7  
Operating contribution:3                                    
  Global Wealth Management   $ 93,335     $ 98,847     (5.6 )   $ 92,077     1.4  
  Institutional Group     29,194       32,331     (9.7 )     40,917     (28.7 )
  Other     (51,920 )     (50,369 )   3.1       (75,701 )   (31.4 )
    $ 70,609     $ 80,809     (12.6 )   $ 57,293     23.2  
As a percentage of net revenues:                                    
  Compensation and benefits                                    
    Global Wealth Management     58.3       55.6             57.1        
    Institutional Group     62.4       62.6             58.1        
  Non-comp. operating expenses                                    
    Global Wealth Management     17.1       14.4             16.4        
    Institutional Group     25.5       23.8             25.3        
  Income before income taxes                                    
    Global Wealth Management     24.6       30.0             26.5        
    Institutional Group     12.1       13.6             16.6        
      11.4       14.3             9.8        
                                     
3 A reconciliation of the Company's GAAP results to these non-GAAP measures is discussed under "Non-GAAP Financial Measures."
   
 
Global Wealth Management Summary Results of Operations (Unaudited)
    Three Months Ended
(in 000s)   3/31/16   3/31/15   % Change     12/31/15     % Change
Revenues:                              
  Commissions   $ 131,554   $ 116,214   13.2     $ 128,395     2.5
  Principal transactions     41,411     41,781   (0.9 )     37,944     9.1
   Brokerage revenues     172,965     157,995   9.5       166,339     4.0
                               
  Asset management and service fees     144,352     113,666   27.0     $ 130,382     10.7
  Net interest     51,767     37,924   36.5       42,187     22.7
  Investment banking     8,410     10,326   (18.6 )     8,313     1.2
  Other income     2,311     9,499   (75.7 )     (5 )   nm
    Net revenues     379,805     329,410   15.3       347,216     9.4
Non-interest expenses:                              
  Compensation and benefits     221,416     183,243   20.8       198,137     11.7
  Non-compensation operating expenses     65,054     47,320   37.5       57,002     14.1
    Total non-interest expenses     286,470     230,563   24.2       255,139     12.3
Income before income taxes   $ 93,335   $ 98,847   (5.6 )   $ 92,077     1.4
                               
As a percentage of net revenues:                              
  Compensation and benefits     58.3     55.6           57.1      
  Non-compensation operating expenses     17.1     14.4           16.4      
  Income before income taxes     24.6     30.0           26.5      
                               
   
Stifel Bank & Trust (Unaudited)  
    Key Statistical Information        
(in 000s, except percentages)   3/31/16     3/31/15     % Change     12/31/15     % Change  
Other information:                                  
  Assets   8,310,224     $ 5,289,349     57.1     $ 7,275,308     14.2  
  Investment securities   4,147,647       2,599,854     59.5       3,479,336     19.2  
  Retained loans, net   3,737,209       2,505,007     49.2       3,449,662     8.3  
  Loans held for sale   132,900       188,783     (29.6 )     189,921     (30.0 )
  Deposits   7,218,100       4,834,042     49.3       6,638,359     8.7  
                                   
  Allowance as a percentage of loans4   0.94 %     0.96 %           0.90 %      
  Non-performing assets as a percentage of total assets   0.28 %     0.13 %           0.03 %      
                                   
4 Excluding acquired loans of $822.5 million, $263.7 million, and $606.8 million, the allowance as a percentage of loans totaled 1.29%, 1.10%, and 1.19% as of March 31, 2016, March 31, 2015, and December 31, 2015, respectively.
   
   
Institutional Group Summary Results of Operations (Unaudited)  
    Three Months Ended  
(in 000s)   3/31/16   3/31/15   % Change     12/31/15   % Change  
Revenues:                              
  Commissions   $ 66,376   $ 64,088   3.6     $ 58,891   12.7  
  Principal transactions     79,537     58,423   36.1       69,520   14.4  
  Brokerage revenues     145,913     122,511   19.1       128,411   13.6  
  Capital raising     44,895     65,321   (31.3 )     61,766   (27.3 )
  Advisory fees     47,354     49,443   (4.2 )     30,810   53.7  
  Investment banking     92,249     114,764   (19.6 )     92,576   (0.4 )
  Other5     3,114     1,332   133.8       25,338   (87.7 )
    Net revenues     241,276     238,607   1.1       246,325   (2.0 )
Non-interest expenses:                              
  Compensation and benefits     150,618     149,411   0.8       143,162   5.2  
  Non-compensation operating expenses     61,464     56,865   8.1       62,246   (1.3 )
    Total non-interest expenses     212,082     206,276   2.8       205,408   3.2  
Income before income taxes   $ 29,194   $ 32,331   (9.7 )   $ 40,917   (28.7 )
                               
As a percentage of net revenues:                              
  Compensation and benefits     62.4     62.6           58.1      
  Non-compensation operating expenses     25.5     23.8           25.3      
  Income before income taxes     12.1     13.6           16.6      
                               
   
Institutional Group Brokerage & Investment Banking Revenues (Unaudited)  
    Three Months Ended  
(in 000s)   3/31/16   3/31/15   % Change     12/31/15   % Change  
Institutional brokerage:                              
  Equity   $ 62,273   $ 61,803   0.8     $ 54,837   13.6  
  Fixed income     83,640     60,708   37.8       73,574   13.7  
Institutional brokerage     145,913     122,511   19.1       128,411   13.6  
                               
Investment banking:                              
  Capital raising:                              
      Equity     18,930     44,591   (57.5 )     38,499   (50.8 )
      Fixed income     25,965     20,730   25.3       23,267   11.6  
    Capital raising     44,895     65,321   (31.3 )     61,766   (27.3 )
  Advisory fees:     47,354     49,443   (4.2 )     30,810   53.7  
Investment banking   $ 92,249   $ 114,764   (19.6 )   $ 92,576   (0.4 )
                               
5 Includes net interest, asset management and service fees, and other income.
   

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 basic 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, 2016. 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 amounts primarily exclude acquisition related expenses which management believes are duplicative and will be eliminated and other expenses which in management's view are not representative of on-going business.

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 basic 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 basic 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 basic and diluted earnings per share on a GAAP basis for the three months ended March 31, 2016 to the aforementioned expenses on a non-GAAP basis for the same period.

     
    Three Months Ended March 31, 2016
(in 000s, except per share amounts)   Non-GAAP   Adjustments     GAAP
Net revenues   $ 620,121   $ (147 )   $ 619,974
                     
Non-interest expenses:                    
Compensation and benefits     394,684     16,429       411,113
Non-compensation operating expenses     154,828     10,120       164,948
    Total non-interest expenses     549,512     26,549       576,061
Income before income taxes     70,609     (26,696 )     43,913
Provision for income taxes     27,255     (10,397 )     16,858
Net income   $ 43,354   $ (16,299 )   $ 27,055
                     
Earnings per share::                    
Basic   $ 0.64   $ (0.24 )   $ 0.40
Diluted   $ 0.57   $ (0.21 )   $ 0.36
                     
As a percentage of net revenues:                    
Compensation and benefits     63.6             66.3
Non-compensation operating expenses     25.0             26.6
Income before income taxes     11.4             7.1
                     

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