SOURCE: Stifel Financial Corp.

Stifel Financial Corp.

July 31, 2017 06:30 ET

Stifel Reports Second Quarter 2017 Financial Results

ST. LOUIS, MO--(Marketwired - July 31, 2017) -

  • Record net revenues of $725.6 million, increased 11.3% compared with the year-ago quarter and 7.4% sequentially.
  • Record net revenues and pre-tax operating income in Global Wealth Management.
  • Record net revenues in Institutional Group.
  • Net income available to common shareholders of $50.5 million, or $0.63 per diluted common share.
  • Non-GAAP net income available to common shareholders of $71.6 million, or $0.90 per diluted common share.
  • Record client assets of $258.1 billion, increased 14.2% compared with the year-ago quarter and 2.2% sequentially.

Stifel Financial Corp. (NYSE: SF) today reported net income available to common shareholders of $50.5 million, or $0.63 per diluted common share on record net revenues of $725.6 million for the three months ended June 30, 2017, compared with net income available to common shareholders of $9.8 million, or $0.13 per diluted common share, on net revenues of $652.1 million for the second quarter of 2016.

For the three months ended June 30, 2017, the Company reported non-GAAP net income available to common shareholders of $71.6 million, or $0.90 per diluted common share.

For the six months ended June 30, 2017, the Company reported net income available to common shareholders of $113.6 million, or $1.41 per diluted common share on record net revenues of $1.4 billion, compared with net income available to common shareholders of $36.8 million, or $0.48 per diluted share, on net revenues of $1.3 billion for the comparable period in 2016.

For the six months ended June 30, 2017, the Company reported non-GAAP net income available to common shareholders of $131.2 million, or $1.63 per diluted common share.

Chairman's Comments

"We had a very strong quarter as we generated our third consecutive quarter of record net revenue and our non-GAAP pre-tax margins reached 16.3%, the highest level since the fourth quarter of 2010. Our revenues benefited from another record quarter from Global Wealth Management and record net revenue in our Institutional Group driven by record investment banking revenues. Given the increased contributions from more stable revenue streams such as our bank and fee-based accounts, Stifel's top and bottom lines are much better positioned to withstand the cyclicality in certain of our more transactional businesses then we were just a few years ago. Additionally, this quarter illustrated the positive impact that our investments in our investment banking franchise can have our top and bottom lines, despite the challenging environment for institutional brokerage," stated Ronald J. Kruszewski, Chairman & CEO of Stifel.

          
Financial Highlights (Unaudited)  Three Months Ended   Six Months Ended  
(in 000s, except per share data)  6/30/17   6/30/16   3/31/17   Non-
GAAP(1)
6/30/17
  Non-
GAAP(1)
6/30/17
  Non-
GAAP(1)
6/30/16
 
U.S. GAAP                               
 Net revenues  $725,647   $652,145   $675,531   $725,647   $1,403,162   $1,272,119  
  Compensation ratio   62.5 %  70.5 %  64.6 %  61.4 %  61.9 %  63.9 %
  Non-compensation ratio   26.0 %  27.1 %  23.7 %  22.3 %  22.6 %  26.1 %
  Pre-tax operating margin   11.5 %  2.4 %  11.7 %  16.3 %  15.5 %  10.0 %
  Net income  $52,811   $9,771   $65,512   $73,991   $135,840   $78,364  
  Preferred dividend   2,344    -    2,344    2,344    4,688    -  
  Net income available to common shareholders  $50,467   $9,771   $63,168   $71,647   $131,152   $78,364  
 Earnings per diluted common share  $0.66   $0.13   $0.81   $0.92   $1.69   $1.03  
 Earnings per diluted common share available to common shareholders  $0.63   $0.13   $0.78   $0.90   $1.63   $1.03  
                          

Brokerage Revenues

Brokerage revenues, defined as commissions and principal transactions, were $268.0 million, a 13.1% decrease compared with the second quarter of 2016 and an 8.3% decrease compared with the first quarter of 2017. Brokerage revenues generated by the Sterne businesses, which were sold in 2016, were $14.1 million during the second quarter of 2016.

      
   Three Months Ended  
(in 000s)  6/30/17  6/30/16      % Change   3/31/17  % Change  
Global Wealth Management brokerage revenues  $168,085  $172,179      (2.4 ) $171,494  (2.0 )
                          
Institutional brokerage:                         
  Equity   50,869   55,008      (7.5 )  53,820  (5.5 )
  Fixed income   49,013   81,344      (39.7 )  66,817  (26.6 )
Total institutional brokerage   99,882   136,352      (26.7 )  120,637  (17.2 )
Total brokerage revenues  $267,967  $308,531  (2 ) (13.1 ) $292,131  (8.3 )
                   
  • Global wealth management brokerage revenues were $168.1 million, a 2.4% decrease compared with the second quarter of 2016 and a 2.0% decrease compared with the first quarter of 2017. Excluding the revenues from the Sterne businesses, global wealth brokerage revenues for the second quarter of 2017 increased 5.5% compared to the second quarter of 2016.
  • Institutional equity brokerage revenues were $50.9 million, a 7.5% decrease compared with the second quarter of 2016 and a 5.5% decrease compared with the first quarter of 2017.
  • Institutional fixed income brokerage revenues were $49.0 million, a 39.7% decrease compared with the second quarter of 2016 and a 26.6% decrease compared with the first quarter of 2017.

Investment Banking Revenues

Investment banking revenues were $185.3 million, a 39.2% increase compared with the second quarter of 2016 and a 46.0% increase compared with the first quarter of 2017.

    
   Three Months Ended
(in 000s)  6/30/17  6/30/16  % Change  3/31/17  % Change
Investment banking:                  
Capital raising:                  
 Equity  $56,970  $37,638  51.4  $45,649  24.8
 Fixed income   45,830   28,774  59.3   28,267  62.1
  Capital raising   102,800   66,412  54.8   73,916  39.1
 Advisory fees:   82,461   66,713  23.6   52,936  55.8
Total investment banking  $185,261  $133,125  39.2  $126,852  46.0
              
  • Equity capital raising revenues were $57.0 million, a 51.4% increase compared with the second quarter of 2016 and a 24.8% increase compared with the first quarter of 2017.
  • Fixed income capital raising revenues were $45.8 million, a 59.3% increase compared with the second quarter of 2016 and a 62.1% increase compared with the first quarter of 2017.
  • Advisory fee revenues were $82.5 million, a 23.6% increase compared with the second quarter of 2016 and a 55.8% increase compared with the first quarter of 2017.

Asset Management and Service Fee Revenues

Asset management and service fee revenues were a record $172.9 million, a 19.6% increase compared with the second quarter of 2016 and a 6.3% increase compared with the first quarter of 2017. The increase from the comparative period in 2016 is primarily attributable to the growth in the value of fee-based accounts and an increase in the Federal Funds rate, which increased fees earned on cash balances.

Net Interest Income

Record net interest income of $92.3 million, a 90.3% increase compared with the second quarter of 2016 and an 8.5% increase compared with the first quarter of 2017.

  • Interest income was $109.0 million, a 65.6% increase compared with the second quarter of 2016 and a 7.9% increase compared with the first quarter of 2017. Interest income was impacted by the continued growth of interest-earning assets.
  • Interest expense was $16.6 million, a 3.6% decrease compared with the second quarter of 2016 and a 4.7% increase compared with the first quarter of 2017.

Compensation and Benefits Expenses

For the quarter ended June 30, 2017, compensation and benefits expenses were $453.9 million, which included $8.0 million of merger-related and severance expenses. This compares with $460.0 million in the second quarter of 2016 and $436.4 million in the first quarter of 2017. Excluding merger-related expenses, compensation and benefits as a percentage of net revenues were 61.4% in the second quarter of 2017.

          
   Three Months Ended
6/30/17
  Six Months Ended
6/30/17
 
GAAP compensation and benefits  $453,876   $890,263  
 As a percentage of net revenues   62.5 %  63.5 %
Non-GAAP adjustments:(3)           
 Merger-related   (5,551 )  (15,356 )
 Severance   (2,420 )  (6,955 )
    (7,971 )  (22,311 )
Non-GAAP compensation and benefits  $445,905   $867,952  
 As a percentage of non-GAAP net revenues   61.4 %  61.9 %
          

Non-Compensation Operating Expenses

For the quarter ended June 30, 2017, non-compensation operating expenses were $188.6 million, which included litigation and merger-related expenses of $26.8 million. This compares with $176.3 million in the second quarter of 2016 and $160.1 million in the first quarter of 2017. Excluding litigation and merger-related expenses, non-compensation operating expenses as a percentage of net revenues for the quarter ended June 30, 2017 were 22.3%.

          
   Three Months Ended
6/30/17
  Six Months Ended
6/30/17
 
GAAP non-compensation expenses  $188,573   $348,698  
 As a percentage of net revenues   26.0 %  24.9 %
Non-GAAP adjustments:(3)           
 Litigation and merger-related   (26,849 )  (32,174 )
Non-GAAP non-compensation expenses  $161,724   $316,524  
 As a percentage of non-GAAP net revenues   22.3 %  22.6 %
         

Provision for Income Taxes

The GAAP effective income tax rate for the quarter ended June 30, 2017 was 36.5%. This compares with an effective income tax rate of 38.1% for the second quarter of 2016 and 17.1% for the first quarter of 2017. The adjusted non-GAAP effective income tax rate for the quarter ended June 30, 2017 was 37.3%.

          
   Three Months Ended
6/30/17
  Six Months Ended
6/30/17
 
GAAP provision for income taxes  $30,387   $43,894  
 GAAP effective tax rate   36.5 %  27.1 %
Non-GAAP adjustments:(3)           
 Litigation and merger-related and severance   13,428    21,840  
 Excess tax benefits from stock-based compensation(4)   212    17,155  
    13,640    38,995  
Non-GAAP provision for income taxes  $44,027   $82,889  
 Non-GAAP effective tax rate   37.3 %  37.9 %
          

Conference Call Information

Stifel Financial Corp. will host its second quarter 2017 financial results conference call on Monday, July 31, 2017, at 8:00 a.m. Eastern time. The conference call may include forward-looking statements.

All interested parties are invited to listen to Stifel's Chairman and CEO, Ronald J. Kruszewski, by dialing (877) 876-9938 and referencing conference ID #51914622. 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 Eaton Partners LLC, 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   Six Months Ended  
(in 000s, except per share amounts)  6/30/17  6/30/16  %
Change
  3/31/17  %
Change
  6/30/17  6/30/16  %
Change
 
Revenues:                                 
 Commissions  $172,264  $182,104  (5.4 ) $175,274  (1.7 ) $347,538  $380,034  (8.6 )
 Principal transactions   95,703   126,426  (24.3 )  116,857  (18.1 )  212,560   247,374  (14.1 )
  Brokerage Revenues   267,967   308,530  (13.1 )  292,131  (8.3 )  560,098   627,408  (10.7 )
                                  
 Capital raising   102,800   66,412  54.8    73,916  39.1    176,716   119,716  47.6  
 Advisory fees   82,461   66,713  23.6    52,936  55.8    135,397   114,067  18.7  
  Investment banking   185,261   133,125  39.2    126,852  46.0    312,113   233,783  33.5  
 Asset management and service fees   172,914   144,567  19.6    162,739  6.3    335,653   289,099  16.1  
 Other income   7,198   17,405  (58.6 )  8,752  (17.8 )  15,950   24,595  (35.1 )
Operating Revenue   633,340   603,627  4.9    590,474  7.3    1,223,814   1,174,885  4.2  
 Interest Revenue   108,951   65,780  65.6    100,953  7.9    209,904   128,607  63.2  
Total Revenue   742,291   669,407  10.9    691,427  7.4    1,433,718   1,303,492  10.0  
 Interest Expense   16,644   17,262  (3.6 )  15,896  4.7    32,540   31,373  3.7  
Net Revenue   725,647   652,145  11.3    675,531  7.4    1,401,178   1,272,119  10.1  
                                  
Non-interest Expenses:                                 
 Compensation and benefits   453,876   460,023  (1.3 )  436,387  4.0    890,263   871,136  2.2  
 Occupancy and equipment rental   57,892   58,746  (1.5 )  52,545  10.2    110,437   116,002  (4.8 )
 Communication and office supplies   34,192   37,426  (8.6 )  33,844  1.0    68,036   74,086  (8.2 )
 Commissions and floor brokerage   11,232   12,145  (7.5 )  10,723  4.7    21,955   23,876  (8.0 )
 Provision for loan losses   5,856   1,824  221.1    6,134  (4.5 )  11,990   6,082  97.1  
 Other operating expenses   79,401   66,188  20.0    56,879  39.6    136,280   121,231  12.4  
  Total non-interest expenses   642,449   636,352  1.0    596,512  7.7    1,238,961   1,212,413  2.2  
Income before income taxes   83,198   15,793  426.8    79,019  5.3    162,217   59,706  171.7  
 Provision for income taxes   30,387   6,022  404.6    13,507  125.0    43,894   22,880  91.8  
Net income   52,811   9,771  440.5    65,512  (19.4 )  118,323   36,826  221.3  
 Preferred dividends   2,344   -  nm    2,344  nm    4,688   -  nm  
Net income available to common shareholders  $50,467  $9,771  416.5   $63,168  (20.1 ) $113,635  $36,826  208.6  
Earnings per common share:                                 
 Basic  $0.74  $0.15  393.3   $0.92  (19.6 ) $1.66  $0.55  201.8  
 Diluted  $0.63  $0.13  384.6   $0.78  (19.2 ) $1.41  $0.48  193.8  
                                  
Weighted average number of common shares outstanding:                              
 Basic   68,556   66,792  2.6    68,386  0.2    68,471   67,186  1.9  
 Diluted   80,021   75,982  5.3    80,695  (0.8 )  80,391   76,084  5.7  
                          
   
Summary Segment Results (Unaudited)  
   Three Months Ended   Six Months Ended  
(in 000s)  6/30/17   6/30/16   %
Change
  3/31/17   %
Change
  6/30/17   6/30/16   %
Change
 
Net revenues:                                      
 Global Wealth Management  $451,990   $386,039   17.1   $442,732   2.1   $894,722   $765,843   16.8  
 Institutional Group   276,153    260,920   5.8    237,467   16.3    513,620    502,196   2.3  
 Other   (2,496 )  5,186   (148.1 )  (4,668 ) (46.5 )  (7,164 )  4,080   (275.6 )
  Total net revenues  $725,647   $652,145   11.3   $675,531   7.4   $1,401,178   $1,272,119   10.1  
                                       
Operating expenses:                                      
 Global Wealth Management  $298,753   $280,986   6.3   $300,680   (0.6 ) $599,433   $567,456   5.6  
 Institutional Group   223,261    218,506   2.2    197,595   13.0    420,856    430,491   (2.2 )
 Other   120,435    136,860   (12.0 )  98,237   22.6    218,672    214,466   2.0  
  Total operating expenses  $642,449   $636,352   1.0   $596,512   7.7   $1,238,961   $1,212,413   2.2  
                                       
Operating contribution:                                      
 Global Wealth Management  $153,237   $105,053   45.9   $142,052   7.9   $295,289   $198,387   48.8  
 Institutional Group   52,892    42,414   24.7    39,872   32.7    92,764    71,705   29.4  
 Other   (122,931 )  (131,674 ) (6.6 )  (102,905 ) 19.5    (225,836 )  (210,386 ) 7.3  
  Income before income taxes  $83,198   $15,793   426.8   $79,019   5.3   $162,217   $59,706   171.7  
                                       
As a percentage of net revenues:                                      
 Compensation and benefits                                      
  Global Wealth Management   50.7    56.6        51.6        51.1    57.4      
  Institutional Group   59.6    58.8        60.5        60.0    60.5      
 Non-comp. operating expenses                                      
  Global Wealth Management   15.4    16.2        16.3        15.9    16.7      
  Institutional Group   21.2    25.0        22.7        21.9    25.2      
 Income before income taxes                                      
  Global Wealth Management   33.9    27.2        32.1        33.0    25.9      
  Institutional Group   19.2    16.2        16.8        18.1    14.3      
 Consolidated pre-tax margin (5) (6)   11.5    2.4        11.7        11.6    4.7      
                               
   
Stifel Financial Corp.  
Selected Key Metrics  
(Unaudited)  
              
Financial metrics:  As of and For the Three Months Ended  
(in 000s, except percentages)  6/30/17   6/30/16   3/31/17  
 Total assets  $19,533,575   $15,385,602   $19,135,892  
 Total equity   2,845,309    2,490,865    2,777,903  
 Book value per common share  $39.47   $37.41   $38.40  
 Return on common equity (7)   7.9 %  1.6 %  10.0 %
 Non-GAAP return on common equity (1) (7)   11.1 %  8.5 %  9.5 %
 Return on tangible common equity (8)   13.4 %  2.8 %  17.2 %
 Non-GAAP return on tangible common equity (1) (8)   18.8 %  15.1 %  16.2 %
 Tier 1 common capital ratio (9)   18.2 %  20.2 %  18.4 %
 Tier 1 risk based capital ratio (9)   20.5 %  20.6 %  20.8 %
 Tier 1 leverage capital ratio (9)   10.3 %  11.5 %  10.1 %
 Pre-tax margin on net revenues   11.5 %  2.4 %  11.7 %
 Non-GAAP pre-tax margin on net revenues (1)   16.3 %  12.9 %  14.9 %
 Effective tax rate   36.5 %  38.1 %  17.1 %
 Non-GAAP effective tax rate (1)   37.3 %  38.1 %  38.6 %
              
   
(in 000s, except per share amounts)  6/30/17  6/30/16      % Change   3/31/17  % Change  
Statistical Information:                         
 Financial advisors (10)   2,277   2,291  (11 ) (0.6 )  2,299  (1.0 )
 Locations   399   400      (0.3 )  399  -  
 Total client assets  $258,097,000  $225,983,000  (11 ) 14.2   $252,448,000  2.2  
 Fee-based client assets  $79,177,000  $65,491,000      20.9   $75,414,000  5.0  
 Client money market and insured product  $17,831,000  $17,674,000      0.9   $19,058,000  (6.4 )
 Secured client lending (12)  $2,999,461  $2,657,313      12.9   $2,962,936  1.2  
                    
 
Stifel Bank & Trust - a component of Global Wealth Management
Selected Key Metrics
(Unaudited)
Selected operating data:  Three Months Ended   Six Months Ended
(in 000s, except percentages)  6/30/17   6/30/16   %
Change
 3/31/17   %
Change
  6/30/17   6/30/16   %
Change
 Net Interest Income  $90,795   $48,536   87.1  $85,710   5.9   $174,814   $94,287   85.4
 Bank loan loss provision   5,856    1,824   221.1   6,134   (4.5 )  11,991    6,082   97.2
 Net charge-offs   2,953    -   n/m   -   n/m    2,953    -   n/m
 Net Interest Margin   2.77 %  2.34 % 18.4   2.66 % 4.1    2.71 %  2.40 % 12.9
                             
      
Financial Metrics:  As of  
(in 000s, except percentages)  6/30/17   6/30/16   3/31/17  
 Total Assets  $13,598,260   $9,262,027   $13,232,940  
 Total Equity   978,626    613,325    931,913  
 Total Loans, net   6,299,669    4,421,583    6,071,272  
 Total Deposits   12,050,474    7,881,219    11,700,961  
 Available-for-sale securities, at fair value   3,448,548    2,464,018    3,371,187  
 Held-to-maturity securities, at amortized cost   3,304,090    2,115,734    3,185,813  
 Residential real estate   2,248,528    1,228,234    2,214,356  
 Commercial and industrial   2,064,052    1,424,671    1,830,865  
 Securities-based loans   1,755,592    1,418,986    1,728,516  
 Commercial real estate   71,517    83,628    78,522  
 Loans held for sale   139,676    250,725    206,724  
 Common equity tier 1 capital ratio (9)   14.9 %  13.7 %  15.4 %
 Tier 1 capital ratio (9)   14.9 %  13.7 %  15.4 %
 Total capital ratio (9)   15.7 %  14.5 %  16.2 %
 Tier 1 leverage ratio (9)   7.2 %  7.4 %  7.2 %
                 
Credit Metrics:                
 Allowance for loan losses  $54,202   $35,866   $51,298  
 Allowance as a percentage of retained loans   0.88 %  0.86 %  0.87 %
 Net charge-offs as a percentage of average loans   0.05 %  0.00 %  0.00 %
 Total nonperforming assets   21,219    34,919    28,036  
 Nonperforming assets as % of total assets   0.15 %  0.37 %  0.21 %
              
   
Global Wealth Management Summary Results of Operations (Unaudited)  
   Three Months Ended   Six Months Ended  
(in 000s)  6/30/17  6/30/16  %
Change
  3/31/17  %
Change
  6/30/17  6/30/16  %
Change
 
Revenues:                                 
 Commissions  $120,344  $127,241  (5.4 ) $120,577  (0.2 ) $240,921  $258,794  (6.9 )
 Principal transactions   47,741   44,938  6.2    50,917  (6.2 )  98,658   86,349  14.3  
   Brokerage revenues   168,085   172,179  (2.4 )  171,494  (2.0 )  339,579   345,143  (1.6 )
                                   
 Asset management and service fees   172,889   144,360  19.8    162,664  6.3    335,553   288,712  16.2  
 Net interest   95,698   54,246  76.4    89,695  6.7    185,393   106,055  74.8  
 Investment banking   10,641   9,502  12.0    11,854  (10.2 )  22,495   17,911  25.6  
 Other income   4,677   5,752  (18.7 )  7,025  (33.4 )  11,702   8,022  45.9  
  Net revenues   451,990   386,039  17.1    442,732  2.1    894,722   765,843  16.8  
Non-interest expenses:                                 
 Compensation and benefits   229,158   218,553  4.9    228,471  0.3    457,629   439,968  4.0  
 Non-compensation operating expenses   69,595   62,433  11.5    72,209  (3.6 )  141,804   127,488  11.2  
  Total non-interest expenses   298,753   280,986  6.3    300,680  (0.6 )  599,433   567,456  5.6  
Income before income taxes  $153,237  $105,053  45.9   $142,052  7.9   $295,289  $198,387  48.8  
                                  
As a percentage of net revenues:                                 
 Compensation and benefits   50.7   56.6       51.6       51.1   57.4     
 Non-compensation operating expenses   15.4   16.2       16.3       15.9   16.7     
 Income before income taxes   33.9   27.2       32.1       33.0   25.9     
                         
   
Institutional Group Summary Results of Operations (Unaudited)  
   Three Months Ended   Six Months Ended  
(in 000s)  6/30/17  6/30/16  %
Change
  3/31/17 %
Change
  6/30/17  6/30/16  %
Change
 
Revenues:                                
 Commissions  $51,920  $54,864  (5.4 ) $54,697 (5.1 ) $106,617  $121,240  (12.1 )
 Principal transactions   47,962   81,488  (41.1 )  65,940 (27.3 )  113,902   161,026  (29.3 )
 Brokerage revenues   99,882   136,352  (26.7 )  120,637 (17.2 )  220,519   282,266  (21.9 )
 Capital raising   92,159   56,100  64.3    62,062 48.5    154,221   100,995  52.7  
 Advisory fees   82,461   67,523  22.1    52,936 55.8    135,397   114,876  17.9  
 Investment banking   174,620   123,623  41.3    114,998 51.8    289,618   215,871  34.2  
 Other (13)   1,651   945  74.7    1,832 (9.9 )  3,483   4,059  (14.2 )
  Net revenues   276,153   260,920  5.8    237,467 16.3    513,620   502,196  2.3  
Non-interest expenses:                                
 Compensation and benefits   164,532   153,371  7.3    143,640 14.5    308,172   303,989  1.4  
 Non-compensation operating expenses   58,729   65,135  (9.8 )  53,955 8.8    112,684   126,502  (10.9 )
  Total non-interest expenses   223,261   218,506  2.2    197,595 13.0    420,856   430,491  (2.2 )
Income before income taxes  $52,892  $42,414  24.7   $39,872 32.7   $92,764  $71,705  29.4  
                                 
As a percentage of net revenues:                                
 Compensation and benefits   59.6   58.8       60.5      60.0   60.5     
 Non-compensation operating expenses   21.2   25.0       22.7      21.9   25.2     
 Income before income taxes   19.2   16.2       16.8      18.1   14.3     
                         

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 and six months ended June 30, 2017 and 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 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 six months ended June 30, 2017 and 2016 to net income and earnings per diluted common share on a non-GAAP basis for the same period.

          
   Three Months Ended   Six Months Ended  
(in 000s)  6/30/17   6/30/16   3/31/17   6/30/17   6/30/16  
GAAP net income  $52,811   $9,771   $65,512   $118,323   $36,826  
 Preferred dividend   2,344    -    2,344    4,688    -  
Net income available to common shareholders   50,467    9,771    63,168    113,635    36,826  
                           
Non-GAAP adjustments:                          
 Merger-related (14)   12,400    53,934    17,114    29,514    67,344  
 Litigation-related (15)   20,000    -    -    20,000    -  
 Severance   2,420    -    4,535    6,955    -  
 Provision for income taxes   (13,640 )  (20,536 )  (25,355 )  (38,952 )  (25,806 )
Total non-GAAP adjustments   21,180    33,398    (3,706 )  17,517    41,538  
Non-GAAP net income available to common shareholders  $71,647   $43,169   $59,462   $131,152   $78,364  
                           
Weighted average diluted shares outstanding   80,021    75,982    80,695    80,391    76,084  
                           
GAAP earnings per diluted common share  $0.66   $0.13   $0.81   $1.47   $0.48  
Non-GAAP adjustments   0.26    0.44    (0.04 )  0.22    0.55  
Non-GAAP earnings per diluted common share  $0.92   $0.57   $0.77   $1.69   $1.03  
                           
GAAP earnings per diluted common share available to common shareholders  $0.63   $0.13   $0.78   $1.41   $0.48  
Non-GAAP adjustments   0.27    0.44    (0.04 )  0.22    0.55  
Non-GAAP earnings per diluted common share available to common shareholders  $0.90   $0.57   $0.74   $1.63   $1.03  
                     

Footnotes

  
(1)Reconciliations of the Company's GAAP results to these non-GAAP measures are discussed within and under "Non-GAAP Financial Measures."
(2)Excludes brokerage revenues included in the Other segment.
(3)See further discussion of non-GAAP adjustments under "Non-GAAP Financial Measures."
(4)During the first quarter of 2017, the Company adopted new accounting guidance associated with stock-based compensation.
(5)Non-GAAP pre-tax margin for the three months ended June 30, 2017 of 16.3% is calculated by adding litigation and merger-related and severance non-GAAP adjustments of $34.8 million to our GAAP income before income taxes of $83.2 million and dividing it by non-GAAP net revenues for the quarter of $725.6 million. Reconciliations of the Company's GAAP results to certain non-GAAP measures is discussed within and under "Non-GAAP Financial Measures."
(6)Non-GAAP pre-tax margin for the six months ended June 30, 2017 of 15.5% is calculated by adding litigation and merger-related and severance non-GAAP adjustments of $56.5 million to our GAAP income before income taxes of $162.2 million and dividing it by non-GAAP net revenues for the quarter of $1,401.2 million. Reconciliations of the Company's GAAP results to certain non-GAAP measures is discussed within and under "Non-GAAP Financial Measures."
(7)Computed by dividing annualized net income by average common shareholders' equity or, in the case of non-GAAP return on common equity, computed by dividing non-GAAP net income by average common shareholders' equity.
(8)Computed by dividing annualized net income by average tangible shareholders' equity or, in the case of non-GAAP return on tangible common equity, computed by dividing non-GAAP net income by average tangible shareholders' equity. Tangible common shareholders' equity equals total common shareholders' equity less goodwill and identifiable intangible assets.
(9)Capital ratios are estimates at time of the Company's earning release.
(10)Includes 119, 127, and 121 independent contractors at June 30, 2017, June 30, 2016, and March 31, 2017, respectively.
(11)On July 1, 2016, we sold the independent contractor business acquired with the Sterne Agee transaction in June 2015. As of June 30, 2016, there were 540 independent contractors included in the disposed business unit and $11.5 billion of total client assets. These numbers have been excluded from the table.
(12)Includes client margin balances held by our broker-dealer subsidiaries and securities-based loans held at Stifel Bank.
(13)Includes net interest, asset management and service fees, and other income.
(14)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.
(15)Primarily related to costs associated with the Company's previously disclosed legal matters.
  

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