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.