Stifel Reports First Quarter 2017 Financial Results

ST. LOUIS, MO--(Marketwired - May 01, 2017) -

• Record net revenues of $675.5 million, increased 9.0% compared with the year-ago quarter and 2.1% sequentially.
• Record net revenues and pre-tax operating income in Global Wealth Management.
• Net income available to common shareholders of $63.2 million, or $0.78 per diluted common share.
• Record client assets of $252.4 billion, increased 14.2% compared with the year-ago quarter and 6.5% sequentially.

Stifel Financial Corp. (NYSE: SF) today reported net income available to common shareholders of $63.2 million, or $0.78 per diluted common share on record net revenues of $675.5 million for the three months ended March 31, 2017, compared with net income available to common shareholders of $27.1 million, or $0.36 per diluted common share, on net revenues of $620.0 million for the first quarter of 2016.

The GAAP results for the three months ended March 31, 2017 were impacted by the following:

• Anticipated merger-related charges of approximately $17.1 million ($10.4 million after-tax) associated with the Company's acquisitions;
• Severance expense of approximately $4.5 million ($2.8 million after-tax) associated with the Company's cost saving initiatives; and
• New accounting guidance associated with stock-based compensation that favorably impacted the quarter's income tax expense by $16.9 million.

Chairman's Comments

"I'm pleased with our results, as Stifel generated a second consecutive quarter of record net revenue, and non-GAAP pre-tax margins were just under 15%, the highest level since the fourth quarter of 2014. Our continued growth on both the top and bottom line is a testament to Stifel's diversified business strategy as well as our efforts to improve our expense efficiencies. In the first quarter, our net revenue was driven by record results in our Global Wealth Management segment that was due to further increases in fee-based revenue and improved net interest income at Stifel Bank. The growth in these recurring revenue streams over the past year and a half has helped to offset the volatility in our more transaction-driven institutional businesses. In terms of expense discipline, we continue to make progress on our cost-reduction initiatives as the first quarter represented the lowest non-compensation ratio at the firm in eleven quarters," stated Ronald J. Kruszewski, Chairman & CEO of Stifel.

⁽¹⁾ Reconciliations of the Company's GAAP results to these non-GAAP measures are discussed below and under "Non-GAAP Financial Measures."

Brokerage Revenues

Brokerage revenues, defined as commissions and principal transactions, were $292.1 million, an 8.4% decrease compared with the first quarter of 2016 and a 0.8% increase compared with the fourth quarter of 2016. Brokerage revenues generated by the Sterne businesses, which were sold in 2016, were $15.8 million during the first quarter of 2016.

⁽¹⁾ Excludes brokerage revenues included in the Other segment.

• Global wealth management brokerage revenues were $171.5 million, a 0.9% decrease compared with the first quarter of 2016 and a 7.2% increase compared with the fourth quarter of 2016. Excluding the revenues from the Sterne businesses, global wealth brokerage revenues for the first quarter of 2017 increased 7.9% compared to the first quarter of 2016.
• Institutional equity brokerage revenues were $53.8 million, a 13.6% decrease compared with the first quarter of 2016 and a 15.9% decrease compared with the fourth quarter of 2016.
• Institutional fixed income brokerage revenues were $66.8 million, a 20.1% decrease compared with the first quarter of 2016 and a 1.7% increase compared with the fourth quarter of 2016.

Investment Banking Revenues

Investment banking revenues were $126.9 million, a 26.0% increase compared with the first quarter of 2016 and a 5.7% decrease compared with the fourth quarter of 2016.

• Equity capital raising revenues were $48.8 million, a 91.1% increase compared with the first quarter of 2016 and a 0.9% increase compared with the fourth quarter of 2016.
• Fixed income capital raising revenues were $25.1 million, a 9.6% decrease compared with the first quarter of 2016 and a 15.8% decrease compared with the fourth quarter of 2016.
• Advisory fee revenues were $52.9 million, an 11.8% increase compared with the first quarter of 2016 and a 5.9% decrease compared with the fourth quarter of 2016.

Asset Management and Service Fee Revenues

Asset management and service fee revenues were a record $162.7 million, a 12.6% increase compared with the first quarter of 2016 and an 8.9% increase compared with the fourth quarter of 2016. 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 $85.1 million, a 74.7% increase compared with the first quarter of 2016 and a 13.8% increase compared with the fourth quarter of 2016.

• Interest income was $101.0 million, a 60.8% increase compared with the first quarter of 2016 and an 11.1% increase compared with the fourth quarter of 2016. Interest income was impacted by the continued growth of interest-earning assets.
• Interest expense was $15.9 million, a 12.6% increase compared with the first quarter of 2016 and a 1.4% decrease compared with the fourth quarter of 2016. Interest expense was impacted by the Company's July 2016 issuance of $200.0 million senior notes.

Compensation and Benefits Expenses

For the quarter ended March 31, 2017, compensation and benefits expenses were $436.4 million, which included $14.3 million of merger-related and severance expenses. This compares with $411.1 million in the first quarter of 2016 and $420.6 million in the fourth quarter of 2016. Excluding merger-related expenses, compensation and benefits as a percentage of net revenues were 62.3% in the first quarter of 2017.

⁽¹⁾ See further discussion of non-GAAP adjustments under "Non-GAAP Financial Measures."

Non-Compensation Operating Expenses

For the quarter ended March 31, 2017, non-compensation operating expenses were $160.1 million, which included merger-related expenses of $5.3 million. This compares with $164.9 million in the first quarter of 2016 and $185.9 million in the fourth quarter of 2016. Excluding merger-related expenses, non-compensation operating expenses as a percentage of net revenues for the quarter ended March 31, 2017 were 22.8%.

⁽¹⁾ See further discussion of non-GAAP adjustments under "Non-GAAP Financial Measures."

Provision for Income Taxes

The GAAP effective income tax rate for the quarter ended March 31, 2017 was 17.1%, as new accounting guidance associated with stock-based compensation favorably impacted the quarter's income tax expense by $16.9 million. This new accounting guidance, which was adopted by the Company on January 1, 2017, will continue to impact the Company's effective income tax rate. This compares with an effective income tax rate of 38.4% for the first quarter of 2016 and 51.0% for the fourth quarter of 2016. The adjusted non-GAAP effective income tax rate for the quarter ended March 31, 2017 was 38.6%.

⁽¹⁾ See further discussion of non-GAAP adjustments under "Non-GAAP Financial Measures."

Assets and Capital

Assets

• Assets increased 34.6% to $19.1 billion as of March 31, 2017 from $14.2 billion as of March 31, 2016. The increase is attributable to growth of Stifel Bank, which as of March 31, 2017 has grown its assets to $13.2 billion from $8.2 billion as of March 31, 2016. Stifel Bank has increased its investment portfolio by 58.1% and its loan portfolio by 69.1% since March 31, 2016.
• Interest-earning assets at Stifel Bank for the three months ended March 31, 2017 were $12.9 billion at an average interest rate of 2.78%, compared with $7.6 billion at an average interest rate of 2.61% during the comparable period in 2016.
• Non-performing assets as a percentage of total assets as of March 31, 2017 was 0.21%.

Capital

• Shareholders' equity as of March 31, 2017 increased 14.9% to $2.8 billion from $2.4 billion as of March 31, 2016.
• At March 31, 2017, book value per common share was $38.40 based on 68.4 million common shares outstanding. This represents a 5.6% increase from March 31, 2016.
• At March 31, 2017, the Company's Tier 1 leverage capital and Tier 1 risk-based capital ratios were 10.1% and 20.9%, respectively, compared to 11.6% and 21.3%, respectively, at March 31, 2016.

Conference Call Information

Stifel Financial Corp. will host its first quarter 2017 financial results conference call on Monday, May 1, 2017, 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 #13766283. 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.

⁽¹⁾ GAAP net revenues include a $2.0 million loss associated with the disposal of certain assets during the first quarter of 2017 from the Sterne Agee acquisition. Non-GAAP net revenues of $677.5 million for the three months ended March 31, 2017 excludes the loss.

⁽²⁾ Non-GAAP pre-tax margin for the three months ended March 31, 2017 of 14.9% is calculated by adding merger-related and severance non-GAAP adjustments of $21.6 million to our GAAP income before income taxes of $79.0 million and dividing it by non-GAAP net revenues for the quarter of $677.5 million. Reconciliations of the Company's GAAP results to certain non-GAAP measures is discussed above and under "Non-GAAP Financial Measures."

⁽³⁾ Includes 121, 128, and 123 independent contractors at March 31, 2017, March 31, 2016, and December 31, 2016, respectively.

⁽⁴⁾ On July 1, 2016, we sold the independent contractor business acquired with the Sterne Agee transaction in June 2015. As of March 31, 2016, there were 560 independent contractors included in the disposed business unit and $11.0 billion of total client assets. These numbers have been excluded from the above table.

⁽⁵⁾ Includes client margin balances held by our broker-dealer subsidiaries and securities-based loans held at Stifel Bank.

⁽¹⁾ Gross charge-offs as a percentage of loans was 0.0% for the periods presented above.

⁽¹⁾ Includes net interest, asset management and service fees, and other income.

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 months ended March 31, 2017. 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 months ended March 31, 2017 to net income and earnings per diluted common share on a non-GAAP basis for the same period.

⁽¹⁾ 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.

⁽²⁾ Includes a $16.9 million impact as a result of new accounting guidance associated with stock-based compensation.