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Stifel Reports Fourth Quarter and Full-Year 2017 Financial Results

  • 22nd consecutive year of record net revenues.
  • Annual net revenues of $2.9 billion, increased 13.6% compared with 2016.
  • Record quarterly net revenues of $804.1 million, increased 21.6% compared with the year-ago quarter.
  • Quarterly net loss attributable to common shareholders of $4.3 million, or $0.06 per diluted common share.
  • Record non-GAAP net income available to common shareholders of $120.6 million, or $1.47 per diluted common share.
  • Announced an increase in quarterly dividend by 20% to $0.12 per common share starting in first quarter of 2018.

ST. LOUIS, Jan. 30, 2018 (GLOBE NEWSWIRE) -- Stifel Financial Corp. (NYSE:SF) today reported net loss attributable to common shareholders of $4.3 million, or $0.06 per diluted common share on record net revenues of $804.1 million for the three months ended December 31, 2017, compared with net income available to common shareholders of $24.5 million, or $0.31 per diluted common share, on net revenues of $661.4 million for the fourth quarter of 2016.

For the three months ended December 31, 2017, the Company reported record non-GAAP net income available to common shareholders of $120.6 million, or $1.47 per diluted common share. The Company’s reported GAAP net income for the three months ended December 31, 2017 was primarily impacted by 1) actions taken by the Company in response to the Tax Cuts and Jobs Act (“Tax Legislation”) that was enacted in the fourth quarter of 2017 to maximize tax savings; 2) litigation-related expenses associated with previously disclosed legal matters; 3) expected merger-related charges; 4) the revaluation of the Company’s deferred tax assets as a result of the enacted Tax Legislation; and 5) the favorable impact of the adoption of new accounting guidance during 2017 associated with stock-based compensation. Details discussed below and in the “Non-GAAP Financial Matters” section.

Chairman’s Comments

“We are pleased to announce that 2017 was our 22nd consecutive year of record net revenue of $2.9 billion that increased 14% from 2016. Both of our operating segments generated record results, as the investments we’ve made in our business generated stronger results and an improving economy provided a better operating environment than we experienced in the past few years. Wealth management benefitted from the further expansion of our bank balance sheet and growth in our fee-based assets. Our institutional group’s record results were driven by record investment banking activity in both advisory and underwriting that more than offset an industry-wide slowdown in trading activity. The result of our record revenue coupled with solid expense management was record non-GAAP net income as well as return on common equity of nearly 18% in the fourth quarter. We believe that this level of operating leverage is indicative of our capabilities as Stifel is well positioned to capitalize on the current market tailwinds of the lower corporate U.S. tax rates and improved global economic growth,” stated Ronald J. Kruszewski, Chairman & CEO of Stifel.

Fourth Quarter Review

Quarterly Highlights

  • Record net revenues of $804.1 million, increased 21.6% compared with the year-ago quarter.
  • Record net revenues and pre-tax operating income in Global Wealth Management.
  • Record net revenues and pre-tax operating income in Institutional Group.
  • Net loss attributable to common shareholders of $4.3 million, or $0.06 per diluted common share.
  • Record non-GAAP net income available to common shareholders of $120.6 million, or $1.47 per diluted common share.
  • Record client assets of $272.6 billion, increased 15.0% compared with the year-ago quarter and 3.0% sequentially.
  • Payment of regularly quarterly dividend of $0.10 per common share.
  • Bank net interest margin of 2.85% increased 5 basis points sequentially.

Financial Highlights (Unaudited) Three Months Ended
(in 000s, except per share data) GAAP (1) 12/31/17 GAAP 12/31/16 % Change GAAP 9/30/17 % Change Non-GAAP (2) 12/31/17 Non-GAAP (2) 12/31/16 % Change
Net revenues $804,085 $661,391 21.6 $721,169 11.5 $804,085 $661,392 21.6
Net income/(loss) $(1,988) $26,880 (107.4) $66,536 (103.0) $122,969 $56,528 117.5
Preferred dividend 2,344 2,343 n/m 2,343 n/m 2,344 2,343 n/m
Net income/(loss) available to common shareholders $(4,332) $24,537 (117.7) $64,193 (106.7) $120,625 $54,185 122.6
Earnings per diluted common share $(0.03) $0.34 (108.8) $0.82 (103.7) $1.49 $0.71 109.9
Earnings per diluted common share available to common shareholders $(0.06) $0.31 (119.4) $0.79 (107.6) $1.47 $0.68 116.2
Compensation ratio 77.1% 63.6% 62.2% 60.0% 62.3%
Non-compensation ratio 23.0% 28.1% 22.8% 19.9% 24.2%
Pre-tax operating margin (6) (0.1%) 8.3% 15.0% 20.1% 13.5%

Brokerage Revenues

Brokerage revenues, defined as commissions and principal transactions, were $266.0 million, an 8.2% decrease compared with the fourth quarter of 2016 and a 6.6% increase compared with the third quarter of 2017.

Three Months Ended
(in 000s) 12/31/17 12/31/16 % Change 9/30/17 % Change
Global Wealth Management brokerage revenues $163,421 $160,017 2.1 $158,334 3.2
Institutional brokerage:
Equity capital markets 49,628 64,007 (22.5) 45,209 9.8
Fixed income capital markets 52,961 65,712 (19.4) 46,079 14.9
Total institutional brokerage 102,589 129,719 (20.9) 91,288 12.4
Total brokerage revenues (3) $266,010 $289,736 (8.2) $249,622 6.6

  • Global wealth management brokerage revenues were $163.4 million, a 2.1% increase compared with the fourth quarter of 2016 and a 3.2% increase compared with the third quarter of 2017.
  • Institutional equity brokerage revenues were $49.6 million, a 22.5% decrease compared with the fourth quarter of 2016 and a 9.8% increase compared with the third quarter of 2017.
  • Institutional fixed income brokerage revenues were $53.0 million, a 19.4% decrease compared with the fourth quarter of 2016 and a 14.9% increase compared with the third quarter of 2017.

Investment Banking Revenues

Investment banking revenues were a record $232.7 million, a 73.1% increase compared with the fourth quarter of 2016 and a 27.9% increase compared with the third quarter of 2017.

Three Months Ended
(in 000s) 12/31/17 12/31/16 % Change 9/30/17 % Change
Capital raising:
Global Wealth Management $8,899 $12,064 (26.2) $9,072 (1.9)
Equity capital markets 57,800 36,714 57.4 43,277 33.6
Fixed income capital markets 42,820 30,235 41.6 27,573 55.3
Institutional Group 100,620 66,949 50.3 70,850 42.0
Total capital raising (3) 109,519 79,013 38.6 79,922 37.0
Advisory fees (3) 123,227 55,439 122.3 101,982 20.8
Total investment banking $232,746 $134,452 73.1 $181,904 27.9

  • Global wealth management capital raising revenues were $8.9 million, a 26.2% decrease compared with the fourth quarter of 2016 and a 1.9% decrease compared with the third quarter of 2017.
  • Institutional equity capital raising revenues were $57.8 million, a 57.4% increase compared with the fourth quarter of 2016 and a 33.6% increase compared with the third quarter of 2017.
  • Institutional fixed income capital raising revenues were $42.8 million, a 41.6% increase compared with the fourth quarter of 2016 and a 55.3% increase compared with the third quarter of 2017.
  • Advisory fee revenues were $123.2 million, a 122.3% increase compared with the fourth quarter of 2016 and a 20.8% increase compared with the third quarter of 2017.

Asset Management and Service Fee Revenues

Asset management and service fee revenues were a record $186.6 million, a 24.8% increase compared with the fourth quarter of 2016 and a 3.7% increase compared with the third quarter of 2017.

Net Interest Income

Record net interest income of $106.8 million, a 42.9% increase compared with the fourth quarter of 2016 and a 6.5% increase compared with the third quarter of 2017.

  • Interest income was $126.6 million, a 39.4% increase compared with the fourth quarter of 2016 and a 7.4% increase compared with the third quarter of 2017.
  • Interest expense was $19.9 million, a 23.2% increase compared with the fourth quarter of 2016 and a 12.7% increase compared with the third quarter of 2017.

Annual Review

Annual Highlights

  • Record net revenues of $2.9 billion, increased 13.6% compared with 2016.
  • Record net revenues and pre-tax operating income in Global Wealth Management.
  • Record net revenues and pre-tax operating income in Institutional Group.
  • Net income available to common shareholders of $173.5 million, or $2.14 per diluted common share.
  • Record non-GAAP net income available to common shareholders of $323.4 million, or $3.99 per diluted common share.

For the year ended December 31, 2017, the Company reported net income available to common shareholders of $173.5 million, or $2.14 per diluted common share on record net revenues of $2.9 billion, compared with net income available to common shareholders of $77.6 million, or $1.00 per diluted share, on net revenues of $2.6 billion for the comparable period in 2016.

For the year ended December 31, 2017, the Company reported record non-GAAP net income available to common shareholders of $323.4 million, or $3.99 per diluted common share. The Company’s reported GAAP net income for the year ended December 31, 2017 was primarily impacted by 1) actions taken by the Company in response to the Tax Cuts and Jobs Act (“Tax Legislation”) that was enacted in the fourth quarter of 2017 to maximize tax savings; 2) anticipated merger-related charges; 3) litigation-related expenses associated with previously disclosed legal matters; 4) the revaluation of the Company’s deferred tax assets as a result of the enacted Tax Legislation; and 5) the favorable impact of the adoption of new accounting guidance during 2017 associated with stock-based compensation. Details discussed below and in the “Non-GAAP Financial Matters” section.

Financial Highlights (Unaudited) Year Ended
(in 000s, except per share data) GAAP 12/31/17 GAAP 12/31/16 % Change Non-GAAP (2) 12/31/17 Non-GAAP (2) 12/31/16 % Change
Net revenues $2,926,432 $2,575,496 13.6 $2,928,416 $2,579,599 13.5
Net income $182,871 $81,520 124.3 $332,758 $189,611 75.5
Preferred dividend 9,375 3,906 140.0 9,375 3,906 140.0
Net income available to common shareholders $173,496 $77,614 123.5 $323,383 $185,705 74.1
Earnings per diluted common share $2.26 $1.05 115.2 $4.11 $2.44 68.4
Earnings per diluted common share available to common shareholders $2.14 $1.00 114.0 $3.99 $2.39 66.9
Compensation ratio 66.9% 67.0% 61.2% 62.8%
Non-compensation ratio 23.9% 27.5% 21.7% 24.1%
Pre-tax operating margin (7) 9.2% 5.5% 17.1% 13.1%

Brokerage Revenues
Brokerage revenues for the year ended December 31, 2017 were $1.1 billion, a 10.8% decrease compared with 2016.

Year Ended
(in 000s) 12/31/17 12/31/16 % Change
Global Wealth Management brokerage revenues $661,334 $670,635 (1.4)
Institutional brokerage:
Equity capital markets 199,526 232,292 (14.1)
Fixed income capital markets 214,870 302,491 (29.0)
Total institutional brokerage 414,396 534,783 (22.5)
Total brokerage revenues (3) $1,075,730 $1,205,418 (10.8)

  • Global wealth management brokerage revenues were $661.3 million, a 1.4% decrease compared with 2016.
  • Institutional equity brokerage revenues were $199.5 million, a 14.1% decrease compared with 2016.
  • Institutional fixed income brokerage revenues were $214.9 million, a 29.0% decrease compared with 2016.

Investment Banking
Investment banking revenues were a record $726.8 million, a 41.7% increase compared with 2016.

Year Ended
(in 000s) 12/31/17 12/31/16 % Change
Capital raising:
Global Wealth Management 40,466 42,187 (4.1)
Equity capital markets 182,728 103,443 76.6
Fixed income capital markets 142,963 110,766 29.1
Institutional Group 325,691 214,209 52.0
Total capital raising (3) 366,157 256,396 42.8
Advisory fees (3) 360,606 256,637 40.5
Total investment banking (3) $726,763 $513,033 41.7

  • Global wealth management capital raising revenues were $40.5 million, a 4.1% decrease compared with 2016.
  • Institutional equity capital raising revenues were $182.7 million, a 76.6% increase compared with 2016.
  • Institutional fixed income capital raising revenues were $143.0 million, a 29.1% increase compared with 2016.
  • Advisory fee revenues were $360.6 million, a 40.5% increase compared with 2016.

Asset Management and Service Fee Revenues

Asset management and service fee revenues were a record $702.1 million, a 20.5% increase compared with 2016.

Net Interest Income

Record net interest income of $384.4 million, a 69.0% increase compared with 2016.

  • Interest income was $454.4 million, a 54.4% increase compared with 2016.
  • Interest expense was $70.0 million, a 4.7% increase compared with 2016.

Fourth Quarter &Full Year 2017

Compensation and Benefits Expenses

For the quarter ended December 31, 2017, compensation and benefits expenses were $620.3 million, which included $137.5 million of tax reform, merger-related, and severance expenses (collectively, non-GAAP adjustments). This compares with $420.6 million in the fourth quarter of 2016 and $448.4 million in the third quarter of 2017. Excluding the non-GAAP adjustments, compensation and benefits as a percentage of net revenues were 60.0% in the fourth quarter of 2017 (non-GAAP measure).

For the year ended December 31, 2017, compensation and benefits expenses were $2.0 billion, which included $167.8 million of tax reform, merger-related, and severance expenses, (collectively, non-GAAP adjustments) compared to $1.7 billion in 2016. Excluding the non-GAAP adjustments, compensation and benefits as a percentage of net revenues were 61.2% in the year ended December 31, 2017 (non-GAAP measure).

Three Months Ended 12/31/17 Year Ended 12/31/17
GAAP compensation and benefits $620,256 $1,958,929
As a percentage of net revenues 77.1% 66.9%
Non-GAAP adjustments: (4)
Tax reform (133,319) (133,319)
Merger-related (2,729) (23,603)
Severance (1,432) (10,925)
(137,480) (167,847)
Non-GAAP compensation and benefits $482,776 $1,791,082
As a percentage of non-GAAP net revenues 60.0% 61.2%


Non-Compensation Operating Expenses

For the quarter ended December 31, 2017, non-compensation operating expenses were $184.6 million, which included litigation-related, merger-related, and tax reform expenses (collectively, non-GAAP adjustments) of $24.9 million. This compares with $185.9 million in the fourth quarter of 2016 and $164.6 million in the third quarter of 2017. Excluding the non-GAAP adjustments, non-compensation operating expenses as a percentage of net revenues for the quarter ended December 31, 2017 were 19.9% (non-GAAP measure).

For the year ended December 31, 2017, non-compensation operating expenses were $698.0 million, which included litigation-related, merger-related, and tax reform expenses (collectively, non-GAAP adjustments) of $61.8 million, compared with $706.9 million in 2016. Excluding the non-GAAP adjustments, non-compensation operating expenses as a percentage of net revenues for the quarter ended December 31, 2017 were 21.7% (non-GAAP measure).

Three Months Ended 12/31/17 Year Ended 12/31/17
GAAP non-compensation expenses $184,649 $697,967
As a percentage of net revenues 23.0% 23.9%
Non-GAAP adjustments: (4)
Litigation-related (15,961) (35,961)
Merger-related (6,718) (23,617)
Tax reform (2,206) (2,206)
(24,885) (61,784)
Non-GAAP non-compensation expenses $159,764 $636,183
As a percentage of non-GAAP net revenues 19.9% 21.7%

Provision for Income Taxes

The GAAP effective income tax rate for the quarter ended December 31, 2017 was (142.4%). This compares with an effective income tax rate of 51.0% for the fourth quarter of 2016 and 38.5% for the third quarter of 2017. The adjusted non-GAAP effective income tax rate for the quarter ended December 31, 2017 was 23.9%.

The GAAP effective income tax rate for the year ended December 31, 2017 was 32.2%, compared with 42.8% in 2016. The adjusted non-GAAP effective income tax rate for the year ended December 31, 2017 was 33.6%.

The provision for income taxes for the three and twelve months ended December 31, 2017 was primarily impacted by 1) actions taken by the Company in response to the Tax Legislation that was enacted in the fourth quarter of 2017 to maximize tax savings; 2) the favorable impact of the adoption of new accounting guidance during 2017 associated with stock-based compensation; and 3) the revaluation of the Company’s deferred tax assets as a result of the enacted Tax Legislation.

Three Months Ended 12/31/17 Year Ended 12/31/17
GAAP provision for income taxes $1,168 $86,665
GAAP effective tax rate (142.4%) 32.2%
Non-GAAP adjustments: (4)
Tax reform 53,328 53,328
Excess tax benefits from stock-based compensation (5) 21,144 38,596
Litigation and merger-related and severance 5,379 32,248
Revaluation of deferred tax assets (42,443) (42,443)
37,408 81,729
Non-GAAP provision for income taxes $38,576 $168,394
Non-GAAP effective tax rate 23.9% 33.6%


Conference Call Information

Stifel Financial Corp. will host its fourth quarter 2017 financial results conference call on Tuesday, January 30, 2018, 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 (888) 676-3684 and referencing conference ID #5299459. 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; 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 Year Ended
(in 000s, except per share amounts) 12/31/17 12/31/16 % Change 9/30/17 % Change 12/31/17 12/31/16 % Change
Revenues:
Commissions $168,754 $178,683 (5.6) $162,612 3.8 $678,904 $729,989 (7.0)
Principal transactions 97,256 111,052 (12.4) 87,010 11.8 396,826 475,428 (16.5)
Brokerage revenues 266,010 289,735 (8.2) 249,622 6.6 1,075,730 1,205,417 (10.8)
Capital raising 109,509 78,204 40.0 79,922 37.0 366,147 256,397 42.8
Advisory fees 123,237 56,248 119.1 101,982 20.8 360,616 256,637 40.5
Investment banking 232,746 134,452 73.1 181,904 27.9 726,763 513,034 41.7
Asset management and service fees 186,563 149,484 24.8 179,848 3.7 702,064 582,789 20.5
Other income 12,016 12,994 (7.5) 9,558 25.7 37,524 46,798 (19.8)
Operating revenues 697,335 586,665 18.9 620,932 12.3 2,542,081 2,348,038 8.3
Interest revenue 126,615 90,844 39.4 117,862 7.4 454,381 294,332 54.4
Total revenues 823,950 677,509 21.6 738,794 11.5 2,996,462 2,642,370 13.4
Interest expense 19,865 16,118 23.2 17,625 12.7 70,030 66,874 4.7
Net revenues 804,085 661,391 21.6 721,169 11.5 2,926,432 2,575,496 13.6
Non-interest expenses:
Compensation and benefits 620,256 420,644 47.5 448,410 38.3 1,958,929 1,726,016 13.5
Occupancy and equipment rental 54,844 52,869 3.7 57,427 (4.5) 222,708 231,324 (3.7)
Communication and office supplies 30,807 34,376 (10.4) 34,650 (11.1) 133,493 139,644 (4.4)
Commissions and floor brokerage 10,945 9,662 13.3 11,232 (2.6) 44,132 44,315 (0.4)
Provision for loan losses 5,340 6,016 (11.2) 7,990 (33.2) 25,320 15,659 61.7
Other operating expenses 82,713 82,930 (0.3) 53,321 55.1 272,314 275,956 (1.3)
Total non-interest expenses 804,905 606,497 32.7 613,030 31.3 2,656,896 2,432,914 9.2
Income before income taxes (820) 54,894 (101.5) 108,139 (100.8) 269,536 142,582 89.0
Provision for income taxes 1,168 28,014 (95.8) 41,603 (97.2) 86,665 61,062 41.9
Net income/(loss) (1,988) 26,880 (107.4) 66,536 (103.0) 182,871 81,520 124.3
Preferred dividends 2,344 2,343 n/m 2,343 n/m 9,375 3,906 140.0
Net income/(loss) available to common shareholders $(4,332) $24,537 (117.7) $64,193 (106.7) $173,496 $77,614 123.5
Earnings per common share: (1)
Basic $(0.06) $0.37 (116.2) $0.94 (106.4) $2.53 $1.16 118.1
Diluted $(0.06) $0.31 (119.4) $0.79 (107.6) $2.14 $1.00 114.0
Weighted average number of common shares outstanding:
Basic 68,782 66,636 3.2 68,522 0.4 68,562 66,871 2.5
Diluted 68,782 79,539 (13.5) 80,881 (15.0) 81,035 77,563 4.5
Cash dividends declared per common share $0.10 $ n/m $0.10 n/m $0.20 $ n/m


Summary Business Segment Results (Unaudited)
Three Months Ended Year Ended
(in 000s) 12/31/17 12/31/16 % Change 9/30/17 % Change 12/31/17 12/31/16 % Change
Net revenues:
Global Wealth Management $473,938 $407,535 16.3 $453,558 4.5 $1,822,218 $1,563,410 16.6
Institutional Group 332,401 253,168 31.3 264,747 25.6 1,110,768 1,014,164 9.5
Other (2,254) 688 (427.6) 2,864 (178.7) (6,554) (2,078) (215.4)
Total net revenues $804,085 $661,391 21.6 $721,169 11.5 $2,926,432 $2,575,496 13.6
Operating expenses:
Global Wealth Management $304,077 $284,683 6.8 $291,802 4.2 $1,195,312 $1,133,092 5.5
Institutional Group 258,901 205,653 25.9 213,030 21.5 892,787 850,021 5.0
Other 241,927 116,161 108.3 108,198 123.6 568,797 449,801 26.5
Total operating expenses $804,905 $606,497 32.7 $613,030 31.3 $2,656,896 $2,432,914 9.2
Operating contribution:
Global Wealth Management $169,861 $122,852 38.3 $161,756 5.0 $626,906 $430,318 45.7
Institutional Group 73,500 47,515 54.7 51,717 42.1 217,981 164,143 32.8
Other (244,181) (115,473) 111.5 (105,334) 131.8 (575,351) (451,879) 27.3
Income/(loss) before income taxes $(820) $54,894 (101.5) $108,139 (100.8) $269,536 $142,582 89.0
As a percentage of net revenues:
Compensation and benefits
Global Wealth Management 48.9 52.9 49.1 50.0 55.7
Institutional Group 59.7 57.7 60.0 59.9 60.0
Non-compensation operating expenses
Global Wealth Management 15.3 17.0 15.2 15.6 16.8
Institutional Group 18.2 23.5 20.5 20.5 23.8
Income before income taxes
Global Wealth Management 35.8 30.1 35.7 34.4 27.5
Institutional Group 22.1 18.8 19.5 19.6 16.2
Consolidated pre-tax margin (0.1) 8.3 15.0 9.2 5.5


Stifel Financial Corp.
Selected Key Metrics
(Unaudited)
Financial metrics:As of and For the Three Months Ended
(in 000s, except percentages and per share amounts)12/31/17 12/31/16 9/30/17
Total assets$21,383,953 $19,129,356 $20,484,080
Total equity 2,861,576 2,738,408 2,932,405
Book value per common share$38.26 $38.84 $40.67
Return on common equity (8) (0.3%) 4.2% 9.7%
Non-GAAP return on common equity (2) (8) 17.9% 8.8% 10.8%
Return on tangible common equity (9) (0.5%) 7.2% 16.1%
Non-GAAP return on tangible common equity (2) (9) 29.5% 15.2% 17.8%
Tier 1 common capital ratio (10) 16.9% 18.0% 18.3%
Tier 1 risk based capital ratio (10) 19.0% 20.3% 20.5%
Tier 1 leverage capital ratio (10) 9.5% 10.2% 10.4%
Pre-tax margin on net revenues (0.1%) 8.3% 15.0%
Non-GAAP pre-tax margin on net revenues (2) 20.1% 13.5% 16.8%
Effective tax rate (142.4%) 51.0% 38.5%
Non-GAAP effective tax rate (2) 23.9% 36.6% 38.9%


Statistical Information
(in 000s) 12/31/17 12/31/16 % Change 9/30/17 % Change
Statistical Information:
Financial advisors (11) 2,244 2,280 (1.6) 2,252 (0.4)
Locations 391 396 (1.3) 395 (1.0)
Total client assets $272,591,000 $236,942,000 15.0 $264,717,000 3.0
Fee-based client assets $87,560,000 $70,195,000 24.7 $82,999,000 5.5
Client money market and insured product $17,286,000 $19,253,000 (10.2) $17,420,000 (0.8)
Secured client lending (12) $3,079,737 $2,959,628 4.1 $3,037,158 1.4


Stifel Bank & Trust - a component of Global Wealth Management
Selected Key Metrics
(Unaudited)
Selected operating data:Three Months Ended Year Ended
(in 000s, except percentages)12/31/17 12/31/16 % Change 9/30/17 % Change 12/31/17 12/31/16 % Change
Net Interest Income$103,985 $72,931 42.6 $97,300 6.9 $376,099 $225,114 67.1
Bank loan loss provision 5,340 6,016 (11.2) 7,990 (33.2) 25,320 15,659 61.7
Charge-offs 105 n/m n/m 3,058 296 933.1
Net Interest Margin 2.85% 2.24% 27.2 2.80% 1.8 2.77% 2.34% 18.4


Financial Metrics: As of
(in 000s, except percentages) 12/31/17 12/31/16 9/30/17
Total Assets $14,995,795 $12,798,240 $14,538,750
Total Equity 1,058,488 943,545 1,019,257
Total Loans, net (includes loans held for sale) 7,173,827 5,819,778 6,949,369
Total Deposits 13,411,935 11,527,483 12,883,961
Available-for-sale securities, at fair value 3,766,372 3,174,642 3,687,248
Held-to-maturity securities, at amortized cost 3,694,377 3,034,380 3,550,962
Residential real estate 2,593,576 2,161,400 2,517,543
Commercial and industrial 2,437,938 1,710,399 2,380,417
Securities-based loans 1,819,206 1,614,033 1,839,981
Commercial real estate 116,258 78,711 78,614
Loans held for sale 226,068 228,588 166,335
Common equity tier 1 capital ratio (10) 14.3% 16.0% 14.4%
Tier 1 capital ratio (10) 14.3% 16.0% 14.4%
Total capital ratio (10) 15.3% 16.8% 15.3%
Tier 1 leverage ratio (10) 7.1% 7.1% 7.1%
Credit Metrics:
Allowance for loan losses $67,466 $45,163 $62,229
Allowance as a percentage of retained loans 0.96% 0.81% 0.92%
Net charge-offs as a percentage of average loans 0.00% 0.00% 0.00%
Total nonperforming assets 27,030 26,934 21,776
Nonperforming assets as % of total assets 0.18% 0.21% 0.15%


Global Wealth Management Summary Results of Operations (Unaudited)
Three Months Ended Year Ended
(in 000s) 12/31/17 12/31/16 % Change 9/30/17 % Change 12/31/17 12/31/16 % Change
Revenues:
Commissions $118,292 $114,824 3.0 $115,410 2.5 $474,623 $491,214 (3.4)
Principal transactions 45,129 45,193 (0.1) 42,924 5.1 186,711 179,421 4.1
Brokerage revenues 163,421 160,017 2.1 158,334 3.2 661,334 670,635 (1.4)
Asset management and service fees 186,373 149,998 24.3 179,830 3.6 701,756 581,862 20.6
Net interest 112,190 78,748 42.5 102,831 9.1 400,414 248,784 60.9
Investment banking 8,899 12,064 (26.2) 9,072 (1.9) 40,466 42,187 (4.1)
Other income 3,055 6,708 (54.5) 3,491 (12.5) 18,248 19,942 (8.5)
Net revenues 473,938 407,535 16.3 453,558 4.5 1,822,218 1,563,410 16.6
Non-interest expenses:
Compensation and benefits 231,736 215,458 7.6 222,621 4.1 911,986 870,577 4.8
Non-compensation operating expenses 72,341 69,225 4.5 69,181 4.6 283,326 262,515 7.9
Total non-interest expenses 304,077 284,683 6.8 291,802 4.2 1,195,312 1,133,092 5.5
Income before income taxes $169,861 $122,852 38.3 $161,756 5.0 $626,906 $430,318 45.7
As a percentage of net revenues:
Compensation and benefits 48.9 52.9 49.1 50.0 55.7
Non-compensation operating expenses 15.3 17.0 15.2 15.6 16.8
Income before income taxes 35.8 30.1 35.7 34.4 27.5


Institutional Group Summary Results of Operations (Unaudited)
Three Months Ended Year Ended
(in 000s) 12/31/17 12/31/16 % Change 9/30/17 % Change 12/31/17 12/31/16 % Change
Revenues:
Commissions $50,462 $63,859 (21.0) $47,202 6.9 $204,281 $238,775 (14.4)
Principal transactions 52,127 65,860 (20.9) 44,086 18.2 210,115 296,008 (29.0)
Brokerage revenues 102,589 129,719 (20.9) 91,288 12.4 414,396 534,783 (22.5)
Capital raising 100,620 66,949 50.3 70,850 42.0 325,691 214,209 52.0
Advisory fees 123,227 55,439 122.3 101,982 20.8 360,606 256,638 40.5
Investment banking 223,847 122,388 82.9 172,832 29.5 686,297 470,847 45.8
Other (13) 5,965 1,061 462.2 627 851.4 10,075 8,534 18.1
Net revenues 332,401 253,168 31.3 264,747 25.6 1,110,768 1,014,164 9.5
Non-interest expenses:
Compensation and benefits 198,416 146,056 35.8 158,926 24.8 665,514 608,171 9.4
Non-compensation operating expenses 60,485 59,597 1.5 54,104 11.8 227,273 241,850 (6.0)
Total non-interest expenses 258,901 205,653 25.9 213,030 21.5 892,787 850,021 5.0
Income before income taxes $73,500 $47,515 54.7 $51,717 42.1 $217,981 $164,143 32.8
As a percentage of net revenues:
Compensation and benefits 59.7 57.7 60.0 59.9 60.0
Non-compensation operating expenses 18.2 23.5 20.5 20.5 23.8
Income before income taxes 22.1 18.8 19.5 19.6 16.2


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 December 31, 2017, September 30, 2017, and December 31, 2016 and the years ended December 31, 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 months ended December 31, 2017, September 30, 2017, and December 31, 2016 and the years ended December 31, 2017 and 2016 to net income and earnings per diluted common share on a non-GAAP basis for the same period.

Three Months Ended Year Ended
(in 000s) 12/31/2017 12/31/2016 9/30/2017 12/31/2017 12/31/2016
GAAP net income/(loss) $(1,988) $26,880 $66,536 $182,871 $81,520
Preferred dividend 2,344 2,343 2,343 9,375 3,906
Net income/(loss) available to common shareholders (4,332) 24,537 64,193 173,496 77,614
Non-GAAP adjustments:
Tax reform (14) 135,525 135,525
Merger-related (15) 9,447 14,226 10,244 49,205 132,016
Litigation-related (16) 15,961 20,000 35,961 31,796
Severance 1,432 2,538 10,925
Provision for income taxes (17) (37,408) (4,578) (5,369) (81,729) (55,721)
Total non-GAAP adjustments 124,957 29,648 7,413 149,887 108,091
Non-GAAP net income available to common shareholders $120,625 $54,185 $71,606 $323,383 $185,705
Weighted average diluted shares outstanding 82,267 79,539 80,881 81,035 77,563
GAAP earnings per diluted common share (1) $(0.03) $0.34 $0.82 $2.26 $1.05
Non-GAAP adjustments 1.52 0.37 0.09 1.85 1.39
Non-GAAP earnings per diluted common share $1.49 $0.71 $0.91 $4.11 $2.44
GAAP earnings per diluted common share available to common shareholders (1) $(0.06) $0.31 $0.79 $2.14 $1.00
Non-GAAP adjustments 1.53 0.37 0.10 1.85 1.39
Non-GAAP earnings per diluted common share available to common shareholders $1.47 $0.68 $0.89 $3.99 $2.39


Footnotes

(1) GAAP earnings per share for the three months ended December 31, 2017 is calculated using the basic weighted average number of common shares outstanding, not fully dilutive shares, as they are anti-dilutive in periods a loss is incurred.
(2) Reconciliations of the Company’s GAAP results to these non-GAAP measures are discussed within and under “Non-GAAP Financial Measures.”
(3) Excludes revenue included in the Other segment
(4) See further discussion of non-GAAP adjustments under “Non-GAAP Financial Measures.”
(5) During the first quarter of 2017, the Company adopted new accounting guidance associated with stock-based compensation.
(6) Non-GAAP pre-tax margin for the three months ended December 31, 2017 of 20.1% is calculated by adding tax reform, merger-related and severance non-GAAP adjustments of $162.4 million to our GAAP loss before income taxes of $0.8 million and dividing it by non-GAAP net revenues for the quarter of $804.1 million. Reconciliations of the Company’s GAAP results to certain non-GAAP measures is discussed within and under “Non-GAAP Financial Measures.”
(7) Non-GAAP pre-tax margin for the year ended December 31, 2017 of 17.1% is calculated by adding tax reform, litigation and merger-related and severance non-GAAP adjustments of $231.6 million to our GAAP income before income taxes of $269.5 million and dividing it by non-GAAP net revenues for the quarter of $2,928.4 million. Reconciliations of the Company’s GAAP results to certain non-GAAP measures is discussed within and under “Non-GAAP Financial Measures.”
(8) 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.
(9) 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.
(10) Capital ratios are estimates at time of the Company’s earnings release.
(11) Includes 112, 123, and 116 independent contractors at December 31, 2017, December 31, 2016, and September 30, 2017, respectively.
(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 actions taken by the Company in response to the Tax Legislation that was enacted in the fourth quarter of 2017 to maximize tax savings;
(15) 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.
(16) Primarily related to costs associated with the Company’s previously disclosed legal matters.
(17) Primarily related to 1) actions taken by the Company in response to the Tax Legislation that was enacted in the fourth quarter of 2017 to maximize tax savings; 2) the favorable impact of the adoption of new accounting guidance during 2017 associated with stock-based compensation; and 3) the revaluation of the Company’s deferred tax assets as a result of the enacted Tax Legislation.


Media Contact: Neil Shapiro (212) 895-1891
Investor Contact: Joel Jeffrey (212) 271-3610
www.stifel.com/investor-relations

Source:Stifel Financial Corp.