Stifel Reports Third Quarter 2020 Results


  • Net revenues of $883.3 million, increased 7.5% with the year-ago quarter.
  • Net income available to common shareholders of $110.6 million, or $1.46 per diluted common share.
  • Non-GAAP net income available to common shareholders of $120.5 million, or $1.59 per diluted common share.
  • Annualized return on average tangible common shareholders’ equity (1) was 20.4%.
  • Non-GAAP annualized return on average tangible common shareholders’ equity (1) was 22.2%.

ST. LOUIS, Oct. 27, 2020 (GLOBE NEWSWIRE) -- Stifel Financial Corp. (NYSE: SF) today reported net income available to common shareholders of $110.6 million, or $1.46 per diluted common share on net revenues of $883.3 million for the three months ended September 30, 2020, compared with net income available to common shareholders of $104.6 million, or $1.34 per diluted common share, on net revenues of $821.6 million for the third quarter of 2019.

For the three months ended September 30, 2020, the Company reported non-GAAP net income available to common shareholders of $120.5 million, or $1.59 per diluted common share. The Company’s reported GAAP net income for the three months ended September 30, 2020 was primarily impacted by merger-related expenses. Details discussed below and in the “Non-GAAP Financial Matters” section.

Chairman’s Comments

“The financial performance during the quarter, and over the past few years, has been driven by a diverse business mix that’s enabled both our Institutional Group and Wealth Management segments to generate strong growth. This diversification is illustrated by record nine month Wealth Management revenues despite significant declines in net interest income and deposit sweep fees, both a result of the Federal Reserve’s implementation of a zero rate environment. Likewise, we achieved record nine-month Institutional Group revenues as record capital raising and brokerage revenues more than compensated for the 13% decline in advisory revenue,” stated Ronald J. Kruszewski, Chairman and Chief Executive Officer of Stifel.

Mr. Kruszewski continued, “Simply, Stifel is a growth company with diversified, balanced, and synergistic businesses. Over the last 12 months, Wealth Management, under both brokerage and fee-based models, has contributed 46% of net revenues. Institutional revenues, comprised of equity and fixed income, investment banking and trading, made up 41% of net revenues, while net interest income accounted for the remaining 13%. The complementary nature of these businesses is reflected in our return on tangible common equity, which is 23% over the past 12 months.”

Financial Highlights (Unaudited) Three Months Ended 
($ in 000s, except per share data) GAAP
9/30/20
  GAAP
9/30/19
  %
Change
  GAAP
6/30/20
  %
Change
   Non-GAAP (2)
9/30/20
  Non-GAAP (2)
9/30/19
  %
Change
 
Net revenues $883,300  $821,572   7.5  $895,817   (1.4)  $883,300  $821,572   7.5 
Net income applicable to Stifel Financial Corp. $120,527  $109,414   10.2  $107,887   11.7   $130,422  $121,990   6.9 
Preferred dividends  9,897   4,844   104.3   4,843   104.4    9,897   4,844   104.3 
Net income available to common shareholders $110,630  $104,570   5.8  $103,044   7.4   $120,525  $117,146   2.9 
Earnings per diluted common share $1.59  $1.40   13.6  $1.45   9.7   $1.72  $1.56   10.3 
Earnings per diluted common share available to common shareholders $1.46  $1.34   9.0  $1.39   5.0   $1.59  $1.50   6.0 
Compensation ratio  60.4%  59.2%      61.1%       59.6%  58.1%    
Non-compensation ratio  21.7%  22.5%      22.9%       21.0%  21.7%    
Pre-tax operating margin (3)  17.9%  18.3%      16.0%       19.4%  20.2%    

For the nine months ended September 30, 2020, the Company reported net income available to common shareholders of $295.4 million, or $3.90 per diluted common share on record net revenues of $2.7 billion, compared with net income available to common shareholders of $305.2 million, or $3.87 per diluted common share, on net revenues of $2.4 billion for the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, the Company reported non-GAAP net income available to common shareholders of $327.8 million, or $4.33 per diluted common share.

Financial Highlights (Unaudited) Nine Months Ended 
($ in 000s, except per share data) GAAP
9/30/20
  GAAP
9/30/19
  %
Change
   Non-GAAP (2)
9/30/20
  Non-GAAP (2)
9/30/19
  %
Change
 
Net revenues $2,692,151  $2,392,779   12.5   $2,692,330  $2,392,779   12.5 
Net income applicable to Stifel Financial Corp. $315,003  $317,706   (0.9)  $347,377  $345,513   0.5 
Preferred dividends  19,584   12,476   57.0    19,584   12,476   57.0 
Net income available to common shareholders $295,419  $305,230   (3.2)  $327,793  $333,037   (1.6)
Earnings per diluted common share $4.16  $4.03   3.2   $4.59  $4.38   4.8 
Earnings per diluted common share available to common shareholders $3.90  $3.87   0.8   $4.33  $4.22   2.6 
Compensation ratio  61.6%  59.0%       60.7%  58.3%    
Non-compensation ratio  22.9%  22.8%       22.2%  22.1%    
Pre-tax operating margin (4)  15.5%  18.2%       17.1%  19.6%    

Net Revenues

Net revenues were $883.3 million for the third quarter of 2020, a 7.5% increase from the third quarter of 2019 and a 1.4% decrease from the second quarter of 2020. Net revenues, compared with the third quarter of 2019, reflected significantly higher brokerage revenues, increased capital raising revenues, and asset management and service fees, partially offset by lower net interest income and advisory fee revenues. Net revenues, compared with the second quarter of 2020, reflected increased asset management and services fees and capital raising revenues, partially offset by lower advisory fee revenues, principal transaction fee revenues, net interest income, and commission revenues.

The operating environment continued to recover during the third quarter of 2020 from the impact of the COVID-19 pandemic earlier in the year as global economic activity significantly rebounded following a sharp decrease in the second quarter, market volatility declined modestly, and monetary and fiscal policy remained accommodative. As a result, global equity prices increased and credit spreads tightened compared with the end of the second quarter of 2020.

Brokerage Revenues

Brokerage revenues, defined as commissions and principal transactions, were $313.5 million, a 19.8% increase compared with the third quarter of 2019 and an 8.6% decrease compared with the second quarter of 2020.

  Three Months Ended 
($ in 000s) 9/30/20  9/30/19  % Change  6/30/20  % Change 
Global Wealth Management $162,627  $160,117   1.6  $159,123   2.2 
Institutional brokerage:                    
Equity capital markets  54,204   41,037   32.1   63,193   (14.2)
Fixed income capital markets  96,706   60,613   59.5   120,731   (19.9)
Total institutional brokerage  150,910   101,650   48.5   183,924   (17.9)
Total brokerage revenues (5) $313,537  $261,767   19.8  $343,047   (8.6)
  • Global Wealth Management brokerage revenues were $162.6 million, a 1.6% increase compared with the third quarter of 2019 and a 2.2% increase compared with the second quarter of 2020.
  • Institutional equity brokerage revenues were $54.2 million, a 32.1% increase compared with the third quarter of 2019 and a 14.2% decrease compared with the second quarter of 2020.
  • Institutional fixed income brokerage revenues were $96.7 million, a 59.5% increase compared with the third quarter of 2019 and a 19.9% decrease compared with the second quarter of 2020.

Investment Banking Revenues

Investment banking revenues were $218.1 million, a 9.7% increase compared with the third quarter of 2019 and a 0.5% increase compared with the second quarter of 2020.

   Three Months Ended 
($ in 000s) 9/30/20    9/30/19    % Change  6/30/20  % Change 
Capital raising:                        
Global Wealth Management $8,113    $9,855     (17.7) $8,016   1.2 
                         
Equity capital markets  78,462     53,006     48.0   63,277   24.0 
Fixed income capital markets  50,717     31,082     63.2   47,904   5.9 
Institutional Group  129,179     84,088     53.6   111,181   16.2 
Total capital raising (5)  137,292     93,943     46.1   119,197   15.2 
Advisory fees (5)  80,842     104,847     (22.9)  97,838   (17.4)
Total investment banking $218,134    $198,790     9.7  $217,035   0.5 
  • Global Wealth Management capital raising revenues were $8.1 million, a 17.7% decrease compared with the third quarter of 2019 and a 1.2% increase compared with the second quarter of 2020.
  • Institutional equity capital raising revenues were $78.5 million, a 48.0% increase compared with the third quarter of 2019 and a 24.0% increase compared with the second quarter of 2020.
  • Institutional fixed income capital raising revenues were $50.7 million, a 63.2% increase compared with the third quarter of 2019 and a 5.9% increase compared with the second quarter of 2020.
  • Advisory fee revenues were $80.8 million, a 22.9% decrease compared with the third quarter of 2019 and a 17.4% decrease compared with the second quarter of 2020.

Asset Management and Service Fee Revenues

Asset management and service fee revenues were $230.8 million, a 6.0% increase compared with the third quarter of 2019 and a 16.0% increase compared with the second quarter of 2020. The increase from the comparative period in 2019 is primarily attributable to higher asset values and strong fee-based asset flows. See Asset Management and Service Fee Break-down table.

Net Interest Income

Net interest income was $100.6 million, a 25.3% decrease compared with the third quarter of 2019 and a 12.7% decrease compared with the second quarter of 2020. See Net Interest Income Analysis table.

  • Interest income was $114.4 million, a 36.0% decrease compared with the third quarter of 2019 and a 10.9% decrease compared with the second quarter of 2020.
  • Interest expense was $13.8 million, a 68.7% decrease compared with the third quarter of 2019 and a 5.6% increase compared with the second quarter of 2020.

Compensation and Benefits Expenses

For the quarter ended September 30, 2020, compensation and benefits expenses were $533.6 million, which included $6.8 million of merger-related and severance expenses (non-GAAP adjustments). This compares with $486.2 million in the third quarter of 2019 and $547.2 million in the second quarter of 2020. Excluding the non-GAAP adjustments, compensation and benefits as a percentage of net revenues were 59.6% in the third quarter of 2020 (non-GAAP measure).

The increase in compensation and benefits expenses, compared with the third quarter of 2019, is primarily attributable to higher volume and revenue-related expense and investments.

  Three Months Ended  Nine Months Ended 
($ in 000s) 9/30/20  9/30/19  9/30/20  9/30/19 
GAAP compensation and benefits $533,638  $486,160  $1,657,991  $1,411,135 
As a percentage of net revenues  60.4%  59.2%  61.6%  59.0%
Non-GAAP adjustments: (6)                
Merger-related and severance  (6,770)  (8,827)  (22,907)  (16,063)
Non-GAAP compensation and benefits $526,868  $477,333  $1,635,084  $1,395,072 
As a percentage of non-GAAP net revenues  59.6%  58.1%  60.7%  58.3%

Non-Compensation Operating Expenses

For the quarter ended September 30, 2020, non-compensation operating expenses were $191.3 million, which included $6.2 million of merger-related expenses (non-GAAP adjustments). This compares with $184.7 million in the third quarter of 2019 and $205.7 million in the second quarter of 2020. Excluding the non-GAAP adjustments, non-compensation operating expenses as a percentage of net revenues for the quarter ended September 30, 2020 were 21.0% (non-GAAP measure).

The increase in non-compensation operating expenses, compared with the third quarter of 2019, is primarily attributable to volume-related expenses, net provisions for regulatory matters, and professional fees, partially offset by decreases in travel and conference-related expenses as a result of COVID-19. In addition, the third quarter of 2020 was positively impacted by the adjustments associated with the accounting for credit losses under the CECL standard (7).

  Three Months Ended  Nine Months Ended 
($ in 000s) 9/30/20  9/30/19  9/30/20  9/30/19 
GAAP non-compensation expenses $191,269  $184,658  $617,701  $545,099 
As a percentage of net revenues  21.7%  22.5%  22.9%  22.8%
Non-GAAP adjustments: (6)                
Merger-related  (6,219)  (6,023)  (19,672)  (13,699)
Litigation-related           (3,507)
   (6,219)  (6,023)  (19,672)  (17,206)
Non-GAAP non-compensation expenses $185,050  $178,635  $598,029  $527,893 
As a percentage of non-GAAP net revenues  21.0%  21.7%  22.2%  22.1%

Provision for Income Taxes

The GAAP effective income tax rate for the quarter ended September 30, 2020 was 23.9%. This compares with an effective income tax rate of 27.1% for the third quarter of 2019 and 24.5% for the second quarter of 2020. The adjusted non-GAAP effective income tax rate for the quarter ended September 30, 2020 was 23.9%.

  Three Months Ended  Nine Months Ended 
($ in 000s) 9/30/20  9/30/19  9/30/20  9/30/19 
GAAP provision for income taxes $37,866  $40,632  $101,456  $117,227 
GAAP effective tax rate  23.9%  27.1%  24.4%  27.0%
Non-GAAP adjustments: (6)                
Merger-related, litigation-related, and severance  3,084   3,994   10,370   8,949 
Other  10   (1,720)  14   (3,487)
   3,094   2,274   10,384   5,462 
Non-GAAP provision for income taxes $40,960  $42,906  $111,840  $122,689 
Non-GAAP effective tax rate  23.9%  26.0%  24.4%  26.2%

Conference Call Information

Stifel Financial Corp. will host its third quarter 2020 financial results conference call on Wednesday, October 28, 2020, at 9:30 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 6093315. 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, including its Eaton Partners business division; Keefe, Bruyette & Woods, Inc.; Miller Buckfire & Co., LLC; and Century Securities Associates, Inc. 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 and Stifel Bank & Trust offer 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 website at www.stifel.com. For global disclosures, please visit www.stifel.com/investor-relations/press-releases.

Cautionary Note Regarding 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. For information about the risks and important factors that could affect the Company’s future results, financial condition and liquidity, see “Risk Factors” in Part II, Item 1A of the Company’s Quarterly Reports on Form 10-Q for the three months ended March 31, 2020 and June 30, 2020 and “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Forward-looking statements speak only as to the date they are made. The Company 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.

Statements about the effects of the COVID-19 pandemic on the Company’s business, results, financial position and liquidity may constitute forward-looking statements and are subject to the risk that the actual impact may differ, possibly materially, from what is currently expected.

Summary Results of Operations (Unaudited) 
  Three Months Ended  Nine Months Ended 
($ in 000s, except per share amounts) 9/30/20  9/30/19  %
Change
  6/30/20  %
Change
  9/30/20  9/30/19  %
Change
 
Revenues:                                
Commissions $172,654  $163,920   5.3  $177,028   (2.5) $560,780  $484,350   15.8 
Principal transactions  140,883   97,847   44.0   166,017   (15.1)  445,566   298,343   49.3 
Brokerage revenues  313,537   261,767   19.8   343,045   (8.6)  1,006,346   782,693   28.6 
                                 
Advisory fees  80,842   104,847   (22.9)  97,838   (17.4)  254,752   292,648   (12.9)
Capital raising  137,292   93,943   46.1   119,197   15.2   359,885   247,599   45.3 
Investment banking  218,134   198,790   9.7   217,035   0.5   614,637   540,247   13.8 
Asset management and service fees  230,782   217,628   6.0   198,939   16.0   667,496   624,066   7.0 
Other income  20,258   8,747   131.6   21,514   (5.8)  50,979   34,461   47.9 
Operating revenues  782,711   686,932   13.9   780,533   0.3   2,339,458   1,981,467   18.1 
Interest revenue  114,411   178,784   (36.0)  128,368   (10.9)  403,956   557,795   (27.6)
Total revenues  897,122   865,716   3.6   908,901   (1.3)  2,743,414   2,539,262   8.0 
Interest expense  13,822   44,144   (68.7)  13,084   5.6   51,263   146,483   (65.0)
Net revenues  883,300   821,572   7.5   895,817   (1.4)  2,692,151   2,392,779   12.5 
                                 
Non-interest expenses:                                
Compensation and benefits  533,638   486,160   9.8   547,174   (2.5)  1,657,991   1,411,135   17.5 
Occupancy and equipment rental  68,598   58,649   17.0   66,264   3.5   200,935   178,566   12.5 
Communication and office supplies  40,123   36,817   9.0   43,046   (6.8)  124,293   107,583   15.5 
Commissions and floor brokerage  13,254   10,542   25.7   15,177   (12.7)  43,273   32,506   33.1 
Provision for credit losses  (1,353)  929  n/m   19,210  n/m   33,925   5,565   509.6 
Other operating expenses  70,647   77,721   (9.1)  61,986   14.0   215,275   220,879   (2.5)
Total non-interest expenses  724,907   670,818   8.1   752,857   (3.7)  2,275,692   1,956,234   16.3 
Income before income taxes  158,393   150,754   5.1   142,960   10.8   416,459   436,545   (4.6)
Provision for income taxes  37,866   40,632   (6.8)  35,073   8.0   101,456   117,227   (13.5)
Net income  120,527   110,122   9.4   107,887   11.7   315,003   319,318   (1.4)
Net income applicable to non-controlling interests     708  n/m            1,612  n/m 
Net income applicable to Stifel Financial Corp.  120,527   109,414   10.2   107,887   11.7   315,003   317,706   (0.9)
Preferred dividends  9,897   4,844   104.3   4,843   104.4   19,584   12,476   57.0 
Net income available to common shareholders $110,630  $104,570   5.8  $103,044   7.4  $295,419  $305,230   (3.2)
Earnings per common share:                                
Basic $1.57  $1.47   6.8  $1.46   7.5  $4.17  $4.21   (1.0)
Diluted $1.46  $1.34   9.0  $1.39   5.0  $3.90  $3.87   0.8 
                                 
Cash dividends declared per common share $0.17  $0.15   13.3  $0.17     $0.51  $0.45   13.3 
                                 
Weighted average number of common shares outstanding:                                
Basic  70,627   71,197   (0.8)  70,527   0.1   70,814   72,512   (2.3)
Diluted  75,850   78,144   (2.9)  74,387   2.0   75,712   78,826   (4.0)


Summary Segment Results (Unaudited) 
  Three Months Ended  Nine Months Ended 
($ in 000s) 9/30/20  9/30/19  %
Change
  6/30/20  %
Change
  9/30/20  9/30/19  %
Change
 
Net revenues:                                
Global Wealth Management $526,836  $534,571   (1.4) $505,782   4.2  $1,615,574  $1,577,614   2.4 
Institutional Group  363,365   290,222   25.2   398,096   (8.7)  1,093,699   822,110   33.0 
Other  (6,901)  (3,221) n/m   (8,061) n/m   (17,122)  (6,945) n/m 
Total net revenues $883,300  $821,572   7.5  $895,817   (1.4) $2,692,151  $2,392,779   12.5 
                                 
Operating expenses:                                
Global Wealth Management $347,906  $331,748   4.9  $349,457   (0.4) $1,086,152  $987,949   9.9 
Institutional Group  286,524   241,599   18.6   315,047   (9.1)  892,069   701,981   27.1 
Other  90,477   97,471   (7.2)  88,353   2.4   297,471   266,304   11.7 
Total operating expenses $724,907  $670,818   8.1  $752,857   (3.7) $2,275,692  $1,956,234   16.3 
                                 
Operating contribution:                                
Global Wealth Management $178,930  $202,823   (11.8) $156,325   14.5  $529,422  $589,665   (10.2)
Institutional Group  76,841   48,623   58.0   83,049   (7.5)  201,630   120,129   67.8 
Other  (97,378)  (100,692)  (3.3)  (96,414)  1.0   (314,593)  (273,249)  15.1 
Income before income taxes $158,393  $150,754   5.1  $142,960   10.8  $416,459  $436,545   (4.6)
                                 
As a percentage of net revenues:                               
Compensation and benefits                                
Global Wealth Management  52.7   49.0       51.1       51.7   48.9     
Institutional Group  58.0   59.1       60.6       60.2   59.2     
Non-comp. operating expenses                                
Global Wealth Management  13.3   13.1       18.0       15.5   13.7     
Institutional Group  20.9   24.1       18.5       21.4   26.2     
Income before income taxes                                
Global Wealth Management  34.0   37.9       30.9       32.8   37.4     
Institutional Group  21.1   16.8       20.9       18.4   14.6     
Consolidated pre-tax margin  17.9   18.3       16.0       15.5   18.2     


Financial metrics (unaudited):As of and For the Three Months Ended 
($ in 000s, except percentages and per share amounts)9/30/20 9/30/19 6/30/20 
Total assets$25,549,182 $24,160,777 $25,624,225 
Total Stifel Financial shareholders' equity$4,030,687 $3,501,715 $3,884,060 
Book value per common share (8)$50.95 $46.34 $48.84 
Return on common equity (9) 12.8% 13.2% 12.6%
Non-GAAP return on common equity (2) (9) 14.0% 14.8% 14.1%
Return on tangible common equity (1) 20.4% 21.1% 20.7%
Non-GAAP return on tangible common equity (1) (2) 22.2% 23.7% 23.2%
Tier 1 common capital ratio (10) 15.4% 15.6% 15.3%
Tier 1 risk based capital ratio (10) 19.2% 18.1% 19.3%
Tier 1 leverage capital ratio (10) 11.3% 10.0% 11.0%
Pre-tax margin on net revenues 17.9% 18.3% 16.0%
Non-GAAP pre-tax margin on net revenues (2) (3) 19.4% 20.2% 17.8%
Effective tax rate 23.9% 27.1% 24.5%
Non-GAAP effective tax rate (2) 23.9% 26.0% 24.5%


Statistical Information (unaudited): As of and For the Three Months Ended 
($ in 000s, except financial advisors and locations) 9/30/20  9/30/19  % Change  6/30/20  % Change 
Financial advisors  2,177   2,097   3.8   2,138   1.8 
Independent contractors  94   96   (2.1)  94    
Total financial advisors  2,271   2,193   3.6   2,232   1.7 
Locations  451   426   5.9   447   0.9 
Total client assets $325,159,000  $311,819,000   4.3  $306,235,000   6.2 
Fee-based client assets $115,162,000  $108,138,000   6.5  $106,218,000   8.4 
Client money market and insured product $20,367,000  $14,246,000   43.0  $18,664,000   9.1 
Secured client lending (11) $2,783,138  $3,299,359   (15.6) $2,563,773   8.6 

  

   Asset Management and Service Fee Break-down (unaudited) 
Asset Management and Service Fee Revenues: Three Months Ended 
($ in 000s) 9/30/20  9/30/19  % Change  6/30/20  % Change 
Private Client Group (12) $190,799  $172,124   10.8  $164,403   16.1 
Asset Management  27,539   30,650   (10.2)  23,769   15.9 
Third-party Bank Sweep Program  1,623   4,907   (66.9)  522   210.9 
Other (13)  10,821   9,947   8.8   10,245   5.6 
Total asset management and service fee revenues $230,782  $217,628   6.0  $198,939   16.0 
                     
Fee-based Assets: Three Months Ended 
($ in millions) 9/30/20  9/30/19  % Change  6/30/20  % Change 
Private Client Group (12) $99,374  $85,163   16.7  $91,360   8.8 
Asset Management  27,196   33,698   (19.3)  25,706   5.8 
Elimination (14)  (11,408)  (10,723)  6.4   (10,848)  5.2 
Total fee-based assets $115,162  $108,138   6.5  $106,218   8.4 
                     
Individual Program Banks $4,691  $1,225   282.9  $3,007   56.0 
                     
ROA (bps) (15)                    
Private Client Group (12)  83.5   85.0       81.6     
Asset Management  40.5   36.4       37.0     
Individual Program Banks  15.2   145.3       7.1     


Consolidated Net Interest Income Analysis (Unaudited): 
                                     
  Three Months Ended 
  September 30, 2020  September 30, 2019  June 30, 2020 
($ in millions, except percentages) Average
Balance
  Interest
Income/
Expense
  Average
Interest
Rate
  Average
Balance
  Interest
Income/
Expense
  Average
Interest
Rate
  Average
Balance
  Interest
Income/
Expense
  Average
Interest
Rate
 
Interest-earning assets:                                    
Cash and federal funds sold $1,789.8  $1.1   0.25% $1,056.3  $5.7   2.15% $1,674.0  $1.0   0.24%
Financial instruments owned  801.3   2.9   1.46   1,157.8   5.7   1.96   761.7   2.9   1.50 
Margin balances  872.5   5.8   2.66   1,308.3   13.3   4.08   981.5   6.4   2.59 
Investments:                                    
Asset-backed securities  4,838.7   25.3   2.09   4,367.8   42.4   3.88   4,842.0   32.6   2.70 
Mortgage-backed securities  824.0   3.2   1.55   1,253.4   6.6   2.10   877.2   4.6   2.09 
Corporate fixed income securities  551.8   3.5   2.50   743.7   5.7   3.06   648.9   4.2   2.59 
State and municipal securities  2.4      1.97   34.3   0.2   2.27   12.2   0.1   2.19 
Other  4.9      2.07   4.50      5.98   5.3      2.02 
Total Investments  6,221.8   32.0   2.06   6,403.7   54.9   3.43   6,385.6   41.5   2.60 
Loans:                                    
Commercial and industrial  4,036.3   30.1   2.98   3,330.2   39.7   4.77   4,095.4   31.8   3.10 
Residential real estate  3,711.2   26.1   2.81   3,003.8   23.2   3.08   3,589.2   25.6   2.85 
Securities-based loans  1,787.1   9.2   2.05   1,959.3   19.9   4.06   1,789.2   9.9   2.22 
Commercial real estate  400.0   3.8   3.76   377.2   5.2   5.52   402.6   4.0   3.98 
Loans held for sale  460.1   2.6   2.25   209.7   1.7   3.21   486.7   3.3   2.68 
Other  602.9   4.5   3.02   444.9   5.7   5.23   546.3   4.6   3.36 
Total Loans  10,997.6   76.3   2.77   9,325.1   95.4   4.09   10,909.4   79.2   2.90 
Other interest-bearing assets  547.7   (3.7)  (2.69)  678.7   3.8   2.19   476.3   (2.6)  (2.15)
Total interest-earning assets/interest income  21,230.7   114.4   2.16   19,929.9   178.8   3.59   21,188.5   128.4   2.42 
Interest-bearing liabilities:                                    
Short-term borrowings           21.0   0.1   2.63   11.4   0.1   2.83 
Senior notes  1,411.8   15.4   4.37   1,016.6   11.1   4.38   1,195.0   13.1   4.38 
Deposits  16,379.2   1.5   0.04   14,926.2   24.8   0.67   16,676.5   2.3   0.05 
FHLB  157.1   0.5   1.31   270.1   1.1   1.70   250.8   0.7   1.09 
Other interest-bearing liabilities  1,071.6   (3.6)  (1.34)  1,673.0   7.0   1.66   1,179.2   (3.1)  (1.03)
Total interest-bearing liabilities/interest expense $19,019.7  $13.8   0.29% $17,906.9  $44.1   0.99% $19,312.9  $13.1   0.27%
Net interest income/margin     $100.6   1.90%     $134.7   2.70%     $115.3   2.18%


Stifel Bancorp, Inc. (16) Net Interest Income Analysis (Unaudited): 
                                     
  Three Months Ended 
  September 30, 2020  September 30, 2019  June 30, 2020 
($ in millions, except percentages) Average
Balance
  Interest
Income/
Expense
  Average
Interest
Rate
  Average
Balance
  Interest
Income/
Expense
  Average
Interest
Rate
  Average
Balance
  Interest
Income/
Expense
  Average
Interest
Rate
 
Interest-earning assets:                                    
Cash and federal funds sold $786.0  $0.3   0.14% $540.8  $3.2   2.36% $961.1  $0.3   0.13%
Investments  6,221.8   32.0   2.06   6,403.7   54.9   3.43   6,385.6   41.5   2.60 
Loans  10,997.6   76.3   2.77   9,325.1   95.4   4.09   10,909.4   79.2   2.90 
Other interest-bearing assets  42.9   0.2   2.86   46.7   0.4   3.04   46.7   0.3   2.46 
Total interest-earning assets/interest income  18,048.3   108.8   2.41   16,316.3   153.9   3.77   18,302.8   121.3   2.65 
Interest-bearing liabilities:                                    
Deposits  16,379.2   1.5   0.04   14,926.2   24.8   0.67   16,676.5   2.3   0.05 
FHLB  157.1   0.5   1.31   270.1   1.1   1.70   250.8   0.7   1.09 
Other interest-bearing liabilities  1.5      6.08   1.7   0.1   6.49   1.5      6.71 
Total interest-bearing liabilities/interest expense $16,537.8   2.0   0.05% $15,198.0   26.0   0.68% $16,928.8   3.0   0.07%
Net interest income/margin     $106.8   2.37%     $127.9   3.14%     $118.3   2.59%


Stifel Bancorp, Inc. (16) - a component of Global Wealth Management 
              
Selected operating data (unaudited):Three Months Ended  Nine Months Ended 
($ in 000s, except percentages)9/30/20  9/30/19  % Change  6/30/20  % Change  9/30/20  9/30/19  % Change 
Net interest income$106,812  $127,942   (16.5) $118,298   (9.7) $358,241  $390,220   (8.2)
Credit loss provision/(release) (4,731)  929  n/m   19,210  n/m   30,547   5,565   448.9 
Charge-offs 23   56   (58.9)  150   (84.7)  193   166   16.3 
Net interest margin 2.37%  3.14% (77) bps   2.59% (22) bps   2.67%  3.14% (47) bps 


Financial Metrics (unaudited): As of 
($ in 000s, except percentages) 9/30/20  9/30/19  6/30/20 
Total assets $17,854,768  $16,442,707  $18,123,326 
Total shareholders' equity  1,378,981   1,234,932   1,378,096 
Total loans, net (includes loans held for sale)  10,932,235   9,367,233   10,923,212 
Total deposits  16,400,001   14,836,646   16,302,281 
Available-for-sale securities, at fair value  2,823,885   3,448,207   3,172,160 
Held-to-maturity securities, at amortized cost  3,395,115   2,878,516   3,083,126 
Commercial and industrial  4,080,939   3,315,706   4,149,307 
Residential real estate  3,804,836   3,043,271   3,710,657 
Securities-based loans  1,841,516   1,986,339   1,716,786 
Commercial real estate  386,957   387,868   406,788 
Loans held for sale  281,475   265,330   474,899 
Stifel Bank & Trust:            
Common equity tier 1 capital ratio (10)  11.7%  13.1%  12.4%
Tier 1 capital ratio (10)  11.7%  13.1%  12.4%
Total capital ratio (10)  13.0%  14.3%  13.9%
Tier 1 leverage ratio (10)  7.2%  7.3%  7.2%
Stifel Bank:            
Common equity tier 1 capital ratio (10)  18.0%  17.9%  18.8%
Tier 1 capital ratio (10)  18.0%  17.9%  18.8%
Total capital ratio (10)  19.3%  19.1%  20.1%
Tier 1 leverage ratio (10)  7.3%  7.0%  7.1%
             
Credit Metrics:            
Allowance for credit losses $135,275  $91,360  $139,949 
Allowance as a percentage of retained loans  1.26%  0.99%  1.32%
Net charge-offs as a percentage of average loans  0.00%  0.00%  0.00%
Total nonperforming assets $14,615  $18,031  $14,602 
Nonperforming assets as % of total assets  0.08%  0.11%  0.08%


Global Wealth Management Summary Results of Operations (Unaudited) 
  Three Months Ended   Nine Months Ended 
($ in 000s) 9/30/20  9/30/19  %
Change
   6/30/20  %
Change
   9/30/20  9/30/19  %
Change
 
Revenues:                                  
Commissions $120,600  $118,061   2.2   $116,156   3.8   $373,653  $348,272   7.3 
Principal transactions  42,027   42,056   (0.1)   42,967   (2.2)   127,976   127,427   0.4 
Brokerage revenues  162,627   160,117   1.6    159,123   2.2    501,629   475,699   5.5 
                                   
Asset management and service fees  230,765   217,616   6.0    198,921   16.0    667,446   624,025   7.0 
Net interest  108,181   137,937   (21.6)   121,564   (11.0)   368,427   420,831   (12.5)
Investment banking (17)  8,113   9,855   (17.7)   8,016   1.2    26,462   28,637   (7.6)
Other income  17,150   9,046   89.6    18,158   (5.6)   51,610   28,422   81.6 
Net revenues  526,836   534,571   (1.4)   505,782   4.2    1,615,574   1,577,614   2.4 
Non-interest expenses:                                  
Compensation and benefits  277,903   261,681   6.2    258,291   7.6    834,564   771,475   8.2 
Non-compensation operating expenses  70,003   70,067   (0.1)   91,166   (23.2)   251,588   216,474   16.2 
Total non-interest expenses  347,906   331,748   4.9    349,457   (0.4)   1,086,152   987,949   9.9 
Income before income taxes $178,930  $202,823   (11.8)  $156,325   14.5   $529,422  $589,665   (10.2)
                                   
As a percentage of net revenues:                                  
Compensation and benefits  52.7   49.0        51.1        51.7   48.9     
Non-compensation operating expenses  13.3   13.1        18.0        15.5   13.7     
Income before income taxes  34.0   37.9        30.9        32.8   37.4     


Institutional Group Summary Results of Operations (Unaudited) 
  Three Months Ended   Nine Months Ended 
($ in 000s) 9/30/20   9/30/19  %
Change
   6/30/20  %
Change
   9/30/20  9/30/19  %
Change
 
Revenues:                                   
Commissions $52,054   $45,859   13.5   $60,875   (14.5)  $187,127  $136,078   37.5 
Principal transactions  98,856    55,791   77.2    123,049   (19.7)   317,590   170,916   85.8 
Brokerage revenues  150,910    101,650   48.5    183,924   (17.9)   504,717   306,994   64.4 
Advisory fees  80,842    104,847   (22.9)   97,838   (17.4)   254,733   292,647   (13.0)
Capital raising  129,179    84,088   53.6    111,181   16.2    333,442   218,963   52.3 
Investment banking  210,021    188,935   11.2    209,019   0.5    588,175   511,610   15.0 
Other (18)  2,434    (363) n/m    5,153   (52.8)   807   3,506   (77.0)
Net revenues  363,365    290,222   25.2    398,096   (8.7)   1,093,699   822,110   33.0 
Non-interest expenses:                                   
Compensation and benefits  210,754    171,534   22.9    241,420   (12.7)   658,162   486,724   35.2 
Non-compensation operating expenses  75,770    70,065   8.1    73,627   2.9    233,907   215,257   8.7 
Total non-interest expenses  286,524    241,599   18.6    315,047   (9.1)   892,069   701,981   27.1 
Income before income taxes $76,841   $48,623   58.0   $83,049   (7.5)  $201,630  $120,129   67.8 
                                    
As a percentage of net revenues:                                   
Compensation and benefits  58.0    59.1        60.6        60.2   59.2     
Non-compensation operating expenses  20.9    24.1        18.5        21.4   26.2     
Income before income taxes  21.1    16.8        20.9        18.4   14.6     


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 September 30, 2020, September 30, 2019, and June 30, 2020. 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 nine months ended September 30, 2020 and 2019, and the three months ended June 30, 2020 to net income and earnings per diluted common share on a non-GAAP basis for the same period.

  Three Months Ended  Nine Months Ended 
($ in 000s) 9/30/20  9/30/19  6/30/20  9/30/20  9/30/19 
GAAP net income applicable to Stifel Financial Corp. $120,527  $109,414  $107,887  $315,003  $317,706 
Preferred dividend  9,897   4,844   4,843   19,584   12,476 
Net income available to common shareholders  110,630   104,570   103,044   295,419   305,230 
                     
Non-GAAP adjustments:                    
Merger-related and severance (19)  12,989   14,850   16,259   42,758   29,762 
Litigation-related (20)              3,507 
Provision for income taxes (21)  (3,094)  (2,274)  (3,968)  (10,384)  (5,462)
Total non-GAAP adjustments  9,895   12,576   12,291   32,374   27,807 
Non-GAAP net income available to common shareholders $120,525  $117,146  $115,335  $327,793  $333,037 
                     
Weighted average diluted shares outstanding  75,850   78,144   74,387   75,712   78,826 
                     
GAAP earnings per diluted common share $1.59  $1.40  $1.45  $4.16  $4.03 
Non-GAAP adjustments  0.13   0.16   0.17   0.43   0.35 
Non-GAAP earnings per diluted common share $1.72  $1.56  $1.62  $4.59  $4.38 
                     
GAAP earnings per diluted common share available to common shareholders $1.46  $1.34  $1.39  $3.90  $3.87 
Non-GAAP adjustments  0.13   0.16   0.16   0.43   0.35 
Non-GAAP earnings per diluted common share available to common shareholders $1.59  $1.50  $1.55  $4.33  $4.22 


Footnotes

(1)Annualized return on average tangible common shareholders’ equity (“ROTE”) is calculated by dividing annualized net income applicable to common shareholders by average tangible shareholders’ equity or, in the case of non-GAAP ROTE, calculated by dividing non-GAAP net income applicable to common shareholders by average tangible shareholders’ equity. Tangible common shareholders’ equity equals total Stifel Financial common shareholders’ equity less goodwill and identifiable intangible assets and the deferred taxes on goodwill and intangible assets. Average deferred taxes on goodwill and intangible assets was $49.6 million, $45.3 million, and $48.5 million, as of September 30, 2020 and 2019, and June 30, 2020, respectively. Historical periods have been restated to conform with the current period presentation.
(2)Reconciliations of the Company’s GAAP results to these non-GAAP measures are discussed within and under “Non-GAAP Financial Measures.”
(3)Non-GAAP pre-tax margin for the three months ended September 30, 2020 of 19.4% is calculated by adding non-GAAP adjustments of $13.0 million to our GAAP income before income taxes of $158.4 million and dividing it by non-GAAP net revenues for the quarter of $883.3 million. Reconciliations of the Company’s GAAP results to certain non-GAAP measures is discussed within and under “Non-GAAP Financial Measures.”
(4)Non-GAAP pre-tax margin for the nine months ended September 30, 2020 of 17.1% is calculated by adding non-GAAP adjustments of $42.8 million to our GAAP income before income taxes of $416.5 million and dividing it by non-GAAP net revenues of $2.7 billion. Reconciliations of the Company’s GAAP results to certain non-GAAP measures is discussed within and under “Non-GAAP Financial Measures.”
(5)Excludes revenue included in the Other segment.
(6)See further discussion of non-GAAP adjustments under “Non-GAAP Financial Measures.”
(7)In the first quarter of 2020, the Company adopted ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments,” which amends several aspects of the measurement of credit losses on certain financial instruments, including replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (CECL) model. For further information about ASU No. 2016-13, see Note 2 “Summary of Significant Accounting Policies” in Part II, Item 8 “Financial Statements and Supplementary Data” in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
(8)Book value per common share represents shareholders’ equity (excluding preferred stock and non-controlling interests) divided by period end common shares outstanding.
(9)Annualized return on average common shareholders’ equity (“ROE”) is calculated by dividing annualized net income applicable to common shareholders by average Stifel Financial common shareholders’ equity or, in the case of non-GAAP ROE, calculated by dividing non-GAAP net income applicable to commons shareholders by average Stifel Financial common shareholders’ equity.
(10)Capital ratios are estimates at time of the Company’s earnings release.
(11)Includes client margin balances held by our broker-dealer subsidiaries and securities-based loans held at our bank subsidiaries.
(12)Includes Private Client Group and Trust Business.
(13)Includes fund networking fees, retirement fees, transaction/handling fees, and ACAT fees.
(14)Asset management assets managed in Private Client Group or Trust accounts.
(15)Return on assets (ROA) is calculated based on prior period-end balances for Private Client Group, period-end balances for Asset Management, and average quarterly balances for Individual Program Banks.
(16)Includes Stifel Bank & Trust, Stifel Bank, Stifel Trust Company, N.A, and Stifel Trust Company Delaware, N.A.
(17)Includes capital raising and advisory fees.
(18)Includes net interest, asset management and service fees, and other income.
(19)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.
(20)Primarily related to costs associated with Company’s legal matters.
(21)See details of non-GAAP adjustments under “Provision for Income Taxes.”


Media Contact:  Neil Shapiro  (212) 271-3447
Investor Contact:  Joel Jeffrey  (212) 271-3610
www.stifel.com/investor-relations