NOTE 12 – Derivative Instruments and Hedging Activities
We manage the interest rate risk associated with our derivative transactions with customers by entering into offsetting positions with other derivative dealers, resulting in a substantially “matched book” portfolio. These interest rate contracts are not designated as hedging instruments for accounting purposes. Credit risk associated with its derivative transactions is managed through a variety of measures, including initial and ongoing periodic underwriting of its counterparties’ creditworthiness, establishment of customer credit limits, and collateral maintenance requirements for customer exposures that exceed certain preset thresholds.
Our policy is not to offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value executed with the same counterparty under master netting arrangements.
The following tables provide the notional values and fair values of our derivative instruments as of March 31, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | | |
| | March 31, 2024 | |
| | Derivative Assets | | | Derivative Liabilities | | | Notional value | |
Interest rate contracts | | $ | 127,701 | | | $ | 127,680 | | | $ | 1,993,275 | |
| | | | | | | | | | | | |
| | December 31, 2023 | |
| | Derivative Assets | | | Derivative Liabilities | | | Notional value | |
Interest rate contracts | | $ | 118,668 | | | $ | 118,651 | | | $ | 1,994,919 | |
The scheduled maturities of our derivative instruments as of March 31, 2024, are as follows (in thousands):
| | | | |
Within one year | | $ | 113,474 | |
One to three years | | | 685,246 | |
Three to five years | | | 393,085 | |
Five to ten years | | | 707,593 | |
Ten to fifteen years | | | 76,680 | |
Fifteen years and thereafter | | | 17,197 | |
| | $ | 1,993,275 | |
The following table presents the distribution of customer interest rate derivative transactions, by derivative product, as of March 31, 2024 and December 31, 2023 (in thousands):
| | | | | | | | |
| | March 31, 2024 | | | December 31, 2023 | |
Swaps | | $ | 1,823,275 | | | $ | 1,824,919 | |
Written options | | | 170,000 | | | | 170,000 | |
| | $ | 1,993,275 | | | $ | 1,994,919 | |
NOTE 13 – Disclosures About Offsetting Assets and Liabilities
The following table provides information about financial assets and derivative assets that are subject to offset as of March 31, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | |
| | As of March 31, 2024 | |
| | Securities borrowing (1) | | | Reverse repurchase agreements (2) | | | Interest rate contracts (3) | | | Total | |
Gross amounts of recognized assets | | $ | 204,150 | | | $ | 451,056 | | | $ | 127,701 | | | $ | 782,907 | |
Gross amounts offset in the statement of financial condition | | | — | | | | — | | | | — | | | | — | |
Net amounts presented in the statement of financial condition | | | 204,150 | | | | 451,056 | | | | 127,701 | | | | 782,907 | |
Gross amounts not offset in the statement of financial condition: | | | | | | | | | | | | |
Amounts available for offset | | | (38,004 | ) | | | (89,403 | ) | | | (4,667 | ) | | | (132,074 | ) |
Available collateral | | | (158,059 | ) | | | (360,298 | ) | | | (87,751 | ) | | | (606,108 | ) |
Net amount | | $ | 8,087 | | | $ | 1,355 | | | $ | 35,283 | | | $ | 44,725 | |
| | | | | | | | | | | | |
| | As of December 31, 2023 | |
| | Securities borrowing (1) | | | Reverse repurchase agreements (2) | | | Interest rate contracts (3) | | | Total | |
Gross amounts of recognized assets | | $ | 215,368 | | | $ | 349,849 | | | $ | 118,668 | | | $ | 683,885 | |
Gross amounts offset in the statement of financial condition | | | — | | | | — | | | | — | | | | — | |
Net amounts presented in the statement of financial condition | | | 215,368 | | | | 349,849 | | | | 118,668 | | | | 683,885 | |
Gross amounts not offset in the statement of financial condition: | | | | | | | | | | | | |
Amounts available for offset | | | (23,691 | ) | | | (23,441 | ) | | | (14,556 | ) | | | (61,688 | ) |
Available collateral | | | (184,689 | ) | | | (325,627 | ) | | | (82,607 | ) | | | (592,923 | ) |
Net amount | | $ | 6,988 | | | $ | 781 | | | $ | 21,505 | | | $ | 29,274 | |
(1)Securities borrowing transactions are included in receivables from brokers, dealers, and clearing organizations on the consolidated statements of financial condition. See Note 3 in the notes to consolidated financial statements for additional information on receivables from brokers, dealers, and clearing organizations.
(2)Available collateral includes securities received from the counterparty. These securities are not included on the consolidated statements of financial condition unless there is an event of default. The fair value of securities received as collateral was $449.2 million and $350.2 million at March 31, 2024 and December 31, 2023, respectively.
(3)Available collateral includes securities received from the counterparty. These securities are not included on the consolidated statements of financial condition unless there is an event of default. The fair value of securities received as collateral was $82.0 million and $84.1 million at March 31, 2024 and December 31, 2023, respectively.
The following table provides information about financial liabilities and derivative liabilities that are subject to offset as of March 31, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | |
| | As of March 31, 2024 | |
| | Securities lending (4) | | | Repurchase agreements (5) | | | Interest rate contracts (6) | | | Total | |
Gross amounts of recognized liabilities | | $ | (224,378 | ) | | $ | (426,659 | ) | | $ | (127,680 | ) | | $ | (778,717 | ) |
Gross amounts offset in the statement of financial condition | | | — | | | | — | | | | — | | | | — | |
Net amounts presented in the statement of financial condition | | | (224,378 | ) | | | (426,659 | ) | | | (127,680 | ) | | | (778,717 | ) |
Gross amounts not offset in the statement of financial condition: | | | | | | | | | | | | |
Amounts available for offset | | | 38,004 | | | | 89,403 | | | | 4,667 | | | | 132,074 | |
Collateral pledged | | | 186,374 | | | | 337,256 | | | | 30,184 | | | | 553,814 | |
Net amount | | $ | — | | | $ | — | | | $ | (92,829 | ) | | $ | (92,829 | ) |
| | | | | | | | | | | | |
| | As of December 31, 2023 | |
| | Securities lending (4) | | | Repurchase agreements (5) | | | Interest rate contracts (6) | | | Total | |
Gross amounts of recognized liabilities | | $ | (135,693 | ) | | $ | (417,644 | ) | | $ | (118,651 | ) | | $ | (671,988 | ) |
Gross amounts offset in the statement of financial condition | | | — | | | | — | | | | — | | | | — | |
Net amounts presented in the statement of financial condition | | | (135,693 | ) | | | (417,644 | ) | | | (118,651 | ) | | | (671,988 | ) |
Gross amounts not offset in the statement of financial condition: | | | | | | | | | | | | |
Amounts available for offset | | | 23,691 | | | | 23,441 | | | | 14,556 | | | | 61,688 | |
Collateral pledged | | | 111,981 | | | | 394,203 | | | | 22,661 | | | | 528,845 | |
Net amount | | $ | (21 | ) | | $ | — | | | $ | (81,434 | ) | | $ | (81,455 | ) |
(4)Securities lending transactions are included in payables to brokers, dealers, and clearing organizations on the consolidated statements of financial condition. See Note 3 in the notes to consolidated financial statements for additional information on payables to brokers, dealers, and clearing organizations.
(5)Collateral pledged includes the fair value of securities pledged to the counterparty. These securities are included on the consolidated statements of financial condition unless we default. Collateral pledged by our company to the counterparty includes U.S. government agency securities, U.S. government securities, and corporate fixed income securities with market values of $435.7 million and $425.9 million at March 31, 2024 and December 31, 2023, respectively.
(6)Collateral pledged includes the fair value of securities pledged to the counterparty. The fair value of securities pledged as collateral was $19.5 million and $19.1 million at March 31, 2024 and December 31, 2023, respectively.
NOTE 14 – Commitments, Guarantees, and Contingencies
Broker-Dealer Commitments and Guarantees
In the normal course of business, we enter into underwriting commitments. Settlement of transactions relating to such underwriting commitments, which were open at March 31, 2024, had no material effect on the consolidated financial statements.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase agency mortgage-backed securities. In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and date of sale of the mortgage-backed securities, we enter into to be announced (“TBA”) security contracts with investors for generic mortgage-backed securities at specific rates and prices to be delivered on settlement dates in the future. We may be subject to loss if the timing of, or the actual amount of, the mortgage-backed security differs significantly from the term and notional amount of the TBA security contract to which we entered. These TBA securities and related purchase commitment are accounted for at fair value. As of March 31, 2024, the fair value of the TBA securities and the estimated fair value of the purchase commitments were $56.8 million.
We also provide guarantees to securities clearinghouses and exchanges under their standard membership agreement, which requires members to guarantee the performance of other members. Under the agreement, if another member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. Our liability under these agreements is not quantifiable and may exceed the cash and securities we have posted as collateral. However, the potential requirement for us to make payments under these arrangements is considered remote. Accordingly, no liability has been recognized for these arrangements.
Other Commitments
In the ordinary course of business, Stifel Bancorp has commitments to extend credit in the form of commitments to originate loans, standby letters of credit, and lines of credit. See Note 21 in the notes to consolidated financial statements for further details.
Concentration of Credit Risk
We provide investment, capital-raising, and related services to a diverse group of domestic customers, including governments, corporations, and institutional and individual investors. Our exposure to credit risk associated with the non-performance of customers in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile securities markets, credit markets, and regulatory changes. This exposure is measured on an individual customer basis and on a group basis for customers that share similar attributes. To reduce the potential for risk concentrations, counterparty credit limits have been implemented for certain products and are continually monitored in light of changing customer and market conditions. As of March 31, 2024, we did not have significant concentrations of credit risk with any one customer or counterparty, or any group of customers or counterparties.
NOTE 15 – Legal Proceedings
Our company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from our securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims seek substantial compensatory, punitive, or indeterminate damages. Our company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding our business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. We are contesting allegations in these claims, and we believe that there are meritorious defenses in each of these lawsuits, arbitrations, and regulatory investigations. In view of the number and diversity of claims against our company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting the outcome of litigation and other claims, we cannot state with certainty what the eventual outcome of pending litigation or other claims will be.
We have accrued for potential losses that are probable and reasonably estimable that may result from pending and potential legal actions, investigations, and regulatory proceedings. In many cases, however, it is inherently difficult to determine whether any loss is probable or reasonably possible or to estimate the amount or range of any potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated.
In our opinion, based on currently available information, review with outside legal counsel, and consideration of amounts provided for in our consolidated financial statements with respect to these matters, including the matter described below, the ultimate resolution of these matters will not have a material adverse impact on our financial position and results of operations. However, resolution of one or more of these matters may have a material effect on the results of operations in any future period, depending upon the ultimate resolution of those matters and depending upon the level of income for such period. For matters where a liability has not been established and for which we believe a loss is reasonably possible, as well as for matters where an accrual has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, based on currently available information, we believe that such losses will not have a material effect on our consolidated financial statements.
SEC and CFTC Investigation of Communications Recordkeeping
The Company has been contacted by each of the SEC and the CFTC in connection with an investigation of the Company’s compliance with records preservation requirements for off-channel communications relating to the broker-dealer or investment adviser business activities of the Company using personally owned communications devices and/or messaging platforms that have not been approved by the Company. The Company has reached an agreement in principle with the SEC to resolve its investigation and the CFTC has provided the Company with a settlement offer. The Company has established an accrual for potential losses that are probable and reasonably estimable, but at this time, based upon currently available information and review with outside counsel, the Company is not able to state with certainty that settlements will be achieved or the ultimate resolution of these matters.
NOTE 16 – Regulatory Capital Requirements
We operate in a highly regulated environment and are subject to capital requirements, which may limit distributions to our company from its subsidiaries. Distributions from our broker-dealer subsidiaries are subject to net capital rules. A broker-dealer that fails to comply with the SEC’s Uniform Net Capital Rule (Rule 15c3-1) may be subject to disciplinary actions by the SEC and self-regulatory organizations, such as FINRA, including censures, fines, suspension, or expulsion. Stifel has chosen to calculate its net capital under the alternative method, which prescribes that their net capital shall not be less than the greater of $1.0 million or two percent of aggregate debit balances (primarily receivables from customers) computed in accordance with the SEC’s Customer Protection Rule (Rule 15c3-3). Our other broker-dealer subsidiaries calculate their net capital under the aggregate indebtedness method, whereby their aggregate indebtedness may not be greater than fifteen times their net capital (as defined).
At March 31, 2024, Stifel had net capital of $446.4 million, which was 35.3% of aggregate debit items and $421.1 million in excess of its minimum required net capital. At March 31, 2024, all of our other broker-dealer subsidiaries’ net capital exceeded the minimum net capital required under the SEC rule.
Our international subsidiary, SNEL, is subject to the regulatory supervision and requirements of the Financial Conduct Authority (“FCA”) in the United Kingdom. At March 31, 2024, our international subsidiary’s capital and reserves were in excess of the financial resources requirement under the rules of the FCA.
Our Canadian subsidiary, SNC, is subject to the regulatory supervision and requirements of the Canadian Investment Regulatory Organization (“CIRO”). At March 31, 2024, SNC’s net capital and reserves were in excess of the financial resources requirement under the rules of the CIRO.
Our company, as a bank holding company, Stifel Bank & Trust, Stifel Bank, Stifel Trust Company, N.A., and Stifel Trust Company, Delaware, N.A., (collectively, “banking subsidiaries”), are subject to various regulatory capital requirements administered by the Federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our company’s and it’s banking subsidiaries’ financial results. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, our company and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our company’s and its banking subsidiaries’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Under the Basel III rules, the quantity and quality of regulatory capital increased, a capital conservation buffer was established, selected changes were made to the calculation of risk-weighted assets, and a new ratio, common equity Tier 1 was introduced, all of which are applicable to both our company and its banking subsidiaries.
Our company and its banking subsidiaries are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined in Basel III, Common equity Tier 1 capital to risk-weighted assets. Our company and its banking subsidiaries each calculate these ratios in order to assess compliance with both regulatory requirements and their internal capital policies. At current capital levels, our company and its banking subsidiaries are each categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” our company and its banking subsidiaries must maintain total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios.
The amounts and ratios for Stifel Financial Corp., Stifel Bank & Trust, and Stifel Bank as of March 31, 2024 are represented in the tables below (in thousands, except ratios).
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | | For Capital
Adequacy Purposes | | | To Be Well Capitalized
Under Prompt Corrective
Action Provisions | |
Stifel Financial Corp. | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
Common equity tier 1 capital | | $ | 3,225,964 | | | | 14.3 | % | | $ | 1,016,475 | | | | 4.5 | % | | $ | 1,468,241 | | | | 6.5 | % |
Tier 1 capital | | | 3,910,964 | | | | 17.3 | % | | | 1,355,300 | | | | 6.0 | % | | | 1,807,066 | | | | 8.0 | % |
Total capital | | | 4,130,093 | | | | 18.3 | % | | | 1,807,066 | | | | 8.0 | % | | | 2,258,833 | | | | 10.0 | % |
Tier 1 leverage | | | 3,910,964 | | | | 10.6 | % | | | 1,480,733 | | | | 4.0 | % | | | 1,850,917 | | | | 5.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | | For Capital
Adequacy Purposes | | | To Be Well Capitalized
Under Prompt Corrective
Action Provisions | |
Stifel Bank & Trust | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
Common equity tier 1 capital | | $ | 1,242,565 | | | | 10.8 | % | | $ | 517,604 | | | | 4.5 | % | | $ | 747,650 | | | | 6.5 | % |
Tier 1 capital | | | 1,242,565 | | | | 10.8 | % | | | 690,139 | | | | 6.0 | % | | | 920,185 | | | | 8.0 | % |
Total capital | | | 1,367,153 | | | | 11.9 | % | | | 920,185 | | | | 8.0 | % | | | 1,150,231 | | | | 10.0 | % |
Tier 1 leverage | | | 1,242,565 | | | | 7.1 | % | | | 700,273 | | | | 4.0 | % | | | 875,342 | | | | 5.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | | For Capital
Adequacy Purposes | | | To Be Well Capitalized
Under Prompt Corrective
Action Provisions | |
Stifel Bank | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
Common equity tier 1 capital | | $ | 838,002 | | | | 14.8 | % | | $ | 254,868 | | | | 4.5 | % | | $ | 368,142 | | | | 6.5 | % |
Tier 1 capital | | | 838,002 | | | | 14.8 | % | | | 339,824 | | | | 6.0 | % | | | 453,098 | | | | 8.0 | % |
Total capital | | | 876,227 | | | | 15.5 | % | | | 453,098 | | | | 8.0 | % | | | 566,373 | | | | 10.0 | % |
Tier 1 leverage | | | 838,002 | | | | 7.2 | % | | | 467,975 | | | | 4.0 | % | | | 584,969 | | | | 5.0 | % |
NOTE 17 – Operating Leases
Our operating leases primarily relate to office space and office equipment with remaining lease terms of 1 to 12 years. At March 31, 2024 and December 31, 2023, operating lease right-of-use assets were $804.1 million and $778.2 million, respectively, and lease liabilities were $854.6 million and $825.5 million, respectively.
The table below summarizes our net lease cost for the three months ended March 31, 2024 and 2023 (in thousands):
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Operating lease cost | | $ | 27,512 | | | $ | 26,429 | |
Short-term lease cost | | | 724 | | | | 330 | |
Variable lease cost | | | 7,260 | | | | 6,955 | |
Sublease income | | | (275 | ) | | | (289 | ) |
Net lease cost | | $ | 35,221 | | | $ | 33,425 | |
Operating lease costs are included in occupancy and equipment rental in the consolidated statements of operations.
The table below summarizes other information related to our operating leases as of and for the three months ended March 31, 2024 (in thousands):
| | | | |
Operating lease cash flows | | $ | 24,991 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | 42,643 | |
Weighted-average remaining lease term (years) | | | 12.7 | |
Weighted-average discount rate | | | 4.87 | % |
The weighted average discount rate represents our company’s incremental borrowing rate at the lease inception date.
The table below presents information about operating lease liabilities as of March 31, 2024, (in thousands, except percentages).
| | | | |
Remainder of 2024 | | $ | 73,221 | |
2025 | | | 101,023 | |
2026 | | | 102,017 | |
2027 | | | 102,121 | |
2028 | | | 99,480 | |
Thereafter | | | 708,423 | |
Total undiscounted lease payments | | | 1,186,285 | |
Imputed interest | | | (331,669 | ) |
Total operating lease liabilities | | $ | 854,616 | |
As of March 31, 2024, the Company had a total lease portfolio of 17 aircraft engines with a net book value of $114.5 million, which is included in fixed assets, net in the consolidated statements of financial condition. The aircraft engines were purchased by the Company, through its subsidiaries, during the first quarter of 2024. See Note 25 for addition information.
As of March 31, 2024, minimum future payments under non-cancelable leases were (in thousands):
| | | | |
Remainder of 2024 | | $ | 5,861 | |
2025 | | | 1,029 | |
| | $ | 6,890 | |
Lease income, included in other income in the consolidated statements of operations, was $1.9 million for the three months ended March 31, 2024.
NOTE 18 – Revenues from Contracts with Customers
The following table presents the Company’s total revenues broken out by revenues from contracts with customers and other sources of revenue for the three months ended March 31, 2024 and 2023 (in thousands):
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Revenues from contracts with customers: | | | | | | |
Commissions | | $ | 185,476 | | | $ | 169,550 | |
Investment banking | | | 213,949 | | | | 211,879 | |
Asset management | | | 367,476 | | | | 315,569 | |
Other | | | 1,236 | | | | 1,227 | |
Total revenue from contracts with customers | | | 768,137 | | | | 698,225 | |
Other sources of revenue: | | | | | | |
Interest | | | 506,828 | | | | 451,564 | |
Principal transactions | | | 139,014 | | | | 115,522 | |
Other | | | 3,714 | | | | (3,520 | ) |
Total revenues | | $ | 1,417,693 | | | $ | 1,261,791 | |
Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised services to the customers. A service is transferred to a customer when, or as, the customer obtains control of that service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised services (i.e., the “transaction price”). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third parties.
The following provides detailed information on the recognition of our revenues from contracts with customers:
Commissions. We earn commission revenue by executing, settling, and clearing transactions for clients primarily in OTC and listed equity securities, insurance products, and options. Trade execution and clearing and custody services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing and custody services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commission revenues are generally paid on settlement date and we record a receivable between trade-date and payment on settlement date.
Investment Banking. We provide our clients with a full range of capital markets and financial advisory services. Capital markets services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings, underwriting and distributing public and private debt.
Capital-raising revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the capital markets offering at that point. Costs associated with capital-raising transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within other operating expenses in the consolidated statements of operations as we are acting as a principal in the arrangement. Any expenses reimbursed by our clients are recognized as investment banking revenues.
Revenues from financial advisory services primarily consist of fees generated in connection with merger, acquisition and restructuring transactions. Advisory revenues from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction. Fees received prior to the completion of the transaction are deferred within accounts payable and accrued expenses on the consolidated statements of financial condition. Advisory revenues from restructuring engagements are recognized over time using a time elapsed measure of progress as our clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees we receive for our advisory services are considered variable as they are contingent upon a future event (e.g., completion of a transaction or third party emergence from bankruptcy) and are excluded from the transaction price until the uncertainty associated with the variable consideration is subsequently resolved, which is expected to occur upon achievement of the specified milestone. Payment for advisory services are generally due promptly upon completion of a specified milestone or, for retainer fees, periodically over the course of the engagement. We recognize a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client
and the related revenue is recognized at the same time as the associated expense. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized within other operating expenses on the consolidated statements of operations and any expenses reimbursed by our clients are recognized as investment banking revenues.
Asset Management Fees. We earn management and performance fees in connection with investment advisory services provided to institutional and individual clients. Investment advisory fees are charged based on the value of assets in fee-based accounts and are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets. Fees are charged either in advance based on fixed rates applied to the value of the customers’ account at the beginning of the period or periodically based on contracted rates and account performance. Contracts can be terminated at any time with no incremental payments due to our company upon termination. If the contract is terminated by the customer fees are prorated for the period and fees charged for the post termination period are refundable to the customer.
Disaggregation of Revenue
The following tables present the Company’s revenues from contracts with customers by reportable segment disaggregated by major business activity and primary geographic regions for the three months ended March 31, 2024 and 2023 (in thousands):
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | |
| | Global Wealth Management | | | Institutional Group | | | Other | | | Total | |
Major Business Activity: | | | | | | | | | | | | |
Commissions | | $ | 121,217 | | | $ | 64,259 | | | $ | — | | | $ | 185,476 | |
Capital raising | | | 4,280 | | | | 90,417 | | | | — | | | | 94,697 | |
Advisory | | | — | | | | 119,252 | | | | — | | | | 119,252 | |
Investment banking | | | 4,280 | | | | 209,669 | | | | — | | | | 213,949 | |
Asset management | | | 367,450 | | | | 26 | | | | — | | | | 367,476 | |
Other | | | 1,236 | | | | — | | | | — | | | | 1,236 | |
Total | | | 494,183 | | | | 273,954 | | | | — | | | | 768,137 | |
Primary Geographic Region: | | | | | | | | | | | | |
United States | | | 494,183 | | | | 223,450 | | | | — | | | | 717,633 | |
United Kingdom | | | — | | | | 28,185 | | | | — | | | | 28,185 | |
Canada | | | — | | | | 11,375 | | | | — | | | | 11,375 | |
Other | | | — | | | | 10,944 | | | | — | | | | 10,944 | |
| | $ | 494,183 | | | $ | 273,954 | | | $ | — | | | $ | 768,137 | |
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | |
| | Global Wealth Management | | | Institutional Group | | | Other | | | Total | |
Major Business Activity: | | | | | | | | | | | | |
Commissions | | $ | 110,191 | | | $ | 59,359 | | | $ | — | | | $ | 169,550 | |
Capital raising | | | 4,158 | | | | 56,658 | | | | — | | | | 60,816 | |
Advisory | | | — | | | | 151,063 | | | | — | | | | 151,063 | |
Investment banking | | | 4,158 | | | | 207,721 | | | | — | | | | 211,879 | |
Asset management | | | 315,537 | | | | 32 | | | | — | | | | 315,569 | |
Other | | | 1,184 | | | | — | | | | 43 | | | | 1,227 | |
Total | | | 431,070 | | | | 267,112 | | | | 43 | | | | 698,225 | |
Primary Geographic Region: | | | | | | | | | | | | |
United States | | | 431,070 | | | | 210,877 | | | | 43 | | | | 641,990 | |
United Kingdom | | | — | | | | 23,383 | | | | — | | | | 23,383 | |
Canada | | | — | | | | 22,523 | | | | — | | | | 22,523 | |
Other | | | — | | | | 10,329 | | | | — | | | | 10,329 | |
| | $ | 431,070 | | | $ | 267,112 | | | $ | 43 | | | $ | 698,225 | |
See Note 22 for further break-out of revenues by geography.
Information on Remaining Performance Obligations and Revenue Recognized From Past Performance
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at March 31, 2024. Investment banking advisory revenues that are
contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at March 31, 2024.
Contract Balances
The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.
We had receivables related to revenues from contracts with customers of $154.3 million and $136.9 million at March 31, 2024 and December 31, 2023, respectively, in other assets in the consolidated statements of financial condition. We had no significant impairments related to these receivables during the three months ended March 31, 2024.
Our deferred revenue primarily relates to retainer fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied. Deferred revenue at March 31, 2024 and December 31, 2023 was $24.1 million and $18.5 million, respectively, and is included in accounts payable and accrued expenses in the consolidated statements of financial condition.
NOTE 19 – Interest Income and Interest Expense
The components of interest income and interest expense are as follows (in thousands):
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Interest income: | | | | | | |
Loans held for investment, net | | $ | 306,142 | | | $ | 295,052 | |
Investment securities | | | 118,535 | | | | 108,327 | |
Interest-bearing cash and federal funds sold | | | 54,341 | | | | 22,725 | |
Margin balances | | | 14,204 | | | | 14,871 | |
Financial instruments owned | | | 4,860 | | | | 3,721 | |
Other | | | 8,746 | | | | 6,868 | |
| | $ | 506,828 | | | $ | 451,564 | |
Interest expense: | | | | | | |
Bank deposits | | $ | 230,064 | | | $ | 137,288 | |
Senior notes | | | 12,506 | | | | 12,506 | |
Other | | | 12,085 | | | | 5,204 | |
| | $ | 254,655 | | | $ | 154,998 | |
NOTE 20 – Employee Incentive, Deferred Compensation, and Retirement Plans
We maintain an incentive stock plan and a wealth accumulation plan (“the Plan”) that provides for the granting of stock options, stock appreciation rights, restricted stock, performance awards, stock units, and debentures (collectively, “deferred awards”) to our associates. We are permitted to issue new shares under all stock award plans approved by shareholders or to reissue our treasury shares. Stock awards issued under our company’s incentive stock plan are granted at market value at the date of grant. Our deferred awards generally vest ratably over a one- to ten-year vesting period.
Our stock-based compensation plans are administered by the Compensation Committee of the Board of Directors (“Compensation Committee”), which has the authority to interpret the plans, determine to whom awards may be granted under the plans, and determine the terms of each award. According to the incentive stock plan, we are authorized to grant an additional 4.2 million shares at March 31, 2024.
Expense associated with our stock-based compensation, included in compensation and benefits expense in the consolidated statements of operations for our company’s incentive stock award plan was $33.3 million and $29.6 million for the three months ended March 31, 2024 and 2023, respectively.
Expense associated with our debentures, included in compensation and benefits expense in the consolidated statements of operations was $27.4 million and $23.9 million for the three months ended March 31, 2024 and 2023, respectively.
Deferred Awards
A restricted stock unit represents the right to receive a share of the Company’s common stock at a designated time in the future without cash payment by the associate and is issued in lieu of cash incentive, principally for deferred compensation and employee retention plans. The restricted stock units vest on an annual basis over the next one to ten years and are distributable, if vested, at future specified dates. Restricted stock awards are restricted as to sale or disposition. These restrictions lapse over the next one to two years.
The Company grants Performance-based Restricted Stock Units (“PRSUs”) to certain of its executive officers. Under the terms of the grants, the number of PRSUs that will vest and convert to shares will be based on the Company’s achievement of the pre-determined performance objectives during the performance period. The PRSUs will be measured over a four-year performance period and vested over a five-year period. Any resulting delivery of shares for PRSUs granted as part of compensation will occur after four years for 80% of the earned award, and in the fifth year for the remaining 20% of the earned award. The number of shares converted has the potential to range from 0% to 200% based on how the Company performs during the performance period. Compensation expense is amortized over the service period based on the fair value of the deferred award on the grant date. The Company’s pre-determined performance objectives must be met for the awards to vest. Associates forfeit unvested deferred awards upon termination of employment with a corresponding reversal of compensation expense. Certain deferred awards may continue to vest under certain circumstances as described in the Plan. At March 31, 2024, the total number of restricted stock units, PRSUs, and restricted stock awards outstanding was 13.5 million, of which 11.8 million were unvested.
At March 31, 2024, there was unrecognized compensation cost for deferred awards of approximately $825.1 million, which is expected to be recognized over a weighted-average period of 2.6 years.
Deferred Compensation Plans
The Plan is provided to certain revenue producers, officers, and key administrative associates, whereby a certain percentage of their incentive compensation is deferred as defined by the Plan into company stock units, restricted stock, and debentures. Participants may elect to defer a portion of their incentive compensation. Deferred awards generally vest over a one- to ten-year period and are distributable upon vesting or at future specified dates. Deferred compensation costs are amortized on a straight-line basis over the vesting period. Elective deferrals are 100% vested.
Additionally, the Plan allows Stifel financial advisors who achieve certain levels of production the ability to earn deferred awards. These financial advisors can earn 5-6% of their gross commissions that is contributed to their mandatory deferral. The mandatory deferral is split between company restricted stock units and debentures. They have the option to defer an additional 1% of gross commissions into company stock units.
In addition, certain revenue producers, upon joining the Company, may receive company stock units in lieu of transition cash payments. Deferred compensation related to these awards generally vests over a one- to eight-year period. Deferred compensation costs are amortized on a straight-line basis over the deferral period.
Profit Sharing Plan
Eligible U.S. associates of the Company who have met certain service requirements may participate in the Stifel Financial Corp. Profit Sharing 401(k) Plan (the “401(k) Plan”). Associates are permitted within limitations imposed by tax law to make pre-tax contributions to the 401(k) Plan. We may match certain associate contributions or make additional contributions to the 401(k) Plan at our discretion. Our contributions to the 401(k) Plan, included in compensation and benefits in the consolidated statements of operations, were $4.8 million and $4.6 million for the three months ended March 31, 2024 and 2023, respectively.
NOTE 21 – Off-Balance Sheet Credit Risk
In the normal course of business, we execute, settle, and finance customer and proprietary securities transactions. These activities expose our company to off-balance sheet risk in the event that customers or other parties fail to satisfy their obligations.
In accordance with industry practice, securities transactions generally settle within two business days after trade date. Should a customer or broker fail to deliver cash or securities as agreed, we may be required to purchase or sell securities at unfavorable market prices.
We borrow and lend securities to facilitate the settlement process and finance transactions, utilizing customer margin securities held as collateral. We monitor the adequacy of collateral levels on a daily basis. We periodically borrow from banks on a collateralized basis, utilizing firm and customer margin securities in compliance with SEC rules. Should the counterparty fail to return customer securities pledged, we are subject to the risk of acquiring the securities at prevailing market prices in order to satisfy our customer obligations. We control our exposure to credit risk by continually monitoring our counterparties’ positions, and where deemed necessary, we may require a deposit of additional collateral and/or a reduction or diversification of positions. Our company sells securities it does not currently own (short sales) and is obligated to subsequently purchase such securities at prevailing market prices. We are exposed to risk of loss if securities prices increase prior to closing the transactions. We control our exposure to price risk from short sales through daily review and setting position and trading limits.
We manage our risks associated with the aforementioned transactions through position and credit limits and the continuous monitoring of collateral. Additional collateral is required from customers and other counterparties when appropriate.
We have accepted collateral in connection with resale agreements, securities borrowed transactions, and customer margin loans. Under many agreements, we are permitted to sell or repledge these securities held as collateral and use these securities to enter into securities lending arrangements or to deliver to counterparties to cover short positions. At March 31, 2024 and December 31, 2023, the fair value
of securities accepted as collateral where we are permitted to sell or repledge the securities was $1.6 billion and $1.6 billion, respectively, and the fair value of the collateral that had been sold or repledged was $426.7 million and $417.6 million, respectively.
We enter into interest rate derivative contracts to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are principally used to manage differences in the amount, timing, and duration of our known or expected cash payments related to certain variable-rate affiliated deposits. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments. Our interest rate hedging strategies may not work in all market environments and, as a result, may not be effective in mitigating interest rate risk.
Derivatives’ notional contract amounts are not reflected as assets or liabilities in the consolidated statements of financial condition. Rather, the market or fair value of the derivative transactions are reported in the consolidated statements of financial condition as other assets or accounts payable and accrued expenses, as applicable. For a complete discussion of our activities related to derivative instruments, see Note 12 in the notes to consolidated financial statements.
In the ordinary course of business, Stifel Bancorp has commitments to originate loans, standby letters of credit, and lines of credit. Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established by the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash commitments. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if necessary, is based on the credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate.
At March 31, 2024 and December 31, 2023, Stifel Bancorp had outstanding commitments to originate loans aggregating $248.7 million and $103.6 million, respectively. The commitments extended over varying periods of time, with all commitments at March 31, 2024, scheduled to be disbursed in the following three months.
Through Stifel Bancorp, in the normal course of business, we originate residential mortgage loans and sell them to investors. We may be required to repurchase mortgage loans that have been sold to investors in the event there are breaches of certain representations and warranties contained within the sales agreements. We may be required to repurchase mortgage loans that were sold to investors in the event that there was inadequate underwriting or fraud, or in the event that the loans become delinquent shortly after they are originated. We also may be required to indemnify certain purchasers and others against losses they incur in the event of breaches of representations and warranties and in various other circumstances, and the amount of such losses could exceed the repurchase amount of the related loans. Consequently, we may be exposed to credit risk associated with sold loans.
Standby letters of credit are irrevocable conditional commitments issued by Stifel Bancorp to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Should Stifel Bancorp be obligated to perform under the standby letters of credit, it may seek recourse from the customer for reimbursement of amounts paid. At March 31, 2024 and December 31, 2023, Stifel Bancorp had outstanding letters of credit totaling $34.6 million and $37.1 million, respectively. A majority of the standby letters of credit commitments at March 31, 2024, have expiration terms that are less than one year.
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Stifel Bancorp uses the same credit policies in granting lines of credit as it does for on-balance sheet instruments. At March 31, 2024 and December 31, 2023, Stifel Bancorp had granted unused lines of credit to commercial and consumer borrowers aggregating $6.0 billion and $6.3 billion, respectively.
We are required to evaluate our loan portfolio for any expected losses with recognition of an allowance for credit losses, when applicable. At March 31, 2024 and December 31, 2023, the expected credit losses for unfunded lending commitments was $33.7 million and $33.3 million, respectively.
NOTE 22 – Segment Reporting
We currently operate through the following three business segments: Global Wealth Management, Institutional Group, and various corporate activities combined in the Other segment.
Our Global Wealth Management segment consists of two businesses, the Private Client Group and Stifel Bancorp. The Private Client Group includes branch offices and independent contractor offices of our broker-dealer subsidiaries located throughout the United States. These branches provide securities brokerage services, including the sale of equities, mutual funds, fixed income products, and insurance, as well as offering banking products to their clients through our bank subsidiaries, which provide residential, consumer, and commercial lending, as well as FDIC-insured deposit accounts to customers of our private client group and to the general public.
The Institutional Group segment includes institutional sales and trading. It provides securities brokerage, trading, and research services to institutions, with an emphasis on the sale of equity and fixed income products. This segment also includes the management of and participation in underwritings for both corporate and public finance (exclusive of sales credits generated through the private client group, which are included in the Global Wealth Management segment), merger and acquisition, and financial advisory services.
The Other segment includes interest income from stock borrow activities, unallocated interest expense, interest income and gains and losses from investments held, amortization of stock-based awards, and all unallocated overhead cost associated with the execution of orders; processing of securities transactions; custody of client securities; receipt, identification, and delivery of funds and securities; compliance with regulatory and legal requirements; internal financial accounting and controls; and general administration and acquisition charges.
Information concerning operations in these segments of business for the three months ended March 31, 2024 and 2023 is as follows (in thousands):
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Net revenues: (1) | | | | | | |
Global Wealth Management | | $ | 790,500 | | | $ | 757,186 | |
Institutional Group | | | 351,376 | | | | 332,613 | |
Other | | | 21,162 | | | | 16,994 | |
| | $ | 1,163,038 | | | $ | 1,106,793 | |
Income/(loss) before income taxes: | | | | | | |
Global Wealth Management | | $ | 290,748 | | | $ | 316,109 | |
Institutional Group | | | 37,109 | | | | 33,720 | |
Other | | | (109,166 | ) | | | (139,946 | ) |
| | $ | 218,691 | | | $ | 209,883 | |
(1)No individual client accounted for more than 10 percent of total net revenues for the three months ended March 31, 2024 and 2023.
The following table presents our company’s total assets on a segment basis at March 31, 2024 and December 31, 2023 (in thousands):
| | | | | | | | |
| | March 31, 2024 | | | December 31,
2023 | |
Global Wealth Management | | $ | 32,899,009 | | | $ | 32,773,613 | |
Institutional Group | | | 4,895,407 | | | | 4,564,058 | |
Other | | | 463,864 | | | | 389,789 | |
| | $ | 38,258,280 | | | $ | 37,727,460 | |
We have operations in the United States, United Kingdom, Europe, and Canada. The Company’s foreign operations are conducted through its wholly owned subsidiaries, SNEL and SNC. Substantially all long-lived assets are located in the United States.
Revenues, classified by the major geographic areas in which they were earned for the three months ended March 31, 2024 and 2023, were as follows (in thousands):
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
United States | | $ | 1,101,004 | | | $ | 1,038,895 | |
United Kingdom | | | 37,525 | | | | 33,197 | |
Canada | | | 11,620 | | | | 21,978 | |
Other | | | 12,889 | | | | 12,723 | |
| | $ | 1,163,038 | | | $ | 1,106,793 | |
NOTE 23 – Earnings Per Share (“EPS”)
Basic EPS is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted earnings per share include dilutive stock options and stock units under the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2024 and 2023 (in thousands, except per share data):
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | |
Net income | | $ | 163,575 | | | $ | 157,539 | |
Preferred dividends | | | 9,320 | | | | 9,320 | |
Net income available to common shareholders | | $ | 154,255 | | | $ | 148,219 | |
Shares for basic and diluted calculation: | | | | | | |
Average shares used in basic computation | | | 104,275 | | | | 108,754 | |
Dilutive effect of stock options and units (1) | | | 5,710 | | | | 6,636 | |
Average shares used in diluted computation | | | 109,985 | | | | 115,390 | |
Earnings per common share: | | | | | | |
Basic | | $ | 1.48 | | | $ | 1.36 | |
Diluted | | $ | 1.40 | | | $ | 1.28 | |
(1)Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Diluted earnings per share include units.
For the three months ended March 31, 2024 and 2023, the anti-dilutive effect from restricted stock units was immaterial.
Cash Dividends
During the three months ended March 31, 2024, we declared and paid cash dividends of $0.42 per common share. During the three months ended March 31, 2023, we declared and paid cash dividends of $0.36 per common share.
NOTE 24 – Shareholders’ Equity
Share Repurchase Program
We have an ongoing authorization from the Board of Directors to repurchase our common stock in the open market or in negotiated transactions. At March 31, 2024, the maximum number of shares that may yet be purchased under this plan was 11.0 million. The repurchase program has no expiration date. These purchases may be made on the open market or in privately negotiated transactions, depending upon market conditions and other factors. Repurchased shares may be used to meet obligations under our company’s employee benefit plans and for general corporate purposes. During the three months ended March 31, 2024, we repurchased $60.7 million or 0.8 million shares using existing Board authorizations at an average price of $72.27 per share to meet obligations under our company’s employee benefit plans and for general corporate purposes. During the three months ended March 31, 2023, we repurchased $94.5 million or 1.5 million shares using existing Board authorizations at an average price of $65.07 per share to meet obligations under our company’s employee benefit plans and for general corporate purposes.
Issuance of Common Stock from Treasury
During the three months ended March 31, 2024, we issued 2.4 million shares of common stock from treasury, primarily a result of vesting and exercise transactions under our incentive stock award plans.
NOTE 25 – Variable Interest Entities
Our variable interests in VIEs include debt and equity interests, commitments, certain fees, the establishment of Stifel Financial Capital Trusts, and our issuance of a convertible promissory note.
Our involvement with VIEs arises primarily from the following activities: purchases of securities in connection with our trading and secondary market-making activities; retained interests held as a result of securitization activities; and loans to, investments in, and fees from various investment vehicles.
Securitization Interests
During the first quarter of 2024, the Company purchased the E-Certificates of Turbine Engines Securitization Ltd. (“Turbine”). The purchase of these Turbine E-Certificates represents 100% of the equity of Turbine. The Company has determined the interest it holds in this VIE requires consolidation in its financial statements, as it is deemed to be the primary beneficiary. The assets acquired and liabilities assumed were recorded at fair value as of the consolidation date. At March 31, 2024, Turbine has assets of $114.5 million, which consist of aircraft engines that are under operating leases, included in fixed assets, net in the accompanying consolidated statement of financial condition and liabilities of $113.2 million, which primarily consist of debt, included in accounts payable and accrued expenses in the accompanying consolidated statement of financial condition.
Partnership Interests
We have formed several non-consolidated investment funds with third-party investors that are typically organized as limited liability companies (“LLCs”) or limited partnerships. These investment vehicles have assets primarily consisting of private and public equity investments. For those funds where we act as the general partner, our company’s economic interest is generally limited to management fee arrangements as stipulated by the fund operating agreements. We have generally provided the third-party investors with rights to terminate the funds or to remove us as the general partner. We have concluded that we are not the primary beneficiary of these VIEs, and therefore, we do not consolidate these entities.
Debt and Equity Investments
Our exposure to loss is limited to the total of our carrying value. These investment vehicles have net assets, primarily consisting of aircraft, aircraft engine-related assets, and debt. For these investments, our involvement is primarily limited to management fee arrangements as stipulated by the operating agreements. We have concluded that we are not the primary beneficiary of these VIEs, and therefore, we do not consolidate these entities.
The following tables present the aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary (in thousands):
| | | | | | | | | | | | |
| | March 31, 2024 | |
| | Aggregate Assets | | | Aggregate Liabilities | | | Our Risk of Loss | |
Debt and Equity Investments | | $ | 466,060 | | | $ | 275,009 | | | $ | 40,062 | |
Partnership Interests | | | 265,772 | | | | 10,111 | | | | — | |
| | $ | 731,832 | | | $ | 285,120 | | | $ | 40,062 | |
| | | | | | | | | | | | |
| | December 31, 2023 | |
| | Aggregate Assets | | | Aggregate Liabilities | | | Our Risk of Loss | |
Debt and Equity Investments | | $ | 456,286 | | | $ | 277,924 | | | $ | 40,088 | |
Partnership Interests | | | 341,980 | | | | 678 | | | | — | |
| | $ | 798,266 | | | $ | 278,602 | | | $ | 40,088 | |
Debenture to Stifel Financial Capital Trusts
We have completed private placements of cumulative trust preferred securities through Stifel Financial Capital Trust II, Stifel Financial Capital Trust III, and Stifel Financial Capital Trust IV (collectively, the “Trusts”). The Trusts are non-consolidated wholly owned business trust subsidiaries of our company and were established for the limited purpose of issuing trust securities to third parties and lending the proceeds to our company.
The trust preferred securities represent an indirect interest in junior subordinated debentures purchased from our company by the Trusts, and we effectively provide for the full and unconditional guarantee of the securities issued by the Trusts. We make timely payments of interest to the Trusts as required by contractual obligations, which are sufficient to cover payments due on the securities issued by the Trusts, and believe that it is unlikely that any circumstances would occur that would make it necessary for our company to make payments related to these Trusts other than those required under the terms of the debenture agreements and the trust preferred securities agreements. The Trusts were determined to be VIEs because the holders of the equity investment at risk do not have adequate decision-making ability over the Trust’s activities. Our investment in the Trusts is not a variable interest, because equity interests are variable interests only to the extent that the investment is considered to be at risk. Because our investment was funded by the Trusts, it is not considered to be at risk.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and the accompanying consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q.
Certain statements in this report may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements cover, among other things, statements made about general economic and market conditions, the investment banking industry, objectives and results, and also may include our belief regarding the effect of various legal proceedings, management expectations, our liquidity and funding sources, counterparty credit risk, or other similar matters.
Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors discussed under “Economic and Market Conditions” in Part II, Item 1A in this Quarterly Report on Form 10-Q, as well as the factors identified under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as updated in our subsequent reports filed with the SEC. These reports are available at the Company’s web site at www.stifel.com and at the SEC web site at www.sec.gov.
Because of these and other uncertainties, the Company’s actual future results may be materially different from the results indicated by these forward-looking statements. In addition, the Company’s past results of operations do not necessarily indicate its future results. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events, unless it is obligated to do so under federal securities laws.
Unless otherwise indicated, the terms “we,” “us,” “our” or “our company” in this report refer to Stifel Financial Corp. and its wholly owned subsidiaries.
Executive Summary
We operate as a financial services and bank holding company. We have built a diversified business serving private clients, institutional investors, and investment banking clients located across the U.S., Europe, and Canada. Our principal activities are: (i) private client services, including securities transaction and financial planning services; (ii) institutional equity and fixed income sales, trading and research, and municipal finance; (iii) investment banking services, including mergers and acquisitions, public offerings, and private placements; and (iv) retail and commercial banking, including personal and commercial lending programs.
Our core philosophy is based upon a tradition of trust, understanding, and studied advice. We attract and retain experienced professionals by fostering a culture of entrepreneurial, long-term thinking. We provide our private, institutional and corporate clients quality, personalized service, with the theory that if we place clients’ needs first, both our clients and our company will prosper. Our unwavering client and associate focus have earned us a reputation as one of the nation’s leading wealth management and investment banking firms. We have grown our business both organically and through opportunistic acquisitions.
We plan to maintain our focus on revenue growth with a continued appreciation for the development of quality client relationships. Within our private client business, our efforts will be focused on recruiting experienced financial advisors with established client relationships. Within our capital markets business, our focus continues to be on providing quality client management and product diversification. In executing our growth strategy, we will continue to seek out opportunities that allow us to take advantage of the consolidation among middle-market firms, whereby allowing us to increase market share in our private client and institutional group businesses.
Stifel Financial Corp., through its wholly owned subsidiaries, is principally engaged in retail brokerage; securities trading; investment banking; investment advisory; retail, consumer, and commercial banking; and related financial services. Our major geographic area of concentration is throughout the United States, with a growing presence in the United Kingdom, Europe, and Canada. Our principal customers are individual investors, corporations, municipalities, and institutions.
Our ability to attract and retain highly skilled and productive associates is critical to the success of our business. Accordingly, compensation and benefits comprise the largest component of our expenses, and our performance is dependent upon our ability to attract, develop, and retain highly skilled associates who are motivated and committed to providing the highest quality of service and guidance to our clients.
On March 14, 2024, the Company announced it signed a definitive agreement to acquire Finance 500, Inc. (“Finance 500”) and CB Resource, Inc. (“CBR”), which operate as strategic partners under common ownership. Finance 500 is a brokerage and investment services provider focused on underwriting FDIC-insured Certificates of Deposits and fixed income securities trading. CBR integrates ERM, strategic and capital plan solutions, and industry analytics through its fully integrated tech-enabled platform. We expect to close the acquisition in the third quarter of 2024.
Results for the three months ended March 31, 2024
For the three months ended March 31, 2024, net revenues increased 5.1% to $1.2 billion from $1.1 billion during the comparable period in 2023. Net income available to common shareholders increased 4.1% to $154.3 million, or $1.40 per diluted common share for the three months ended March 31, 2024, compared to $148.2 million, or $1.28 per diluted common share during the comparable period in 2023.
Our revenue growth was primarily attributable to higher asset management, transactional, and capital-raising revenues during the quarter, partially offset by lower net interest income and advisory revenues. We benefited from market conditions that included strong equity markets, recovering capital markets, and an improving U.S. economy.
Economic and Market Conditions
We currently operate in a challenging and uncertain economic environment. Financial services companies continue to be affected by, among other things, market volatility, rapidly rising interest rates and inflationary pressures. The market environment in aggregate remained mixed, characterized by inflationary pressures and uncertainty regarding the future path of interest rates, which have remained persistently high. This environment has impacted our businesses, as discussed further in “Segment Results” herein, and, to the extent that it continues to remain uncertain, could adversely impact client confidence and related activity.
We are monitoring the war and increased tensions in the Middle East and its impact on the regional economy, as well as on other world economies and the financial markets. Our direct exposure to Israel is limited. We have a small number of employees in Israel and we continue to support them.
For more information on economic and market conditions, and the potential effects of geopolitical events on our future results, refer to “Risk Factors” in the 2023 Form 10-K.
Impact of Change in Short-term Interest Rates
At its meetings in first quarter of 2024, the Federal Reserve unanimously decided to hold the target federal funds rate steady at 5.25% to 5.50%, a 23-year high and the fifth consecutive meeting with no target rate change. While the market generally expected that the Federal Reserve would ease rates to some extent in 2024 given the strong performance of the U.S. economy and low unemployment levels, the Federal Reserve has held them at their current, more restrictive range since the outset of the year given higher than anticipated inflationary readings and the Federal Reserve’s desire for inflation to return to its 2% long-term target. The Federal Reserve’s median forecast currently projects three rate decreases during 2024, though this is subject to change and the market believes that these restrictive conditions will likely continue.
While the Federal Reserve hasn’t eased rates in 2024, any future rate decreases to the federal funds rate may result in reduced interest-based revenues though any future federal funds rate increases may improve these revenues. While decreases in interest rates will lower fees the Company earns from FDIC insured deposits of clients through a program offered by the Company, such decreases may be offset to a degree if the cash sweep balances increase as clients find fewer higher-yielding alternatives to deploy these balances. Future rate decreases will also reduce the rates the Company charges on margin balances which will have a negative impact on our earnings.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023
The following table presents consolidated financial information for the periods indicated (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | As a Percentage of Net Revenues For the Three Months Ended March 31, | |
| | 2024 | | | 2023 | | | %
Change | | | 2024 | | | 2023 | |
Revenues: | | | | | | | | | | | | | | | |
Commissions | | $ | 185,476 | | | $ | 169,550 | | | | 9.4 | | | | 15.9 | % | | | 15.3 | % |
Principal transactions | | | 139,014 | | | | 115,522 | | | | 20.3 | | | | 12.0 | | | | 10.5 | |
Transactional revenues | | | 324,490 | | | | 285,072 | | | | 13.8 | | | | 27.9 | | | | 25.8 | |
Investment banking | | | 213,949 | | | | 211,879 | | | | 1.0 | | | | 18.4 | | | | 19.1 | |
Asset management | | | 367,476 | | | | 315,569 | | | | 16.4 | | | | 31.6 | | | | 28.5 | |
Interest | | | 506,828 | | | | 451,564 | | | | 12.2 | | | | 43.6 | | | | 40.8 | |
Other income | | | 4,950 | | | | (2,293 | ) | | | 315.9 | | | | 0.4 | | | | (0.2 | ) |
Total revenues | | | 1,417,693 | | | | 1,261,791 | | | | 12.4 | | | | 121.9 | | | | 114.0 | |
Interest expense | | | 254,655 | | | | 154,998 | | | | 64.3 | | | | 21.9 | | | | 14.0 | |
Net revenues | | | 1,163,038 | | | | 1,106,793 | | | | 5.1 | | | | 100.0 | | | | 100.0 | |
Non-interest expenses: | | | | | | | | | | | | | | | |
Compensation and benefits | | | 679,695 | | | | 651,190 | | | | 4.4 | | | | 58.4 | | | | 58.8 | |
Occupancy and equipment rental | | | 88,712 | | | | 82,140 | | | | 8.0 | | | | 7.6 | | | | 7.4 | |
Communication and office supplies | | | 47,367 | | | | 46,136 | | | | 2.7 | | | | 4.1 | | | | 4.2 | |
Commissions and floor brokerage | | | 15,767 | | | | 14,440 | | | | 9.2 | | | | 1.4 | | | | 1.3 | |
Provision for credit losses | | | 5,268 | | | | 4,920 | | | | 7.1 | | | | 0.5 | | | | 0.4 | |
Other operating expenses | | | 107,538 | | | | 98,084 | | | | 9.6 | | | | 9.2 | | | | 8.9 | |
Total non-interest expenses | | | 944,347 | | | | 896,910 | | | | 5.3 | | | | 81.2 | | | | 81.0 | |
Income before income taxes | | | 218,691 | | | | 209,883 | | | | 4.2 | | | | 18.8 | | | | 19.0 | |
Provision for income taxes | | | 55,116 | | | | 52,344 | | | | 5.3 | | | | 4.7 | | | | 4.8 | |
Net income | | | 163,575 | | | | 157,539 | | | | 3.8 | | | | 14.1 | | | | 14.2 | |
Preferred dividends | | | 9,320 | | | | 9,320 | | | | — | | | | 0.8 | | | | 0.8 | |
Net income available to common shareholders | | $ | 154,255 | | | $ | 148,219 | | | | 4.1 | | | | 13.3 | % | | | 13.4 | % |
NET REVENUES
The following table presents consolidated net revenues for the periods indicated (in thousands, except percentages):
| | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | | | %
Change | |
Net revenues: | | | | | | | | | |
Commissions | | $ | 185,476 | | | $ | 169,550 | | | | 9.4 | |
Principal transactions | | | 139,014 | | | | 115,522 | | | | 20.3 | |
Transactional revenues | | | 324,490 | | | | 285,072 | | | | 13.8 | |
Capital raising | | | 94,697 | | | | 60,816 | | | | 55.7 | |
Advisory | | | 119,252 | | | | 151,063 | | | | (21.1 | ) |
Investment banking | | | 213,949 | | | | 211,879 | | | | 1.0 | |
Asset management | | | 367,476 | | | | 315,569 | | | | 16.4 | |
Net interest | | | 252,173 | | | | 296,566 | | | | (15.0 | ) |
Other income | | | 4,950 | | | | (2,293 | ) | | | 315.9 | |
Total net revenues | | $ | 1,163,038 | | | $ | 1,106,793 | | | | 5.1 | |
Commissions – Commission revenues are primarily generated from agency transactions in OTC and listed equity securities, insurance products and options. In addition, commission revenues also include distribution fees for promoting and distributing mutual funds.
For the three months ended March 31, 2024, commission revenues increased 9.4% to $185.5 million from $169.6 million in the comparable period in 2023.
Principal transactions – Principal transaction revenues are gains and losses on secondary trading, principally fixed income transactional revenues.
For the three months ended March 31, 2024, principal transactions revenues increased 20.3% to $139.0 million from $115.5 million in the comparable period in 2023.
Transactional revenues – For the three months ended March 31, 2024, transactional revenues increased 13.8% to $324.5 million from $285.1 million in the comparable period in 2023 as a result of an increase in client activity.
Investment banking – Investment banking revenues include: (i) capital-raising revenues representing fees earned from the underwriting of debt and equity securities, and (ii) advisory fees related to corporate debt and equity offerings, municipal debt offerings, merger and acquisitions, private placements and other investment banking advisory fees.
For the three months ended March 31, 2024, investment banking revenues increased 1.0% to $213.9 million from $211.9 million in the comparable period in 2023.
Capital-raising revenues increased 55.7% to $94.7 million for the three months ended March 31, 2024 from $60.8 million in the comparable period in 2023. For the three months ended March 31, 2024, equity capital-raising revenues increased 58.7% to $42.3 million from $26.6 million in the comparable period in 2023 driven by higher volumes. For the three months ended March 31, 2024, fixed income capital-raising revenues increased 53.4% to $52.4 million from $34.2 million in the comparable period in 2023 driven by higher bond issuances during the first quarter of 2024.
Advisory revenues decreased 21.1% to $119.3 million for the three months ended March 31, 2024 from $151.1 million in the comparable period in 2023. The decrease is primarily attributable to lower completed advisory transactions.
Asset management – Asset management revenues are primarily generated by the investment advisory fees related to asset management services provided for individual and institutional investment portfolios, along with mutual funds. Investment advisory fees are earned on assets held in managed or non-discretionary asset-based programs. Fees from private client investment portfolios and institutional fees are typically based on asset values at the end of the prior period. Asset balances are impacted by both the performance of the market and levels of net new client assets. Rising markets have historically had a positive impact on investment advisory fee revenues as existing accounts increase in value, and individuals and institutions may commit incremental funds in rising markets.
For the three months ended March 31, 2024, asset management revenues increased 16.4% to $367.5 million from $315.6 million in the comparable period in 2023. Please refer to “Asset management” in the Global Wealth Management segment discussion for information on the changes in asset management revenues.
Other income – Other income primarily includes investment gains and losses, rental income, and loan originations fees. For the three months ended March 31, 2024, other income increased 315.9% to $5.0 million from a loss of $2.3 million during the comparable period in 2023. The increase is primarily attributable to lower investment losses in the first quarter of 2024, rental income generated from our aircraft engine leasing business, and higher loan origination fees. The first quarter of 2023 was negatively impacted by losses on the sale of investments.
NET INTEREST INCOME
The following table presents average balance data and operating interest revenue and expense data, as well as related interest yields for the periods indicated (in thousands, except rates):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | |
| | March 31, 2024 | | | March 31, 2023 | |
| | Average Balance | | | Interest Income/ Expense | | | Average Interest Rate | | | Average Balance | | | Interest Income/ Expense | | | Average Interest Rate | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | |
Interest-bearing cash and federal funds sold | | $ | 4,060,336 | | | $ | 54,341 | | | | 5.35 | % | | $ | 1,989,550 | | | $ | 22,725 | | | | 4.57 | % |
Financial instruments owned | | | 911,671 | | | | 4,860 | | | | 2.13 | | | | 877,653 | | | | 3,721 | | | | 1.70 | |
Margin balances | | | 699,780 | | | | 14,204 | | | | 8.12 | | | | 831,225 | | | | 14,871 | | | | 7.16 | |
Investment portfolio | | | 7,538,751 | | | | 118,535 | | | | 6.29 | | | | 7,831,246 | | | | 108,327 | | | | 5.53 | |
Loans | | | 19,743,193 | | | | 306,142 | | | | 6.20 | | | | 20,936,338 | | | | 295,052 | | | | 5.64 | |
Other interest-bearing assets | | | 755,076 | | | | 8,746 | | | | 4.63 | | | | 797,285 | | | | 6,868 | | | | 3.45 | |
Total interest-earning assets/interest income | | $ | 33,708,807 | | | $ | 506,828 | | | | 6.01 | % | | $ | 33,263,297 | | | $ | 451,564 | | | | 5.43 | % |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | |
Stock loan | | $ | 207,000 | | | $ | (1,400 | ) | | | (2.71 | %) | | $ | 135,840 | | | $ | (2,785 | ) | | | (8.20 | %) |
Senior notes | | | 1,115,721 | | | | 12,506 | | | | 4.48 | | | | 1,114,646 | | | | 12,506 | | | | 4.49 | |
Stifel Capital Trusts | | | 60,000 | | | | 1,123 | | | | 7.49 | | | | 60,000 | | | | 1,044 | | | | 6.96 | |
Deposits | | | 27,607,764 | | | | 230,064 | | | | 3.33 | | | | 27,138,005 | | | | 137,288 | | | | 2.02 | |
FHLB | | | — | | | | — | | | | 0.00 | | | | 5,556 | | | | 68 | | | | 4.92 | |
Other interest-bearing liabilities | | | 1,118,767 | | | | 12,362 | | | | 4.42 | | | | 969,047 | | | | 6,877 | | | | 2.84 | |
Total interest-bearing liabilities/interest expense | | $ | 30,109,252 | | | | 254,655 | | | | 3.38 | % | | $ | 29,423,094 | | | | 154,998 | | | | 2.11 | % |
Net interest income/margin | | | | | $ | 252,173 | | | | 2.99 | % | | | | | $ | 296,566 | | | | 3.57 | % |
Please refer to the Distribution of Assets, Liabilities, and Shareholders’ Equity; Interest Rates and Interest Differential table included in “Results of Operations – Global Wealth Management” for additional information on Stifel Bancorp’s average balances and interest income and expense.
Net interest income – Net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources. Net interest income is affected by changes in the volume and mix of these assets and liabilities, as well as by fluctuations in interest rates and portfolio management strategies. For the three months ended March 31, 2024, net interest income decreased to $252.2 million from $296.6 million during the comparable period in 2023.
For the three months ended March 31, 2024, interest revenue increased 12.2% to $506.8 million from $451.6 million in the comparable period in 2023, principally as a result of an increase in interest rates and interest-earning assets. The average interest-earning assets of Stifel Bancorp increased to $30.2 billion during the three months ended March 31, 2024 compared to $29.7 billion during the comparable period in 2023 at average interest rates of 6.16% and 5.58%, respectively.
For the three months ended March 31, 2024, interest expense increased 64.3% to $254.7 million from $155.0 million during the comparable period in 2023. The increase is primarily attributable to higher interest rates and interest-bearing liabilities. The average interest-bearing liabilities of Stifel Bancorp increased to $27.7 billion during the three months ended March 31, 2024 compared to $27.1 billion during the comparable period in 2023 at average interest rates of 3.34% and 2.02%, respectively.
NON-INTEREST EXPENSES
The following table presents consolidated non-interest expenses for the periods indicated (in thousands, except percentages):
| | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | | | % Change | |
Non-interest expenses: | | | | | | | | | |
Compensation and benefits | | $ | 679,695 | | | $ | 651,190 | | | | 4.4 | |
Occupancy and equipment rental | | | 88,712 | | | | 82,140 | | | | 8.0 | |
Communications and office supplies | | | 47,367 | | | | 46,136 | | | | 2.7 | |
Commissions and floor brokerage | | | 15,767 | | | | 14,440 | | | | 9.2 | |
Provision for credit losses | | | 5,268 | | | | 4,920 | | | | 7.1 | |
Other operating expenses | | | 107,538 | | | | 98,084 | | | | 9.6 | |
Total non-interest expenses | | $ | 944,347 | | | $ | 896,910 | | | | 5.3 | |
Compensation and benefits – Compensation and benefits expenses, which are the largest component of our expenses, include salaries, bonuses, transition pay, benefits, amortization of stock-based compensation, employment taxes and other employee-related costs. A significant portion of compensation expense is comprised of production-based variable compensation, including discretionary bonuses, which fluctuates in proportion to the level of business activity, increasing with higher revenues and operating profits. Other compensation costs, including base salaries, stock-based compensation amortization, and benefits, are more fixed in nature.
For the three months ended March 31, 2024, compensation and benefits expense increased 4.4% to $679.7 million from $651.2 million during the comparable period in 2023. The increase in compensation and benefits expenses is primarily attributable to higher compensable revenues.
Compensation and benefits expense as a percentage of net revenues was 58.4% for the three months ended March 31, 2024, compared to 58.8% for the three months ended March 31, 2023. The decrease is primarily attributable to higher revenues over the comparable period in 2023.
Occupancy and equipment rental – For the three months ended March 31, 2024, occupancy and equipment rental expense increased 8.0% to $88.7 million from $82.1 million during the comparable period in 2023. The increase is primarily attributable to higher data processing expense and occupancy costs associated with an increase in business activity.
Communications and office supplies – Communications expense includes costs for telecommunication and data communication, primarily for obtaining third-party market data information. For the three months ended March 31, 2024, communications and office supplies expense increased 2.7% to $47.4 million from $46.1 million during the comparable period in 2023. The increase is primarily attributable to higher communication and quote equipment and postage and shipping expenses associated with the continued growth of our business.
Commissions and floor brokerage – For the three months ended March 31, 2024, commissions and floor brokerage expense increased 9.2% to $15.8 million from $14.4 million during the comparable period in 2023. The increase is primarily attributable to higher electronic communication network (“ECN”) trading costs, clearing expenses, and processing expenses.
Provision for credit losses – For the three months ended March 31, 2024, provision for credit losses increased 7.1% to $5.3 million from $4.9 million during the comparable period in 2023. The increase is primarily attributable to changes in the outlook for macroeconomic conditions.
Other operating expenses – Other operating expenses primarily include license and registration fees, litigation-related expenses, which consist of amounts we accrue and/or pay out related to legal and regulatory matters, travel and entertainment, promotional expenses and expenses for professional services.
For the three months ended March 31, 2024, other operating expenses increased 9.6% to $107.5 million from $98.1 million during the comparable period in 2023. The increase is primarily attributable to increases in FDIC-insurance expense, investment banking transaction expenses, professional fees, advertising, and travel and conference-related expenses, partially offset by lower settlement-related expenses.
Provision for income taxes – For the three months ended March 31, 2024, our provision for income taxes was $55.1 million, representing an effective tax rate of 25.2%, compared to $52.3 million for the comparable period in 2023, representing an effective tax rate of 24.9%. The tax rate was impacted by the excess tax benefit related to stock based compensation and non-deductible foreign losses.
SEGMENT ANALYSIS
Our reportable segments include Global Wealth Management, Institutional Group, and Other.
Our Global Wealth Management segment consists of two businesses, the Private Client Group and Stifel Bancorp. The Private Client Group includes branch offices and independent contractor offices of our broker-dealer subsidiaries located throughout the United States. These branches provide securities brokerage services, including the sale of equities, mutual funds, fixed income products, and insurance, as well as offering banking products to their private clients through our bank subsidiaries, which provide residential, consumer, and commercial lending, as well as FDIC-insured deposit accounts to customers of our broker-dealer subsidiaries and to the general public.
The success of our Global Wealth Management segment is dependent upon the quality of our products, services, financial advisors, and support personnel, including our ability to attract, retain, and motivate a sufficient number of these associates. We face competition for qualified associates from major financial services companies, including other brokerage firms, insurance companies, banking institutions, and discount brokerage firms. Segment revenue growth, operating income, and segment pre-tax operating margin are used to evaluate and measure segment performance by our management team in deciding how to allocate resources and in assessing performance.
The Institutional Group segment includes institutional sales and trading. It provides securities brokerage, trading, and research services to institutions with an emphasis on the sale of equity and fixed income products. This segment also includes the management of and participation in underwritings for both corporate and public finance (exclusive of sales credits generated through the Private Client Group, which are included in the Global Wealth Management segment), merger and acquisition, and financial advisory services.
The success of our Institutional Group segment is dependent upon the quality of our personnel, the quality and selection of our investment products and services, pricing (such as execution pricing and fee levels), and reputation. Segment operating income and segment pre-tax operating margin are used to evaluate and measure segment performance by our management team in deciding how to allocate resources and in assessing performance.
The Other segment includes interest income from stock borrow activities, unallocated interest expense, interest income and gains and losses from investments held, amortization of stock-based awards, and all unallocated overhead cost associated with the execution of orders; processing of securities transactions; custody of client securities; receipt, identification, and delivery of funds and securities; compliance with regulatory and legal requirements; internal financial accounting and controls; and general administration and acquisition charges.
We evaluate the performance of our segments and allocate resources to them based on various factors, including prospects for growth, return on investment, and return on revenues.
Results of Operations – Global Wealth Management
Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023
The following table presents consolidated financial information for the Global Wealth Management segment for the periods indicated (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | As a Percentage of Net Revenues For the Three Months Ended March 31, | |
| | 2024 | | | 2023 | | | %
Change | | | 2024 | | | 2023 | |
Revenues: | | | | | | | | | | | | | | | |
Commissions | | $ | 121,217 | | | $ | 110,191 | | | | 10.0 | | | | 15.3 | % | | | 14.6 | % |
Principal transactions | | | 60,536 | | | | 51,064 | | | | 18.5 | | | | 7.7 | | | | 6.7 | |
Transactional revenues | | | 181,753 | | | | 161,255 | | | | 12.7 | | | | 23.0 | | | | 21.3 | |
Asset management | | | 367,450 | | | | 315,537 | | | | 16.5 | | | | 46.5 | | | | 41.7 | |
Investment banking | | | 4,280 | | | | 4,158 | | | | 2.9 | | | | 0.5 | | | | 0.5 | |
Interest | | | 480,362 | | | | 430,548 | | | | 11.6 | | | | 60.8 | | | | 56.9 | |
Other income | | | 748 | | | | (5,696 | ) | | | 113.1 | | | | 0.1 | | | | (0.8 | ) |
Total revenues | | | 1,034,593 | | | | 905,802 | | | | 14.2 | | | | 130.9 | | | | 119.6 | |
Interest expense | | | 244,093 | | | | 148,616 | | | | 64.2 | | | | 30.9 | | | | 19.6 | |
Net revenues | | | 790,500 | | | | 757,186 | | | | 4.4 | | | | 100.0 | | | | 100.0 | |
Non-interest expenses: | | | | | | | | | | | | | | | |
Compensation and benefits | | | 389,536 | | | | 342,423 | | | | 13.8 | | | | 49.3 | | | | 45.2 | |
Occupancy and equipment rental | | | 43,324 | | | | 41,391 | | | | 4.7 | | | | 5.5 | | | | 5.5 | |
Communication and office supplies | | | 16,538 | | | | 15,756 | | | | 5.0 | | | | 2.1 | | | | 2.1 | |
Commissions and floor brokerage | | | 6,425 | | | | 6,335 | | | | 1.4 | | | | 0.8 | | | | 0.8 | |
Provision for credit losses | | | 4,968 | | | | 4,920 | | | | 1.0 | | | | 0.6 | | | | 0.6 | |
Other operating expenses | | | 38,961 | | | | 30,252 | | | | 28.8 | | | | 4.9 | | | | 4.1 | |
Total non-interest expenses | | | 499,752 | | | | 441,077 | | | | 13.3 | | | | 63.2 | | | | 58.3 | |
Income before income taxes | | $ | 290,748 | | | $ | 316,109 | | | | (8.0 | ) | | | 36.8 | % | | | 41.7 | % |
| | | | | | | |
| March 31, | |
| 2024 | | | 2023 | |
Branch offices | | 395 | | | | 397 | |
Financial advisors | | 2,242 | | | | 2,248 | |
Independent contractors | | 114 | | | | 102 | |
Total financial advisors | | 2,356 | | | | 2,350 | |
NET REVENUES
For the three months ended March 31, 2024, Global Wealth Management net revenues increased 4.4% to a record $790.5 million from $757.2 million for the comparable period in 2023. The increase in net revenues over the comparable period in 2023 is primarily attributable to increases in asset management revenues and transactional revenues, partially offset by lower net interest income.
Commissions – For the three months ended March 31, 2024, commission revenues increased 10.0% to $121.2 million from $110.2 million in the comparable period in 2023.
Principal transactions – For the three months ended March 31, 2024, principal transactions revenues increased 18.5% to $60.5 million from $51.1 million in the comparable period in 2023. The increase is primarily attributable to an increase in corporate debt trading over the comparable period in 2023.
Transactional revenues – For the three months ended March 31, 2024, transactional revenues increased 12.7% to $181.8 million from $161.3 million in the comparable period in 2023 as a result of an increase in client activity.
Asset management – For the three months ended March 31, 2024, asset management revenues increased 16.5% to a record $367.5 million from $315.5 million in the comparable period in 2023. The increase is primarily attributable to higher asset values. Fee-based account revenues are primarily billed based on asset values at the end the prior quarter.
Client asset metrics as of the periods indicated (in thousands, except number of accounts and percentages):
| | | | | | | | | | | | | | | | | | | |
| 3/31/24 | | | 3/31/23 | | | % Change | | | 12/31/23 | | | % Change | |
Client assets | $ | 467,697,000 | | | $ | 405,988,000 | | | | 15.2 | | | $ | 444,318,000 | | | | 5.3 | |
Fee-based client assets | $ | 177,108,000 | | | $ | 149,541,000 | | | | 18.4 | | | $ | 165,301,000 | | | | 7.1 | |
Number of client accounts | | 1,224,000 | | | | 1,188,000 | | | | 3.0 | | | | 1,213,000 | | | | 0.9 | |
Number of fee-based client accounts | | 338,000 | | | | 321,000 | | | | 5.3 | | | | 333,000 | | | | 1.5 | |
The increase in the value of our client assets and fee-based assets was primarily attributable to improved market conditions and asset growth resulting from our recruiting efforts.
Investment banking – Investment banking, which represents sales credits for investment banking underwritings, increased 2.9% to $4.3 million for the three months ended March 31, 2024 from $4.2 million during the comparable period in 2023. Please refer to “Investment banking” in the Institutional Group segment discussion for information on the changes in net revenues.
Interest revenue – For the three months ended March 31, 2024, interest revenue increased 11.6% to $480.4 million from $430.5 million in the comparable period in 2023. The increase is primarily attributable to higher interest rates and interest-earning assets. Please refer to “Net Interest Income – Stifel Bancorp” below for a further discussion of the changes in net interest income.
Other income – For the three months ended March 31, 2024, other income increased 113.1% to $0.7 million from a loss of $5.7 million in the comparable period in 2023. The increase is primarily attributable to lower investment losses in the first quarter of 2024 and an increase in loan origination fees. The first quarter of 2023 was negatively impacted by losses on the sale of investments.
Interest expense – For the three months ended March 31, 2024, interest expense increased 64.2% to $244.1 million from $148.6 million in the comparable period in 2023. The increase is primarily attributable to higher interest rates and interest-bearing liabilities. Please refer to “Net Interest Income – Stifel Bancorp” below for a further discussion of the changes in net interest income.
NET INTEREST INCOME – STIFEL BANCORP
The following tables present average balance data and operating interest revenue and expense data for Stifel Bancorp, as well as related interest yields for the periods indicated (in thousands, except rates):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | | | Three Months Ended March 31, 2023 | |
| | Average Balance | | | Interest Income/ Expense | | | Average Interest Rate | | | Average Balance | | | Interest Income/ Expense | | | Average Interest Rate | |
Assets: | | | | | | | | | | | | | | | | | | |
Interest-bearing cash and federal funds sold | | $ | 2,845,877 | | | $ | 39,552 | | | | 5.56 | % | | $ | 916,145 | | | $ | 11,244 | | | | 4.91 | % |
U.S. government agencies | | | 2,379 | | | | 13 | | | | 2.10 | | | | 2,347 | | | | 12 | | | | 2.09 | |
State and municipal securities (tax-exempt) (1) | | | 2,350 | | | | 18 | | | | 3.00 | | | | 2,350 | | | | 18 | | | | 3.00 | |
Mortgage-backed securities | | | 916,452 | | | | 5,247 | | | | 2.29 | | | | 986,568 | | | | 5,380 | | | | 2.18 | |
Corporate fixed income securities | | | 606,474 | | | | 4,192 | | | | 2.76 | | | | 637,486 | | | | 4,156 | | | | 2.61 | |
Asset-backed securities | | | 6,011,096 | | | | 109,065 | | | | 7.26 | | | | 6,202,495 | | | | 98,761 | | | | 6.37 | |
Federal Home Loan Bank and other capital stock | | | 62,730 | | | | 739 | | | | 4.71 | | | | 57,412 | | | | 554 | | | | 3.86 | |
Loans (2) | | | | | | | | | | | | | | | | | | |
Securities-based loans | | | 2,297,115 | | | | 41,624 | | | | 7.25 | | | | 2,637,992 | | | | 42,489 | | | | 6.44 | |
Commercial and industrial | | | 3,527,489 | | | | 81,262 | | | | 9.21 | | | | 4,816,281 | | | | 94,258 | | | | 7.83 | |
Fund banking | | | 3,418,824 | | | | 67,836 | | | | 7.94 | | | | 4,396,455 | | | | 76,297 | | | | 6.94 | |
Residential real estate | | | 8,060,619 | | | | 67,827 | | | | 3.37 | | | | 7,446,084 | | | | 53,479 | | | | 2.87 | |
Commercial real estate | | | 658,252 | | | | 11,851 | | | | 7.20 | | | | 666,792 | | | | 10,949 | | | | 6.57 | |
Home equity lines of credit | | | 142,990 | | | | 3,032 | | | | 8.48 | | | | 107,547 | | | | 2,012 | | | | 7.48 | |
Construction and land | | | 1,099,850 | | | | 22,939 | | | | 8.34 | | | | 612,567 | | | | 11,477 | | | | 7.49 | |
Other | | | 48,745 | | | | 762 | | | | 6.25 | | | | 46,363 | | | | 726 | | | | 6.27 | |
Loans held for sale | | | 489,309 | | | | 9,009 | | | | 7.36 | | | | 206,257 | | | | 3,365 | | | | 6.53 | |
Total interest-earning assets (3) | | $ | 30,190,551 | | | $ | 464,968 | | | | 6.16 | % | | $ | 29,741,141 | | | $ | 415,177 | | | | 5.58 | % |
Cash and due from banks | | | 17,725 | | | | | | | | | | 12,283 | | | | | | | |
Other non interest-earning assets | | | 110,592 | | | | | | | | | | 162,716 | | | | | | | |
Total assets | | $ | 30,318,868 | | | | | | | | | $ | 29,916,140 | | | | | | | |
Liabilities and stockholders’ equity: | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | | |
Money market | | $ | 24,861,514 | | | $ | 201,720 | | | | 3.25 | % | | $ | 25,808,784 | | | $ | 126,533 | | | | 1.96 | % |
Time deposits | | | 7 | | | | — | | | | 3.24 | | | | 6,903 | | | | 50 | | | | 2.91 | |
Demand deposits | | | 2,745,620 | | | | 28,343 | | | | 4.13 | | | | 1,321,850 | | | | 10,704 | | | | 3.24 | |
Savings | | | 623 | | | | 1 | | | | 0.76 | | | | 468 | | | | 1 | | | | 0.67 | |
Federal Home Loan Bank advances | | | — | | | | — | | | | 0.00 | | | | 5,556 | | | | 68 | | | | 4.92 | |
Other borrowings | | | 55,111 | | | | 1,049 | | | | 7.61 | | | | 867 | | | | 38 | | | | 17.48 | |
Total interest-bearing liabilities (3) | | | 27,662,875 | | | | 231,113 | | | | 3.34 | % | | | 27,144,428 | | | | 137,394 | | | | 2.02 | % |
Non-interest-bearing deposits | | | 314,358 | | | | | | | | | | 441,789 | | | | | | | |
Other non-interest bearing liabilities | | | 144,222 | | | | | | | | | | 163,370 | | | | | | | |
Total liabilities | | | 28,121,455 | | | | | | | | | | 27,749,587 | | | | | | | |
Stockholders’ equity | | | 2,197,413 | | | | | | | | | | 2,166,553 | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 30,318,868 | | | | | | | | | $ | 29,916,140 | | | | | | | |
Net interest income/spread | | | | | $ | 233,855 | | | | 2.82 | % | | | | | $ | 277,783 | | | | 3.56 | % |
Net interest margin | | | | | | | | | 3.10 | % | | | | | | | | | 3.74 | % |
(1)Due to immaterial amount of income recognized on tax-exempt securities, yields were not calculated on a tax-equivalent basis.
(2)Loans on nonaccrual status are included in average balances.
(3)Please refer to the Net Interest Income table included in “Results of Operations” for additional information on our company’s average balances and operating interest and expenses.
The following table sets forth an analysis of the effect on net interest income of volume and rate changes for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 (in thousands):
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023 | |
| | Increase/(decrease) due to: | |
| | Volume | | | Rate | | | Total | |
Interest income: | | | | | | | | | |
Interest-bearing cash and federal funds sold | | $ | 26,634 | | | $ | 1,674 | | | $ | 28,308 | |
U.S. government agencies | | | 1 | | | | — | | | | 1 | |
State and municipal securities (tax-exempt) | | | — | | | | — | | | | — | |
Mortgage-backed securities | | | (446 | ) | | | 313 | | | | (133 | ) |
Corporate fixed income securities | | | (151 | ) | | | 187 | | | | 36 | |
Asset-backed securities | | | (2,927 | ) | | | 13,231 | | | | 10,304 | |
Federal Home Loan Bank and other capital stock | | | 55 | | | | 130 | | | | 185 | |
Loans | | | | | | | | | |
Securities-based loans | | | (6,575 | ) | | | 5,710 | | | | (865 | ) |
Commercial and industrial | | | (18,435 | ) | | | 5,439 | | | | (12,996 | ) |
Fund banking | | | (13,810 | ) | | | 5,349 | | | | (8,461 | ) |
Residential real estate | | | 4,660 | | | | 9,688 | | | | 14,348 | |
Commercial real estate | | | (138 | ) | | | 1,040 | | | | 902 | |
Home equity lines of credit | | | 726 | | | | 294 | | | | 1,020 | |
Construction and land | | | 10,034 | | | | 1,428 | | | | 11,462 | |
Other | | | 38 | | | | (2 | ) | | | 36 | |
Loans held for sale | | | 5,161 | | | | 483 | | | | 5,644 | |
| | $ | 4,827 | | | $ | 44,964 | | | $ | 49,791 | |
Interest expense: | | | | | | | | | |
Deposits: | | | | | | | | | |
Money market | | $ | (4,463 | ) | | | 79,650 | | | $ | 75,187 | |
Time deposits | | | (57 | ) | | | 7 | | | | (50 | ) |
Demand deposits | | | 14,053 | | | | 3,586 | | | | 17,639 | |
Savings | | | — | | | | — | | | | — | |
Federal Home Loan Bank advances | | | (34 | ) | | | (34 | ) | | | (68 | ) |
Other borrowings | | | 1,019 | | | | (8 | ) | | | 1,011 | |
| | $ | 10,518 | | | $ | 83,201 | | | $ | 93,719 | |
Increases and decreases in interest revenue and interest expense result from changes in average balances (volume) of interest-earning bank assets and liabilities, as well as changes in average interest rates. The effect of changes in volume is determined by multiplying the change in volume by the previous year’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year’s volume. Changes applicable to both volume and rate have been allocated proportionately.
Net interest income – Net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources. Net interest income is affected by changes in the volume and mix of these assets and liabilities, as well as by fluctuations in interest rates and portfolio management strategies. Increases in short-term interest rates have had a positive impact on our results, in particular on our net interest income.
For the three months ended March 31, 2024, interest revenue of $465.0 million was generated from average interest-earning assets of $30.2 billion at an average interest rate of 6.16%. Interest revenue of $415.2 million for the comparable period in 2023 was generated from average interest-earning assets of $29.7 billion at an average interest rate of 5.58%.
Interest expense represents interest on customer money market accounts, interest on time deposits, Federal Home Loan Bank advances, and other interest expense. For the three months ended March 31, 2024, interest expense of $231.1 million was incurred from average interest-bearing liabilities of $27.7 billion at an average interest rate of 3.34%. Interest expense of $137.4 million for the comparable period in 2023 was incurred from average interest-bearing liabilities of $27.1 billion at an average interest rate of 2.02%.
Please refer to “Net Interest Income – Stifel Bancorp” above for more information regarding average balances, interest income and expense, and average interest rate yields.
NON-INTEREST EXPENSES
For the three months ended March 31, 2024, Global Wealth Management non-interest expenses increased 13.3% to $499.8 million from $441.1 million for the comparable period in 2023.
Compensation and benefits – For the three months ended March 31, 2024, compensation and benefits expense increased 13.8% to $389.5 million from $342.4 million during the comparable period in 2023. The increase is primarily attributable to higher variable compensation expense.
Compensation and benefits expense as a percentage of net revenues was 49.3% for the three months ended March 31, 2024, compared to 45.2% for the comparable period in 2023. The increase is primarily attributable to higher compensable revenues over the comparable period in 2023.
Occupancy and equipment rental – For the three months ended March 31, 2024, occupancy and equipment rental expense increased 4.7% to $43.3 million from $41.4 million during the comparable period in 2023. The increase is primarily attributable to higher data processing expense and occupancy costs associated with an increase in business activity.
Communications and office supplies – For the three months ended March 31, 2024, communications and office supplies expense increased 5.0% to $16.5 million from $15.8 million during the comparable period in 2023. The increase is primarily attributable to higher communication and quote equipment expenses and postage and shipping expenses associated with the continued growth of our business.
Commissions and floor brokerage – For the three months ended March 31, 2024, commissions and floor brokerage expense increased 1.4% to $6.4 million from $6.3 million during the comparable period in 2023. The increase is primarily attributable to higher processing expenses, partially offset by lower clearing expenses.
Provision for credit losses – For the three months ended March 31, 2024, provision for credit losses increased 1.0% to $5.0 million from $4.9 million during the comparable period in 2023. The increase is primarily attributable to changes in the outlook for macroeconomic conditions.
Other operating expenses – For the three months ended March 31, 2024, other operating expenses increased 28.8% to $39.0 million from $30.3 million during the comparable period in 2023. The increase is primarily attributable to increases in litigation and settlement expenses, FDIC-insurance, bank service charges, and professional fees.
INCOME BEFORE INCOME TAXES
For the three months ended March 31, 2024, income before income taxes decreased 8.0% to $290.7 million from $316.1 million during the comparable period in 2023.
Profit margins (income before income taxes as a percent of net revenues) have decreased to 36.8% for the three months ended March 31, 2024, from 41.7% during the comparable period in 2023, primarily due to an increase in operating expenses during the quarter, partially offset by higher net revenues.
Results of Operations – Institutional Group
Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023
The following table presents consolidated financial information for the Institutional Group segment for the periods indicated (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | As a Percentage of Net Revenues For the Three Months Ended March 31, | |
| | 2024 | | | 2023 | | | %
Change | | | 2024 | | | 2023 | |
Revenues: | | | | | | | | | | | | | | | |
Commissions | | $ | 64,259 | | | $ | 59,359 | | | | 8.3 | | | | 18.3 | % | | | 17.8 | % |
Principal transactions | | | 78,478 | | | | 64,458 | | | | 21.8 | | | | 22.3 | | | | 19.4 | |
Transactional revenues | | | 142,737 | | | | 123,817 | | | | 15.3 | | | | 40.6 | | | | 37.2 | |
Capital raising | | | 90,417 | | | | 56,658 | | | | 59.6 | | | | 25.7 | | | | 17.1 | |
Advisory | | | 119,252 | | | | 151,063 | | | | (21.1 | ) | | | 34.0 | | | | 45.4 | |
Investment banking | | | 209,669 | | | | 207,721 | | | | 0.9 | | | | 59.7 | | | | 62.5 | |
Interest | | | 6,332 | | | | 5,465 | | | | 15.9 | | | | 1.8 | | | | 1.6 | |
Other income | | | 3,634 | | | | 2,296 | | | | 58.3 | | | | 1.0 | | | | 0.7 | |
Total revenues | | | 362,372 | | | | 339,299 | | | | 6.8 | | | | 103.1 | | | | 102.0 | |
Interest expense | | | 10,996 | | | | 6,686 | | | | 64.5 | | | | 3.1 | | | | 2.0 | |
Net revenues | | | 351,376 | | | | 332,613 | | | | 5.6 | | | | 100.0 | | | | 100.0 | |
Non-interest expenses: | | | | | | | | | | | | | | | |
Compensation and benefits | | | 215,749 | | | | 205,905 | | | | 4.8 | | | | 61.4 | | | | 61.9 | |
Occupancy and equipment rental | | | 22,121 | | | | 21,273 | | | | 4.0 | | | | 6.3 | | | | 6.4 | |
Communication and office supplies | | | 25,159 | | | | 25,247 | | | | (0.3 | ) | | | 7.2 | | | | 7.6 | |
Commissions and floor brokerage | | | 9,342 | | | | 8,105 | | | | 15.3 | | | | 2.7 | | | | 2.4 | |
Other operating expenses | | | 41,896 | | | | 38,363 | | | | 9.2 | | | | 11.8 | | | | 11.6 | |
Total non-interest expenses | | | 314,267 | | | | 298,893 | | | | 5.1 | | | | 89.4 | | | | 89.9 | |
Income before income taxes | | $ | 37,109 | | | $ | 33,720 | | | | 10.1 | | | | 10.6 | % | | | 10.1 | % |
NET REVENUES
For the three months ended March 31, 2024, Institutional Group net revenues increased 5.6% to $351.4 million from $332.6 million for the comparable period in 2023. The increase in net revenues was primarily attributable to increases in capital-raising revenues and transactional revenues, partially offset by lower advisory revenues.
Commissions – For the three months ended March 31, 2024, commission revenues increased 8.3% to $64.3 million from $59.4 million in the comparable period in 2023.
Principal transactions – For the three months ended March 31, 2024, principal transactions revenues increased 21.8% to $78.5 million from $64.5 million in the comparable period in 2023.
Transactional revenues – For the three months ended March 31, 2024, institutional transactional revenues increased 15.3% to $142.7 million from $123.8 million in the comparable period in 2023.
For the three months ended March 31, 2024, fixed income institutional transactional revenues increased 24.1% to $88.6 million from $71.4 million in the comparable period in 2023. The increase in fixed income institutional transactional revenues is primarily attributable to improved market conditions and increased client activity.
For the three months ended March 31, 2024, equity institutional transactional revenues increased 3.2% to $54.1 million from $52.4 million during the comparable period in 2023. The increase in equity institutional transactional revenues is primarily attributable to higher trading gains.
Investment banking – For the three months ended March 31, 2024, investment banking revenues increased 0.9% to $209.7 million from $207.7 million during the comparable period in 2023.
For the three months ended March 31, 2024, capital-raising revenues increased 59.6% to $90.4 million from $56.7 million in the comparable period in 2023.
For the three months ended March 31, 2024, equity capital-raising revenues increased 63.3% to $40.3 million from $24.7 million during the comparable period in 2023 driven by higher volumes.
For the three months ended March 31, 2024, fixed income capital-raising revenues increased 56.7% to $50.1 million from $32.0 million during the comparable period in 2023. The increase is primarily attributable to higher bond issuances.
For the three months ended March 31, 2024, advisory revenues decreased 21.1% to $119.3 million from $151.1 million in the comparable period in 2023. The decrease is primarily attributable to lower levels of completed advisory transactions over the comparable period in 2023.
Interest – For the three months ended March 31, 2024, interest increased 15.9% to $6.3 million from $5.5 million in the comparable period in 2023.
Other income – For the three months ended March 31, 2024, other income increased 58.3% to $3.6 million from $2.3 million in the comparable period in 2023. The increase is primarily attributable to rental income generated from our aircraft engine leasing business.
Interest expense – For the three months ended March 31, 2024, interest expense increased 64.5% to $11.0 million from $6.7 million in the comparable period in 2023. The increase is primarily attributable to higher interest rates and an increase in inventory levels.
NON-INTEREST EXPENSES
For the three months ended March 31, 2024, Institutional Group non-interest expenses increased 5.1% to $314.3 million from $298.9 million for the comparable period in 2023.
Compensation and benefits – For the three months ended March 31, 2024, compensation and benefits expense increased 4.8% to $215.7 million from $205.9 million during the comparable period in 2023. The increase is driven by higher variable compensation expense as a result of an improving operating environment.
Compensation and benefits expense as a percentage of net revenues was 61.4% for the three months ended March 31, 2024, compared to 61.9% for the comparable period in 2023. The decrease is primarily attributable to higher revenues.
Occupancy and equipment rental – For the three months ended March 31, 2024, occupancy and equipment rental expense increased 4.0% to $22.1 million from $21.3 million during the comparable period in 2023. The increase is attributable to higher occupancy and data processing costs associated with continued investments in our business.
Communications and office supplies – For the three months ended March 31, 2024, communications and office supplies expense of $25.2 million remained relatively consistent with the comparable period in 2023.
Commissions and floor brokerage – For the three months ended March 31, 2024, commissions and floor brokerage expense increased 15.3% to $9.3 million from $8.1 million during the comparable period in 2023. The increase is primarily attributable to higher ECN trading costs and clearing expenses .
Other operating expenses – For the three months ended March 31, 2024, other operating expenses increased 9.2% to $41.9 million from $38.4 million during the comparable period in 2023. The increase is primarily attributable to higher investment banking transaction expenses, settlement-related expenses, and conference-related expenses, partially offset by lower licensing costs, subscription expenses, and travel and entertainment expenses.
INCOME BEFORE INCOME TAXES
For the three months ended March 31, 2024, income before income taxes for the Institutional Group segment increased 10.1% to $37.1 million from $33.7 million during the comparable period in 2023.
Profit margins (income before income taxes as a percentage of net revenues) have increased to 10.6% for the three months ended March 31, 2024, from 10.1% during the comparable period in 2023 driven by higher net revenues.
Results of Operations – Other Segment
Three months ended March 31, 2024 Compared with Three months ended March 31, 2023
The Other segment includes costs associated with investments made in the Company’s core business and expenses related to the Company’s acquisition strategy. The following table presents financial information for our Other segment for the periods presented broken out between infrastructure growth-related expenses and acquisition-related expenses (in thousands, except percentages):
| | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | | 2023 | | | % Change | |
Net revenues | | $ | 21,162 | | | $ | 16,994 | | | | 24.5 | |
Non-interest expenses: | | | | | | | | | |
Compensation and benefits: | | | | | | | | | |
Core business-related | | | 68,877 | | | | 93,609 | | | | (26.4 | ) |
Acquisition-related | | | 5,533 | | | | 9,253 | | | | (40.2 | ) |
Total compensation and benefits | | | 74,410 | | | | 102,862 | | | | (27.7 | ) |
Other operating expenses: | | | | | | | | | |
Core business-related | | | 49,297 | | | | 45,942 | | | | 7.3 | |
Acquisition-related | | | 6,621 | | | | 8,136 | | | | (18.6 | ) |
Total other operating expenses | | | 55,918 | | | | 54,078 | | | | 3.4 | |
Total non-interest expenses | | | 130,328 | | | | 156,940 | | | | (17.0 | ) |
Loss before income taxes | | $ | (109,166 | ) | | $ | (139,946 | ) | | | (22.0 | )% |
For the three months ended March 31, 2024, non-interest expenses decreased 17.0% to $130.3 million from $156.9 million in 2023. The decrease is primarily attributable to a decrease in variable compensation.
The expenses relating to the Company’s acquisition strategy are primarily attributable to integration-related activities, signing bonuses, amortization of restricted stock awards, debentures, and promissory notes issued as retention, additional earn-out expense, 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 ongoing business.
For the three months ended March 31, 2024, non-interest expenses related to our acquisition strategy, included in the numbers presented in the table above, decreased 30.1% to $12.2 million from $17.4 million in 2023.
Analysis of Financial Condition
Our company’s consolidated statements of financial condition consist primarily of cash and cash equivalents, receivables, financial instruments owned, bank loans, investments, goodwill, loans and advances to financial advisors, bank deposits, and payables. Total assets of $38.3 billion, were up 1.4% over December 31, 2023. Our broker-dealer subsidiary’s gross assets and liabilities, including financial instruments owned, stock loan/borrow, receivables and payables from/to brokers, dealers, and clearing organizations and clients, fluctuate with our business levels and overall market conditions.
As of March 31, 2024, our liabilities were comprised primarily of deposits of $27.6 billion at Stifel Bancorp, senior notes, net of debt issuance costs, of $1.1 billion, lease liabilities of $854.6 million, payables to customers of $750.6 million at our broker-dealer subsidiaries, accounts payable and accrued expenses of $697.0 million, and accrued employee compensation of $368.4 million. To meet our obligations to clients and operating needs, we had $13.0 billion of cash or assets readily convertible into cash at March 31, 2024.
Cash Flow
Cash and cash equivalents increased $46.7 million to $3.41 billion at March 31, 2024, from $3.36 billion at December 31, 2023. Operating activities used cash of $609.7 million. Investing activities provided cash of $476.8 million due to a decline in our loan portfolio and proceeds from calls and principal paydowns of held-to-maturity securities, partially offset by investment securities purchases and fixed asset purchases. Financing activities provided cash of $85.1 million primarily due to an increase in bank deposits, securities loaned, and securities sold under agreement to repurchase, partially offset by tax payments related to shares withheld for stock-based compensation, repurchases of our common stock, and dividends paid on our common and preferred stock.
Liquidity and Capital Resources
Liquidity and capital are essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding and liquidity to conduct our business over a range of economic and market environments, including times of broader industry or market liquidity stress events, such as those which occurred in the banking industry during fiscal 2023. In times of market stress or uncertainty, we generally maintain higher levels of capital and liquidity, including increased cash levels at our bank subsidiaries, to ensure we have adequate funding to support our business and meet our clients’ needs. We seek to manage capital levels to support execution of our business strategy, provide financial strength to our subsidiaries, and maintain sustained access to the capital markets, while at the same time meeting our regulatory capital requirements, and conservative internal management targets.
Liquidity and capital resources are provided primarily through our business operations and financing activities. Financing activities could include bank borrowings, collateralized financing arrangements, new or enhanced deposit product offerings such as the SmartRate Program, or additional capital-raising activities under our “universal” shelf registration statement. We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and available from committed and uncommitted financing facilities, provide adequate funds for continuing operations at current levels of activity in the short-term. We also believe that we will be able to continue to meet our long-term cash requirements due to our strong financial position and ability to access capital from financial markets.
The Company’s senior management establishes the liquidity and capital policies of our company. The Company’s senior management reviews business performance relative to these policies, monitors the availability of alternative sources of financing, and oversees the liquidity and interest rate sensitivity of our company’s asset and liability position.
Our assets, consisting mainly of cash or assets readily convertible into cash, are our principal source of liquidity. The liquid nature of these assets provides for flexibility in managing and financing the projected operating needs of the business. These assets are financed primarily by our equity capital, corporate debt, debentures to trusts, client credit balances, short-term bank loans, and proceeds from securities lending, repurchase agreements, and other payables. We currently finance our client accounts and firm trading positions through ordinary course borrowings at floating interest rates from various banks on a demand basis, securities lending, and repurchase agreements, with company-owned and client securities pledged as collateral. Changes in securities market volumes, related client borrowing demands, underwriting activity, and levels of securities inventory affect the amount of our financing requirements. Interest rate increases may harm the value of our investment portfolio, if interest rates rise, our unrealized gains on fixed income securities may decrease and our unrealized losses may increase. We would recognize the accumulated change in estimated fair value of these fixed income securities in net income when we realize a gain or loss upon the sale of the security.
Our bank assets consist principally of available-for-sale and held-to-maturity securities, retained loans, and cash and cash equivalents. Stifel Bancorp’s current liquidity needs are generally met through deposits from brokerage clients and equity capital. We monitor the liquidity of our bank subsidiaries daily to ensure their ability to meet customer deposit withdrawals, maintain reserve requirements, and support asset growth.
As of March 31, 2024, we had $38.3 billion in assets, $13.0 billion of which consisted of cash or assets readily convertible into cash as follows (in thousands):
| | | | | | | |
| March 31, 2024 | | | December 31, 2023 | |
Cash and cash equivalents | $ | 3,408,528 | | | $ | 3,361,801 | |
Receivables from brokers, dealers, and clearing organizations | | 657,871 | | | | 414,144 | |
Securities purchased under agreements to resell | | 451,056 | | | | 349,849 | |
Financial instruments owned at fair value | | 1,131,886 | | | | 834,279 | |
Available-for-sale securities at fair value | | 1,499,982 | | | | 1,551,686 | |
Held-to-maturity securities at amortized cost | | 5,793,750 | | | | 5,888,798 | |
Investments | | 23,657 | | | | 23,189 | |
Total cash and assets readily convertible to cash | $ | 12,966,730 | | | $ | 12,423,746 | |
As of March 31, 2024 and December 31, 2023, the amount of collateral by asset class is as follows (in thousands):
| | | | | | | | | | | | | | | |
| March 31, 2024 | | | December 31, 2023 | |
| Contractual | | | Contingent | | | Contractual | | | Contingent | |
Cash and cash equivalents | $ | 185,381 | | | $ | — | | | $ | 185,195 | | | $ | — | |
Financial instruments owned at fair value | | 426,659 | | | | 426,659 | | | | 417,644 | | | | 417,644 | |
Investment portfolio (AFS & HTM) | | — | | | | 1,986,145 | | | | — | | | | 2,076,717 | |
| $ | 612,040 | | | $ | 2,412,804 | | | $ | 602,839 | | | $ | 2,494,361 | |
Liquidity Available From Subsidiaries
Liquidity is principally available to our company from Stifel and Stifel Bancorp.
Stifel is required to maintain net capital equal to the greater of $1 million or two percent of aggregate debit items arising from client transactions. Covenants in the Company’s committed financing facilities require the excess net capital of Stifel, our principal broker-dealer subsidiary, to be above a defined amount. At March 31, 2024, Stifel’s excess net capital exceeded the minimum requirement, as defined. There are also limitations on the amount of dividends that may be declared by a broker-dealer without FINRA approval. See
Note 16 of the Notes to Consolidated Financial Statements for more information on the capital restrictions placed on our broker-dealer subsidiaries.
Stifel Bancorp may pay dividends to the parent company without prior approval by its regulator as long as the dividend does not exceed the sum of Stifel Bancorp’s current calendar year and the previous two calendar years’ retained net income and Stifel Bancorp maintains its targeted capital to risk-weighted assets ratios.
Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as the amounts described above and, in certain instances, may be subject to regulatory requirements.
Capital Management
We have an ongoing authorization from the Board of Directors to repurchase our common stock in the open market or in negotiated transactions. At March 31, 2024, the maximum number of shares that may yet be purchased under this plan was 11.0 million. We utilize the share repurchase program to manage our equity capital relative to the growth of our business and help to meet obligations under our employee benefit plans.
Liquidity Risk Management
Our businesses are diverse, and our liquidity needs are determined by many factors, including market movements, collateral requirements, and client commitments, all of which can change dramatically in a difficult funding environment. During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions, and tenor) or availability of other types of secured financing may change. We manage liquidity risk by diversifying our funding sources across products and among individual counterparties within those products.
As a holding company, whereby all of our operations are conducted through our subsidiaries, our cash flow and our ability to service our debt, including the notes, depend upon the earnings of our subsidiaries. Our subsidiaries are separate and distinct legal entities. Our subsidiaries have no obligation to pay any amounts due on the notes or to provide us with funds to pay our obligations, whether by dividends, distributions, loans, or other payments.
Our liquidity requirements may change in the event we need to raise more funds than anticipated to increase inventory positions, support more rapid expansion, develop new or enhanced services and products, acquire technologies, respond to acquisition opportunities, expand our recruiting efforts, or respond to other unanticipated liquidity requirements. We primarily rely on financing activities and distributions from our subsidiaries for funds to implement our business and growth strategies and repurchase our shares. Net capital rules, restrictions under our borrowing arrangements of our subsidiaries, as well as the earnings, financial condition, and cash requirements of our subsidiaries, may each limit distributions to us from our subsidiaries.
The availability of outside financing, including access to the capital markets and bank lending, depends on a variety of factors, such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services sector, and our credit rating. Our cost and availability of funding may be adversely affected by illiquid credit markets and wider credit spreads. As a result of any future concerns about the stability of the markets generally and the strength of counterparties specifically, lenders may from time to time curtail, or even cease to provide, funding to borrowers.
Our liquidity management policies are designed to mitigate the potential risk that we may be unable to access adequate financing to service our financial obligations without material business impact. The principal elements of our liquidity management framework are: (a) daily monitoring of our liquidity needs at the holding company and significant subsidiary level, (b) stress testing the liquidity positions of Stifel and our bank subsidiaries, and (c) diversification of our funding sources.
Monitoring of liquidity – Senior management establishes our liquidity and capital policies. These policies include senior management’s review of short- and long-term cash flow forecasts, review of monthly capital expenditures, the monitoring of the availability of alternative sources of financing, and the daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of capital to our business units consider, among other factors, projected profitability and cash flow, risk, and impact on future liquidity needs. Our treasury department assists in evaluating, monitoring, and controlling the impact that our business activities have on our financial condition, liquidity, and capital structure as well as maintains our relationships with various lenders. The objectives of these policies are to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.
Liquidity stress testing (Firmwide) –A liquidity stress test model is maintained by the Company that measures liquidity outflows across multiple scenarios at the major operating subsidiaries and details the corresponding impact to our holding company and the overall consolidated firm. Liquidity stress tests are utilized to ensure that current exposures are consistent with the Company’s established liquidity risk tolerance and, more specifically, to identify and quantify sources of potential liquidity strain. Further, the stress tests are utilized to analyze possible impacts on the Company’s cash flows, and liquidity position. The outflows are modeled over a 30-day liquidity stress timeframe and include the impact of idiosyncratic and macro-economic stress events.
The assumptions utilized in the Company’s liquidity stress tests include, but are not limited to, the following:
•No access to equity and unsecured debt markets within the stress horizon
•Higher haircuts and significantly lower availability of secured funding
•Additional collateral that would be required by trading counter-parties, certain exchanges, and clearing organizations related to credit rating downgrades
•Client cash withdrawals and inability to accept new deposits
•Increased demand from customers on the funding of loans and lines of credit
At March 31, 2024, the Company maintained sufficient liquidity to meet current and contingent funding obligations as modeled in its liquidity stress test model.
Liquidity stress testing (Stifel Bancorp) – Our bank subsidiaries perform three primary stress tests on their liquidity position. These stress tests are based on the following company-specific stresses: (1) the amount of deposit run-off that they could withstand over a one-month period of time based on their on-balance sheet liquidity and available credit, (2) the ability to fund operations if all available credit were to be drawn immediately, with no additional available credit, and (3) the ability to fund operations under a regulatory prompt corrective action. The goal of these stress tests is to determine their ability to fund continuing operations under significant pressures on both assets and liabilities.
Under all stress tests, our bank subsidiaries consider cash and highly liquid investments as available to meet liquidity needs. In their analysis, our bank subsidiaries consider agency mortgage-backed securities, corporate bonds, and commercial mortgage-backed securities as highly liquid. In addition to being able to be readily financed at modest haircut levels, our bank subsidiaries estimate that each of the individual securities within each of the asset classes described above could be sold into the market and converted into cash within three business days under normal market conditions, assuming that the entire portfolio of a given asset class was not simultaneously liquidated. At March 31, 2024, available cash and highly liquid investments comprised approximately 22% of Stifel Bancorp’s assets, which was well in excess of its internal target.
In addition to these stress tests, management performs a daily liquidity review. The daily analysis provides management with all major fluctuations in liquidity. The analysis also tracks the proportion of deposits that Stifel Bancorp is sweeping from its affiliated broker-dealer, Stifel. On a monthly basis, liquidity key performance indicators and compliance with liquidity policy limits are reported to the Board of Directors. Our bank subsidiaries have not violated any internal liquidity policy limits.
Funding Sources
The Company pursues a strategy of diversification of secured and unsecured funding sources (by product and by investor) and attempts to ensure that the tenor of the Company’s liabilities equals or exceeds the expected holding period of the assets being financed. The Company funds its balance sheet through diverse sources. These sources may include the Company’s equity capital, long-term debt, repurchase agreements, securities lending, deposits, committed and uncommitted credit facilities, Federal Home Loan Bank advances, and federal funds agreements.
On September 14, 2023, we filed a “universal” shelf registration statement with the SEC pursuant to which we can issue debt, equity and other capital instruments if and when necessary or perceived by us to be opportune. Subject to certain conditions, this registration statement will be effective through September 14, 2026.
Cash and Cash Equivalents – We held $3.41 billion of cash and cash equivalents at March 31, 2024, compared to $3.36 billion at December 31, 2023. Cash and cash equivalents provide immediate sources of funds to meet our liquidity needs.
Available-for-Sale Securities – We held $1.5 billion in available-for-sale investment securities at March 31, 2024, compared to $1.6 billion at December 31, 2023. As of March 31, 2024, the weighted-average life of the investment securities portfolio was approximately 1.3 years. These investment securities provide increased liquidity and flexibility to support our company’s funding requirements.
We monitor the available-for-sale investment portfolio for other-than-temporary impairment based on a number of criteria, including the size of the unrealized loss position, the duration for which the security has been in a loss position, credit rating, the nature of the investments, and current market conditions. For debt securities, we also consider any intent to sell the security and the likelihood we will be required to sell the security before its anticipated recovery. We continually monitor the ratings of our security holdings and conduct regular reviews of our credit-sensitive assets.
Deposits – Deposits have become our largest funding source. Deposits provide a stable, low-cost source of funds that we utilize to fund asset growth and to diversify funding sources. We have continued to expand our deposit-gathering efforts through our existing private client network and through expansion. These channels offer a broad set of deposit products that include demand deposits, money market deposits, and certificates of deposit (“CDs”). As of March 31, 2024, we had $27.6 billion in deposits compared to $27.3 billion at
December 31, 2023. Our core deposits are primarily comprised of money market deposit accounts, non-interest-bearing deposits, and CDs.
Deposits are sourced by our multi-bank sweep program in which clients’ cash deposits in their brokerage accounts are swept into FDIC-insured interest-bearing accounts at our bank subsidiaries and various third-party banks. In addition to our historical sweep program, we offer the Stifel Smart Rate Program (“Smart Rate”), a high yield savings account that keeps our brokerage clients’ cash balances at Stifel affiliated banks through their securities accounts. Brokerage client deposits totaled $25.3 billion and $24.1 billion at March 31, 2024 and December 31, 2023, respectively, which includes $15.6 billion and $14.5 billion, respectively, of client cash in our Smart Rate program. The increase in money market deposits in 2024 was primarily driven by elevated client interest in the Smart Rate program. Please refer to the Distribution of Assets, Liabilities, and Shareholders’ Equity; Interest Rates and Interest Differential table included in “Results of Operations – Global Wealth Management” for additional information on Stifel Bancorp’s average balances and interest income and expense.
Short-term borrowings – Our short-term financing is generally obtained through short-term bank line financing on an uncommitted, secured basis, securities lending arrangements, repurchase agreements, advances from the Federal Home Loan Bank, term loans, and committed bank line financing on an unsecured basis. We borrow from various banks on a demand basis with company-owned and customer securities pledged as collateral. The value of customer-owned securities used as collateral is not reflected in the consolidated statements of financial condition. We also have an unsecured, committed bank line available.
Our uncommitted secured lines of credit at March 31, 2024, totaled $880.0 million with four banks and are dependent on having appropriate collateral, as determined by the bank agreements, to secure an advance under the line. The availability of our uncommitted lines is subject to approval by the individual banks each time an advance is requested and may be denied. Our peak daily borrowing on our uncommitted secured lines was $70.0 million during the three months ended March 31, 2024. There are no compensating balance requirements under these arrangements. Any borrowings on secured lines of credit are generally utilized to finance certain fixed income securities. At March 31, 2024, we had no outstanding balances on our uncommitted secured lines of credit.
Federal Home Loan advances are floating-rate advances. The advances are secured by Stifel Bancorp’s residential mortgage loan portfolio and investment portfolio. The interest rates reset on a daily basis. Stifel Bancorp has the option to prepay these advances without penalty on the interest reset date. At March 31, 2024, there were no Federal Home Loan advances.
Unsecured borrowings – On September 27, 2023, the Company and Stifel (the “Borrowers”) entered into an unsecured credit agreement with a syndicate of lenders led by Bank of America, N.A., as administrative agent (the “Credit Agreement”). Concurrently with, and conditional upon, the effectiveness of the Credit Agreement, all of the commitments under the Borrowers’ existing $500.0 million unsecured revolving credit facility agreement were terminated.
The Credit Agreement has a maturity date of September 27, 2028, and provides for a committed unsecured borrowing facility for maximum aggregate borrowings of up to $750.0 million, depending on the amount of outstanding borrowings of the Borrowers from time to time during the duration of the Credit Agreement. The interest rates on borrowings under the Credit Agreement are variable and based on the Secured Overnight Financing Rate.
The Borrowers can draw upon this line as long as certain restrictive covenants are maintained. Under the Credit Agreement, the Borrowers are required to maintain compliance with a minimum consolidated tangible net worth covenant, as defined, and a maximum consolidated total capitalization ratio covenant, as defined. In addition, Stifel is required to maintain compliance with a minimum regulatory excess net capital percentage covenant, as defined, and our bank subsidiaries are required to maintain their status as well-capitalized, as defined.
Upon the occurrence and during the continuation of an event of default, the Company’s obligations under the Credit Agreement may be accelerated and the lending commitments thereunder terminated. The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations, certain events of bankruptcy and insolvency, change of control, and judgment defaults. At March 31, 2024, we had no advances on the Credit Facility and were in compliance with all covenants and currently do not expect any covenant violations.
Federal Home Loan Bank Advances and other secured financing – Stifel Bancorp has borrowing capacity with the Federal Home Loan Bank of $5.8 billion at March 31, 2024 and $64.5 million in federal funds agreements for the purpose of purchasing short-term funds should additional liquidity be needed. At March 31, 2024, there were no outstanding Federal Home Loan Bank advances. Stifel Bancorp is eligible to participate in the Fed’s discount window program; however, Stifel Bancorp does not view borrowings from the Fed as a primary means of funding. The credit available in this program is subject to periodic review, may be terminated or reduced at the discretion of the Fed, and is secured by securities. Stifel Bancorp has borrowing capacity of $1.3 billion with the Fed’s discount window at March 31, 2024. Stifel Bancorp receives overnight funds from excess cash held in Stifel brokerage accounts, which are deposited into a money market account. These balances totaled $25.3 billion at March 31, 2024. At March 31, 2024, there was $26.9 billion in client money market and FDIC-insured product balances.
Public Offering of Senior Notes – On July 15, 2014, we sold in a registered underwritten public offering, $300.0 million in aggregate principal amount of 4.25% senior notes due July 2024 (the “2014 Notes”). Interest on the 2014 Notes is payable semi-annually in arrears.
We may redeem the 2014 Notes in whole or in part, at our option, at a redemption price equal to 100% of their principal amount, plus a “make-whole” premium and accrued and unpaid interest, if any, to the date of redemption. In July 2016, we issued an additional $200.0 million in aggregate principal amount of 4.25% senior notes due 2024.
On October 4, 2017, we completed the pricing of a registered underwritten public offering of $200.0 million in aggregate principal amount of 5.20% senior notes due October 2047. Interest on the senior notes is payable quarterly in arrears in January, April, July, and October. We may redeem some or all of the senior notes at any time at a redemption price equal to 100% of the principal amount of the notes being redeemed plus accrued interest thereon to the redemption date. On October 27, 2017, we completed the sale of an additional $25.0 million aggregate principal amount of Notes pursuant to the over-allotment option. In October 2017, we received a BBB- rating on the notes.
On May 20, 2020, we sold in a registered underwritten public offering, $400.0 million in aggregate principal amount of 4.00% senior notes due May 2030. Interest on these senior notes is payable semi-annually in arrears in May and November. We may redeem the notes in whole or in part, at our option, at a redemption price equal to the greater of a) 100% of their principal amount or b) discounted present value at Treasury rate plus 50 basis points prior to February 15, 2030, and on or after February 15, 2030, at 100% of their principal amount, and accrued and unpaid interest, if any, to the date of redemption. In May 2020, we received a BBB- rating on the notes.
Public Offering of Preferred Stock – In July 2016, the Company completed an underwritten registered public offering of $150.0 million 6.25% Non-Cumulative Perpetual Preferred Stock, Series A. On August 20, 2021, the Company redeemed all of the outstanding Series A Preferred Stock.
In February 2019, the Company completed an underwritten registered public offering of $150.0 million 6.25% Non-Cumulative Perpetual Preferred Stock, Series B. In March 2019, we completed a public offering of an additional $10.0 million of Series B Preferred, pursuant to the over-allotment option.
In May 2020, the Company completed an underwritten registered public offering of $225.0 million 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, which included the sale of $25.0 million of Series C Preferred pursuant to an over-allotment option.
On July 22, 2021, the Company completed an underwritten registered public offering of $300.0 million of 4.50% Non-Cumulative Perpetual Preferred Stock, Series D. When, as, and if declared by the board of directors of the Company, dividends will be payable at an annual rate of 4.50%, payable quarterly, in arrears. The Company may redeem the Series D preferred stock at its option, subject to regulatory approval, on or after August 15, 2026.
Credit Rating
We believe our current rating depends upon a number of factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity management, our capital structure, our overall risk management, business diversification, and our market share and competitive position in the markets in which we operate. Deteriorations in any of these factors could impact our credit rating. A reduction in our credit rating could adversely affect our liquidity and competitive position, increase our incremental borrowing costs, limit our access to the capital markets, or trigger our obligations under certain financial agreements. As such, we may not be able to successfully obtain additional outside financing to fund our operations on favorable terms, or at all.
We believe our existing assets, a significant portion of which are liquid in nature, together with the funds from operations, available informal short-term credit arrangements, and our ability to raise additional capital will provide sufficient resources to meet our present and anticipated financing needs. We received a credit rating upgrade from S&P Global Ratings during the first quarter of 2024.
Use of Capital Resources
We have paid $18.8 million in the form of upfront notes to financial advisors for transition pay during the three months ended March 31, 2024. As we continue to take advantage of the opportunities created by market displacement and as competition for skilled professionals in the industry increases, we may decide to devote more significant resources to attracting and retaining qualified personnel.
We utilize transition pay, principally in the form of upfront demand notes, to aid financial advisors, who have elected to join our firm, to supplement their lost compensation while transitioning their customers’ accounts to the Stifel platform. The initial value of the notes is determined primarily by the financial advisors’ trailing production and assets under management. These notes are generally forgiven over a five- to ten-year period based on production. The future estimated amortization expense of the upfront notes, assuming current-year production levels and static growth for the remaining nine months in 2024, and the years ended December 31, 2025, 2026, 2027, 2028, and thereafter are $131.1 million, $115.4 million, $104.6 million, $85.1 million, $72.7 million, and $156.8 million, respectively. These estimates could change if we continue to grow our business through expansion or experience increased production levels.
We maintain an incentive stock plan and a wealth accumulation plan that provides for the granting of stock options, stock appreciation rights, restricted stock, performance awards, stock units, and debentures (collectively, “deferred awards”) to our associates. Historically, we have granted stock units to our associates as part of our retention program. A restricted stock unit or restricted stock award represents
the right to receive a share of the Company’s common stock at a designated time in the future without cash payment by the associate and is issued in lieu of cash incentive, principally for deferred compensation and employee retention plans. The restricted stock units or restricted stock awards generally vest over the next one to ten years after issuance and are distributed at predetermined future payable dates once vesting occurs. Restricted stock awards are restricted as to sale or disposition. These restrictions lapse over the next one to two years. In addition, we sponsor non-share-based compensation plans, which includes restricted cash awards that are subject to ratable vesting terms with service requirements. We paid $64.6 million restricted cash awards in March 2024. These awards are amortized as compensation expense over the relevant service period.
At March 31, 2024, the total number of restricted stock units, PRSUs, and restricted stock awards outstanding was 13.5 million, of which 11.8 million were unvested. At March 31, 2024, there was unrecognized compensation cost for deferred awards of approximately $825.1 million, which is expected to be recognized over a weighted-average period of 2.6 years.
The future estimated compensation expense of the deferred awards, assuming current year forfeiture levels and static growth for the remaining nine months in 2024, and the years ended December 31, 2025, 2026, 2027, 2028, and thereafter are $190.5 million, $217.1 million, $176.3 million, $118.0 million, $68.4 million, and $54.8 million, respectively. These estimates could change if our forfeitures change from historical levels.
On March 14, 2024, the Company announced it signed a definitive agreement to acquire Finance 500, Inc. (“Finance 500”) and CB Resource, Inc. (“CBR”), which operate as strategic partners under common ownership. Finance 500 is a brokerage and investment services provider focused on underwriting FDIC-insured Certificates of Deposits and fixed income securities trading. CBR integrates ERM, strategic and capital plan solutions, and industry analytics through its fully integrated tech-enabled platform. Consideration for this acquisition consisted of cash from operations. We expect to close the acquisition in the third quarter of 2024.
Net Capital Requirements – We operate in a highly regulated environment and are subject to capital requirements, which may limit distributions to our company from our subsidiaries. Distributions from our broker-dealer subsidiaries are subject to net capital rules. These subsidiaries have historically operated in excess of minimum net capital requirements. However, if distributions were to be limited in the future due to the failure of our subsidiaries to comply with the net capital rules or a change in the net capital rules, it could have a material and adverse effect to our company by limiting our operations that require intensive use of capital, such as underwriting or trading activities, or limit our ability to implement our business and growth strategies, pay interest on and repay the principal of our debt, and/or repurchase our common stock. Our non-broker-dealer subsidiaries, Stifel Bank & Trust, Stifel Bank, Stifel Trust Company, N.A., and Stifel Trust Company Delaware, N.A., are also subject to various regulatory capital requirements administered by the federal banking agencies. Our broker-dealer subsidiaries and our bank subsidiaries have consistently operated in excess of their capital adequacy requirements. Our Canadian subsidiary, SNC, is subject to the regulatory supervision and requirements of CIRO.
At March 31, 2024, Stifel had net capital of $446.4 million, which was 35.3% of aggregate debit items and $421.1 million in excess of its minimum required net capital. At March 31, 2024, all of our other broker-dealer subsidiaries’ net capital exceeded the minimum net capital required under the SEC rule. At March 31, 2024, SNEL’s capital and reserves were in excess of the financial resources requirement under the rules of the FCA. At March 31, 2024, our banking subsidiaries were considered well capitalized under the regulatory framework for prompt corrective action. At March 31, 2024, SNC’s net capital and reserves were in excess of the financial resources requirement under the rules of the CIRO. See Note 16 of the Notes to Consolidated Financial Statements for details of our regulatory capital requirements.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in accordance with U.S. generally accepted accounting principles and pursuant to the rules and regulations of the SEC, we make assumptions, judgments, and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments, and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.
We believe that the assumptions, judgments, and estimates involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements. These areas are key components of our results of operations and are based on complex rules that require us to make assumptions, judgments, and estimates, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments, and estimates relative to our critical accounting policies and estimates have not differed materially from actual results.
For more information, see Note 2 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023. There have not been any material updates to our critical accounting policies and estimates as disclosed in the MD&A of the Company's Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements for information regarding the effect of new accounting pronouncements on our consolidated financial statements.
Off-Balance Sheet Arrangements
Information concerning our off-balance sheet arrangements is included in Note 21 of the Notes to Consolidated Financial Statements. Such information is hereby incorporated by reference.
Contractual Obligations
Our contractual obligations have not materially changed from those reported in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management
Risks are an inherent part of our business and activities. Management of these risks is critical to our soundness and profitability. Risk management at our company is a multi-faceted process that requires communication, judgment, and knowledge of financial products and markets. Our senior management group takes an active role in the risk management process and requires specific administrative and business functions to assist in the identification, assessment, monitoring, and control of various risks. The principal risks involved in our business activities are: market (interest rates and equity prices), credit, capital and liquidity, operational, and regulatory and legal.
We have adopted policies and procedures concerning Enterprise Risk Management. The Risk Management Committee of the Board of Directors, in exercising its oversight of management’s activities, conducts periodic reviews and discussions with management regarding the guidelines and policies governing the processes by which risk assessment and risk management are handled.
Market Risk
The potential for changes in the value of financial instruments owned by our company resulting from changes in interest rates and equity prices is referred to as “market risk.” Market risk is inherent to financial instruments, and accordingly, the scope of our market risk management procedures includes all market risk-sensitive financial instruments.
We trade tax-exempt and taxable debt obligations, including U.S. treasury bills, notes, and bonds; U.S. government agency and municipal notes and bonds; bank certificates of deposit; mortgage-backed securities; and corporate obligations. We are also an active market-maker in over-the-counter equity securities. In connection with these activities, we may maintain inventories in order to ensure availability and to facilitate customer transactions.
Changes in value of our financial instruments may result from fluctuations in interest rates, credit ratings, equity prices, and the correlation among these factors, along with the level of volatility.
We manage our trading businesses by product and have established trading departments that have responsibility for each product. The trading inventories are managed with a view toward facilitating client transactions, considering the risk and profitability of each inventory position. Position limits in trading inventory accounts are established by our Enterprise Risk Management department and monitored on a daily basis within the business units. We monitor inventory levels and results of the trading departments, as well as inventory aging, pricing, concentration, securities ratings, and risk sensitivities.
We are also exposed to market risk based on our other investing activities. These investments consist of investments in private equity partnerships, start-up companies, venture capital investments, and zero coupon U.S. government securities and are included under the caption “Investments” on the consolidated statements of financial condition.
Interest Rate Risk
We are exposed to interest rate risk as a result of maintaining inventories of interest rate-sensitive financial instruments and from changes in the interest rates on our interest-earning assets (including client loans, stock borrow activities, investments, inventories, and resale agreements) and our funding sources (including client cash balances, Federal Home Loan Bank advances, stock lending activities, bank borrowings, and repurchase agreements), which finance these assets. The collateral underlying financial instruments at the broker-dealer is repriced daily, thus requiring collateral to be delivered as necessary. Interest rates on client balances and stock borrow and lending produce a positive spread to our company, with the rates generally fluctuating in parallel.
We manage our inventory exposure to interest rate risk by setting and monitoring limits and, where feasible, hedging with offsetting positions in securities with similar interest rate risk characteristics. While a significant portion of our securities inventories have contractual maturities in excess of five years, these inventories, on average, turn over several times per year.
Value-at-Risk (“VaR”) is a statistical technique used to estimate the probability of portfolio losses based on the statistical analysis of historical price trends and volatility. It provides a common risk measure across financial instruments, markets and asset classes. We
estimate VaR using a model that assumes historical changes in market conditions are representative of future changes, and trading losses on any given day could exceed the reported VaR by significant amounts in unusually volatile markets. Further, the model involves a number of assumptions and inputs. While we believe that the assumptions and inputs we use in our risk model are reasonable, different assumptions and inputs could produce materially different VaR estimates. We monitor, on a daily basis, the VaR in our trading portfolios using a ten-day horizon and a five year look-back period measured at a 99% confidence level.
The following table sets forth the high, low, and daily average VaR for our trading portfolios during the three months ended March 31, 2024, and the daily VaR at March 31, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | | | VaR Calculation at | |
| | High | | | Low | | | Daily Average | | | March 31, 2024 | | | December 31, 2023 | |
Daily VaR | | $ | 12,537 | | | $ | 5,259 | | | $ | 8,080 | | | $ | 9,032 | | | $ | 6,464 | |
Stifel Bancorp’s interest rate risk is principally associated with changes in market interest rates related to residential, consumer, and commercial lending activities, as well as FDIC-insured deposit accounts to customers of our broker-dealer subsidiaries and to the general public.
Our primary emphasis in interest rate risk management for Stifel Bancorp is the matching of assets and liabilities of similar cash flow and repricing time frames. This matching of assets and liabilities reduces exposure to interest rate movements and aids in stabilizing positive interest spreads. Stifel Bancorp has established limits for acceptable interest rate risk and acceptable portfolio value risk. To ensure that Stifel Bancorp is within the limits established for net interest income, an analysis of net interest income based on various shifts in interest rates is prepared each quarter and presented to Stifel Bancorp’s Board of Directors. Stifel Bancorp utilizes a third-party model to analyze the available data.
The following table illustrates the estimated change in net interest income at March 31, 2024, based on shifts in interest rates of up to positive 200 basis points and negative 200 basis points:
| | | |
Hypothetical Change in Interest Rates | Projected Change in Net Interest Income | |
+200 | | 3.8 | % |
+100 | | 1.9 | |
0 | | — | |
-100 | | (1.4 | ) |
-200 | | (4.0 | ) |
The following GAP Analysis table indicates Stifel Bancorp’s interest rate sensitivity position at March 31, 2024 (in thousands):
| | | | | | | | | | | | | | | |
| Repricing Opportunities | |
| 0-6 Months | | | 7-12 Months | | | 1-5 Years | | | 5+ Years | |
Interest-earning assets: | | | | | | | | | | | |
Loans | $ | 11,566,966 | | | $ | 535,457 | | | $ | 4,157,627 | | | $ | 3,672,206 | |
Securities | | 6,001,878 | | | | 173,974 | | | | 600,897 | | | | 739,466 | |
Interest-bearing cash | | 2,462,910 | | | | — | | | | — | | | | — | |
| $ | 20,031,754 | | | $ | 709,431 | | | $ | 4,758,524 | | | $ | 4,411,672 | |
Interest-bearing liabilities: | | | | | | | | | | | |
Transaction accounts and savings | $ | 27,390,319 | | | $ | — | | | $ | — | | | $ | — | |
Certificates of deposit | | — | | | | — | | | | 5 | | | | — | |
Borrowings | | 51,290 | | | | — | | | | — | | | | — | |
| $ | 27,441,609 | | | $ | — | | | $ | 5 | | | $ | — | |
GAP | | (7,409,855 | ) | | | 709,431 | | | | 4,758,519 | | | | 4,411,672 | |
Cumulative GAP | $ | (7,409,855 | ) | | $ | (6,700,424 | ) | | $ | (1,941,905 | ) | | $ | 2,469,767 | |
Equity Price Risk
We are exposed to equity price risk as a consequence of making markets in equity securities. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions constantly throughout each day.
Our equity securities inventories are repriced on a regular basis, and there are no unrecorded gains or losses. Our activities as a dealer are client-driven, with the objective of meeting clients’ needs while earning a positive spread.
Credit Risk
We are engaged in various trading and brokerage activities, with the counterparties primarily being broker-dealers. In the event counterparties do not fulfill their obligations, we may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. We manage this risk by imposing and monitoring position limits for each counterparty, monitoring trading counterparties, conducting regular credit reviews of financial counterparties, reviewing security concentrations, holding and marking to market collateral on certain transactions, and conducting business through clearing organizations, which guarantee performance.
Our client activities involve the execution, settlement, and financing of various transactions on behalf of our clients. Client activities are transacted on either a cash or margin basis. Credit exposure associated with our private client business consists primarily of customer margin accounts, which are monitored daily and are collateralized. We monitor exposure to industry sectors and individual securities and perform analyses on a regular basis in connection with our margin lending activities. We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions.
We have accepted collateral in connection with resale agreements, securities borrowed transactions, and customer margin loans. Under many agreements, we are permitted to sell or repledge these securities held as collateral and use these securities to enter into securities lending arrangements or to deliver to counterparties to cover short positions. At March 31, 2024, the fair value of securities accepted as collateral where we are permitted to sell or repledge the securities was $1.6 billion and the fair value of the collateral that had been sold or repledged was $426.7 million.
By using derivative instruments, we are exposed to credit and market risk on those derivative positions. Credit risk is equal to the fair value gain in a derivative, if the counterparty fails to perform. When the fair value of a derivative contract is positive, this generally indicates that the counterparty owes our company and, therefore, creates a repayment risk for our company. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, have no repayment risk. We minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by senior management.
Stifel Bancorp extends credit to individual and commercial borrowers through a variety of loan products, including residential and commercial mortgage loans, home equity loans, construction loans, and non-real-estate commercial and consumer loans. Bank loans are generally collateralized by real estate, real property, or other assets of the borrower. Stifel Bancorp’s loan policy includes criteria to adequately underwrite, document, monitor, and manage credit risk. Underwriting requires reviewing and documenting the fundamental characteristics of credit, including character, capacity to service the debt, capital, conditions, and collateral. Benchmark capital and coverage ratios are utilized, which include liquidity, debt service coverage, credit, working capital, and capital to asset ratios. Lending limits are established to include individual, collective, committee, and board authority. Monitoring credit risk is accomplished through defined loan review procedures, including frequency and scope.
We are subject to concentration risk if we hold large positions, extend large loans to, or have large commitments with a single counterparty, borrower, or group of similar counterparties or borrowers (i.e., in the same industry). Securities purchased under agreements to resell consist of securities issued by the U.S. government or its agencies. Receivables from and payables to clients and stock borrow and lending activities, both with a large number of clients and counterparties, and any potential concentration are carefully monitored. Stock borrow and lending activities are executed under master netting agreements, which gives our company right of offset in the event of counterparty default. Inventory and investment positions taken and commitments made, including underwritings, may involve exposure to individual issuers and businesses. We seek to limit this risk through careful review of counterparties and borrowers and the use of limits established by our senior management group, taking into consideration factors including the financial strength of the counterparty, the size of the position or commitment, the expected duration of the position or commitment, and other positions or commitments outstanding.
Operational Risk
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems, and inadequacies or breaches in our control processes including cyber security incidents. We operate different businesses in diverse markets and are reliant on the ability of our associates and systems to process a large number of transactions. These risks are less direct than credit and market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes. In the event of a breakdown or improper operation of systems or improper action by associates, we could suffer financial loss, regulatory sanctions, and damage to our reputation. In order to mitigate and control operational risk, we have developed and continue to enhance specific policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization and within such departments as Accounting, Operations, Information Technology, Legal, Compliance, and Internal Audit. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits. Business continuity plans exist for critical systems, and redundancies are built into the systems as deemed appropriate.
Regulatory and Legal Risk
Legal risk includes the risk of private client group customer claims for sales practice violations. While these claims may not be the result of any wrongdoing, we do, at a minimum, incur costs associated with investigating and defending against such claims. See “Critical Accounting Policies and Estimates” in Item 2, Part I and “Legal Proceedings” in Item 1, Part II of this report for further discussion of our legal proceedings. In addition, we are subject to potentially sizable adverse legal judgments or arbitration awards, and fines, penalties, and other sanctions for non-compliance with applicable legal and regulatory requirements. We are generally subject to extensive regulation by the SEC, FINRA, and state securities regulators in the different jurisdictions in which we conduct business. As a bank holding company, we are subject to regulation by the Federal Reserve. Our bank subsidiaries are subject to regulation by the FDIC. As a result, we are subject to a risk of loss resulting from failure to comply with banking laws. Our international subsidiary, SNEL, is subject to the regulatory supervision and requirements of the FCA in the United Kingdom. Our Canadian subsidiary, SNC, is subject to the regulatory supervision and requirements of the CIRO. We have comprehensive procedures addressing issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer funds, the extension of credit, including margin loans, collection activities, money laundering, and record keeping. We act as an underwriter or selling group member in both equity and fixed income product offerings. When acting as lead or co-lead manager, we have potential legal exposure to claims relating to these securities offerings. To manage this exposure, a committee of senior executives review proposed underwriting commitments to assess the quality of the offering and the adequacy of due diligence investigation.
Our company, as a bank and financial holding company, is subject to regulation, including capital requirements, by the Federal Reserve. Stifel Bancorp is subject to various regulatory capital requirements administered by the FDIC and state banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our company's and Stifel Bancorp's financial statements.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to, among other things, provide reasonable assurance that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is accumulated and communicated to senior management, including the Chief Executive Officer and Chief Financial Officer, on a timely basis. Under the direction of the Chief Executive Officer and Chief Financial Officer, management has evaluated our disclosure controls and procedures as of March 31, 2024 and has concluded that the disclosure controls and procedures were adequate and effective as of such date.
Changes in Internal Control over Financial Reporting
There have been no changes in our company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please see our discussion set forth under Item 3. “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2023 and Item 1. “Financial Statements” in our Form 10-Q for the quarter ended March 31, 2024.
ITEM 1A. RISK FACTORS
The discussion of our business and operations should be read together with the information contained in our other reports and periodic filings that we make with the SEC, including, without limitation, the information contained under the caption “Item 1A. Risk Factors” in our annual report on Form 10‑K for the year ended December 31, 2023. Those risk factors could materially affect our business, financial condition, and results of operations. The risks that we describe in our public filings are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we presently deem to be immaterial, also may materially adversely affect our business, financial condition, and results of operations.
There have been no material changes in our risk factors from those disclosed under the caption “Item 1A. Risk Factors” to our annual report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during the quarter ended March 31, 2024. The following table sets forth information with respect to purchases made by or on behalf of Stifel Financial Corp. or any “affiliated purchaser” (as defined in Rule 10b-10(a)(3) under the Securities Exchange Act of 1934, as amended), of our common stock during the quarter ended March 31, 2024.
| | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | | Average Price Paid per share | | | Total Number of Shares Purchased as Part of Publically Announced Plans | | | Maximum Number of Shares That May Yet be Purchased Under the Plan or Program | |
January 1 - 31, 2024 | | 510,000 | | | $ | 70.25 | | | | 510,000 | | | | 11,326,813 | |
February 1 - 29, 2024 | | 110,000 | | | | 75.26 | | | | 110,000 | | | | 11,216,813 | |
March 1 - 31, 2024 | | 220,000 | | | | 75.46 | | | | 220,000 | | | | 10,996,813 | |
| | 840,000 | | | $ | 72.27 | | | | 840,000 | | | | |
We have an ongoing authorization from the Board of Directors to repurchase our common stock in the open market or in negotiated transactions. At March 31, 2024, the maximum number of shares that may yet be purchased under this plan was 11.0 million.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
* The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Stifel Financial Corp. under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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STIFEL FINANCIAL CORP. |
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/s/ Ronald J. Kruszewski |
Ronald J. Kruszewski Chairman of the Board and Chief Executive Officer |
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/s/ James M. Marischen |
James M. Marischen Chief Financial Officer |
Date: May 8, 2024
