Stifel(SF) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Q2 2023 financial statements show total assets at $37.3 billion, with net revenues decreasing 5.2% to $1.05 billion and net income declining 17.5% to $125.0 million Consolidated Statements of Financial Condition Consolidated Balance Sheet Highlights (as of June 30, 2023) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $37.30 billion | $37.20 billion | | Cash and cash equivalents | $1.91 billion | $2.20 billion | | Loans held for investment, net | $20.34 billion | $20.47 billion | | Total Liabilities | $31.96 billion | $31.87 billion | | Bank deposits | $27.00 billion | $27.12 billion | | Total Equity | $5.34 billion | $5.33 billion | Consolidated Statements of Operations Key Performance Indicators (Q2 & H1 2023 vs 2022) | Metric | Q2 2023 | Q2 2022 | YoY Change | H1 2023 | H1 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $1,050.7M | $1,108.1M | -5.2% | $2,157.5M | $2,224.7M | -3.0% | | Investment banking | $166.8M | $271.1M | -38.5% | $378.7M | $525.9M | -28.0% | | Net Interest Income | $291.7M | $195.4M | +49.3% | $588.2M | $351.4M | +67.4% | | Net Income to Common | $125.0M | $151.5M | -17.5% | $273.3M | $315.7M | -13.5% | | Diluted EPS | $1.10 | $1.29 | -14.7% | $2.38 | $2.68 | -11.2% | Consolidated Statements of Cash Flows Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6.3 million) | ($238.8 million) | | Net cash provided by/(used in) investing activities | $33.6 million | ($2,889.1 million) | | Net cash (used in)/provided by financing activities | ($331.3 million) | $2,565.3 million | - For the first six months of 2023, financing activities used $331.3 million, primarily due to $181.3 million in common stock repurchases and a $112.3 million net decrease in bank deposits[25] Notes to Consolidated Financial Statements - The company's loan portfolio primarily comprises residential real estate (37.5%), commercial and industrial (21.8%), and fund banking (21.2%) as of June 30, 2023[93] - On March 1, 2023, the Company acquired Torreya Partners, LLC, recording $61.2 million in goodwill and intangible assets[116] - The company is under investigation by the SEC and CFTC regarding compliance with records preservation for off-channel business communications[140][141] - As of June 30, 2023, the company was categorized as 'well capitalized', with Stifel Financial Corp reporting a Common equity Tier 1 capital ratio of 14.3%[148][150] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 5.2% Q2 net revenue decline to lower fees, partially offset by increased net interest income, while maintaining strong liquidity and a 'well capitalized' status Results of Operations Net Revenues Breakdown (Q2 2023 vs Q2 2022) | Revenue Category | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Transactional Revenues | $271.1M | $312.3M | -13.2% | | Investment Banking | $166.8M | $271.1M | -38.5% | | Asset Management | $320.3M | $331.3M | -3.3% | | Net Interest Income | $291.7M | $195.4M | +49.3% | - The 38.5% decrease in Investment Banking revenue was driven by a 56.0% drop in advisory fees, partially offset by a 10.4% increase in capital-raising revenues[250][251][252] - Compensation and benefits expense as a percentage of net revenues was 58.6% for Q2 2023, slightly down from 58.9% in Q2 2022[269] Segment Analysis Income Before Income Taxes by Segment (Q2 2023 vs Q2 2022) | Segment | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Global Wealth Management | $299.9M | $245.2M | +22.3% | | Institutional Group | ($12.9M) | $73.0M | -117.7% | | Other | ($105.6M) | ($99.6M) | -6.0% | - The Global Wealth Management segment's pre-tax income grew 22.3% YoY, with its profit margin increasing to 39.6% from 35.1%[320][321] - The Institutional Group segment reported a pre-tax loss of $12.9 million, a sharp reversal from a $73.0 million profit in the prior year[346] Liquidity and Capital Resources - As of June 30, 2023, the company held $11.4 billion in cash or readily convertible assets to meet obligations and operating needs[358][363] - Deposits, primarily from brokerage clients, represent the largest funding source at $27.0 billion, with brokerage client deposits totaling $24.2 billion[386][387] - The company has an ongoing share repurchase authorization, with 6.1 million shares remaining available for purchase as of June 30, 2023[368] Quantitative and Qualitative Disclosures About Market Risk The company manages market, credit, operational, and legal risks, with H1 2023 average daily VaR at $7.6 million and a 100 bps rate increase projected to boost net interest income by 3.5% Daily Value-at-Risk (VaR) for Trading Portfolios | Period | High | Low | Daily Average | Period End (6/30/23) | | :--- | :--- | :--- | :--- | :--- | | H1 2023 | $11.95M | $4.04M | $7.63M | $6.85M | Stifel Bancorp Net Interest Income Sensitivity (as of June 30, 2023) | Hypothetical Change in Interest Rates | Projected Change in Net Interest Income | | :--- | :--- | | +200 bps | +7.1% | | +100 bps | +3.5% | | -100 bps | -0.1% | | -200 bps | -4.8% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were adequate and effective as of June 30, 2023[449] - No material changes were identified in the company's internal control over financial reporting during Q2 2023[450] PART II – OTHER INFORMATION Legal Proceedings The company faces various legal and regulatory proceedings, but management anticipates no material adverse impact on its financial position - The company is involved in various legal and regulatory proceedings, expecting no material adverse impact on its financial position[139][451] Risk Factors No material changes to the company's risk factors were reported from the prior Annual Report on Form 10-K - No material changes to risk factors were reported for the quarter ended June 30, 2023[453] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1.5 million common shares for $86.8 million in Q2 2023, with 6.1 million shares remaining authorized for repurchase Common Stock Repurchases (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | — | $— | | May 2023 | 899,205 | $58.19 | | June 2023 | 592,339 | $58.24 | | Total Q2 2023 | 1,491,544 | $58.21 | - As of June 30, 2023, the company had authorization to repurchase an additional 6.1 million shares[455]