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Stifel Financial (SF) Slides on Weak Q3 Earnings; Costs Rise

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Shares of Stifel Financial Corp.SF fell over 6% after the company delivered a negative earnings surprise for the fifth consecutive quarter. Third-quarter 2015 net income from continuing operations of 60 cents per share considerably lagged the Zacks Consensus Estimate of 73 cents. Moreover, the figure was down 6.7% year over year.

Stifel Financial Corporation (SF) - Earnings Surprise | FindTheCompany

Results were adversely impacted by higher expenses, partly mitigated by increased revenues. However, improvement in credit quality and a strong capital position were the positives.

On a GAAP basis, Stifel Financial reported net income from continuing operations of $17.2 million or 22 cents per share, compared with net income of $39.9 million or 52 cents per share in the prior-year quarter. Results for the recently reported quarter included certain non-recurring items.

Performance in Detail

Net revenues grew 13% year over year to $591.6 million driven by an increase in all revenue categories. However, the figure missed the Zacks Consensus Estimate of $618 million.

Global Wealth Management and Institutional Group segments' net revenue increased 12.6% and 7.9%, respectively, on a year-over-year basis. Other revenues improved to $2.1 million from negative $8.9 million in the prior-year quarter.

Stifel Financial's non-interest expenses were $569.2 million, up 24.4% year over year. The increase in non-interest operating expenses was led by a rise in most categories of expenses including higher compensation and benefits expenses and elevated non-compensation operating expenses.

Credit Quality

Credit quality exhibited notable improvement during the quarter. Allowance, as a percentage of loans, fell to 1.13% from 1.18% in the prior-year quarter. Moreover, non-performing assets, as a percentage of total assets, decreased to 0.03% from 0.07% in the prior-year quarter.

Capital Position

Stifel Financial's capital position was strong during the quarter. As of Sep 30, 2015, total assets inched up 0.4% to $9.4 billion from $9.3 billion as of Sep 30, 2014. Book value came in at $36.63 per share, up from $33.92 in the prior-year quarter. Stockholders' equity increased 11.4% year over year to $2.5 billion.

As of Sep 30, 2015, the company's Tier 1 leverage capital ratio was 16.4% and Tier 1 risk-based capital ratio was 29.4%.

Share Repurchase

During the third quarter, Stifel repurchased 1.5 million of the company's common stock for $65.9 million. Additionally, on Nov 3, the company's board of directors increased the repurchase authorization level by 5 million. Notably, total authorization stands at 6.8 million as of Nov 4.

Our Viewpoint

Though Stifel Financial exhibits consistent top-line performance, a low interest rate environment, escalating expenses and regulatory issues are expected to remain as major headwinds in the upcoming quarters.

Nonetheless, the company will likely benefit from the purchase of Barclays PLC's BCS wealth management business in the U.S. The deal is expected to close on Dec 4.

Stifel Financial currently carries a Zacks Rank #5 (Strong Sell). Better-ranked investment brokerage firms include E*TRADE Financial Corporation ETFC , which sports a Zacks Rank #1 (Strong Buy); and Arlington Asset Investment Corp. AI holding a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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