Stifel Financial Corp. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports full-year results; it does not provide standalone fourth-quarter financial results. Stifel is a diversified financial services and bank holding company operating Global Wealth Management, Institutional Group, and Other segments.
Financial performance and position
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Total revenues | $4.783 billion | $3.818 billion | +25.3% |
| Net revenues | $4.737 billion | $3.752 billion | +26.3% |
| Income before taxes | $1.067 billion | $651.2 million | +63.9% |
| Net income | $824.9 million | $503.5 million | +63.8% |
| Net income available to common shareholders | $789.3 million | $476.2 million | +65.7% |
| Diluted EPS | $6.66 | $4.16 | +60.1% |
| Net interest income | $502.4 million | $458.1 million | +9.7% |
| Operating cash flow | $872.1 million | $1.662 billion | Lower |
Net income was 17.4% of net revenues, compared with 13.4% in 2020; pretax margin rose to 22.5% from 17.4%. The effective tax rate was 22.7% in both years. Compensation and benefits, the largest expense category, increased 23.7% to $2.820 billion, but declined to 59.5% of net revenues from 60.7%.
- Revenue mix: Investment banking increased 64.4% to $1.565 billion, including advisory revenue of $856.1 million (+100.0%) and capital-raising revenue of $709.2 million (+35.3%). Asset management rose 31.5% to $1.207 billion. Commissions increased 6.4% to $809.5 million; principal transactions declined 1.2% to $581.2 million.
- Segments: Global Wealth Management net revenues grew 18.6% to $2.599 billion and pretax income rose 26.0% to $915.0 million, a 35.2% pretax margin. Institutional Group net revenues rose 36.0% to $2.152 billion and pretax income increased 71.8% to $558.9 million, a 26.0% margin.
- Client assets: Assets under administration were $436.0 billion, up 22.0%; fee-based client assets were $162.4 billion, up 25.6%.
- Cash flows: Investing activities used $6.966 billion, mainly reflecting loan and securities growth and acquisitions; financing activities provided $5.794 billion, primarily from increased bank deposits and preferred-stock issuance. Cash and cash equivalents ended at $1.963 billion, down from $2.279 billion.
- Balance sheet and funding: Total assets were $34.050 billion, up 28.0%. Bank deposits were $23.280 billion versus $17.396 billion; loans held for investment, net, were $16.628 billion versus $11.007 billion. Senior notes, net, were $1.113 billion, with $1.125 billion face value outstanding, plus $60 million of trust debentures. The company reported $11.679 billion of cash and assets it classifies as readily convertible to cash.
- Credit quality and capital: Allowance for credit losses was $118.6 million, equal to 0.71% of loans, versus 1.22% a year earlier; nonaccrual loans were 0.10% of loans. Stifel reported $584.8 million of excess net capital at its principal broker-dealer, and the company and bank subsidiaries were classified as well-capitalized.
Material changes and notable items
- Growth reflected higher advisory, asset-management, capital-raising, commission, and net interest income; lower institutional fixed-income trading volumes and tighter credit spreads partly offset gains.
- Stifel acquired Vining Sparks on November 1, 2021, using cash and approximately 1.2 million common shares. The acquisition added institutional fixed-income brokerage and underwriting capabilities; its purchase-price allocation remained preliminary.
- The company issued $300 million of 4.50% Series D preferred stock and redeemed all Series A preferred stock, which carried a 6.25% rate.
- Credit-loss provision was a benefit of $11.5 million in 2021, versus an expense of $33.9 million in 2020, reflecting reserve releases as economic projections improved, partly offset by loan growth.
- Other items included a $4.5 million gain on sale of aircraft and gains on the sale of loans and related deposits. Additional acquisition earn-out expense included approximately $13.5 million related to Mooreland.
- Common dividends paid were $0.60 per share for 2021, compared with $0.45 in 2020. The board approved a 100% increase to $0.30 per quarter beginning in Q1 2022. The company repurchased $172.7 million of common stock during 2021.
Outlook, risks, and contingencies
Management described the company as entering 2022 with nearly $436 billion in client assets, strong financial-advisor recruiting activity, and a strong investment-banking pipeline. It also cautioned that near-zero short-term rates and economic uncertainty—including inflation, supply-chain complications, changing U.S. policy, and COVID-19 developments—could pressure results. Management expects expenses to rise in 2022 as travel resumes and investments in people and technology continue. Volatile transaction and investment-banking activity may make 2021 revenue levels difficult to sustain; loan growth or market deterioration could also increase future credit provisions. The filing provides no quantified earnings or revenue guidance.
- Key exposures include market and interest-rate movements, lower trading or capital-markets activity, credit losses, funding and liquidity constraints, and dependence on client cash balances and subsidiary distributions.
- Other material risks include competition and pricing pressure, attracting and retaining professionals, operational and cyber threats, extensive regulation, and LIBOR transition work.
- Stifel faces various securities-related lawsuits, arbitrations, and regulatory matters. Management said it believes current matters will not materially adversely affect financial position or results overall, while acknowledging a matter could materially affect a future period. A specifically described case concerns underwriting bonds for the Karegnondi Water Authority pipeline; Stifel intends to defend it.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The allowance for credit losses was identified as a critical audit matter.
Most important facts for investors to verify
- Whether elevated investment-banking and asset-management revenues, client asset growth, and the 2022 pipeline can persist if markets normalize or weaken.
- How higher interest rates or continued low rates affect net interest income, deposit costs, securities values, and the bank’s expanding loan portfolio.
- Whether the credit-loss allowance remains adequate as loans grow; review portfolio mix, criticized loans, nonaccruals, charge-offs, and unfunded commitments.
- Vining Sparks integration, realized synergies, acquisition accounting adjustments, and any continuing earn-out or integration costs.
- Funding concentration in brokerage-related deposits, liquidity under stress, and regulatory limits on cash transfers from subsidiaries.
- Potential dilution and compensation burden from outstanding equity awards, advisor transition notes, and future share repurchases and dividends.
- Developments in the Karegnondi Water Authority litigation and other legal or regulatory proceedings.