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Stifel Financial Q4 Earnings Beat on High Revs

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Driven by record revenues, Stifel Financial Corp. (SF - Free Report) reported fourth-quarter 2013 non-GAAP net income from continuing operations of 79 cents per share, significantly surpassing the Zacks Consensus Estimate of 66 cents. Moreover, this compared favorably with 69 cents per share reported in the prior-year quarter.

Better-than-expected earnings primarily resulted from higher top line and a strong capital position. However, undisciplined expense management was on the downside.

For the year ended 2013, net income from continuing operations were $2.51 per share, up significantly by 20 cents compared with the prior year. Results also outpaced the Zacks Consensus Estimate by 13 cents.

On a GAAP basis, Stifel Financial reported net income from continuing operations of $52.1 million or 69 cents per share, compared with $43.3 million or 69 cents per share in the prior-year quarter. Results for both quarters included certain non-recurring items. For the year-ended 2013, GAAP net income from continuing operations was $172.9 million or $2.35 per share, up from $145.3 million or $2.31 per share reported in the prior year.

Performance in Detail

Stifel Financial recorded net revenues of $1.97 billion for 2013, thereby achieving revenue growth for the 18th consecutive year. Results improved from $1.59 billion in the prior year. The reported figure also beat the Zacks Consensus Estimate of $1.92 billion.

Net revenues were recorded at $562.5 million in the final quarter, up 36.8% year over year. Additionally, it outpaced the Zacks Consensus Estimate of $527.0 million. The results were mainly driven by higher brokerage and investment banking revenues along with elevated interest revenues.

Furthermore, segment-wise, on a year-over-year basis, Global Wealth Management and Institutional Group segments’ net revenues increased 15.4% and 66.3%, respectively.  Other revenues were reported at positive $2.4 million as compared with negative revenues of $3.2 million in the prior-year quarter.

Stifel Financial’s non-interest expenses were $474.3 million, up 38.1% from the prior-year quarter. The rise in non-interest operating expenses in the said quarter was mainly due to higher compensation and benefits expenses and elevated non-compensation operating expenses.

Credit Quality

Credit quality significantly improved at Stifel Financial in the final quarter. Allowance as a percentage of loans decreased to 0.89% from 0.99% in the prior-year quarter. Moreover, non-performing assets as a percentage of total assets declined to 0.03% from 0.06% in the prior-year quarter.

Capital Position

Stifel Financial’s capital position was strong during the quarter. As of Dec 31, 2013, total assets jumped 29% to $9.0 billion from $7.0 billion as of Dec 30, 2012. Book value per share came in at $32.30, up from $27.24 in the prior-year quarter. Stockholders’ equity increased 38% year over year to $2.1 billion.

The company’s Tier 1 leverage capital ratio was 15.4% and Tier 1 risk-based capital ratio was 26.7%.

Our Viewpoint

Stifel Financial with its solid business model and strategic acquisitions is well poised for growth. While the sluggish economic recovery, regulatory issues and low interest rate environment remain headwinds for the bank, we believe that its sound capital position, improving credit quality and robust top-line performance bode well in the long run.

Stifel Financial currently carries a Zacks Rank #2 (Buy). Other banks in the same sector worth considering include Investment Technology Group Inc. (ITG - Free Report) , LPL Financial Holdings Inc. (LPLA - Free Report) and Piper Jaffray Companies . All 3 companies carry a Zacks Rank #1 (Strong Buy).

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