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 endedDecember 31, 2021 , 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 "External Factors Impacting Our Business" 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 endedDecember 31, 2021 , as updated in our subsequent reports filed with theSEC . These reports are available at the Company's web site at www.stifel.com and at theSEC 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
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 country. 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 throughoutthe United States , with a growing presence in theUnited Kingdom ,Europe , andCanada . 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
Results for the three and six months ended
For the three months endedJune 30, 2022 , net revenues decreased 3.9% to$1.1 billion from$1.2 billion during the comparable period in 2021. Net income available to common shareholders decreased 20.2% to$151.5 million , or$1.29 per diluted common share for the 45 --------------------------------------------------------------------------------
three months ended
Our revenue decline was primarily attributable to lower capital-raising, transactional, and advisory revenues during the quarter, partially offset by higher net interest income and asset management revenues.
For the six months endedJune 30, 2022 , net revenues decreased 2.8% to$2.2 billion compared to$2.3 billion during the comparable period in 2021. Net income available to common shareholders decreased 10.9% to$315.7 million , or$2.68 per diluted common share for the six months endedJune 30, 2022 , compared to$354.5 million , or$3.00 per diluted common share during the comparable period in 2021.
Our revenue decline was primarily attributable to lower capital-raising and transactional revenues, partially offset by higher net interest income, asset management revenues, and advisory revenues.
External Factors Impacting Our Business
Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are beyond our control and mostly unpredictable. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions, the volatility of the equity and fixed income markets, the level and shape of various yield curves, the volume and value of trading in securities, and the value of our customers' assets under management. Our overall financial results continue to be highly and directly correlated to the direction and activity levels ofthe United States equity and fixed income markets. AtJune 30, 2022 , the NASDAQ, S&P 500, and Dow Jones Industrial Average, closed 29.5%, 20.6%, and 15.3% lower than theirDecember 31, 2021 closing prices, respectively. As a participant in the financial services industry, we are subject to complicated and extensive regulation of our business. The recent economic and political environment has led to legislative and regulatory initiatives, both enacted and proposed, that could substantially intensify the regulation of the financial services industry and may significantly impact us. 46 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Three Months Ended
The following table presents consolidated financial information for the periods indicated (in thousands, except percentages):
As a Percentage of Net Revenues For Three Months Ended June 30, the Three Months Ended June 30, % 2022 2021 Change 2022 2021 Revenues: Commissions$ 186,681 $ 195,579 (4.5 ) 16.8 % 17.0 % Principal transactions 125,603 152,597 (17.7 ) 11.4 13.2 Transactional revenues 312,284 348,176 (10.3 ) 28.2 30.2 Investment banking 271,075 376,443 (28.0 ) 24.5 32.6 Asset management 331,264 295,869 12.0 29.9 25.7 Interest 212,754 133,591 59.3 19.2 11.6 Other income (1,917 ) 13,235 (114.5 ) (0.2 ) 1.1 Total revenues 1,125,460 1,167,314 (3.6 ) 101.6 101.2 Interest expense 17,334 14,178 22.3 1.6 1.2 Net revenues 1,108,126 1,153,136 (3.9 ) 100.0 100.0 Non-interest expenses: Compensation and benefits 652,709 692,054 (5.7 ) 58.9 60.0 Occupancy and equipment rental 78,251 70,971 10.3 7.1 6.2 Communication and office supplies 43,645 41,308 5.7 3.9 3.6 Commissions and floor brokerage 15,106 13,977 8.1 1.4 1.2 Provision for credit losses 12,785 (9,652 ) n/m 1.2 (0.8 ) Other operating expenses 87,089 80,453 8.2 7.8 6.9 Total non-interest expenses 889,585 889,111 0.1 80.3 77.1 Income before income taxes 218,541 264,025 (17.2 ) 19.7 22.9 Provision for income taxes 57,725 65,948 (12.5 ) 5.2 5.7 Net income 160,816 198,077 (18.8 ) 14.5 17.2 Preferred dividends 9,321 8,289 12.5 0.8 0.7 Net income available to common shareholders$ 151,495 $ 189,788 (20.2 ) 13.7 % 16.5 % 47
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Six months ended
The following table presents consolidated financial information for the periods indicated (in thousands, except percentages):
As a Percentage of Net Revenues For Six Months Ended June 30, the Six Months Ended June 30, % 2022 2021 Change 2022 2021 Revenues: Commissions$ 382,590 $ 409,193 (6.5 ) 17.2 % 17.9 % Principal transactions 284,873 317,603 (10.3 ) 12.8 13.9 Transactional revenues 667,463 726,796 (8.2 ) 30.0 31.8 Investment banking 525,921 715,731 (26.5 ) 23.6 31.3 Asset management 672,900 574,016 17.2 30.2 25.1 Interest 378,189 261,131 44.8 17.0 11.4 Other income 6,971 38,869 (82.1 ) 0.4 1.7 Total revenues 2,251,444 2,316,543 (2.8 ) 101.2 101.3 Interest expense 26,791 28,618 (6.4 ) 1.2 1.3 Net revenues 2,224,653 2,287,925 (2.8 ) 100.0 100.0 Non-interest expenses: Compensation and benefits 1,326,400 1,389,968 (4.6 ) 59.6 60.8 Occupancy and equipment rental 155,277 143,003 8.6 7.0 6.3
Communication and office supplies 86,101 83,133 3.6
3.9 3.6 Commissions and floor brokerage 30,993 29,680 4.4 1.4 1.3 Provision for credit losses 21,025 (14,904 ) n/m 0.9 (0.7 ) Other operating expenses 159,207 165,128 (3.6 ) 7.2 7.2 Total non-interest expenses 1,779,003 1,796,008 (0.9 ) 80.0 78.5 Income before income taxes 445,650 491,917 (9.4 ) 20.0 21.5 Provision for income taxes 111,285 120,825 (7.9 ) 5.0 5.3 Net income 334,365 371,092 (9.9 ) 15.0 16.2 Preferred dividends 18,641 16,578 12.4 0.8 0.7 Net income available to common shareholders$ 315,724 $ 354,514 (10.9 ) 14.2 % 15.5 % NET REVENUES
The following table presents consolidated net revenues for the periods indicated (in thousands, except percentages):
Three Months Ended June 30, Six Months Ended June 30, % % 2022 2021 Change 2022 2021 Change Net revenues: Commissions$ 186,681 $ 195,579 (4.5 )$ 382,590 $ 409,193 (6.5 ) Principal transactions 125,603 152,597 (17.7 ) 284,873 317,603 (10.3 ) Transactional revenues 312,284 348,176 (10.3 ) 667,463 726,796 (8.2 ) Capital raising 71,519 169,778 (57.9 ) 144,969 378,584 (61.7 ) Advisory 199,556 206,665 (3.4 ) 380,952 337,147 13.0 Investment banking 271,075 376,443 (28.0 ) 525,921 715,731 (26.5 ) Asset management 331,264 295,869 12.0 672,900 574,016 17.2 Net interest 195,420 119,413 63.7 351,398 232,513 51.1 Other income (1,917 ) 13,235 (114.5 ) 6,971 38,869 (82.1 ) Total net revenues$ 1,108,126 $ 1,153,136 (3.9 )$ 2,224,653 $ 2,287,925 (2.8 )
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 endedJune 30, 2022 , commission revenues decreased 4.5% to$186.7 million from$195.6 million in the comparable period in 2021. For the six months endedJune 30, 2022 , commission revenues decreased 6.5% to$382.6 million from$409.2 million in the comparable period in 2021.
Principal transactions - Principal transaction revenues are gains and losses on secondary trading, principally fixed income transactional revenues.
48 -------------------------------------------------------------------------------- For the three months endedJune 30, 2022 , principal transactions revenues decreased 17.7% to$125.6 million from$152.6 million in the comparable period in 2021. For the six months endedJune 30, 2022 , principal transactions revenues decreased 10.3% to$284.9 million from$317.6 million in the comparable period in 2021. Transactional revenues - For the three months endedJune 30, 2022 , transactional revenues decreased 10.3% to$312.3 million from$348.2 million in the comparable period in 2021. For the six months endedJune 30, 2022 , transactional revenues decreased 8.2% to$667.5 million from$726.8 million in the comparable period in 2021 as a result of a decrease in client activity from significantly elevated levels a year ago. Institutional equity transactional revenues declined from the year-ago quarter primarily as a result of trading losses and declines in cash equities. Broad macroeconomic and geopolitical concerns led to volatility in global equity prices, resulting in trading losses compared with trading gains during the prior year period. The decrease was partially offset by improved Institutional fixed income transactional revenue as a result of the Vining Sparks acquisition, which closed inNovember 2021 . 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
Capital-raising revenues decreased 57.9% to$71.5 million for the three months endedJune 30, 2022 from$169.8 million in the comparable period in 2021. For the three months endedJune 30, 2022 , equity capital raising revenues decreased 75.1% to$28.0 million from$112.5 million in the comparable period in 2021. For the three months endedJune 30, 2022 , fixed income capital raising revenues decreased 24.0% to$43.5 million from$57.3 million in the comparable period in 2021. Advisory revenues decreased 3.4% to$199.6 million for the three months endedJune 30, 2022 from$206.7 million in the comparable period in 2021. The decrease is primarily attributable to lower levels of completed advisory transactions during the quarter.
For the six months ended
Capital raising revenues decreased 61.7% to$145.0 million for the six months endedJune 30, 2022 from$378.6 million in the comparable period in 2021. For the six months endedJune 30, 2022 , equity capital raising revenues decreased 77.7% to$60.8 million from$272.4 million in the comparable period in 2021. The decrease is primarily attributable to lower issuances in line with market volumes in an uncertain market environment. For the six months endedJune 30, 2022 , fixed income capital raising revenues decreased 20.8% to$84.2 million from$106.2 million in the comparable period in 2021 as microeconomic conditions contributed to lower bond issuances during 2022. Advisory revenues increased 13.0% to$381.0 million for the six months endedJune 30, 2022 from$337.1 million in the comparable period in 2021. The increase is primarily attributable to higher 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 endedJune 30, 2022 , asset management revenues increased 12.0% to$331.3 million from$295.9 million in the comparable period in 2021. For the six months endedJune 30, 2022 , asset management revenues increased 17.2% to$672.9 million from$574.0 million in the comparable period in 2021. 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 endedJune 30, 2022 , other income decreased 114.5% to a loss of$1.9 million from$13.2 million during the comparable period in 2021. For the six months endedJune 30, 2022 , other income decreased 82.1% to$7.0 million from$38.9 million during the comparable period in 2021. The decreases are primarily attributable to lower investment gains and a decrease in loan origination fees from the comparable periods in 2021. 49 --------------------------------------------------------------------------------
NET INTEREST INCOME
The following tables present average balance data and operating interest revenue and expense data, as well as related interest yields for the periods indicated (in thousands, except rates): Three Months Ended June 30, 2022 June 30, 2021 Interest Average Interest Income/ Interest Income/ Average Average Balance Expense Rate Average Balance Expense Interest Rate Interest-earning assets: Interest-bearing cash and federal funds sold$ 1,106,358 $ 2,891 1.05 %$ 1,249,189 $ 824 0.26 % Financial instruments owned 1,171,119 4,057 1.39 % 979,682 2,543 1.04 % Margin balances 1,105,707 8,732 3.16 % 1,059,293 6,286 2.37 % Investment portfolio 7,480,440 46,046 2.46 % 6,918,862 31,539 1.82 % Loans 18,897,545 150,351 3.18 % 12,959,010 92,379 2.85 % Other interest-bearing assets 1,149,522 677 0.24 % 698,989 20 0.01 % Total interest-earning assets/interest income$ 30,910,691 $ 212,754 2.75 %$ 23,865,025 $ 133,591 2.24 % Interest-bearing liabilities: Stock loan $ 485,379$ (4,577 ) (3.77 %) $ 305,892$ (2,003 ) (2.62 %) Senior notes 1,113,841 11,274 4.05 % 1,112,748 11,971 4.30 % Stifel Capital Trusts 60,000 395 2.63 % 60,000 302 2.01 % Deposits 24,231,942 3,599 0.06 % 18,637,070 1,214 0.03 % FHLB 368,487 794 0.86 % 60,285 41 0.27 % Other interest-bearing liabilities 1,118,845 5,849 2.09 % 1,075,987 2,653 0.99 % Total interest-bearing liabilities/interest expense$ 27,378,494 17,334 0.25 %$ 21,251,982 14,178 0.27 % Net interest income/margin$ 195,420 2.53 %$ 119,413 2.00 % Six Months Ended June 30, 2022 June 30, 2021 Interest Average Interest Average Income/ Interest Income/ Interest Average Balance Expense Rate Average Balance Expense Rate Interest-earning assets: Interest-bearing cash and federal funds sold$ 1,221,352 $ 3,975 0.65 %$ 1,641,971 $ 1,715 0.21 % Financial instruments owned 1,173,565 9,477 1.62 % 893,738 5,438 1.22 % Margin balances 1,097,672 15,644 2.85 % 1,010,438 12,377 2.45 % Investment portfolio 7,432,584 80,308 2.16 % 6,599,580 61,491 1.86 % Loans 18,191,909 271,688 2.99 % 12,539,688 179,618 2.86 % Other interest-bearing assets 1,044,066 (2,903 ) (0.56 %) 647,579 492 0.15 % Total interest-earning assets/interest income$ 30,161,148 $ 378,189 2.51 %$ 23,332,994 $ 261,131 2.24 % Interest-bearing liabilities: Stock loan $ 364,447 (11,008 )
(6.04 %) $ 222,964
1,113,707 22,699 4.08 % 1,106,065 24,074 4.35 % Stifel Capital Trusts 60,000 705 2.35 % 60,000 606 2.02 % Deposits 23,683,947 4,528 0.04 % 18,136,121 2,497 0.03 % FHLB 205,361 825 0.80 % 38,154 52 0.27 % Other interest-bearing liabilities 1,144,620 9,042 1.58 % 1,042,791 4,795 0.92 % Total interest-bearing liabilities/interest expense$ 26,572,082 26,791 0.20 %$ 20,606,095 28,618 0.28 % Net interest income/margin$ 351,398 2.33 %$ 232,513 1.99 %
Please refer to 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
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 endedJune 30, 2022 , net interest income increased to$195.4 million from$119.4 million during the comparable period in 2021. For the six months endedJune 30, 2022 , net interest income increased to$351.4 million from$232.5 million during the comparable period in 2021. For the three months endedJune 30, 2022 , interest revenue increased 59.3% to$212.8 million from$133.6 million in the comparable period in 2021, principally as a result of higher interest rates and an increase in interest-earning assets. The average interest-earning 50 --------------------------------------------------------------------------------
assets of
For the six months endedJune 30, 2022 , interest revenue increased 44.8% to$378.2 million from$261.1 million in the comparable period in 2021, principally as a result of higher interest rates and an increase in interest-earning assets. The average interest-earning assets ofStifel Bancorp increased to$26.2 billion during the six months endedJune 30, 2022 compared to$20.0 billion during the comparable period in 2021 at average interest rates of 2.71% and 2.43%, respectively. For the three months endedJune 30, 2022 , interest expense increased 22.3% to$17.3 million from$14.2 million during the comparable period in 2021. The increase is primarily attributable to higher interest-bearing liabilities. The average interest-bearing liabilities ofStifel Bancorp increased to$24.6 billion during the three months endedJune 30, 2022 compared to$18.7 billion during the comparable period in 2021 at average interest rates of 0.07% and 0.03%, respectively. For the six months endedJune 30, 2022 , interest expense decreased 6.4% to$26.8 million from$28.6 million in the comparable period in 2021. The decrease is primarily attributable to lower interest rates, partially offset by higher interest-bearing liabilities. The average interest-bearing liabilities ofStifel Bancorp increased to$23.9 billion during the six months endedJune 30, 2022 compared to$18.2 billion during the comparable period in 2021 at average interest rates of 0.05% and 0.03%, respectively.
NON-INTEREST EXPENSES
The following table presents consolidated non-interest expenses for the periods indicated (in thousands, except percentages):
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Non-interest expenses: Compensation and benefits$ 652,709 $ 692,054 (5.7 )$ 1,326,400 $ 1,389,968 (4.6 ) Occupancy and equipment rental 78,251 70,971 10.3 155,277 143,003 8.6 Communications and office supplies 43,645 41,308 5.7 86,101 83,133 3.6 Commissions and floor brokerage 15,106 13,977 8.1 30,993 29,680 4.4 Provision for credit losses 12,785 (9,652 )
n/m 21,025 (14,904 ) n/m Other operating expenses
87,089 80,453 8.2 159,207 165,128 (3.6 ) Total non-interest expenses$ 889,585 $ 889,111 0.1$ 1,779,003 $ 1,796,008 (0.9 ) 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 endedJune 30, 2022 , compensation and benefits expense decreased 5.7% to$652.7 million from$692.1 million during the comparable period in 2021. For the six months endedJune 30, 2022 , compensation and benefits expense decreased 4.6% to$1.3 billion from$1.4 billion during the comparable period in 2021. The decrease in compensation and benefits expenses is primarily attributable to lower variable compensation expense. Compensation and benefits expense as a percentage of net revenues was 58.9% and 59.6% for the three and six months endedJune 30, 2022 , respectively, compared to 60.0% and 60.8% for the three and six months endedJune 30, 2021 , respectively. The compensation ratios benefited from higher net interest income, which is a relatively low compensatory revenue source. Occupancy and equipment rental - For the three months endedJune 30, 2022 , occupancy and equipment rental expense increased 10.3% to$78.3 million from$71.0 million during the comparable period in 2021. For the six months endedJune 30, 2022 , occupancy and equipment rental expense increased 8.6% to$155.3 million from$143.0 million during the comparable period in 2021. The increase is primarily attributable to higher data processing costs associated with the continued investments made in of our business lines. 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 endedJune 30, 2022 , communications and office supplies expense increased 5.7% to$43.6 million from$41.3 million during the comparable period in 2021. For the six months endedJune 30, 2022 , communications and office supplies expense increased 3.6% to$86.1 million from$83.1 million during the comparable period in 2021. Commissions and floor brokerage - For the three months endedJune 30, 2022 , commissions and floor brokerage expense increased 8.1% to$15.1 million from$14.0 million during the comparable period in 2021. For the six months endedJune 30, 2022 , commissions and floor brokerage expense increased 4.4% to$31.0 million from$29.7 million during the comparable period in 2021. The increase is primarily attributable to higher processing expenses, partially offset by lower electronic communication network ("ECN") trading costs. 51 -------------------------------------------------------------------------------- Provision for credit losses - For the three months endedJune 30, 2022 , provision for credit losses increased to$12.8 million from a credit of$9.7 million during the comparable period in 2021. For the six months endedJune 30, 2022 , provision for credit losses increased to$21.0 million from a credit of$14.9 million during the comparable period in 2021. The increase is primarily attributable to the growth in our loan portfolio and the release of the provision for credit losses during the comparable periods in 2021. Other operating expenses - Other operating expenses primarily include license and registration fees, litigation-related expenses, which consist of amounts we reserve and/or pay out related to legal and regulatory matters, travel and entertainment, promotional expenses and expenses for professional services. For the three months endedJune 30, 2022 , other operating expenses increased 8.2% to$87.1 million from$80.5 million during the comparable period in 2021. The increase is primarily attributable to increases in travel and entertainment expenses, conference-related expenses, litigation expense, subscriptions, and advertising, partially offset by lower investment banking transaction expenses and settlement-related expenses. During the second quarter of 2021, other operating expense was impacted by the recognition of additional earn-out expense related to a prior acquisition that performed better than expected. For the six months endedJune 30, 2022 , other operating expenses decreased 3.6% to$159.2 million from$165.1 million during the comparable period in 2021. The decrease is primarily attributable to lower investment banking transaction expenses, partially offset by increases in travel and entertainment expenses, subscriptions, advertising, conference-related expenses, settlement-related expenses,FDIC -insurance expense, and professional fees. As described above, other operating expense was impacted by the recognition of additional earn-out expense recorded during the second quarter of 2021. Provision for income taxes - For the three and six months endedJune 30, 2022 , our provision for income taxes was$57.7 million and$111.3 million , representing an effective tax rate of 26.4% and 25.0%, respectively, compared to$65.9 million and$120.8 million for the comparable periods in 2021, representing an effective tax rate of 25.0% and 24.6%, respectively.
SEGMENT ANALYSIS
Our reportable segments include Global Wealth Management,
Our Global Wealth Management segment consists of two businesses, thePrivate Client Group andStifel Bancorp .The Private Client Group includes branch offices and independent contractor offices of our broker-dealer subsidiaries located throughoutthe 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 asFDIC -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 thePrivate Client Group , which are included in the Global Wealth Management segment), merger and acquisition, and financial advisory services. The success of ourInstitutional 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. 52
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Results of Operations - Global Wealth Management
Three Months Ended
The following table presents consolidated financial information for the Global Wealth Management segment for the periods indicated (in thousands, except percentages):
As a Percentage of Net Revenues For Three Months Ended June 30, the Three Months Ended June 30, % 2022 2021 Change 2022 2021 Revenues: Commissions$ 122,004 $ 139,653 (12.6 ) 17.5 % 21.9 % Principal transactions 48,466 55,209 (12.2 ) 6.9 8.7 Transactional revenues 170,470 194,862 (12.5 ) 24.4 30.6 Asset management 331,243 295,847 12.0 47.5 46.4 Investment banking 5,056 11,898 (57.5 ) 0.7 1.9 Interest 207,232 131,773 57.3 29.7 20.7 Other income (4,617 ) 10,274 (144.9 ) (0.7 ) 1.5 Total revenues 709,384 644,654 10.0 101.6 101.1 Interest expense 11,404 7,087 60.9 1.6 1.1 Net revenues 697,980 637,567 9.5 100.0 100.0 Non-interest expenses: Compensation and benefits 349,368 341,367 2.3 50.1 53.5 Occupancy and equipment rental 38,225 33,043 15.7 5.5 5.2
Communication and office supplies 14,976 14,461 3.6
2.1 2.3 Commissions and floor brokerage 6,833 5,939 15.1 1.0 0.9 Provision for credit losses 12,785 (9,652 ) n/m 1.8 (1.5 ) Other operating expenses 30,641 25,104 22.1 4.4 3.9 Total non-interest expenses 452,828 410,262 10.4 64.9 64.3 Income before income taxes$ 245,152 $ 227,305 7.9 35.1 % 35.7 % June 30, 2022 2021 Branch offices 397 391 Financial advisors 2,230 2,190 Independent contractors 100 92 Total financial advisors 2,330 2,282 53 --------------------------------------------------------------------------------
Six months ended
The following table presents consolidated financial information for the Global Wealth Management segment for the periods indicated (in thousands, except percentages):
As a Percentage of Net Revenues For Six Months Ended June 30, the Six Months Ended June 30, % 2022 2021 Change 2022 2021 Revenues: Commissions$ 252,780 $ 287,158 (12.0 ) 18.3 % 22.6 % Principal transactions 94,010 108,808 (13.6 ) 6.8 8.6 Transactional revenues 346,790 395,966 (12.4 ) 25.1 31.2 Asset management 672,856 573,956 17.2 48.8 45.2 Investment banking 10,203 25,447 (59.9 ) 0.7 2.0 Interest 371,182 256,148 44.9 26.9 20.2 Other income (2,732 ) 31,232 (108.7 ) (0.2 ) 2.5 Total revenues 1,398,299 1,282,749 9.0 101.3 101.1 Interest expense 18,594 13,687 35.9 1.3 1.1 Net revenues 1,379,705 1,269,062 8.7 100.0 100.0 Non-interest expenses: Compensation and benefits 714,361 678,088 5.3 51.8 53.4 Occupancy and equipment rental 75,162 67,120 12.0 5.4 5.3
Communication and office supplies 29,651 28,863 2.7
2.1 2.3 Commissions and floor brokerage 13,720 12,401 10.6 1.0 1.0 Provision for credit losses 21,025 (14,904 ) n/m 1.5 (1.2 ) Other operating expenses 55,221 46,958 17.6 4.1 3.7 Total non-interest expenses 909,140 818,526 11.1 65.9 64.5 Income before income taxes$ 470,565 $ 450,536 4.4 34.1 % 35.5 % NET REVENUES For the three months endedJune 30, 2022 , Global Wealth Management net revenues increased 9.5% to a record$698.0 million from$637.6 million for the comparable period in 2021. For the six months endedJune 30, 2022 , Global Wealth Management net revenues increased 8.7% to a record$1.4 billion from$1.3 billion for the comparable period in 2021. The increase in net revenues over the comparable period in 2021 is primarily attributable to increases in net interest income and asset management revenues, partially offset by lower transactional revenues, other income, and investment banking revenues. Commissions - For the three months endedJune 30, 2022 , commission revenues decreased 12.6% to$122.0 million from$139.7 million in the comparable period in 2021. For the six months endedJune 30, 2022 , commission revenues decreased 12.0% to$252.8 million from$287.2 million in the comparable period in 2021. The decrease is primarily attributable to a decrease in equities trading and mutual funds revenue. Principal transactions - For the three months endedJune 30, 2022 , principal transactions revenues decreased 12.2% to$48.5 million from$55.2 million in the comparable period in 2021. For the six months endedJune 30, 2022 , principal transactions revenues decreased 13.6% to$94.0 million from$108.8 million in the comparable period in 2021. Transactional revenues - For the three months endedJune 30, 2022 , transactional revenues decreased 12.5% to$170.5 million from$194.9 million in the comparable period in 2021. For the six months endedJune 30, 2022 , transactional revenues decreased 12.4% to$346.8 million from$396.0 million in the comparable period in 2021 as a result of a decrease in client activity from significantly elevated levels a year ago. Asset management - For the three months endedJune 30, 2022 , asset management increased 12.0% to$331.2 million from$295.8 million in the comparable period in 2021. For the six months endedJune 30, 2022 , asset management increased 17.2% to$672.9 million from$574.0 million in the comparable period in 2021. The increase is primarily attributable to higher asset values and strong fee-based asset flows. Fee-based account revenues are primarily billed based on asset values at the end the prior quarter. 54 --------------------------------------------------------------------------------
Client asset metrics as of the periods indicated (in thousands, except number of accounts and percentages):
6/30/22 6/30/21 % Change 3/31/22 % Change Client assets$ 377,591,000 $ 402,442,000 (6.2 )$ 421,414,000 (10.4 ) Fee-based client assets$ 141,223,000 $ 148,838,000 (5.1 )$ 157,910,000 (10.6 ) Number of client 1,098,000 5.0 1,140,000 1.1 accounts 1,153,000 Number of fee-based 282,000 10.3 307,000 1.3 client accounts 311,000
The decrease in the value of our client assets and fee-based assets was primarily attributable to the decline in the markets, partially offset by asset growth resulting from our recruiting efforts.
Investment banking - Investment banking, which represents sales credits for investment banking underwritings, decreased 57.5% to$5.1 million for the three months endedJune 30, 2022 from$11.9 million during the comparable period in 2021. For the six months endedJune 30, 2022 , investment banking revenues decreased 59.9% to$10.2 million from$25.4 million during the comparable period in 2021. Please refer to "Investment banking" in theInstitutional Group segment discussion for information on the changes in net revenues. Interest revenue - For the three months endedJune 30, 2022 , interest revenue increased 57.3% to$207.2 million from$131.8 million in the comparable period in 2021. For the six months endedJune 30, 2022 , interest revenue increased 44.9% to$371.2 million from$256.1 million during the comparable period in 2021. The increase is primarily attributable to higher interest-earning assets and higher interest rates. 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 endedJune 30, 2022 , other income decreased 144.9% to a loss of$4.6 million from$10.3 million in the comparable period in 2021. For the six months endedJune 30, 2022 , other income decreased 108.7% to a loss of$2.7 million from$31.2 million during the comparable period in 2021. The decrease is primarily attributable to lower investment gains and a decrease in loan origination fees from the comparable periods in 2021. Interest expense - For the three months endedJune 30, 2022 , interest expense increased 60.9% to$11.4 million from$7.1 in the comparable period in 2021. For the six months endedJune 30, 2022 , interest expense increased 35.9% to$18.6 million from$13.7 million during the comparable period in 2021. The increase in interest expense is primarily attributable to higher interest rates and higher interest-bearing liabilities over the comparable period in 2021. 55 --------------------------------------------------------------------------------
NET INTEREST INCOME -
The following tables present average balance data and operating interest revenue and expense data forStifel Bancorp , as well as related interest yields for the periods indicated (in thousands, except rates): Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Interest Average Interest Income/ Interest Income/ Average Average Balance Expense Rate Average Balance Expense Interest Rate Assets: Interest-bearing cash and federal funds sold$ 453,114 $ 989 0.87 %$ 611,932 $ 207 0.14 % U.S. government agencies 2,564 10 1.49 3,337 18 2.11 State and municipal securities (tax-exempt) (1) 2,364 11 1.97 2,387 12 1.98 Mortgage-backed securities 991,282 4,680 1.89 1,070,549 4,105 1.53 Corporate fixed income securities 756,154 5,066 2.68 709,667 4,631 2.61 Asset-backed securities 5,728,076 36,279 2.53 5,132,922 22,773 1.77Federal Home Loan Bank and other capital stock 68,079 795 4.67 44,543 357 3.21 Loans (2) Securities-based loans 2,972,170 20,701 2.79 2,214,111 10,754 1.94 Commercial and industrial 8,175,256 77,870 3.81 5,055,398 43,295 3.43 Residential real estate 6,301,802 39,528 2.51 4,296,541 28,519 2.66 Commercial real estate 592,325 4,966 3.35 417,650 3,019 2.89 Home equity lines of credit 95,644 843 3.52 77,606 556 2.86 Construction and land 431,893 4,056 3.76 572,972 4,472 3.12 Other 35,189 520 5.92 38,029 188 1.97 Loans held for sale 293,266 1,867 2.55 286,703 1,576 2.20
Total interest-earning assets (3)
2.95 %$ 20,534,347 $ 124,482 2.42 % Cash and due from banks 12,571 21,907 Other non interest-earning assets 118,297 479,993 Total assets$ 27,030,046 $ 21,036,247 Liabilities and stockholders' equity: Deposits: Money market$ 23,232,731 $ 3,161 0.05 %$ 17,714,414 $ 785 0.02 % Time deposits 21,514 142 2.65 60,642 256 1.68 Demand deposits 977,462 296 0.12 861,187 173 0.08 Savings 235 - 0.09 827 - 0.05 Federal Home Loan Bank advances 368,487 794 0.86 60,285 41 0.27 Other borrowings 968 38 15.57 1,309 24 7.44 Total interest-bearing liabilities (3) 24,601,397 4,431 0.07 % 18,698,664 1,279 0.03 % Non-interest-bearing deposits 522,531 555,846 Other non-interest bearing liabilities 90,597 261,438 Total liabilities 25,214,525 19,515,948 Stockholders' equity 1,815,521 1,520,299 Total liabilities and stockholders' equity$ 27,030,046 $ 21,036,247 Net interest income/spread$ 193,750 2.88 %$ 123,203 2.39 % Net interest margin 2.88 % 2.40 % (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. 56 -------------------------------------------------------------------------------- The following tables present average balance data and operating interest revenue and expense data forStifel Bancorp , as well as related interest yields for the periods indicated (in thousands, except rates): Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Interest Average Interest Income/ Interest Income/ Average Average Balance Expense Rate Average Balance Expense Interest Rate Assets: Interest-bearing cash and federal funds sold $ 501,032$ 1,295 0.52 % $ 786,127$ 498 0.13 % U.S. government agencies 2,778 23 1.62 3,668 39 2.11 State and municipal securities (tax-exempt) (1) 2,367 23 1.97 2,390 24 1.97 Mortgage-backed securities 999,225 9,088 1.82 988,682 7,371 1.49 Corporate fixed income securities 764,505 10,039 2.63 674,933 10,029 2.97 Asset-backed securities 5,663,709 61,135 2.16 4,929,907 44,028 1.79Federal Home Loan Bank and other capital stock 59,122 1,154 3.90 42,647 584 2.74 Loans (2) Securities-based loans 2,941,610 35,126 2.39 2,108,800 20,487 1.94 Commercial and industrial 7,867,347 139,867 3.56 4,815,809 82,795 3.44 Residential real estate 5,994,888 75,059 2.50 4,146,360 55,557 2.68 Commercial real estate 527,991 8,009 3.03 394,469 6,277 3.18 Home equity lines of credit 89,657 1,465 3.27 76,238 1,061 2.78 Construction and land 478,332 8,322 3.48 550,054 8,661 3.15 Other 34,374 703 4.09 38,099 407 2.13 Loans held for sale 257,710 3,137 2.43 409,859 4,373 2.13
Total interest-earning assets (3)
2.71 %$ 19,968,042 $ 242,191 2.43 % Cash and due from banks 12,496 20,681 Other non interest-earning assets 139,088 459,971 Total assets$ 26,336,231 $ 20,448,694 Liabilities and stockholders' equity: Deposits: Money market$ 22,635,483 $ 3,860 0.03 %$ 17,308,376 $ 1,528 0.02 % Time deposits 23,026 303 2.63 76,954 700 1.82 Demand deposits 1,025,199 365 0.07 749,983 269 0.07 Savings 239 - 0.05 808 - 0.05 Federal Home Loan Bank advances 205,361 825 0.80 38,154 52 0.27 Other borrowings 1,015 73 14.36 1,354 52 7.69 Total interest-bearing liabilities (3) 23,890,323 5,426 0.05 % 18,175,629 2,601 0.03 % Non-interest-bearing deposits 576,915 533,267 Other non-interest bearing liabilities 87,429 261,199 Total liabilities 24,554,667 18,970,095 Stockholders' equity 1,781,564 1,478,599 Total liabilities and stockholders' equity$ 26,336,231 $ 20,448,694
Net interest income/spread$ 349,019 2.66 %$ 239,590 2.40 % Net interest margin 2.67 % 2.40 % (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. 57 -------------------------------------------------------------------------------- The following table sets forth an analysis of the effect on net interest income of volume and rate changes for the three and six month periods endedJune 30, 2022 compared to the three and six month periods endedJune 30, 2021 (in thousands): Three Months Ended June 30, 2022 Compared to Three Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021 Months Ended June 30, 2021 Increase/(decrease) due to: Increase/(decrease) due to: Volume Rate Total Volume Rate Total Interest income: Interest-bearing cash and federal funds sold$ (39 ) $ 821
(4 ) (4 ) (8 ) (8 ) (8 ) (16 ) State and municipal securities (tax-exempt) (1 ) - (1 ) (1 ) - (1 ) Mortgage-backed securities (271 ) 846 575 79 1,638 1,717 Corporate fixed income securities 309 126 435 81 (71 ) 10 Asset-backed securities 2,881 10,625 13,506 7,123 9,984 17,107Federal Home Loan Bank and other capital stock 235 203 438 271 299 570
Loans
Securities-based loans 4,387 5,560 9,947 9,264 5,375 14,639 Commercial and industrial 29,256 5,319 34,575 54,159 2,913 57,072 Residential real estate 12,480 (1,471 ) 11,009 22,864 (3,362 ) 19,502 Commercial real estate 1,409 538 1,947 2,010 (278 ) 1,732 Home equity lines of credit 144 143 287 203 201 404 Construction and land (2,377 ) 1,961 (416 ) (1,734 ) 1,395 (339 ) Other (13 ) 345 332 (35 ) 331 296 Loans held for sale 37 254 291 (1,992 ) 756 (1,236 )$ 48,433 $ 25,266 $ 73,699 $ 92,178 $ 20,076 $ 112,254 Interest expense: Deposits: Money market$ 811 1,565$ 2,376 $ 579 $ 1,753 $ 2,332 Time deposits (976 ) 862 (114 ) (1,094 ) 697 (397 ) Demand deposits 26 97 123 98 (2 ) 96 Savings - - - - - -Federal Home Loan Bank advances 529 224 753 537 236 773 Other borrowings (5 ) 19 14 (9 ) 30 21$ 385 $ 2,767 $ 3,152 $ 111 $ 2,714 $ 2,825 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. Decreases in short-term interest rates have had a negative impact on our results, in particular on our net interest income. For the three months endedJune 30, 2022 , interest revenue of$198.2 million was generated from average interest-earning assets of$26.9 billion at an average interest rate of 2.95%. Interest revenue of$124.5 million for the comparable period in 2021 was generated from average interest-earning assets of$20.5 billion at an average interest rate of 2.42%. For the six months endedJune 30, 2022 , interest revenue of$354.4 million was generated from average interest-earning assets of$26.2 billion at an average interest rate of 2.71%. Interest revenue of$242.2 million for the comparable period in 2021 was generated from average interest-earning assets of$20.0 billion at an average interest rate of 2.43%. 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 endedJune 30, 2022 , interest expense of$4.4 million was incurred from average interest-bearing liabilities of$24.6 billion at an average interest rate of 0.07%. Interest expense of$1.3 million for the comparable period in 2021 was incurred from average interest-bearing liabilities of$18.7 billion at an average interest rate of 0.03%. For the six months endedJune 30, 2022 , interest expense of$5.4 million was incurred from average interest-bearing liabilities of$23.9 billion at an average interest rate of 0.05%. Interest expense of$2.6 million for the comparable period in 2021 was incurred from average interest-bearing liabilities of$18.2 billion at an average interest rate of 0.03%. 58 --------------------------------------------------------------------------------
Please refer to "Net Interest Income -
NON-INTEREST EXPENSES For the three months endedJune 30, 2022 , Global Wealth Management non-interest expenses increased 10.4% to$452.8 million from$410.3 million for the comparable period in 2021. For the six months endedJune 30, 2022 , Global Wealth Management non-interest expenses increased 11.1% to$909.1 million from$818.5 million for the comparable period in 2021. Compensation and benefits - For the three months endedJune 30, 2022 , compensation and benefits expense increased 2.3% to$349.4 million from$341.4 million during the comparable period in 2021. For the six months endedJune 30, 2022 , compensation and benefits expense increased 5.3% to$714.4 million from$678.1 million during the comparable period in 2021. The increase over the comparable period in 2021 is principally due to increased variable compensation as a result of revenue growth. Compensation and benefits expense as a percentage of net revenues was 50.1% and 51.8% for the three and six months endedJune 30, 2022 , respectively, compared to 53.5% and 53.4% for the comparable periods in 2021. Occupancy and equipment rental - For the three months endedJune 30, 2022 , occupancy and equipment rental expense increased 15.7% to$38.2 million from$33.0 million during the comparable period in 2021. For the six months endedJune 30, 2022 , occupancy and equipment rental expense increased 12.0% to$75.2 million from$67.1 million during the comparable period in 2021. The increase is primarily attributable to higher data processing costs associated with an increase in business activity. Communications and office supplies - For the three months endedJune 30, 2022 , communications and office supplies expense increased 3.6% to$15.0 million from$14.5 million during the comparable period in 2021. For the six months endedJune 30, 2022 , communications and office supplies expense increased 2.7% to$29.7 million from$28.9 million during the comparable period in 2021. The increase is primarily attributable to higher communication and quote equipment expenses associated with the continued growth of our business. Commissions and floor brokerage - For the three months endedJune 30, 2022 , commissions and floor brokerage expense increased 15.1% to$6.8 million from$5.9 million during the comparable period in 2021. For the six months endedJune 30, 2022 , commissions and floor brokerage expense increased 10.6% to$13.7 million from$12.4 million during the comparable period in 2021. The increase is primarily attributable to higher processing expenses, partially offset by lower ECN trading costs. Provision for credit losses - For the three months endedJune 30, 2022 , provision for credit losses increased to$12.8 million from a credit of$9.7 million during the comparable period in 2021. For the six months endedJune 30, 2022 , provision for credit losses increased to$21.0 million from a credit of$14.9 million during the comparable period in 2021. The increase is primarily attributable to the growth in our loan portfolio and the release of the provision for credit losses during the comparable periods in 2021. Other operating expenses - For the three months endedJune 30, 2022 , other operating expenses increased 22.1% to$30.6 million from$25.1 million during the comparable period in 2021. For the six months endedJune 30, 2022 , other operating expenses increased 17.6% to$55.2 million from$47.0 million during the comparable period in 2021. The increase is primarily attributable to increases in settlement costs, subscriptions,FDIC -insurance expense, and professional fees, partially offset by lower travel and entertainment and conference-related expenses over the comparable periods in 2021.
INCOME BEFORE INCOME TAXES
For the three months endedJune 30, 2022 , income before income taxes increased 7.9% to$245.2 million from$227.3 million during the comparable period in 2021. For the six months endedJune 30, 2022 , income before income taxes increased 4.4% to$470.6 million from$450.5 million during the comparable period in 2021. Profit margins (income before income taxes as a percent of net revenues) have decreased to 35.1% and 34.1% for the three and six months endedJune 30, 2022 , respectively, from 35.7% and 35.5% during the comparable periods in 2021. Profit margins were negatively impacted by the increase in the provision for credit losses over the comparable periods in 2021 and positively impacted by the growth in net revenues. 59 --------------------------------------------------------------------------------
Results of Operations -
Three Months Ended
The following table presents consolidated financial information for the
As a Percentage of Net Revenues For Three Months Ended June 30, the Three Months Ended June 30, % 2022 2021 Change 2022 2021 Revenues: Commissions$ 64,677 $ 55,926 15.6 15.7 % 10.7 % Principal transactions 77,137 97,388 (20.8 ) 18.8 18.7 Transactional revenues 141,814 153,314 (7.5 ) 34.5 29.4 Capital raising 66,463 157,880 (57.9 ) 16.2 30.3 Advisory 199,556 206,665 (3.4 ) 48.5 39.7 Investment banking 266,019 364,545 (27.0 ) 64.7 70.0 Interest 6,209 3,493 77.8 1.5 0.7 Other income 1,203 2,399 (49.9 ) 0.2 0.5 Total revenues 415,245 523,751 (20.7 ) 100.9 100.6 Interest expense 3,881 2,940 32.0 0.9 0.6 Net revenues 411,364 520,811 (21.0 ) 100.0 100.0 Non-interest expenses: Compensation and benefits 244,711 299,469 (18.3 ) 59.5 57.5 Occupancy and equipment rental 18,320 17,810 2.9 4.5 3.4
Communication and office supplies 23,934 22,186 7.9
5.8 4.3 Commissions and floor brokerage 8,273 8,037 2.9 2.0 1.5 Other operating expenses 43,134 31,815 35.6 10.5 6.1 Total non-interest expenses 338,372 379,317 (10.8 ) 82.3 72.8 Income before income taxes$ 72,992 $ 141,494 (48.4 ) 17.7 % 27.2 % 60
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Six months ended
The following table presents consolidated financial information for the
As a Percentage of Net Revenues For Six Months Ended June 30, the Six Months Ended June 30, % 2022 2021 Change 2022 2021 Revenues: Commissions$ 129,810 $ 122,035 6.4 15.4 % 11.9 % Principal transactions 190,863 208,795 (8.6 ) 22.6 20.3 Transactional revenues 320,673 330,830 (3.1 ) 38.0 32.2 Capital raising 134,766 353,137 (61.8 ) 16.0 34.4 Advisory 380,952 337,147 13.0 45.2 32.8 Investment banking 515,718 690,284 (25.3 ) 61.2 67.2 Interest 11,482 7,308 57.1 1.4 0.7 Other income 1,792 4,250 (57.8 ) 0.2 0.5 Total revenues 849,665 1,032,672 (17.7 ) 100.8 100.6 Interest expense 6,938 5,780 20.0 0.8 0.6 Net revenues 842,727 1,026,892 (17.9 ) 100.0 100.0 Non-interest expenses: Compensation and benefits 497,058 601,093 (17.3 ) 59.0 58.5 Occupancy and equipment rental 38,480 34,656 11.0 4.6 3.4
Communication and office supplies 47,009 45,171 4.1
5.6 4.4 Commissions and floor brokerage 17,273 17,279 (0.0 ) 2.0 1.7 Other operating expenses 73,287 70,011 4.7 8.7 6.8 Total non-interest expenses 673,107 768,210 (12.4 ) 79.9 74.8 Income before income taxes$ 169,620 $ 258,682 (34.4 ) 20.1 % 25.2 % NET REVENUES For the three months endedJune 30, 2022 ,Institutional Group net revenues decreased 21.0% to$411.4 million from$520.8 million for the comparable period in 2021. The decrease in net revenues is primarily attributable to lower capital-raising revenues, equity transactional revenues, and advisory revenues, partially offset by an increase in fixed income transactional revenues. For the six months endedJune 30, 2022 ,Institutional Group net revenues decreased 17.9% to$842.7 million from$1.0 billion during the comparable period in 2021. The decrease in net revenues is primarily attributable to lower capital-raising revenues and equity transactional revenues, partially offset by an increase in advisory revenues and fixed income transactional revenues. Commissions - For the three months endedJune 30, 2022 , commission revenues increased 15.6% to$64.7 million from$55.9 million in the comparable period in 2021. For the six months endedJune 30, 2022 , commission revenues increased 6.4% to$129.8 million from$122.0 million in the comparable period in 2021. Principal transactions - For the three months endedJune 30, 2022 , principal transactions revenues decreased 20.8% to$77.1 million from$97.4 million in the comparable period in 2021. For the six months endedJune 30, 2022 , principal transaction revenues decreased 8.6% to$190.9 million from$208.8 million in the comparable period in 2021. Transactional revenues - For the three months endedJune 30, 2022 , institutional transactional revenues decreased 7.5% to$141.8 million from$153.3 million in the comparable period in 2021. For the six months endedJune 30, 2022 , institutional transactional revenues decreased 3.1% to$320.7 million from$330.8 million in the comparable period in 2021. For the three months endedJune 30, 2022 , fixed income institutional transactional revenues increased 4.7% to$96.2 million from$91.9 million in the comparable period in 2021. For the six months endedJune 30, 2022 , fixed income transactional revenues increased 14.8% to$218.5 million from$190.3 million in the comparable period in 2021. The increase in fixed income institutional transactional revenues is primarily attributable to revenues from the Vining Sparks acquisition, partially offset by lower trading gains. For the three months endedJune 30, 2022 , equity institutional transactional revenues decreased 25.8% to$45.6 million from$61.5 million during the comparable period in 2021. For the six months endedJune 30, 2022 , equity transactional revenues decreased 27.3% to$102.2 million from$140.6 million during the comparable period in 2021. The decline in equity institutional transactional revenues is primarily attributable to trading losses and declines in cash equities. 61 --------------------------------------------------------------------------------
Investment banking - For the three months ended
For the three months endedJune 30, 2022 , capital raising revenues decreased 57.9% to$66.5 million from$157.9 million in the comparable period in 2021. For the six months endedJune 30, 2022 , capital raising revenues decreased 61.8% to$134.8 million from$353.1 million in the comparable period in 2021. For the three months endedJune 30, 2022 , equity capital raising revenues decreased 74.6% to$26.0 million from$102.5 million during the comparable period in 2021. For the six months endedJune 30, 2022 , equity capital raising revenues decreased 77.8% to$55.4 million from$249.9 million during the comparable period in 2021. The decrease is a result of lower issuances in line with market volumes in an uncertain market environment. For the three months endedJune 30, 2022 , fixed income capital raising revenues decreased 27.0% to$40.5 million from$55.4 million during the comparable period in 2021. For the six months endedJune 30, 2022 , fixed income capital raising revenues decreased 23.2% to$79.3 million from$103.3 million during the comparable period in 2021. The decrease is primarily attributable to lower bond issuances as a result of the microeconomic conditions that existed during the first half of 2022. For the three months endedJune 30, 2022 , advisory revenues decreased 3.4% to$199.6 million from$206.7 million in the comparable period in 2021. The decrease is primarily attributable to lower levels of completed advisory transactions during the quarter. For the six months endedJune 30, 2022 , advisory revenues increased 13.0% to$381.0 million from$337.1 million in the comparable period in 2021. The growth is primarily attributable to an increase in completed advisory transactions compared with lower volumes during the comparable period in 2021. Interest - For the three months endedJune 30, 2022 , interest increased 77.8% to$6.2 million from$3.5 million in the comparable period in 2021. For the six months endedJune 30, 2022 , interest increased 57.1% to$11.5 million from$7.3 million in the comparable period in 2021. The increase is primarily attributable to higher leveraged finance activity. Other income - For the three months endedJune 30, 2022 , other income decreased 49.9% to$1.2 million from$2.4 million in the comparable period in 2021. For the six months endedJune 30, 2022 , other income decreased 57.8% to$1.8 million from$4.3 million during the comparable period in 2021. The decrease is primarily attributable to a decrease in investment gains over the comparable periods in 2021. Interest expense - For the three months endedJune 30, 2022 , interest expense increased 32.0% to$3.9 million from$2.9 million in the comparable period in 2021. For the six months endedJune 30, 2022 , interest expense increased 20.0% to$6.9 million from$5.8 million in the comparable period in 2021. The increase is primarily attributable to higher interest rates and an increase in inventory levels. NON-INTEREST EXPENSES
For the three months ended
Compensation and benefits - For the three months endedJune 30, 2022 , compensation and benefits expense decreased 18.3% to$244.7 million from$299.5 million during the comparable period in 2021. For the six months endedJune 30, 2022 , compensation and benefits expense decreased 17.3% to$497.1 million from$601.1 million during the comparable period in 2021. The decrease is driven by lower compensable revenues. Compensation and benefits expense as a percentage of net revenues was 59.5% and 59.0% for the three and six months endedJune 30, 2022 , respectively, compared to 57.5% and 58.5% for the comparable periods in 2021 as a result of lower compensable revenues. Occupancy and equipment rental - For the three months endedJune 30, 2022 , occupancy and equipment rental expense increased 2.9% to$18.3 million from$17.8 million during the comparable period in 2021. For the six months endedJune 30, 2022 , occupancy and equipment rental expense increased 11.0% to$38.5 million from$34.7 million during the comparable period in 2021. The increase is attributable to higher data processing costs associated with an increase in business activity. Communications and office supplies - For the three months endedJune 30, 2022 , communications and office supplies expense increased 7.9% to$23.9 million from$22.2 million during the comparable period in 2021. For the six months endedJune 30, 2022 , communications and office supplies expense increased 4.1% to$47.0 million from$45.2 million during the comparable period in 2021. The increase is primarily attributable to higher communication and quote expenses, partially offset by lower telecommunication expenses. Commissions and floor brokerage - For the three months endedJune 30, 2022 , commissions and floor brokerage expense increased 2.9% to$8.3 million from$8.0 million during the comparable period in 2021. The increase was primarily attributable to higher processing expenses, partially offset by lower clearing expenses during the quarter. For the six months endedJune 30, 2022 , commissions and floor brokerage expense remained relatively consistent with the comparable period in 2021 at$17.3 million . 62 -------------------------------------------------------------------------------- Other operating expenses - For the three months endedJune 30, 2022 , other operating expenses increased 35.6% to$43.1 million from$31.8 million during the comparable period in 2021. For the six months endedJune 30, 2022 , other operating expenses increased 4.7% to$73.3 million from$70.0 million during the comparable period in 2021. The increases are primarily attributable to higher travel and entertainment expenses, conference-related expenses, and litigation-related expenses, partially offset by lower investment banking transaction expenses.
INCOME BEFORE INCOME TAXES
For the three months endedJune 30, 2022 , income before income taxes for theInstitutional Group segment decreased 48.4% to$73.0 million from$141.5 million during the comparable period in 2021. For the six months endedJune 30, 2022 , income before income taxes for theInstitutional Group segment decreased 34.4% to$169.6 million from$258.7 million during the comparable period in 2021. Profit margins (income before income taxes as a percentage of net revenues) have decreased to 17.7% and 20.1% for the three and six months endedJune 30, 2022 , respectively, from 27.2% and 25.2% during the comparable periods in 2021 as a result of lower revenues growth, partially offset by a decrease in expenses.
Results of Operations - Other Segment
Three and Six months ended
The following table presents consolidated financial information for the Other segment for the periods presented (in thousands, except percentages):
Three Months EndedJune 30 ,
Six Months Ended
2022 2021 % Change 2022 2021 % Change Net revenues$ (1,218 ) $ (5,242 ) 76.8$ 2,221 $ (8,029 ) 127.7 Non-interest expenses: Compensation and benefits 58,629 51,218 14.5 114,981 110,787 3.8 Other operating expenses 39,756 48,314 (17.7 ) 81,775 98,485 (17.0 ) Total non-interest expenses 98,385 99,532 (1.2 ) 196,756 209,272 (6.0 )
Loss before income taxes
The Other segment includes expenses related to the Company's acquisition strategy and the investments made in the Company's infrastructure and control environment.
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.
The following shows the expenses that are part of the Other segment related to acquisitions.
Three Months EndedJune 30 ,
Six Months Ended
2022 2021 % Change 2022 2021 % Change Non-interest expenses: Compensation and benefits$ 9,174 $ 6,119 49.9$ 18,485 $ 12,293 50.4 Other operating expenses 7,617 10,287 (26.0 ) 13,098 19,351 (32.3 ) Total non-interest expenses$ 16,791 $ 16,406 2.3 %$ 31,583 $ 31,644 (0.2 )% For the three months endedJune 30, 2022 , compensation and benefits expense increased 49.9% to$9.2 million from$6.1 million in 2021. For the six months endedJune 30, 2022 , compensation and benefits expense increased 50.4% to$18.5 million from$12.3 million in 2021. For the three months endedJune 30, 2022 , other operating expenses decreased 26.0% to$7.6 million from$10.3 million in 2021. For the six months endedJune 30, 2022 , other operating expenses decreased 32.3% to$13.1 million from$19.4 million in 2021.
The expenses not associated with the activities described above in the Other segment are as follows:
Three Months EndedJune 30 ,
Six Months Ended
2022 2021 % Change 2022 2021 % Change Non-interest expenses: Compensation and benefits$ 49,455 $ 45,099 9.7$ 96,496 $ 98,494 (2.0 ) Other operating expenses 32,139 38,027 (15.5 ) 68,677 79,134 (13.2 ) Total non-interest expenses$ 81,594 $ 83,126 (1.8 )%$ 165,173 $ 177,628 (7.0 )% 63
-------------------------------------------------------------------------------- For the three months endedJune 30, 2022 , compensation and benefits expense increased 9.7% to$49.5 million from$45.1 million in 2021. For the six months endedJune 30, 2022 , compensation and benefits expense decreased 2.0% to$96.5 million from$98.5 million in 2021. For the three months endedJune 30, 2022 , other operating expenses decreased 15.5% to$32.1 million from$38.0 million in 2021. For the six months endedJune 30, 2022 , other operating expenses decreased 13.2% to$68.7 million from$79.1 million in 2021.
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$36.5 billion , were up 7.1% overDecember 31, 2021 . 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 ofJune 30, 2022 , our liabilities were comprised primarily of deposits of$26.0 billion atStifel Bancorp , payables to customers of$866.1 million at our broker-dealer subsidiaries, accounts payable and accrued expenses of$1.2 billion , senior notes, net of debt issuance costs, of$1.1 billion , and accrued employee compensation of$475.9 million . To meet our obligations to clients and operating needs, we had$11.5 billion of cash or assets readily convertible into cash atJune 30, 2022 . Cash Flow Cash and cash equivalents decreased$385.6 million to$1.6 billion atJune 30, 2022 , from$2.0 billion atDecember 31, 2021 . Operating activities used cash of$200.5 million . Investing activities used cash of$2.9 billion due to the growth of the loan portfolio, investment securities purchases, and fixed asset purchases, partially offset by proceeds from the sale and maturity of securities in our investment portfolio. Financing activities provided cash of$2.6 billion primarily due to an increase in bank deposits and securities loaned, partially offset by dividends paid on our common and preferred stock, tax payments related to shares withheld for stock-based compensation, and repurchases of our common stock.
Liquidity and Capital Resources
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. 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 ofJune 30, 2022 , we had$36.5 billion in assets,$11.5 billion of which consisted of cash or assets readily convertible into cash as follows (in thousands): June 30, 2022 December 31, 2021 Cash and cash equivalents$ 1,577,677 $ 1,963,326 Receivables from brokers, dealers, and clearing organizations 377,741
574,256
Securities purchased under agreements to resell 608,051
579,866
Financial instruments owned at fair value 1,124,621
1,065,216
Available-for-sale securities at fair value 1,879,904
2,113,893
Held-to-maturity securities at amortized cost 5,883,448
5,348,558
Investments 38,914
34,340
Total cash and assets readily convertible to cash
11,679,455 64
--------------------------------------------------------------------------------
As of
June 30, 2022 December 31, 2021 Contractual Contingent Contractual Contingent Cash and cash equivalents$ 161,223 $ -$ 132,158 $ - Financial instruments owned at fair value 350,206 350,206 385,528 385,528 Investment portfolio (AFS & HTM) - 1,929,485 - 1,849,152$ 511,429 $ 2,279,691 $ 517,686 $ 2,234,680
Liquidity Available From Subsidiaries
Liquidity is principally available to our company from
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. AtJune 30, 2022 , 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 withoutFINRA approval. See Note 15 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 ofStifel Bancorp's current calendar year and the previous two calendar years' retained net income andStifel 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. AtJune 30, 2022 , the maximum number of shares that may yet be purchased under this plan was 10.3 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:
65 --------------------------------------------------------------------------------
(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 government support
•
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
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. AtJune 30, 2022 , available cash and highly liquid investments comprised approximately 17% ofStifel 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 thatStifel 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.
Cash and Cash Equivalents - We held
66 --------------------------------------------------------------------------------Available-for-Sale Securities - We held$1.9 billion in available-for-sale investment securities atJune 30, 2022 , compared to$2.1 billion atDecember 31, 2021 . As ofJune 30, 2022 , the weighted-average life of the investment securities portfolio was approximately 1.5 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 ofJune 30, 2022 , we had$26.0 billion in deposits compared to$23.3 billion atDecember 31, 2021 . Our core deposits are primarily comprised of money market deposit accounts, non-interest-bearing deposits, and CDs. 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 theFederal 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 atJune 30, 2022 , 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$85.0 million during the six months endedJune 30, 2022 . 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. AtJune 30, 2022 , we had no outstanding balances on our uncommitted secured lines of credit. Federal Home Loan advances are floating-rate advances. The weighted average interest rates during the three and six months endedJune 30, 2022 on these advances was 0.86% and 0.80%, respectively. The advances are secured byStifel 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. AtJune 30, 2022 , there were no Federal Home Loan advances. Unsecured borrowings - OnMay 27, 2021 , the Company and Stifel entered into an unsecured revolving credit facility agreement (the "Credit Facility"). The Credit Facility has a maturity date ofMay 2026 and the lenders include a number of financial institutions. This committed unsecured borrowing facility provides for maximum borrowings of up to$500.0 million , with a sublimit of$200.0 million for the Company. Stifel may borrow up to$500.0 million under the Credit Facility, depending on the amount of outstanding borrowings of the Company. The interest rates on borrowings under the Credit Facility are variable and based on LIBOR, as adjusted. There were no borrowings outstanding on the Credit Facility as ofJune 30, 2022 . We can draw upon this line as long as certain restrictive covenants are maintained. Under the Credit Facility, we 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, our broker-dealer subsidiary, 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. Our revolving credit facility 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, and judgment defaults. AtJune 30, 2022 , 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 theFederal Home Loan Bank of$5.1 billion atJune 30, 2022 and$64.5 million in federal funds agreements for the purpose of purchasing short-term funds should additional liquidity be needed. AtJune 30, 2022 , there were no outstandingFederal 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$1.2 billion with the Fed's discount window atJune 30, 2022 .Stifel Bancorp receives overnight funds from excess cash held in Stifel brokerage accounts, which are deposited into a money market account. These balances totaled$23.8 billion atJune 30, 2022 . AtJune 30, 2022 , there was$26.8 billion in client money market andFDIC -insured product balances. 67 -------------------------------------------------------------------------------- Public Offering of Senior Notes - OnJuly 15, 2014 , we sold in a registered underwritten public offering,$300.0 million in aggregate principal amount of 4.25% senior notes dueJuly 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. InJuly 2016 , we issued an additional$200.0 million in aggregate principal amount of 4.25% senior notes due 2024. OnOctober 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 dueOctober 2047 . Interest on the senior notes is payable quarterly in arrears in January, April, July, and October. On or afterOctober 15, 2022 , 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. OnOctober 27, 2017 , we completed the sale of an additional$25.0 million aggregate principal amount of Notes pursuant to the over-allotment option. InOctober 2017 , we received a BBB- rating on the notes. OnMay 20, 2020 , we sold in a registered underwritten public offering,$400.0 million in aggregate principal amount of 4.00% senior notes dueMay 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 atTreasury rate plus 50 basis points prior toFebruary 15, 2030 , and on or afterFebruary 15, 2030 , at 100% of their principal amount, and accrued and unpaid interest, if any, to the date of redemption. InMay 2020 , we received a BBB- rating on the notes. Public Offering of Preferred Stock - InJuly 2016 , the Company completed an underwritten registered public offering of$150.0 million 6.25% Non-Cumulative Perpetual Preferred Stock, Series A. OnAugust 20, 2021 , the Company redeemed all of the outstanding Series A Preferred Stock.
In
InMay 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. OnJuly 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 afterAugust 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.
Use of Capital Resources
We have paid$83.2 million in the form of upfront notes to financial advisors for transition pay during the six months endedJune 30, 2022 . 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 six months in 2022, and the years endedDecember 31, 2023 , 2024, 2025, 2026, and thereafter are$83.7 million ,$125.2 million ,$108.6 million ,$86.9 million ,$78.1 million , and$190.6 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, 68 -------------------------------------------------------------------------------- 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 four years.
At
The future estimated compensation expense of the deferred awards, assuming current year forfeiture levels and static growth for the remaining six months in 2022, and the years endedDecember 31, 2023 , 2024, 2025, 2026, and thereafter are$115.7 million ,$200.0 million ,$171.3 million ,$132.8 million ,$91.8 million , and$58.4 million , respectively. These estimates could change if our forfeitures change from historical levels. 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. , andStifel 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 IIROC. AtJune 30, 2022 , Stifel had net capital of$627.1 million , which was 41.0% of aggregate debit items and$596.5 million in excess of its minimum required net capital. AtJune 30, 2022 , all of our other broker-dealer subsidiaries' net capital exceeded the minimum net capital required under theSEC rule. AtJune 30, 2022 , SNEL's capital and reserves were in excess of the financial resources requirement under the rules of theFCA . AtJune 30, 2022 , our banking subsidiaries were considered well capitalized under the regulatory framework for prompt corrective action. AtJune 30, 2022 , SNC's net capital and reserves were in excess of the financial resources requirement under the rules of the IIROC. See Note 15 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 withU.S. generally accepted accounting principles and pursuant to the rules and regulations of theSEC , 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 endedDecember 31, 2021 . 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 20 of the Notes to Consolidated Financial Statements. Such information is hereby incorporated by reference. 69 --------------------------------------------------------------------------------
Contractual Obligations
Our contractual obligations have not materially changed from those reported in
our Annual Report on Form 10-K for the year ended
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