10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023


☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-09305

STIFEL FINANCIAL CORP.

(Exact name of registrant as specified in its charter)


Delaware		43-1273600
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

501 North Broadway, St. Louis, Missouri 63102-2188

(Address of principal executive offices and zip code)

(314) 342-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class/ Trading Symbol	Name of Each Exchange on Which Registered	Shares or principal amount outstanding - April 27, 2023
Common Stock, $0.15 par value per share (SF)	New York Stock Exchange		106,131,180
Depository Shares, each representing 1/1,000th interest in a share of 6.25% Non-Cumulative Preferred Stock, Series B (SF-PB)	New York Stock Exchange		6,400
Depository Shares, each representing 1/1,000th interest in a share of 6.125% Non-Cumulative Preferred Stock, Series C (SF-PC)	New York Stock Exchange		9,000
Depository Shares, each representing 1/1,000th interest in a share of 4.50% Non-Cumulative Preferred Stock, Series D (SF-PD)	New York Stock Exchange		12,000
5.20% Senior Notes due 2047 (SFB)	New York Stock Exchange	$	225,000,000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“the Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐


Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

STIFEL FINANCIAL CORP.

Form 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements		3
Consolidated Statements of Financial Condition as of March 31, 2023 (unaudited) and December 31, 2022		3
Consolidated Statements of Operations for the three months ended March 31, 2023 and March 31, 2022 (unaudited)		4
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and March 31, 2022 (unaudited)		5
Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and March 31, 2022 (unaudited)		6
Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and March 31, 2022 (unaudited)		7
Notes to Consolidated Financial Statements (unaudited)		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		44
Item 3. Quantitative and Qualitative Disclosures About Market Risk		65
Item 4. Controls and Procedures		68

PART II – OTHER INFORMATION
Item 1. Legal Proceedings		68
Item 1A. Risk Factors		68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		68
Item 3. Defaults Upon Senior Securities		69
Item 4. Mine Safety Disclosures		69
Item 5. Other Information		69
Item 6. Exhibits		70
Signatures		71

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STIFEL FINANCIAL CORP.

Consolidated Statements of Financial Condition


	March 31, 2023			December 31, 2022
(in thousands, except share and per share amounts)	(Unaudited)
Assets
Cash and cash equivalents	$	2,765,747		$	2,199,985
Cash segregated for regulatory purposes		20,551			29,017
Receivables:
Brokerage clients, net		958,820			924,385
Brokers, dealers, and clearing organizations		457,739			418,091
Securities purchased under agreements to resell		549,215			348,162
Financial instruments owned, at fair value		973,802			731,752
Available-for-sale securities, at fair value		1,624,458			1,636,041
Held-to-maturity securities, at amortized cost		5,984,822			5,990,451
Loans:
Held for investment, net		20,709,768			20,465,092
Held for sale, at lower of cost or market		225,365			156,912
Investments, at fair value		101,875			99,376
Fixed assets, net		200,531			200,043
Operating lease right-of-use assets, net		748,507			775,949
Goodwill		1,380,211			1,326,548
Intangible assets, net		132,189			130,589
Loans and advances to financial advisors and other employees, net		659,737			654,112
Deferred tax assets, net		138,331			159,207
Other assets		965,985			950,412
Total assets	$	38,597,653		$	37,196,124
Liabilities
Payables:
Brokerage clients	$	907,191		$	770,336
Brokers, dealers, and clearing organizations		131,191			94,954
Drafts		80,329			102,212
Securities sold under agreements to repurchase		429,726			212,011
Bank deposits		28,325,327			27,117,111
Financial instruments sold, but not yet purchased, at fair value		653,881			454,817
Accrued compensation		329,360			677,376
Accounts payable and accrued expenses		1,238,434			1,264,282
Senior notes		1,114,822			1,114,554
Debentures to Stifel Financial Capital Trusts		60,000			60,000
Total liabilities		33,270,261			31,867,653
Equity
Preferred stock - $1 par value; authorized 3,000,000 shares; issued 27,400 shares		685,000			685,000
Common stock - $0.15 par value; authorized 194,000,000 shares; issued 111,662,113 and 111,662,034 shares, respectively		16,749			16,749
Additional paid-in-capital		1,830,637			1,928,069
Retained earnings		3,209,815			3,169,095
Accumulated other comprehensive loss		(91,821	)		(117,960	)
Treasury stock, at cost, 5,490,574 and 6,314,033 shares, respectively		(322,988	)		(352,482	)
Total equity		5,327,392			5,328,471
Total liabilities and equity	$	38,597,653		$	37,196,124

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended March 31,
(in thousands, except per share amounts)	2023			2022
Revenues:
Commissions	$	169,550		$	195,909
Principal transactions		115,522			159,270
Investment banking		211,879			254,846
Asset management		315,569			341,636
Interest		451,564			165,435
Other income		(2,293	)		8,888
Total revenues		1,261,791			1,125,984
Interest expense		154,998			9,457
Net revenues		1,106,793			1,116,527
Non-interest expenses:
Compensation and benefits		651,190			673,691
Occupancy and equipment rental		82,140			77,026
Communications and office supplies		46,136			42,456
Commissions and floor brokerage		14,440			15,887
Provision for credit losses		4,920			8,240
Other operating expenses		98,084			72,118
Total non-interest expenses		896,910			889,418
Income from operations before income tax expense		209,883			227,109
Provision for income taxes		52,344			53,560
Net income		157,539			173,549
Preferred dividends		9,320			9,320
Net income available to common shareholders	$	148,219		$	164,229

Earnings per common share:
Basic	$	1.36		$	1.50
Diluted	$	1.28		$	1.39

Cash dividends declared per common share	$	0.36		$	0.30

Weighted-average number of common shares outstanding:
Basic		108,754			109,205
Diluted		115,390			118,140

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2023		2022
Net income	$	157,539	$	173,549
Other comprehensive income/(loss), net of tax: (1)
Changes in unrealized gains/(losses) on available-for-sale securities (2)		22,710		(77,831	)
Foreign currency translation adjustment		3,429		10,509
Total other comprehensive income/(loss), net of tax		26,139		(67,322	)
Comprehensive income	$	183,678	$	106,227

(1)

Net of tax expense of $8.7 million and tax benefit of $20.8 million for the three months ended March 31, 2023 and 2022, respectively.

(2)

Net of reclassifications to earnings of realized losses of $5.6 million for the three months ended March 31, 2023. There were no reclassifications to earnings for the three months ended March 31, 2022.

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)


	Three Months Ended March 31,
(in thousands, except per share amounts)	2023			2022
Preferred stock, par value $1.00 per share:
Balance, beginning of period	$	685,000		$	685,000
Issuance of preferred stock		—			—
Balance, end of period		685,000			685,000
Common stock, par value $0.15 per share:
Balance, beginning of period		16,749			16,749
Issuance of common stock		—			—
Balance, end of period		16,749			16,749
Additional paid-in-capital:
Balance, beginning of period		1,928,069			1,922,382
Unit amortization, net of forfeitures		39,781			46,165
Distributions under employee plans		(137,220	)		(116,352	)
Other		7			81
Balance, end of period		1,830,637			1,852,276
Retained earnings:
Balance, beginning of period		3,169,095			2,757,208
Net income		157,539			173,549
Dividends declared:
Common		(43,728	)		(37,132	)
Preferred		(9,320	)		(9,320	)
Distributions under employee plans		(63,773	)		(49,984	)
Other		2			(97	)
Balance, end of period		3,209,815			2,834,224
Accumulated other comprehensive loss:
Balance, beginning of period		(117,960	)		4,718
Unrealized gains/(losses) on securities, net of tax		22,710			(77,831	)
Foreign currency translation adjustment, net of tax		3,429			10,509
Balance, end of period		(91,821	)		(62,604	)
Treasury stock, at cost:
Balance, beginning of period		(352,482	)		(351,098	)
Distributions under employee plans		124,015			79,797
Common stock repurchased		(94,521	)		—
Balance, end of period		(322,988	)		(271,301	)
Total Shareholders' Equity	$	5,327,392		$	5,054,344

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2023			2022
Cash Flows From Operating Activities:
Net income	$	157,539		$	173,549
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		15,076			11,675
Amortization of loans and advances to financial advisors and other employees		34,057			32,849
Amortization of premium on investment portfolio		2,356			3,880
Provision for credit losses and allowance for loans and advances to financial advisors and other employees		4,920			8,240
Amortization of intangible assets		4,437			5,094
Deferred income taxes		13,069			25,732
Stock-based compensation		43,083			45,502
Gains on sale of investments		(1,353	)		(3,799	)
Other, net		(6,157	)		(3,666	)
Decrease/(increase) in operating assets, net of assets acquired:
Receivables:
Brokerage clients		(34,435	)		(167,365	)
Brokers, dealers, and clearing organizations		(39,648	)		(108,419	)
Securities purchased under agreements to resell		(201,053	)		(227,798	)
Financial instruments owned, including those pledged		(242,050	)		(122,632	)
Loans originated as held for sale		(380,033	)		(236,323	)
Proceeds from mortgages held for sale		317,468			202,870
Loans and advances to financial advisors and other employees		(40,053	)		(45,237	)
Other assets		218			29,624
Increase/(decrease) in operating liabilities, net of liabilities assumed:
Payables:
Brokerage clients		136,855			(62,495	)
Brokers, dealers, and clearing organizations		3,369			115,682
Drafts		(21,883	)		(33,389	)
Financial instruments sold, but not yet purchased		199,064			185,265
Other liabilities and accrued expenses		(349,919	)		(504,485	)
Net cash used in operating activities	$	(385,073	)	$	(675,646	)

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows (continued)

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2023			2022
Cash Flows From Investing Activities:
Proceeds from:
Principal paydowns, calls, maturities, and sales of available-for-sale securities	$	47,416		$	80,221
Calls and principal paydowns of held-to-maturity securities		5,548			102,744
Sale or maturity of investments		—			10,092
Increase in loans held for investment, net		(250,052	)		(1,039,983	)
Payments for:
Purchase of fixed assets		(15,411	)		(12,628	)
Purchase of available-for-sale securities		(7,551	)		(1,906	)
Purchase of held-to-maturity securities		—			(70,000	)
Purchase of investments		(10,919	)		(4,235	)
Acquisitions, net of cash received		(58,765	)		—
Net cash used in investing activities		(289,734	)		(935,695	)
Cash Flows From Financing Activities:
Proceeds from Federal Home Loan Bank advances, net		—			28,000
Payment of contingent consideration		(5,037	)		(5,974	)
Increase in securities sold under agreements to repurchase		217,715			144,667
Increase in bank deposits, net		1,208,216			915,278
Increase in securities loaned		32,868			223,717
Tax payments related to shares withheld for stock-based compensation plans		(74,238	)		(84,259	)
Repurchase of common stock		(94,521	)		—
Cash dividends on preferred stock		(9,320	)		(9,320	)
Cash dividends paid to common stock and equity-award holders		(47,009	)		(36,451	)
Net cash provided by financing activities		1,228,674			1,175,658
Effect of exchange rate changes on cash		3,429			10,509
Increase/(decrease) in cash, cash equivalents, and cash segregated for regulatory purposes		557,296			(425,174	)
Cash, cash equivalents, and cash segregated for regulatory purposes at beginning of period		2,229,002			2,149,657
Cash, cash equivalents, and cash segregated for regulatory purposes at end of period	$	2,786,298		$	1,724,483
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds	$	4,037		$	9,806
Cash paid for interest		158,201			15,731
Noncash financing activities:
Unit grants, net of forfeitures		143,638			156,069


The following presents cash, cash equivalents, and cash restricted for regulatory purposes for the periods presented (in thousands):
	March 31, 2023		December 31, 2022
Cash and cash equivalents	$	2,765,747	$	2,199,985
Cash segregated for regulatory purposes		20,551		29,017
Total cash, cash equivalents, and cash segregated for regulatory purposes	$	2,786,298	$	2,229,002

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – Nature of Operations, Basis of Presentation, and Summary of Significant Accounting Policies

Nature of Operations

Stifel Financial Corp. (the “Company”), 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 throughout the United States, with a growing presence in the United Kingdom, Europe, and Canada. Our company’s principal customers are individual investors, corporations, municipalities, and institutions.

Basis of Presentation

The consolidated financial statements include Stifel Financial Corp. and its wholly owned subsidiaries, principally Stifel, Nicolaus & Company, Incorporated (“Stifel”), Keefe, Bruyette & Woods, Inc., Stifel Bancorp, Inc. (“Stifel Bancorp”), Stifel Nicolaus Canada Inc. (“SNC”), and Stifel Nicolaus Europe Limited (“SNEL”). Unless otherwise indicated, the terms “we,” “us,” “our,” or “our company” in this report refer to Stifel Financial Corp. and its wholly owned subsidiaries.

We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles. In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise noted) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2022 on file with the SEC.

Certain amounts from prior periods have been reclassified to conform to the current period’s presentation. The effect of these reclassifications on our company’s previously reported consolidated financial statements was not material.

Consolidation Policies

The consolidated financial statements include the accounts of Stifel Financial Corp. and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

We have investments or interests in other entities for which we must evaluate whether to consolidate by determining whether we have a controlling financial interest or are considered to be the primary beneficiary. Under our current consolidation policy we consolidate those entities where we have the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the rights to receive benefits from the entity that could potentially be significant to the entity.

We determine whether we are the primary beneficiary of a variable interest entity (“VIE”) by performing an analysis of the VIE’s control structure, expected benefits and losses, and expected residual returns. This analysis includes a review of, among other factors, the VIE’s capital structure, contractual terms, which interests create or absorb benefits or losses, variability, related party relationships, and the design of the VIE. We reassess our evaluation of whether an entity is a VIE when certain reconsideration events occur. We reassess our determination of whether we are the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances. See Note 25 for additional information on VIEs.

NOTE 2 – New Accounting Pronouncements

Recently Adopted Accounting Guidance

Financial Instruments – Credit Losses

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, “Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures,” which eliminates the accounting guidance for TDRs, now requiring an entity to determine whether a modification results in a new loan or a continuation of an existing loan, as well as expanding disclosures related to modifications and requires disclosure of current period gross write-offs of financing receivables within the vintage disclosures table. The accounting update is effective for interim and annual periods beginning after December 15, 2022 (January 1, 2023, for our company), and early adoption is permitted. The adoption of the accounting update did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Guidance

Fair Value Measurement

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (ASU 2022-03), an update to ASC Topic 820 – Fair Value Measurement. The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments require new disclosures related to equity securities subject to contractual sale restrictions, including the fair value of such equity securities, the nature and remaining duration of the corresponding restrictions and any circumstances that could cause a lapse in the restrictions.

The amendments are effective for annual reporting periods beginning after December 15, 2023 (January 1, 2024, for our company) and for the interim periods within those annual reporting periods. Early adoption is permitted, including in an interim period. We are currently evaluating the impact that the accounting update will have on our consolidated financial statements.

Leases

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements,” which requires entities to classify and account for leases with related parties on the basis of legally enforceable terms and conditions of the arrangement. The accounting update is effective for interim and annual periods beginning after December 15, 2023 (January 1, 2024, for our company), and early adoption is permitted. We are currently evaluating the impact that the accounting update will have on our consolidated financial statements.

NOTE 3 – Receivables From and Payables to Brokers, Dealers, and Clearing Organizations

Amounts receivable from brokers, dealers, and clearing organizations at March 31, 2023 and December 31, 2022, included (in thousands):


	March 31, 2023		December 31, 2022
Receivables from clearing organizations	$	237,776	$	186,800
Deposits paid for securities borrowed		200,533		219,052
Securities failed to deliver		19,430		12,239
	$	457,739	$	418,091

Amounts payable to brokers, dealers, and clearing organizations at March 31, 2023 and December 31, 2022, included (in thousands):


	March 31, 2023		December 31, 2022
Deposits received from securities loaned	$	100,973	$	68,105
Securities failed to receive		23,461		12,385
Payable to clearing organizations		6,757		14,464
	$	131,191	$	94,954

Deposits paid for securities borrowed approximate the market value of the securities. Securities failed to deliver and receive represent the contract value of securities that have not been delivered or received on settlement date.

NOTE 4 – Fair Value Measurements

We measure certain financial assets and liabilities at fair value on a recurring basis, including financial instruments owned, available-for-sale securities, investments, financial instruments sold, but not yet purchased, and derivatives.

We generally utilize third-party pricing services to value Level 1 and Level 2 available-for-sale investment securities, as well as certain derivatives designated as cash flow hedges. We review the methodologies and assumptions used by the third-party pricing services and evaluate the values provided, principally by comparison with other available market quotes for similar instruments and/or analysis based on internal models using available third-party market data. We may occasionally adjust certain values provided by the third-party pricing service when we believe, as the result of our review, that the adjusted price most appropriately reflects the fair value of the particular security.

Following are descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value. The descriptions include an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.

Financial Instruments Owned and Available-For-Sale Securities

When available, the fair value of financial instruments is based on quoted prices in active markets and reported in Level 1. Level 1 financial instruments include highly liquid instruments with quoted prices, such as U.S. government securities, corporate fixed income securities, and equity securities listed in active markets.

If quoted prices are not available for identical instruments, fair values are obtained from pricing services, broker quotes, or other model-based valuation techniques with observable inputs, such as the present value of estimated cash flows, and reported as Level 2. The nature of these financial instruments include instruments for which quoted prices are available but traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Level 2 financial instruments include U.S. government agency securities, mortgage-backed securities, fixed income and equity securities infrequently traded, state and municipal securities, asset-backed securities, and non-agency mortgage-backed securities and sovereign debt securities, included in other in the table below.

We have identified Level 3 financial instruments to include certain asset-backed securities and syndicated loans, included in other in the table below. Level 3 financial instruments have little to no pricing observability as of the report date. These financial instruments do not have active two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Investments

Investments carried at fair value primarily include corporate equity securities, auction-rate securities (“ARS”), and private company investments.

Corporate equity securities are primarily valued based on quoted prices in active markets and reported in Level 1.

ARS are primarily valued based upon our expectations of issuer redemptions and using internal discounted cash flow models that utilize unobservable inputs. ARS are reported as Level 3 assets. Private company investments are primarily valued based upon internally developed models. These valuations require significant management judgment due to the absence of quoted market prices, the inherent lack of liquidity, and their long-term nature. Typically, the initial costs of these investments are considered to represent fair market value, as such amounts are negotiated between willing market participants. Private company investments are primarily reported as Level 3 assets.

Investments at fair value include investments in funds, including certain money market funds that are measured at net asset value (“NAV”). The Company uses NAV to measure the fair value of its fund investments when (i) the fund investment does not have a readily determinable fair value and (ii) the NAV of the investment fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the underlying investments at fair value.

The Company’s investments in funds measured at NAV include partnership interests, mutual funds, money market funds, and private equity funds. Private equity funds primarily invest in a broad range of industries worldwide in a variety of situations, including leveraged buyouts, recapitalizations, growth investments and distressed investments. The private equity funds are primarily closed-end funds in which the Company’s investments are generally not eligible for redemption. Distributions will be received from these funds as the underlying assets are liquidated or distributed.

The general and limited partnership interests in investment partnerships were primarily valued based upon NAVs received from third-party fund managers. The various partnerships are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the funds to utilize pricing/valuation information, including independent appraisals, from third-party sources. However, in some instances, current valuation information for illiquid securities or securities in markets that are not active may not be available from any third-party source or fund management may conclude that the valuations that are available from third-party sources are not reliable. In these instances, fund management may perform model-based analytical valuations that may be used as an input to value these investments.

The table below presents the fair value of our investments in, and unfunded commitments to, funds that are measured at NAV as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023				December 31, 2022
	Fair value of investments		Unfunded commitments		Fair value of investments		Unfunded commitments
Partnership interests	$	20,532	$	8,481	$	18,817	$	9,853
Mutual funds		4,955		—		4,728		—
Money market funds		2,569		—		1,650		—
Private equity funds		416		1,181		417		1,181
Total	$	28,472	$	9,662	$	25,612	$	11,034

Financial Instruments Sold, But Not Yet Purchased

Financial instruments sold, but not purchased, recorded at fair value based on quoted prices in active markets and other observable market data include highly liquid instruments with quoted prices, such as U.S. government securities, and fixed income and equity securities listed in active markets, which are reported as Level 1.

If quoted prices are not available, fair values are obtained from pricing services, broker quotes, or other model-based valuation techniques with observable inputs, such as the present value of estimated cash flows, and reported as Level 2. The nature of these financial instruments include instruments for which quoted prices are available but traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Level 2 financial instruments include U.S. government agency securities, agency mortgage-backed securities not actively traded, fixed income securities, sovereign debt securities, and state and municipal securities.

We have identified Level 3 financial instruments to include syndicated loans, included in other in the table below, with unobservable pricing inputs. Level 3 financial instruments have little to no pricing observability as of the report date. These financial instruments do not have active two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Derivatives

Derivatives are valued using quoted market prices for identical instruments when available or observable inputs from forward and futures yield curves. The valuation models used require market observable inputs, including contractual terms, market prices, yield curves, credit curves, and measures of volatility. We have classified our derivatives as Level 2. The counterparties to most of our company’s derivative transactions represent regulated banks, bank holding companies, and derivative clearing houses. Management has determined that the counterparty credit risk associated with its derivative transactions is not significant. Accordingly, the recorded fair values for these transactions have not been adjusted to reflect counterparty credit risk.

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2023, are presented below (in thousands):


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Financial instruments owned:
U.S. government securities	$	42,530	$	42,530	$	—	$	—
U.S. government agency securities		157,385		—		157,385		—
Agency mortgage-backed securities		276,964		—		276,964		—
Asset-backed securities		46,691		—		44,567		2,124
Corporate securities:
Fixed income securities		203,332		269		203,063		—
Equity securities		46,995		46,735		260		—
State and municipal securities		101,033		—		101,033		—
Other (1)		98,872				5,281		93,591
Total financial instruments owned		973,802		89,534		788,553		95,715
Available-for-sale securities:
U.S. government agency securities		2,189		—		2,189		—
State and municipal securities		2,351		—		2,351		—
Mortgage-backed securities:
Agency		792,969		—		792,969		—
Commercial		66,695		—		66,695		—
Non-agency		392		—		392		—
Corporate fixed income securities		550,322		—		550,322		—
Asset-backed securities		209,540		—		209,540		—
Total available-for-sale securities		1,624,458		—		1,624,458		—
Investments:
Corporate equity securities		23,779		10,221		1,680		11,878
Auction rate securities		14,680		—		—		14,680
Other (2)		37,513		100		45		37,368
Investments in funds and partnerships measured at NAV		25,903
Total investments		101,875		10,321		1,725		63,926
Cash equivalents measured at NAV		2,569
Derivative contracts (3)		116,772		—		116,772		—
	$	2,819,476	$	99,855	$	2,531,508	$	159,641

(1) Includes syndicated loans, non-agency mortgage-backed securities, and sovereign debt.

(2) Primarily includes private company investments.

(3) Included in other assets in the consolidated statements of financial condition.


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Liabilities:
Financial instruments sold, but not yet purchased:
U.S. government securities	$	377,430	$	377,430	$	—	$	—
U.S. government agency securities		29,110		—		29,110		—
Agency mortgage-backed securities		50,768		—		50,768		—
Corporate securities:
Fixed income securities		175,354		193		175,161		—
Equity securities		15,148		15,148		—		—
Other (4)		6,071		—		182		5,889
Total financial instruments sold, but not yet purchased		653,881		392,771		255,221		5,889
Derivative contracts (5)		116,758		—		116,758		—
	$	770,639	$	392,771	$	371,979	$	5,889

(4) Includes syndicated loans and sovereign debt.

(5) Included in accounts payable and accrued expenses in the consolidated statements of financial condition.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2022, are presented below (in thousands):


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Financial instruments owned:
U.S. government securities	$	38,956	$	38,956	$	—	$	—
U.S. government agency securities		73,608		—		73,608		—
Agency mortgage-backed securities		172,642		—		172,642		—
Asset-backed securities		8,270		—		6,091		2,179
Corporate securities:
Fixed income securities		202,169		689		201,480		—
Equity securities		38,129		37,383		746		—
State and municipal securities		126,237		—		126,237		—
Other (1)		71,741		—		1,853		69,888
Total financial instruments owned		731,752		77,028		582,657		72,067
Available-for-sale securities:
U.S. government agency securities		2,148		—		2,148		—
State and municipal securities		2,351		—		2,351		—
Mortgage-backed securities:
Agency		791,022		—		791,022		—
Commercial		66,113		—		66,113		—
Non-agency		388		—		388		—
Corporate fixed income securities		566,294		—		566,294		—
Asset-backed securities		207,725		—		207,725		—
Total available-for-sale securities		1,636,041		—		1,636,041		—
Investments:
Corporate equity securities		23,597		9,928		1,791		11,878
Auction rate securities		14,681		—		—		14,681
Other (2)		37,136		117		45		36,974
Investments in funds and partnerships measured at NAV		23,962
Total investments		99,376		10,045		1,836		63,533
Cash equivalents measured at NAV		1,650
Derivative contracts (3)		142,042		—		142,042		—
	$	2,610,861	$	87,073	$	2,362,576	$	135,600

(1)

Includes syndicated loans, non-agency mortgage-backed securities, and sovereign debt.

(2)

Primarily includes private company investments.

(3)

Included in other assets in the consolidated statements of financial condition.


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Liabilities:
Financial instruments sold, but not yet purchased:
U.S. government securities	$	254,265	$	254,265	$	—	$	—
U.S. government agency securities		3,971		—		3,971		—
Agency mortgage-backed securities		44,793		—		44,793		—
Corporate securities:
Fixed income securities		134,381		88		134,293		—
Equity securities		11,590		11,590		—		—
Other (4)		5,817		—		36		5,781
Total financial instruments sold, but not yet purchased		454,817		265,943		183,093		5,781
Derivative contracts (5)		142,028		—		142,028		—
	$	596,845	$	265,943	$	325,121	$	5,781

(4)

Includes syndicated loans and state and municipal securities.

(5)

Included in accounts payable and accrued expenses in the consolidated statements of financial condition.

The following table summarizes the changes in fair value associated with Level 3 financial instruments during the three months ended March 31, 2023 (in thousands):


	Three Months Ended March 31, 2023
	Financial instruments owned						Investments
	Asset-Backed Securities			Syndicated Loans			Corporate Equity Securities		Auction Rate Securities			Other
Balance at December 31, 2022	$	2,179		$	69,888		$	11,878	$	14,681		$	36,974
Unrealized gains/(losses)		—			108			—		(1	)		394
Realized gains/(losses)		6			(134	)		—		—			—
Purchases		—			31,365			—		—			—
Sales		—			(2,103	)		—		—			—
Redemptions		(61	)		(5,533	)		—		—			—
Net change		(55	)		23,703			—		(1	)		394
Balance at March 31, 2023	$	2,124		$	93,591		$	11,878	$	14,680		$	37,368

The results included in the table above are only a component of the overall investment strategies of our company. The table above does not present Level 1 or Level 2 valued assets or liabilities. The changes in unrealized gains/(losses) recorded in earnings for the three months ended March 31, 2023, relating to Level 3 assets still held at March 31, 2023, were immaterial.

The fair value of certain Level 3 assets was determined using various methodologies, as appropriate, including third-party pricing vendors and broker quotes. These inputs are evaluated for reasonableness through various procedures, including due diligence reviews of third-party pricing vendors, variance analyses, consideration of current market environment, and other analytical procedures.

The fair value for our auction rate securities was determined using an income approach based on an internally developed discounted cash flow model. The discounted cash flow model utilizes two significant unobservable inputs: discount rate and workout period. Significant increases in any of these inputs in isolation would result in a significantly lower fair value. On an ongoing basis, management verifies the fair value by reviewing the appropriateness of the discounted cash flow model and its significant inputs.

Fair Value of Financial Instruments

The following reflects the fair value of financial instruments as of March 31, 2023 and December 31, 2022, whether or not recognized in the consolidated statements of financial condition at fair value (in thousands).


	March 31, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	2,765,747	$	2,765,747	$	2,199,985	$	2,199,985
Cash segregated for regulatory purposes		20,551		20,551		29,017		29,017
Securities purchased under agreements to resell		549,215		549,215		348,162		348,162
Financial instruments owned		973,802		973,802		731,752		731,752
Available-for-sale securities		1,624,458		1,624,458		1,636,041		1,636,041
Held-to-maturity securities		5,984,822		5,779,545		5,990,451		5,738,418
Bank loans		20,709,768		19,847,907		20,465,092		19,752,043
Loans held for sale		225,365		225,365		156,912		156,912
Investments		101,875		101,875		99,376		99,376
Derivative contracts (1)		116,772		116,772		142,042		142,042
Financial liabilities:
Securities sold under agreements to repurchase	$	429,726	$	429,726	$	212,011	$	212,011
Bank deposits		28,325,327		25,611,711		27,117,111		24,274,224
Financial instruments sold, but not yet purchased		653,881		653,881		454,817		454,817
Senior notes		1,114,822		1,027,532		1,114,554		1,016,755
Debentures to Stifel Financial Capital Trusts		60,000		52,958		60,000		53,385
Derivative contracts (2)		116,758		116,758		142,028		142,028

(1) Included in other assets in the consolidated statements of financial condition.
(2) Included in accounts payable and accrued expenses in the consolidated statements of financial condition.

The following tables present the estimated fair values of financial instruments not measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash	$	2,763,178	$	2,763,178	$	—	$	—
Cash segregated for regulatory purposes		20,551		20,551		—		—
Securities purchased under agreements to resell		549,215		362,868		186,347		—
Held-to-maturity securities		5,779,545		—		5,666,895		112,650
Bank loans		19,847,907		—		19,847,907		—
Loans held for sale		225,365		—		225,365		—
Financial liabilities:
Securities sold under agreements to repurchase	$	429,726	$	12,825	$	416,901	$	—
Bank deposits		25,611,711		—		25,611,711		—
Senior notes		1,027,532		1,027,532		—		—
Debentures to Stifel Financial Capital Trusts		52,958		—		—		52,958


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash	$	2,198,335	$	2,198,335	$	—	$	—
Cash segregated for regulatory purposes		29,017		29,017		—		—
Securities purchased under agreements to resell		348,162		218,515		129,647		—
Held-to-maturity securities		5,738,418		—		5,624,042		114,376
Bank loans		19,752,043		—		19,752,043		—
Loans held for sale		156,912		—		156,912		—
Financial liabilities:
Securities sold under agreements to repurchase	$	212,011	$	—	$	212,011	$	—
Bank deposits		24,274,224		—		24,274,224		—
Senior notes		1,016,755		1,016,755		—		—
Debentures to Stifel Financial Capital Trusts		53,385		—		—		53,385

The following, as supplemented by the discussion above, describes the valuation techniques used in estimating the fair value of our financial instruments as of March 31, 2023 and December 31, 2022.

Financial Assets

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell are collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The carrying values at March 31, 2023 and December 31, 2022 approximate fair value due to their short-term nature.

Held-to-Maturity Securities

Securities held to maturity are recorded at amortized cost based on our company’s positive intent and ability to hold these securities to maturity. Securities held to maturity include asset-backed securities, consisting of collateralized loan obligation securities and student loan ARS. The estimated fair value, included in the above table, is determined using several factors; however, primary weight is given to discounted cash flow modeling techniques that incorporated an estimated discount rate based upon recent observable debt security issuances with similar characteristics.

Bank Loans

The fair values of mortgage loans and commercial loans were estimated using a discounted cash flow method, a form of the income approach. Discount rates were determined considering rates at which similar portfolios of loans, with similar remaining maturities, would be made and considering liquidity spreads applicable to each loan portfolio based on the secondary market.

Loans Held for Sale

Loans held for sale consist of fixed-rate and adjustable-rate residential real estate mortgage loans intended for sale. Loans held for sale are stated at lower of cost or market value. Market value is determined based on prevailing market prices for loans with similar characteristics or on sale contract prices.

Financial Liabilities

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The carrying values at March 31, 2023 and December 31, 2022 approximate fair value due to the short-term nature.

Bank Deposits

The fair value of interest-bearing deposits, including certificates of deposits, demand deposits, savings, and checking accounts, was calculated by discounting the future cash flows using discount rates based on the replacement cost of funding of similar structures and terms.

Senior Notes

The fair value of our senior notes is estimated based upon quoted market prices.

Debentures to Stifel Financial Capital Trusts

The fair value of our trust preferred securities is based on the discounted value of contractual cash flows. We have assumed a discount rate based on similar type debt instruments.

These fair value disclosures represent our best estimates based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected losses, current economic conditions, risk characteristics of the various instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in the above methodologies and assumptions could significantly affect the estimates.

NOTE 5 – Financial Instruments Owned and Financial Instruments Sold, But Not Yet Purchased

The components of financial instruments owned and financial instruments sold, but not yet purchased, at March 31, 2023 and December 31, 2022 are as follows (in thousands):


	March 31, 2023		December 31, 2022
Financial instruments owned:
U.S. government securities	$	42,530	$	38,956
U.S. government agency securities		157,385		73,608
Agency mortgage-backed securities		276,964		172,642
Asset-backed securities		46,691		8,270
Corporate securities:
Fixed income securities		203,332		202,169
Equity securities		46,995		38,129
State and municipal securities		101,033		126,237
Other (1)		98,872		71,741
	$	973,802	$	731,752
Financial instruments sold, but not yet purchased:
U.S. government securities	$	377,430	$	254,265
U.S. government agency securities		29,110		3,971
Agency mortgage-backed securities		50,768		44,793
Corporate securities:
Fixed income securities		175,354		134,381
Equity securities		15,148		11,590
Other (2)		6,071		5,817
	$	653,881	$	454,817

(1) Includes syndicated loans, non-agency mortgage-backed securities, and sovereign debt.

(2) Includes syndicated loans, state and municipal securities, and sovereign debt.

At March 31, 2023 and December 31, 2022, financial instruments owned in the amount of $442.9 million and $218.9 million, respectively, were pledged as collateral for our repurchase agreements and short-term borrowings. Our financial instruments owned are presented on a trade-date basis in the consolidated statements of financial condition.

Financial instruments sold, but not yet purchased, represent obligations of our company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices in future periods. We are obligated to acquire the securities sold short at prevailing market prices in future periods, which may exceed the amount reflected in the consolidated statements of financial condition.

NOTE 6 – Available-for-Sale and Held-to-Maturity Securities

The following tables provide a summary of the amortized cost and fair values of the available-for-sale securities and held-to-maturity securities at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023
	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)			Fair Value
Available-for-sale securities
U.S. government agency securities	$	2,353	$	11	$	(175	)	$	2,189
State and municipal securities		2,350		1		—			2,351
Mortgage-backed securities:
Agency		908,893		6		(115,930	)		792,969
Commercial		71,171		—		(4,476	)		66,695
Non-agency		422		—		(30	)		392
Corporate fixed income securities		622,693		11		(72,382	)		550,322
Asset-backed securities		213,197		211		(3,868	)		209,540
	$	1,821,079	$	240	$	(196,861	)	$	1,624,458
Held-to-maturity securities (2)
Asset-backed securities	$	5,984,822	$	3,399	$	(208,676	)	$	5,779,545


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)			Fair Value
Available-for-sale securities
U.S. government agency securities	$	2,345	$	6	$	(203	)	$	2,148
State and municipal securities		2,350		1		—			2,351
Mortgage-backed securities:
Agency		921,676		—		(130,654	)		791,022
Commercial		71,462		—		(5,349	)		66,113
Non-agency		442		—		(54	)		388
Corporate fixed income securities		643,379		18		(77,103	)		566,294
Asset-backed securities		221,565		126		(13,966	)		207,725
	$	1,863,219	$	151	$	(227,329	)	$	1,636,041
Held-to-maturity securities (2)
Asset-backed securities	$	5,990,451	$	3,213	$	(255,246	)	$	5,738,418

(1)

Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive income.

(2)

Held-to-maturity securities are carried in the consolidated statements of financial condition at amortized cost, and the changes in the value of these securities, other than impairment charges, are not reported on the consolidated financial statements.

We are required to evaluate our available-for-sale and held-to-maturity debt securities for any expected losses with recognition of an allowance for credit losses, when applicable. At March 31, 2023, we did not have an allowance for credit losses recorded on our investment portfolio.

Accrued interest receivable for our investment portfolio at March 31, 2023 and December 31, 2022 was $84.6 million and $82.3 million, respectively, and is reported in other assets in the consolidated statements of financial condition. We do not include reserves for interest receivable in the measurement of the allowance for credit losses.

During the three months ended March 31, 2023, we received proceeds of $10.0 million from the sale of available-for-sale securities, which resulted in a realized loss of $7.6 million. There were no sales of available-for-sale securities during the three months ended March 31, 2022.

The table below summarizes the amortized cost and fair values of our securities by contractual maturity at March 31, 2023 and December 31, 2022 (in thousands). Expected maturities may differ significantly from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	March 31, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale securities
Within one year	$	19,821	$	19,301	$	16,047	$	15,877
After one year through three years		190,260		182,257		185,012		178,776
After three years through five years		104,158		92,269		123,696		108,707
After five years through ten years		440,663		383,638		442,055		380,362
After ten years		1,066,177		946,993		1,096,409		952,319
	$	1,821,079	$	1,624,458	$	1,863,219	$	1,636,041
Held-to-maturity securities
After five years through ten years		2,495,221		2,421,698		2,413,239		2,323,608
After ten years		3,489,601		3,357,847		3,577,212		3,414,810
	$	5,984,822	$	5,779,545	$	5,990,451	$	5,738,418

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at March 31, 2023, are as follows (in thousands):


	Within 1 Year		1-5 Years		5-10 Years		After 10 Years		Total
Available-for-sale securities (1)
U.S. government agency securities	$	—	$	2,189	$	—	$	—	$	2,189
State and municipal securities		—		2,351		—		—		2,351
Mortgage-backed securities:
Agency		5		65		59,498		733,401		792,969
Commercial		—		—		—		66,695		66,695
Non-agency		—		—		392		—		392
Corporate fixed income securities		19,296		269,921		261,105		—		550,322
Asset-backed securities		—		—		62,643		146,897		209,540
	$	19,301	$	274,526	$	383,638	$	946,993	$	1,624,458
Held-to-maturity securities
Asset-backed securities	$	—	$	—	$	2,495,221	$	3,489,601	$	5,984,822

(1)

Due to the immaterial amount of income recognized on tax-exempt securities, yields were not calculated on a tax-equivalent basis.

At March 31, 2023 and December 31, 2022, securities of $796.6 million and $796.2 million, respectively, were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. At March 31, 2023 and December 31, 2022, securities of $1.3 billion and $1.3 billion, respectively, were pledged with the Federal Reserve discount window.

The following table shows the gross unrealized losses and fair value of the Company’s investment securities with unrealized losses, aggregated by investment category and length of time the individual investment securities have been in continuous unrealized loss positions, at March 31, 2023 (in thousands):


	Less than 12 months					12 months or more					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Available-for-sale securities
U.S. government agency securities	$	(175	)	$	1,752	$	—		$	—	$	(175	)	$	1,752
Mortgage-backed securities:
Agency		(3,990	)		104,347		(111,940	)		685,830		(115,930	)		790,177
Commercial		—			—		(4,476	)		66,691		(4,476	)		66,691
Non-agency		(30	)		392		—			—		(30	)		392
Corporate fixed income securities		(2,614	)		58,582		(69,768	)		489,235		(72,382	)		547,817
Asset-backed securities		(1,314	)		73,290		(2,554	)		100,590		(3,868	)		173,880
	$	(8,123	)	$	238,363	$	(188,738	)	$	1,342,346	$	(196,861	)	$	1,580,709

At March 31, 2023, the amortized cost of 273 securities classified as available for sale exceeded their fair value by $196.9 million, of which $188.7 million related to investment securities that had been in a loss position for 12 months or longer. The total fair value of these investments at March 31, 2023, was $1.6 billion, which was 97.3% of our available-for-sale portfolio.

Credit Quality Indicators

The Company uses Moody credit ratings as the primary credit quality indicator for its held-to-maturity debt securities. Each security is evaluated at least quarterly. The indicators represent the rating for debt securities, as of the date presented, based on the most recent assessment performed. The following table shows the amortized cost of our held-to-maturity securities by credit quality indicator at March 31, 2023 (in thousands):


	AAA		AA		A		BBB		C		Total
Held-to-maturity securities
Asset-backed securities	$	1,219,326	$	4,744,524	$	5,000	$	14,077	$	1,895	$	5,984,822

NOTE 7 – Bank Loans

Our loan portfolio consists primarily of the following segments:

Commercial and industrial (C&I). C&I loans primarily include commercial and industrial lending used for general corporate purposes, working capital and liquidity, and “event-driven.” “Event-driven” loans support client merger, acquisition or recapitalization activities. C&I lending is structured as revolving lines of credit, letter of credit facilities, term loans and bridge loans. Risk factors considered in determining the allowance for corporate loans include the borrower’s financial strength, seniority of the loan, collateral type, leverage, volatility of collateral value, debt cushion, and covenants.

Fund banking. Fund banking loans primarily include capital call lines of credit, also known as subscription lines of credit. These credit facilities are used by closed-end private investment funds (“Fund”) that have raised capital commitments from limited partners to effectively manage the Fund’s cash and bridge timing between the Fund’s investments and capital calls. The lines of credit are collateralized by a pledge of the limited partner’s contractually callable capital and the general partner’s right to call such capital as permitted in the Fund’s partnership agreement.

Securities-based loans. Securities-based loans allow clients to borrow money against the value of qualifying securities for any suitable purpose other than purchasing, trading, or carrying securities or refinancing margin debt. The majority of consumer loans are structured as revolving lines of credit and letter of credit facilities and are primarily offered through Stifel’s Pledged Asset (“SPA”) program. The allowance methodology for securities-based lending considers the collateral type underlying the loan, including the liquidity and trading volume of the collateral, position concentration and other borrower specific factors such as personal guarantees.

Real Estate. Real estate loans include residential real estate non-conforming loans, residential real estate conforming loans, commercial real estate, and home equity lines of credit. The allowance methodology related to real estate loans considers several factors, including, but not limited to, loan-to-value ratio, FICO score, home price index, delinquency status, credit limits, and utilization rates.

Construction and land. Short-term loans used to finance the development of a real estate project.

Other. Other loans include consumer and credit card lending.

The following table presents the balance and associated percentage of each major loan category in our bank loan portfolio at March 31, 2023 and December 31, 2022 (in thousands, except percentages):


	March 31, 2023						December 31, 2022
	Balance			Percent			Balance			Percent
Residential real estate	$	7,494,788			35.9	%	$	7,371,671			35.8	%
Commercial and industrial		4,755,664			22.8			4,897,176			23.8
Fund banking		4,623,423			22.1			4,182,641			20.3
Securities-based loans		2,558,343			12.2			2,724,551			13.2
Commercial real estate		663,325			3.2			675,599			3.3
Construction and land		644,800			3.1			593,191			2.9
Home equity lines of credit		109,197			0.5			107,136			0.5
Other		49,904			0.2			50,593			0.2
Gross bank loans		20,899,444			100.0	%		20,602,558			100.0	%
Loans in process		(51,795	)					(3,526	)
Unamortized loan fees, net		(20,719	)					(22,287	)
Allowance for loan losses		(117,162	)					(111,653	)
Loans held for investment, net	$	20,709,768					$	20,465,092

At March 31, 2023 and December 31, 2022, Stifel Bancorp had loans outstanding to its executive officers and directors and executive officers and directors of certain affiliated entities in the amount of $85.5 million and $86.4 million, respectively.

At March 31, 2023 and December 31, 2022, we had loans held for sale of $225.4 million and $156.9 million, respectively. For the three months ended March 31, 2023 and 2022, we recognized a loss of $0.6 million and a gain of $0.7 million, respectively, from the sale of originated loans, net of fees and costs.

At March 31, 2023 and December 31, 2022, loans, primarily consisting of residential and commercial real estate loans of $7.4 billion and $7.0 billion, respectively, were pledged at the Federal Home Loan Bank as collateral for borrowings.

Accrued interest receivable for loans and loans held for sale at March 31, 2023 and December 21, 2022 was $82.6 million and $65.7 million, respectively, and is reported in other assets on the consolidated statement of financial condition.

The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2023 (in thousands).


	Three Months Ended March 31, 2023
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	54,143	$	1,458		$	(20	)	$	153	$	55,734
Residential real estate		20,441		2,255			—			—		22,696
Commercial real estate		12,897		(1,331	)		—			—		11,566
Fund banking		11,711		1,232			—			—		12,943
Construction and land		8,568		1,749			—			—		10,317
Securities-based loans		3,157		(40	)		—			—		3,117
Home equity lines of credit		364		48			—			—		412
Other		372		5			—			—		377
	$	111,653	$	5,376		$	(20	)	$	153	$	117,162

During the three months ended March 31, 2023 we released $0.5 million for the provision for unfunded lending commitments. The provision for unfunded lending commitments was $3.4 million for the three months ended March 31, 2022. The provision for unfunded lending agreements is included in the provision for credit losses on the consolidated statement of operations. The expected credit losses for unfunded lending commitments, including standby letters of credit and binding unfunded loan commitments, are reported on the consolidated statement of financial condition in accounts payable and accrued expenses.

The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2022 (in thousands).


	Three Months Ended March 31, 2022
	Beginning Balance		Provision			Charge-offs		Recoveries		Ending Balance
Commercial and industrial	$	44,661	$	1,527		$	—	$	—	$	46,188
Residential real estate		28,560		4,367			—		—		32,927
Fund banking		8,868		(476	)		—		—		8,392
Construction and land		8,536		(415	)		—		—		8,121
Securities-based loans		4,006		(30	)		—		—		3,976
Commercial real estate		3,934		(254	)		—		—		3,680
Home equity lines of credit		511		172			—		—		683
Other		268		(37	)		—		—		231
	$	99,344	$	4,854		$	—	$	—	$	104,198

At March 31, 2023, we had $10.7 million of impaired loans, net of discounts, which included $0.1 million in troubled debt restructurings. The specific allowance on impaired loans at March 31, 2023 was $6.6 million. At December 31, 2022, we had $10.3 million of impaired loans, net of discounts, which included $0.2 million in troubled debt restructurings. The specific allowance on impaired loans at December 31, 2022 was $6.5 million. The gross interest income related to impaired loans, which would have been recorded, had these

loans been current in accordance with their original terms, and the interest income recognized on these loans during the three months ended March 31, 2023 and 2022, were insignificant to the consolidated financial statements.

The following tables present the aging of the recorded investment in past due loans at March 31, 2023 and December 31, 2022 by portfolio segment (in thousands):


	As of March 31, 2023
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	4,938	$	720	$	5,658	$	7,489,130	$	7,494,788
Commercial and industrial		—		9,550		9,550		4,746,114		4,755,664
Fund banking		—		—		—		4,623,423		4,623,423
Securities-based loans		—		—		—		2,558,343		2,558,343
Commercial real estate		—		—		—		663,325		663,325
Construction and land		—		—		—		644,800		644,800
Home equity lines of credit		22		310		332		108,865		109,197
Other		37		20		57		49,847		49,904
Total	$	4,997	$	10,600	$	15,597	$	20,883,847	$	20,899,444


	As of March 31, 2023*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	9,550	$	—	$	—	$	9,550
Residential real estate		720		149		—		869
Home equity lines of credit		310		—		—		310
Other		20		—		—		20
Total	$	10,600	$	149	$	—	$	10,749

* There were no loans past due 90 days and still accruing interest at March 31, 2023.


	As of December 31, 2022
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	2,445	$	688	$	3,133	$	7,368,538	$	7,371,671
Commercial and industrial		—		9,226		9,226		4,887,950		4,897,176
Fund banking		—		—		—		4,182,641		4,182,641
Securities-based loans		—		—		—		2,724,551		2,724,551
Commercial real estate		—		—		—		675,599		675,599
Construction and land		—		—		—		593,191		593,191
Home equity lines of credit		29		182		211		106,925		107,136
Other		36		6		42		50,551		50,593
Total	$	2,510	$	10,102	$	12,612	$	20,589,946	$	20,602,558


	As of December 31, 2022*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	9,226	$	—	$	—	$	9,226
Residential real estate		870		150		—		1,020
Other		6		—		—		6
Total	$	10,102	$	150	$	—	$	10,252

* There were no loans past due 90 days and still accruing interest at December 31, 2022.

Credit quality indicators

As of March 31, 2023, bank loans were primarily extended to non-investment grade borrowers. Substantially all of these loans align with the U.S. Federal bank regulatory agencies’ definition of Pass. Loans meet the definition of Pass when they are performing and do not demonstrate adverse characteristics that are likely to result in a credit loss. A loan is determined to be impaired when principal or interest becomes 90 days past due or when collection becomes uncertain. At the time a loan is determined to be impaired, the accrual of interest and amortization of deferred loan origination fees is discontinued (“nonaccrual status”), and any accrued and unpaid interest income is reversed.

We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency ratios are an indicator, among other considerations, of credit risk within our loan portfolio. The level of nonperforming assets represents another indicator of the potential for future credit losses. Accordingly, key metrics we track and use in evaluating the credit quality of our loan portfolio include delinquency and nonperforming asset rates, as well as charge-off rates and our internal risk ratings of the loan portfolio. In general, we are a secured lender. At March 31, 2023 and December 31, 2022, 97.2% and 97.5% of our loan portfolio was collateralized, respectively. Collateral is required in accordance with the normal credit evaluation process based upon the creditworthiness of the customer and the credit risk associated with the particular transaction. The Company uses the following definitions for risk ratings:

Pass. A credit exposure rated pass has a continued expectation of timely repayment, all obligations of the borrower are current, and the obligor complies with material terms and conditions of the lending agreement.

Special Mention. Extensions of credit that have potential weakness that deserve management’s close attention, and if left uncorrected may, at some future date, result in the deterioration of the repayment prospects or collateral position.

Substandard. Obligor has a well-defined weakness that jeopardizes the repayment of the debt and has a high probability of payment default with the distinct possibility that the Company will sustain some loss if noted deficiencies are not corrected.

Doubtful. Inherent weakness in the exposure makes the collection or repayment in full, based on existing facts, conditions and circumstances, highly improbable, and the amount of loss is uncertain.

Substandard loans are regularly reviewed for impairment. Doubtful loans are considered impaired. When a loan is impaired the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent.

Based on the most recent analysis performed, the risk category of our loan portfolio was as follows (in thousands):


	As of March 31, 2023
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	7,494,068	$	104	$	—	$	616	$	7,494,788
Commercial and industrial		4,583,114		85,336		77,664		9,550		4,755,664
Fund banking		4,623,423		—		—		—		4,623,423
Securities-based loans		2,558,340		—		—		3		2,558,343
Commercial real estate		603,816		59,509		—		—		663,325
Construction and land		644,800		—		—		—		644,800
Home equity lines of credit		108,886		311		—		—		109,197
Other		49,884		14		—		6		49,904
Total	$	20,666,331	$	145,274	$	77,664	$	10,175	$	20,899,444


	As of December 31, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	7,370,717	$	266	$	—	$	688	$	7,371,671
Commercial and industrial		4,743,290		87,761		56,899		9,226		4,897,176
Fund banking		4,182,641		—		—		—		4,182,641
Securities-based loans		2,724,548		—		—		3		2,724,551
Commercial real estate		655,599		20,000		—		—		675,599
Construction and land		593,191		—		—		—		593,191
Home equity lines of credit		106,954		—		—		182		107,136
Other		50,587		—		—		6		50,593
Total	$	20,427,527	$	108,027	$	56,899	$	10,105	$	20,602,558


	Term Loans Amortized Cost Basis by Origination Year – March 31, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Residential real estate:
Pass	$	239,280	$	2,764,323	$	2,452,993	$	973,103	$	433,385	$	630,984	$	—	$	7,494,068
Special Mention		—		—		—		—		—		104		—		104
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		616		—		616
	$	239,280	$	2,764,323	$	2,452,993	$	973,103	$	433,385	$	631,704	$	—	$	7,494,788
Commercial and industrial:
Pass	$	31,642	$	95,642	$	110,714	$	25,121	$	854	$	3,693,808	$	625,333	$	4,583,114
Special Mention		—		—		—		—		—		72,442		12,894		85,336
Substandard		—		—		—		—		—		61,073		16,591		77,664
Doubtful		—		—		—		297		—		9,253		—		9,550
	$	31,642	$	95,642	$	110,714	$	25,418	$	854	$	3,836,576	$	654,818	$	4,755,664
Fund banking:
Pass	$	3,500	$	305	$	—	$	937	$	—	$	55,000	$	4,563,681	$	4,623,423
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	3,500	$	305	$	—	$	937	$	—	$	55,000	$	4,563,681	$	4,623,423
Securities-based loans:
Pass	$	5,889	$	39,098	$	3,250	$	43,079	$	27,278	$	9,294	$	2,430,452	$	2,558,340
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		3		3
	$	5,889	$	39,098	$	3,250	$	43,079	$	27,278	$	9,294	$	2,430,455	$	2,558,343
Commercial real estate:
Pass	$	—	$	406,579	$	69,582	$	32,059	$	20,814	$	74,782	$	—	$	603,816
Special Mention		—		20,000		39,509		—		—		—		—		59,509
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	426,579	$	109,091	$	32,059	$	20,814	$	74,782	$	—	$	663,325
Construction and land:
Pass	$	—	$	242,222	$	141,576	$	151,024	$	85,746	$	24,232	$	—	$	644,800
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	242,222	$	141,576	$	151,024	$	85,746	$	24,232	$	—	$	644,800
Home equity lines of credit:
Pass	$	9,291	$	38,104	$	20,427	$	23,254	$	12,092	$	5,718	$	—	$	108,886
Special Mention		—		—		282		29		—		—		—		311
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	9,291	$	38,104	$	20,709	$	23,283	$	12,092	$	5,718	$	—	$	109,197
Other:
Pass	$	363	$	3,991	$	—	$	10,000	$	—	$	32,055	$	3,475	$	49,884
Special Mention		—		—		—		—		—		—		14		14
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		6		6
	$	363	$	3,991	$	—	$	10,000	$	—	$	32,055	$	3,495	$	49,904

NOTE 8 – Goodwill and Intangible Assets

The carrying amount of goodwill and intangible assets attributable to each of our reporting segments is presented in the following table (in thousands):


	December 31, 2022		Adjustments		Write-off		March 31, 2023
Goodwill
Global Wealth Management	$	335,009	$	—	$	—	$	335,009
Institutional Group		991,539		53,663		—		1,045,202
	$	1,326,548	$	53,663	$	—	$	1,380,211


	December 31, 2022		Adjustments		Amortization			March 31, 2023
Intangible assets
Global Wealth Management	$	33,499	$	—	$	(1,254	)	$	32,245
Institutional Group		97,090		6,037		(3,183	)		99,944
	$	130,589	$	6,037	$	(4,437	)	$	132,189

On March 1, 2023, the Company acquired Torreya Partners, LLC (“Torreya”), an independent M&A and private capital advisory firm that serves the global life sciences industry. Consideration for this acquisition consisted of cash from operations. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations.” Accordingly, goodwill was measured as the excess of the acquisition-date fair value of the consideration transferred over the amount of acquisition-date identifiable assets acquired net of assumed liabilities. We recorded $59.7 million of goodwill and intangible assets in the consolidated statement of financial condition, which has been allocated to our company’s Institutional Group segment. The allocation of the purchase price of Torreya is preliminary and will be finalized upon completion of the analysis of the fair values of the net assets of Torreya as of the acquisition date and the identified intangible assets. The final goodwill recorded on the consolidated statement of financial condition may differ from that reflected herein as a result of future measurement period adjustments and the recording of identified intangible assets.

The goodwill represents the value expected from the synergies created through the operational enhancement benefits that will result from the integration of Torreya’s business, its employees, and customer base. A significant amount of the goodwill is expected to be deductible for federal income tax purposes.

The adjustments to goodwill and intangible assets during the three months ended March 31, 2023 are primarily attributable to the acquisition of Torreya, which closed on March 1, 2023.

Intangible assets consist of acquired customer relationships, trade names, non-compete agreements, core deposits, and investment banking backlog that are amortized over their contractual or determined useful lives. Intangible assets as of March 31, 2023 and December 31, 2022 were as follows (in thousands):


	March 31, 2023				December 31, 2022
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Customer relationships	$	225,783	$	112,836	$	225,631	$	109,216
Trade names		30,359		21,082		30,359		20,861
Non-compete agreements		9,440		7,434		9,440		7,158
Core deposits		8,615		7,612		8,615		7,389
Investment banking backlog		5,545		4,489		5,545		4,377
Estimated Torreya intangibles (1)		6,000		100		—		—
	$	285,742	$	153,553	$	279,590	$	149,001

(1) See discussion regarding the allocation of the estimated goodwill and intangibles recorded for the Torreya acquisition.

Amortization expense related to intangible assets was $4.4 million and $5.1 million for the three months ended March 31, 2023 and 2022, respectively. Amortization expense is included in other operating expenses in the consolidated statements of operations.

The weighted-average remaining lives of the following intangible assets at March 31, 2023, are: customer relationships, 8.9 years; trade names, 7.1 years; non-compete agreements, 4.2 years; core deposits, 1.5 years; investment banking backlog, 6.2 years; and Torreya intangibles, 4.9 years. We have an intangible asset that is not subject to amortization and is, therefore, not included in the table below. As of March 31, 2023, we expect amortization expense in future periods to be as follows (in thousands):


Fiscal year
Remainder of 2023	$	13,358
2024		17,009
2025		14,815
2026		14,160
2027		12,949
Thereafter		57,780
	$	130,071

NOTE 9 – Borrowings and Federal Home Loan Bank Advances

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 the Federal 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 at March 31, 2023, 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 $55.0 million during the three months ended March 31, 2023. 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. At March 31, 2023, we had no outstanding balances on our uncommitted secured lines of credit.

The Federal Home Loan advances are floating-rate advances. The weighted average interest rates on these advances during the three months ended March 31, 2023 was 4.92%. The advances are secured by Stifel 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. At March 31, 2023, there were no Federal Home Loan advances.

On May 27, 2021, the Company and Stifel entered into an unsecured revolving credit facility agreement (the “Credit Facility”). The Credit Facility has a maturity date of May 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 the Secured Overnight Financing Rate. There were no borrowings outstanding on the Credit Facility as of March 31, 2023.

NOTE 10 – Senior Notes

The following table summarizes our senior notes as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023			December 31, 2022
4.25% senior notes, due 2024 (1)	$	500,000		$	500,000
4.00% senior notes, due 2030 (2)		400,000			400,000
5.20% senior notes, due 2047 (3)		225,000			225,000
		1,125,000			1,125,000
Debt issuance costs, net		(10,178	)		(10,446	)
Senior notes, net	$	1,114,822		$	1,114,554

(1)

In July 2014, we sold in a registered underwritten public offering, $300.0 million in aggregate principal amount of 4.25% senior notes due July 2024. Interest on these senior notes is payable semi-annually in arrears. We may redeem the 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. In July 2016, we issued an additional $200.0 million in aggregate principal amount of 4.25% senior notes due 2024.

(2)

In May 2020, we sold in a registered underwritten public offering, $400.0 million in aggregate principal amount of 4.00% senior notes due May 2030. Interest on these senior notes is payable semi-annually in arrears. 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 at Treasury rate plus 50 basis points prior to February 15, 2030, and on or after February 15, 2030, at 100% of their principal amount, and accrued and unpaid interest, if any, to the date of redemption.

(3)

In October 2017, we completed the pricing of a registered underwritten public offering of $200.0 million in aggregate principal amount of 5.20% senior notes due October 2047. Interest on the senior notes is payable quarterly in arrears. On or after October 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. On October 27, 2017, we completed the sale of an additional $25.0 million aggregate principal amount of Notes pursuant to the over-allotment option.

Our senior notes mature as follows, based upon contractual terms (in thousands):


2023	$	—
2024		500,000
2025		—
2026		—
2027		—
Thereafter		625,000
	$	1,125,000

NOTE 11 – Bank Deposits

Deposits consist of interest-bearing demand deposits (primarily money market and savings accounts), non-interest bearing demand deposits, and certificates of deposit. Deposits at March 31, 2023 and December 31, 2022 were as follows (in thousands):


	March 31, 2023		December 31, 2022
Demand deposits (interest-bearing)	$	27,862,336	$	26,805,073
Demand deposits (non-interest-bearing)		456,091		305,138
Certificates of deposit		6,900		6,900
	$	28,325,327	$	27,117,111

The weighted-average interest rate on deposits was 2.02% and 0.58% at March 31, 2023 and December 31, 2022, respectively.

Scheduled maturities of certificates of deposit at March 31, 2023 and December 31, 2022 were as follows (in thousands):


	March 31, 2023		December 31, 2022
Certificates of deposit, less than $100,000:
Within one year	$	11	$	11
One to three years		5		5
Three to five years		—		—
	$	16	$	16
Certificates of deposit, $100,000 and greater:
Within one year	$	6,884	$	6,884
One to three years		—		—
Three to five years		—		—
		6,884		6,884
	$	6,900	$	6,900

At March 31, 2023 and December 31, 2022, the amount of deposits includes related party deposits, primarily interest-bearing and time deposits of executive officers, directors, and their affiliates of $8.7 million and $9.8 million, respectively. Brokerage customers’ deposits were $24.8 billion and $25.3 billion, respectively.

NOTE 12 – Derivative Instruments and Hedging Activities

We manage the interest rate risk associated with our derivative transactions with customers by entering into offsetting positions with other derivative dealers, resulting in a substantially “matched book” portfolio. Credit risk associated with its derivative transactions is managed through a variety of measures, including initial and ongoing periodic underwriting of its counterparties’ creditworthiness, establishment of customer credit limits, and collateral maintenance requirements for customer exposures that exceed certain preset thresholds.

Our policy is not to offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value executed with the same counterparty under master netting arrangements.

The following tables provide the notional values and fair values of our derivative instruments as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023
	Derivative Assets		Derivative Liabilities		Notional value
Interest rate contracts	$	116,772	$	116,758	$	1,697,461


	December 31, 2022
	Derivative Assets		Derivative Liabilities		Notional value
Interest rate contracts	$	142,042	$	142,028	$	1,395,135

The scheduled maturities of our derivative instruments as of March 31, 2023, are as follows (in thousands):


Within one year	$	54,569
One to three years		431,056
Three to five years		259,709
Five to ten years		804,543
Ten to fifteen years		126,509
Fifteen years and thereafter		21,075
	$	1,697,461

The following table presents the distribution of customer interest rate derivative transactions, by derivative product, as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Swaps	$	1,527,461	$	1,375,135
Written options		170,000		20,000
	$	1,697,461	$	1,395,135

NOTE 13 – Disclosures About Offsetting Assets and Liabilities

The following table provides information about financial assets and derivative assets that are subject to offset as of March 31, 2023 and December 31, 2022 (in thousands):


	As of March 31, 2023
	Securities borrowing (1)			Reverse repurchase agreements (2)			Interest rate contracts (3)			Total
Gross amounts of recognized assets	$	200,533		$	549,215		$	116,772		$	866,520
Gross amounts offset in the statement of financial condition		—			—			—			—
Net amounts presented in the statement of financial condition		200,533			549,215			116,772			866,520
Gross amounts not offset in the statement of financial condition:
Amounts available for offset		(30,667	)		(24,355	)		(9,272	)		(64,294	)
Available collateral		(155,175	)		(524,798	)		(80,158	)		(760,131	)
Net amount	$	14,691		$	62		$	27,342		$	42,095

	As of December 31, 2022
	Securities borrowing (1)			Reverse repurchase agreements (2)			Interest rate contracts (3)			Total
Gross amounts of recognized assets	$	219,052		$	348,162		$	142,042		$	709,256
Gross amounts offset in the statement of financial condition		—			—			—			—
Net amounts presented in the statement of financial condition		219,052			348,162			142,042			709,256
Gross amounts not offset in the statement of financial condition:
Amounts available for offset		(46,647	)		(12,028	)		(1,959	)		(60,634	)
Available collateral		(160,139	)		(334,537	)		(55,568	)		(550,244	)
Net amount	$	12,266		$	1,597		$	84,515		$	98,378

(1)

Securities borrowing transactions are included in receivables from brokers, dealers, and clearing organizations on the consolidated statements of financial condition. See Note 3 in the notes to consolidated financial statements for additional information on receivables from brokers, dealers, and clearing organizations.

(2)

Available collateral includes securities received from the counterparty. These securities are not included on the consolidated statements of financial condition unless there is an event of default. The fair value of securities received as collateral was $549.8 million and $346.5 million at March 31, 2023 and December 31, 2022, respectively.

(3)

Available collateral includes securities received from the counterparty. These securities are not included on the consolidated statements of financial condition unless there is an event of default. The fair value of securities received as collateral was $73.0 million and $50.0 million at March 31, 2023 and December 31, 2022, respectively.

The following table provides information about financial liabilities and derivative liabilities that are subject to offset as of March 31, 2023 and December 31, 2022 (in thousands):


	As of March 31, 2023
	Securities lending (4)			Repurchase agreements (5)			Interest rate contracts (6)			Total
Gross amounts of recognized liabilities	$	(100,973	)	$	(429,726	)	$	(116,758	)	$	(647,457	)
Gross amounts offset in the statement of financial condition		—			—			—			—
Net amounts presented in the statement of financial condition		(100,973	)		(429,726	)		(116,758	)		(647,457	)
Gross amounts not offset in the statement of financial condition:
Amounts available for offset		30,667			24,355			9,272			64,294
Collateral pledged		70,290			405,371			20,974			496,635
Net amount	$	(16	)	$	—		$	(86,512	)	$	(86,528	)

	As of December 31, 2022
	Securities lending (4)			Repurchase agreements (5)			Interest rate contracts (6)			Total
Gross amounts of recognized liabilities	$	(68,105	)	$	(212,011	)	$	(142,028	)	$	(422,144	)
Gross amounts offset in the statement of financial condition		—			—			—			—
Net amounts presented in the statement of financial condition		(68,105	)		(212,011	)		(142,028	)		(422,144	)
Gross amounts not offset in the statement of financial condition:
Amounts available for offset		46,647			12,028			1,959			60,634
Collateral pledged		21,448			199,983			25,850			247,281
Net amount	$	(10	)	$	—		$	(114,219	)	$	(114,229	)

(4)

Securities lending transactions are included in payables to brokers, dealers, and clearing organizations on the consolidated statements of financial condition. See Note 3 in the notes to consolidated financial statements for additional information on payables to brokers, dealers, and clearing organizations.

(5)

Collateral pledged includes the fair value of securities pledged to the counterparty. These securities are included on the consolidated statements of financial condition unless we default. Collateral pledged by our company to the counterparty includes U.S. government agency securities, U.S. government securities, and corporate fixed income securities with market values of $442.9 million and $218.3 million at March 31, 2023 and December 31, 2022, respectively.

(6)

Collateral pledged includes the fair value of securities pledged to the counterparty. The fair value of securities pledged as collateral was $18.8 million and $24.1 million at March 31, 2023 and December 31, 2022, respectively.

NOTE 14 – Commitments, Guarantees, and Contingencies

Broker-Dealer Commitments and Guarantees

In the normal course of business, we enter into underwriting commitments. Settlement of transactions relating to such underwriting commitments, which were open at March 31, 2023, had no material effect on the consolidated financial statements.

As a part of our fixed income public finance operations, we enter into forward commitments to purchase agency mortgage-backed securities. In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and date of sale of the mortgage-backed securities, we enter into to be announced (“TBA”) security contracts with investors for generic mortgage-backed security at specific rates and prices to be delivered on settlement dates in the future. We may be subject to loss if the timing of, or the actual amount of, the mortgage-backed security differs significantly from the term and notional amount of the TBA security contract to which we entered. These TBA securities and related purchase commitment are accounted for at fair value. As of March 31, 2023, the fair value of the TBA securities and the estimated fair value of the purchase commitments were $50.8 million.

We also provide guarantees to securities clearinghouses and exchanges under their standard membership agreement, which requires members to guarantee the performance of other members. Under the agreement, if another member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. Our liability under these agreements is not quantifiable and may exceed the cash and securities we have posted as collateral. However, the potential requirement for us to make payments under these arrangements is considered remote. Accordingly, no liability has been recognized for these arrangements.

Other Commitments

In the ordinary course of business, Stifel Bancorp has commitments to extend credit in the form of commitments to originate loans, standby letters of credit, and lines of credit. See Note 21 in the notes to consolidated financial statements for further details.

Concentration of Credit Risk

We provide investment, capital-raising, and related services to a diverse group of domestic customers, including governments, corporations, and institutional and individual investors. Our exposure to credit risk associated with the non-performance of customers in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile securities markets, credit

markets, and regulatory changes. This exposure is measured on an individual customer basis and on a group basis for customers that share similar attributes. To reduce the potential for risk concentrations, counterparty credit limits have been implemented for certain products and are continually monitored in light of changing customer and market conditions. As of March 31, 2023, we did not have significant concentrations of credit risk with any one customer or counterparty, or any group of customers or counterparties.

NOTE 15 – Legal Proceedings

Our company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from our securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims seek substantial compensatory, punitive, or indeterminate damages. Our company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding our business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. We are contesting allegations in these claims, and we believe that there are meritorious defenses in each of these lawsuits, arbitrations, and regulatory investigations. In view of the number and diversity of claims against our company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting the outcome of litigation and other claims, we cannot state with certainty what the eventual outcome of pending litigation or other claims will be.

We have established reserves for potential losses that are probable and reasonably estimable that may result from pending and potential legal actions, investigations, and regulatory proceedings. In many cases, however, it is inherently difficult to determine whether any loss is probable or reasonably possible or to estimate the amount or range of any potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated.

In our opinion, based on currently available information, review with outside legal counsel, and consideration of amounts provided for in our consolidated financial statements with respect to these matters, including the matter described below, the ultimate resolution of these matters will not have a material adverse impact on our financial position and results of operations. However, resolution of one or more of these matters may have a material effect on the results of operations in any future period, depending upon the ultimate resolution of those matters and depending upon the level of income for such period. For matters where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, based on currently available information, we believe that such losses will not have a material effect on our consolidated financial statements.

SEC Investigation of Communications Recordkeeping

The Company has been contacted by the SEC in connection with an investigation of the Company’s compliance with records preservation requirements for off-channel communications relating to the broker-dealer or investment adviser business activities of the Company using personally owned communications devices and/or messaging platforms that have not been approved by the Company. At this time, based upon currently available information and review with outside counsel, the Company is not able to estimate the outcome of this matter, including the range of possible ultimate resolutions.

The Company has also been contacted by the CFTC in connection with an investigation of the use of non-Stifel communications platforms for business-related communications by employees who were associated persons of CFTC registrants. At this time, based upon currently available information and review with outside counsel, the Company is not able to estimate the outcome of this matter, including the range of possible ultimate resolutions.

NOTE 16 – Regulatory Capital Requirements

We operate in a highly regulated environment and are subject to capital requirements, which may limit distributions to our company from its subsidiaries. Distributions from our broker-dealer subsidiaries are subject to net capital rules. A broker-dealer that fails to comply with the SEC’s Uniform Net Capital Rule (Rule 15c3-1) may be subject to disciplinary actions by the SEC and self-regulatory organizations, such as FINRA, including censures, fines, suspension, or expulsion. Stifel has chosen to calculate its net capital under the alternative method, which prescribes that their net capital shall not be less than the greater of $1.0 million or two percent of aggregate debit balances (primarily receivables from customers) computed in accordance with the SEC’s Customer Protection Rule (Rule 15c3-3). Our other broker-dealer subsidiaries calculate their net capital under the aggregate indebtedness method, whereby their aggregate indebtedness may not be greater than fifteen times their net capital (as defined).

Our international subsidiary, SNEL, is subject to the regulatory supervision and requirements of the Financial Conduct Authority (“FCA”) in the United Kingdom. At March 31, 2023, our international subsidiary’s capital and reserves were in excess of the financial resources requirement under the rules of the FCA.

Our Canadian subsidiary, SNC, is subject to the regulatory supervision and requirements of the Investment Industry Regulatory Organization of Canada (“IIROC”). At March 31, 2023, SNC’s net capital and reserves were in excess of the financial resources requirement under the rules of the IIROC.

Our company, as a bank holding company, Stifel Bank & Trust, Stifel Bank, Stifel Trust Company, N.A., and Stifel Trust Company, Delaware, N.A., (collectively, “banking subsidiaries”), are subject to various regulatory capital requirements administered by the Federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our company’s and it’s banking subsidiaries’ financial results. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, our company and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our company’s and its banking subsidiaries’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Under the Basel III rules, the quantity and quality of regulatory capital increased, a capital conservation buffer was established, selected changes were made to the calculation of risk-weighted assets, and a new ratio, common equity Tier 1 was introduced, all of which are applicable to both our company and its banking subsidiaries.

Our company and its banking subsidiaries are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined in Basel III, Common equity Tier 1 capital to risk-weighted assets. Our company and its banking subsidiaries each calculate these ratios in order to assess compliance with both regulatory requirements and their internal capital policies. At current capital levels, our company and its banking subsidiaries are each categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” our company and its banking subsidiaries must maintain total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios.

The amounts and ratios for Stifel Financial Corp., Stifel Bank & Trust, and Stifel Bank as of March 31, 2023 are represented in the tables below (in thousands, except ratios).


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
Stifel Financial Corp.	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital	$	3,280,309		13.9	%	$	1,059,010		4.5	%	$	1,529,681		6.5	%
Tier 1 capital		3,965,309		16.8	%		1,412,013		6.0	%		1,882,684		8.0	%
Total capital		4,170,458		17.7	%		1,882,684		8.0	%		2,353,356		10.0	%
Tier 1 leverage		3,965,309		10.9	%		1,456,604		4.0	%		1,820,755		5.0	%


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
Stifel Bank & Trust	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital	$	1,590,068		11.0	%	$	650,793		4.5	%	$	940,034		6.5	%
Tier 1 capital		1,590,068		11.0	%		867,724		6.0	%		1,156,965		8.0	%
Total capital		1,713,883		11.9	%		1,156,965		8.0	%		1,446,207		10.0	%
Tier 1 leverage		1,590,068		7.5	%		845,785		4.0	%		1,057,231		5.0	%


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
Stifel Bank	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital	$	596,152		13.1	%	$	204,673		4.5	%	$	295,639		6.5	%
Tier 1 capital		596,152		13.1	%		272,897		6.0	%		363,863		8.0	%
Total capital		622,998		13.7	%		363,863		8.0	%		454,829		10.0	%
Tier 1 leverage		596,152		7.5	%		319,780		4.0	%		399,725		5.0	%

NOTE 17 – Operating Leases

Our operating leases primarily relate to office space and office equipment with remaining lease terms of 1 to 13 years. At March 31, 2023 and December 31, 2022, operating lease right-of-use assets were $748.5 million and $775.9 million, respectively, and lease liabilities were $793.4 million and $819.7 million, respectively, included in accounts payable and accrued expenses in the consolidated statements of financial condition.

The table below summarizes our net lease cost for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023			2022
Operating lease cost	$	26,429		$	26,731
Short-term lease cost		330			218
Variable lease cost		1,113			399
Sublease income		(289	)		(615	)
Net lease cost	$	27,583		$	26,733

Operating lease costs are included in occupancy and equipment rental in the consolidated statements of operations.

The table below summarizes other information related to our operating leases as of and for the three months ended March 31, 2023 (in thousands):


Operating lease cash flows	$	27,383
Right-of-use assets obtained in exchange for new operating lease liabilities	$	6,443
Weighted-average remaining lease term (years)		11.0
Weighted-average discount rate		4.05	%

The weighted average discount rate represents our company’s incremental borrowing rate at the lease inception date.

The table below presents information about operating lease liabilities as of March 31, 2023, (in thousands, except percentages).


Remainder of 2023	$	78,490
2024		102,664
2025		97,700
2026		97,885
2027		96,480
Thereafter		527,538
Total undiscounted lease payments		1,000,757
Imputed interest		(207,345	)
Total operating lease liabilities	$	793,412

NOTE 18 – Revenues from Contracts with Customers

The following table presents the Company’s total revenues broken out by revenues from contracts with customers and other sources of revenue for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023			2022
Revenues from contracts with customers:
Commissions	$	169,550		$	195,909
Investment banking		211,879			254,846
Asset management		315,569			341,636
Other		1,227			2,175
Total revenue from contracts with customers		698,225			794,566
Other sources of revenue:
Interest		451,564			165,435
Principal transactions		115,522			159,270
Other		(3,520	)		6,713
Total revenues	$	1,261,791		$	1,125,984

Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised services to the customers. A service is transferred to a customer when, or as, the customer obtains control of that service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the services to the customer.

Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised services (i.e., the “transaction price”). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third parties.

The following provides detailed information on the recognition of our revenues from contracts with customers:

Commissions. We earn commission revenue by executing, settling, and clearing transactions for clients primarily in OTC and listed equity securities, insurance products, and options. Trade execution and clearing and custody services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing and custody services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commission revenues are generally paid on settlement date and we record a receivable between trade-date and payment on settlement date.

Investment Banking. We provide our clients with a full range of capital markets and financial advisory services. Capital markets services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings, underwriting and distributing public and private debt.

Capital-raising revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the capital markets offering at that point. Costs associated with capital-raising transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within other operating expenses in the consolidated statements of operations as we are acting as a principal in the arrangement. Any expenses reimbursed by our clients are recognized as investment banking revenues.

Revenues from financial advisory services primarily consist of fees generated in connection with merger, acquisition and restructuring transactions. Advisory revenues from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction. Fees received prior to the completion of the transaction are deferred within accounts payable and accrued expenses on the consolidated statements of financial condition. Advisory revenues from restructuring engagements are recognized over time using a time elapsed measure of progress as our clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees we receive for our advisory services are considered variable as they are contingent upon a future event (e.g., completion of a transaction or third party emergence from bankruptcy) and are excluded from the transaction price until the uncertainty associated with the variable consideration is subsequently resolved, which is expected to occur upon achievement of the specified milestone. Payment for advisory services are generally due promptly upon completion of a specified milestone or, for retainer fees, periodically over the course of the engagement. We recognize a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at the same time as the associated expense. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized within other operating expenses on the consolidated statements of operations and any expenses reimbursed by our clients are recognized as investment banking revenues.

Asset Management Fees. We earn management and performance fees in connection with investment advisory services provided to institutional and individual clients. Investment advisory fees are charged based on the value of assets in fee-based accounts and are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets. Fees are charged either in advance based on fixed rates applied to the value of the customers’ account at the beginning of the period or periodically based on contracted rates and account performance. Contracts can be terminated at any time with no incremental payments due to our company upon termination. If the contract is terminated by the customer fees are prorated for the period and fees charged for the post termination period are refundable to the customer.

Disaggregation of Revenue

The following tables present the Company’s revenues from contracts with customers by reportable segment disaggregated by major business activity and primary geographic regions for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31, 2023 (1)
	Global Wealth Management		Institutional Group		Other		Total
Major Business Activity:
Commissions	$	110,191	$	59,359	$	—	$	169,550
Capital raising		4,158		56,658		—		60,816
Advisory		—		151,063		—		151,063
Investment banking		4,158		207,721		—		211,879
Asset management		315,537		32		—		315,569
Other		1,184		—		43		1,227
Total		431,070		267,112		43		698,225
Primary Geographic Region:
United States		431,070		210,877		43		641,990
United Kingdom		—		23,383		—		23,383
Canada		—		22,523		—		22,523
Other		—		10,329		—		10,329
	$	431,070	$	267,112	$	43	$	698,225


	Three Months Ended March 31, 2022 (1)
	Global Wealth Management		Institutional Group		Other		Total
Major Business Activity:
Commissions	$	130,776	$	65,133	$	—	$	195,909
Capital raising		5,147		68,303		—		73,450
Advisory		—		181,396		—		181,396
Investment banking		5,147		249,699		—		254,846
Asset management		341,613		23		—		341,636
Other		2,122		—		53		2,175
Total		479,658		314,855		53		794,566
Primary Geographic Region:
United States		479,658		262,586		53		742,297
United Kingdom		—		34,308		—		34,308
Canada		—		9,341		—		9,341
Other		—		8,620		—		8,620
	$	479,658	$	314,855	$	53	$	794,566

(1) Excludes revenues not derived from contracts with customers included in the Other segment.

See Note 22 for further break-out of revenues by geography.

Information on Remaining Performance Obligations and Revenue Recognized From Past Performance

We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at March 31, 2023. Investment banking advisory revenues that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at March 31, 2023.

Contract Balances

The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.

We had receivables related to revenues from contracts with customers of $148.7 million and $141.2 million at March 31, 2023 and December 31, 2022, respectively, in other assets in the consolidated statements of financial condition. We had no significant impairments related to these receivables during the three months ended March 31, 2023.

Our deferred revenue primarily relates to retainer fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied. Deferred revenue at March 31, 2023 and December 31, 2022 was $21.8 million and $12.8 million, respectively, and is included in accounts payable and accrued expenses in the consolidated statements of financial condition.

NOTE 19 – Interest Income and Interest Expense

The components of interest income and interest expense are as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
Interest income:
Loans held for investment, net	$	295,052	$	121,337
Investment securities		108,327		34,262
Margin balances		14,871		6,912
Financial instruments owned		3,721		5,420
Other		29,593		(2,496	)
	$	451,564	$	165,435
Interest expense:
Bank deposits	$	137,288	$	929
Senior notes		12,506		11,425
Other		5,204		(2,897	)
	$	154,998	$	9,457

NOTE 20 – Employee Incentive, Deferred Compensation, and Retirement Plans

We maintain an incentive stock plan and a wealth accumulation plan (“the 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. We are permitted to issue new shares under all stock award plans approved by shareholders or to reissue our treasury shares. Stock awards issued under our company’s incentive stock plan are granted at market value at the date of grant. Our deferred awards generally vest ratably over a one- to ten-year vesting period.

Our stock-based compensation plans are administered by the Compensation Committee of the Board of Directors (“Compensation Committee”), which has the authority to interpret the plans, determine to whom awards may be granted under the plans, and determine the terms of each award. According to the incentive stock plan, we are authorized to grant an additional 5.4 million shares at March 31, 2023.

Expense associated with our stock-based compensation, included in compensation and benefits expense in the consolidated statements of operations for our company’s incentive stock award plan was $29.6 million and $32.9 million for the three months ended March 31, 2023 and 2022, respectively.

Expense associated with our debentures, included in compensation and benefits expense in the consolidated statements of operations was $23.9 million and $19.9 million for the three months ended March 31, 2023 and 2022, respectively.

Deferred Awards

A restricted stock unit 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 vest on an annual basis over the next one to ten years and are distributable, if vested, at future specified dates. Restricted stock awards are restricted as to sale or disposition. These restrictions lapse over the next one to three years.

The Company grants Performance-based Restricted Stock Units (“PRSUs”) to certain of its executive officers. Under the terms of the grants, the number of PRSUs that will vest and convert to shares will be based on the Company’s achievement of the pre-determined performance objectives during the performance period. The PRSUs will be measured over a four-year performance period and vested over a five-year period. Any resulting delivery of shares for PRSUs granted as part of compensation will occur after four years for 80% of the earned award, and in the fifth year for the remaining 20% of the earned award. The number of shares converted has the potential to range from 0% to 200% based on how the Company performs during the performance period. Compensation expense is amortized over the service period based on the fair value of the deferred award on the grant date. The Company’s pre-determined performance objectives must be met for the awards to vest. Associates forfeit unvested deferred awards upon termination of employment with a corresponding reversal of compensation expense. Certain deferred awards may continue to vest under certain circumstances as described in the Plan. At March 31, 2023, the total number of restricted stock units, PRSUs, and restricted stock awards outstanding was 16.1 million, of which 13.6 million were unvested.

At March 31, 2023, there was unrecognized compensation cost for deferred awards of approximately $821.2 million, which is expected to be recognized over a weighted-average period of 2.6 years.

Deferred Compensation Plans

The Plan is provided to certain revenue producers, officers, and key administrative associates, whereby a certain percentage of their incentive compensation is deferred as defined by the Plan into company stock units, restricted stock, and debentures. Participants may elect to defer a portion of their incentive compensation. Deferred awards generally vest over a one- to ten-year period and are distributable upon vesting or at future specified dates. Deferred compensation costs are amortized on a straight-line basis over the vesting period. Elective deferrals are 100% vested.

Additionally, the Plan allows Stifel financial advisors who achieve certain levels of production the option to defer a certain percentage of their gross commissions. As stipulated by the Plan, the financial advisors will defer 5% of their gross commissions. The mandatory deferral is split between company restricted stock units and debentures. They have the option to defer an additional 1% of gross commissions into company stock units.

In addition, certain revenue producers, upon joining the Company, may receive company stock units in lieu of transition cash payments. Deferred compensation related to these awards generally vests over a one- to eight-year period. Deferred compensation costs are amortized on a straight-line basis over the deferral period.

Profit Sharing Plan

Eligible U.S. associates of the Company who have met certain service requirements may participate in the Stifel Financial Corp. Profit Sharing 401(k) Plan (the “401(k) Plan”). Associates are permitted within limitations imposed by tax law to make pre-tax contributions to the 401(k) Plan. We may match certain associate contributions or make additional contributions to the 401(k) Plan at our discretion. Our contributions to the 401(k) Plan, included in compensation and benefits in the consolidated statements of operations, were $4.6 million and $3.5 million for the three months ended March 31, 2023 and 2022, respectively.

NOTE 21 – Off-Balance Sheet Credit Risk

In the normal course of business, we execute, settle, and finance customer and proprietary securities transactions. These activities expose our company to off-balance sheet risk in the event that customers or other parties fail to satisfy their obligations.

In accordance with industry practice, securities transactions generally settle within two business days after trade date. Should a customer or broker fail to deliver cash or securities as agreed, we may be required to purchase or sell securities at unfavorable market prices.

We borrow and lend securities to facilitate the settlement process and finance transactions, utilizing customer margin securities held as collateral. We monitor the adequacy of collateral levels on a daily basis. We periodically borrow from banks on a collateralized basis, utilizing firm and customer margin securities in compliance with SEC rules. Should the counterparty fail to return customer securities pledged, we are subject to the risk of acquiring the securities at prevailing market prices in order to satisfy our customer obligations. We control our exposure to credit risk by continually monitoring our counterparties’ positions, and where deemed necessary, we may require a deposit of additional collateral and/or a reduction or diversification of positions. Our company sells securities it does not currently own (short sales) and is obligated to subsequently purchase such securities at prevailing market prices. We are exposed to risk of loss if securities prices increase prior to closing the transactions. We control our exposure to price risk from short sales through daily review and setting position and trading limits.

We manage our risks associated with the aforementioned transactions through position and credit limits and the continuous monitoring of collateral. Additional collateral is required from customers and other counterparties when appropriate.

We have accepted collateral in connection with resale agreements, securities borrowed transactions, and customer margin loans. Under many agreements, we are permitted to sell or repledge these securities held as collateral and use these securities to enter into securities lending arrangements or to deliver to counterparties to cover short positions. At March 31, 2023 and December 31, 2022, the fair value of securities accepted as collateral where we are permitted to sell or repledge the securities was $1.9 billion and $1.8 billion, respectively, and the fair value of the collateral that had been sold or repledged was $429.7 million and $212.0 million, respectively.

We enter into interest rate derivative contracts to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are principally used to manage differences in the amount, timing, and duration of our known or expected cash payments related to certain variable-rate affiliated deposits. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments. Our interest rate hedging strategies may not work in all market environments and, as a result, may not be effective in mitigating interest rate risk.

Derivatives’ notional contract amounts are not reflected as assets or liabilities in the consolidated statements of financial condition. Rather, the market or fair value of the derivative transactions are reported in the consolidated statements of financial condition as other assets or accounts payable and accrued expenses, as applicable. For a complete discussion of our activities related to derivative instruments, see Note 12 in the notes to consolidated financial statements.

In the ordinary course of business, Stifel Bancorp has commitments to originate loans, standby letters of credit, and lines of credit. Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established by the

contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash commitments. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if necessary, is based on the credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate.

At March 31, 2023 and December 31, 2022, Stifel Bancorp had outstanding commitments to originate loans aggregating $234.8 million and $164.6 million, respectively. The commitments extended over varying periods of time, with all commitments at March 31, 2023, scheduled to be disbursed in the following three months.

Through Stifel Bancorp, in the normal course of business, we originate residential mortgage loans and sell them to investors. We may be required to repurchase mortgage loans that have been sold to investors in the event there are breaches of certain representations and warranties contained within the sales agreements. We may be required to repurchase mortgage loans that were sold to investors in the event that there was inadequate underwriting or fraud, or in the event that the loans become delinquent shortly after they are originated. We also may be required to indemnify certain purchasers and others against losses they incur in the event of breaches of representations and warranties and in various other circumstances, and the amount of such losses could exceed the repurchase amount of the related loans. Consequently, we may be exposed to credit risk associated with sold loans.

Standby letters of credit are irrevocable conditional commitments issued by Stifel Bancorp to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Should Stifel Bancorp be obligated to perform under the standby letters of credit, it may seek recourse from the customer for reimbursement of amounts paid. At March 31, 2023 and December 31, 2022, Stifel Bancorp had outstanding letters of credit totaling $21.3 million and $22.9 million, respectively. A majority of the standby letters of credit commitments at March 31, 2023, have expiration terms that are less than one year.

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Stifel Bancorp uses the same credit policies in granting lines of credit as it does for on-balance sheet instruments. At March 31, 2023 and December 31, 2022, Stifel Bancorp had granted unused lines of credit to commercial and consumer borrowers aggregating $6.1 billion and $6.1 billion, respectively.

We are required to evaluate our loan portfolio for any expected losses with recognition of an allowance for credit losses, when applicable. At March 31, 2023 and December 31, 2022, the expected credit losses for unfunded lending commitments was $35.7 million and $36.2 million, respectively.

NOTE 22 – Segment Reporting

We currently operate through the following three business segments: Global Wealth Management, Institutional Group, and various corporate activities combined in the Other segment.

Our Global Wealth Management segment consists of two businesses, the Private Client Group and Stifel Bancorp. The Private Client Group includes branch offices and independent contractor offices of our broker-dealer subsidiaries located throughout the 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 clients through our bank subsidiaries, which provide residential, consumer, and commercial lending, as well as FDIC-insured deposit accounts to customers of our private client group and to the general public.

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 the private client group, which are included in the Global Wealth Management segment), merger and acquisition, and financial advisory services.

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.

Information concerning operations in these segments of business for the three months ended March 31, 2023 and 2022 is as follows (in thousands):


	Three Months Ended March 31,
	2023			2022
Net revenues: (1)
Global Wealth Management	$	757,186		$	681,725
Institutional Group		332,613			431,363
Other		16,994			3,439
	$	1,106,793		$	1,116,527
Income/(loss) before income taxes:
Global Wealth Management	$	316,109		$	225,413
Institutional Group		33,720			96,628
Other		(139,946	)		(94,932	)
	$	209,883		$	227,109

(1)

No individual client accounted for more than 10 percent of total net revenues for the three months ended March 31, 2023 and 2022.

The following table presents our company’s total assets on a segment basis at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Global Wealth Management	$	33,650,120	$	32,449,466
Institutional Group		4,613,689		4,285,212
Other		333,844		461,446
	$	38,597,653	$	37,196,124

We have operations in the United States, United Kingdom, Europe, and Canada. The Company’s foreign operations are conducted through its wholly owned subsidiaries, SNEL and SNC. Substantially all long-lived assets are located in the United States.

Revenues, classified by the major geographic areas in which they were earned for the three months ended March 31, 2023 and 2022, were as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
United States	$	1,038,895	$	1,055,102
United Kingdom		33,197		43,864
Canada		21,978		7,451
Other		12,723		10,110
	$	1,106,793	$	1,116,527

NOTE 23 – Earnings Per Share (“EPS”)

Basic EPS is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted earnings per share include dilutive stock options and stock units under the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022 (in thousands, except per share data):


	Three Months Ended March 31,
	2023		2022
Net income	$	157,539	$	173,549
Preferred dividends		9,320		9,320
Net income available to common shareholders	$	148,219	$	164,229
Shares for basic and diluted calculation:
Average shares used in basic computation		108,754		109,205
Dilutive effect of stock options and units (1)		6,636		8,935
Average shares used in diluted computation		115,390		118,140
Earnings per common share:
Basic	$	1.36	$	1.50
Diluted	$	1.28	$	1.39

(1)

Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Diluted earnings per share include units.

For the three months ended March 31, 2023 and 2022, the anti-dilutive effect from restricted stock units was immaterial.

Cash Dividends

During the three months ended March 31, 2023, we declared and paid cash dividends of $0.36 per common share. During the three months ended March 31, 2022, we declared and paid cash dividends of $0.30 per common share.

NOTE 24 – Shareholders’ Equity

Share Repurchase Program

We have an ongoing authorization from the Board of Directors to repurchase our common stock in the open market or in negotiated transactions. At March 31, 2023, the maximum number of shares that may yet be purchased under this plan was 7.6 million. The repurchase program has no expiration date. These purchases may be made on the open market or in privately negotiated transactions, depending upon market conditions and other factors. Repurchased shares may be used to meet obligations under our company’s employee benefit plans and for general corporate purposes. During the three months ended March 31, 2023, we repurchased $94.5 million or 1.5 million shares using existing Board authorizations at an average price of $65.07 per share to meet obligations under our company’s employee benefit plans and for general corporate purposes. There were no share repurchases during the three months ended March 31, 2022.

Issuance of Common Stock

During the three months ended March 31, 2023, we issued 2.2 million shares, which were primarily reissued from treasury. Share issuances were primarily a result of the vesting and conversion transactions under our incentive stock award plans.

Issuance of Preferred Stock

On July 22, 2021, the Company completed an underwritten registered public offering of $300.0 million of 4.50% Non-Cumulative Perpetual Preferred Stock, Series D, $1.00 par value, with a liquidation preference of $25,000 per share (equivalent to $25 liquidation preference per depositary share).

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 after August 15, 2026.

On August 20, 2021, the Company redeemed all of the outstanding 6.25% Non-Cumulative Perpetual Preferred Stock, Series A. The redemption price was $25.00 per depository share plus accrued and unpaid dividends to, but excluding, the date of redemption.

NOTE 25 – Variable Interest Entities

Our variable interests in VIEs include debt and equity interests, commitments, certain fees, the establishment of Stifel Financial Capital Trusts, and our issuance of a convertible promissory note.

Our involvement with VIEs arises primarily from the following activities: purchases of securities in connection with our trading and secondary market-making activities; retained interests held as a result of securitization activities; and loans to, investments in, and fees from various investment vehicles.

Partnership Interests

We have formed several non-consolidated investment funds with third-party investors that are typically organized as limited liability companies (“LLCs”) or limited partnerships. These investment vehicles have assets primarily consisting of private and public equity investments. For those funds where we act as the general partner, our company’s economic interest is generally limited to management fee arrangements as stipulated by the fund operating agreements. We have generally provided the third-party investors with rights to terminate the funds or to remove us as the general partner. We have concluded that we are not the primary beneficiary of these VIEs, and therefore, we do not consolidate these entities.

Debt and Equity Investments

Our exposure to loss is limited to the total of our carrying value. These investment vehicles have net assets, primarily consisting of cash and cash equivalents, aircraft, aircraft engine-related assets, receivables, other assets, and debt. For these investments, our involvement is primarily limited to management fee arrangements as stipulated by the operating agreements. We have concluded that we are not the primary beneficiary of these VIEs, and therefore, we do not consolidate these entities.

The following tables present the aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary (in thousands):


	March 31, 2023
	Aggregate Assets		Aggregate Liabilities		Our Risk of Loss
Debt and Equity Investments	$	409,254	$	288,661	$	24,943
Partnership Interests		395,677		2,564		—
	$	804,931	$	291,225	$	24,943


	December 31, 2022
	Aggregate Assets		Aggregate Liabilities		Our Risk of Loss
Debt and Equity Investments	$	388,408	$	296,375	$	14,776
Partnership Interests		402,703		1,180		—
	$	791,111	$	297,555	$	14,776

Debenture to Stifel Financial Capital Trusts

We have completed private placements of cumulative trust preferred securities through Stifel Financial Capital Trust II, Stifel Financial Capital Trust III, and Stifel Financial Capital Trust IV (collectively, the “Trusts”). The Trusts are non-consolidated wholly owned business trust subsidiaries of our company and were established for the limited purpose of issuing trust securities to third parties and lending the proceeds to our company.

The trust preferred securities represent an indirect interest in junior subordinated debentures purchased from our company by the Trusts, and we effectively provide for the full and unconditional guarantee of the securities issued by the Trusts. We make timely payments of interest to the Trusts as required by contractual obligations, which are sufficient to cover payments due on the securities issued by the Trusts, and believe that it is unlikely that any circumstances would occur that would make it necessary for our company to make payments related to these Trusts other than those required under the terms of the debenture agreements and the trust preferred securities agreements. The Trusts were determined to be VIEs because the holders of the equity investment at risk do not have adequate decision-making ability over the Trust’s activities. Our investment in the Trusts is not a variable interest, because equity interests are variable interests only to the extent that the investment is considered to be at risk. Because our investment was funded by the Trusts, it is not considered to be at risk.

NOTE 26 – Subsequent Events

We evaluate subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Based on the evaluation, we did not identify any recognized subsequent events that would have required adjustment to the consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 ended December 31, 2022, 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 ended December 31, 2022, as updated in our subsequent reports filed with the SEC. These reports are available at the Company’s web site at www.stifel.com and at the SEC 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 Stifel Financial Corp. and its wholly owned subsidiaries.

Impact of Interest Rates

During the first quarter of 2023, the Federal Reserve (“FED”) remained committed to tightening monetary policy as a means of combating inflation. While modest decreases in key inflationary measures such as the Consumer Price Index demonstrated that the rate increases implemented throughout 2022 were beginning to have their intended impact, unexpectedly strong job growth and consumer spending data led the FED to conclude that further short-term rate increases were necessary. As a result, the FED increased the Federal funds rate by 50 basis point to a target range of 4.75% to 5.00% during the three months ended March 31, 2023. However, the smaller nature (25 basis point) of both first quarter 2023 rate increases balances the FED’s intention not to ‘over-tighten,’ while also acknowledging that a contraction in bank lending in light of the Silicon Valley Bank and Signature Bank failures will likely help ease inflation. As a result of the banking failures, the FED has signaled that it will proceed with both prudence and patience in determining whether additional rate increases are warranted when it meets in May 2023.

The unexpected failure of two commercial banks (Silicon Valley Bank and Signature Bank) during the quarter, resulted from the rapid increase in interest rates during 2022 and the consequential impact on the value of fixed income investments by these banks and many others. The increases in rates, which are intended to reduce inflation, are also likely to reduce economic activity possibly leading to a recession in the coming months. These factors have already reduced customer confidence and are likely to continue to reduce discretionary spending, increase volatility in financial markets, and reduce revenues the Company derives from commissions and possibly from fees based on the value of client assets managed by the Company should equity prices decline. The increases in the Federal funds rate are favorable to the Company's interest-based revenue. However, increases in interest rates will increase fees the Company earns from FDIC-insured deposits of clients through a program offered by the Company, though such increases may be offset to some extent if the cash sweep balances decrease as clients seek higher-yielding investments. These rate increases will also increase the rates the Company charges on margin balances and have a positive impact on our earnings.

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 U.S., Europe, and Canada. 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 throughout the United States, with a growing presence in the United Kingdom, Europe, and Canada. 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 March 1, 2023, the Company acquired Torreya Partners LLC, a leading independent M&A and private capital advisory firm serving the global life sciences industry.

Results for the three months ended March 31, 2023

For the three months ended March 31, 2023, net revenues decreased 0.9% to $1.11 billion from $1.12 billion during the comparable period in 2022. Net income available to common shareholders decreased 9.7% to $148.2 million, or $1.28 per diluted common share for the three months ended March 31, 2023, compared to $164.2 million, or $1.39 per diluted common share during the comparable period in 2022.

Our revenue decline was primarily attributable to lower transactional, capital-raising, advisory, and asset management revenues during the quarter, partially offset by higher net interest income.

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 of the United States equity and fixed income markets. At March 31, 2023, the NASDAQ, S&P 500, and Dow Jones Industrial Average, closed 16.8%, 7.0%, and 0.4% higher than their December 31, 2022 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.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022

The following table presents consolidated financial information for the periods indicated (in thousands, except percentages):


	Three Months Ended March 31,								As a Percentage of Net Revenues For the Three Months Ended March 31,
	2023			2022		% Change			2023			2022
Revenues:
Commissions	$	169,550		$	195,909		(13.5	)		15.3	%		17.5	%
Principal transactions		115,522			159,270		(27.5	)		10.5			14.3
Transactional revenues		285,072			355,179		(19.7	)		25.8			31.8
Investment banking		211,879			254,846		(16.9	)		19.1			22.8
Asset management		315,569			341,636		(7.6	)		28.5			30.6
Interest		451,564			165,435		173.0			40.8			14.8
Other income		(2,293	)		8,888		(125.8	)		(0.2	)		0.8
Total revenues		1,261,791			1,125,984		12.1			114.0			100.8
Interest expense		154,998			9,457	n/m				14.0			0.8
Net revenues		1,106,793			1,116,527		(0.9	)		100.0			100.0
Non-interest expenses:
Compensation and benefits		651,190			673,691		(3.3	)		58.8			60.3
Occupancy and equipment rental		82,140			77,026		6.6			7.4			6.9
Communication and office supplies		46,136			42,456		8.7			4.2			3.8
Commissions and floor brokerage		14,440			15,887		(9.1	)		1.3			1.4
Provision for credit losses		4,920			8,240		(40.3	)		0.4			0.7
Other operating expenses		98,084			72,118		36.0			8.9			6.6
Total non-interest expenses		896,910			889,418		0.8			81.0			79.7
Income before income taxes		209,883			227,109		(7.6	)		19.0			20.3
Provision for income taxes		52,344			53,560		(2.3	)		4.8			4.8
Net income		157,539			173,549		(9.2	)		14.2			15.5
Preferred dividends		9,320			9,320		—			0.8			0.8
Net income available to common shareholders	$	148,219		$	164,229		(9.7	)		13.4	%		14.7	%

NET REVENUES

The following table presents consolidated net revenues for the periods indicated (in thousands, except percentages):


	Three Months Ended March 31,
	2023			2022		% Change
Net revenues:
Commissions	$	169,550		$	195,909		(13.5	)
Principal transactions		115,522			159,270		(27.5	)
Transactional revenues		285,072			355,179		(19.7	)
Capital raising		60,816			73,450		(17.2	)
Advisory		151,063			181,396		(16.7	)
Investment banking		211,879			254,846		(16.9	)
Asset management		315,569			341,636		(7.6	)
Net interest		296,566			155,978		90.1
Other income		(2,293	)		8,888		(125.8	)
Total net revenues	$	1,106,793		$	1,116,527		(0.9	)

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 ended March 31, 2023, commission revenues decreased 13.5% to $169.6 million from $195.9 million in the comparable period in 2022.

Principal transactions – Principal transaction revenues are gains and losses on secondary trading, principally fixed income transactional revenues.

For the three months ended March 31, 2023, principal transactions revenues decreased 27.5% to $115.5 million from $159.3 million in the comparable period in 2022.

Transactional revenues – For the three months ended March 31, 2023, transactional revenues decreased 19.7% to $285.1 million from $355.2 million in the comparable period in 2022 as a result of a decrease in client activity. Broad macroeconomic and geopolitical concerns led to volatility in global equity prices.

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 March 31, 2023, investment banking revenues decreased 16.9% to $211.9 million from $254.8 million in the comparable period in 2022.

Capital-raising revenues decreased 17.2% to $60.8 million for the three months ended March 31, 2023 from $73.5 million in the comparable period in 2022. For the three months ended March 31, 2023, equity capital-raising revenues decreased 18.8% to $26.6 million from $32.9 million in the comparable period in 2022. The decrease is primarily attributable to lower issuances in line with market volumes in an uncertain market environment. For the three months ended March 31, 2023, fixed income capital-raising revenues decreased 15.9% to $34.2 million from $40.6 million in the comparable period in 2022 as microeconomic conditions contributed to lower bond issuances during the first quarter of 2023.

Advisory revenues decreased 16.7% to $151.1 million for the three months ended March 31, 2023 from $181.4 million in the comparable period in 2022. The decrease is primarily attributable to lower 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 ended March 31, 2023, asset management revenues decreased 7.6% to $315.6 million from $341.6 million in the comparable period in 2022. 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 ended March 31, 2023, other income decreased 125.8% to a loss of $2.3 million from $8.9 million during the comparable period in 2022. The decrease is primarily attributable to losses on the sale of investments in the first quarter of 2023 and a decrease in loan origination fees from the comparable period in 2022.

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
	March 31, 2023								March 31, 2022
	Average Balance		Interest Income/ Expense			Average Interest Rate			Average Balance		Interest Income/ Expense			Average Interest Rate
Interest-earning assets:
Interest-bearing cash and federal funds sold	$	1,989,550	$	22,725			4.57	%	$	1,340,266	$	1,084			0.32	%
Financial instruments owned		877,653		3,721			1.70			1,176,011		5,420			1.84
Margin balances		831,225		14,871			7.16			1,089,638		6,912			2.54
Investment portfolio		7,831,246		108,327			5.53			7,384,198		34,262			1.86
Loans		20,936,338		295,052			5.64			17,478,427		121,337			2.78
Other interest-bearing assets		797,285		6,868			3.45			760,224		(3,580	)		(1.88	)
Total interest-earning assets/interest income	$	33,263,297	$	451,564			5.43	%	$	29,228,764	$	165,435			2.26	%
Interest-bearing liabilities:
Stock loan	$	135,840	$	(2,785	)		(8.20	%)	$	328,932	$	(6,431	)		(7.82	%)
Senior notes		1,114,646		12,506			4.49			1,113,571		11,425			4.10
Stifel Capital Trusts		60,000		1,044			6.96			60,000		310			2.07
Deposits		27,138,005		137,288			2.02			23,129,866		929			0.02
FHLB		5,556		68			4.92			40,422		31			0.30
Other interest-bearing liabilities		969,047		6,877			2.84			1,170,392		3,193			1.09
Total interest-bearing liabilities/interest expense	$	29,423,094		154,998			2.11	%	$	25,843,183		9,457			0.15	%
Net interest income/margin			$	296,566			3.57	%			$	155,978			2.13	%

Please refer to the 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 Stifel Bancorp’s average balances and interest income and expense.

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 ended March 31, 2023, net interest income increased to $296.6 million from $156.0 million during the comparable period in 2022.

For the three months ended March 31, 2023, interest revenue increased 173.0% to $451.6 million from $165.4 million in the comparable period in 2022, principally as a result of an increase in interest rates and interest-earning assets. The average interest-earning assets of Stifel Bancorp increased to $29.7 billion during the three months ended March 31, 2023 compared to $25.5 billion during the comparable period in 2022 at average interest rates of 5.58% and 2.45%, respectively.

For the three months ended March 31, 2023, interest expense increased to $155.0 million from $9.5 million during the comparable period in 2022. The increase is primarily attributable to higher interest rates and interest-bearing liabilities. The average interest-bearing liabilities of Stifel Bancorp increased to $27.1 billion during the three months ended March 31, 2023 compared to $23.2 billion during the comparable period in 2022 at average interest rates of 2.02% and 0.02%, respectively.

NON-INTEREST EXPENSES

The following table presents consolidated non-interest expenses for the periods indicated (in thousands, except percentages):


	Three Months Ended March 31,
	2023		2022		% Change
Non-interest expenses:
Compensation and benefits	$	651,190	$	673,691		(3.3	)
Occupancy and equipment rental		82,140		77,026		6.6
Communications and office supplies		46,136		42,456		8.7
Commissions and floor brokerage		14,440		15,887		(9.1	)
Provision for credit losses		4,920		8,240		(40.3	)
Other operating expenses		98,084		72,118		36.0
Total non-interest expenses	$	896,910	$	889,418		0.8

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 ended March 31, 2023, compensation and benefits expense decreased 3.3% to $651.2 million from $673.7 million during the comparable period in 2022. 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 58.8% for the three months ended March 31, 2023, compared to 60.3% for the three months ended March 31, 2022. The compensation ratio in the first quarter of 2023 benefited from higher net interest income, which is a relatively low compensatory revenue source.

Occupancy and equipment rental – For the three months ended March 31, 2023, occupancy and equipment rental expense increased 6.6% to $82.1 million from $77.0 million during the comparable period in 2022. The increase is primarily attributable to higher furniture and equipment and data processing costs associated with the continued investments made in our business.

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 ended March 31, 2023, communications and office supplies expense increased 8.7% to $46.1 million from $42.5 million during the comparable period in 2022. The increase is primarily attributable to higher communication and quote equipment expenses associated with the continued investments made in our business.

Commissions and floor brokerage – For the three months ended March 31, 2023, commissions and floor brokerage expense decreased 9.1% to $14.4 million from $15.9 million during the comparable period in 2022. The decrease is primarily attributable to lower clearing expenses, partially offset by higher electronic communication network (“ECN”) trading costs and processing expenses.

Provision for credit losses – For the three months ended March 31, 2023, provision for credit losses decreased 40.3% to $4.9 million from $8.2 million during the comparable period in 2022. The decrease is primarily attributable to reserve reductions during the quarter, partially offset by growth in our loan portfolio.

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 ended March 31, 2023, other operating expenses increased 36.0% to $98.1 million from $72.1 million during the comparable period in 2022. The increase is primarily attributable to increases in travel and entertainment expenses, conference-related expenses, litigation expense, professional fees, subscriptions, FDIC-insurance expense, advertising, and settlement-related expenses.

Provision for income taxes – For the three months ended March 31, 2023, our provision for income taxes was $52.3 million, representing an effective tax rate of 24.9%, compared to $53.6 million for the comparable period in 2022, representing an effective tax rate of 23.6%.

SEGMENT ANALYSIS

Our reportable segments include Global Wealth Management, Institutional Group, and Other.

Our Global Wealth Management segment consists of two businesses, the Private Client Group and Stifel Bancorp. The Private Client Group includes branch offices and independent contractor offices of our broker-dealer subsidiaries located throughout the 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 as FDIC-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 the Private Client Group, which are included in the Global Wealth Management segment), merger and acquisition, and financial advisory services.

The success of our Institutional 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.

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.

Results of Operations – Global Wealth Management

Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022

The following table presents consolidated financial information for the Global Wealth Management segment for the periods indicated (in thousands, except percentages):


	Three Months Ended March 31,								As a Percentage of Net Revenues For the Three Months Ended March 31,
	2023			2022		% Change			2023			2022
Revenues:
Commissions	$	110,191		$	130,776		(15.7	)		14.6	%		19.2	%
Principal transactions		51,064			45,544		12.1			6.7			6.7
Transactional revenues		161,255			176,320		(8.5	)		21.3			25.9
Asset management		315,537			341,613		(7.6	)		41.7			50.1
Investment banking		4,158			5,147		(19.2	)		0.5			0.8
Interest		430,548			163,950		162.6			56.9			24.0
Other income		(5,696	)		1,885		(402.2	)		(0.8	)		0.3
Total revenues		905,802			688,915		31.5			119.6			101.1
Interest expense		148,616			7,190	n/m				19.6			1.1
Net revenues		757,186			681,725		11.1			100.0			100.0
Non-interest expenses:
Compensation and benefits		342,423			364,993		(6.2	)		45.2			53.5
Occupancy and equipment rental		41,391			36,937		12.1			5.5			5.4
Communication and office supplies		15,756			14,675		7.4			2.1			2.2
Commissions and floor brokerage		6,335			6,887		(8.0	)		0.8			1.0
Provision for credit losses		4,920			8,240		(40.3	)		0.6			1.2
Other operating expenses		30,252			24,580		23.1			4.1			3.6
Total non-interest expenses		441,077			456,312		(3.3	)		58.3			66.9
Income before income taxes	$	316,109		$	225,413		40.2			41.7	%		33.1	%


	March 31,
	2023		2022
Branch offices		397		395
Financial advisors		2,248		2,229
Independent contractors		102		92
Total financial advisors		2,350		2,321

NET REVENUES

For the three months ended March 31, 2023, Global Wealth Management net revenues increased 11.1% to a record $757.2 million from $681.7 million for the comparable period in 2022. The increase in net revenues over the comparable period in 2022 is primarily attributable to an increase in net interest income and principal transactions revenue, partially offset by lower asset management revenues, commissions revenues, other income, and investment banking revenues.

Commissions – For the three months ended March 31, 2023, commission revenues decreased 15.7% to $110.2 million from $130.8 million in the comparable period in 2022.

Principal transactions – For the three months ended March 31, 2023, principal transactions revenues increased 12.1% to $51.1 million from $45.5 million in the comparable period in 2022. The increase is primarily attributable to an increase in municipal bond issuances over the comparable period in 2022.

Transactional revenues – For the three months ended March 31, 2023, transactional revenues decreased 8.5% to $161.3 million from $176.3 million in the comparable period in 2022 as a result of a decrease in client activity, partially offset by an increase in municipal bond issuances.

Asset management – For the three months ended March 31, 2023, asset management revenues decreased 7.6% to $315.5 million from $341.6 million in the comparable period in 2022. The decrease is primarily attributable to lower asset values. Fee-based account revenues are primarily billed based on asset values at the end the prior quarter.

Client asset metrics as of the periods indicated (in thousands, except number of accounts and percentages):


	3/31/23		3/31/22		% Change			12/31/22		% Change
Client assets	$	405,988,000	$	421,414,000		(3.7	)	$	389,818,000		4.1
Fee-based client assets	$	149,541,000	$	157,910,000		(5.3	)	$	144,952,000		3.2
Number of client accounts		1,188,000		1,140,000		4.2			1,183,000		0.4
Number of fee-based client accounts		321,000		307,000		4.6			319,000		0.6

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 19.2% to $4.2 million for the three months ended March 31, 2023 from $5.1 million during the comparable period in 2022. Please refer to “Investment banking” in the Institutional Group segment discussion for information on the changes in net revenues.

Interest revenue – For the three months ended March 31, 2023, interest revenue increased 162.6% to $430.5 million from $164.0 million in the comparable period in 2022. The increase is primarily attributable to higher interest rates and interest-earning assets. 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 ended March 31, 2023, other income decreased 402.2% to a loss of $5.7 million from $1.9 million in the comparable period in 2022. The decrease is primarily attributable to losses on the sale of investments in the first quarter of 2023 and a decrease in loan origination fees from the comparable period in 2022.

Interest expense – For the three months ended March 31, 2023, interest expense increased to $148.6 million from $7.2 million in the comparable period in 2022. The increase is primarily attributable to higher interest rates and interest-bearing liabilities. Please refer to “Net Interest Income – Stifel Bancorp” below for a further discussion of the changes in net interest income.

NET INTEREST INCOME – STIFEL BANCORP

The following tables present average balance data and operating interest revenue and expense data for Stifel Bancorp, as well as related interest yields for the periods indicated (in thousands, except rates):


	Three Months Ended March 31, 2023							Three Months Ended March 31, 2022
	Average Balance		Interest Income/ Expense		Average Interest Rate			Average Balance		Interest Income/ Expense		Average Interest Rate
Assets:
Interest-bearing cash and federal funds sold	$	916,145	$	11,244		4.91	%	$	549,482	$	306		0.22	%
U.S. government agencies		2,347		12		2.09			2,995		13		1.73
State and municipal securities (tax-exempt) (1)		2,350		18		3.00			2,370		12		1.97
Mortgage-backed securities		986,568		5,380		2.18			1,007,256		4,408		1.75
Corporate fixed income securities		637,486		4,156		2.61			772,950		4,973		2.57
Asset-backed securities		6,202,495		98,761		6.37			5,598,627		24,856		1.78
Federal Home Loan Bank and other capital stock		57,412		554		3.86			50,066		359		2.87
Loans (2)
Securities-based loans		2,637,992		42,489		6.44			2,910,709		14,425		1.98
Commercial and industrial		4,816,281		94,258		7.83			4,379,966		41,283		3.77
Fund banking		4,396,455		76,297		6.94			3,176,050		20,840		2.62
Residential real estate		7,446,084		53,479		2.87			5,684,563		35,531		2.50
Commercial real estate		666,792		10,949		6.57			462,943		2,917		2.52
Home equity lines of credit		107,547		2,012		7.48			83,603		622		2.98
Construction and land		612,567		11,477		7.49			525,286		4,266		3.25
Other		46,363		726		6.27			33,549		183		2.18
Loans held for sale		206,257		3,365		6.53			221,758		1,270		2.29
Total interest-earning assets (3)	$	29,741,141	$	415,177		5.58	%	$	25,462,173	$	156,264		2.45	%
Cash and due from banks		12,283							12,421
Other non interest-earning assets		162,716							160,113
Total assets	$	29,916,140						$	25,634,707
Liabilities and stockholders’ equity:
Deposits:
Money market	$	25,808,784	$	126,533		1.96	%	$	22,031,599	$	699		0.01	%
Time deposits		6,903		50		2.91			24,556		161		2.62
Demand deposits		1,321,850		10,704		3.24			1,073,467		69		0.03
Savings		468		1		0.67			244		—		0.02
Federal Home Loan Bank advances		5,556		68		4.92			40,422		31		0.30
Other borrowings		867		38		17.48			1,063		35		13.24
Total interest-bearing liabilities (3)		27,144,428		137,394		2.02	%		23,171,351		995		0.02	%
Non-interest-bearing deposits		441,789							631,904
Other non-interest bearing liabilities		163,370							84,225
Total liabilities		27,749,587							23,887,480
Stockholders’ equity		2,166,553							1,747,227
Total liabilities and stockholders’ equity	$	29,916,140						$	25,634,707
Net interest income/spread			$	277,783		3.56	%			$	155,269		2.43	%
Net interest margin						3.74	%						2.44	%

(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.

The following table sets forth an analysis of the effect on net interest income of volume and rate changes for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 (in thousands):


	Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
	Increase/(decrease) due to:
	Volume			Rate		Total
Interest income:
Interest-bearing cash and federal funds sold	$	336		$	10,602	$	10,938
U.S. government agencies		(27	)		26		(1	)
State and municipal securities (tax-exempt)		(1	)		7		6
Mortgage-backed securities		(89	)		1,061		972
Corporate fixed income securities		(884	)		67		(817	)
Asset-backed securities		2,959			70,946		73,905
Federal Home Loan Bank and other capital stock		58			137		195
Loans
Securities-based loans		(1,219	)		29,283		28,064
Commercial and industrial		4,488			48,487		52,975
Fund banking		10,503			44,954		55,457
Residential real estate		12,118			5,830		17,948
Commercial real estate		1,728			6,304		8,032
Home equity lines of credit		221			1,169		1,390
Construction and land		813			6,398		7,211
Other		92			451		543
Loans held for sale		(82	)		2,177		2,095
	$	31,014		$	227,899	$	258,913
Interest expense:
Deposits:
Money market	$	140			125,694	$	125,834
Time deposits		(131	)		20		(111	)
Demand deposits		20			10,615		10,635
Savings		—			1		1
Federal Home Loan Bank advances		(3	)		40		37
Other borrowings		(5	)		8		3
	$	21		$	136,378	$	136,399

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 ended March 31, 2023, interest revenue of $415.2 million was generated from average interest-earning assets of $29.7 billion at an average interest rate of 5.58%. Interest revenue of $156.3 million for the comparable period in 2022 was generated from average interest-earning assets of $25.5 billion at an average interest rate of 2.45%.

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 ended March 31, 2023, interest expense of $137.4 million was incurred from average interest-bearing liabilities of $27.1 billion at an average interest rate of 2.02%. Interest expense of $1.0 million for the comparable period in 2022 was incurred from average interest-bearing liabilities of $23.2 billion at an average interest rate of 0.02%.

Please refer to “Net Interest Income – Stifel Bancorp” above for more information regarding average balances, interest income and expense, and average interest rate yields.

NON-INTEREST EXPENSES

For the three months ended March 31, 2023, Global Wealth Management non-interest expenses decreased 3.3% to $441.1 million from $456.3 million for the comparable period in 2022.

Compensation and benefits – For the three months ended March 31, 2023, compensation and benefits expense decreased 6.2% to $342.4 million from $365.0 million during the comparable period in 2022. The decrease is primarily attributable to lower variable compensation expense.

Compensation and benefits expense as a percentage of net revenues was 45.2% for the three months ended March 31, 2023, compared to 53.5% for the comparable period in 2022. The decrease is primarily attributable to lower compensable revenues over the comparable period in 2022.

Occupancy and equipment rental – For the three months ended March 31, 2023, occupancy and equipment rental expense increased 12.1% to $41.4 million from $36.9 million during the comparable period in 2022. The increase is primarily attributable to higher furniture and equipment and data processing costs associated with the continued investments made in our business and higher occupancy costs as a result of an increase in locations over the comparable period in 2022.

Communications and office supplies – For the three months ended March 31, 2023, communications and office supplies expense increased 7.4% to $15.8 million from $14.7 million during the comparable period in 2022. The increase is primarily attributable to higher postage and shipping expenses associated with the continued growth of our business.

Commissions and floor brokerage – For the three months ended March 31, 2023, commissions and floor brokerage expense decreased 8.0% to $6.3 million from $6.9 million during the comparable period in 2022. The decrease is primarily attributable to lower clearing expenses, partially offset by higher processing expenses.

Other operating expenses – For the three months ended March 31, 2023, other operating expenses increased 23.1% to $30.3 million from $24.6 million during the comparable period in 2022. The increase is primarily attributable to increases in travel and entertainment expense, conference-related expenses, subscriptions, and FDIC-insurance expense, partially offset by decreases in litigation expense, advertising expenses, and professional fees.

INCOME BEFORE INCOME TAXES

For the three months ended March 31, 2023, income before income taxes increased 40.2% to $316.1 million from $225.4 million during the comparable period in 2022.

Profit margins (income before income taxes as a percent of net revenues) have increased to 41.7% for the three months ended March 31, 2023, from 33.1% during the comparable period in 2022. The improved profit margin is a result of strong revenue growth and our continued expense discipline, as well as a change in the composition of revenue (higher net interest income).

Results of Operations – Institutional Group

Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022

The following table presents consolidated financial information for the Institutional Group segment for the periods indicated (in thousands, except percentages):


	Three Months Ended March 31,							As a Percentage of Net Revenues For the Three Months Ended March 31,
	2023		2022		% Change			2023			2022
Revenues:
Commissions	$	59,359	$	65,133		(8.9	)		17.8	%		15.1	%
Principal transactions		64,458		113,726		(43.3	)		19.4			26.4
Transactional revenues		123,817		178,859		(30.8	)		37.2			41.5
Capital raising		56,658		68,303		(17.0	)		17.1			15.8
Advisory		151,063		181,396		(16.7	)		45.4			42.1
Investment banking		207,721		249,699		(16.8	)		62.5			57.9
Interest		5,465		5,273		3.6			1.6			1.2
Other income		2,296		589		289.8			0.7			0.1
Total revenues		339,299		434,420		(21.9	)		102.0			100.7
Interest expense		6,686		3,057		118.7			2.0			0.7
Net revenues		332,613		431,363		(22.9	)		100.0			100.0
Non-interest expenses:
Compensation and benefits		205,905		252,347		(18.4	)		61.9			58.5
Occupancy and equipment rental		21,273		20,160		5.5			6.4			4.7
Communication and office supplies		25,247		23,075		9.4			7.6			5.3
Commissions and floor brokerage		8,105		9,000		(9.9	)		2.4			2.1
Other operating expenses		38,363		30,153		27.2			11.6			7.0
Total non-interest expenses		298,893		334,735		(10.7	)		89.9			77.6
Income before income taxes	$	33,720	$	96,628		(65.1	)		10.1	%		22.4	%

NET REVENUES

For the three months ended March 31, 2023, Institutional Group net revenues decreased 22.9% to $332.6 million from $431.4 million for the comparable period in 2022. The decrease in net revenues was primarily attributable to lower transactional revenues, advisory revenues, and capital-raising revenues, partially offset by an increase in other income.

Commissions – For the three months ended March 31, 2023, commission revenues decreased 8.9% to $59.4 million from $65.1 million in the comparable period in 2022.

Principal transactions – For the three months ended March 31, 2023, principal transactions revenues decreased 43.3% to $64.5 million from $113.7 million in the comparable period in 2022.

Transactional revenues – For the three months ended March 31, 2023, institutional transactional revenues decreased 30.8% to $123.8 million from $178.9 million in the comparable period in 2022.

For the three months ended March 31, 2023, fixed income institutional transactional revenues decreased 41.6% to $71.4 million from $122.3 million in the comparable period in 2022. The decrease in fixed income institutional transactional revenues is primarily attributable to decreased activity in our rates business.

For the three months ended March 31, 2023, equity institutional transactional revenues decreased 7.4% to $52.4 million from $56.6 million during the comparable period in 2022. The decline in equity institutional transactional revenues is primarily attributable to declines in activity, partially offset by lower trading losses in 2023.

Investment banking – For the three months ended March 31, 2023, investment banking revenues decreased 16.8% to $207.7 million from $249.7 million during the comparable period in 2022.

For the three months ended March 31, 2023, capital-raising revenues decreased 17.0% to $56.7 million from $68.3 million in the comparable period in 2022.

For the three months ended March 31, 2023, equity capital-raising revenues decreased 16.2% to $24.7 million from $29.4 million during the comparable period in 2022. The decrease is a result of lower issuances in line with market volumes in an uncertain market environment.

For the three months ended March 31, 2023, fixed income capital-raising revenues decreased 17.7% to $32.0 million from $38.9 million during the comparable period in 2022. The decrease is primarily attributable to lower bond issuances as a result of the microeconomic conditions that existed during the first quarter of 2023.

For the three months ended March 31, 2023, advisory revenues decreased 16.7% to $151.1 million from $181.4 million in the comparable period in 2022. The decrease is primarily attributable to lower levels of completed advisory transactions over the comparable period in 2022.

Interest – For the three months ended March 31, 2023, interest increased 3.6% to $5.5 million from $5.3 million in the comparable period in 2022.

Other income – For the three months ended March 31, 2023, other income increased 289.8% to $2.3 million from $0.6 million in the comparable period in 2022.

Interest expense – For the three months ended March 31, 2023, interest expense increased 118.7% to $6.7 million from $3.1 million in the comparable period in 2022. The increase is primarily attributable to higher interest rates and an increase in inventory levels.

NON-INTEREST EXPENSES

For the three months ended March 31, 2023, Institutional Group non-interest expenses decreased 10.7% to $298.9 million from $334.7 million for the comparable period in 2022.

Compensation and benefits – For the three months ended March 31, 2023, compensation and benefits expense decreased 18.4% to $205.9 million from $252.3 million during the comparable period in 2022. The decrease is driven by lower compensable revenues.

Compensation and benefits expense as a percentage of net revenues was 61.9% for the three months ended March 31, 2023, compared to 58.5% for the comparable period in 2022. The increase is primarily attributable to lower compensable revenues.

Occupancy and equipment rental – For the three months ended March 31, 2023, occupancy and equipment rental expense increased 5.5% to $21.3 million from $20.2 million during the comparable period in 2022. The increase is attributable to higher occupancy and furniture and equipment costs associated with the continued investments made in our business, partially offset by lower data processing costs.

Communications and office supplies – For the three months ended March 31, 2023, communications and office supplies expense increased 9.4% to $25.2 million from $23.1 million during the comparable period in 2022. The increase is primarily attributable to higher communication and quote expenses.

Commissions and floor brokerage – For the three months ended March 31, 2023, commissions and floor brokerage expense decreased 9.9% to $8.1 million from $9.0 million during the comparable period in 2022. The decrease is primarily attributable to lower clearing expenses, partially offset by higher ECN trading costs.

Other operating expenses – For the three months ended March 31, 2023, other operating expenses increased 27.2% to $38.4 million from $30.2 million during the comparable period in 2022. The increase is primarily attributable to higher travel and entertainment expenses, conference-related expenses, litigation-related expenses, and subscription expenses, partially offset by lower settlement costs.

INCOME BEFORE INCOME TAXES

For the three months ended March 31, 2023, income before income taxes for the Institutional Group segment decreased 65.1% to $33.7 million from $96.6 million during the comparable period in 2022.

Profit margins (income before income taxes as a percentage of net revenues) have decreased to 10.1% for the three months ended March 31, 2023, from 22.4% during the comparable period in 2022. Profit margins were negatively impacted by the decrease in net revenues from the comparable period in 2022.

Results of Operations – Other Segment

Three months ended March 31, 2023 Compared with Three months ended March 31, 2022

The following table presents consolidated financial information for the Other segment for the periods presented (in thousands, except percentages):


	Three Months Ended March 31,
	2023			2022			% Change
Net revenues	$	16,994		$	3,439			394.2
Non-interest expenses:
Compensation and benefits		102,862			56,352			82.5
Other operating expenses		54,078			42,019			28.7
Total non-interest expenses		156,940			98,371			59.5
Loss before income taxes	$	(139,946	)	$	(94,932	)		47.4	%

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 Ended March 31,
	2023		2022		% Change
Non-interest expenses:
Compensation and benefits	$	9,253	$	9,311		(0.6	)
Other operating expenses		8,136		5,481		48.4
Total non-interest expenses	$	17,389	$	14,792		17.6	%

For the three months ended March 31, 2023, compensation and benefits expense remained relatively consistent with the comparable period in 2022 at $9.3 million.

For the three months ended March 31, 2023, other operating expenses increased 48.4% to $8.1 million from $5.5 million in 2022.

The expenses not associated with the activities described above in the Other segment are as follows:


	Three Months Ended March 31,
	2023		2022		% Change
Non-interest expenses:
Compensation and benefits	$	93,609	$	47,041		99.0
Other operating expenses		45,942		36,538		25.7
Total non-interest expenses	$	139,551	$	83,579		67.0	%

For the three months ended March 31, 2023, compensation and benefits expense increased 99.0% to $93.6 million from $47.0 million in 2022.

For the three months ended March 31, 2023, other operating expenses increased 25.7% to $45.9 million from $36.5 million in 2022.

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 $38.6 billion, were up 3.8% over December 31, 2022. 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 of March 31, 2023, our liabilities were comprised primarily of deposits of $28.3 billion at Stifel Bancorp, accounts payable and accrued expenses of $1.2 billion, senior notes, net of debt issuance costs, of $1.1 billion, payables to customers of $907.2 million at our broker-dealer subsidiaries, and accrued employee compensation of $329.4 million. To meet our obligations to clients and operating needs, we had $12.3 billion of cash or assets readily convertible into cash at March 31, 2023.

Cash Flow

Cash and cash equivalents increased $565.8 million to $2.8 billion at March 31, 2023, from $2.2 billion at December 31, 2022. Operating activities used cash of $385.1 million. Investing activities used cash of $289.7 million due to the growth of the loan portfolio, cash used to fund acquisitions, fixed asset purchases, and investment securities purchases. Financing activities provided cash of $1.2 billion primarily due to an increase in bank deposits and securities loaned, partially offset by repurchases of our common stock, tax payments related to shares withheld for stock-based compensation, and dividends paid on our common and preferred 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. Interest rate increases may harm the value of our investment portfolio, if interest rates rise, our unrealized gains on fixed income securities may decrease and our unrealized losses may increase. We would recognize the accumulated change in estimated fair value of these fixed income securities in net income when we realize a gain or loss upon the sale of the security.

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 of March 31, 2023, we had $38.6 billion in assets, $12.3 billion of which consisted of cash or assets readily convertible into cash as follows (in thousands):


	March 31, 2023		December 31, 2022
Cash and cash equivalents	$	2,765,747	$	2,199,985
Receivables from brokers, dealers, and clearing organizations		457,739		418,091
Securities purchased under agreements to resell		549,215		348,162
Financial instruments owned at fair value		878,087		659,685
Available-for-sale securities at fair value		1,624,458		1,636,041
Held-to-maturity securities at amortized cost		5,984,822		5,990,451
Investments		38,459		38,278
Total cash and assets readily convertible to cash	$	12,298,527	$	11,290,693

As of March 31, 2023 and December 31, 2022, the amount of collateral by asset class is as follows (in thousands):


	March 31, 2023				December 31, 2022
	Contractual		Contingent		Contractual		Contingent
Cash and cash equivalents	$	156,767	$	—	$	129,045	$	—
Financial instruments owned at fair value		429,726		429,726		212,011		212,011
Investment portfolio (AFS & HTM)		—		2,079,737		—		2,090,583
	$	586,493	$	2,509,463	$	341,056	$	2,302,594

Liquidity Available From Subsidiaries

Liquidity is principally available to our company from Stifel and Stifel Bancorp.

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. At March 31, 2023, 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 without FINRA approval. See

Note 16 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 of Stifel Bancorp’s current calendar year and the previous two calendar years’ retained net income and Stifel 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

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: (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 March 31, 2023, the Company maintained sufficient liquidity to meet current and contingent funding obligations as modeled in its liquidity stress test model.

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. At March 31, 2023, available cash and highly liquid investments comprised approximately 19% of Stifel 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 that Stifel 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 $2.8 billion of cash and cash equivalents at March 31, 2023, compared to $2.2 billion at December 31, 2022. Cash and cash equivalents provide immediate sources of funds to meet our liquidity needs.

Available-for-Sale Securities – We held $1.6 billion in available-for-sale investment securities at March 31, 2023, compared to $1.6 billion at December 31, 2022. As of March 31, 2023, the weighted-average life of the investment securities portfolio was approximately 1.3 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 of March 31, 2023, we had $28.3 billion in deposits compared to $27.1 billion at December 31, 2022. Our core deposits are primarily comprised of money market deposit accounts, non-interest-bearing deposits, and CDs.

Deposits are primarily sourced by our multi-bank sweep program in which clients’ cash deposits in their brokerage accounts are swept into FDIC-insured interest-bearing accounts at our bank subsidiaries and various third-party banks. In addition to our historical sweep program, we offer the Stifel Smart Rate Program (“Smart Rate”), a high yield savings account that keeps our brokerage clients’ cash balances at Stifel affiliated banks through their securities accounts. Brokerage client deposits totaled $24.8 billion and $25.3 billion at March 31, 2023 and December 31, 2022, respectively, which includes $10.8 billion and $8.7 billion, respectively, of client cash in our Smart Rate program. The increase in money market deposits in 2023 was primarily driven by elevated client interest in the Smart Rate program. Please refer to the 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 Stifel Bancorp’s average balances and interest income and expense.

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 the Federal 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.

Federal Home Loan advances are floating-rate advances. The weighted average interest rate during the three months ended March 31, 2023 on these advances was 4.92%. The advances are secured by Stifel 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. At March 31, 2023, there were no Federal Home Loan advances.

Unsecured borrowings – On May 27, 2021, the Company and Stifel entered into an unsecured revolving credit facility agreement (the “Credit Facility”). The Credit Facility has a maturity date of May 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 the Secured Overnight Financing Rate. There were no borrowings outstanding on the Credit Facility as of March 31, 2023.

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. At March 31, 2023, 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 the Federal Home Loan Bank of $5.8 billion at March 31, 2023 and $64.5 million in federal funds agreements for the purpose of purchasing short-term funds should additional liquidity be needed. At March 31, 2023, there were no outstanding Federal 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 $1.3 billion with the Fed’s discount window at March 31, 2023. Stifel Bancorp receives overnight funds from excess cash held in Stifel brokerage accounts, which are deposited into a money market account. These balances totaled $24.8 billion at March 31, 2023. At March 31, 2023, there was $26.0 billion in client money market and FDIC-insured product balances.

Public Offering of Senior Notes – On July 15, 2014, we sold in a registered underwritten public offering, $300.0 million in aggregate principal amount of 4.25% senior notes due July 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. In July 2016, we issued an additional $200.0 million in aggregate principal amount of 4.25% senior notes due 2024.

On October 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 due October 2047. Interest on the senior notes is payable quarterly in arrears in January, April, July, and October. On or after October 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. On October 27, 2017, we completed the sale of an additional $25.0 million aggregate principal amount of Notes pursuant to the over-allotment option. In October 2017, we received a BBB- rating on the notes.

On May 20, 2020, we sold in a registered underwritten public offering, $400.0 million in aggregate principal amount of 4.00% senior notes due May 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 at Treasury rate plus 50 basis points prior to February 15, 2030, and on or after February 15, 2030, at 100% of their principal amount, and accrued and unpaid interest, if any, to the date of redemption. In May 2020, we received a BBB- rating on the notes.

Public Offering of Preferred Stock – In July 2016, the Company completed an underwritten registered public offering of $150.0 million 6.25% Non-Cumulative Perpetual Preferred Stock, Series A. On August 20, 2021, the Company redeemed all of the outstanding Series A Preferred Stock.

In February 2019, the Company completed an underwritten registered public offering of $150.0 million 6.25% Non-Cumulative Perpetual Preferred Stock, Series B. In March 2019, we completed a public offering of an additional $10.0 million of Series B Preferred, pursuant to the over-allotment option.

In May 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.

On July 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 after August 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 $40.1 million in the form of upfront notes to financial advisors for transition pay during the three months ended March 31, 2023. 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 nine months in 2023, and the years ended December 31, 2024, 2025, 2026, 2027, and thereafter are $121.2 million, $118.9 million, $98.0 million, $88.4 million, $69.8 million, and $163.4 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, 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 three years.

At March 31, 2023, the total number of restricted stock units, PRSUs, and restricted stock awards outstanding was 16.1 million, of which 13.6 million were unvested. At March 31, 2023, there was unrecognized compensation cost for deferred awards of approximately $821.2 million, which is expected to be recognized over a weighted-average period of 2.6 years.

The future estimated compensation expense of the deferred awards, assuming current year forfeiture levels and static growth for the remaining nine months in 2023, and the years ended December 31, 2024, 2025, 2026, 2027, and thereafter are $181.5 million, $213.3 million, $175.3 million, $133.8 million, $73.5 million, and $43.8 million, respectively. These estimates could change if our forfeitures change from historical levels.

On March 1, 2023, the Company acquired Torreya Partners LLC, a leading independent M&A and private capital advisory firm serving the global life sciences industry.

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., and Stifel 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.

At March 31, 2023, Stifel had net capital of $514.5 million, which was 44.6% of aggregate debit items and $491.5 million in excess of its minimum required net capital. At March 31, 2023, all of our other broker-dealer subsidiaries’ net capital exceeded the minimum net capital required under the SEC rule. At March 31, 2023, SNEL’s capital and reserves were in excess of the financial resources requirement under the rules of the FCA. At March 31, 2023, our banking subsidiaries were considered well capitalized under the regulatory framework for prompt corrective action. At March 31, 2023, SNC’s net capital and reserves were in excess of the financial resources requirement under the rules of the IIROC. See Note 16 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 with U.S. generally accepted accounting principles and pursuant to the rules and regulations of the SEC, 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 ended December 31, 2022. 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 21 of the Notes to Consolidated Financial Statements. Such information is hereby incorporated by reference.

Contractual Obligations

Our contractual obligations have not materially changed from those reported in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management

Risks are an inherent part of our business and activities. Management of these risks is critical to our soundness and profitability. Risk management at our company is a multi-faceted process that requires communication, judgment, and knowledge of financial products and markets. Our senior management group takes an active role in the risk management process and requires specific administrative and business functions to assist in the identification, assessment, monitoring, and control of various risks. The principal risks involved in our business activities are: market (interest rates and equity prices), credit, capital and liquidity, operational, and regulatory and legal.

We have adopted policies and procedures concerning Enterprise Risk Management. The Risk Management/Corporate Governance Committee of the Board of Directors, in exercising its oversight of management’s activities, conducts periodic reviews and discussions with management regarding the guidelines and policies governing the processes by which risk assessment and risk management are handled.

Market Risk

The potential for changes in the value of financial instruments owned by our company resulting from changes in interest rates and equity prices is referred to as “market risk.” Market risk is inherent to financial instruments, and accordingly, the scope of our market risk management procedures includes all market risk-sensitive financial instruments.

We trade tax-exempt and taxable debt obligations, including U.S. treasury bills, notes, and bonds; U.S. government agency and municipal notes and bonds; bank certificates of deposit; mortgage-backed securities; and corporate obligations. We are also an active market-maker in over-the-counter equity securities. In connection with these activities, we may maintain inventories in order to ensure availability and to facilitate customer transactions.

Changes in value of our financial instruments may result from fluctuations in interest rates, credit ratings, equity prices, and the correlation among these factors, along with the level of volatility.

We manage our trading businesses by product and have established trading departments that have responsibility for each product. The trading inventories are managed with a view toward facilitating client transactions, considering the risk and profitability of each inventory position. Position limits in trading inventory accounts are established by our Enterprise Risk Management department and monitored on a daily basis within the business units. We monitor inventory levels and results of the trading departments, as well as inventory aging, pricing, concentration, securities ratings, and risk sensitivities.

We are also exposed to market risk based on our other investing activities. These investments consist of investments in private equity partnerships, start-up companies, venture capital investments, and zero coupon U.S. government securities and are included under the caption “Investments” on the consolidated statements of financial condition.

Interest Rate Risk

We are exposed to interest rate risk as a result of maintaining inventories of interest rate-sensitive financial instruments and from changes in the interest rates on our interest-earning assets (including client loans, stock borrow activities, investments, inventories, and resale agreements) and our funding sources (including client cash balances, Federal Home Loan Bank advances, stock lending activities, bank borrowings, and repurchase agreements), which finance these assets. The collateral underlying financial instruments at the broker-dealer is repriced daily, thus requiring collateral to be delivered as necessary. Interest rates on client balances and stock borrow and lending produce a positive spread to our company, with the rates generally fluctuating in parallel.

We manage our inventory exposure to interest rate risk by setting and monitoring limits and, where feasible, hedging with offsetting positions in securities with similar interest rate risk characteristics. While a significant portion of our securities inventories have contractual maturities in excess of five years, these inventories, on average, turn over several times per year.

Value-at-Risk (“VaR”) is a statistical technique used to estimate the probability of portfolio losses based on the statistical analysis of historical price trends and volatility. It provides a common risk measure across financial instruments, markets and asset classes. We estimate VaR using a model that assumes historical changes in market conditions are representative of future changes, and trading losses on any given day could exceed the reported VaR by significant amounts in unusually volatile markets. Further, the model involves a number of assumptions and inputs. While we believe that the assumptions and inputs we use in our risk model are reasonable, different assumptions and inputs could produce materially different VaR estimates. We monitor, on a daily basis, the VaR in our trading portfolios using a ten-day horizon and a five year look-back period measured at a 99% confidence level.

The following table sets forth the high, low, and daily average VaR for our trading portfolios during the three months ended March 31, 2023, and the daily VaR at March 31, 2023 and December 31, 2022 (in thousands):


	Three Months Ended March 31, 2023						VaR Calculation at
	High		Low		Daily Average		March 31, 2023		December 31, 2022
Daily VaR	$	11,953	$	4,038	$	7,838	$	6,503	$	6,293

Stifel Bancorp’s interest rate risk is principally associated with changes in market interest rates related to residential, consumer, and commercial lending activities, as well as FDIC-insured deposit accounts to customers of our broker-dealer subsidiaries and to the general public.

Our primary emphasis in interest rate risk management for Stifel Bancorp is the matching of assets and liabilities of similar cash flow and repricing time frames. This matching of assets and liabilities reduces exposure to interest rate movements and aids in stabilizing positive interest spreads. Stifel Bancorp has established limits for acceptable interest rate risk and acceptable portfolio value risk. To ensure that Stifel Bancorp is within the limits established for net interest income, an analysis of net interest income based on various shifts in interest rates is prepared each quarter and presented to Stifel Bancorp’s Board of Directors. Stifel Bancorp utilizes a third-party model to analyze the available data.

The following table illustrates the estimated change in net interest income at March 31, 2023, based on shifts in interest rates of up to positive 200 basis points and negative 200 basis points:


Hypothetical Change in Interest Rates	Projected Change in Net Interest Income
+200		10.3	%
+100		5.2
0		—
-100		(1.1	)
-200		(7.9	)

The following GAP Analysis table indicates Stifel Bancorp’s interest rate sensitivity position at March 31, 2023 (in thousands):


	Repricing Opportunities
	0-6 Months			7-12 Months			1-5 Years			5+ Years
Interest-earning assets:
Loans	$	13,309,405		$	480,100		$	3,462,868		$	4,030,768
Securities		6,191,813			58,283			688,949			923,533
Interest-bearing cash		1,633,576			—			—			—
	$	21,134,794		$	538,383		$	4,151,817		$	4,954,301
Interest-bearing liabilities:
Transaction accounts and savings	$	27,893,376		$	—		$	—		$	—
Certificates of deposit		6,884			14			5			—
	$	27,900,260		$	14		$	5		$	—
GAP		(6,765,466	)		538,369			4,151,812			4,954,301
Cumulative GAP	$	(6,765,466	)	$	(6,227,097	)	$	(2,075,285	)	$	2,879,016

Equity Price Risk

We are exposed to equity price risk as a consequence of making markets in equity securities. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions constantly throughout each day.

Our equity securities inventories are repriced on a regular basis, and there are no unrecorded gains or losses. Our activities as a dealer are client-driven, with the objective of meeting clients’ needs while earning a positive spread.

Credit Risk

We are engaged in various trading and brokerage activities, with the counterparties primarily being broker-dealers. In the event counterparties do not fulfill their obligations, we may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. We manage this risk by imposing and monitoring position limits for each counterparty, monitoring trading counterparties, conducting regular credit reviews of financial counterparties, reviewing security concentrations, holding and marking to market collateral on certain transactions, and conducting business through clearing organizations, which guarantee performance.

Our client activities involve the execution, settlement, and financing of various transactions on behalf of our clients. Client activities are transacted on either a cash or margin basis. Credit exposure associated with our private client business consists primarily of customer margin accounts, which are monitored daily and are collateralized. We monitor exposure to industry sectors and individual securities and perform analyses on a regular basis in connection with our margin lending activities. We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions.

We have accepted collateral in connection with resale agreements, securities borrowed transactions, and customer margin loans. Under many agreements, we are permitted to sell or repledge these securities held as collateral and use these securities to enter into securities lending arrangements or to deliver to counterparties to cover short positions. At March 31, 2023, the fair value of securities accepted as collateral where we are permitted to sell or repledge the securities was $1.9 billion and the fair value of the collateral that had been sold or repledged was $429.7 million.

By using derivative instruments, we are exposed to credit and market risk on those derivative positions. Credit risk is equal to the fair value gain in a derivative, if the counterparty fails to perform. When the fair value of a derivative contract is positive, this generally indicates that the counterparty owes our company and, therefore, creates a repayment risk for our company. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, have no repayment risk. We minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by senior management.

Stifel Bancorp extends credit to individual and commercial borrowers through a variety of loan products, including residential and commercial mortgage loans, home equity loans, construction loans, and non-real-estate commercial and consumer loans. Bank loans are generally collateralized by real estate, real property, or other assets of the borrower. Stifel Bancorp’s loan policy includes criteria to adequately underwrite, document, monitor, and manage credit risk. Underwriting requires reviewing and documenting the fundamental characteristics of credit, including character, capacity to service the debt, capital, conditions, and collateral. Benchmark capital and coverage ratios are utilized, which include liquidity, debt service coverage, credit, working capital, and capital to asset ratios. Lending limits are established to include individual, collective, committee, and board authority. Monitoring credit risk is accomplished through defined loan review procedures, including frequency and scope.

We are subject to concentration risk if we hold large positions, extend large loans to, or have large commitments with a single counterparty, borrower, or group of similar counterparties or borrowers (i.e., in the same industry). Securities purchased under agreements to resell consist of securities issued by the U.S. government or its agencies. Receivables from and payables to clients and stock borrow and lending activities, both with a large number of clients and counterparties, and any potential concentration are carefully monitored. Stock borrow and lending activities are executed under master netting agreements, which gives our company right of offset in the event of counterparty default. Inventory and investment positions taken and commitments made, including underwritings, may involve exposure to individual issuers and businesses. We seek to limit this risk through careful review of counterparties and borrowers and the use of limits established by our senior management group, taking into consideration factors including the financial strength of the counterparty, the size of the position or commitment, the expected duration of the position or commitment, and other positions or commitments outstanding.

Operational Risk

Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems, and inadequacies or breaches in our control processes including cyber security incidents. We operate different businesses in diverse markets and are reliant on the ability of our associates and systems to process a large number of transactions. These risks are less direct than credit and market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes. In the event of a breakdown or improper operation of systems or improper action by associates, we could suffer financial loss, regulatory sanctions, and damage to our reputation. In order to mitigate and control operational risk, we have developed and continue to enhance specific policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization and within such departments as Accounting, Operations, Information Technology, Legal, Compliance, and Internal Audit. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits. Business continuity plans exist for critical systems, and redundancies are built into the systems as deemed appropriate.

Regulatory and Legal Risk

Legal risk includes the risk of private client group customer claims for sales practice violations. While these claims may not be the result of any wrongdoing, we do, at a minimum, incur costs associated with investigating and defending against such claims. See further discussion on our legal reserves policy under “Critical Accounting Policies and Estimates” in Item 2, Part I and “Legal Proceedings” in Item 1, Part II of this report. In addition, we are subject to potentially sizable adverse legal judgments or arbitration awards, and fines, penalties, and other sanctions for non-compliance with applicable legal and regulatory requirements. We are generally subject to extensive regulation by the SEC, FINRA, and state securities regulators in the different jurisdictions in which we conduct business. As a bank holding company, we are subject to regulation by the Federal Reserve. Our bank subsidiaries are subject to regulation by the

FDIC. As a result, we are subject to a risk of loss resulting from failure to comply with banking laws. Our international subsidiary, SNEL, is subject to the regulatory supervision and requirements of the FCA in the United Kingdom. Our Canadian subsidiary, SNC, is subject to the regulatory supervision and requirements of the IIROC. We have comprehensive procedures addressing issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer funds, the extension of credit, including margin loans, collection activities, money laundering, and record keeping. We act as an underwriter or selling group member in both equity and fixed income product offerings. When acting as lead or co-lead manager, we have potential legal exposure to claims relating to these securities offerings. To manage this exposure, a committee of senior executives review proposed underwriting commitments to assess the quality of the offering and the adequacy of due diligence investigation.

Our company, as a bank and financial holding company, is subject to regulation, including capital requirements, by the Federal Reserve. Stifel Bancorp is subject to various regulatory capital requirements administered by the FDIC and state banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our company's and Stifel Bancorp's financial statements.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to, among other things, provide reasonable assurance that material information, both financial and non-financial, and other information required under the securities laws to be disclosed is accumulated and communicated to senior management, including the Chief Executive Officer and Chief Financial Officer, on a timely basis. Under the direction of the Chief Executive Officer and Chief Financial Officer, management has evaluated our disclosure controls and procedures as of March 31, 2023 and has concluded that the disclosure controls and procedures were adequate and effective as of such date.

Changes in Internal Control over Financial Reporting

There have been no changes in our company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please see our discussion set forth under Item 3. “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2022 and Item 1. “Financial Statements” in our Form 10-Q for the quarter ended March 31, 2023.

ITEM 1A. RISK FACTORS

The discussion of our business and operations should be read together with the information contained in our other reports and periodic filings that we make with the SEC, including, without limitation, the information contained under the caption “Item 1A. Risk Factors” in our annual report on Form 10‑K for the year ended December 31, 2022. Those risk factors could materially affect our business, financial condition, and results of operations. The risks that we describe in our public filings are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we presently deem to be immaterial, also may materially adversely affect our business, financial condition, and results of operations.

There have been no material changes in our risk factors from those disclosed under the caption “Item 1A. Risk Factors” to our annual report on Form 10-K for the year ended December 31, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of equity securities during the quarter ended March 31, 2023. The following table sets forth information with respect to purchases made by or on behalf of Stifel Financial Corp. or any “affiliated purchaser” (as defined in Rule 10b-10(a)(3) under the Securities Exchange Act of 1934, as amended), of our common stock during the quarter ended March 31, 2023.


	Total Number of Shares Purchased		Average Price Paid per share		Total Number of Shares Purchased as Part of Publically Announced Plans		Maximum Number of Shares That May Yet be Purchased Under the Plan or Program
January 1 - 31, 2023		358,246	$	60.10		358,246		8,653,635
February 1 - 28, 2023		713,803		66.96		713,803		7,939,832
March 1 - 31, 2023		380,500		66.21		380,500		7,559,332
		1,452,549	$	65.07		1,452,549

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit No.		Description

11.1		Statement Re: Computation of per Share Earnings (The calculation of per share earnings is included in Part I, Item 1 in the Notes to Consolidated Financial Statements (Earnings Per Share) and is omitted here in accordance with Section (b)(11) of Item 601 of Regulation S-K).

31.1		Rule 13a-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1		Section 1350 Certification of Chief Executive Officer.*

32.2		Section 1350 Certification of Chief Financial Officer.*

101		The following financial information, formatted in iXBRL (Inline Extensible Business Report Language), Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Financial Condition as of March 31, 2023 and December 31, 2022; (ii) Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022; (v) Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022; (vi) Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022; and (vii) Notes to Consolidated Financial Statements.

104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

* The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Stifel Financial Corp. under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STIFEL FINANCIAL CORP.

/s/ Ronald J. Kruszewski

Ronald J. Kruszewski
Chairman of the Board  and 
Chief Executive Officer

/s/ James M. Marischen

James M. Marischen
Chief Financial Officer

Date: May 4, 2023