STIFEL FINANCIAL CORP - Quarter Report: 2019 June (Form 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 June 30, 2019

☐	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 N. Broadway, St. Louis, Missouri 63102-2188

(Address of principal executive offices and zip code)

(314) 342-2000

(Registrant’s telephone number, including area code)

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 (as defined 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 ☒

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

Title of Each Class/ Trading Symbol	Name of Each Exchange on Which Registered	Shares outstanding - August 1, 2019
Common Stock, $0.15 par value per share (SF)	New York Stock Exchange		69,584,449
Depository Shares, each representing 1/1,000th interest in a share of 6.25% Non-Cumulative Preferred Stock, Series A (SF PR A)	New York Stock Exchange		6,000
Depository Shares, each representing 1/1,000th interest in a share of 6.25% Non-Cumulative Preferred Stock, Series B (SF PrB)	New York Stock Exchange		6,400

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 June 30, 2019 (unaudited) and December 31, 2018		3
Consolidated Statements of Operations for the three and six months ended June 30, 2019 and June 30, 2018 (unaudited)		5
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and June 30, 2018 (unaudited) Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2019 and June 30, 2018 (unaudited)		6 7
Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and June 30, 2018 (unaudited)		9
Notes to Consolidated Financial Statements (unaudited)		11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		51
Item 3. Quantitative and Qualitative Disclosures About Market Risk		79
Item 4. Controls and Procedures		83

PART II – OTHER INFORMATION
Item 1. Legal Proceedings		83
Item 1A. Risk Factors		83
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		83
Item 6. Exhibits		84
Signatures		85

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STIFEL FINANCIAL CORP.

Consolidated Statements of Financial Condition

	June 30, 2019		December 31, 2018
($ in thousands)	(Unaudited)
Assets
Cash and cash equivalents	$	797,357	$	1,936,560
Cash segregated for regulatory purposes		21,231		132,814
Receivables:
Brokerage clients, net		1,346,940		1,201,477
Brokers, dealers, and clearing organizations		766,344		515,574
Securities purchased under agreements to resell		596,572		699,900
Financial instruments owned, at fair value		1,352,359		1,267,449
Available-for-sale securities, at fair value		2,703,060		3,070,447
Held-to-maturity securities, at amortized cost		3,960,714		4,218,854
Loans:
Held for investment, net		8,964,325		8,517,615
Held for sale, at lower of cost or market		163,511		205,557
Investments, at fair value		81,841		67,982
Fixed assets, net		1,155,121		372,939
Goodwill		1,056,357		1,034,679
Intangible assets, net		119,727		119,655
Loans and advances to financial advisors and other employees, net		470,900		408,436
Deferred tax assets, net		101,935		112,008
Other assets		685,303		637,652
Total assets	$	24,343,597	$	24,519,598

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Financial Condition (continued)

	June 30, 2019			December 31, 2018
($ in thousands, except share and per share amounts)	(Unaudited)
Liabilities
Payables:
Brokerage clients	$	788,365		$	837,379
Brokers, dealers, and clearing organizations		627,180			432,299
Drafts		93,384			104,887
Securities sold under agreements to repurchase		762,282			535,394
Bank deposits		14,901,061			15,863,613
Financial instruments sold, but not yet purchased, at fair value		956,344			947,306
Accrued compensation		267,178			460,347
Accounts payable and accrued expenses		1,018,044			344,152
Federal Home Loan Bank advances		250,000			540,000
Borrowings		117,845			180,655
Senior notes		1,016,492			1,015,973
Debentures to Stifel Financial Capital Trusts		60,000			60,000
Total liabilities		20,858,175			21,322,005

Commitments and contingent liabilities

Equity
Stifel Financial Corp. shareholders' equity:
Preferred stock - $1 par value; authorized 3,000,000 shares; issued 12,400 and 6,000 shares, respectively		310,000			150,000
Common stock - $0.15 par value; authorized 194,000,000 shares; issued 74,441,073 and 74,441,017 shares, respectively		11,166			11,166
Additional paid-in-capital		1,867,209			1,893,304
Retained earnings		1,512,702			1,366,503
Accumulated other comprehensive loss		(35,355	)		(72,523	)
Treasury stock, at cost, 4,637,429 and 3,639,399 shares, respectively		(236,596	)		(180,857	)
Total Stifel Financial Corp. shareholders’ equity		3,429,126			3,167,593
Non-controlling interests		56,296			30,000
Total equity		3,485,422			3,197,593
Total liabilities and equity	$	24,343,597		$	24,519,598

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands, except per share amounts)	2019		2018		2019		2018
Revenues
Commissions	$	164,981	$	166,902	$	320,430	$	332,677
Principal transactions		96,464		88,984		200,496		186,766
Investment banking		179,617		161,063		341,457		337,425
Asset management and service fees		211,171		199,568		406,438		395,369
Interest		187,940		154,421		379,011		292,155
Other income		13,505		9,073		25,714		12,430
Total revenues		853,678		780,011		1,673,546		1,556,822
Interest expense		52,891		37,279		102,339		63,732
Net revenues		800,787		742,732		1,571,207		1,493,090
Non-interest expenses
Compensation and benefits		466,861		442,170		924,975		900,063
Occupancy and equipment rental		61,055		53,596		119,917		111,191
Communications and office supplies		35,069		36,639		70,766		70,138
Commissions and floor brokerage		11,008		10,095		21,964		19,460
Other operating expenses		78,812		81,885		147,794		154,337
Total non-interest expenses		652,805		624,385		1,285,416		1,255,189
Income from operations before income tax expense		147,982		118,347		285,791		237,901
Provision for income taxes		38,225		31,060		76,595		61,853
Net income		109,757		87,287		209,196		176,048
Net income applicable to non-controlling interests		672		—		904		—
Net income applicable to Stifel Financial Corp.		109,085		87,287		208,292		176,048
Preferred dividends		5,288		2,344		7,632		4,688
Net income available to common shareholders	$	103,797	$	84,943	$	200,660	$	171,360

Earnings per common share
Basic	$	1.43	$	1.18	$	2.74	$	2.39
Diluted	$	1.31	$	1.04	$	2.53	$	2.10

Cash dividends declared per common share	$	0.15	$	0.12	$	0.30	$	0.24

Weighted-average number of common shares outstanding
Basic		72,519		71,692		73,180		71,843
Diluted		79,079		81,299		79,160		81,548

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2019			2018			2019			2018
Net income	$	109,757		$	87,287		$	209,196		$	176,048
Other comprehensive income/(loss), net of tax: ^{(1) (4)}
Changes in unrealized gains/(losses) on available-for-sale securities ⁽²⁾		16,284			(11,856	)		42,084			(24,927	)
Changes in unrealized gains/(losses) on cash flow hedging instruments⁽³⁾		(1,957	)		712			(3,783	)		3,418
Foreign currency translation adjustment		(3,301	)		(5,834	)		(1,133	)		(2,098	)
Total other comprehensive income/(loss), net of tax		11,026			(16,978	)		37,168			(23,607	)
Comprehensive income		120,783			70,309			246,364			152,441
Net income attributable to non-controlling interest		672			—			904			—
Comprehensive income applicable to Stifel Financial Corp.	$	120,111		$	70,309		$	245,460		$	152,441

⁽¹⁾	Net of tax expense of $3.9 million and tax benefit of $6.0 million for the three months ended June 30, 2019 and 2018, respectively. Net of tax expense of $13.7 million and tax benefit of $8.3 million for the six months ended June 30, 2019 and 2018, respectively.

⁽²⁾	Net of reclassifications to earnings of realized losses of $0.2 million for the three and six months ended June 30, 2019. There were no reclassifications to earnings during the six months ended June 30, 2018.

⁽³⁾

Amounts are net of reclassifications to earnings of gains of $0.8 million and $1.2 million for the three months ended June 30, 2019 and 2018, respectively. Amounts are net of reclassifications to earnings of gains of $2.3 million and $1.8 million for the six months ended June 30, 2019 and 2018, respectively.

⁽⁴⁾	The adoption of ASU 2018-02 on January 1, 2018 resulted in a reclassification of $3.1 million to retained earnings related to cash flow hedges and investment portfolio risk.

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

	Three Months Ended June 30,
($ in thousands, except per share amounts)	2019			2018
Preferred stock, par value $1.00 per share:
Balance, beginning of period	$	310,000		$	149,968
Other		—			32
Balance, end of period		310,000			150,000
Common stock, par value $0.15 per share:
Balance, beginning of period		11,166			10,869
Common stock issued under employee plans		—			—
Balance, end of period		11,166			10,869
Additional paid-in-capital:
Balance, beginning of period		1,826,604			1,719,710
Unit amortization, net of forfeitures		26,771			21,444
Common stock issued under employee plans and related tax benefits		14,101			(6,015	)
Issuance of preferred stock		(306	)		—
Issuance of common stock for acquisitions		—			56
Dividends declared to equity-award holders		—			1,699
Other		39			(41	)
Balance, end of period		1,867,209			1,736,853
Retained earnings:
Balance, beginning of period		1,443,658			1,103,013
Net income		109,757			87,287
Dividends declared:
Common		(12,733	)		(11,944	)
Preferred		(5,288	)		(2,344	)
Common stock issued under employee plans and related tax benefits		(18,319	)		(1,146	)
Cumulative adjustments for accounting changes ⁽¹⁾		(4,050	)		—
Other		(323	)		285
Balance, end of period		1,512,702			1,175,151
Accumulated other comprehensive loss:
Balance, beginning of period		(46,381	)		(36,415	)
Unrealized gains/(losses) on securities, net of tax		16,284			(11,856	)
Unrealized gains/(losses) on cash flow hedging activities, net of tax		(1,957	)		712
Foreign currency translation adjustment, net of tax		(3,301	)		(5,834	)
Balance, end of period		(35,355	)		(53,393	)
Treasury stock, at cost:
Balance, beginning of period		(168,424	)		(29,605	)
Common stock issued under employee plans		2,925			7,531
Common stock repurchased		(71,097	)		(43,044	)
Balance, end of period		(236,596	)		(65,118	)
Total Stifel Financial Corp. Shareholders' Equity		3,429,126			2,954,362
Non-controlling interests:
Balance, beginning of period		56,574			—
Net income applicable to non-controlling interests		672			—
Distributions to non-controlling interest holders		(950	)		—
Balance, end of period		56,296			—
Total Shareholders' Equity	$	3,485,422		$	2,954,362

⁽¹⁾ Cumulative adjustments for accounting changes relate to the adoption of certain accounting updates during 2019. See Note 2 to the consolidated financial statements for further information.

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Shareholders’ Equity (continued)

(Unaudited)

	Six Months Ended June 30,
($ in thousands, except per share amounts)	2019			2018
Preferred stock, par value $1.00 per share:
Balance, beginning of period	$	150,000		$	150,000
Issuance of preferred stock		160,000			—
Balance, end of period		310,000			150,000
Common stock, par value $0.15 per share:
Balance, beginning of period		11,166			10,746
Common stock issued under employee plans		—			123
Balance, end of period		11,166			10,869
Additional paid-in-capital:
Balance, beginning of period		1,893,304			1,733,348
Unit amortization, net of forfeitures		60,088			49,598
Common stock issued under employee plans and related tax benefits		(81,194	)		(49,406	)
Issuance of preferred stock		(5,012	)		—
Dividends declared to equity-award holders		—			3,350
Other		23			(37	)
Balance, end of period		1,867,209			1,736,853
Retained earnings:
Balance, beginning of period		1,366,503			1,033,526
Net income		209,196			176,048
Dividends declared:
Common		(25,677	)		(20,573	)
Preferred		(7,632	)		(4,688	)
Common stock issued under employee plans and related tax benefits		(18,292	)		(9,110	)
Cumulative adjustments for accounting changes ⁽¹⁾		(10,809	)		(1,124	)
Other		(587	)		1,072
Balance, end of period		1,512,702			1,175,151
Accumulated other comprehensive loss:
Balance, beginning of period		(72,523	)		(26,736	)
Unrealized gains/(losses) on securities, net of tax		42,084			(24,927	)
Unrealized gains/(losses) on cash flow hedging activities, net of tax		(3,783	)		3,418
Foreign currency translation adjustment, net of tax		(1,133	)		(2,098	)
Adjustments for accounting changes ⁽¹⁾		—			(3,050	)
Balance, end of period		(35,355	)		(53,393	)
Treasury stock, at cost:
Balance, beginning of period		(180,857	)		(39,308	)
Common stock issued under employee plans		69,227			20,073
Common stock repurchased		(124,966	)		(45,883	)
Balance, end of period		(236,596	)		(65,118	)
Total Stifel Financial Corp. Shareholders' Equity		3,429,126			2,954,362
Non-controlling interests:
Balance, beginning of period		30,000			—
Net income applicable to non-controlling interests		904			—
Capital contributions from non-controlling interest holders		26,800			—
Distributions to non-controlling interest holders		(1,408	)		—
Balance, end of period		56,296			—
Total Shareholders' Equity	$	3,485,422		$	2,954,362

⁽¹⁾

Cumulative adjustments for accounting changes relate to the adoption of certain accounting updates during 2019 and 2018. See Note 2 to the consolidated financial statements for further information. The 2018 adjustments are described further in Note 2 to the consolidated financial statements in our 2018 Form 10-K.

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
($ in thousands)	2019			2018
Cash Flows From Operating Activities:
Net income	$	209,196		$	176,048
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		20,410			13,467
Amortization of loans and advances to financial advisors and other employees		45,266			40,552
Amortization of premium on investment portfolio		15,083			11,477
Provision for loan losses and allowance for loans and advances to financial advisors and other employees		4,838			6,595
Amortization of intangible assets		7,140			5,740
Deferred income taxes		511			6,563
Stock-based compensation		54,443			47,642
(Gains)/losses on sale of investments		(14,484	)		7,533
Other, net		(25,671	)		(3,241	)
Decrease/(increase) in operating assets, net of assets acquired:
Receivables:
Brokerage clients		(145,463	)		(56,656	)
Brokers, dealers, and clearing organizations		(250,609	)		(213,053	)
Securities purchased under agreements to resell		103,328			(53,821	)
Financial instruments owned, including those pledged		(52,227	)		(133,739	)
Loans originated as held for sale		(702,007	)		(759,874	)
Proceeds from mortgages held for sale		759,773			779,761
Loans and advances to financial advisors and other employees		(107,932	)		(37,174	)
Other assets		(48,951	)		(53,251	)
Increase/(decrease) in operating liabilities, net of liabilities assumed:
Payables:
Brokerage clients		(49,014	)		(107,705	)
Brokers, dealers, and clearing organizations		94,795			82,234
Drafts		(11,503	)		(40,690	)
Financial instruments sold, but not yet purchased		8,982			165,818
Other liabilities and accrued expenses		(226,315	)		(99,005	)
Net cash used in operating activities	$	(310,411	)	$	(214,779	)

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows (continued)

(Unaudited)

	Six Months Ended June 30,
($ in thousands)	2019			2018
Cash Flows From Investing Activities:
Proceeds from:
Maturities and principal paydowns of available-for-sale securities	$	410,311		$	458,662
Calls and principal paydowns of held-to-maturity securities		256,404			338,328
Sale or maturity of investments		694			11,942
Increase in bank loans, net		(454,048	)		(405,094	)
Payments for:
Purchase of fixed assets		(101,683	)		(12,299	)
Purchase of available-for-sale securities		(500	)		(204,907	)
Purchase of held-to-maturity securities		—			(1,162,087	)
Purchase of investments		—			(7,578	)
Acquisitions, net of cash received		(28,236	)		(29,209	)
Net cash provided by/(used in) investing activities		82,942			(1,012,242	)
Cash Flows From Financing Activities:
Repayments of borrowings, net		(62,810	)		(13,000	)
(Repayments of)/proceeds from Federal Home Loan Bank advances, net		(290,000	)		15,000
Payment of contingent consideration		(6,925	)		(11,909	)
Increase in securities sold under agreements to repurchase		202,579			280,630
(Decrease)/increase in bank deposits, net		(962,552	)		478,914
Increase in securities loaned		100,086			381,349
Tax payments related to shares withheld for stock-based compensation plans		(28,992	)		(38,397	)
Proceeds from preferred stock issuance, net		154,988			—
Proceeds from non-controlling interests		26,800			—
Proceeds from stock option exercises		—			2,278
Repurchase of common stock		(124,966	)		(45,883	)
Cash dividends on preferred stock		(7,632	)		(4,688	)
Cash dividends paid to common stock and equity-award holders		(21,352	)		(17,223	)
Other		(1,407	)		—
Net cash (used in)/provided by financing activities		(1,022,183	)		1,027,071
Effect of exchange rate changes on cash		(1,134	)		(2,098	)
Decrease in cash, cash equivalents, and cash segregated for regulatory purposes		(1,250,786	)		(202,048	)
Cash, cash equivalents, and cash segregated for regulatory purposes at beginning of period		2,069,374			787,085
Cash, cash equivalents, and cash segregated for regulatory purposes at end of period	$	818,588		$	585,037
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds/(refunds, net of taxes paid)	$	84,806		$	(17,286	)
Cash paid for interest		103,112			62,720
Noncash financing activities:
Unit grants, net of forfeitures		102,519			104,703

The following presents cash, cash equivalents, and cash restricted for regulatory purposes for the periods presented ($ in thousands):
	June 30, 2019		December 31, 2018
Cash and cash equivalents	$	797,357	$	1,936,560
Cash segregated for regulatory purposes		21,231		132,814
Total cash, cash equivalents, and cash segregated for regulatory purposes	$	818,588	$	2,069,374

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. We have offices throughout the United States and Europe. Our major geographic area of concentration is throughout the United States, with a growing presence in the United Kingdom and Europe. Our company’s principal customers are individual investors, corporations, municipalities, and institutions.

On January 2, 2019, the Company completed the acquisition of First Empire Holding Corp. (“First Empire”) and its subsidiaries, including First Empire Securities, Inc., an institutional broker-dealer specializing in the fixed income markets. See Note 8 in the notes to consolidated financial statements for more details.

Pro forma information is not presented, because the acquisition is not considered to be material, as defined by the SEC. The results of operations of First Empire have been included in our results prospectively from the date of acquisition.

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., and Stifel Bancorp, Inc. (“Stifel Bancorp”). 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, 2018 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. For consolidated subsidiaries that are less than wholly owned, the third-party holdings of equity interests are referred to as non-controlling interests. The portion of shareholders’ equity that is attributable to non-controlling interests for such subsidiaries is presented as non-controlling interests, a component of total equity, in the consolidated statements of financial condition.

Our non-controlling interest represents a 27.5% third-party ownership of North Shore Aviation Holdings LLC (“North Shore”), a wholly owned subsidiary of the Company, that through its subsidiary owns airplane engines.

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, which complies with the provisions of ASC 810 as amended by ASU 2015-02, 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.

Summary of Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2018.

During the six months ended June 30, 2019, other than the following, there were no significant changes made to the Company’s significant accounting policies. The accounting policy changes are attributable to the adoption of the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (the “new lease standard” or “ASU 2016-02”) on January 1, 2019. These lease policy updates are applied prospectively in our consolidated financial statements from January 1, 2019. Reported financial information for the historical comparable period was not revised and continues to be reported under the accounting standards in effect during the historical periods.

Operating Leases

Our company enters into operating leases for real estate, office equipment and other assets, substantially all of which are used in connection with its operations. We adopted ASU 2016-02 on January 1, 2019, which required our company to recognize, for leases longer than one year, a right-of-use asset representing the right to use the underlying asset for the lease term, and a lease liability representing the liability to make payments. The lease term is generally determined based on the contractual maturity of the lease. For leases where our company has the option to terminate or extend the lease, an assessment of the likelihood of exercising the option is incorporated into the determination of the lease term. Such assessment is initially performed at the inception of the lease and is updated if events occur that impact the original assessment.

An operating lease right-of-use asset is initially determined based on the operating lease liability, adjusted for initial direct costs, lease incentives and amounts paid at or prior to lease commencement. This amount is then amortized over the lease term. See Note 17 for information about operating leases.

For leases where our company ceased using the space and management has concluded that it will not derive any future economic benefits, we record an impairment of right-of-use assets.

NOTE 2 – New Accounting Pronouncements

Recently Adopted Accounting Guidance

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The objective of this guidance is to improve the effectiveness of disclosure requirements on fair value measurement by eliminating certain disclosure requirements for fair value measurements for all entities, requiring public entities to disclose certain new information and modifying some disclosure requirements. The accounting update is effective for the fiscal year beginning after December 15, 2019 (January 1, 2020 for our company) and early adoption is permitted. We early adopted the guidance in the update on January 1, 2019. The adoption of the accounting update did not have a material impact on our consolidated financial statements. See Note 4 for further information.

Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” which amends the hedge accounting recognition and presentation requirements. The accounting update improves the transparency and understandability of information conveyed to financial statement users by better aligning companies’ hedging relationship to their existing risk management strategies, simplifies the application of hedge accounting and increases transparency regarding the scope and results of hedging program. The accounting update is effective for the fiscal year beginning after December 15, 2018 (January 1, 2019 for our company). The adoption of the accounting update did not have a material impact on our consolidated financial statements. See Note 12 for further information.

Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,” which shortens the amortization period for the premium on certain callable debt securities to the earliest call date. The amendments are applicable to any purchased individual debt security with an explicit and non-contingent call feature that is callable at a fixed price on a preset date. The accounting update is effective for fiscal years beginning after December 15, 2018 (January 1, 2019 for our company) under a modified retrospective approach. The change was applied prospectively from January 1, 2019 and there is no impact to our previously presented results. The adoption of the accounting update resulted in a reduction of beginning retained earnings of $4.4 million after-tax as a cumulative effect of adoption of an accounting change.

Leases

In February 2016, the FASB issued ASU 2016-02 that requires for leases longer than one year, a lessee recognize in the statements of financial condition a right-of-use asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. The accounting update also requires that for finance leases, a lessee recognize interest expense on the lease liability, separately from the amortization of the right-of-use asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. In addition, this accounting update requires expanded disclosures about the nature and terms of lease agreements.

This change was applied prospectively from January 1, 2019 and there is no impact on our previously presented results. Upon adoption, in accordance with the new lease standard, we elected to not reassess the lease classification or initial direct costs of existing leases, and to not reassess whether existing contracts contain a lease. In addition, we have elected to account for each contract’s lease and non-lease components as a single lease component. The adoption of the new lease standard resulted in a reduction of beginning retained earnings of $6.4 million after-tax as a cumulative effect of adoption of an accounting change. Upon adoption, the company recorded a gross up of approximately $670 million on its consolidated statements of financial condition to recognize the right-of-use assets, included in fixed assets, net and lease liabilities, included in accounts payable and accrued expenses.

Recently Issued Accounting Guidance

Goodwill Impairment Testing

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under the accounting update, the annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The accounting update is effective for annual or any interim impairment tests in fiscal years beginning after December 15, 2019 (January 1, 2020 for our company) and early adoption is permitted. We are currently evaluating the impact of the accounting update, but the adoption is not expected to have a material impact on our consolidated financial statements.

Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments − Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This accounting update impacts the impairment model for certain financial assets measured at amortized cost by requiring a current expected credit loss (“CECL”) methodology to estimate expected credit losses over the entire life of the financial asset, recorded at inception or purchase. CECL will replace the loss model currently applicable to bank loans, held-to-maturity securities, and other receivables carried at amortized cost.

The accounting update also eliminates the concept of other-than-temporary impairment for available-for-sale securities. Impairments on available-for-sale securities will be required to be recognized in earnings through an allowance, when the fair value is less than amortized cost and a credit loss exists or the securities are expected to be sold before recovery of amortized cost. Under the accounting update, there may be an ability to determine there are no expected credit losses in certain circumstances, e.g., based on collateral arrangements for lending and financing transactions or based on the credit quality of the borrower or issuer. Expected credit losses, including losses on off-balance-sheet exposures, such as lending commitments, will be measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount. Overall, the amendments in this accounting update are expected to accelerate the recognition of credit losses for portfolios where CECL models will be applied.

The accounting update is effective for fiscal years beginning after December 15, 2019 (January 1, 2020 for our company) under a modified retrospective approach with early adoption permitted.

We have substantially completed development of credit loss models for significant loan portfolios and are in the process of testing these models and validating data inputs, while continuing to develop the policies, systems and controls that will be required to implement CECL. The adoption of the accounting update is not expected to have a material impact on our consolidated financial statements. Ultimately, the extent of the impact of adoption of this accounting update on our company’s consolidated financial statements may vary and will depend on, among other things, the economic environment, the completion of our company’s models, policies and other management judgments, and the size and type of loan portfolios held by our company on the date of adoption.

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

Amounts receivable from brokers, dealers, and clearing organizations at June 30, 2019 and December 31, 2018, included (in thousands):

	June 30, 2019		December 31, 2018
Receivables from clearing organizations	$	579,892	$	320,277
Deposits paid for securities borrowed		146,245		109,795
Securities failed to deliver		40,207		85,502
	$	766,344	$	515,574

Amounts payable to brokers, dealers, and clearing organizations at June 30, 2019 and December 31, 2018, included (in thousands):

	June 30, 2019		December 31, 2018
Deposits received from securities loaned	$	492,249	$	392,163
Securities failed to receive		77,444		27,975
Payable to clearing organizations		57,487		12,161
	$	627,180	$	432,299

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 equity securities listed in active markets, corporate fixed income securities, U.S. government securities, and U.S. government agency securities.

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, corporate fixed income and equity securities infrequently traded, state and municipal securities, sovereign debt, and asset-backed securities, which primarily include collateralized loan obligations.

We have identified Level 3 financial instruments to include certain asset-backed securities 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.

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 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.

Direct investments in private companies may be valued using the market approach and were valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third-party financing, changes in valuations of comparable peer companies, the business environment of the companies, market indices, assumptions relating to appropriate risk adjustments for nonperformance, and legal restrictions on disposition, among other factors. The fair value derived from the methods used are evaluated and weighted, as appropriate, considering the reasonableness of the range of values indicated. Under the market approach, fair value may be determined by reference to multiples of market-comparable companies or transactions, including earnings before interest, taxes, depreciation, and amortization (“EBITDA”) multiples. For securities utilizing the market comparable companies valuation technique, a significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.

Investments in Funds That Are Measured at Net Asset Value Per Share

The Company’s investments in funds measured at NAV include partnership interests, mutual funds, private equity funds, and money market 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 tables below present the fair value of our investments in, and unfunded commitments to, funds that are measured at NAV (in thousands):

	June 30, 2019
	Fair value of investments		Unfunded commitments
Money market funds	$	31,590	$	—
Mutual funds		7,328		—
Private equity funds		2,565		1,477
Partnership interests		3,918		1,013
Total	$	45,401	$	2,490

	December 31, 2018
	Fair value of investments		Unfunded commitments
Money market funds	$	19,719	$	—
Mutual funds		9,122		—
Private equity funds		3,461		1,480
Partnership interests		3,976		1,024
Total	$	36,278	$	2,504

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, equity and fixed income 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, corporate fixed income, and sovereign debt securities.

Derivatives

Derivatives are valued using quoted market prices for identical instruments when available or pricing models based on the net present value of estimated future cash flows. The valuation models used require market observable inputs, including contractual terms, market prices, yield curves, credit curves, and measures of volatility. We manage credit risk for our derivative positions on a counterparty-by-counterparty basis and calculate credit valuation adjustments, included in the fair value of these instruments, on the basis of our relationships at the counterparty portfolio/master netting agreement level. These credit valuation adjustments are determined by applying a credit spread for the counterparty to the total expected exposure of the derivative after considering collateral and other master netting arrangements. We have classified our interest rate swaps as Level 2.

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2019, are presented below (in thousands):

	June 30, 2019
	Total		Level 1		Level 2		Level 3
Financial instruments owned:
U.S. government securities	$	56,478	$	56,478	$	—	$	—
U.S. government agency securities		130,141		—		130,141		—
Mortgage-backed securities:
Agency		545,340		—		545,340		—
Non-agency		11,146		—		11,146		—
Asset-backed securities		5,220		—		5,045		175
Corporate securities:
Fixed income securities		326,407		2,552		323,855		—
Equity securities		82,968		82,937		31		—
Sovereign debt		800		—		800		—
State and municipal securities		193,859		—		193,859		—
Total financial instruments owned		1,352,359		141,967		1,210,217		175
Available-for-sale securities:
U.S. government agency securities		300		300		—		—
State and municipal securities		43,301		—		43,301		—
Mortgage-backed securities:
Agency		200,495		—		200,495		—
Commercial		77,965		—		77,965		—
Non-agency		1,090		—		1,090		—
Corporate fixed income securities		797,521		—		797,521		—
Asset-backed securities		1,582,388		—		1,582,388		—
Total available-for-sale securities		2,703,060		300		2,702,760		—
Investments:
Corporate equity securities		40,318		39,258		1,060		—
Auction rate securities:
Equity securities		16,732		—		—		16,732
Municipal securities		654		—		470		184
Other		10,326		9,199		274		853
Investments in funds measured at NAV		13,811
Total investments		81,841		48,457		1,804		17,769
Cash equivalents measured at NAV		31,590
Derivative contracts ⁽¹⁾		2,187		—		2,187		—
	$	4,171,037	$	190,724	$	3,916,968	$	17,944

⁽¹⁾	Included in other assets in the consolidated statements of financial condition.

	June 30, 2019
	Total		Level 1		Level 2		Level 3
Liabilities:
Financial instruments sold, but not yet purchased:
U.S. government securities	$	389,489	$	389,489	$	—	$	—
U.S. government agency securities		4,011		—		4,011		—
Agency mortgage-backed securities		246,028		—		246,028		—
Corporate securities:
Fixed income securities		248,962		232		248,730		—
Equity securities		66,312		66,312		—		—
Sovereign debt		1,542		—		1,542		—
Total financial instruments sold, but not yet purchased	$	956,344	$	456,033	$	500,311	$	—

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2018, are presented below (in thousands):

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Financial instruments owned:
U.S. government securities	$	42,121	$	42,121	$	—	$	—
U.S. government agency securities		72,532		—		72,532		—
Mortgage-backed securities:
Agency		564,111		—		564,111		—
Non-agency		25,727		—		25,726		1
Asset-backed securities		25,905		—		25,730		175
Corporate securities:
Fixed income securities		310,457		1,100		309,357		—
Equity securities		57,911		57,125		786		—
Sovereign debt		14,063		—		14,063		—
State and municipal securities		154,622		—		154,622		—
Total financial instruments owned		1,267,449		100,346		1,166,927		176
Available-for-sale securities:
U.S. government agency securities		5,215		417		4,798		—
State and municipal securities		68,226		—		68,226		—
Mortgage-backed securities:
Agency		230,408		—		230,408		—
Commercial		69,715		—		69,715		—
Non-agency		1,219		—		1,219		—
Corporate fixed income securities		931,604		—		931,604		—
Asset-backed securities		1,764,060		—		1,764,060		—
Total available-for-sale securities		3,070,447		417		3,070,030		—
Investments:
Corporate equity securities		33,046		31,670		1,376		—
Auction rate securities:
Equity securities		16,632		—		—		16,632
Municipal securities		704		—		—		704
Other		1,041		—		184		857
Investments measured at NAV		16,559
Total investments		67,982		31,670		1,560		18,193
Cash equivalents measured at NAV		19,719
Derivative contracts ⁽¹⁾		7,683		—		7,683		—
	$	4,433,280	$	132,433	$	4,246,200	$	18,369

⁽¹⁾	Included in other assets in the consolidated statements of financial condition.

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Liabilities:
Financial instruments sold, but not yet purchased:
U.S. government securities	$	534,817	$	534,817	$	—	$	—
U.S. government agency securities		32,755		—		32,755		—
Agency mortgage-backed securities		123,456		—		123,456		—
Corporate securities:
Fixed income securities		208,725		1,289		207,436		—
Equity securities		36,117		35,398		719		—
Sovereign debt		11,429		—		11,429		—
State and municipal securities		7		—		7		—
Total financial instruments sold, but not yet purchased	$	947,306	$	571,504	$	375,802	$	—

The following table summarizes the changes in fair value associated with Level 3 financial instruments during the three months ended June 30, 2019 (in thousands):

	Three Months Ended June 30, 2019
	Financial instruments owned				Investments
		Asset-Backed Securities			Auction Rate Securities – Equity		Auction Rate Securities – Municipal			Other
Balance at March 31, 2019		$	175		$	16,632	$	704		$	853
Unrealized gains/(losses):
Included in changes in net assets ⁽¹⁾			2			100		—			—
Realized gains/(losses) ⁽¹⁾			—			—		—			—
Purchases			—			—		—			—
Sales			—			—		—			—
Redemptions			(2	)		—		(50	)		—
Transfers:
Into Level 3			—			—		—			—
Out of Level 3			—			—		(470	)		—
Net change			—			100		(520	)		—
Balance at June 30, 2019		$	175		$	16,732	$	184		$	853

⁽¹⁾	Realized and unrealized gains/(losses) related to financial instruments owned and investments are reported in other income in the consolidated statements of operations.

The following table summarizes the change in fair value associated with Level 3 financial instruments during the six months ended June 30, 2019 (in thousands):

	Six Months Ended June 30, 2019
	Financial instruments owned						Investments
	Mortgage- Backed Securities – Non-Agency			Asset-Backed Securities			Auction Rate Securities – Equity		Auction Rate Securities – Municipal			Other
Balance at December 31, 2018	$	1		$	175		$	16,632	$	704		$	857
Unrealized gains/(losses):
Included in changes in net assets ⁽¹⁾		—			2			100		—			—
Realized gains/(losses) ⁽¹⁾		(1	)		—			—		—			—
Purchases		—			—			—		—			—
Sales		—			—			—		—			—
Redemptions		—			(2	)		—		(50	)		(4	)
Transfers:
Into Level 3		—			—			—		—			—
Out of Level 3		—			—			—		(470	)		—
Net change		(1	)		—			100		(520	)		(4	)
Balance at June 30, 2019	$	—		$	175		$	16,732	$	184		$	853

⁽¹⁾	Realized and unrealized gains/(losses) related to financial instruments owned and investments are reported in other income in the consolidated statements of operations.

The results included in the tables above are only a component of the overall investment strategies of our company. The tables above do not present Level 1 or Level 2 valued assets or liabilities. The changes in unrealized gains/(losses) recorded in earnings for the three and six months ended June 30, 2019, relating to Level 3 assets still held at June 30, 2019, 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 June 30, 2019 and December 31, 2018, whether or not recognized in the consolidated statements of financial condition at fair value (in thousands).

	June 30, 2019				December 31, 2018
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	797,357	$	797,357	$	1,936,560	$	1,936,560
Cash segregated for regulatory purposes		21,231		21,231		132,814		132,814
Securities purchased under agreements to resell		596,572		596,572		699,900		699,900
Financial instruments owned		1,352,359		1,352,359		1,267,449		1,267,449
Available-for-sale securities		2,703,060		2,703,060		3,070,447		3,070,447
Held-to-maturity securities		3,960,714		3,946,782		4,218,854		4,122,907
Bank loans		8,964,325		9,057,908		8,517,615		8,565,347
Loans held for sale		163,511		163,511		205,557		205,557
Investments		81,841		81,841		67,982		67,982
Derivative contracts ⁽¹⁾		2,187		2,187		7,683		7,683
Financial liabilities:
Securities sold under agreements to repurchase	$	762,282	$	762,282	$	535,394	$	535,394
Bank deposits		14,901,061		14,020,564		15,863,613		14,661,996
Financial instruments sold, but not yet purchased		956,344		956,344		947,306		947,306
Federal Home Loan Bank advances		250,000		250,000		540,000		540,000
Borrowings		117,845		117,845		180,655		180,655
Senior notes		1,016,492		1,047,702		1,015,973		989,790
Debentures to Stifel Financial Capital Trusts		60,000		45,740		60,000		49,747

⁽¹⁾	Included in other assets 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 June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash	$	765,767	$	765,767	$	—	$	—
Cash segregated for regulatory purposes		21,231		21,231		—		—
Securities purchased under agreements to resell		596,572		539,265		57,307		—
Held-to-maturity securities		3,946,782		—		3,779,407		167,375
Bank loans		9,057,908		—		9,057,908		—
Loans held for sale		163,511		—		163,511		—
Financial liabilities:
Securities sold under agreements to repurchase	$	762,282	$	98,626	$	663,656	$	—
Bank deposits		14,020,564		—		14,020,564		—
Federal Home Loan Bank advances		250,000		250,000		—		—
Borrowings		117,845		117,845		—		—
Senior notes		1,047,702		1,047,702		—		—
Debentures to Stifel Financial Capital Trusts		45,740		—		—		45,740

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash	$	1,916,841	$	1,916,841	$	—	$	—
Cash segregated for regulatory purposes		132,814		132,814		—		—
Securities purchased under agreements to resell		699,900		645,632		54,268		—
Held-to-maturity securities		4,122,907		—		3,960,099		162,808
Bank loans		8,565,347		—		8,565,347		—
Loans held for sale		205,557		—		205,557		—
Financial liabilities:
Securities sold under agreements to repurchase	$	535,394	$	87,273	$	448,121	$	—
Bank deposits		14,661,996		—		14,661,996		—
Federal Home Loan Bank advances		540,000		540,000		—		—
Borrowings		180,655		180,655		—		—
Senior notes		989,790		989,790		—		—
Debentures to Stifel Financial Capital Trusts		49,747		—		—		49,747

The following, as supplemented by the discussion above, describes the valuation techniques used in estimating the fair value of our financial instruments as of June 30, 2019 and December 31, 2018.

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 June 30, 2019 and December 31, 2018 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 agency mortgage-backed securities, asset-backed securities, consisting of collateralized loan obligation securities and corporate fixed income securities. 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.

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.

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.

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 June 30, 2019 and December 31, 2018 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.

Borrowings

The carrying amount of borrowings approximates fair value due to the relative short-term nature of such borrowings. In addition, Stifel Bancorp’s FHLB advances reflect terms that approximate current market rates for similar borrowings.

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 June 30, 2019 and December 31, 2018 are as follows (in thousands):

	June 30, 2019		December 31, 2018
Financial instruments owned:
U.S. government securities	$	56,478	$	42,121
U.S. government agency securities		130,141		72,532
Mortgage-backed securities:
Agency		545,340		564,111
Non-agency		11,146		25,727
Asset-backed securities		5,220		25,905
Corporate securities:
Fixed income securities		326,407		310,457
Equity securities		82,968		57,911
Sovereign debt		800		14,063
State and municipal securities		193,859		154,622
	$	1,352,359	$	1,267,449
Financial instruments sold, but not yet purchased:
U.S. government securities	$	389,489	$	534,817
U.S. government agency securities		4,011		32,755
Agency mortgage-backed securities		246,028		123,456
Corporate securities:
Fixed income securities		248,962		208,725
Equity securities		66,312		36,117
Sovereign debt		1,542		11,429
State and municipal securities		—		7
	$	956,344	$	947,306

At June 30, 2019 and December 31, 2018, financial instruments owned in the amount of $777.6 million and $669.0 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 June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019
	Amortized Cost		Gross Unrealized Gains ⁽¹⁾		Gross Unrealized Losses ⁽¹⁾			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	299	$	1	$	—		$	300
State and municipal securities		43,073		228		—			43,301
Mortgage-backed securities:
Agency		201,205		724		(1,434	)		200,495
Commercial		78,399		266		(700	)		77,965
Non-agency		1,110		—		(20	)		1,090
Corporate fixed income securities		788,255		9,982		(716	)		797,521
Asset-backed securities		1,590,075		520		(8,207	)		1,582,388
	$	2,702,416	$	11,721	$	(11,077	)	$	2,703,060
Held-to-maturity securities ⁽²⁾
Mortgage-backed securities:
Agency	$	1,105,865	$	13,023	$	(7,863	)	$	1,111,025
Commercial		37,262		732		—			37,994
Non-agency		10,377		161		—			10,538
Asset-backed securities		2,807,210		7,778		(27,763	)		2,787,225
	$	3,960,714	$	21,694	$	(35,626	)	$	3,946,782

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains ⁽¹⁾		Gross Unrealized Losses ⁽¹⁾			Estimated Fair Value
Available-for-sale securities
U.S. government agency securities	$	5,237	$	13	$	(35	)	$	5,215
State and municipal securities		72,487		—		(4,261	)		68,226
Mortgage-backed securities:
Agency		234,292		88		(3,972	)		230,408
Commercial		74,411		4		(4,700	)		69,715
Non-agency		1,245		—		(26	)		1,219
Corporate fixed income securities		958,406		—		(26,802	)		931,604
Asset-backed securities		1,779,496		672		(16,108	)		1,764,060
	$	3,125,574	$	777	$	(55,904	)	$	3,070,447
Held-to-maturity securities ⁽²⁾
Mortgage-backed securities:
Agency	$	1,198,442	$	1,307	$	(31,689	)	$	1,168,060
Commercial		51,524		185		—			51,709
Asset-backed securities		2,968,888		4,585		(70,335	)		2,903,138
	$	4,218,854	$	6,077	$	(102,024	)	$	4,122,907

⁽¹⁾	Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive loss.

⁽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.

For the three and six months ended June 30, 2019, we received proceeds of $155.3 million from the sale of available-for-sale securities, which resulted in a realized loss of $0.3 million. There were no sales of available-for-sale securities during the six months ended June 30, 2018.

During the three months ended June 30, 2019 and June 30, 2018, unrealized gains, net of deferred taxes, of $16.3 million and unrealized losses, net of deferred taxes of $11.9 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition. During the six months ended June 30, 2019 and June 30, 2018, unrealized gains, net of deferred taxes, of $42.1 million and unrealized losses, net of deferred taxes, of $24.9 million were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition.

The table below summarizes the amortized cost and fair values of our available-for-sale and held-to-maturity securities by contractual maturity. 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.

	June 30, 2019
	Available-for-sale securities				Held-to-maturity securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Debt securities
Within one year	$	699	$	699	$	—	$	—
After one year through three years		177,610		177,324		—		—
After three years through five years		392,026		394,578		—		—
After five years through ten years		511,594		518,641		564,030		562,785
After ten years		1,339,773		1,332,268		2,243,180		2,224,440
Mortgage-backed securities
Within one year		1,318		1,894		—		—
After one year through three years		3,371		3,411		47,639		48,531
After three years through five years		987		996		—		—
After five years through ten years		5,339		5,281		149,756		150,460
After ten years		269,699		267,968		956,109		960,566
	$	2,702,416	$	2,703,060	$	3,960,714	$	3,946,782

The maturities of our available-for-sale (fair value) and held-to-maturity (amortized cost) securities at June 30, 2019, are as follows (in thousands):

	Within 1 Year		1-5 Years		5-10 Years		After 10 Years		Total
Available-for-sale: ⁽¹⁾
U.S. government agency securities	$	300	$	—	$	—	$	—	$	300
State and municipal securities		—		—		12,424		30,877		43,301
Mortgage-backed securities:
Agency		1,842		4,347		5,281		189,025		200,495
Commercial		52		60		—		77,853		77,965
Non-agency		—		—		—		1,090		1,090
Corporate fixed income securities		399		571,902		225,220		—		797,521
Asset-backed securities		—		—		280,997		1,301,391		1,582,388
	$	2,593	$	576,309	$	523,922	$	1,600,236	$	2,703,060
Held-to-maturity:
Mortgage-backed securities:
Agency	$	—	$	—	$	149,756	$	956,109	$	1,105,865
Commercial		—		37,262		—		—		37,262
Non-agency		—		10,377		—		—		10,377
Asset-backed securities		—		—		564,030		2,243,180		2,807,210
	$	—	$	47,639	$	713,786	$	3,199,289	$	3,960,714

⁽¹⁾	Due to the immaterial amount of income recognized on tax-exempt securities, yields were not calculated on a tax-equivalent basis.

At June 30, 2019 and December 31, 2018, securities of $1.3 billion and $1.9 billion, respectively, were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. At June 30, 2019 and December 31, 2018, securities of $1.3 billion and $1.6 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 June 30, 2019 (in thousands):

	Less than 12 months					12 months or more					Total
	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities
Agency	$	(440	)	$	44,877	$	(994	)	$	73,702	$	(1,434	)	$	118,579
Commercial		(39	)		4,023		(661	)		72,534		(700	)		76,557
Non-agency		(20	)		1,090		—			—		(20	)		1,090
Corporate fixed income securities		(18	)		27,687		(698	)		134,002		(716	)		161,689
Asset-backed securities		(4,320	)		776,404		(3,887	)		217,160		(8,207	)		993,564
	$	(4,837	)	$	854,081	$	(6,240	)	$	497,398	$	(11,077	)	$	1,351,479
Held-to-maturity securities
Mortgage-backed securities:
Agency	$	—		$	—	$	(7,863	)	$	530,832	$	(7,863	)	$	530,832
Asset-backed securities		(9,079	)		1,164,381		(18,684	)		1,027,748		(27,763	)		2,192,129
	$	(9,079	)	$	1,164,381	$	(26,547	)	$	1,558,580	$	(35,626	)	$	2,722,961

At June 30, 2019, the amortized cost of 143 securities classified as available for sale exceeded their fair value by $11.1 million, of which $6.2 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 June 30, 2019, was $1.4 billion, which was 50.0% of our available-for-sale portfolio.

At June 30, 2019, the carrying value of 136 securities held to maturity exceeded their fair value by $35.6 million, of which $26.5 million related to securities held to maturity that have been in a loss position for 12 months or longer. As discussed in more detail below, we conduct periodic reviews of all securities with unrealized losses to assess whether the impairment is other-than-temporary.

Other-Than-Temporary Impairment

We evaluate all securities in an unrealized loss position quarterly to assess whether the impairment is other-than-temporary. Our other-than-temporary impairment (“OTTI”) assessment is a subjective process requiring the use of judgments and assumptions. There was no credit-related OTTI recognized during the three and six months ended June 30, 2019 and 2018.

We believe the gross unrealized losses of $46.7 million related to our investment portfolio, as of June 30, 2019, are attributable to issuer-specific credit spreads and changes in market interest rates and asset spreads. We, therefore, do not expect to incur any credit losses related to these securities. In addition, we have no intent to sell these securities with unrealized losses, and it is not more likely than not that we will be required to sell these securities prior to recovery of the amortized cost. Accordingly, we have concluded that the impairment on these securities is not other-than-temporary.

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.

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.

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.

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

Other. Other loans include consumer, credit card, and indirect lending.

The following table presents the balance and associated percentage of each major loan category in our bank loan portfolio at June 30, 2019 and December 31, 2018 (in thousands, except percentages):

	June 30, 2019						December 31, 2018
	Balance			Percent			Balance			Percent
Commercial and industrial	$	3,338,127			36.8	%	$	3,304,234			38.5	%
Residential real estate		2,984,725			32.9			2,875,014			33.5
Securities-based loans		1,962,528			21.6			1,786,966			20.8
Commercial real estate		367,283			4.1			318,961			3.7
Construction and land		226,559			2.5			138,245			1.6
Home equity lines of credit		49,209			0.5			38,098			0.4
Other		137,847			1.6			120,129			1.5
Gross bank loans		9,066,278			100.0	%		8,581,647			100.0	%
Unamortized loan discount, net		(11,265	)					(12,155	)
Loans in process		(1,596	)					27,984
Unamortized loan fees, net		1,380						5,972
Allowance for loan losses		(90,472	)					(85,833	)
Bank loans, net	$	8,964,325					$	8,517,615

At June 30, 2019 and December 31, 2018, Stifel Bancorp had loans outstanding to its executive officers and directors and executive officers and directors of certain affiliated entities in the amount of $22.6 million and $28.8 million, respectively.

At June 30, 2019 and December 31, 2018, we had loans held for sale of $163.5 million and $205.6 million, respectively. For the three months ended June 30, 2019 and 2018, we recognized gains of $2.3 million and $2.7 million, respectively, from the sale of originated loans, net of fees and costs. For the six months ended June 30, 2019 and 2018, we recognized gains of $3.2 million and $5.2 million, respectively, from the sale of originated loans, net of fees and costs.

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2019 (in thousands).

	Three Months Ended June 30, 2019
	Beginning Balance		Provision		Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	68,566	$	743	$	(46	)	$	—	$	69,263
Residential real estate		11,585		457		—			—		12,042
Securities-based loans		2,227		84		—			—		2,311
Commercial real estate		2,421		57		—			—		2,478
Construction and land		1,724		678		—			—		2,402
Home equity lines of credit		372		49		—			—		421
Other		146		40		(8	)		1		179
Qualitative		1,131		245		—			—		1,376
	$	88,172	$	2,353	$	(54	)	$	1	$	90,472

	Six Months Ended June 30, 2019
	Beginning Balance		Provision		Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	68,367	$	954	$	(58	)	$	—	$	69,263
Residential real estate		11,228		727		—			87		12,042
Securities-based loans		1,978		333		—			—		2,311
Commercial real estate		1,778		700		—			—		2,478
Construction and land		1,241		1,161		—			—		2,402
Home equity lines of credit		310		110		—			1		421
Other		88		118		(52	)		25		179
Qualitative		843		533		—			—		1,376
	$	85,833	$	4,636	$	(110	)	$	113	$	90,472

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at June 30, 2019 (in thousands):

	Allowance for Loan Losses						Recorded Investment in Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial and industrial	$	8,304	$	60,959	$	69,263	$	21,995	$	3,316,132	$	3,338,127
Residential real estate		24		12,018		12,042		1,121		2,983,604		2,984,725
Securities-based loans		—		2,311		2,311		—		1,962,528		1,962,528
Commercial real estate		—		2,478		2,478		—		367,283		367,283
Construction and land		—		2,402		2,402		—		226,559		226,559
Home equity lines of credit		—		421		421		184		49,025		49,209
Other		20		159		179		165		137,682		137,847
Qualitative		—		1,376		1,376		—		—		—
	$	8,348	$	82,124	$	90,472	$	23,465	$	9,042,813	$	9,066,278

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2018 (in thousands).

	Three Months Ended June 30, 2018
	Beginning Balance		Provision			Charge-offs		Recoveries		Ending Balance
Commercial and industrial	$	56,433	$	3,139		$	—	$	—	$	59,572
Residential real estate		8,779		549			—		—		9,328
Securities-based loans		1,894		34			—		—		1,928
Commercial real estate		1,320		352			—		—		1,672
Home equity lines of credit		164		64			—		1		229
Construction and land		199		104			—		—		303
Other		15		(2	)		—		—		13
Qualitative		693		37			—		—		730
	$	69,497	$	4,277		$	—	$	1	$	73,775

	Six Months Ended June 30, 2018
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	54,474	$	5,110		$	(12	)	$	—	$	59,572
Residential real estate		8,430		898			—			—		9,328
Securities-based loans		2,088		(160	)		—			—		1,928
Commercial real estate		1,520		152			—			—		1,672
Home equity lines of credit		162		65			—			2		229
Construction and land		100		203			—			—		303
Other		16		(2	)		(2	)		1		13
Qualitative		676		54			—			—		730
	$	67,466	$	6,320		$	(14	)	$	3	$	73,775

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at December 31, 2018 (in thousands):

	Allowance for Loan Losses						Recorded Investment in Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial and industrial	$	8,678	$	59,689	$	68,367	$	23,677	$	3,280,557	$	3,304,234
Residential real estate		24		11,204		11,228		519		2,874,495		2,875,014
Securities-based loans		—		1,978		1,978		—		1,786,966		1,786,966
Commercial real estate		—		1,778		1,778		—		318,961		318,961
Construction and land		—		1,241		1,241		—		138,245		138,245
Home equity lines of credit		—		310		310		184		37,914		38,098
Other		1		87		88		21		120,108		120,129
Qualitative		—		843		843		—		—		—
	$	8,703	$	77,130	$	85,833	$	24,401	$	8,557,246	$	8,581,647

In determining the amount of our allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases to our provision.

There are two components of the allowance for loan losses: the inherent allowance component and the specific allowance component.

The inherent allowance component of the allowance for loan losses is used to estimate the probable losses inherent in the loan portfolio and includes non-homogeneous loans that have not been identified as impaired and portfolios of smaller balance homogeneous loans. The Company maintains methodologies by loan product for calculating an allowance for loan losses that estimates the inherent losses in the loan portfolio. Qualitative and environmental factors such as economic and business conditions, nature and volume of the portfolio and lending terms, and volume and severity of past due loans may also be considered in the calculations. The allowance for loan losses is maintained at a level reasonable to ensure that it can adequately absorb the estimated probable losses inherent in the portfolio.

The specific allowance component of the allowance for loan losses is used to estimate probable losses for non-homogeneous exposures, including loans modified in a troubled debt restructuring, which have been specifically identified for impairment analysis by the Company and determined to be impaired. At June 30, 2019, we had $23.5 million of impaired loans, net of discounts, which included $7.9 million in troubled debt restructurings. The specific allowance on impaired loans at June 30, 2019 was $8.3 million. At December 31, 2018, we had $24.4 million of impaired loans, net of discounts, which included $9.1 million in troubled debt restructurings. The specific allowance on impaired loans at December 31, 2018 was $8.7 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 and six months ended June 30, 2019 and 2018, were insignificant to the consolidated financial statements.

The tables below present loans that were individually evaluated for impairment by portfolio segment at June 30, 2019 and December 31, 2018, including the average recorded investment balance for the year to date period presented (in thousands):

	June 30, 2019
	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	21,995	$	216	$	21,779	$	21,995	$	8,304	$	23,460
Residential real estate		1,191		955		166		1,121		24		838
Home equity lines of credit		184		184		—		184		—		184
Other		315		—		165		165		20		199
Total	$	23,685	$	1,355	$	22,110	$	23,465	$	8,348	$	24,681

	December 31, 2018
	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	23,677	$	242	$	23,435	$	23,677	$	8,678	$	23,807
Residential real estate		544		352		167		519		24		275
Home equity lines of credit		184		184		—		184		—		184
Other		694		11		10		21		1		70
Total	$	25,099	$	789	$	23,612	$	24,401	$	8,703	$	24,336

The following tables present the aging of the recorded investment in past due loans at June 30, 2019 and December 31, 2018 by portfolio segment (in thousands):

	As of June 30, 2019
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Commercial and industrial	$	—	$	14,211	$	14,211	$	3,323,916	$	3,338,127
Residential real estate		2,385		892		3,277		2,981,448		2,984,725
Securities-based loans		—		—		—		1,962,528		1,962,528
Commercial real estate		—		—		—		367,283		367,283
Construction and land		—		—		—		226,559		226,559
Home equity lines of credit		184		—		184		49,025		49,209
Other		—		155		155		137,692		137,847
Total	$	2,569	$	15,258	$	17,827	$	9,048,451	$	9,066,278

	As of June 30, 2019*
	Non-Accrual		Restructured		Total
Commercial and industrial	$	14,211	$	7,715	$	21,926
Residential real estate		955		166		1,121
Home equity lines of credit		184		—		184
Other		165		—		165
Total	$	15,515	$	7,881	$	23,396

*	There were no loans past due 90 days and still accruing interest at June 30, 2019.

	As of December 31, 2018
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Commercial and industrial	$	—	$	14,656	$	14,656	$	3,289,578	$	3,304,234
Residential real estate		6,970		377		7,347		2,867,667		2,875,014
Securities-based loans		—		—		—		1,786,966		1,786,966
Commercial real estate		—		—		—		318,961		318,961
Construction and land		—		—		—		138,245		138,245
Home equity lines of credit		33		—		33		38,065		38,098
Other		—		134		134		119,995		120,129
Total	$	7,003	$	15,167	$	22,170	$	8,559,477	$	8,581,647

	As of December 31, 2018*
	Non-Accrual		Restructured		Total
Commercial and industrial	$	14,741	$	8,936	$	23,677
Residential real estate		352		167		519
Home equity lines of credit		184		—		184
Other		21		—		21
Total	$	15,298	$	9,103	$	24,401

*	There were no loans past due 90 days and still accruing interest at December 31, 2018.

Credit quality indicators

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 (“non-accrual 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 June 30, 2019 and December 31, 2018, 98.1% and 98.4% 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 June 30, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial	$	3,299,366	$	12,332	$	26,429	$	—	$	3,338,127
Residential real estate		2,983,456		148		1,121		—		2,984,725
Securities-based loans		1,962,528		—		—		—		1,962,528
Commercial real estate		367,283		—		—		—		367,283
Construction and land		226,559		—		—		—		226,559
Home equity lines of credit		49,025		—		184		—		49,209
Other		137,682		—		—		165		137,847
Total	$	9,025,899	$	12,480	$	27,734	$	165	$	9,066,278

	As of December 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial	$	3,254,698	$	34,795	$	14,741	$	—	$	3,304,234
Residential real estate		2,874,495		—		519		—		2,875,014
Securities-based loans		1,786,966		—		—		—		1,786,966
Commercial real estate		318,961		—		—		—		318,961
Construction and land		138,245		—		—		—		138,245
Home equity lines of credit		37,914		—		184		—		38,098
Other		119,912		196		—		21		120,129
Total	$	8,531,191	$	34,991	$	15,444	$	21	$	8,581,647

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, 2018		Adjustments		Write-off		June 30, 2019
Goodwill
Global Wealth Management	$	340,395	$	6,336	$	—	$	346,731
Institutional Group		694,284		15,342		—		709,626
	$	1,034,679	$	21,678	$	—	$	1,056,357

	December 31, 2018		Net Additions		Amortization			June 30, 2019
Intangible assets
Global Wealth Management	$	60,532	$	—	$	(3,675	)	$	56,857
Institutional Group		59,123		7,212		(3,465	)		62,870
	$	119,655	$	7,212	$	(7,140	)	$	119,727

On January 2, 2019, the Company completed the acquisition of First Empire. 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 $22.5 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 First Empire is preliminary and will be finalized upon completion of the analysis of the fair values of the net assets of First Empire 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. See Note 1 in the notes to our consolidated financial statements for additional information regarding the acquisition of First Empire.

The goodwill represents the value expected from the synergies created through the operational enhancement benefits that will result from the integration of the First Empire business, its employees and customer base. Goodwill is expected to be deductible for federal income tax purposes.

The adjustments to goodwill included in our Global Wealth Management segment during the six months ended June 30, 2019 are primarily attributable to the Business Bank acquisition, which closed on August 31, 2018.

Amortizable intangible assets consist of acquired customer relationships, trade name, investment banking backlog, and non-compete agreements that are amortized over their contractual or determined useful lives. Intangible assets subject to amortization as of June 30, 2019 and December 31, 2018 were as follows (in thousands):

	June 30, 2019				December 31, 2018
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Customer relationships	$	167,624	$	70,274	$	160,745	$	65,254
Trade name		27,131		12,540		26,831		11,755
Core deposits		8,615		1,940		8,615		816
Non-compete agreements		2,714		1,736		2,603		1,452
Investment banking backlog		1,445		1,312		1,431		1,293
	$	207,529	$	87,802	$	200,225	$	80,570

Amortization expense related to intangible assets was $3.5 million and $3.0 million for the three months ended June 30, 2019 and 2018, respectively. Amortization expense related to intangible assets was $7.1 million and $5.7 million for the six months ended June 30, 2019 and 2018, 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 June 30, 2019, are: customer relationships, 9.9 years; trade name, 9.2 years; core deposits, 4.6 years; and non-compete agreements, 9.5 years. We have an intangible asset that is not subject to amortization and is, therefore, not included in the table below. As of June 30, 2019, we expect amortization expense in future periods to be as follows (in thousands):

Fiscal year
Remainder of 2019	$	7,020
2020		13,576
2021		12,721
2022		11,906
2023		11,246
Thereafter		61,140
	$	117,609

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, 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.

Our uncommitted secured lines of credit at June 30, 2019, totaled $900.0 million with five 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 $276.0 million during the six months ended June 30, 2019. 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 June 30, 2019, we had no outstanding balances on our uncommitted secured lines of credit.

The Federal Home Loan advances of $250.0 million as of June 30, 2019 are floating-rate advances. The weighted average interest rates on these advances during the three and six months ended June 30, 2019 was 2.12% and 1.81%, respectively. 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.

Our committed bank line financing at June 30, 2019, consisted of a $200.0 million revolving credit facility. The credit facility expires in March 2024. The applicable interest rate under the revolving credit facility is calculated as a per annum rate equal to the London Interbank Offered Rate (“LIBOR”) plus 1.75%, as defined in the revolving credit facility. At June 30, 2019, we had no advances on our revolving credit facility and were in compliance with all covenants.

Stifel, our broker-dealer subsidiary, has a 364-day Credit Agreement (“Stifel Credit Facility”) with a maturity date of June 2020 in which the lenders are a number of financial institutions. This committed unsecured borrowing facility provides for maximum borrowings of up to $250.0 million at variable rates of interest. At June 30, 2019, we had no advances on the Stifel Credit Facility and were in compliance with all covenants.

A subsidiary of Stifel Bancorp is a party to two Notes that mature in 2043. The Notes bear interest contractually at fixed rates as per the Note Purchase Agreement. The outstanding balance on the Notes at June 30, 2019 was $117.7 million and is included in borrowings in the consolidated statements of financial condition.

NOTE 10 – Senior Notes

The following table summarizes our senior notes as of June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019			December 31, 2018
4.250% senior notes, due 2024 ⁽¹⁾	$	500,000		$	500,000
3.50% senior notes, due 2020 ⁽²⁾		300,000			300,000
5.20% senior notes, due 2047 ⁽³⁾		225,000			225,000
		1,025,000			1,025,000
Debt issuance costs, net		(8,508	)		(9,027	)
Senior notes, net	$	1,016,492		$	1,015,973

⁽¹⁾

In July 2014, we sold in a registered underwritten public offering, $300.0 million in aggregate principal amount of 4.250% 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 December 2015, we sold in a registered underwritten public offering, $300.0 million in aggregate principal amount of 3.50% senior notes due December 2020. 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.

⁽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 January 15, April 15, July 15, and October 15. 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):

2019	$	—
2020		300,000
2021		—
2022		—
2023		—
Thereafter		725,000
	$	1,025,000

NOTE 11 – Bank Deposits

Deposits consist of money market and savings accounts, certificates of deposit, and demand deposits. Deposits at June 30, 2019 and December 31, 2018 were as follows (in thousands):

	June 30, 2019		December 31, 2018
Money market and savings accounts	$	12,600,969	$	13,609,612
Certificates of deposit		1,339,001		1,763,336
Demand deposits (interest-bearing)		859,946		392,765
Demand deposits (non-interest-bearing)		101,145		97,900
	$	14,901,061	$	15,863,613

The weighted-average interest rate on deposits was 0.77% and 0.60% at June 30, 2019 and December 31, 2018, respectively.

Scheduled maturities of certificates of deposit at June 30, 2019 and December 31, 2018 were as follows (in thousands):

	June 30, 2019		December 31, 2018
Certificates of deposit, less than $100,000:
Within one year	$	4,036	$	4,858
One to three years		690		623
Three to five years		21		140
	$	4,747	$	5,621
Certificates of deposit, $100,000 and greater:
Within one year	$	1,226,651	$	1,535,784
One to three years		88,374		195,159
Three to five years		19,229		26,772
		1,334,254		1,757,715
	$	1,339,001	$	1,763,336

At June 30, 2019 and December 31, 2018, the amount of deposits includes related party deposits, primarily interest-bearing and time deposits of executive officers, directors, and their affiliates of $8.6 million and $6.5 million, respectively. Brokerage customers’ deposits were $13.5 billion and $15.2 billion, respectively.

NOTE 12 – Derivative Instruments and Hedging Activities

We use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our company making fixed payments. 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 table provides the notional values and fair values of our derivative instruments designated as hedging instruments as of June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019
	Notional Value		Balance Sheet Location	Fair Value
Derivative Assets
Cash flow interest rate contracts	$	250,000	Other assets	$	2,187

	December 31, 2018
	Notional Value		Balance Sheet Location	Fair Value
Derivative Assets
Cash flow interest rate contracts	$	540,000	Other assets	$	7,683

Cash Flow Hedges

We have entered into interest rate swap agreements that effectively modify our exposure to interest rate risk by converting floating rate debt to a fixed rate debt. The swaps have an average remaining life of 1.6 years.

Any unrealized gains or losses related to cash flow hedging instruments are reclassified from accumulated other comprehensive loss into earnings in the same period the hedged forecasted transaction affects earnings and are recorded in interest expense on the accompanying consolidated statements of operations. The ineffective portion of the cash flow hedging instruments is recorded in other income or other operating expense.

Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate deposits. During the next twelve months, we estimate that $1.4 million will be reclassified as interest income.

The following table shows the effect of our company’s derivative instruments in the consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Gain/(Loss) Recognized in OCI					Gain Reclassified From OCI Into Income
	Three Months Ended June 30,					Three Months Ended June 30,
	2019		2018			2019		2018
Cash flow interest rate contracts	$	1,881	$	(1,402	)	$	764	$	1,225

	Gain/(Loss) Recognized in OCI					Gain Reclassified From OCI Into Income
	Six Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Cash flow interest rate contracts	$	2,806	$	(5,220	)	$	2,306	$	1,758

We maintain a risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings caused by interest rate volatility. Our goal is to manage sensitivity to changes in rates by hedging the maturity characteristics of variable rate affiliated deposits, thereby limiting the impact on earnings. By using derivative instruments, we are exposed to credit and market risk on those derivative positions. We manage the market risk associated with interest rate contracts by establishing and monitoring limits as to the types and degree of risk that may be undertaken. Credit risk is equal to the extent of 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. See Note 4 in the notes to our consolidated financial statements for further discussion on how we determine the fair value of our financial instruments. 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.

Credit Risk-Related Contingency Features

We have agreements with our derivative counterparties containing provisions where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations.

We have agreements with certain of our derivative counterparties that contain provisions where if our shareholders’ equity declines below a specified threshold or if we fail to maintain a specified minimum shareholders’ equity, then we could be declared in default on our derivative obligations.

Certain of our agreements with our derivative counterparties contain provisions where if a specified event or condition occurs that materially changes our creditworthiness in an adverse manner, we may be required to fully collateralize our obligations under the derivative instrument.

Regulatory Capital-Related Contingency Features

Certain of our derivative instruments contain provisions that require us to maintain our capital adequacy requirements. If we were to lose our status as “adequately capitalized,” we would be in violation of those provisions, and the counterparties of the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions.

Counterparty Risk

In the event of counterparty default, our economic loss may be higher than the uncollateralized exposure of our derivatives if we were not able to replace the defaulted derivatives in a timely fashion. We monitor the risk that our uncollateralized exposure to each of our counterparties for interest rate swaps will increase under certain adverse market conditions by performing periodic market stress tests. These tests evaluate the potential additional uncollateralized exposure we would have to each of these derivative counterparties assuming changes in the level of market rates over a brief time period.

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 June 30, 2019 and December 31, 2018 (in thousands):

							Gross amounts not offset in the Statement of Financial Condition
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts Presented in the Statement of Financial Condition		Amounts available for offset			Available collateral			Net Amount
As of June 30, 2019:
Securities borrowing ⁽¹⁾	$	146,245	$	—	$	146,245	$	(60,974	)	$	(83,144	)	$	2,127
Reverse repurchase agreements ⁽²⁾		596,572		—		596,572		(136,732	)		(459,639	)		201
Cash flow interest rate contracts		2,187		—		2,187		—			—			2,187
	$	745,004	$	—	$	745,004	$	(197,706	)	$	(542,783	)	$	4,515
As of December 31, 2018:
Securities borrowing ⁽¹⁾	$	109,795	$	—	$	109,795	$	(57,328	)	$	(45,005	)	$	7,462
Reverse repurchase agreements ⁽²⁾		699,900		—		699,900		(365,822	)		(329,740	)		4,338
Cash flow interest rate contracts		7,683		—		7,683		—			—			7,683
	$	817,378	$	—	$	817,378	$	(423,150	)	$	(374,745	)	$	19,483

⁽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⁾

Collateral received includes securities received by our company 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 pledged as collateral was $597.5 million and $695.6 million at June 30, 2019 and December 31, 2018, respectively.

The following table provides information about financial liabilities and derivative liabilities that are subject to offset as of June 30, 2019 and December 31, 2018 (in thousands):

									Gross amounts not offset in the Statement of Financial Condition
	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Statement of Financial Condition		Net Amounts Presented in the Statement of Financial Condition			Amounts available for offset		Collateral Pledged		Net Amount
As of June 30, 2019:
Securities lending ⁽³⁾	$	(492,249	)	$	—	$	(492,249	)	$	60,974	$	430,944	$	(331	)
Repurchase agreements ⁽⁴⁾		(762,282	)		—		(762,282	)		136,732		625,550		—
	$	(1,254,531	)	$	—	$	(1,254,531	)	$	197,706	$	1,056,494	$	(331	)
As of December 31, 2018:
Securities lending ⁽³⁾	$	(392,163	)	$	—	$	(392,163	)	$	57,328	$	325,110	$	(9,725	)
Repurchase agreements ⁽⁴⁾		(535,394	)		—		(535,394	)		365,822		169,572		—
	$	(927,557	)	$	—	$	(927,557	)	$	423,150	$	494,682	$	(9,725	)

⁽³⁾

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.

⁽⁴⁾

Collateral pledged includes the fair value of securities pledged by our company to the counterparty. These securities are included in 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 $796.3 million and $558.6 million at June 30, 2019 and December 31, 2018, 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 June 30, 2019, had no material effect on the consolidated financial statements.

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 June 30, 2019, 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, 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.

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 is subject to the regulatory supervision and requirements of the Financial Conduct Authority (“FCA”) in the United Kingdom. At June 30, 2019, our international subsidiary’s capital and reserves were in excess of the financial resources requirement under the rules of the FCA.

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, “bank 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 its bank subsidiaries’ financial results. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, our company and its bank 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 bank 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 bank subsidiaries.

Our company and its bank 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 bank 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 bank 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 bank 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 June 30, 2019 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	$	1,986,935		15.6	%	$	574,788		4.5	%	$	830,250		6.5	%
Tier 1 capital		2,301,152		18.0	%		766,385		6.0	%		1,021,846		8.0	%
Total capital		2,450,759		19.2	%		1,021,846		8.0	%		1,277,308		10.0	%
Tier 1 leverage		2,301,152		10.0	%		923,168		4.0	%		1,153,960		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	$	1,067,561		13.4	%	$	359,715		4.5	%	$	519,588		6.5	%
Tier 1 capital		1,071,778		13.4	%		479,619		6.0	%		639,492		8.0	%
Total capital		1,161,805		14.5	%		639,492		8.0	%		799,366		10.0	%
Tier 1 leverage		1,071,778		7.2	%		598,958		4.0	%		748,698		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	$	142,200		17.7	%	$	36,119		4.5	%	$	52,172		6.5	%
Tier 1 capital		142,200		17.7	%		48,159		6.0	%		64,212		8.0	%
Total capital		151,300		18.9	%		64,212		8.0	%		80,265		10.0	%
Tier 1 leverage		142,200		7.3	%		78,019		4.0	%		97,523		5.0	%

NOTE 17 – Operating Leases

The table below presents information about operating lease liabilities as of June 30, 2019, (in thousands, except percentages).

Remainder of 2019	$	44,633
2020		86,163
2021		81,218
2022		80,346
2023		79,107
Thereafter		522,934
Total undiscounted lease payments		894,401
Imputed interest		(215,988	)
Total operating lease liabilities	$	678,413
Weighted average remaining lease term	11.8 years
Weighted average discount rate		4.59	%

In the table above, the weighted average discount rate represents our company’s incremental borrowing rate as of January 2019 for leases existing on the date of adoption of the new lease standard and at the lease inception date for leases entered into subsequent to the adoption of ASU 2016-02.

Operating lease costs, included in occupancy and equipment rental in the consolidated statements of operations, were $22.0 million and $22.1 million for the three months ended June 30, 2019 and 2018, respectively. Operating lease costs were $43.5 million and $44.1 million for the six months ended June 30, 2019 and 2018, respectively.

As of June 30, 2019, the Company had a total lease portfolio of 32 aircraft engines with a net book value of $306.5 million, which is included in fixed assets, net in the consolidated statements of financial condition.

As of June 30, 2019, minimum future payments under non-cancelable leases were (in thousands):

Remainder of 2019	$	13,482
2020		24,598
2021		20,162
2022		11,980
2023		6,865
Thereafter		11,737
	$	88,824

Lease income, included in other income in the consolidated statements of operations, was $5.1 million and $13.3 million for the three and six months ended June 30, 2019, respectively.

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 revenues for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,
	2019		2018
Revenues from contracts with customers:
Commissions	$	164,981	$	166,902
Investment banking		179,617		161,063
Asset management and service fees		211,171		199,568
Other		3,748		3,796
Total revenue from contracts with customers		559,517		531,329
Other sources of revenue:
Interest		187,940		154,421
Principal transactions		96,464		88,984
Other		9,757		5,277
Total revenues	$	853,678	$	780,011

	Six Months Ended June 30,
	2019		2018
Revenues from contracts with customers:
Commissions	$	320,430	$	332,677
Investment banking		341,457		337,425
Asset management and service fees		406,438		395,369
Other		7,530		7,514
Total revenue from contracts with customers		1,075,855		1,072,985
Other sources of revenue:
Interest		379,011		292,155
Principal transactions		200,496		186,766
Other		18,184		4,916
Total revenues	$	1,673,546	$	1,556,822

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 fees 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 fees 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 and six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30, 2019⁽¹⁾
	Global Wealth Management		Institutional Group		Other		Total
Major business activity:
Commissions	$	120,284	$	44,697	$	—	$	164,981
Capital raising ⁽¹⁾		10,559		86,153		—		96,712
Advisory fees ⁽¹⁾		—		82,905		—		82,905
Investment banking		10,559		169,058		—		179,617
Asset management		211,156		15		—		211,171
Other		3,549		—		199		3,748
Total		345,548		213,770		199		559,517
Primary Geographic Region:
United States		345,548		172,958		199		518,705
United Kingdom		—		39,668		—		39,668
Other		—		1,144		—		1,144
	$	345,548	$	213,770	$	199	$	559,517

	Three Months Ended June 30, 2018⁽¹⁾
	Global Wealth Management		Institutional Group		Other		Total
Major business activity:
Commissions	$	118,129	$	48,773	$	—	$	166,902
Capital raising ⁽¹⁾		7,968		66,112		—		74,080
Advisory fees ⁽¹⁾		81		86,922		—		87,003
Investment banking		8,049		153,034		—		161,083
Asset management		199,557		11		—		199,568
Other		2,907		—		889		3,796
Total		328,642		201,818		889		531,349
Primary Geographic Region:
United States		328,642		173,415		889		502,946
United Kingdom		—		25,953		—		25,953
Other		—		2,450		—		2,450
	$	328,642	$	201,818	$	889	$	531,349

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

	Six Months Ended June 30, 2019⁽¹⁾
	Global Wealth Management		Institutional Group		Other		Total
Major business activity:
Commissions	$	230,211	$	90,219	$	—	$	320,430
Capital raising ⁽¹⁾		18,782		134,875		—		153,657
Advisory fees ⁽¹⁾		—		187,800		—		187,800
Investment banking		18,782		322,675		—		341,457
Asset management		406,409		29		—		406,438
Other		6,004		—		1,526		7,530
Total		661,406		412,923		1,526		1,075,855
Primary Geographic Region:
United States		661,406		349,698		1,526		1,012,630
United Kingdom		—		60,771		—		60,771
Other		—		2,454		—		2,454
	$	661,406	$	412,923	$	1,526	$	1,075,855

	Six Months Ended June 30, 2018⁽¹⁾
	Global Wealth Management		Institutional Group		Other		Total
Major business activity:
Commissions	$	237,334	$	95,343	$	—	$	332,677
Capital raising ⁽¹⁾		15,656		137,113		—		152,769
Advisory fees ⁽¹⁾		81		184,595		—		184,676
Investment banking		15,737		321,708		—		337,445
Asset management		395,346		23		—		395,369
Other		5,593		—		1,921		7,514
Total		654,010		417,074		1,921		1,073,005
Primary Geographic Region:
United States		654,010		349,765		1,921		1,005,696
United Kingdom		—		63,832		—		63,832
Other		—		3,477		—		3,477
	$	654,010	$	417,074	$	1,921	$	1,073,005

⁽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 June 30, 2019. Investment banking advisory fees 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 June 30, 2019.

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 $142.5 million and $116.7 million at June 30, 2019 and December 31, 2018, respectively. We had no significant impairments related to these receivables during the six months ended June 30, 2019.

Our deferred revenue primarily relates to retainer fees received in investment banking advisory engagements and investment advisory fees where the performance obligation has not yet been satisfied. Deferred revenue at June 30, 2019 and December 31, 2018 was $16.7 million and $11.1 million, respectively.

NOTE 19 – Interest Income and Interest Expense

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Interest income:
Bank loans, net	$	95,881	$	68,389	$	189,105	$	132,024
Investment securities		61,716		63,535		127,182		118,438
Margin balances		13,663		12,306		27,103		23,256
Financial instruments owned		6,414		4,983		12,727		9,912
Other		10,266		5,208		22,894		8,525
	$	187,940	$	154,421	$	379,011	$	292,155
Interest expense:
Bank deposits	$	29,347	$	15,343	$	57,413	$	23,473
Senior notes		11,122		11,122		22,244		22,240
Federal Home Loan Bank advances		2,911		3,095		4,589		6,347
Other		9,511		7,719		18,093		11,672
	$	52,891	$	37,279	$	102,339	$	63,732

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 employees. 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 3.6 million shares at June 30, 2019.

Stock-based compensation expense included in compensation and benefits expense in the consolidated statements of operations for our company’s incentive stock award plan was $34.1 million and $26.9 million for the three months ended June 30, 2019 and 2018, respectively, and $63.8 million and $50.8 million for the six months ended June 30, 2019 and 2018, respectively.

Restricted Stock Units and Restricted Stock 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 employee 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. Our 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. 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. Restricted stock awards are restricted as to sale or disposition. These restrictions lapse over the next one to five years. 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 deferred awards to vest. Employees 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 June 30, 2019, the total number of restricted stock units, PRSUs, and restricted stock awards outstanding was 15.6 million, of which 13.5 million were unvested.

At June 30, 2019, there was unrecognized compensation cost for deferred awards of approximately $467.4 million, which is expected to be recognized over a weighted-average period of 2.8 years.

Deferred Compensation Plans

The Plan is provided to certain revenue producers, officers, and key administrative employees, 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’s 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 with a 25% matching contribution.

In addition, certain financial advisors, upon joining our 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 employees of our company who have met certain service requirements may participate in the Stifel Financial Corp. Profit Sharing 401(k) Plan (the “401(k) Plan”). Employees are permitted within limitations imposed by tax law to make pre-tax contributions to the 401(k) Plan. We may match certain employee contributions or make additional contributions to the 401(k) Plan at our discretion. Our contributions to the 401(k) Plan were $3.0 million and $6.3 million for the three months ended June 30, 2019 and 2018, respectively and $6.4 million and $6.7 million for the six months ended June 30, 2019 and 2018, 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 June 30, 2019 and December 31, 2018, the fair value of securities accepted as collateral where we are permitted to sell or repledge the securities was $2.5 billion and $2.4 billion, respectively, and the fair value of the collateral that had been sold or repledged was $762.3 million and $535.4 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 June 30, 2019 and December 31, 2018, Stifel Bancorp had outstanding commitments to originate loans aggregating $421.6 million and $146.7 million, respectively. The commitments extended over varying periods of time, with all commitments at June 30, 2019, 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 June 30, 2019 and December 31, 2018, Stifel Bancorp had outstanding letters of credit totaling $26.8 million and $26.3 million, respectively. A majority of the standby letters of credit commitments at June 30, 2019, 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 June 30, 2019 and December 31, 2018, Stifel Bancorp had granted unused lines of credit to commercial and consumer borrowers aggregating $1.1 billion and $919.5 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 broker-dealer subsidiaries 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 and six months ended June 30, 2019 and 2018 is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net revenues: ⁽¹⁾
Global Wealth Management	$	532,433		$	497,327		$	1,043,043		$	982,902
Institutional Group		270,602			252,825			531,888			522,903
Other		(2,248	)		(7,420	)		(3,724	)		(12,715	)
	$	800,787		$	742,732		$	1,571,207		$	1,493,090
Income/(loss) before income taxes:
Global Wealth Management	$	192,352		$	187,895		$	386,842		$	364,666
Institutional Group		39,302			36,024			71,506			80,594
Other		(83,672	)		(105,572	)		(172,557	)		(207,359	)
	$	147,982		$	118,347		$	285,791		$	237,901

⁽¹⁾	No individual client accounted for more than 10 percent of total net revenues for the three and six months ended June 30, 2019 or 2018.

The following table presents our company’s total assets on a segment basis at June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019		December 31, 2018
Global Wealth Management	$	20,346,577	$	21,040,224
Institutional Group		3,720,444		3,238,617
Other		276,576		240,757
	$	24,343,597	$	24,519,598

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

Revenues, classified by the major geographic areas in which they are earned for the three and six months ended June 30, 2019 and 2018, were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
United States	$	754,470	$	703,225	$	1,495,700	$	1,409,293
United Kingdom		43,761		35,301		70,151		76,859
Other		2,556		4,206		5,356		6,938
	$	800,787	$	742,732	$	1,571,207	$	1,493,090

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 and six months ended June 30, 2019 and 2018 (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net income applicable to Stifel Financial Corp.	$	109,085	$	87,287	$	208,292	$	176,048
Preferred dividends		5,288		2,344		7,632		4,688
Net income available to common shareholders	$	103,797	$	84,943	$	200,660	$	171,360
Shares for basic and diluted calculation:
Average shares used in basic computation		72,519		71,692		73,180		71,843
Dilutive effect of stock options and units ⁽¹⁾		6,560		9,607		5,980		9,705
Average shares used in diluted computation		79,079		81,299		79,160		81,548
Earnings per common share:
Basic	$	1.43	$	1.18	$	2.74	$	2.39
Diluted	$	1.31	$	1.04	$	2.53	$	2.10

⁽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.

For the three and six months ended June 30, 2019 and 2018, the anti-dilutive effect from restricted stock units was immaterial.

Cash Dividends

During the three and six months ended June 30, 2019, we declared and paid cash dividends of $0.15 and $0.30 per common share. During the three and six months ended June 30, 2018, we declared and paid cash dividends of $0.12 and $0.24 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 June 30, 2019, the maximum number of shares that may yet be purchased under this plan was 6.8 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 employee benefit plans and for general corporate purposes. During the three months ended June 30, 2019, we repurchased $71.1 million, or 1.3 million shares using existing Board authorizations at an average price of $56.32 per share to meet obligations under our company’s employee benefit plans and for general corporate purposes. During the six months ended June 30, 2019, we repurchased $125.0 million, or 2.3 million shares using existing Board authorizations at an average price of $54.95 per share to meet obligations under our company’s employee benefit plans and for general corporate purposes. During the three months ended June 30, 2018, we repurchased $43.0 million, or 0.8 million shares using existing Board authorizations at an average price of $56.28 per share to meet obligations under our company’s employee benefit plans and for general corporate purposes. During the six months ended June 30, 2018, we repurchased $45.9 million, or 0.8 million shares using existing Board authorizations at an average price of $56.32 per share to meet obligations under our company’s employee benefit plans and for general corporate purposes.

Issuance of Common Stock

During the six months ended June 30, 2019, we issued 1.3 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 February 21, 2019, the company issued $150.0 million of 6.25% Non-Cumulative Perpetual Preferred Stock, Series B, $1.00 par value, with a liquidation preference of $25,000 per share (equivalent to $25 liquidation preference per depositary share). In March 2019, we completed a public offering of an additional $10.0 million of Series B Preferred, pursuant to the over-allotment option.

When, as, and if declared by the board of directors of the company, dividends will be payable at an annual rate of 6.25%, payable quarterly, in arrears. The company may redeem the Series B preferred stock at its option, subject to regulatory approval, on or after March 15, 2024 or following a regulatory capital treatment event, as defined.

NOTE 25 – Variable Interest Entities

Our company’s involvement with VIEs is limited to entities used as investment vehicles and private equity funds, the establishment of Stifel Financial Capital Trusts, and our issuance of a convertible promissory note.

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 partnerships and LLCs have assets of $237.5 million at June 30, 2019. 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. Management fee revenue earned by our company was insignificant during the three and six months ended June 30, 2019 and 2018. In addition, our direct investment interest in these entities is insignificant at June 30, 2019.

Thomas Weisel Capital Management LLC, a subsidiary of our company, acts as the general partner of a series of investment funds in venture capital and fund of funds and manages investment funds that are active buyers of secondary interests in private equity funds, as well as portfolios of direct interests in venture-backed companies. These partnerships have combined assets of $223.4 million at June 30, 2019. We hold variable interests in these funds as a result of our company’s rights to receive management fees. Our company’s investment in and additional capital commitments to the private equity funds are also considered variable interests. The additional capital commitments are subject to call at a later date and are limited in amount. Our exposure to loss is limited to our investments in, advances and commitments to, and receivables due from these funds, and that exposure is insignificant at June 30, 2019. Management fee revenue earned by our company was insignificant during the three and six months ended June 30, 2019 and 2018.

For the entities noted above that were determined to be VIEs, we have concluded that we are not the primary beneficiary, and therefore, we are not required to consolidate these entities.

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.

Securitization Interests

On July 31, 2018, the Company purchased 100% of the share capital of Jet Holding S.a.r.l. (“Jet Holdings”), which is the owner of 100% of the outstanding E-Certificates in FAN Engine Securitization Ltd. (“FAN”). FAN is a securitization which purchases, leases, and disposes of commercial aircraft engines. As of the acquisition date, FAN owned 24 leased aircraft engines through common law trusts and FAN Leasing Dublin Limited, all of which are wholly owned subsidiaries of FAN.

As the holder of the E-Certificate, our obligation to absorb losses is limited to the equity at risk (in this instance the consideration paid to acquire the E-Certificate). The residual returns that could be potentially generated by the activities of FAN are not pro rata with our ownership interests in the securitization. In addition, we have the power to direct the activities of FAN. As such, we have determined that FAN is a variable interest entity with Jet Holdings the primary beneficiary; therefore, FAN has been consolidated in our financial statements.

At June 30, 2019 and December 31, 2018, the assets of FAN, which primarily consisted of aircraft engines, certain of which are under operating leases, and liabilities, which primarily consisted of debt, were immaterial to our consolidated statements of financial condition.

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 our company should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018, 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, our 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 below under “External Factors Impacting Our Business” as well as the factors identified under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as updated in our subsequent reports filed with the SEC. These reports are available at our web site at www.stifel.com and at the SEC web site at www.sec.gov.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events, unless we are 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.

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 United States and in Europe. 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 major geographic area of concentration is throughout the United States, with a growing presence in the United Kingdom and Europe. Our company’s principal customers are individual investors, corporations, municipalities, and institutions.

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 employee focus have earned us a reputation as one of the leading brokerage and investment banking firms off Wall Street. 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 Global Wealth Management and Institutional Group businesses.

Our ability to attract and retain highly skilled and productive employees 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 employees who are motivated and committed to providing the highest quality of service and guidance to our clients.

On January 2, 2019, the Company completed the acquisition of First Empire Holding Corp. and its subsidiaries (“First Empire”), including First Empire Securities, Inc., an institutional broker-dealer specializing in the fixed income markets. The acquisition was funded with cash from operations.

On February 28, 2019, the Company completed an underwritten registered public offering of $150 million 6.25% Non-Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred”). In March 2019, we completed a public offering of an additional $10.0 million of Series B Preferred, pursuant to the over-allotment option.

On July 1, 2019, the Company completed the acquisition of Mooreland Partners, an independent M&A and private capital advisory firm serving the global technology industry. The acquisition was funded with cash from operations.

Results for the three and six months ended June 30, 2019

For the three months ended June 30, 2019, net revenues increased 7.8% to $800.8 million from $742.7 million during the comparable period in 2018. Net income available to common shareholders increased 22.2% to $103.8 million, or $1.31 per diluted common share for the three months ended June 30, 2019, compared to $84.9 million, or $1.04 per diluted common share during the comparable period in 2018.

For the six months ended June 30, 2019, net revenues increased 5.2% to a record $1.6 billion compared to $1.5 billion during the comparable period in 2018. Net income available to common shareholders increased 17.1% to $200.7 million, or $2.53 per diluted common share for the six months ended June 30, 2019, compared to $171.4 million, or $2.10 per diluted common share during the comparable period in 2018.

Our revenue growth for the three months ended June 30, 2019 was primarily attributable to an increase in capital raising revenues, higher net interest income as a result of an increase in interest-earning assets at Stifel Bancorp; the growth in asset management and service fees as a result of increased assets under management; and an increase in principal transaction revenues; partially offset by a decrease in advisory fees and commission revenues.

Our revenue growth for the six months ended June 30, 2019 was primarily attributable to higher net interest income as a result of an increase in interest-earning assets at Stifel Bancorp, an increase in principal transaction revenues, the growth in asset management and service fees as a result of increased assets under management, and an increase in advisory fees and capital raising revenues; partially offset by a decrease in commissions revenues.

External Factors Impacting our Business

Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are beyond our control and mostly unpredictable. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions, the volatility of the equity and fixed income markets, the level and shape of various yield curves, the volume and value of trading in securities, and the value of our customers’ assets under management. The municipal underwriting market is challenging as state and local governments reduce their debt levels. Investors are showing a lack of demand for longer-dated municipals and are reluctant to take on credit or liquidity risks.

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 June 30, 2019, the NASDAQ, S&P 500, and Dow Jones Industrial Average closed 20.7%, 17.3%, and 14.0% higher than their December 31, 2018 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 June 30, 2019 Compared with Three Months Ended June 30, 2018

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

	Three Months Ended June 30,							As a Percentage of Net Revenues For the Three Months Ended June 30,
	2019		2018		% Change			2019			2018
Revenues:
Commissions	$	164,981	$	166,902		(1.2	)		20.6	%		22.5	%
Principal transactions		96,464		88,984		8.4			12.0			12.0
Brokerage revenues		261,445		255,886		2.2			32.6			34.5
Investment banking		179,617		161,063		11.5			22.4			21.7
Asset management and service fees		211,171		199,568		5.8			26.4			26.9
Interest		187,940		154,421		21.7			23.5			20.8
Other income		13,505		9,073		48.8			1.7			1.1
Total revenues		853,678		780,011		9.4			106.6			105.0
Interest expense		52,891		37,279		41.9			6.6			5.0
Net revenues		800,787		742,732		7.8			100.0			100.0
Non-interest expenses:
Compensation and benefits		466,861		442,170		5.6			58.3			59.5
Occupancy and equipment rental		61,055		53,596		13.9			7.6			7.2
Communication and office supplies		35,069		36,639		(4.3	)		4.4			4.9
Commissions and floor brokerage		11,008		10,095		9.0			1.4			1.4
Other operating expenses		78,812		81,885		(3.8	)		9.8			11.0
Total non-interest expenses		652,805		624,385		4.6			81.5			84.0
Income before income taxes		147,982		118,347		25.0			18.5			16.0
Provision for income taxes		38,225		31,060		23.1			4.8			4.2
Net Income		109,757		87,287		25.7			13.7			11.8
Net income applicable to non-controlling interests		672		—	n/m				0.1			—
Net income applicable to Stifel Financial Corp.		109,085		87,287		25.0			13.6			11.8
Preferred dividends		5,288		2,344		125.6			0.7			0.3
Net income available to common shareholders	$	103,797	$	84,943		22.2			12.9	%		11.5	%

Six months Ended June 30, 2019 Compared with Six months Ended June 30, 2018

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

	Six Months Ended June 30,							As a Percentage of Net Revenues For the Six Months Ended June 30,
	2019		2018		% Change			2019			2018
Revenues:
Commissions	$	320,430	$	332,677		(3.7	)		20.4	%		22.3	%
Principal transactions		200,496		186,766		7.4			12.8			12.5
Brokerage revenues		520,926		519,443		0.3			33.2			34.8
Investment banking		341,457		337,425		1.2			21.7			22.6
Asset management and service fees		406,438		395,369		2.8			25.9			26.5
Interest		379,011		292,155		29.7			24.1			19.6
Other income		25,714		12,430		106.9			1.6			0.8
Total revenues		1,673,546		1,556,822		7.5			106.5			104.3
Interest expense		102,339		63,732		60.6			6.5			4.3
Net revenues		1,571,207		1,493,090		5.2			100.0			100.0
Non-interest expenses:
Compensation and benefits		924,975		900,063		2.8			58.9			60.3
Occupancy and equipment rental		119,917		111,191		7.8			7.6			7.4
Communication and office supplies		70,766		70,138		0.9			4.5			4.7
Commissions and floor brokerage		21,964		19,460		12.9			1.4			1.3
Other operating expenses		147,794		154,337		(4.2	)		9.4			10.4
Total non-interest expenses		1,285,416		1,255,189		2.4			81.8			84.1
Income before income taxes		285,791		237,901		20.1			18.2			15.9
Provision for income taxes		76,595		61,853		23.8			4.9			4.1
Net Income		209,196		176,048		18.8			13.3			11.8
Net income applicable to non-controlling interests		904		—	n/m				0.1			—
Net income applicable to Stifel Financial Corp.		208,292		176,048		18.3			13.2			11.8
Preferred dividends		7,632		4,688		62.8			0.5			0.3
Net income available to common shareholders	$	200,660	$	171,360		17.1			12.7	%		11.5	%

NET REVENUES

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

	Three Months Ended June 30,							Six Months Ended June 30,
	2019		2018		% Change			2019		2018		% Change
Net revenues:
Commissions	$	164,981	$	166,902		(1.2	)	$	320,430	$	332,677		(3.7	)
Principal transactions		96,464		88,984		8.4			200,496		186,766		7.4
Brokerage revenues		261,445		255,886		2.2			520,926		519,443		0.3
Advisory fees		82,911		87,004		(4.7	)		187,801		184,676		1.7
Capital raising		96,706		74,059		30.6			153,656		152,749		0.6
Investment banking		179,617		161,063		11.5			341,457		337,425		1.2
Asset management and service fees		211,171		199,568		5.8			406,438		395,369		2.8
Net interest		135,049		117,142		15.3			276,672		228,423		21.1
Other income		13,505		9,073		48.8			25,714		12,430		106.9
Total net revenues	$	800,787	$	742,732		7.8		$	1,571,207	$	1,493,090		5.2

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 June 30, 2019, commission revenues decreased 1.2% to $165.0 million from $166.9 million in the comparable period in 2018. For the six months ended June 30, 2019, commission revenues decreased 3.7% to $320.4 million from $332.7 million in the comparable period in 2018. The decrease is primarily attributable to a decrease in OTC transactions from the comparable periods in 2018.

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

For the three months ended June 30, 2019, principal transactions revenues increased 8.4% to $96.5 million from $89.0 million in the comparable period in 2018. For the six months ended June 30, 2019, principal transactions revenues increased 7.4% to $200.5 million from $186.8 million in the comparable period in 2018. The increase is primarily attributable to higher institutional fixed income brokerage revenues, as a result of increased trading levels and higher trading gains.

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 June 30, 2019, investment banking revenues increased 11.5% to $179.6 million from $161.1 million in the comparable period in 2018.

Advisory fee revenues decreased 4.7% to $82.9 million for the three months ended June 30, 2019 from $87.0 million in the comparable period in 2018.

Capital raising revenues increased 30.6% to $96.7 million for the three months ended June 30, 2019 from $74.1 million in the comparable period in 2018. For the three months ended June 30, 2019, equity capital raising revenues increased 32.2% to $64.2 million from $48.6 million in the comparable period in 2018. For the three months ended June 30, 2019, fixed income capital raising revenues increased 27.5% to $32.5 million from $25.5 million in the comparable period in 2018.

For the six months ended June 30, 2019, investment banking revenues increased 1.2% to $341.5 million from $337.4 million in the comparable period in 2018.

Advisory fee revenues increased 1.7% to $187.8 million for the six months ended June 30, 2019 from $184.7 million in the comparable period in 2018. The increase is primarily attributable to an increase in the number of advisory transactions over the comparable period in 2018.

Capital raising revenues increased 0.6% to $153.7 million for the six months ended June 30, 2019 from $152.7 million in the comparable period in 2018. For the six months ended June 30, 2019, equity capital raising revenues decreased 8.8% to $97.0 million from $106.3 million in the comparable period in 2018. For the six months ended June 30, 2019, fixed income capital raising revenues increased 22.0% to $56.7 million from $46.4 million in the comparable period in 2018.

Asset management and service fees – Asset management and service fee 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 June 30, 2019, asset management and service fee revenues increased 5.8% to $211.2 million from $199.6 million in the comparable period in 2018. For the six months ended June 30, 2019, asset management and service fee revenues increased 2.8% to $406.4 million from $395.4 million in the comparable period in 2018. See “Asset management and service fees” in the Global Wealth Management segment discussion for information on the changes in asset management and service fees revenues.

Other income – For the three months ended June 30, 2019, other income increased 48.8% to $13.5 million from $9.1 million during the comparable period in 2018. For the six months ended June 30, 2019, other income increased 106.9% to $25.7 million from $12.4 million during the comparable period in 2018. The increase is primarily attributable to rental income generated from our aircraft engine leasing business. Other income primarily includes investment gains and losses, rental income, and loan originations fees.

NET INTEREST INCOME

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

	Three Months Ended
	June 30, 2019							June 30, 2018
	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	$	750,388	$	4,327		2.31	%	$	396,201	$	2,087		2.11	%
Financial instruments owned		1,320,481		6,414		1.94	%		1,230,018		4,983		1.62	%
Margin balances		1,291,522		13,663		4.23	%		1,311,103		12,306		3.75	%
Investment portfolio		6,942,327		61,716		3.56	%		7,724,180		63,535		3.29	%
Loans		9,118,199		95,881		4.21	%		7,533,133		68,389		3.63	%
Other interest-bearing assets		831,587		5,939		2.86	%		810,903		3,121		1.54	%
Total interest-earning assets/interest income	$	20,254,504	$	187,940		3.71	%	$	19,005,538	$	154,421		3.25	%
Interest-bearing liabilities:
Short-term borrowings	$	29,790	$	235		3.16	%	$	101,419	$	688		2.71	%
Stock loan		538,965		2,808		2.08	%		482,045		3,122		2.59	%
Senior notes (Stifel Financial)		1,016,171		11,122		4.38	%		1,015,455		11,122		4.38	%
Stifel Capital Trusts		60,000		532		3.55	%		67,500		730		4.33	%
Deposits		14,660,716		29,347		0.80	%		13,441,341		15,343		0.46	%
FHLB		550,181		2,911		2.12	%		844,643		3,095		1.47	%
Other interest-bearing liabilities		1,165,434		5,936		2.04	%		1,128,443		3,179		1.13	%
Total interest-bearing liabilities/interest expense	$	18,021,257		52,891		1.17	%	$	17,080,846		37,279		0.87	%
Net interest income/margin			$	135,049		2.67	%			$	117,142		2.47	%

	Six Months Ended
	June 30, 2019							June 30, 2018
	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	$	951,287	$	12,155		2.56	%	$	395,729	$	3,532		1.79	%
Financial instruments owned		1,298,921		12,727		1.96	%		1,230,018		9,912		1.61	%
Margin balances		1,275,006		27,103		4.25	%		1,293,871		23,256		3.59	%
Investment portfolio		7,090,167		127,182		3.59	%		7,635,094		118,438		3.10	%
Loans		9,050,317		189,105		4.18	%		7,398,108		132,024		3.57	%
Other interest-bearing assets		783,941		10,739		2.74	%		789,460		4,993		1.26	%
Total interest-earning assets/interest income	$	20,449,639	$	379,011		3.71	%	$	18,742,280	$	292,155		3.12	%
Interest-bearing liabilities:
Short-term borrowings	$	49,005	$	764		3.12	%	$	130,929	$	1,613		2.46	%
Stock loan		511,549		5,437		2.13	%		403,266		3,749		1.86	%
Senior notes (Stifel Financial)		1,016,285		22,244		4.38	%		1,015,455		22,240		4.38	%
Stifel Capital Trusts		60,000		1,340		4.47	%		67,500		1,299		3.85	%
Deposits		14,969,769		57,413		0.77	%		13,297,248		23,473		0.35	%
FHLB		506,052		4,589		1.81	%		873,630		6,347		1.45	%
Other interest-bearing liabilities		1,104,781		10,552		1.91	%		1,002,602		5,011		1.00	%
Total interest-bearing liabilities/interest expense	$	18,217,441		102,339		1.12	%	$	16,790,630		63,732		0.76	%
Net interest income/margin			$	276,672		2.71	%			$	228,423		2.44	%

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 June 30, 2019, net interest income increased to $135.0 million from $117.1 million during the comparable period in 2018. For the six months ended June 30, 2019, net interest income increased to $276.7 million from $228.4 million during the comparable period in 2018.

For the three months ended June 30, 2019, interest revenue increased 21.7% to $187.9 million from $154.4 million in the comparable period in 2018, principally as a result of an increase in interest revenue generated from the loan portfolio of Stifel Bancorp and higher margin interest income. The average interest-earning assets of Stifel Bancorp increased to $16.4 billion during the three months ended June 30, 2019 compared to $15.4 billion during the comparable period in 2018 at average interest rates of 3.89% and 3.46%, respectively.

For the six months ended June 30, 2019, interest revenue increased 29.7% to $379.0 million from $292.2 million in the comparable period in 2018, principally as a result of an increase in interest revenue generated from the interest-earning assets of Stifel Bancorp and higher margin interest income. The average interest-earning assets of Stifel Bancorp increased to $16.7 billion during the six months ended June 30, 2019 compared to $15.1 billion during the comparable period in 2018 at average interest rates of 3.88% and 3.33%, respectively.

For the three months ended June 30, 2019, interest expense increased 41.9% to $52.9 million from $37.3 million during the comparable period in 2018. For the six months ended June 30, 2019, interest expense increased 60.6% to $102.3 million from $63.7 million in the comparable period in 2018. The increase is primarily attributable to an increase in interest-bearing liabilities (deposits) at Stifel Bancorp.

NON-INTEREST EXPENSES

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

	Three Months Ended June 30,							Six Months Ended June 30,
	2019		2018		% Change			2019		2018		% Change
Non-interest expenses:
Compensation and benefits	$	466,861	$	442,170		5.6		$	924,975	$	900,063		2.8
Occupancy and equipment rental		61,055		53,596		13.9			119,917		111,191		7.8
Communications and office supplies		35,069		36,639		(4.3	)		70,766		70,138		0.9
Commissions and floor brokerage		11,008		10,095		9.0			21,964		19,460		12.9
Other operating expenses		78,812		81,885		(3.8	)		147,794		154,337		(4.2	)
Total non-interest expenses	$	652,805	$	624,385		4.6		$	1,285,416	$	1,255,189		2.4

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 June 30, 2019, compensation and benefits expense increased 5.6% to $466.9 million from $442.2 million during the comparable period in 2018. For the six months ended June 30, 2019, compensation and benefits expense increased 2.8% to $925.0 million from $900.1 million during the comparable period in 2018.

Compensation and benefits expense as a percentage of net revenues was 58.3% and 58.9% for the three and six months ended June 30, 2019, respectively, compared to 59.5% and 60.3% for the three and six months ended June 30, 2018, respectively. The decrease in the compensation ratio is primarily attributable to growth of higher margin business.

Occupancy and equipment rental – For the three months ended June 30, 2019, occupancy and equipment rental expense increased 13.9% to $61.1 million from $53.6 million during the comparable period in 2018. For the six months ended June 30, 2019, occupancy and equipment rental expense increased 7.8% to $119.9 million from $111.2 million during the comparable period in 2018. The increase is primarily attributable to an increase in depreciation expense as a result of the expansion of our aircraft engine leasing business and an increase in locations.

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 June 30, 2019, communications and office

supplies expense decreased 4.3% to $35.1 million from $36.6 million during the comparable period in 2018. For the six months ended June 30, 2019, communications and office supplies expense increased 0.9% to $70.8 million from $70.1 million during the comparable period in 2018.

Commissions and floor brokerage – For the three months ended June 30, 2019, commissions and floor brokerage expense increased 9.0% to $11.0 million from $10.1 million during the comparable period in 2018. For the six months ended June 30, 2019, commissions and floor brokerage expense increased 12.9% to $22.0 million from $19.5 million during the comparable period in 2018. The increase is primarily attributable to an increase in institutional fixed income brokerage trading volumes.

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 June 30, 2019, other operating expenses decreased 3.8% to $78.8 million from $81.9 million during the comparable period in 2018. The decrease is primarily attributable to a decrease in provision for loan losses and taxes and licenses, partially offset by increases in litigation expense, insurance expense, travel costs, conference expenses, dues and assessments, and advertising.

For the six months ended June 30, 2019, other operating expenses decreased 4.2% to $147.8 million from $154.3 million during the comparable period in 2018. The decrease is primarily attributable to a decrease in settlement expenses, a decline in the provision for loan losses, lower taxes and licenses expense, and insurance expenses, partially offset by an increase in travel costs and dues and assessments.

Provision for income taxes – For the three and six months ended June 30, 2019, our provision for income taxes was $38.2 million and $76.6 million, representing an effective tax rate of 25.9% and 26.9%, respectively, compared to $31.1 million and $61.9 million for the comparable periods in 2018, representing an effective tax rate of 26.2% and 26.0%, respectively. The provision for income taxes for the six months ended June 30, 2019 was negatively impacted by certain non-deductible items.

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, Inc. 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 Federal Depository Insurance Corporation (“FDIC”)-insured deposit accounts to customers of our broker-dealer subsidiaries 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.

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 June 30, 2019 Compared with Three Months Ended June 30, 2018

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

	Three Months Ended June 30,							As a Percentage of Net Revenues For the Three Months Ended June 30,
	2019		2018		% Change			2019			2018
Revenues:
Commissions	$	120,284	$	118,129		1.8			22.6	%		23.8	%
Principal transactions		42,104		41,161		2.3			7.9			8.3
Brokerage revenues		162,388		159,290		1.9			30.5			32.1
Asset management and service fees		211,156		199,557		5.8			39.7			40.1
Investment banking		10,559		8,049		31.2			2.0			1.6
Interest		175,202		146,402		19.7			32.9			29.4
Other income		10,731		5,444		97.1			2.0			1.1
Total revenues		570,036		518,742		9.9			107.1			104.3
Interest expense		37,603		21,415		75.6			7.1			4.3
Net revenues		532,433		497,327		7.1			100.0			100.0
Non-interest expenses:
Compensation and benefits		262,321		237,879		10.3			49.3			47.8
Occupancy and equipment rental		31,801		25,701		23.7			6.0			5.2
Communication and office supplies		14,247		17,909		(20.4	)		2.7			3.6
Commissions and floor brokerage		5,249		4,250		23.5			1.0			0.9
Other operating expenses		26,463		23,693		11.7			4.9			4.7
Total non-interest expenses		340,081		309,432		9.9			63.9			62.2
Income before income taxes	$	192,352	$	187,895		2.4			36.1	%		37.8	%

	June 30,
	2019		2018
Branch offices		377		363
Financial advisors ⁽¹⁾		2,097		2,012
Independent contractors		96		106
Total financial advisors		2,193		2,118

⁽¹⁾	Reflects change in the definition of producing brokers as of January 1, 2019. Prior period amounts have been restated to conform with the current period presentation.

Six months Ended June 30, 2019 Compared with Six months Ended June 30, 2018

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

	Six Months Ended June 30,							As a Percentage of Net Revenues For the Six Months Ended June 30,
	2019		2018		% Change			2019			2018
Revenues:
Commissions	$	230,211	$	237,334		(3.0	)		22.1	%		24.1	%
Principal transactions		85,371		84,690		0.8			8.2			8.7
Brokerage revenues		315,582		322,024		(2.0	)		30.3			32.8
Asset management and service fees		406,409		395,346		2.8			39.0			40.2
Investment banking		18,782		15,737		19.3			1.8			1.6
Interest		354,784		279,119		27.1			34.0			28.4
Other income		19,376		6,353		205.0			1.8			0.6
Total revenues		1,114,933		1,018,579		9.5			106.9			103.6
Interest expense		71,890		35,677		101.5			6.9			3.6
Net revenues		1,043,043		982,902		6.1			100.0			100.0
Non-interest expenses:
Compensation and benefits		509,794		479,639		6.3			48.9			48.8
Occupancy and equipment rental		60,238		51,654		16.6			5.8			5.3
Communication and office supplies		28,740		31,722		(9.4	)		2.8			3.2
Commissions and floor brokerage		10,046		8,913		12.7			1.0			0.9
Other operating expenses		47,383		46,308		2.3			4.4			4.7
Total non-interest expenses		656,201		618,236		6.1			62.9			62.9
Income before income taxes	$	386,842	$	364,666		6.1			37.1	%		37.1	%

NET REVENUES

For the three months ended June 30, 2019, Global Wealth Management net revenues increased 7.1% to a record $532.4 million from $497.3 million for the comparable period in 2018. For the six months ended June 30, 2019, Global Wealth Management net revenues increased 6.1% to $1.0 billion from $982.9 million for the comparable period in 2018. The increase in net revenues over the comparable periods in 2018 is primarily attributable to an increase in net interest income, the growth in asset management and service fee, an increase in brokerage revenues and investment banking revenues. Net revenues for the six months ended June 30, 2019 have been negatively impacted by a decrease in commission revenues from the comparable period in 2018.

Commissions – For the three months ended June 30, 2019, commission revenues increased 1.8% to $120.3 million from $118.1 million in the comparable period in 2018. For the six months ended June 30, 2019, commission revenues decreased 3.0% to $230.2 million from $237.3 million in the comparable period in 2018.

Principal transactions – For the three months ended June 30, 2019, principal transactions revenues increased 2.3% to $42.1 million from $41.2 million in the comparable period in 2018. For the six months ended June 30, 2019, principal transactions revenues increased 0.8% to $85.4 million from $84.7 million in the comparable period in 2018.

Brokerage revenues - For the three months ended June 30, 2019, brokerage revenues increased 1.9% to $162.4 million from $159.3 million in the comparable period in 2018. For the six months ended June 30, 2019, brokerage revenues decreased 2.0% to $315.6 million from $322.0 million in the comparable period in 2018. Brokerage revenues were impacted by continued migration of client activity from brokerage to asset management activities.

Asset management and service fees – For the three months ended June 30, 2019, asset management and service fees increased 5.8% to $211.2 million from $199.6 million in the comparable period in 2018. For the six months ended June 30, 2019, asset management and service fees increased 2.8% to $406.4 million from $395.3 million in the comparable period in 2018. The increase is primarily a result of continued migration to fee-based accounts and our continued expansion in the asset management business.

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

	6/30/19		6/30/18		% Change		3/31/19		% Change
Client assets	$	305,233,000	$	277,708,000		9.9	$	299,993,000		1.7
Fee-based client assets	$	103,824,000	$	91,275,000		13.7	$	99,579,000		4.3
Number of client accounts		998,000		957,000		4.3		993,000		0.5
Number of fee-based client accounts		216,000		194,000		11.3		214,000		0.9

The increase in the value of our client assets and fee-based assets over the comparable period in 2018 was primarily attributable to the rise in the markets, as well as asset growth resulting from strong recruiting efforts. The growth of our client assets was impacted by an increase in cash outflows due to tax season.

Investment banking – Investment banking, which represents sales credits for investment banking underwritings, increased 31.2% to $10.6 million for the three months ended June 30, 2019 from $8.0 million during the comparable period in 2018. For the six months ended June 30, 2019, investment banking revenues increased 19.3% to $18.8 million from $15.7 million during the comparable period in 2018. See “Investment banking” in the Institutional Group segment discussion for information on the changes in net revenues.

Interest revenue – For the three months ended June 30, 2019, interest revenue increased 19.7% to $175.2 million from $146.4 million in the comparable period in 2018. For the six months ended June 30, 2019, interest revenue increased 27.1% to $354.8 million from $279.1 million during the comparable period in 2018. The increase is primarily due to a growth of interest-earning assets at Stifel Bancorp, and an increase in the weighted-average yield. See “Net Interest Income – Stifel Bancorp” below for a further discussion of the changes in net interest revenues.

Other income – For the three months ended June 30, 2019, other income increased 97.1% to $10.7 million from $5.4 million in the comparable period in 2018. For the six months ended June 30, 2019, other income increased 205.0% to $19.4 million from $6.4 million during the comparable period in 2018. The increase is primarily attributable to rental income generated from our aircraft engine leasing business.

Interest expense – For the three months ended June 30, 2019, interest expense increased 75.6% to $37.6 million from $21.4 million during the comparable period in 2018. For the six months ended June 30, 2019, interest expense increased 101.5% to $71.9 million from $35.7 million during the comparable period in 2018. The increase in interest expense is primarily attributable to an increase in interest-earning liabilities at Stifel Bancorp from the comparable periods in 2018.

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 June 30, 2019							Three Months Ended June 30, 2018
	Average Balance		Interest Income/ Expense		Average Interest Rate			Average Balance		Interest Income/ Expense		Average Interest Rate
Assets:
Interest-bearing cash and federal funds sold	$	330,647	$	1,777		2.15	%	$	35,431	$	174		1.96	%
State and municipal securities (tax-exempt) ⁽¹⁾		48,033		222		1.85			73,607		365		1.98
Mortgage-backed securities		1,470,928		8,574		2.33			1,684,695		9,039		2.15
Corporate fixed income securities		914,987		6,901		3.02			1,273,213		8,709		2.74
Asset-backed securities		4,508,379		46,019		4.08			4,692,665		45,422		3.87
Federal Home Loan Bank ("FHLB") and other capital stock		57,164		626		4.38			64,545		715		4.43
Loans ⁽²⁾
Securities-based loans		1,916,286		20,178		4.21			1,835,368		17,183		3.74
Commercial and industrial		3,337,438		41,302		4.95			2,641,214		28,757		4.36
Residential real estate		2,953,666		22,535		3.05			2,703,436		18,785		2.78
Commercial real estate		354,344		4,985		5.63			103,829		1,124		4.33
Home equity lines of credit		47,079		590		5.01			18,134		209		4.61
Construction and land		198,452		2,760		5.56			16,952		203		4.79
Other		132,360		1,737		5.25			24,573		261		4.25
Loans held for sale		178,574		1,794		4.02			189,627		1,867		3.94
Total interest-earning assets ⁽³⁾	$	16,448,337	$	160,000		3.89	%	$	15,357,289	$	132,813		3.46	%
Cash and due from banks		82,092							13,431
Other non interest-earning assets		431,538							142,116
Total assets	$	16,961,967						$	15,512,836
Liabilities and stockholder's equity:
Deposits:
Money market	$	12,227,563	$	15,385		0.50	%	$	12,508,628	$	11,429		0.37	%
Time deposits		1,462,430		8,884		2.43			541,329		2,780		2.05
Demand deposits		726,475		3,500		1.93			358,923		1,000		1.11
Savings		244,248		1,578		2.58			32,461		134		1.65
FHLB advances		550,181		2,911		2.12			844,643		3,095		1.47
Other borrowings		1,664		28		6.73			16,105		175		4.35
Total interest-bearing liabilities ⁽³⁾		15,212,561		32,286		0.85	%		14,302,089		18,613		0.52	%
Non-interest-bearing liabilities		115,681							37,405
Other non-interest bearing liabilities		299,069							64,788
Total liabilities		15,627,311							14,404,282
Stockholder's equity		1,334,656							1,108,554
Total liabilities and stockholder's equity	$	16,961,967						$	15,512,836
Net interest income/spread			$	127,714		3.04	%			$	114,200		2.94	%
Net interest margin						3.11	%						2.97	%

⁽¹⁾	Due to immaterial amount of income recognized on tax-exempt securities, yields were not calculated on a tax equivalent basis.

⁽²⁾	Loans on non-accrual status are included in average balances.

⁽³⁾	See Net Interest Income table included in “Results of Operations” for additional information on our company’s average balances and operating interest and expenses.

	Six Months Ended June 30, 2019							Six Months Ended June 30, 2018
	Average Balance		Interest Income/ Expense		Average Interest Rate			Average Balance		Interest Income/ Expense		Average Interest Rate
Assets:
Interest-bearing cash and federal funds sold	$	527,655	$	6,331		2.40	%	$	30,983	$	269		1.74	%
State and municipal securities (tax-exempt) ⁽¹⁾		49,085		521		2.12			73,843		617		1.67
Mortgage-backed securities		1,503,332		17,586		2.34			1,715,234		18,643		2.17
Corporate fixed income securities		934,635		14,075		3.01			1,283,360		16,831		2.62
Asset-backed securities		4,603,115		95,000		4.13			4,562,657		82,347		3.61
Federal Home Loan Bank ("FHLB") and other capital stock		54,725		1,730		6.32			66,316		1,269		3.83
Loans ⁽²⁾
Securities-based loans		1,858,207		39,284		4.23			1,816,068		32,492		3.58
Commercial and industrial		3,376,950		82,133		4.86			2,557,541		55,492		4.34
Residential real estate		2,936,996		45,013		3.07			2,670,591		37,057		2.78
Commercial real estate		345,489		9,694		5.61			104,153		2,112		4.06
Home equity lines of credit		44,395		1,111		5.01			15,699		353		4.50
Construction and land		175,471		4,883		5.57			14,767		324		4.39
Other		128,722		3,365		5.23			24,468		499		4.08
Loans held for sale		184,087		3,622		3.94			194,821		3,695		3.79
Total interest-earning assets ⁽³⁾	$	16,722,864	$	324,348		3.88	%	$	15,130,501	$	252,000		3.33	%
Cash and due from banks		46,271							12,614
Other non interest-earning assets		406,588							218,701
Total assets	$	17,175,723						$	15,361,816
Liabilities and stockholder's equity:
Deposits:
Money market	$	12,662,137	$	31,914		0.50	%	$	12,691,518	$	19,219		0.30	%
Time deposits		1,469,661		17,382		2.37			277,359		2,839		2.05
Demand deposits		664,632		5,908		1.78			299,381		1,195		0.80
Savings		173,339		2,209		2.55			28,990		220		1.52
FHLB advances		506,052		4,589		1.81			873,630		6,347		1.45
Other borrowings		1,707		68		7.97			16,079		353		4.39
Total interest-bearing liabilities ⁽³⁾		15,477,528		62,070		0.80	%		14,186,957		30,173		0.43	%
Non-interest-bearing liabilities		141,137							34,763
Other non-interest bearing liabilities		246,506							43,007
Total liabilities		15,865,171							14,264,727
Stockholder's equity		1,310,552							1,097,089
Total liabilities and stockholder's equity	$	17,175,723						$	15,361,816
Net interest income/spread			$	262,278		3.08	%			$	221,827		2.90	%
Net interest margin						3.14	%						2.93	%

⁽¹⁾	Due to immaterial amount of income recognized on tax-exempt securities, yields were not calculated on a tax equivalent basis.

⁽²⁾	Loans on non-accrual status are included in average balances.

⁽³⁾	See 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 and six month periods ended June 30, 2019 compared to the three and six month periods ended June 30, 2018 (in thousands):

	Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018									Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
	Increase/(decrease) due to:									Increase/(decrease) due to:
	Volume			Rate			Total			Volume			Rate		Total
Interest income:
Interest-bearing cash and federal funds sold	$	1,489		$	114		$	1,603		$	5,702		$	360	$	6,062
State and municipal securities (tax-exempt) ⁽¹⁾		(120	)		(23	)		(143	)		(458	)		362		(96	)
Mortgage-backed securities		(1,456	)		991			(465	)		(2,173	)		1,116		(1,057	)
Corporate fixed income securities		(2,847	)		1,039			(1,808	)		(10,331	)		7,575		(2,756	)
Asset-backed securities		(1,534	)		2,131			597			454			12,199		12,653
FHLB and other capital stock		(80	)		(9	)		(89	)		(104	)		565		461
Loans
Securities-based loans		782			2,213			2,995			597			6,195		6,792
Commercial and industrial		8,264			4,281			12,545			19,071			7,570		26,641
Residential real estate		1,823			1,927			3,750			3,859			4,097		7,956
Commercial real estate		3,435			426			3,861			6,272			1,310		7,582
Home equity lines of credit		361			20			381			701			57		758
Construction and land		2,519			38			2,557			4,382			177		4,559
Other		1,400			76			1,476			2,655			211		2,866
Loans held for sale		(114	)		41			(73	)		(492	)		419		(73	)
	$	13,922		$	13,265		$	27,187		$	30,135		$	42,213	$	72,348
Interest expense:
Deposits:
Money market	$	(251	)	$	4,207		$	3,956		$	(45	)	$	12,740	$	12,695
Time deposits		5,512			592			6,104			14,036			507		14,543
Demand deposits		1,460			1,040			2,500			2,349			2,364		4,713
Savings		1,329			115			1,444			1,750			239		1,989
FHLB advances		(4,917	)		4,733			(184	)		(4,287	)		2,529		(1,758	)
Other borrowings		(568	)		421			(147	)		(3,190	)		2,905		(285	)
	$	2,565		$	11,108		$	13,673		$	10,613		$	21,284	$	31,897

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.

For the three months ended June 30, 2019, interest revenue of $160.0 million was generated from average interest-earning assets of $16.4 billion at an average interest rate of 3.89%. Interest revenue of $132.8 million for the comparable period in 2018 was generated from average interest-earning assets of $15.4 billion at an average interest rate of 3.46%.

For the six months ended June 30, 2019, interest revenue of $324.3 million was generated from average interest-earning assets of $16.7 billion at an average interest rate of 3.88%. Interest revenue of $252.0 million for the comparable period in 2018 was generated from average interest-earning assets of $15.1 billion at an average interest rate of 3.33%.

Interest expense represents interest on customer money market accounts, interest on time deposits, Federal Home Loan Bank advances, and other interest expense. The average balance of interest-bearing liabilities during the three months ended June 30, 2019 was $15.2 billion at an average interest rate of 0.85%. The average balance of interest-bearing liabilities for the comparable period in 2018 was $14.3 billion at an average interest rate of 0.52%. The average balance of interest-bearing liabilities during the six months

ended June 30, 2019 was $15.5 billion at an average interest rate of 0.80%. The average balance of interest-bearing liabilities for the comparable period in 2018 was $14.2 billion at an average interest rate of 0.43%.

See “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 June 30, 2019, Global Wealth Management non-interest expenses increased 9.9% to $340.1 million from $309.4 million for the comparable period in 2018. For the six months ended June 30, 2019, Global Wealth Management non-interest expenses increased 6.1% to $656.2 million from $618.2 million for the comparable period in 2018.

Compensation and benefits – For the three months ended June 30, 2019, compensation and benefits expense increased 10.3% to $262.3 million from $237.9 million during the comparable period in 2018. For the six months ended June 30, 2019, compensation and benefits expense increased 6.3% to $509.8 million from $479.6 million during the comparable period in 2018. The increase is principally due to increased variable compensation. Compensation and benefits expense as a percentage of net revenues was 49.3% and 48.9% for the three and six months ended June 30, 2019, respectively, compared to 47.8% and 48.8% for the comparable periods in 2018, respectively.

Occupancy and equipment rental – For the three months ended June 30, 2019, occupancy and equipment rental expense increased 23.7% to $31.8 million from $25.7 million during the comparable period in 2018. For the six months ended June 30, 2019, occupancy and equipment rental expense increased 16.6% to $60.2 million from $51.7 million during the comparable period in 2018. The increase is primarily attributable an increase in locations over the comparable period in 2018.

Communications and office supplies – For the three months ended June 30, 2019, communications and office supplies expense decreased 20.4% to $14.2 million from $17.9 million during the comparable period in 2018. For the six months ended June 30, 2019, communications and office supplies expense decreased 9.4% to $28.7 million from $31.7 million during the comparable period in 2018.

Commissions and floor brokerage – For the three months ended June 30, 2019, commissions and floor brokerage expense increased 23.5% to $5.2 million from $4.3 million during the comparable period in 2018. For the six months ended June 30, 2019, commissions and floor brokerage expense increased 12.7% to $10.0 million from $8.9 million during the comparable period in 2018. The increase is primarily attributable to higher trading and clearing expenses.

Other operating expenses – For the three months ended June 30, 2019, other operating expenses increased 11.7% to $26.5 million from $23.7 million during the comparable period in 2018. For the six months ended June 30, 2019, other operating expenses increased 2.3% to $47.4 million from $46.3 million during the comparable period in 2018. The increase in other operating expenses from the comparable periods in 2018 is primarily attributable to an increase in advertising and travel expenses, partially offset by a decrease in provision for loan losses and insurance expense.

INCOME BEFORE INCOME TAXES

For the three months ended June 30, 2019, income before income taxes increased 2.4% to $192.4 million from $187.9 million during the comparable period in 2018. For the six months ended June 30, 2019, income before income taxes increased 6.1% to $386.8 million from $364.7 million during the comparable period in 2018.

For the three months ended June 30, 2019, profit margins (income before income taxes as a percent of net revenues) have decreased to 36.1% from 37.8% during the comparable period in 2018. For the six months ended June 30, 2019, profit margins stayed consistent at 37.1% with the comparable period in 2018.

Results of Operations – Institutional Group

Three Months Ended June 30, 2019 Compared with Three Months Ended June 30, 2018

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

	Three Months Ended June 30,							As a Percentage of Net Revenues For the Three Months Ended June 30,
	2019		2018		% Change			2019			2018
Revenues:
Commissions	$	44,697	$	48,773		(8.4	)		16.5	%		19.3	%
Principal transactions		54,360		47,823		13.7			20.1			18.9
Brokerage revenues		99,057		96,596		2.5			36.6			38.2
Advisory fees		82,905		86,922		(4.6	)		30.6			34.4
Capital raising		86,153		66,112		30.3			31.8			26.1
Investment banking		169,058		153,034		10.5			62.5			60.5
Interest		6,360		4,438		43.3			2.4			1.8
Other income		2,726		3,431		(20.5	)		1.0			1.3
Total revenues		277,201		257,499		7.7			102.4			101.8
Interest expense		6,599		4,674		41.2			2.4			1.8
Net revenues		270,602		252,825		7.0			100.0			100.0
Non-interest expenses:
Compensation and benefits		155,779		149,984		3.9			57.6			59.3
Occupancy and equipment rental		13,494		12,279		9.9			5.0			4.9
Communication and office supplies		16,935		18,911		(10.4	)		6.3			7.5
Commissions and floor brokerage		5,758		5,845		(1.5	)		2.1			2.3
Other operating expenses		39,334		29,782		32.1			14.5			11.8
Total non-interest expenses		231,300		216,801		6.7			85.5			85.8
Income before income taxes	$	39,302	$	36,024		9.1			14.5	%		14.2	%

Six months Ended June 30, 2019 Compared with Six months Ended June 30, 2018

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

	Six Months Ended June 30,							As a Percentage of Net Revenues For the Six Months Ended June 30,
	2019		2018		% Change			2019			2018
Revenues:
Commissions	$	90,219	$	95,343		(5.4	)		17.0	%		18.2	%
Principal transactions		115,125		102,076		12.8			21.6			19.5
Brokerage revenues		205,344		197,419		4.0			38.6			37.8
Advisory fees		187,800		184,595		1.7			35.3			35.3
Capital raising		134,875		137,113		(1.6	)		25.4			26.2
Investment banking		322,675		321,708		0.3			60.7			61.5
Interest		12,233		8,697		40.7			2.3			1.7
Other income		4,295		4,106		4.6			0.8			0.8
Total revenues		544,547		531,930		2.4			102.4			101.7
Interest expense		12,659		9,027		40.2			2.4			1.7
Net revenues		531,888		522,903		1.7			100.0			100.0
Non-interest expenses:
Compensation and benefits		315,190		309,328		1.9			59.3			59.2
Occupancy and equipment rental		25,860		23,506		10.0			4.9			4.5
Communication and office supplies		34,749		35,503		(2.1	)		6.5			6.8
Commissions and floor brokerage		11,917		10,548		13.0			2.2			2.0
Other operating expenses		72,666		63,424		14.6			13.7			12.1
Total non-interest expenses		460,382		442,309		4.1			86.6			84.6
Income before income taxes	$	71,506	$	80,594		(11.3	)		13.4	%		15.4	%

NET REVENUES

For the three months ended June 30, 2019, Institutional Group net revenues increased 7.0% to $270.6 million from $252.8 million for the comparable period in 2018. For the six months ended June 30, 2019, Institutional Group net revenues increased 1.7% to $531.9 million from $522.9 million during the comparable period in 2018.

The increase in net revenues from the second quarter in 2018 was primarily attributable to an increase in capital raising revenues and fixed income institutional brokerage revenues, partially offset by a decrease in equity brokerage revenues and advisory fees.

The increase in net revenues for the six months ended June 30, 2019 over the comparable period in 2018 was primarily attributable to an increase in fixed income institutional brokerage revenues, partially offset by a decrease in equity brokerage revenues and capital raising revenues.

Commissions – For the three months ended June 30, 2019, commission revenues decreased 8.4% to $44.7 million from $48.8 million in the comparable period in 2018. For the six months ended June 30, 2019, commission revenues decreased 5.4% to $90.2 million from $95.3 million in the comparable period in 2018.

Principal transactions – For the three months ended June 30, 2019, principal transactions revenues increased 13.7% to $54.4 million from $47.8 million in the comparable period in 2018. For the six months ended June 30, 2019, principal transaction revenues increased 12.8% to $115.1 million from $102.1 million in the comparable period in 2018.

Brokerage revenues – For the three months ended June 30, 2019, institutional brokerage revenues increased 2.5% to $99.1 million from $96.6 million in the comparable period in 2018. For the six months ended June 30, 2019, institutional brokerage revenues increased 4.0% to $205.3 million from $197.4 million in the comparable period in 2018. Brokerage revenues were favorably impacted by higher market volatility and trading volumes and negatively impacted by the continued migration from active to passive management strategies.

For the three months ended June 30, 2019, fixed income institutional brokerage revenues increased 13.7% to $58.4 million from $51.3 million in the comparable period in 2018. For the six months ended June 30, 2019, fixed income brokerage revenues increased 20.9% to $125.8 million from $104.1 million in the comparable period in 2018. The increase is primarily attributable to higher fixed income

trading volumes, and to a lesser extent, from the contribution of our acquisition of First Empire, which closed during the first quarter of 2019.

For the three months ended June 30, 2019, equity institutional brokerage revenues decreased 10.2% to $40.7 million from $45.3 million during the comparable period in 2018. For the six months ended June 30, 2019, equity brokerage revenues decreased 14.8% to $79.6 million from $93.4 million during the comparable period in 2018. The decrease is primarily attributable to reduced market volatility and continued migration from active to passive management strategies.

Investment banking – For the three months ended June 30, 2019, investment banking revenues increased 10.5% to $169.1 million from $153.0 million during the comparable period in 2018. The increase is primarily attributable to an increase in equity and fixed income capital raising revenues, partially offset by a decrease in advisory fee revenues. For the six months ended June 30, 2019, investment banking revenues increased 0.3% to $322.7 million from $321.7 million during the comparable period in 2018.

For the three months ended June 30, 2019, advisory fee revenues decreased 4.6% to $82.9 million from $86.9 million in the comparable period in 2018. The decrease is primarily attributable to a decline in the number of advisory transactions from the comparable period in 2018, partially offset by the growth in our fund placement business.

For the six months ended June 30, 2019, advisory fees increased 1.7% to $187.8 million from $184.6 million in the comparable period in 2018. The increase is primarily attributable to an increase in the number of advisory transactions over the comparable period in 2018, including growth in our fund placement business.

For the three months ended June 30, 2019, capital raising revenues increased 30.3% to $86.2 million from $66.1 million in the comparable period in 2018. For the six months ended June 30, 2019, capital raising revenues decreased 1.6% to $134.9 million from $137.1 million in the comparable period in 2018.

For the three months ended June 30, 2019, equity capital raising revenues increased 34.2% to $59.2 million from $44.1 million during the comparable period in 2018. For the six months ended June 30, 2019, equity capital raising revenues decreased 10.1% to $87.0 million from $96.8 million during the comparable period in 2018.

For the three months ended June 30, 2019, fixed income capital raising revenues increased 22.6% to $27.0 million from $22.0 million during the comparable period in 2018. For the six months ended June 30, 2019, fixed income capital raising revenues increased 18.7% to $47.9 million from $40.3 million during the comparable period in 2018. The increase is primarily attributable to an increase in the municipal bond origination business.

Interest – For the three months ended June 30, 2019, interest increased 43.3% to $6.4 million from $4.4 million in the comparable period in 2018. For the six months ended June 30, 2019, interest increased 40.7% to $12.2 million from $8.7 million during the comparable period in 2018. The increase is primarily attributable to an increase in inventory levels.

Other income – For the three months ended June 30, 2019, other income decreased 20.5% to $2.7 million from $3.4 million in the comparable period in 2018. For the six months ended June 30, 2019, other income increased 4.6% to $4.3 million from $4.1 million during the comparable period in 2018.

Interest expense – For the three months ended June 30, 2019, interest expense increased 41.2% to $6.6 million from $4.7 million in the comparable period in 2018. For the six months ended June 30, 2019, interest expense increased 40.2% to $12.7 million from $9.0 million in the comparable period in 2018. The increase is primarily attributable to an increase in inventory levels.

NON-INTEREST EXPENSES

For the three months ended June 30, 2019, Institutional Group non-interest expenses increased 6.7% to $231.3 million from $216.8 million for the comparable period in 2018. For the six months ended June 30, 2019, Institutional Group non-interest expenses increased 4.1% to $460.4 million from $442.3 million during the comparable period in 2018.

Compensation and benefits – For the three months ended June 30, 2019, compensation and benefits expense increased 3.9% to $155.8 million from $150.0 million during the comparable period in 2018. For the six months ended June 30, 2019, compensation and benefits expense increased 1.9% to $315.2 million from $309.3 million during the comparable period in 2018.

Compensation and benefits expense as a percentage of net revenues was 57.6% and 59.3% for the three and six months ended June 30, 2019, respectively, compared to 59.3% and 59.2% for comparable periods in 2018, respectively.

Occupancy and equipment rental – For the three months ended June 30, 2019, occupancy and equipment rental expense increased 9.9% to $13.5 million from $12.3 million during the comparable period in 2018. For the six months ended June 30, 2019, occupancy and equipment rental expense increased 10.0% to $25.9 million from $23.5 million during the comparable period in 2018. The increase is primarily attributable to higher rent expense.

Communications and office supplies – For the three months ended June 30, 2019, communications and office supplies expense decreased 10.4% to $16.9 million from $18.9 million during the comparable period in 2018. For the six months ended June 30, 2019, communications and office supplies expense decreased 2.1% to $34.7 million from $35.5 million during the comparable period in 2018.

Commissions and floor brokerage – For the three months ended June 30, 2019, commissions and floor brokerage expense of $5.8 million was consistent with the comparable period in 2018. For the six months ended June 30, 2019, commissions and floor brokerage expense increased 13.0% to $11.9 million from $10.5 million during the comparable period in 2018.The increase is primarily attributable to increased fixed income brokerage volumes.

Other operating expenses – For the three months ended June 30, 2019, other operating expenses increased 32.1% to $39.3 million from $29.8 million during the comparable period in 2018. For the six months ended June 30, 2019, other operating expenses increased 14.6% to $72.7 million from $63.4 million during the comparable period in 2018. The increase is primarily attributable to an increase in professional fees, travel costs, legal expenses, and dues and assessments, partially offset by a decline in insurance expense.

INCOME BEFORE INCOME TAXES

For the three months ended June 30, 2019, income before income taxes for the Institutional Group segment increased 9.1% to $39.3 million from $36.0 million during the comparable period in 2018. For the six months ended June 30, 2019, income before income taxes for the Institutional Group segment decreased 11.3% to $71.5 million from $80.6 million during the comparable period in 2018.

Profit margins (income before income taxes as a percentage of net revenues) have increased to 14.5% for the three months ended June 30, 2019 from 14.2% during the comparable period in 2018 as a result of higher revenues.

Profit margins (income before income taxes as a percentage of net revenues) have decreased to 13.4% for six months ended June 30, 2019 from 15.4% during the comparable period in 2018 as a result of an increase in expenses, partially offset by higher revenues.

Results of Operations – Other Segment

Three and Six months Ended June 30, 2019 Compared with Three and Six months Ended June 30, 2018

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

	Three Months Ended June 30,									Six Months Ended June 30,
	2019			2018			% Change			2019			2018			% Change
Net revenues	$	(2,248	)	$	(7,420	)		69.7		$	(3,724	)	$	(12,715	)		70.7
Non-interest expenses:
Compensation and benefits		48,760			54,307			(10.2	)		99,991			111,096			(10.0	)
Other operating expenses		32,664			43,845			(25.5	)		68,842			83,548			(17.6	)
Total non-interest expenses		81,424			98,152			(17.0	)		168,833			194,644			(13.3	)
Loss before income taxes	$	(83,672	)	$	(105,572	)		(20.7	)%	$	(172,557	)	$	(207,359	)		(16.8	)%

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, which are included in the other segment, consists of stock-based compensation and operating costs from our various acquisitions. The following shows the expenses that are part of the other segment related to acquisitions.

	Three Months Ended June 30,							Six Months Ended June 30,
	2019		2018		% Change			2019		2018		% Change
Non-interest expenses:
Compensation and benefits	$	3,304	$	4,075		(18.9	)	$	7,236	$	7,814		(7.4	)
Other operating expenses		6,924		14,892		(53.5	)		11,182		20,915		(46.5	)
Total non-interest expenses	$	10,228	$	18,967		(46.1	)%	$	18,418	$	28,729		(35.9	)%

The expenses not associated with acquisition-related activities in the other segment are as follows:

	Three Months Ended June 30,							Six Months Ended June 30,
	2019		2018		% Change			2019		2018		% Change
Non-interest expenses:
Compensation and benefits	$	45,456	$	50,232		(9.5	)	$	92,755	$	103,282		(10.2	)
Other operating expenses		25,740		28,953		(11.1	)		57,660		62,633		(7.9	)
Total non-interest expenses	$	71,196	$	79,185		(10.1	)%	$	150,415	$	165,915		(9.3	)%

Non-interest expenses for the three months ended June 30, 2019 decreased 10.1% from the comparable period in 2018. The decrease consisted of a 9.5% decrease in compensation and benefits and an 11.1% decrease in other operating expenses. Non-interest expenses for the six months ended June 30, 2019 decreased 9.3% from the comparable period in 2018. The decrease consisted of a 10.2% decrease in compensation and benefits and a 7.9% decrease in other operating expenses.

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. As of June 30, 2019, our total assets decreased 0.7% to $24.3 billion from $24.5 billion at December 31, 2018. 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 June 30, 2019, our liabilities were comprised primarily of deposits of $14.9 billion at Stifel Bancorp, senior notes, net of debt issuance costs, of $1.0 billion, Federal Home Loan Bank advances of $250.0 million, payables to customers of $788.4 million at our broker-dealer subsidiaries, accounts payable and accrued expenses of $1.0 billion, accrued employee compensation of $267.2 million, borrowings of $117.8 million, and trust preferred securities of $60.0 million. To meet our obligations to clients and operating needs, we had $797.4 million in cash and cash equivalents at June 30, 2019. We also had highly liquid assets consisting of held-to-maturity securities of $4.0 billion, available-for-sale securities of $2.7 billion, client brokerage receivables of $1.3 billion, and financial instruments of $1.4 billion.

Cash Flow

Cash, cash equivalents, and restricted cash decreased $1.1 billion to $797.4 million at June 30, 2019, from $1.9 billion at December 31, 2018. Operating activities used $310.4 million of cash primarily due to an increase in operating assets and a decrease in operating liabilities during the six months ended June 30, 2019. Investing activities provided cash of $82.9 million due to proceeds from the sale and maturity of securities in our investment portfolio and the sale of investments, partially offset by the growth of the loan portfolio, fixed asset purchases, and business acquisitions. Financing activities used cash of $1.0 billion principally due to a decrease in bank deposits, repayments of FHLB advances, share repurchases, repayments of short-term borrowings, and dividends paid on our common and preferred stock, partially offset by proceeds received from the issuance of preferred stock and an increase in securities sold under agreements to repurchase and securities loaned.

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, proceeds from securities lending, and other payables. We currently finance our client accounts and firm trading positions through ordinary course borrowings at floating interest rates from various banks on a demand basis, securities lending, and repurchase agreements, with company-owned and client securities pledged as collateral. Changes in securities market volumes, related client borrowing demands, underwriting activity, and levels of securities inventory affect the amount of our financing requirements.

Our bank assets consist principally of available-for-sale and held-to-maturity securities, retained loans, and cash and cash equivalents. Stifel Bancorp’s current liquidity needs are generally met through deposits from brokerage clients and equity capital. We monitor the liquidity of our bank subsidiaries daily to ensure its ability to meet customer deposit withdrawals, maintain reserve requirements, and support asset growth.

As of June 30, 2019, we had $24.3 billion in assets, $10.2 billion of which consisted of cash or assets readily convertible into cash as follows (in thousands, except average days to conversion):

	June 30, 2019		December 31, 2018		Average Conversion
Cash and cash equivalents	$	797,357	$	1,936,560
Receivables from brokers, dealers, and clearing organizations		766,344		515,574	5 days
Securities purchased under agreements to resell		596,572		699,900	1 day
Financial instruments owned at fair value		1,352,184		1,267,273	3 days
Available-for-sale securities at fair value		2,703,060		3,070,447	4 days
Held-to-maturity securities at amortized cost		3,960,714		4,218,854	3 days
Investments		57,704		50,382	10 days
Total cash and assets readily convertible to cash	$	10,233,935	$	11,758,990

As of June 30, 2019 and December 31, 2018, the amount of collateral by asset class is as follows (in thousands):

	June 30, 2019				December 31, 2018
	Contractual		Contingent		Contractual		Contingent
Cash and cash equivalents	$	123,740	$	—	$	71,784	$	—
Financial instruments owned at fair value		762,282		764,518		535,394		600,636
Investment portfolio (AFS & HTM)		—		2,579,436		—		3,536,719
	$	886,022	$	3,343,954	$	607,178	$	4,137,355

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, 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 (Firm-wide) –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, liquidity position, profitability, and solvency. 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

•

Additional collateral that would be required due to collateral substitution, collateral disputes, and uncalled collateral

•

Drawdowns on unfunded commitments provided to third parties

•

Client cash withdrawals and reduction in customer short positions that fund long positions

•

Return of securities borrowed on an uncollateralized basis

•

Maturity roll-off of outstanding letters of credit with no further issuance

At June 30, 2019, 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 June 30, 2019, available cash and highly liquid investments comprised approximately 17% 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 banking 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 $797.4 million of cash and cash equivalents at June 30, 2019, compared to $1.9 billion at December 31, 2018. Cash and cash equivalents provide immediate sources of funds to meet our liquidity needs.

Securities Available-for-Sale – We held $2.7 billion in available-for-sale investment securities at June 30, 2019, compared to $3.1 billion at December 31, 2018. As of June 30, 2019, the weighted-average life of the investment securities portfolio was approximately 1.4 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 one of our largest funding sources. Deposits provide a stable, low-cost source of funds that we utilize to fund loan and 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 June 30, 2019, we had $14.9 billion in deposits compared to $15.9 billion at December 31, 2018. Our core deposits are comprised of non-interest-bearing deposits, money market deposit accounts, savings accounts, and CDs.

Short-term borrowings – Our short-term financing is generally obtained through short-term bank line financing on an uncommitted, secured basis, securities lending arrangements, repurchase agreements, advances from 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 unsecured, committed bank lines available.

The Federal Home Loan advances of $250.0 million as of June 30, 2019 are floating-rate advances. The weighted average interest rates during the three and six months ended June 30, 2019 on these advances is 2.12% and 1.81%, respectively. 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.

Unsecured short-term borrowings – On March 5, 2019, we amended our existing Credit Agreement, which now expires in March 2024. The applicable interest rate under the revolving credit facility is calculated as a per annum rate equal to LIBOR plus 1.75%, as defined.

We can draw upon this line as long as certain restrictive covenants are maintained. Under our amended and restatement Credit Agreement, 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 June 30, 2019, we had no advances on the $200.0 million revolving credit facility and were in compliance with all covenants.

Federal Home Loan Bank Advances and other secured financing – Stifel Bancorp has borrowing capacity with the Federal Home Loan Bank of $3.4 billion at June 30, 2019 and $59.5 million in federal funds agreements, for the purpose of purchasing short-term funds should additional liquidity be needed. At June 30, 2019, outstanding FHLB advances were $250.0 million. 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 June 30, 2019. Stifel Bancorp receives overnight funds from excess cash held in Stifel brokerage accounts, which are deposited into a money market account. These balances totaled $13.5 billion at June 30, 2019.

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 4.250% 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 2014, we received a BBB- rating on the 2014 Notes.

On December 1, 2015, we sold in a registered underwritten public offering, $300.0 million in aggregate principal amount of 3.50% senior notes due December 2020 (the “December 2015 Notes”). Interest on the December 2015 Notes is payable semi-annually in arrears. We may redeem the December 2015 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 December 2015, we received a BBB- rating on the 2015 Notes.

On July 11, 2016, the Company completed the pricing of an additional $200.0 million in aggregate principal amount of the Company’s 2014 Notes. The 2014 Notes mature in July 2024 and bear interest at 4.250%, payable semi-annually in arrears in January and July.

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 on January 15, April 15, July 15, and October 15. 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 2017 Notes.

Preferred Stock Offerings – In July 2016, the Company completed an underwritten registered public offering of $150 million 6.25% Non-Cumulative Perpetual Preferred Stock, Series A.

In February 2019, the Company completed an underwritten registered public offering of $150 million 6.25% Non-Cumulative Perpetual Preferred Stock, Series B (“Series B Preferred”). In March 2019, we completed a public offering of an additional $10.0 million of Series B Preferred, pursuant to the over-allotment option. The net proceeds from the Series B Preferred offering of $155.0 million will be used for general corporate purposes.

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, most 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 $107.9 million in the form of upfront notes to financial advisors for transition pay during the six months ended June 30, 2019. As we continue to take advantage of the opportunities created by market displacement and as competition for skilled professionals in the industry increases, we may decide to devote more significant resources to attracting and retaining qualified personnel.

We utilize transition pay, principally in the form of upfront demand notes, to aid financial advisors, who have elected to join our firm, to supplement their lost compensation while transitioning their customers’ accounts to the Stifel platform. The initial value of the notes is determined primarily by the financial advisors’ trailing production and assets under management. These notes are generally forgiven over a five- to ten-year period based on production. The future estimated amortization expense of the upfront notes, assuming current-year production levels and static growth for the remaining six months in 2019, and the years ended December 31, 2020, 2021, 2022, 2023, and thereafter are $63.4 million, $80.8 million, $70.8 million, $62.3 million, $53.4 million, and $140.2 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 employees. Historically, we have granted stock units to our employees as part of our retention program. A restricted stock unit or restricted stock award represents the right to receive a share of common stock from our company at a designated time in the future without cash payment by the employee 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. At June 30, 2019, the total number of restricted stock units, PRSUs. and restricted stock awards outstanding was 15.6 million, of which 13.5 million were unvested. At June 30, 2019, there was unrecognized compensation cost for deferred awards of approximately $467.4 million, which is expected to be recognized over a weighted-average period of 2.8 years.

The future estimated compensation expense of the deferred awards, assuming current year forfeiture levels and static growth for the remaining six months in 2019, and the years ended December 31, 2020, 2021, 2022, 2023, and thereafter are $62.7 million, $115.1 million, $98.6 million, $85.1 million, $55.0 million, and $50.9 million, respectively. These estimates could change if our forfeitures change from historical levels.

Net Capital Requirements – We operate in a highly regulated environment and are subject to capital requirements, which may limit distributions to our company from our subsidiaries. Distributions from our broker-dealer subsidiaries are subject to net capital rules. These subsidiaries have historically operated in excess of minimum net capital requirements. However, if distributions were to be limited in the future due to the failure of our subsidiaries to comply with the net capital rules or a change in the net capital rules, it could have a material and adverse effect to our company by limiting our operations that require intensive use of capital, such as underwriting or trading activities, or limit our ability to implement our business and growth strategies, pay interest on and repay the principal of our debt, and/or repurchase our common stock. Our non-broker-dealer subsidiaries, Stifel Bank & Trust, Stifel Bank, Stifel Trust Company, N.A., 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.

At June 30, 2019, Stifel had net capital of $347.2 million, which was 20.2% of aggregate debit items and $312.9 million in excess of its minimum required net capital. At June 30, 2019, all of our other broker-dealer subsidiaries’ net capital exceeded the minimum net capital required under the SEC rule. At June 30, 2019, our international subsidiary’s capital and reserves were in excess of the financial resources requirement under the rules of the FCA. At June 30, 2019, our bank subsidiaries were considered well capitalized under the regulatory framework for prompt corrective action. 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 a full description of these and other accounting policies, see Note 2 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018, as well as Note 2 of the Notes to Consolidated Financial Statements in this Form 10-Q.

Valuation of Financial Instruments

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

Trading securities owned and pledged and trading securities sold, but not yet purchased, are carried at fair value on the consolidated statements of financial condition, with unrealized gains and losses reflected on the consolidated statements of operations.

The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or an exit price. The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment used in measuring fair value. Conversely, financial instruments rarely traded or not quoted have less pricing observability and are measured at fair value using valuation models that require more judgment. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, and overall market conditions generally.

When available, we use observable market prices, observable market parameters, or broker or dealer quotes (bid and ask prices) to derive the fair value of financial instruments. In the case of financial instruments transacted on recognized exchanges, the observable market prices represent quotations for completed transactions from the exchange on which the financial instrument is principally traded.

A substantial percentage of the fair value of our trading securities and other investments owned, trading securities pledged as collateral, and trading securities sold, but not yet purchased, are based on observable market prices, observable market parameters, or derived from broker or dealer prices. The availability of observable market prices and pricing parameters can vary from product to product. Where available, observable market prices and pricing or market parameters in a product may be used to derive a price without requiring significant judgment. In certain markets, observable market prices or market parameters are not available for all products, and fair value is determined using techniques appropriate for each particular product. These techniques involve some degree of judgment.

For investments in illiquid or privately held securities that do not have readily determinable fair values, the determination of fair value requires us to estimate the value of the securities using the best information available. Among the factors we consider in determining the fair value of investments are the cost of the investment, terms and liquidity, developments since the acquisition of the investment, the sales price of recently issued securities, the financial condition and operating results of the issuer, earnings trends and consistency of operating cash flows, the long-term business potential of the issuer, the quoted market price of securities with similar quality and yield that are publicly traded, and other factors generally pertinent to the valuation of investments. In instances where a security is subject to transfer restrictions, the value of the security is based primarily on the quoted price of a similar security without restriction but may be reduced by an amount estimated to reflect such restrictions. The fair value of these investments is subject to a high degree of volatility and may be susceptible to significant fluctuation in the near term, and the differences could be material.

We have categorized our financial instruments measured at fair value into a three-level classification in accordance with Topic 820, “Fair Value Measurement and Disclosures.” Fair value measurements of financial instruments that use quoted prices in active markets for identical assets or liabilities are generally categorized as Level 1, and fair value measurements of financial instruments that have no direct observable levels are generally categorized as Level 3. All other fair value measurements of financial instruments that do not fall within the Level 1 or Level 3 classification are considered Level 2. The lowest level input that is significant to the fair value measurement of a financial instrument is used to categorize the instrument and reflects the judgment of management.

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. We have identified Level 3 financial instruments to include certain asset-backed securities, consisting of collateral loan obligation securities, that have experienced low volumes of executed transactions, certain corporate bonds and equity securities where there was less frequent or nominal market activity and auction rate securities for which the market has been dislocated and largely ceased to function. Our Level 3 asset-backed securities are valued using cash flow models that utilize unobservable inputs. Level 3 corporate bonds are valued using prices from comparable securities. Equity securities with unobservable inputs are valued using management’s best estimate of fair value, where the inputs require significant management judgment. Auction rate securities are valued based upon our expectations of issuer redemptions and using internal models.

Contingencies

We are involved in various pending and potential legal proceedings related to our business, including litigation, arbitration, and regulatory proceedings. Some of these matters involve claims for substantial amounts, including claims for punitive damages. We have, after consultation with outside legal counsel and consideration of facts currently known by management, recorded estimated losses in accordance with Topic 450 (“Topic 450”), “Contingencies,” to the extent that claims are probable of loss and the amount of the loss can be reasonably estimated. The determination of these reserve amounts requires us to use significant judgment, and our final liabilities may ultimately be materially different. This determination is inherently subjective, as it requires estimates that are subject to potentially significant revision as more information becomes available and due to subsequent events. In making these determinations, we consider many factors, including, but not limited to, the loss and damages sought by the plaintiff or claimant, the basis and validity of the claim, the likelihood of a successful defense against the claim, and the potential for, and magnitude of, damages or settlements from such pending and potential litigation and arbitration proceedings, and fines and penalties or orders from regulatory agencies. See Item I, “Legal Proceedings,” in Part II of this report for information on our legal, regulatory, and arbitration proceedings.

Allowance for Loan Losses

We regularly review the loan portfolio and have established an allowance for loan losses for inherent losses estimated to have occurred in the loan portfolio through a provision for loan losses charged to income. In providing for the allowance for loan losses, we consider historical loss experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the scheduled payments of principal or interest when due, according to the contractual terms of the loan agreement, will not be collectible. Factors considered in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Once a loan is determined to be impaired, when principal or interest becomes 90 days past due or when collection becomes uncertain, the accrual of interest and amortization of deferred loan origination fees is discontinued (“non-accrual status”), and any accrued and unpaid interest income is reversed. Loans placed on non-accrual status are returned to accrual status when all delinquent principal and interest payments are collected and the collectability of future principal and interest payments is reasonably assured. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is certain. Subsequent recoveries, if any, are credited to the allowance for loan loss.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential loans for impairment measurements. Impairment is measured on a loan-by-loan basis for non-homogeneous loans, and a specific allowance is established for individual loans determined to be impaired. Impairment is measured by comparing the carrying value of the impaired loan to the present value of its expected cash flow discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

Derivative Instruments and Hedging Activities

Our derivative instruments are carried on the consolidated statement of financial condition at fair value. We utilize these derivative instruments to minimize significant unplanned fluctuations in earnings caused by interest rate volatility. Our company’s goal is to manage sensitivity to changes in rates by offsetting the repricing or maturity characteristics of certain assets and liabilities, thereby limiting the impact on earnings. The use of derivative instruments does expose our company to credit and market risk. We manage credit risk through strict counterparty credit risk limits and/or collateralization agreements. At inception, we determine if a derivative instrument meets the criteria for hedge accounting under Topic 815, “Derivatives and Hedging.” Ongoing effectiveness evaluations are made for instruments that are designated and qualify as hedges. If the derivative does not qualify for hedge accounting, no assessment of effectiveness is needed.

Income Taxes

The provision for income taxes and related tax reserves is based on our consideration of known liabilities and tax contingencies for multiple taxing authorities. Known liabilities are amounts that will appear on current tax returns, amounts that have been agreed to in revenue agent revisions as the result of examinations by the taxing authorities, and amounts that will follow from such examinations but affect years other than those being examined. Tax contingencies are liabilities that might arise from a successful challenge by the taxing authorities taking a contrary position or interpretation regarding the application of tax law to our tax return filings. Factors considered in estimating our liability are results of tax audits, historical experience, and consultation with tax attorneys and other experts.

Topic 740 (“Topic 740”), “Income Taxes,” clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribed recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, Topic 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

Goodwill and Intangible Assets

Under the provisions of Topic 805, “Business Combinations,” we record all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangible assets, at fair value. Determining the fair value of assets and liabilities requires certain estimates.

Goodwill for certain acquisitions is deductible for tax purposes. The amortization of goodwill for tax purposes creates a cash tax savings due to a reduction in the current taxes payable. We have recorded cash tax savings for the six months ending June 30, 2019 of $3.4 million, and anticipate cumulative future cash savings of $54.2 million as of result of the tax amortization of goodwill.

In accordance with Topic 350, “Intangibles – Goodwill and Other,” indefinite-life intangible assets and goodwill are not amortized. Rather, they are subject to impairment testing on an annual basis, or more often if events or circumstances indicate there may be impairment. This test involves assigning tangible assets and liabilities as well as identified intangible assets and goodwill to reporting units and comparing the fair value of each reporting unit to its carrying amount. If the fair value is less than the carrying amount, a further test is required to measure the amount of the impairment. We have elected to test for goodwill impairment in the third quarter of each calendar year.

We test goodwill for impairment on an annual basis and on an interim basis when certain events or circumstances exist. We test for impairment at the reporting unit level, which is generally at the level of or one level below our company’s business segments. For both the annual and interim tests, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing the two-step impairment test is not required. However, if we conclude otherwise, we are then required to perform the first step of the two-step impairment test. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not deemed to be impaired. If the estimated fair value is below carrying value, however, further analysis is required to determine the amount of the impairment. Additionally, if the carrying value of a reporting unit is zero or a negative value and it is determined that it is more likely than not the goodwill is impaired, further analysis is required. The estimated fair values of the reporting units are derived based on valuation techniques we believe market participants would use for each of the reporting units. Our annual goodwill impairment testing was completed as of October 1, 2018, with no impairment identified.

The goodwill impairment test requires us to make judgments in determining what assumptions to use in the calculation. Assumptions, judgments, and estimates about future cash flows and discount rates are complex and often subjective. They can be affected by a variety of factors, including, among others, economic trends and market conditions, changes in revenue growth trends or business strategies, unanticipated competition, discount rates, technology, or government regulations. In assessing the fair value of our reporting units, the volatile nature of the securities markets and industry requires us to consider the business and market cycle and assess the stage of the cycle in estimating the timing and extent of future cash flows. In addition to discounted cash flows, we consider other information, such as public market comparables and multiples of recent mergers and acquisitions of similar businesses. Although we believe the assumptions, judgments, and estimates we have made in the past have been reasonable and appropriate, different assumptions, judgments, and estimates could materially affect our reported financial results.

Identifiable intangible assets, which are amortized over their estimated useful lives, are tested for potential impairment whenever events or changes in circumstances suggest that the carrying value of an asset or asset group may not be fully recoverable.

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, 2018.

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 our business units 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, 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, FHLB 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.

Additionally, we monitor, on a daily basis, the Value-at-Risk (“VaR”) in our trading portfolios using a ten-day horizon and report VaR at a 99% confidence level. VaR is a statistical technique used to estimate the probability of portfolio losses based on the statistical analysis of historical price trends and volatility. This model assumes that 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.

The following table sets forth the high, low, and daily average VaR for our trading portfolios during the six months ended June 30, 2019, and the daily VaR at June 30, 2019 and December 31, 2018 (in thousands):

	Six Months Ended June 30, 2019						VAR Calculation at
	High		Low		Daily Average		June 30, 2019		December 31, 2018
Daily VaR	$	8,765	$	2,802	$	5,882	$	5,425	$	6,473

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 margin, an analysis of net interest margin 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 margin at June 30, 2019, 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 margin
+200		10.8	%
+100		5.5
0		—
-100		(8.0	)
-200		(27.5	)

The following GAP Analysis table indicates Stifel Bancorp’s interest rate sensitivity position at June 30, 2019 (in thousands):

	Repricing Opportunities
	0-6 Months			7-12 Months			1-5 Years			5+ Years
Interest-earning assets:
Loans	$	6,187,022		$	434,549		$	2,043,837		$	588,298
Securities		4,804,201			118,445			943,190			839,606
Interest-bearing cash		265,132			—			—			—
	$	11,256,355		$	552,994		$	2,987,027		$	1,427,904
Interest-bearing liabilities:
Transaction accounts and savings	$	13,479,750		$	—		$	—		$	—
Certificates of deposit		1,105,224			126,522			108,267			—
Borrowings		—			—			250,000			—
	$	14,584,974		$	126,522		$	358,267		$	—
GAP		(3,328,619	)		426,472			2,628,760			1,427,904
Cumulative GAP	$	(3,328,619	)	$	(2,902,147	)	$	(273,387	)	$	1,154,517

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 June 30, 2019, the fair value of securities accepted as collateral where we are permitted to sell or repledge the securities was $2.5 billion, and the fair value of the collateral that had been sold or repledged was $762.3 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 is 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, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems, and inadequacies or breaches in our control processes. We operate different businesses in diverse markets and are reliant on the ability of our employees 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 employees, we could suffer financial loss, regulatory sanctions, and damage to our reputation. In order to mitigate and control operational risk, we have developed 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. 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. Particularly 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 Federal Deposit Insurance Corporation ("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

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 June 30, 2019 and has concluded that the disclosure controls and procedures were adequate and effective as of such date.

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, 2018 and Item 1. “Financial Statements” in our Form 10-Q for the quarter ended June 30, 2019.

ITEM 1A. RISK FACTORS

The discussion of our business and operations should be read together with the risk factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC. These risk factors describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

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

There were no unregistered sales of equity securities during the quarter ended June 30, 2019. 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 June 30, 2019.

	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
April 1 - 30, 2019		252,500	$	55.11		252,500		7,764,171
May 1 - 31, 2019		485,000		57.22		485,000		7,279,171
June 1 - 30, 2019		525,000		56.06		525,000		6,754,171
		1,262,500	$	56.32		1,262,500

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		Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Financial Condition as of June 30, 2019 and December 31, 2018; (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018; (v) Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2019 and 2018; (vi) Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018; and (vii) Notes to Consolidated Financial Statements. XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are 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: August 7, 2019