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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from to

Commission File Number: 001-09305

 

STIFEL FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

Delaware

 

43-1273600

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

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

(Address of principal executive offices and zip code)

(314) 342-2000

(Registrant’s telephone number, including area code)

 

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

Title of Each Class/ Trading Symbol

 

Name of Each Exchange on Which Registered

 

Shares or principal amount outstanding - May 1, 2024

 

Common Stock, $0.15 par value per share (SF)

 

New York Stock Exchange

 

 

102,455,815

 

Depository Shares, each representing 1/1,000th interest in a share of 6.25% Non-Cumulative Preferred Stock, Series B (SF-PB)

 

New York Stock Exchange

 

 

6,400

 

Depository Shares, each representing 1/1,000th interest in a share of 6.125% Non-Cumulative Preferred Stock, Series C (SF-PC)

 

New York Stock Exchange

 

 

9,000

 

Depository Shares, each representing 1/1,000th interest in a share of 4.50% Non-Cumulative Preferred Stock, Series D (SF-PD)

 

New York Stock Exchange

 

 

12,000

 

5.20% Senior Notes due 2047 (SFB)

 

New York Stock Exchange

 

$

225,000,000

 

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

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

 


 

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

 

 

 


 

STIFEL FINANCIAL CORP.

Form 10-Q

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

3

Consolidated Statements of Financial Condition as of March 31, 2024 (unaudited) and December 31, 2023

 

3

Consolidated Statements of Operations for the three months ended March 31, 2024 and March 31, 2023 (unaudited)

 

4

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and March 31, 2023 (unaudited)

 

5

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2024 and March 31, 2023 (unaudited)

 

6

Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and March 31, 2023 (unaudited)

 

7

Notes to Consolidated Financial Statements (unaudited)

 

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

43

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

64

Item 4. Controls and Procedures

 

67

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

67

Item 1A. Risk Factors

 

67

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

68

Item 3. Defaults Upon Senior Securities

 

68

Item 4. Mine Safety Disclosures

 

68

Item 5. Other Information

 

68

Item 6. Exhibits

 

69

Signatures

 

70

 

2


 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STIFEL FINANCIAL CORP.

Consolidated Statements of Financial Condition

 

 

March 31, 2024

 

 

December 31,
2023

 

(in thousands, except share and per share amounts)

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,408,528

 

 

$

3,361,801

 

Cash segregated for regulatory purposes

 

 

65,827

 

 

 

162,048

 

Receivables:

 

 

 

 

 

 

Brokerage clients, net

 

 

876,002

 

 

 

841,507

 

Brokers, dealers, and clearing organizations

 

 

657,871

 

 

 

414,144

 

Securities purchased under agreements to resell

 

 

451,056

 

 

 

349,849

 

Financial instruments owned, at fair value

 

 

1,230,855

 

 

 

918,741

 

Available-for-sale securities, at fair value

 

 

1,499,982

 

 

 

1,551,686

 

Held-to-maturity securities, at amortized cost

 

 

5,793,750

 

 

 

5,888,798

 

Loans:

 

 

 

 

 

 

Held for investment, net

 

 

18,949,796

 

 

 

19,305,805

 

Held for sale, at lower of cost or market

 

 

534,593

 

 

 

423,999

 

Investments, at fair value

 

 

89,518

 

 

 

91,105

 

Fixed assets, net

 

 

300,775

 

 

 

191,528

 

Operating lease right-of-use assets, net

 

 

804,130

 

 

 

778,216

 

Goodwill

 

 

1,388,306

 

 

 

1,388,243

 

Intangible assets, net

 

 

127,282

 

 

 

133,279

 

Loans and advances to financial advisors and other employees, net

 

 

732,945

 

 

 

683,486

 

Deferred tax assets, net

 

 

127,263

 

 

 

121,522

 

Other assets

 

 

1,219,801

 

 

 

1,121,703

 

Total assets

 

$

38,258,280

 

 

$

37,727,460

 

Liabilities

 

 

 

 

 

 

Payables:

 

 

 

 

 

 

Brokerage clients

 

$

750,602

 

 

$

734,821

 

Brokers, dealers, and clearing organizations

 

 

366,916

 

 

 

231,736

 

Drafts

 

 

107,539

 

 

 

117,688

 

Securities sold under agreements to repurchase

 

 

426,659

 

 

 

417,644

 

Bank deposits

 

 

27,554,411

 

 

 

27,334,579

 

Financial instruments sold, but not yet purchased, at fair value

 

 

682,279

 

 

 

497,741

 

Accrued compensation

 

 

368,391

 

 

 

585,612

 

Lease liabilities, net

 

 

854,616

 

 

 

825,529

 

Accounts payable and accrued expenses

 

 

697,029

 

 

 

512,050

 

Senior notes

 

 

1,115,897

 

 

 

1,115,629

 

Debentures to Stifel Financial Capital Trusts

 

 

60,000

 

 

 

60,000

 

Total liabilities

 

 

32,984,339

 

 

 

32,433,029

 

Equity

 

 

 

 

 

 

Preferred stock - $1 par value; authorized 3,000,000 shares; issued 27,400 shares

 

 

685,000

 

 

 

685,000

 

Common stock - $0.15 par value; authorized 194,000,000 shares; issued 111,662,386
   and
111,662,321 shares, respectively

 

 

16,749

 

 

 

16,749

 

Additional paid-in-capital

 

 

1,805,717

 

 

 

1,905,097

 

Retained earnings

 

 

3,414,744

 

 

 

3,398,610

 

Accumulated other comprehensive loss

 

 

(84,174

)

 

 

(74,326

)

Treasury stock, at cost, 9,012,906 and 10,600,793 shares, respectively

 

 

(564,095

)

 

 

(636,699

)

Total equity

 

 

5,273,941

 

 

 

5,294,431

 

Total liabilities and equity

 

$

38,258,280

 

 

$

37,727,460

 

See accompanying Notes to Consolidated Financial Statements.

3


 

STIFEL FINANCIAL CORP.

Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands, except per share amounts)

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

Commissions

 

$

185,476

 

 

$

169,550

 

Principal transactions

 

 

139,014

 

 

 

115,522

 

Investment banking

 

 

213,949

 

 

 

211,879

 

Asset management

 

 

367,476

 

 

 

315,569

 

Interest

 

 

506,828

 

 

 

451,564

 

Other income

 

 

4,950

 

 

 

(2,293

)

Total revenues

 

 

1,417,693

 

 

 

1,261,791

 

Interest expense

 

 

254,655

 

 

 

154,998

 

Net revenues

 

 

1,163,038

 

 

 

1,106,793

 

Non-interest expenses:

 

 

 

 

 

 

Compensation and benefits

 

 

679,695

 

 

 

651,190

 

Occupancy and equipment rental

 

 

88,712

 

 

 

82,140

 

Communications and office supplies

 

 

47,367

 

 

 

46,136

 

Commissions and floor brokerage

 

 

15,767

 

 

 

14,440

 

Provision for credit losses

 

 

5,268

 

 

 

4,920

 

Other operating expenses

 

 

107,538

 

 

 

98,084

 

Total non-interest expenses

 

 

944,347

 

 

 

896,910

 

Income from operations before income tax expense

 

 

218,691

 

 

 

209,883

 

Provision for income taxes

 

 

55,116

 

 

 

52,344

 

Net income

 

 

163,575

 

 

 

157,539

 

Preferred dividends

 

 

9,320

 

 

 

9,320

 

Net income available to common shareholders

 

$

154,255

 

 

$

148,219

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

Basic

 

$

1.48

 

 

$

1.36

 

Diluted

 

$

1.40

 

 

$

1.28

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.42

 

 

$

0.36

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 

104,275

 

 

 

108,754

 

Diluted

 

 

109,985

 

 

 

115,390

 

See accompanying Notes to Consolidated Financial Statements.

 

4


 

STIFEL FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Net income

 

$

163,575

 

 

$

157,539

 

Other comprehensive income/(loss), net of tax: (1)

 

 

 

 

 

 

Changes in unrealized gains/(losses) on available-for-sale securities (2)

 

 

(8,204

)

 

 

22,710

 

Foreign currency translation adjustment

 

 

(1,644

)

 

 

3,429

 

Total other comprehensive income/(loss), net of tax

 

 

(9,848

)

 

 

26,139

 

Comprehensive income

 

$

153,727

 

 

$

183,678

 

(1)
Net of a tax benefit of $3.3 million and tax expense of $8.7 million for the three months ended March 31, 2024 and 2023, respectively.
(2)
There were no reclassifications to earnings for the three months ended March 31, 2024. Net of reclassifications to earnings of realized losses of $5.6 million for the three months ended March 31, 2023.

See accompanying Notes to Consolidated Financial Statements.

5


 

STIFEL FINANCIAL CORP.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands, except per share amounts)

 

2024

 

 

2023

 

Preferred stock, par value $1.00 per share:

 

 

 

 

 

 

Balance, beginning of period

 

$

685,000

 

 

$

685,000

 

Issuance of preferred stock

 

 

 

 

 

 

Balance, end of period

 

 

685,000

 

 

 

685,000

 

Common stock, par value $0.15 per share:

 

 

 

 

 

 

Balance, beginning of period

 

 

16,749

 

 

 

16,749

 

Issuance of common stock

 

 

 

 

 

 

Balance, end of period

 

 

16,749

 

 

 

16,749

 

Additional paid-in-capital:

 

 

 

 

 

 

Balance, beginning of period

 

 

1,905,097

 

 

 

1,928,069

 

Unit amortization, net of forfeitures

 

 

42,157

 

 

 

39,781

 

Distributions under employee plans

 

 

(141,805

)

 

 

(137,220

)

Other

 

 

268

 

 

 

7

 

Balance, end of period

 

 

1,805,717

 

 

 

1,830,637

 

Retained earnings:

 

 

 

 

 

 

Balance, beginning of period

 

 

3,398,610

 

 

 

3,169,095

 

Net income

 

 

163,575

 

 

 

157,539

 

Dividends declared:

 

 

 

 

 

 

Common

 

 

(48,608

)

 

 

(43,728

)

Preferred

 

 

(9,320

)

 

 

(9,320

)

Distributions under employee plans

 

 

(89,960

)

 

 

(63,773

)

Other

 

 

447

 

 

 

2

 

Balance, end of period

 

 

3,414,744

 

 

 

3,209,815

 

Accumulated other comprehensive loss:

 

 

 

 

 

 

Balance, beginning of period

 

 

(74,326

)

 

 

(117,960

)

Unrealized gains/(losses) on securities, net of tax

 

 

(8,204

)

 

 

22,710

 

Foreign currency translation adjustment, net of tax

 

 

(1,644

)

 

 

3,429

 

Balance, end of period

 

 

(84,174

)

 

 

(91,821

)

Treasury stock, at cost:

 

 

 

 

 

 

Balance, beginning of period

 

 

(636,699

)

 

 

(352,482

)

Distributions under employee plans

 

 

133,314

 

 

 

124,015

 

Common stock repurchased

 

 

(60,710

)

 

 

(94,521

)

Balance, end of period

 

 

(564,095

)

 

 

(322,988

)

Total Shareholders' Equity

 

$

5,273,941

 

 

$

5,327,392

 

See accompanying Notes to Consolidated Financial Statements.

6


 

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net income

 

$

163,575

 

 

$

157,539

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

15,665

 

 

 

15,076

 

Amortization of loans and advances to financial advisors and other employees

 

 

37,143

 

 

 

34,057

 

Amortization of premium on investment portfolio

 

 

2,142

 

 

 

2,356

 

Provision for credit losses and allowance for loans and advances to financial advisors and other employees

 

 

5,269

 

 

 

4,920

 

Amortization of intangible assets

 

 

5,842

 

 

 

4,437

 

Deferred income taxes

 

 

(2,655

)

 

 

13,069

 

Stock-based compensation

 

 

56,797

 

 

 

43,083

 

Losses/(gains) on sale of investments

 

 

373

 

 

 

(1,353

)

Other, net

 

 

(5,974

)

 

 

(6,157

)

Decrease/(increase) in operating assets, net of assets acquired:

 

 

 

 

 

 

Receivables:

 

 

 

 

 

 

Brokerage clients

 

 

(34,495

)

 

 

(34,435

)

Brokers, dealers, and clearing organizations

 

 

(243,727

)

 

 

(39,648

)

Securities purchased under agreements to resell

 

 

(101,207

)

 

 

(201,053

)

Financial instruments owned, including those pledged

 

 

(312,114

)

 

 

(242,050

)

Loans originated as held for sale

 

 

(545,666

)

 

 

(380,033

)

Proceeds from loans held for sale

 

 

444,364

 

 

 

317,468

 

Loans and advances to financial advisors and other employees

 

 

(87,795

)

 

 

(40,053

)

Other assets

 

 

(98,281

)

 

 

218

 

Increase/(decrease) in operating liabilities, net of liabilities assumed:

 

 

 

 

 

 

Payables:

 

 

 

 

 

 

Brokerage clients

 

 

15,781

 

 

 

136,855

 

Brokers, dealers, and clearing organizations

 

 

46,495

 

 

 

3,369

 

Drafts

 

 

(10,149

)

 

 

(21,883

)

Financial instruments sold, but not yet purchased

 

 

184,538

 

 

 

199,064

 

Other liabilities and accrued expenses

 

 

(145,642

)

 

 

(349,919

)

Net cash used in operating activities

 

$

(609,721

)

 

$

(385,073

)

See accompanying Notes to Consolidated Financial Statements.

 

 

7


 

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows (continued)

(Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

Proceeds from:

 

 

 

 

 

 

Principal paydowns, calls, maturities, and sales of available-for-sale securities

 

$

45,431

 

 

$

47,416

 

Calls and principal paydowns of held-to-maturity securities

 

 

183,460

 

 

 

5,548

 

Sale or maturity of investments

 

 

4,830

 

 

 

 

Decrease/(increase) in loans held for investment, net

 

 

352,537

 

 

 

(250,052

)

Payments for:

 

 

 

 

 

 

Purchase of fixed assets

 

 

(9,636

)

 

 

(15,411

)

Purchase of available-for-sale securities

 

 

(7,000

)

 

 

(7,551

)

Purchase of held-to-maturity securities

 

 

(88,500

)

 

 

 

Purchase of investments

 

 

(3,590

)

 

 

(10,919

)

Acquisitions, net of cash received

 

 

(752

)

 

 

(58,765

)

Net cash provided by/(used in) investing activities

 

 

476,780

 

 

 

(289,734

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

Payment of contingent consideration

 

 

(708

)

 

 

(5,037

)

Increase in securities sold under agreements to repurchase

 

 

9,015

 

 

 

217,715

 

Increase in bank deposits, net

 

 

219,832

 

 

 

1,208,216

 

Increase in securities loaned

 

 

88,685

 

 

 

32,868

 

Tax payments related to shares withheld for stock-based compensation plans

 

 

(98,638

)

 

 

(74,238

)

Repurchase of common stock

 

 

(60,710

)

 

 

(94,521

)

Cash dividends on preferred stock

 

 

(9,320

)

 

 

(9,320

)

Cash dividends paid to common stock and equity-award holders

 

 

(63,065

)

 

 

(47,009

)

Net cash provided by financing activities

 

 

85,091

 

 

 

1,228,674

 

Effect of exchange rate changes on cash

 

 

(1,644

)

 

 

3,429

 

Increase/(decrease) in cash, cash equivalents, and cash segregated for regulatory purposes

 

 

(49,494

)

 

 

557,296

 

Cash, cash equivalents, and cash segregated for regulatory purposes at beginning of period

 

 

3,523,849

 

 

 

2,229,002

 

Cash, cash equivalents, and cash segregated for regulatory purposes at end of period

 

$

3,474,355

 

 

$

2,786,298

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

257,723

 

 

$

158,201

 

Cash paid for income taxes, net of refunds

 

 

114,746

 

 

 

4,037

 

Noncash financing activities:

 

 

 

 

 

 

Unit grants, net of forfeitures

 

 

124,212

 

 

 

143,638

 

The following presents cash, cash equivalents, and cash restricted for regulatory purposes for the periods presented (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Cash and cash equivalents

 

$

3,408,528

 

 

$

3,361,801

 

Cash segregated for regulatory purposes

 

 

65,827

 

 

 

162,048

 

Total cash, cash equivalents, and cash segregated for regulatory purposes

 

$

3,474,355

 

 

$

3,523,849

 

 

See accompanying Notes to Consolidated Financial Statements.

8


 

STIFEL FINANCIAL CORP.

Notes to Consolidated Financial Statements

(Unaudited)

 

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

Nature of Operations

Stifel Financial Corp. (the “Company”), through its wholly owned subsidiaries, is principally engaged in retail brokerage; securities trading; investment banking; investment advisory; retail, consumer, and commercial banking; and related financial services. Our major geographic area of concentration is throughout the United States, with a growing presence in the United Kingdom, Europe, and Canada. Our company’s principal customers are individual investors, corporations, municipalities, and institutions.

Basis of Presentation

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

We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles. In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise noted) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2023 on file with the SEC.

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

Consolidation Policies

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

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

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

NOTE 2 – New Accounting Pronouncements

Recently Adopted Accounting Guidance

Fair Value Measurement

In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (ASU 2022-03), an update to ASC Topic 820 – Fair Value Measurement. The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments require new disclosures related to equity securities subject to contractual sale restrictions, including the fair value of such equity securities, the nature and remaining duration of the corresponding restrictions, and any circumstances that could cause a lapse in the restrictions. The amendments are effective for annual reporting periods beginning after December 15, 2023 (January 1, 2024, for our company), and for the interim periods within those annual reporting periods. The adoption of the accounting update did not have a material impact on our consolidated financial statements.

9


 

Leases

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements,” which requires entities to classify and account for leases with related parties on the basis of legally enforceable terms and conditions of the arrangement. The accounting update is effective for interim and annual periods beginning after December 15, 2023 (January 1, 2024, for our company). The adoption of the accounting update did not have a material impact on our consolidated financial statements.

Segment Reporting

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires enhanced disclosures for significant expenses by reportable operating segment. Significant expense categories and amounts are those regularly provided to the chief operating decision maker (CODM) and included in the measure of a segment’s profit or loss. The updated guidance will also require us to disclose the title and position of our CODM, including an explanation of how our CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The accounting update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. While the adoption of the accounting update will not have a material impact on our consolidated financial statements, we are currently evaluating the impact to our segment disclosures.

Recently Issued Accounting Guidance

Income Taxes

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 240): Improvements to Income Tax Disclosures,” which requires additional disclosure and disaggregated information in the Income Tax Rate reconciliation using both percentages and reporting currency amounts, with additional qualitative explanations of individually significant reconciling items. The updated guidance also requires disclosure of the amount of income taxes paid (net of refunds received) disaggregated by jurisdictional categories (federal (national), state, and foreign). The accounting update is effective for annual periods beginning after December 15, 2024 (January 1, 2025 for our company), with early adoption permitted. We are currently assessing the updated guidance; however, it is not expected to have a material impact to our consolidated financial statements.

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

Amounts receivable from brokers, dealers, and clearing organizations at March 31, 2024 and December 31, 2023, included (in thousands):

 

 

March 31, 2024

 

 

December 31,
2023

 

Receivable from clearing organizations

 

$

408,614

 

 

$

178,991

 

Deposits paid for securities borrowed

 

 

204,150

 

 

 

215,368

 

Securities failed to deliver

 

 

45,107

 

 

 

19,785

 

 

 

$

657,871

 

 

$

414,144

 

Amounts payable to brokers, dealers, and clearing organizations at March 31, 2024 and December 31, 2023, included (in thousands):

 

 

March 31, 2024

 

 

December 31,
2023

 

Deposits received from securities loaned

 

$

224,378

 

 

$

135,693

 

Securities failed to receive

 

 

122,804

 

 

 

91,636

 

Payable to clearing organizations

 

 

19,734

 

 

 

4,407

 

 

 

$

366,916

 

 

$

231,736

 

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.

 

10


 

NOTE 4 – Fair Value Measurements

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

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

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

Financial Instruments Owned and Available-For-Sale Securities

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

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

We have identified Level 3 financial instruments to include certain asset-backed securities and syndicated loans, included in other in the table below, 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. Corporate equity securities that have little to no pricing observability are reported in Level 3.

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

Investments at fair value include investments in funds, including certain money market funds that are