The Power of
Transformation
D.A. Davidson Companies
2017 Annual Report

THE TRANSFORMATIVE POWER OF LEADERSHIP

The work of D.A. Davidson is often a study in transformation: development of a retirement plan to enable a client’s move to their next life phase, creation of new value for an established business, or completion of a public finance project that breathes fresh life into a community. In 2017, we at D.A. Davidson not only helped effect change for our clients, but also served as agents of change within our own company walls. Our goals include creating the best transformations for our clients and being catalysts for continued improvement in our company, communities and ourselves as professionals.

Leaders transform companies and companies transform leaders. As the fourth chief executive in our firm’s 83-year history, Bill Johnstone has made lasting contributions to D.A. Davidson. He has served as a visionary leader, a champion of giving back and a role model. Bill has taken us boldly into the future while strengthening our core values. We thank Bill for the 17 years of service he has given us, and we pay tribute to him in this report.

DEAR FELLOW SHAREHOLDERS, CLIENTS AND ASSOCIATES

We are pleased to report that 2017 was another record-breaking year for D.A. Davidson. Our business units generated net revenues that surpassed $400 million and we saw a 76 percent increase in pre-tax profits. For the ninth year in a row, both shareholders’ equity and book value per share reached new highs.

While 2017’s market performance played a role in our success, our record revenues over the past year are a true testament to the expertise, work ethic and collaborative spirit of our associates. When we work together as a unified company, we can drive positive results across the firm.

We also recognize our clients’ continued loyalty and commitment to D.A. Davidson, and thank them for that.

EXPANDED REACH, NEW TRADITIONS

In addition to our record financial results, we pursued important initiatives that will help strengthen the firm for the future—from opening new offices, to hiring additional bankers and analysts, to investing in career development.

Consistent with our long-standing commitment to our communities, we launched the first annual D.A. Davidson Day of giving. D.A. Davidson volunteers took part in projects in 66 cities, benefiting 113 nonprofit organizations, and contributed 3,500 volunteer hours during the event.

Our employee-ownership model continues to offer a distinct advantage, providing D.A. Davidson associates with a tangible stake in our successes and cultivating an entrepreneurial culture driven by a passion for exceptional client service.

LEADERSHIP FOR THE FUTURE

We continue to build our bench of future leaders and made a number of key hires in Wealth Management, Equity Capital Markets, Investment Banking, Fixed Income Capital Markets and our Trust Company. Knowing the importance of retaining quality leaders, we have further supported leadership training for our executive level associates, and two-thirds have completed leadership development programs in the last several years.

We have long held a belief that “we are all leaders,” and we will continue to invest in the professional development of our associates.

LOOKING AHEAD

D.A. Davidson’s flagship long-term commitment to a high standard of ethics and integrity, a conservative financial approach, and putting our clients’ interests first, will be critical as we head into a future that will likely continue to provide both challenges and opportunities. As we begin the company’s 83rd year in business, we can draw strength and confidence from the fact that we have successfully weathered many varied economic climates. Our confidence is rooted in our conviction that we have the right strategy, and associates, in place moving forward.

Looking to 2018, we would like to recognize our Chairman Emeritus, Ian Davidson, for his immeasurable contributions as he marks his 60th year with our firm. We would also like to thank Jim Wolitarsky for his strong insights on our board of directors as he steps down after 10 years of service.

We appreciate and thank our clients and shareholders for their loyalty, and our associates for their excellent work. We look forward to another successful year with our valued partners.

FISCAL YEARS ENDED SEPTEMBER 30

THE POWER OF SIX TRANSFORMED INTO ONE

While the name D.A. Davidson is synonymous with exceptional service, our company name also has different implications for the many diverse clients who rely upon us. That is because our single firm is comprised of six distinct business units, each working in tandem with the others to deliver an equally important set of services and solutions. Our company’s full-service structure provides our clients with the assurance of knowing we can holistically meet their investment and financial needs, whatever their stage in life or business. A look at each of our business units, with a brief overview of their work in 2017, follows.

WEALTH MANAGEMENT

2017 was a year of excitement and change for D.A. Davidson Wealth Management, formerly called the Individual Investor Group. The Wealth Management group continued to achieve the best financial results among the company’s business units while also growing in other notable ways. We achieved record-high advisor productivity, launched the Premier Coaching Program to train individuals embarking on second careers to become advisors, and strengthened our branch leadership.

From professional asset management to comprehensive financial planning, our Wealth Management team offers a wide range of solutions, delivered with personalized attention. While markets fluctuate, our mission never does: We are committed to helping each of our clients plan for and work toward their goals.

$41.6 B
ASSETS UNDER ADMINISTRATION
67
LOCATIONS
9
STATES
751
ASSOCIATES
83
YEARS OF ADVICE
INVESTMENT BANKING

Investment Banking was a strong contributor to D.A. Davidson’s performance. The banking team ended the year with an 18 percent increase in net revenue and substantial increase in deal value. Our bankers successfully completed 71 transactions, including the first bank transaction announced in 2017, which was also one of the year’s largest deals for the financial services sector. With a focus on continuing to build for coming years, we deepened our capabilities by adding investment bankers with significant expertise in two of our primary sectors: consumer and technology.

Backed by our firm’s full-service capabilities and with a strong focus on the middle market, our Investment Banking team delivers a full range of services and customized solutions. Our extensive list of capabilities ranges from serving as merger and acquisition advisors or corporate board and committee advisors, to providing equity and debt financing and financial sponsors coverage.

$6.1 B+
IN TRANSACTION VALUE
70+
PROFESSIONALS
9
LOCATIONS
ASSET MANAGEMENT AND TRUST

In 2017, we renamed the unit that encompasses three businesses — D.A. Davidson Trust Company, Davidson Investment Advisors and Davidson Fixed Income Management — to Asset Management and Trust. With improved efficiencies and other factors, this group ended the year with pretax profits that were 15 percent higher than the previous year.

To meet the changing needs of families, we added new and enhanced service offerings in 2017, including trusts geared to accommodating special needs. We deepened our talent pool by attracting several key hires. Our expansion included the opening of a new trust office in Vancouver, Washington, to give us six offices in strategic locations.
Our Trust Company continues to help clients develop legacies that reflect their personal values. Using a holistic approach, the trust team offers solutions that include customized trusts, investment management, wealth planning and retirement planning. The team also delivers access to expert advisors, trust officers, estate planning specialists, real estate management experts and retirement planning professionals.
Our asset management and investment advisory company achieved growth of 13.5 percent in client assets under administration. With a long-term outlook and team approach to both client relationships and management, DIA helps clients meet their objectives through multiple investment options and its own mutual fund. DIA provides money management to institutions, foundations, corporations, individual investors and trusts.
The Davidson Fixed Income Management team focused 2017 on continuing to build its platform and strengthen its core business for the future. Investors look to the DFIM professionals for customized portfolios, tax-exempt mutual funds and clear investment strategies. The firm offers high-quality fixed income portfolios and investment advisory services for public sector entities, nonprofit institutions, institutional investors and investment advisors.
EQUITY CAPITAL MARKETS

An expanded leadership team, strategic and operational improvements, and excellent returns contributed to a successful year for Equity Capital Markets. The Institutional Research team developed a more targeted approach to the team’s work, focusing on five industry verticals. ECM received national recognition when three of our equity analysts were named the No. 1 stock pickers for their sectors by Thomson Reuters/StarMine. Our analyst team also increased its visibility in 2017, appearing regularly on various broadcast channels and in national print media.

In addition to the perspective of our award-winning analysts, our ECM team creates value for clients through investment banking, institutional equity sales and trading, brokered CD underwriting, corporate services and distribution. We added new associates in most of these areas during the year, increasing our bench strength of professionals and furthering our clients’ access to capital markets solutions.

FIXED INCOME CAPITAL MARKETS

The Fixed Income Capital Markets group continued its impressive long-term growth trajectory. Over the past 10 years, FICM has nearly doubled in size in terms of total net revenues. We ended 2017 by posting strong returns, with teams across the country adding to the bottom line through exceptional client service and a series of notable transactions. We expanded our network of sales and trading distribution by hiring experienced professionals who deepen the level of expertise across the Fixed Income group, particularly in the Midwest and on the East Coast.

Our public finance bankers are consistently recognized as national leaders in raising capital for our clients. Through their work, D.A. Davidson was ranked fifth in the United States by number of negotiated issues completed for 2017, according to Thomson Reuters industry figures. Our bankers offer exceptional expertise and innovative solutions by specializing in a range of specific practice areas, from working with charter and public school bond issues to developing financing strategies for large utilities and state governments. We also offer fixed income distribution through our national sales and trading teams and a depository strategy designed to help clients maximize shareholder value. When fixed income vehicles are the right solution, our team helps clients navigate the complexities of the fixed income markets to find value.

RECIPIENTS OF D.A. DAVIDSON'S MOST PRESTIGIOUS HONORS

BRAGG LEWIS KNUTSON COMMUNITY SERVICE AWARD

The highest honor earned each year by a D.A. Davidson Companies associate, this award celebrates outstanding community involvement and volunteer efforts.

TOM GIBSON
SENIOR VICE PRESIDENT, FINANCIAL ADVISOR, SANDPOINT, IDAHO

Tom’s remarkable commitment to social responsibility and volunteer work can be seen in the positive change he has helped bring about in his community and beyond.

Tom was a founding board member for two major nonprofit organizations, Community Cancer Services and Panhandle Alliance for Education, and helped drive the development and success of both groups.

He serves as an emeritus board member for Panhandle Alliance for Education and was instrumental in establishing its endowment, which has awarded more than $1 million in innovation grants for teachers. Tom also donates his time to teach martial arts, with the goal of encouraging confidence, discipline, physical abilities and coping skills. He has been an active Rotary Club member for 22 years and has served in leadership roles with two different clubs.

In 2009, Tom earned the Ian B. Davidson Cultural Excellence Award and is the first D.A. Davidson associate to have received both of the company’s most prestigious awards.

IAN B. DAVIDSON CULTURAL EXCELLENCE AWARD

This award, named for our company’s Chairman Emeritus, recognizes two employees each year who exemplify D.A. Davidson Companies’ core values.

JIM CRONK
SENIOR VICE PRESIDENT, OPERATIONS AND TECHNOLOGY PROJECT MANAGEMENT, LOS ANGELES, CALIFORNIA

With his can-do attitude and friendly approach, Jim has emerged as a leader not only among our California offices but across our Wealth Management division. His tireless efforts were instrumental in two major platform conversions. His thoughtful nature and ability to consider issues from multiple perspectives have created better outcomes in challenging situations.

SUSAN ZINS
SENIOR REGISTERED ASSOCIATE, MISSOULA, MONTANA

In her extensive experience with D.A. Davidson, Susan has successfully balanced multiple roles as a dedicated employee, active community member and mother. Her commitment to her work is exemplified by her focus on strong service and a client-first approach to each interaction.

bill johnstone
  1. Bill forges a relationship with D.A. Davidson as an advisor to the firm on numerous public finance transactions

  2. Serves as President and CEO of Rauscher Pierce Refsnes and then Vice Chairman of Dain Rauscher

  3. Named Managing Partner at Dorsey & Whitney, an international law firm

  4. Bill joins D.A. Davidson to serve on Board of Directors; later is named President of D.A. Davidson & Co.

  5. Receives National Significant Sig Award from Sigma Chi International Fraternity

  6. Named President and Chief Executive Officer of D.A. Davidson Companies

  7. Elected to Securities Industry and Financial Markets Association (SIFMA) Board of Directors

  8. Named Chairman of D.A. Davidson Companies while also serving as CEO

    Elected Vice Chairman of SIFMA

  9. Named by Montana’s governor as Co-Chairman of Main Street Montana Project, a statewide economic development initiative

  10. Receives Alumni Achievement Award from Montana State University Honors College

    Appointed by governor to Montana Board of Regents, overseeing state’s college and university system

  11. Assumes the role of Executive Chairman

    Elected Chairman of SIFMA

  12. Inducted into Montana Business Hall of Fame

    Cited in U.S. Congressional Record for outstanding contributions to Montana

A THANK YOU TO BILL JOHNSTONE

Bill Johnstone has a mantra that has guided his actions at D.A. Davidson — always do what is right for the client. That view has brought extraordinary value to the firm, our clients and associates. But what’s even more extraordinary is that Bill has lived a variation of that mantra in every area of his life. He has led by example and we couldn’t have asked for a better role model, both personally and professionally.

At D.A. Davidson, Bill’s leadership has been marked by his vision. From the start, he has been able to imagine a better company, one that would embrace change, support the professional growth of its associates, and put clients first in good times and bad.

It was a strategy for success. During Bill’s tenure, D.A. Davidson more than doubled its client base, nearly quadrupled its revenues and doubled the number of associates.

Bill led five major acquisitions, including Wealth Management’s acquisitions in 2013 and 2016, which established its presence in southern California and increased its presence in Nebraska. Bill was the driving force behind the acquisition of a multi-office group that became the core of the Fixed Income Capital Markets business, and he spearheaded expansion of the Equity Capital Markets group.

These would be huge accomplishments in a stable economic environment. What makes them all the more remarkable is that Bill prevailed though nearly two decades of upheaval, from the bursting of the tech bubble, to the financial crisis and prolonged recession, to Brexit and other global disruptions. While many of our competitors folded or consolidated during this time, D.A. Davidson thrived under Bill’s leadership.

As Bill retires from D.A. Davidson, it is fitting that we are marking another record-breaking year for revenue and profits.

Bill’s drive to do what’s right has extended far beyond the walls of D.A. Davidson. He has been passionate about guiding the capital markets system and served as Chairman of the Securities Industry Financial Markets Association.

He is also active in numerous civic, charitable and business causes. He serves on the Montana Board of Regents, which oversees the state’s colleges and universities, and was instrumental in founding the Great Falls Public Schools Foundation. He was a guiding force in the Main Street Montana initiative, a public-private partnership to encourage business growth, and was inducted into the Montana Business Hall of Fame.

As we honor Bill for his distinguished tenure, we are deeply appreciative of his hard work, vision and integrity. Thank you, Bill, for being a leader, a friend and a role model without equal.

LOCATIONS COAST TO COAST

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D.A. DAVIDSON COMPANIES BOARD OF DIRECTORS

WILLIAM A. JOHNSTONE

CHAIRMAN
D.A. DAVIDSON COMPANIES


JAMES P. KERR

CHIEF EXECUTIVE OFFICER
D.A. DAVIDSON COMPANIES


LARRY MARTINEZ

PRESIDENT
D.A. DAVIDSON COMPANIES


MICHAEL J. PURPURA

PRESIDENT
WEALTH MANAGEMENT
D.A. DAVIDSON & CO.

SAMUEL C. DOYLE

PRESIDENT
FIXED INCOME CAPITAL MARKETS
D.A. DAVIDSON & CO.

ANDREW I. DAVIDSON

PRESIDENT
DAVIDSON INVESTMENT
ADVISORS

ANDREW E. CROWELL

VICE CHAIRMAN
WEALTH MANAGEMENT
D.A. DAVIDSON & CO.

TOM SMITH

VICE CHAIRMAN
WEALTH MANAGEMENT
D.A. DAVIDSON & CO.

SUSAN J. CARSTENSEN

FORMER SR. VICE PRESIDENT
RIGHTNOW TECHNOLOGIES


CHET HELCK

FORMER CEO
RAYMOND JAMES GLOBAL
PRIVATE CLIENT GROUP

NORMAN H. SWICK

FORMER SENIOR
VICE PRESIDENT
WASHINGTON MUTUAL

JAMES W. WOLITARSKY

FORMER PRESIDENT & CEO JANNEY MONTGOMERY SCOTT