Stifel Financial Q1 2025 Earnings Report

Stifel Financial EPS Results

• Actual EPS: $0.49
• Consensus EPS: $1.64
• Beat/Miss: Missed by -$1.15
• One Year Ago EPS: $1.49

Stifel Financial Revenue Results

• Actual Revenue: $1.26 billion
• Expected Revenue: $1.32 billion
• Beat/Miss: Missed by -$60.46 million
• YoY Revenue Growth: +7.90%

Stifel Financial Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 9:30AM ET

Stifel Financial (NYSE:SF), a financial services and bank holding company, provides retail and institutional wealth management, and investment banking services to individual investors, corporations, municipalities, and institutions in the United States and internationally. It operates in three segments: Global Wealth Management, Institutional Group, and Other. The company provides private client services, including securities transaction and financial planning services; institutional equity and fixed income sales, trading and research, and municipal finance services; investment banking services, such as mergers and acquisitions, public offerings, and private placements; and retail and commercial banking services comprising personal and commercial lending programs, as well as deposit accounts. It participates in and manages underwritings for corporate and public finance; and offers financial advisory and securities brokerage services. The company was founded in 1890 and is headquartered in Saint Louis, Missouri.

Stifel Financial Q1 2025 Earnings Call Transcript

Key Takeaways

• Stifel reported $1.26 billion in net revenue for Q1, marking its strongest first quarter ever and an 8% year-over-year increase driven by record asset management and institutional equities revenues.
• Operating EPS excluding a $180 million legal charge was $1.65, an 11% increase over last year, while the firm is appealing the FINRA arbitration ruling that caused a $1.16 per share earnings hit.
• Despite a volatile market environment with the S&P 500 down roughly 10% YTD, Stifel remains cautiously optimistic, forecasting no recession and emphasizing the value of its advice-centric business model amid policy uncertainty.
• The Global Wealth Management segment achieved a record 11% increase in asset management revenues, added 52 advisers (including high-producing teams), and ended the quarter with $486 billion in client assets and growing recurring fee income.
• With a well-capitalized balance sheet (10.8% Tier 1 leverage) and $324 million of excess capital, Stifel repurchased nearly 2 million shares and will continue to allocate capital between share buybacks and loan growth depending on market conditions.

Presentation

[Operator]

Good day, and welcome to the Stifel Financial First Quarter twenty twenty five Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joel Jeffrey, Head of Investor Relations. Please go ahead.

[Joel Jeffrey, SVP - IR at Stifel Financial]

Thanks, operator. I'd like to welcome everyone to Stifel Financial's first quarter twenty twenty five conference call. I'm joined on the call today by our Chairman and CEO, Ron Prashevsky our Co Presidents, Victor Niesi and Jim Zemlak and our CFO, Jim Marishan. Earlier this morning, we issued an earnings release and posted a slide deck and financial supplement to our website, which can be found on the Investor Relations page at www.stifel.com. I would note that some of the numbers that we state throughout our presentation are presented on a non GAAP basis, and I will refer you to our reconciliation of GAAP to non GAAP as disclosed in our press release.

[Joel Jeffrey, SVP - IR at Stifel Financial]

I would also remind listeners to refer to our earnings release, financial supplement and our slide presentation for information on forward looking statements and other non GAAP measures. This audiocast is copyrighted material of Stifel Financial and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial Corp. I will now turn the call over to our Chairman and CEO, Ron Przyzewski.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Thanks, Joel. Good morning, and thanks to everyone for taking the time to listen to our first quarter earnings conference call. Stifel's core operating strength was evident in generating roughly $1,300,000,000 in net revenue during the first quarter despite a volatile market environment. This marks our highest first quarter revenue and third strongest quarter overall, driven by record asset management revenue in our Global Wealth Management segment and robust advisory and transactional revenue from institutional equities. While our bottom line was impacted by a significant legal charge, which I will discuss later, excluding this charge, our operating EPS was $1.65 an 11% increase over the same period a year ago, and it does represent record first quarter earnings per share.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Our revenue performance is particularly noteworthy considering the market conditions throughout the quarter. Although we were optimistic about Stifel's prospects in 2025, we also were conservative in our general market outlook. Following two consecutive years of better than 20% gains in the S and P 500, we adopted a more conservative market outlook. As I previously stated, Stifel entered the year with the lowest S and P 500 forecast on the street at 5,500. Yesterday, it closed at 5,002 and 88, down roughly 10% on a year to date basis.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

The combination of tariffs, uncertainty over global capital flows, and disagreement between the administration and the Federal Reserve on monetary policy has contributed to increased market volatility. Meanwhile, counterweights that usually strengthen when stocks fall, such as the government bonds and the U. S. Dollar, are also under pressure, leaving investors with few havens to wait out the storm. This backdrop has clearly weighed on investor confidence and slowed activity across certain segments of the market.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Having served in this role for over twenty seven years, I've witnessed numerous market crises from the Russian debt crisis in the late nineties, the technology meltdown in February to 02/2001, the 02/1958, '2 thousand and '8 financial crisis, the most recent global pandemic. Each time, S. Financial markets have demonstrated resilience and remained a global benchmark. While the current environment has introduced volatility, we do not believe a recession is likely. In our view, the disruption surrounding tariffs is not the new normal.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

It's part of a high stakes policy negotiation strategy by the White House. Considering the underlying strength of The US economy and efforts to address trade and fiscal imbalances, we remain optimistic about long term growth. In the near term, while volatility presents challenges, we are cautiously optimistic. Indeed, periods of uncertainty highlight the value of our advice centric business model. We are seeing high levels of engagement between our investment bankers and our clients.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

That said, the greater challenges lies in converting these pipelines into realized revenue, particularly given ongoing market uncertainty. There are pockets of strength within banking, as illustrated by KBW's strong quarter, as we are seeing a growing appetite for bank M and A, and we continue to project a strong year for our financials vertical. In wealth management, our asset management revenues were up 11% versus last year, but this line item is closely tied to market levels. And if equity markets do not rebound, that could have a negative impact on these results in the future quarters for 2025. Overall, while the market conditions have certainly slowed, we believe that Stifel's diversified business model is well positioned to navigate through short term volatility and drive significant growth as the market normalizes.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Moving on to Slide two, I'll review our first quarter operating results. The table on the left illustrates our performance, excluding the legal charge incurred during the quarter. Presenting our results this way offers a clearer view of our core business performance compared to prior quarters. I'll address the impact of the legal charge separately. We generated net revenue of 1,260,000,000 marking the strongest first quarter in our history and an 8% increase year over year.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

This growth reflects strength in both Global Wealth and our institutional group. Notably, this is the first quarter since the end of twenty twenty one where all categories in our revenue bridge have shown positive contributions. Looking at the specific line revenue lines, commissions and principal transactions increased 3% with both wealth management and institutional growth share showing year over year growth. Investment banking revenues rose 11% driven by increases in both capital raising and advisory. Asset management revenue reached a record high, up 11%, reflecting organic growth and market appreciation.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Net interest income increased 4% compared to the same period last year. Our compensation ratio stood at 58%, aligning with the high end of our full year guidance as we maintain a conservative approach to compensation accruals early in the fiscal year. Operating pretax margin exceeded 20%, consistent with the fourth quarter and first quarters of twenty twenty four. Operating EPS, as I stated, was $1.65 While our operating results improved year over year, our bottom line on both impacted by a legal charge related to a recent FINRA arbitration panel ruling, which we are currently appealing. As shown on the table on the right, the legal accrual totaled $180,000,000 for the quarter, resulting in a 1.16 negative impact on our EPS.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Due to the ongoing nature of this matter, we are limited in our ability to discuss it further. However, we believe that we are appropriately accrued for the recent judgment as well as the remaining outstanding cases. Before I turn the call over to Jim, I want to highlight the critical role our global wealth management business plays in Stifel's long term growth strategy. Over the past decade, we've more than doubled our revenue in this segment, reaching a record $3,300,000,000 in 2024. This growth is a testament to our unwavering commitment to providing exceptional service to our advisers and equipping them with the tools necessary to deliver tailored investment advice to their clients.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Our adviser centric culture has been a significant driver of our recruiting success. Over the past five calendar years, we've added 464 experienced advisers with trailing twelve month production exceeding 365,000,000. 20 4 alone, we recruited a hundred financial advisers, including 34 experienced employee and 12 experienced independent advisers, contributing a total trailing twelve month production of 37,000,000. As we focus our recruiting efforts on higher producing advisers, we've seen a continued increase in the percentage of our revenue coming from recurring sources, such as asset management net interest income, contributing to greater stability in this segment. The strong upward trend in markets over the last few years led many advisers to delay transitions, hoping to maximize their trailing production for recruiting packages.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Additionally, competition among RIA platforms has driven transition costs higher across the industry. That said, we are seeing real momentum built. The recent market pullback has prompted more advisers to act, and we've adjusted our approach to remain competitive while staying disciplined on our return on investment. We are seeing early success in this initiative, and our second quarter is off to a strong start as we've added seven experienced advisers with trailing twelve month revenues of 14,000,000 and more than 3,000,000,000 in client assets. To reiterate, our recruiting pipeline remains robust, and I'm confident as I've ever been in our ability to continue attracting highly productive advisers.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

And with that, let me turn the call over to Jim.

[James Marischen, CFO at Stifel Financial]

Thanks, Ron, and good morning, everyone. Overall, operating results were relatively in line with consensus expectations. This was a result of slightly lower net revenue, which is offset by lower expenses when excluding the legal charge. In terms of net revenue, we fell short of the Street estimate by 1% or approximately $14,000,000 as stronger investment banking and asset management revenue were more than offset by lower transactional revenue and net interest income. Investment banking revenue was the largest upside contributor coming in $10,000,000 above the Street estimate, driven primarily by higher advisory and equity capital markets revenue.

[James Marischen, CFO at Stifel Financial]

I'd note that in our February operating metrics announcement, we anticipated investment banking revenue to be similar to the first quarter of twenty twenty four. The stronger result was due to a few additional transactions closing at the end of the quarter. Asset management revenue was 1% higher than The Street, primarily due to a higher fee capture rate. Transactional revenue was 5% below The Street due to lower fixed income and wealth management revenue that more than offset higher than expected institutional equity revenue. Net interest income was 3% below the street estimate on lower NIM, which was driven by lower than expected loan growth.

[James Marischen, CFO at Stifel Financial]

We also had some success fees we recognized last quarter related to some venture clients. Those types of fees are episodic and hard to predict when they come in. On the expense side, our compensation ratio was 58%, which was slightly above the Street and in line with the high end of our annual guidance. Non comp expenses were significantly impacted by the $180,000,000 legal charge we incurred in the quarter. Excluding this, our non comp expenses were $5,000,000 below the Street estimate.

[James Marischen, CFO at Stifel Financial]

The provision for income taxes came in below the consensus number as the tax rate was impacted by the excess tax benefit recognized due to stock based compensation. Moving on to our segment results. Global Wealth Management revenue was $851,000,000 and pretax margins, excluding the impact of the legal charge, were 36% on record asset management revenue and our second highest first quarter transactional revenue. During the quarter, we added 52 total advisers to our platform. This included nine experienced advisers with trailing twelve month production of $12,000,000 We ended the quarter with fee based assets of $190,000,000,000 and total client assets of $486,000,000,000 The sequential declines were due to weaker equity markets and modest asset outflows.

[James Marischen, CFO at Stifel Financial]

While our net new assets growth for the quarter was modestly negative, I would note that asset flows turned positive in March as net new assets for the month were in the low single digits. On slide six, I'll discuss our bank results. Net interest income of $262,000,000 came within our guidance as firm wide average interest earning asset levels increased by $350,000,000 and our bank net interest margin decreased by 14 basis points to 3.1%. In addition to what I said earlier, the decrease in NIM was also due to lower asset yields, given the repricing lag resulting from the most recent rate cut, as well as the lower day count in 1Q. Our bank balance sheet remains relatively rate neutral.

[James Marischen, CFO at Stifel Financial]

As such, as we progress throughout the rest of 2025, we'd expect any changes in our quarterly NII and NIM to be to be dependent on loan growth. Ron will touch on this in more detail in his concluding remarks. Client cash levels decreased during the quarter due to a $920,000,000 decline in sweep deposits and a $690,000,000 decrease in smart rate balances, which were primarily due to typical seasonality in the first quarter related to tax payments. These declines were slightly offset by the $600,000,000 increase in venture and fund banking deposits. As a result of these fluctuations, our total third party deposits available to Stifel Bancorp ended the quarter at more than $3,700,000,000 Our credit metrics and reserve profile remain strong.

[James Marischen, CFO at Stifel Financial]

The non performing asset ratio stands at 50 basis points. Our credit loss provision totaled $12,000,000 for the quarter and was negatively impacted by the macroeconomic forecast and increased reserves on C and I and unfunded commitments. Our consolidated allowance to total loans ratio was 85 basis points. Moving on to the institutional group. Total revenue for the segment was $385,000,000 in the quarter, which was up 10% year on year.

[James Marischen, CFO at Stifel Financial]

Firm wide investment banking revenue totaled more totaled $238,000,000 as we experienced year on year increases in advisory and capital raising revenue. Advisory revenue was a hundred and 30 7 million, an increase of 15% from last year. The growth in revenue was driven by a strong quarter in financials and solid contributions from our technology and industrial services verticals. While discussions and pipelines continue to be strong, we've seen some deal activity be delayed given market volatility. Equity underwriting of 49,000,000 was up 22% over the same period at 2024 as financials, healthcare, and industrials were our strongest contributors.

[James Marischen, CFO at Stifel Financial]

While our first quarter was strong, we did see activity levels slow towards the end of the quarter, and that continued into the first month of the second quarter. Fixed income underwriting revenue was $46,000,000 in the first quarter and declined by 9% year on year. This was primarily due to lower issuance activity from our corporate credit clients

[James Marischen, CFO at Stifel Financial]

as we

[James Marischen, CFO at Stifel Financial]

had a particularly strong quarter in 1Q last year. Our public finance revenue was relatively similar to that of 1Q twenty twenty four. Stifel continues to be ranked number one by the number of negotiated issues led as sole or senior manager. Equity transactional revenue totaled $60,000,000 which was up 10% year on year driven by increased market volatility. Fixed income transactional revenue of $89,000,000 was up 1% year on year as our rates business continued to perform well as customer activity within our depository and credit union clients has been strong given the normalized yield curve.

[James Marischen, CFO at Stifel Financial]

This more than offset the slower activity levels we saw from our high yield and municipal desks. On the next slide, we'll go through expenses. As we noted earlier, our comp to revenue ratio in the first quarter was 58%. Our non comp expenses totaled $451,000,000 and were significantly impacted by the $180,000,000 legal charge that Ron mentioned earlier. Excluding legal, our non comp expenses were $271,000,000 which was a 5% increase from the same period last year.

[James Marischen, CFO at Stifel Financial]

Ratio, when adjusted for the impact of the legal accrual, was 20%. Our tax rate for the quarter was 16.4%, which was due to the excess tax benefit mentioned earlier. On slide nine, I'll review our capital position. Our balance sheet continues to be well capitalized. Tier one leverage capital decreased 60 basis points sequentially to 10.8%, and our Tier one risk based capital ratio decreased by 60 basis points to 17.6%.

[James Marischen, CFO at Stifel Financial]

Based on a 10% tier one leverage ratio target, we have approximately 324,000,000 of excess capital. In terms of capital deployment during the quarter, I'd note that we increased bank assets by $700,000,000 to 32,100,000,000.0. And we repurchased and net settled roughly 2,000,000 shares with 9,200,000.0 shares remaining on our current authorization. Finally, absent any assumption for additional share repurchases and assuming a stable stock price, we'd expect the second quarter fully diluted share count to be 108,200,000.0 shares. And with that, let me turn the call back over to Rod.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Thanks, Jim. So despite the market volatility, our operating business started the year with a solid quarter with continued recruiting success and strong contributions from KBW and our public finance business. Basically, Stifel remains well positioned as the year progresses. While we had a solid start to the year, the implementation of new administration policies for 2025 has started slower than we had anticipated just a few months ago. However, market conditions can shift quickly.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

The uncertainty around policy direction and difficult market conditions have, in our view, merely delayed what we believe to be significant business growth in the near future. If we can establish greater stability in trade policy and advance meaningful tax legislation, both of which we at Stifel believe are achievable, we expect to see positive momentum in the broader economy and capital markets. So at this time, we are not revising our 2025 financial guidance, and we remain confident in our positioning and long term growth strategy. However, while we remain cautiously optimistic, we are prepared to revisit our full year forecast if current conditions persist. We also have the flexibility to reallocate capital as needed.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Given current market conditions and our recent share price levels, we may moderate loan growth and instead prioritize share repurchases. Our first quarter buyback activity reflects this approach, and we will continue to evaluate the most strategic uses of capital as the year progresses. In conclusion, Stifel's advice centric model proved invaluable during periods of market volatility. Our seasoned advisers across both private client and institutional sectors have consistently guided clients through turbulent times. As markets stabilize, we are poised to continue our long standing tradition of growth.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

With that, operator, please open the line for questions.

[Operator]

Thank If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal. And we can take our first question from Devin Ryan with Citizens.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Good morning, Devin.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Great. Hey, Ron.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Hey, Jim. How are you doing?

[James Marischen, CFO at Stifel Financial]

Good morning.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Good.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Good. I wanna start with a question on adviser recruiting. Heard heard some of the commentary, Ron. But, yeah, obviously, the there's been a number of acquisitions in the space over the past year. On the flip side, markets have been volatile, which aren't always the best time for people to think about moving.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

So just with some of those crosscurrents, just love to maybe get a sense of what it looks like in terms of advisers in motion right now And how if you could just maybe drill in a little bit more on the recruiting pipeline and expectations for 2025. Obviously, last year, adviser headcount declined a little bit for reasons that you guys spoke about. I think that was more of an aberration, but just your expectation for growth this year just given some of those cross currents.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Well, it has been active with with both, you know, the recent deal in the employee space with private equity and and then the independent transaction. I guess I don't need to name the names. I probably know who they are. But, yeah, those those have been interesting transactions, that that I've that I've noted. As it relates to recruiting, look, I am pleased with recruiting.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

I am pleased with some very three high quality teams this quarter that that are highly productive with with client and assets and across the across the spectrum of businesses that is positioning us as a destination for advisers that that really are are highly productive. And we see that, you know, continuing. My my calendar in terms of recruiting and dinners, and yesterday, we had a virtual open house that was highly attended is is I'm I'm encouraged. And and markets like this, when you get through this volatility with some decline in the markets, generally pick up recruiting activity. So, look, I'm I'm pleased.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

I adviser, I don't look at adviser headcount as much as I look at productivity. And and what we're what we're doing is is really increasing the productivity, the scale, the breadth, the depth, and just our reach into the wealth management space. So look, Devin, I'm I'm I'm pleased. We can always do better. We we always you know, we're we're driven by that darn thing called return on investment.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Alright? And and so that's that's the governor on this. But I'm I'm encouraged. Jim, on

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

a brief date.

[James Marischen, CFO at Stifel Financial]

In addition to recruiting, and I also remind everyone that we closed the B. Riley triad transaction in early April, which added, you know, 36 financial advisers and approximately 4,000,000,000 of AUM.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

So that's another area of growth that will contribute And and on our platform, I think those advisers are going to be much more productive. I wanna say that. We we do we we will see in the productivity of those advisers, you'll see the strength of our platform.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Oh, go ahead, Jim. I didn't mean to interrupt.

[James Marischen, CFO at Stifel Financial]

Nope. That was it.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

So, yeah, Devin. I I think it's a it's a great question. It's always a question. And every quarter, you know, that's we're we're focused on continuing to build build the firm to our, you know, to our goals.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Yeah. That was great. Appreciate it. Good good to hear you're feeling well. And then the just quick follow-up for Jim, I guess.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

On the wealth commissions, those were a bit softer than we had modeled. Was that just trailing commissions declining or some hesitancy with the volatility? I'm just trying to get a little bit of a sense of what happened in the first quarter and then kind of the trajectory as we look out over the course of the year.

[James Marischen, CFO at Stifel Financial]

I think it was a little bit of both. I I I think some of it was fairly commit or the the the the trail as well is just limited activity early in the quarter. You remember all the volatility that occurred happened, after the March. And so we've seen somewhat of a pickup there in in some of the client engagement and client repositioning portfolios. But, again, that happened after the end of the quarter.

[Devin Ryan, Director of Financial Technology Research at Citizen JMP]

Got it. Okay. Alright. I'll leave it there. Thank you both.

[Operator]

Thank you. And our next question will come from Mike Brown with Wells Fargo Securities.

[Michael C. Brown, Equity Research Analyst - Asset Managers, Brokers and Exchanges at Wells Fargo]

Ron, just to maybe follow-up on the organic growth question from Devin. You alluded to a change in the in approach to recruitment, and that does seem like it's been supporting success with big teams and from the wirehouses. So maybe some light of this, can you just expand on what that shift has meant? And do you expect to see continued success from some of those bigger teams? Thank you.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Well, I think I think that if you look at I think our view on it is is that if you look at our margins in in wealth management, look at our footprint and the scalability of that model and where we have capacity. These are all factors that went into our thought process in in various cities. We just went back to our model and just said, you know, look. With this profitability and scale, we we can be more competitive on our transition packages and yet still easily clear our return requirements. So we, you know, we we've been pretty disciplined as the markets moved away from us.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

And we've said, you know, some of these deals are crazy. But then we went back and looked at, you know, our advantage, which in many ways, it's it's it's classic business. Right? If you have a pricing advantage, which we do in terms of our margins, and it gets really competitive, well, then then let's let's just compete a little bit more because we have the ability to do that. And you couple that with nearly 400 offices and some empty desks that that are sitting there underutilized.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

You put all that together, and we've said, oh, let's just be a little more competitive. And that's that we can see that that's gonna pay you know, that that'll help the recruiting. And and still, I can still say to all of you, look. We're not mortgaging the future to show short term growth. And that's that's always my concern is, you know, you you these these deals get amortized over a long time.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

And if you if you consistently do bad deals, it won't show up immediately, but it'll show up in a few years, and we're we're cognizant of that. But I I like where we are.

[Michael C. Brown, Equity Research Analyst - Asset Managers, Brokers and Exchanges at Wells Fargo]

Okay. Great. Makes sense. And then if we just maybe change gears and unpack your comments on the MA activity in the bank space, that's an area where the deregulation is happening. The Capital One Discover deal, had has gotten approval.

[Michael C. Brown, Equity Research Analyst - Asset Managers, Brokers and Exchanges at Wells Fargo]

That seems to remove a regulatory overhang. But we are seeing lower share prices, a shifting interest rate backdrop, those present headwinds. So what's the view there in terms of that consolidation trend? Is it perhaps as strong is it as strong as it was coming into the year? And do you think we can see those announcements coming through in 'twenty five?

[Michael C. Brown, Equity Research Analyst - Asset Managers, Brokers and Exchanges at Wells Fargo]

And then just given that deregulate deregulate regulation tailwind, are you expecting a shorter time frame between announced and close on those deals?

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Well, the the your sec your second question first, and the answer is yes. We believe that Discover Capital and we believe that even deals that could be announced now could close this year. Okay? That's if you had asked me that two years ago, I'd have said no. There will be no more closings, on deals that'll get announced in April.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

But, yes, we believe that the the from announcement to close has shortened, even to the point where I would say, you know, I'm not but but it would not be unreasonable to announce a deal and still close it this year. At least that's what that's what my bankers are telling me, and I'm listening to them, okay, and and the ones that are going through the process. So that's the second question first. As it relates to overall activity, it's a great question, and it it it it will be driven in many ways. Yeah.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

It's a it's sort of a I don't wanna say a self fulfilling prophecy, but there is a there's a lot of reasons that consolidation needs to occur. And there, you know, there were a number of headwinds in terms of accounting and mark to market and and a number of things. And what you'll see, I think, alright, and it's I mean, you're just gonna have to take take me at it because I'm not gonna point to anything. But I think, though, you'll get a couple of transactions when they do or if they do get announced or whatever that will begin to drive the the what happens when someone says, that was how that was done, and, oh, we gotta look at this deal. And so, you know, bank banking m and a is often a, you know, a crowd sport, you know, if you will.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

One does it, and another one does it. And then the another one reacts to the competitive things. And so that that's what happens. And that's I can see that happening. Alright?

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Now we'll see. Okay? But that's that's what I would say. I I would say if I overall looked at our segments, I would still think that our FIG segment, at least on the advisory side, will be one of our better segments and and would would be at if I sit here today, will be stronger than last year. Other segments, I think, are more more tariff, you know, tax policy, number of uncertainties that need to be cleared up to allow that even even there's more debt financing in some other segments.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

So I I feel that that's a little softer, but, but financials, I think, will be a little stronger.

[James Marischen, CFO at Stifel Financial]

We've seen bank deals approved in as little as four months.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Yeah.

[James Marischen, CFO at Stifel Financial]

And so, you know, there's obviously some positive feedback we're getting from the regulators and their receptivity to approving transactions, and that's very positive given the the the rationale that Ron laid out with

[James Marischen, CFO at Stifel Financial]

the need for banking.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Right.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

And I think a lot of the regulators understand that there's a there's risk. There there's a lot of risk between, you know, between announcement and closing that that that regulators recognize now and they're trying to minimize. Because that that is a risky time frame for shareholders.

[Michael C. Brown, Equity Research Analyst - Asset Managers, Brokers and Exchanges at Wells Fargo]

Great. Thank you so much for all the color there.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Yes.

[Operator]

Thank you. Our next question comes from Alex Blostein with Goldman Sachs.

[Alex Blostein, Managing Director at Goldman Sachs]

Hey, guys. Good morning. Thank you. Another one on recruiting, just again related to the sort of adjustments you made to your approach to stay more competitive. Is there any particular section in the market that's more receptive to sort of the changes you made and the changes you're seeing in your recruiting pipeline?

[Alex Blostein, Managing Director at Goldman Sachs]

And I know you talked about building out the independent channel in the past. I'm not sure if that's sort of part of the changes you're making or you're still largely focused on the employee channel.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Well, largely focused on the employee channel, first of all. And second of all, yeah, I think where I think where we focused is on is on the higher, you know, productivity, more holistic teams that, you know, that do work with family offices, work on both sides of the balance sheet, not only managing money, but utilizing our bank to provide banking and holistic services. So I I would say, you know, the the the the adviser's team, so not just single advisers, but but attracting teams that are are approach the business on the employee side, albeit, but approach the business from a holistic, you know, advice and planning model. And that look. And we have a lot of advisers who do very well just, you know, advising clients, but there is there is a segment of of employee channel that we've adjusted to be more attractive to.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Because that that same segment is probably also, you know, being more heavily corded by the RIAs. And so we're we're adjusting to both our inherent pricing advantage and the competitive nature that that comes from the RIAs.

[Alex Blostein, Managing Director at Goldman Sachs]

Got it. Okay. Understood. And then in terms of the outlook, obviously, appreciate the challenges with trying to predict the next several months given all the uncertainty, so maybe keep banking out of it. But when it comes to NII, maybe give us your updated thoughts on sort of near term outlook for q two and for the full year.

[Alex Blostein, Managing Director at Goldman Sachs]

And as part of that, I was hoping you could hit on where cash balances stand in April. Obviously, lots of volatility, but there's also tax season. So maybe some of the core buckets, you know, sweep deposits as well as third party bank sweeps, sort of kind of where that where that stands so far in April.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

You know, Alex, this is a great time for me to say, Jim, this is your So,

[James Marischen, CFO at Stifel Financial]

I mean, I think we gave a range for NII for the second quarter of '2 hundred and '60 to 270,000,000. And I think given the fact we've talked about our balance sheet being rate neutral, the outlook is really gonna be dependent on the mix and volume of loan growth. Ron gave some commentary of continuing to evaluate the trade off between repurchases and loan growth, and we're gonna look at that every day based upon the best risk adjusted return. So more to come there based upon how the market continues to evolve, but that's gonna be the primary driver. In terms of cash sweeps, we've still seen some continued outflows since the end of the end of March.

[James Marischen, CFO at Stifel Financial]

Sweeps probably down another 50,000,000, and we've seen a couple hundred million plus in terms of of smart rate. Again, I would say the vast majority of that is typical seasonality related to tax payments. I think the key with the inflection point in the sweep and smart rate balances is what happens now that we're, you know, after tax season and where balances go from here.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Yeah. I mean, there there's I can say when I look at it, the the relative size of tax payments can following two years of really strong market gains and some profit taking that was occurring is is high. Okay? Relatively high. There's there's a lot government coffers are getting some cash, well, at least from the this part of the economy that I see.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

So and, you know, and I and I think just to go on what Jim just said, I wanna reiterate. I it should be obvious to everyone on this call that in the environment that we're in, especially with the drawdown and share valuations, especially in financials and staying at Stifel, that the math changes on the return on investment vis a vis allocating capital to building balance sheet growth via loans Mhmm. Or repurchasing shares at at these levels. The math changes. But, also, the loan demand in this environment is also somewhat muted relative to what we were expecting.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

And we, you know, we don't necessarily like trying to grow loans in without a lot of loan demand because that sometimes leads to adverse selection. So the combination of all of that just has us trying to say to you, look. Today, as we sit here today, we we can see, instead of saying we're gonna grow our assets by Three to five. Three to five billion, we could say that'll be lower, but we'll up our share repurchases because we're still generating a lot of capital. But that that that's maybe the the shift in tone a

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

little bit, Alex.

[James Marischen, CFO at Stifel Financial]

And one other follow-up comment on cash. I should also mention we've continued to see nice increases across the venture and fund banking deposits.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Yeah.

[James Marischen, CFO at Stifel Financial]

You know, the last two quarters have been well above that kind of $300,000,000 run rate of net additions, and we're continuing to see that, nice level of increase in the first you know, what we've seen so far in April.

[Alex Blostein, Managing Director at Goldman Sachs]

Yep. It's a balance. Totally get it. Thanks, guys.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Thanks, Alex.

[Operator]

Thank you. And we will take our next question from Steven Chubak with Wolfe Research.

[Steven Chubak, Managing Director at Wolfe Research LLC]

Hi. Good morning, Ryan and Jim. Hi. Hope you're both doing well. So wanted to ask ask a follow-up on some of the trends that we saw at the bank, specifically around the NIM.

[Steven Chubak, Managing Director at Wolfe Research LLC]

The contraction was admittedly probably the highest among the banks that we track. It looks like the primary culprit was securities yields. I was hoping you could unpack, the timing related impacts that you were alluding to earlier. Just wanna get a sense as to how big of a drag that was on the NIM in the quarter and how you're thinking about just managing duration bigger picture just given some of the expectations for increased deepening of the curve.

[James Marischen, CFO at Stifel Financial]

So, obviously, within the bond portfolio, the CLO, the CLO book is by far the largest piece. Those reprice over ninety days, so you're still getting the lag effect baking in on the asset side there in terms of the last two rate cuts in the in the fourth quarter. You also saw a pretty sizable drawdown if you look on the yield chart on c and I loans. I think it was down 75 ish, somewhere in somewhere around 75 basis points. Again, I mentioned on the call, both this quarter and last quarter, the impact of some of the success fees that we had related to venture clients.

[James Marischen, CFO at Stifel Financial]

That was a couple million dollars in the fourth quarter. And, obviously, those are episodic kind of one time in nature and hard to predict. But when you think about that impact on NIM, that's annualized into the NIM calculation and has a bit of an outsized impact. So you combine, you know, the day count, you combine the repricing lag, you know, you look at loan growth being lower than we originally anticipated, and then you layer on top the success fees. That's really what's driving it.

[James Marischen, CFO at Stifel Financial]

And so, you know, while the decline may have been more than you've seen in some other places, we're still very happy with the three ten bank, a NIM in this environment. I I think that that return is is very strong. I'd also say if you look at our results, they were also within our forecasted range of 260 to 270,000,000, although at the lower end of that range. So I think this is not unexpected from where we were trying to guide to last quarter on our call.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Yeah. I think look. I it's a great question. And looking at the raw numbers, I agree with what you're saying. But when we unpack it, we're very comfortable.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Primarily, these success fees and the impact that that has. So, you know, Steve and I I I I hear you, but I would caution you to not think that that's some permanent compression.

[James Marischen, CFO at Stifel Financial]

Yeah. I mean, we're more asset sensitive than most banks. Right? And so we also have the ability to adjust that on the liability side in terms of rate cuts. And so, you know, that gives us the ability to be relatively rate neutral outside of these kind of timing effects, whether it be the the fees or the lag on certain, items on a quarter to quarter basis.

[Steven Chubak, Managing Director at Wolfe Research LLC]

No. It's a fair point. And and certainly did see that on the liability side, you guys did a nice job of managing, deposit pricing. The, just for my follow-up, I did wanna drill down into public finance and maybe fixed income more holistically. Now the public finance outlook, just given the murky policy picture, how much of the strength in activity do you believe is durable versus temporary?

[Steven Chubak, Managing Director at Wolfe Research LLC]

And then on fixed income brokerage, just given the strength in volumes and volatility, the revenues there were a little bit lighter than we had anticipated and was hoping you could unpack that as well.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

You know, on on public finance, yep, it's murky. It's there are a lot of things that are murky with respect to, you know, the tax bill and what's, you know, what's on the table. You could actually see a big, big, big, big spike in inactivity depending on, you know, what happens if you say private activity bonds or stadium bonds or things like that, college, you know, taxing up status for certain large colleges. A lot of things on the table here. And so I think that that coupled with just the murkiness has has led that to, you know, to be a little choppy.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

That said, there are lots of infrastructure that needs to be done. We see it especially at the community levels where we are highly active in terms of just normal infrastructure, whether it's schools, sores, you know, development, housing. So we we see that business remaining healthy. But but anytime you anytime you're floating around tax bills, you know, that's gonna create some uncertainty. That's that's what I would say on public finance.

[James Marischen, CFO at Stifel Financial]

We certainly hit, and things are kind of ground to a halt in public finance in March. Certainly hit an air pocket, but I'd say our calendar right now, our underwriting calendar is as busy as it's ever been, and the outlook there is very strong.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Well, it's not just steeple on the street.

[James Marischen, CFO at Stifel Financial]

Yeah.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

And then look at the volume.

[James Marischen, CFO at Stifel Financial]

Certainly. And then in regards to rates or or in regards to to fixed fixed income trading, the thing I'd point out is, you know, we had a a decent quarter in our rates business. One q is typically our seasonally slow period for our rates business. And then you add on to the fact in the comparable period last year, particularly with our credit book, we had a lot of trading in the Visa B shares. That is, you know, somewhat episodic as well and didn't repeat itself to anywhere near the level we saw in the prior year.

[James Marischen, CFO at Stifel Financial]

So you combine those things, that that had an impact on the first quarter. But I think from here forward, when you think about fixed income trading, I think, you know, the second quarter would be relatively flat to up from here, with a relatively optimistic outlook.

[Steven Chubak, Managing Director at Wolfe Research LLC]

That's great color. Thanks so much for taking my questions.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Absolutely.

[Operator]

Thank you. Our next question will come from Bill Katz with TD Cowen.

[William Katz, Senior Equity Analyst at TD Cowen]

Great. Thank you very much for taking the questions this morning. Good morning, everybody. So I'm just trying to come back to some of the math, if that's okay. If I simply annualize your first quarter revenues, I get sort of below the low end of your initial guide, your current guide, which you're not changing at the moment.

[William Katz, Senior Equity Analyst at TD Cowen]

I certainly appreciate all the moving parts. But as I think about your commentary into the second quarter and what's been going on in the macro perspective, it seems like revenues may tip down, potentially just given the different business component pieces, if you will. So just trying to understand what's your macro framework as you get to the second half of the year, particularly if you still think the S and P is going to hover at current levels here. I'm just trying to figure out where the incremental drivers of opportunity might be. Thank you.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Well, first of all, I I I so I don't know this exactly, so I should be careful. I'm I'm thinking if you go back, like, almost every year and annualize our first quarter, you would end up less than what we end up with. I mean, it's just that's just the seasonality in our business. It's you know, the fourth quarter is always strong, but revenue gets pulled into the fourth quarter. The first quarter tends to be tends to be relatively slower as does the third quarter, usually.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Okay? But, our we have adjusted our internal forecast to account for lower equity markets. We've adjusted it for our pipeline. We've adjusted it for what things the deals are. So when I say that we're not revising our guidance, it's it's not on the hope of some, you know, miraculous turnaround.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

It is on the belief that, you know, the equity markets may hover around here. But we do, you know, we do think that on the institutional side of business and on the advisory side, which

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

is probably the biggest

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

fluctuation always, we believe that this short term low in inactivity, the advance, all of the things, we believe is not an for the rest of the year thing. Now as I said in my remarks, if if it turns out that we're gonna take tariffs in China to 250% and, you know, and and do some other things that have been talked about, then we'll revisit it. But right now, as we sit here today, I'm comfortable with with what we have said. And I believe I believe from here that market conditions will improve. But you're that's looking into a crystal ball, and I would I wanna say that our our need to to get within our guidance range, though, does not require, you know, some recovery in the markets here of any, you know, magnitude.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

It would help. It'll gap definitely help on the institutional side to get take some of the volatility out of this market.

[James Marischen, CFO at Stifel Financial]

It I would add, it's just it's really hard to annualize investment banking results in any quarter in any economic environment. That's really lumpy. And particularly on the underwriting side, that can change very quickly if the market gets some stability to it. On the advisory side, we talked about the strength in, you know, KBW at length here already, but we've also seen a strong outlook within our tech practice, with our industrial services practice. So there are pockets of strength there that we see things improving over the back half of the year.

[William Katz, Senior Equity Analyst at TD Cowen]

That's very helpful. And maybe just on capital management, I appreciate the interplay between the decision to repurchase stock versus grow the, the bank balance sheet. How are you thinking about m and a more broadly for the firm at large, just given a lot of volatility and some deals around you? Any areas of of particular focus that might be of interest as you think about inorganic opportunities? Thank you.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Yeah. But, you know, back to the first part, do I also wanna say that on the street, and I and I would echo this, you know, activity, especially by is usually back half weighted. Okay? And that's true in almost every year. But if I when I listen to the commentary and what people say, and as I said in my remarks, a lot of things have been delayed, I think, have not been canceled.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

So there is increasing demand for services, assuming we don't drive The US economy off the cliff. Okay? And and I don't think we're going to. Now to as it relates to m and a, we're always, you know, we're always looking at things, and and we will continue to do so. The I I feel that a lot of the pricing, which is primarily driven by firms that don't have the capital levels that that we have as a regulated institution that fund deals with debt and don't really need tangible equity has really made pricing of these deals difficult for us in the last few years.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

But we're we're always looking. We again, b Riley was a nice bolt on, and and I'm I'm always open. Okay? And and get a lot of the calls. I don't feel like we're missing anything.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

But as I said in my opening remarks, I do rely on that calculator on return on investment, and that's always gonna be a governing factor.

[William Katz, Senior Equity Analyst at TD Cowen]

Okay. Thank you for taking both questions.

[Operator]

Thank you. And our next question will come from Chris Allen with Citi.

[James Marischen, CFO at Stifel Financial]

Hey, Chris.

[Christopher Allen, Managing Director at Citi]

Good morning, guys. Thanks for taking the question. Thanks for taking the questions. Most have been covered.

[Christopher Allen, Managing Director at Citi]

One thing I wanted to ask on is just the the FICC brokerage, Alex, the 2Q flat to up. Just if you could remind us what level of visit FICC brokerage is tied to FICC underwriting and what is and it's kind of the the separate buckets there. Muni, I think, is a key driver of trading, but I think rates is most important. And and just to try to think about the different outlooks, and what's what is tied to underwriting, under recovery and what can continue to perform, you know, without underwriting coming back in the near term.

[James Marischen, CFO at Stifel Financial]

So so from a FICC underwriting perspective, obviously, the vast majority of that is gonna be public finance. But outside of public finance, a lot of what you'll see is, you know, investment grade type activity. We had a reasonable year last year there. It's been a little bit slower activity earlier in this year. I think we referenced that in some of our comments here earlier.

[James Marischen, CFO at Stifel Financial]

And so those are really kind of the main drivers there. But, you know, we touched on kind of the other kind of thick transactional drivers, with one q kind of being generally a softer, the softer quarter in the year. But I don't know if you have anything else to No.

[Christopher Allen, Managing Director at Citi]

Thanks, guys. Appreciate it.

[Operator]

Thank you. And it appears that we have no further questions at this time. Mister Kruszewski, I will turn the call back to you for any additional or closing remarks.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Thank you, operator. So I'll just close by saying, you know, these are these are volatile times and uncertain times. Stifel is well positioned from a balance sheet, from a liquidity, from a diversification of business to to not only perform well in in markets like this, but we're well positioned with respect to the rebound in markets. And and I'll end maybe on optimistic note that that I believe the recent volatility and all the uncertainty is short term. It's it's unique negotiating styles, but the the the economy remains strong.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

And when we get a little more certainty on some of these very disruptive policies, we will we are well positioned, and I think the industry is well positioned to to take and monetize some of the deals that have frankly been delayed. But we'll see. Hope springs eternal here, and we we're well positioned to continue our historical growth. I look forward to talking to everyone on the second quarter call. And to everyone, have a great day.

[Ronald J. Kruszewski, Chairman & CEO at Stifel Financial]

Thank you.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Joel Jeffrey, SVP - IR
• Ronald J. Kruszewski, Chairman & CEO
• James Marischen, CFO

Analysts

• Devin Ryan, Director of Financial Technology Research at Citizen JMP
• Michael C. Brown, Equity Research Analyst - Asset Managers, Brokers and Exchanges at Wells Fargo
• Alex Blostein, Managing Director at Goldman Sachs
• Steven Chubak, Managing Director at Wolfe Research LLC
• William Katz, Senior Equity Analyst at TD Cowen
• Christopher Allen, Managing Director at Citi