Q2 2021 Stifel Financial Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Stifel Financial Corp, <unk> 2021 earnings conference call on.
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As a reminder, today's conference is being recorded it is now my pleasure to hand, the conference over to Mr. Joel Jeffrey.
Thank you operator, I'd like to welcome everyone to Stifel financial second quarter of 2021 financial results Conference call.
I'm joined on the call today by our chairman and CEO, Ron Kruszewski, our co presidents, Victor Niecy, and gyms that Mike and our CFO Jim Morrison.
Earlier. This morning, we should in the earnings release and posted a slide deck to our website, which can be found on our investor Relations page at Www Dot Stifel Dot com.
I would note that some of the numbers that we state throughout our presentation are presented.
On GAAP basis, and I would refer to our reconciliation of GAAP to non-GAAP as disclosed in our press release I would also remind listeners to refer to our earnings release financial supplement and our slide presentation for information on forward looking statements and non-GAAP measures.
Video cast is copyrighted material of Stifel financial you may not be duplicated reproduced.
On a broadcast without the consent of Stifel Financial Corp.
I will now turn the call over to our chairman and CEO Ron Kruszewski.
Thanks, Joe to our guests good morning, and thank you for taking the time to listen to our second quarter 2021results.
I'll start the call with some highlights from our quarterly and first half results then I'll discuss.
Our revised outlook for the full year, Jim Erickson will review our balance sheet on expenses, and then I'll wrap up of some concluding thoughts.
Before I get into the specifics of our quarterly results, let me start by saying that overall Stifel business in the first half of 2021 has surpassed any 6 month stretch.
<unk> of margin and rival some of our most recent full year results. Our record 6 month net revenue was the result of record the bulk of our major operating segments. The strength of our topline and our continued focus on the operating efficiency resulted in record quarterly and 6 month revenue as well as record.
Record earnings per share.
As we head into the back half. This year, we are well positioned to continue our strong performance, which is illustrated by our increased full year guidance, which I'll discuss in greater detail in a few minutes.
So looking at our quarterly and year to date snapshot the numbers really speak for.
Why are the result of the investments over the last several years and our strong operating environment, especially for our investment bank.
Revenue in the second quarter was a record of more than 1.15 billion, an increase of 29% for the 6 month period revenue was nearly $2.3 billion.
So up 27% and further illustrating our growth was roughly as much as our 2015 full year revenue.
The growth in revenue and lower expense ratio resulted in record non-GAAP EPS of $1.70, which was up 65% year on year and $3.20.
Year to day, which is up 75% and when compared to our past full year results would rank as the fourth best in our history.
I'm also pleased with our operating leverage as we generated record pretax margin of 24% and our annualized return on tangible common equity was nearly 31%.
He tangible book value per share increased 29% in the last year.
Yes.
Turning to the next slide our record second quarter net revenue was driven by global wealth management and increased 26% on our institutional business, which posted a 31% of probe card.
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As a percentage of net revenue declined sequentially to 59, 5%, which was in line with our guidance on last quarter's call our.
Our operating expense ratio of 17% and excluding credit provision in investment banking gross hubs are operating ratio totaled 16%. This was again well.
Below our full year guidance due to the strength of our revenue and expense management.
As the economic outlook improves we like other banks have updated our economic models. This coupled with strong credit performance of our loan portfolio resulted in a reversal of more of that 9 million of credit provisions during.
During the quarter I would note that this was comprised of a $4 million release of credit provisions due to improving economic outlook and approximately $5 million relating to loan sales as it relates to the long sales, Jim <unk>, who will provide more color in his remarks.
Neutralizing the impact of.
Of credit provisions Stifel pretax pre provision income totaled $270 million, which increased 31% year on year and 13% sequentially.
While the strength of the operating environment, particularly in investment banking has been a primary driver of our results I.
1 of understate the importance of the investments we've made in our business as a meaningful contributor contributor to our performance.
The full is and will continue to be a growth company, our focus on investing in our business and making us more relevant to our clients has resulted in not only of impressive topline growth.
A significant operating leverage.
As you can see from the numbers on the slide our total net revenue on an annualized basis. In 2021 has doubled since 2015 on was driven by both on our wealth management and institutional businesses of essentially doubling in that timeframe. What is particularly interesting is not only.
Do not a revenue growth doubled but our growth rate has accelerated.
Tale of strength some of the numbers at the end of 2015, our net revenue totaled approximately $2.3 billion with nearly $1.4 billion from wealth management of roughly a $1 billion from our institutional group.
Since that time, we've grown.
Only health management business by hiring experienced financial advisors and more than doubling our balance sheet. This has led to a more than 70% increase in total client assets an annualized global wealth revenue that was surpassed 2015 results by 84% our institutional business we've made.
Our acquisitions on our total managing directors have increased 67% and our investment banking business contributing to an 111% increase in our institutional revenue since 2015.
Our revenues are on on an impressive trajectory our ability to generate operating leverage.
6 I think is even more outstanding in the first half of 2021, our pretax margin increased to 23% from 10% in 2015, while on a return on tangible common equity improved to 30% from 10% on that same time period.
Looking at our operating leverage of another way.
Our EPS has quadrupled on a doubling of revenue since 2015. This increase on our scale and the fact that we continue to be more relevant to our clients are the primary drivers behind my optimism for the back half of this year.
Now before I go into details of our updated guidance.
I want to note that our revised outlook is based on continued favorable market conditions.
There are always risks such as market corrections of geopolitical crisis that could negatively impact the operating environment, and particularly our investment banking business.
But given the strength of our results on the first half.
Of the year, the current strength of our pipelines and my visibility into the beginning of this quarter. We believe that it is appropriate to increase our full year guidance at this time.
We now expect net revenue to be in the range of 4.5 to $4.7 billion up 13% to 18% from the high end of our prior.
It's a reflection of the strength of our investment banking and wealth.
Management businesses, where.
We are tightening our net interest income guidance to $465 million to $485 million is the benefits of the growth on our balance sheet has helped to offset the decline in short term rates in the second.
Prior 2021, we anticipate an additional $2 billion of asset growth at our bank.
As a result of our increased revenue expectations, we are lowering our expense ratio guidance, our comp ratio is lowered to 58% to 60% given our expected NII results and strong investment banking.
Half of our operating non comp expense ratio of expectation has declined to 16, 5% to 18, 5% as we continue to see improved operating leverage on our business.
I would note that the midpoint of our revenue guidance would suggest that Stifel achieve second half revenue essentially equal to our.
6 months of of revenue the current market environment, and our pipelines clearly support the guidance and further historically the second half of the year, especially the fourth quarter, our strong seasonal periods for Stifel.
I would also note that not only is our updated guidance significantly above our original expectations.
Our first loans, but also well above the current 2021 street expectations of $4.3 billion in revenue and $5.57.
Of earnings per share.
With that let me move onto the results of our operating segments, starting with global wealth management.
Second quarter revenue totaled.
<unk> record of $638 million up 26% year on year and was 6 month revenue of $1.3 billion also on record and up 17%. Our growth was driven by increased asset management revenue and net interest income the <unk>.
<unk> growth in our asset management revenue.
It was driven by higher market valuations and increased client assets, which finished the quarter at a record at record levels total assets under administration were 402 billion and fee based assets of 149 billion rose 8% sequentially. These asset levels should drive further growth and asset manager.
Total revenue in the current quarter.
Net interest income increased 3% year over year, primarily given our continued ability to grow loans and produce a stable net interest margin Jim will touch on this further.
Later in the presentation.
The next slide highlights the strength of recruiting in the growth.
<unk> the drivers of our platform.
We added 26 advisers, including 14 experienced advisors with total trailing 12 month production of $12 million. The gross number of recruits is down compared to last year as the return of advisors to their offices have slowed recruiting in addition.
Growth drove increased competition from larger firms offering what is in our opinion very high transition packages that said as our inflation experts on Washington like to say, we view the situation as transitory as our pipeline remains robust. Additionally, we definitely are seeing activity within.
Within Stifel Independent advisors, and look forward to recruiting to pick up in this channel.
Moving on to our institutional group, we posted our third consecutive record quarter in our institutional business as we continue to benefit from increased activity levels and the scale of our best of luck.
Our quarterly net revenues totaled a record 500.
On a $21 million, which was up 31% from the prior year 6 months revenue increased 41% to over 1 billion quarterly advisory revenues more than doubled to $207 million, while capital raising posted revenue of $158 million, which was up 42%.
These results.
More than offset of 17% decline in our trading revenue while the decline in trading revenue was expected as compared to the robust activity of the second quarter of 2020, I am pleased with our results relative to the street at least to the reported numbers that I have seen.
As noted on previous earnings calls.
So we've been investing in our institutional business with the objective of becoming more relevant to our clients and the market as a whole <unk>.
Our leverage on these investments was on display this quarter as our pretax margins improved by 630 basis points to 27%.
Looking at the revenue components of our Institute.
As most of our equities business posted record first half results of $391 million up 52%, while our second quarter revenue totaled $163 million up 29% year on year, our fixed income business posted quarterly revenue of $147 million while.
On 13% year over year was up sequentially on.
This slide I will focus on the trading businesses of the segments and discuss capital raising on the next slide when I talk about investment banking with respect to our trading businesses equity quarterly revenue totaled $61 million down 22%.
Down from record levels in the first quarter, which was slightly better than the overall market volume declines, which we witnessed 6 month revenue was $141 million, which was up 5% from 2020 fixing.
Fixed income trading revenue of 92 million was down 7% sequentially similar to my comments regarding.
Percentage of equities or fixed income trading was impacted by lower industry volumes, while on industry wide slowdown in credit trading was the primary driver of our revenue decline I want to say that our rates of muni revenue experienced solid improvement.
On slide 9 investment banking revenue of 370.
The 6 million was our third consecutive quarterly record an increase of 73% driven primarily by record advisory revenue first half revenue of $716 million increased 81% as we generated record capital raising in the first quarter and record advisory revenue in the second quarter.
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I noted on last quarter's call that we expected a strong second quarter for our advisory business and that is exactly what we got record revenue of 207 million surpassed our prior quarterly record by 19% in terms of verticals financial goes the standout as <unk>.
Of the best quarter since our merger back in 2013.
Since the beginning of 2020 K BW has advised on 8 of the 10 largest bank mergers and has the highest market share in the firm's illustrious history. Additionally, we saw strong contributions from technology consumer.
In diversified services as well as on the fund placement business from Eaton partners looking at our third quarter barring a substantial change in the market or economy, we expect to see continued strength in advisory revenue.
Moving on the capital raising our equity underwriting business posted revenue of $112 million up 60.
61% and our second best quarter in history trailing only the first quarter of this year strongest verticals, where consumer health care technology and financials.
In addition to the strength of our equity business, we generated record results on our fixed income underwriting business of $57 million, which was up 16.
16%, our municipal finance business posted another great quarter as we lead managed 244 of municipal issues for the first 6 months our market share in terms of number of transactions increased to 12, 5% from 10, 9% in the first half of 'twenty.
<unk> thousand 20, I think of it is noteworthy that in the first half of 2021 non public finance.
Revenue, which was minimal just a few years ago now accounts for nearly 20% of our fixed income underwriting. This was the result of our efforts to diversify both domestically and internationally.
In terms of our overall pipelines they continue to build and remain at record levels. We expect strong performance from all of our major verticals and as our updated guidance indicates I am very optimistic for our investment banking business in 2021.
With that let me turn off the call over to our CFO Jim <unk>.
Thanks.
Good morning, everyone before getting into our net interest income and balance sheet I want to make a few comments on our GAAP earnings and non-GAAP charges.
In the quarter, we saw of Tencent differential between our GAAP and non-GAAP results.
To add some color of these items the differential is almost entirely related to 3 basic deal related expenses.
Including stock based compensation intangible amortization expense.
On an additional true up on an earn out from an acquisition has performed better than our original projections.
Now, let's turn to net interest income.
For the quarter net interest income totaled $119 million, which was up $6 million sequentially or.
Our firm wide and bank net interest margins remained at 200 basis points and 240 basis points, respectively as.
As expected our NIM did not change from the prior quarter, while net interest income benefited from a 6% increase in interest earning assets.
Such on this growth of this growth in more detail on the next slide.
In terms of our third quarter expectations, we see of net interest income in a range of $115 million to $125 million and with a similar NIM to the second quarter.
We noted last quarter, the significant improvement in our asset sensitivity when compared to just a few years ago.
We are maintaining our prior guidance of 150.
To $175 million of.
Of incremental pre tax income as a result of a 100 basis point increase in rates.
This assumes the same set of assumptions discussed last quarter applied to our quarter end balance sheet.
Further the additional balance sheet growth guidance that Ron described earlier in the presentation would be additive to this rate sensitivity.
Utility guidance.
Moving on the next slide.
I'll go into more detail on the bank's loan and investment portfolios.
We ended the quarter with total net loans of $12.9 billion, which was up approximately $700 million from the prior quarter and was primarily driven by growth in our consumer channels.
Our mortgage portfolio increase.
<unk> by $400 million sequentially as we continue to see demand for residential loans from our wealth management clients.
Our securities based loan portfolio increased by approximately $240 million.
Growth in these loans continues to be strong as the FAA recruiting momentum continues to drive increased loan balances.
Our commercial portfolio accounts for 37% of our total loan portfolio is primarily comprised of C&I loans, which were up slightly from the prior quarter.
Our portfolio is well diversified with our highest sector exposure and fund banking, which increased outstanding balances by $325 million during the quarter.
We believe these loans continue to represent an attractive risk adjusted return and we expect.
To continue to be active in this space.
I also want to note that we added nearly $200 million reduction in our PPP loans during the quarter.
This was expected as a good portion of these loans were originated as part of the third party origination platform.
We also expect to see further reduction of PPP loans in the third quarter.
Moving to the investment portfolio, which increased by $300 million sequentially.
About 2 thirds of this increase was seen with <unk>, while the remainder of the growth was primarily in shorter duration corporate bonds.
Turning to the allowance.
For the second straight quarter, we recorded a reserve release in the second quarter, we had of $9 million of reversal of our allowance through of negative provision expense as additional reserves tied to loan growth were more than offset by the improved economic scenario in our <unk> model.
I would also highlight that approximately $5 million.
They get a provision expense was tied to $200 million of loans that are being sold it of premium.
As we entered into agreement to sell these loans that of premium the accounting guidance dictates. The these loans be reclassified to help her sale and the allowance tied to these loans reversed.
We continually look at of retained loan portfolio and determined this specific pool of loans was not of core area of of growth for the bank and as such we made the decision to sell.
As a result of the reserve release and the composition of our loan growth during the quarter.
A ratio of allowance to total loans decline to 99 basis points, excluding PPP loans.
As I've stated last quarter, it's important to look at the level of reserves between our consumer and commercial portfolios given the relative levels of inherent risk.
At quarter and the consumer allowance of total loans was 35 basis points, while the commercial portfolio was 142 basis points.
We also continue to see strong credit metrics with the nonperforming assets and nonperforming loans declining the 5 basis points.
Moving on to capital and liquidity.
A risk based on the leveraged capital ratios came in at $18, 9% on 11, 7% respectively.
The increase in the leverage ratio was driven by the strength of of retained earnings and was offset by loan growth in the quarter.
During July we also closed on of $300 million, 4.5% non-cumulative perpetual preferred stock offering and announced the redemption of our 625% series a preferred.
We continued our share repurchase program in the second quarter by buying back 440000 shares at an average price of $65.85.
We continue to feel good about our financial position as our liquidity remains strong.
In addition of the $6 billion available on our Sweet program. The bank has access to off balance sheet funding of more than $4 billion.
Within our primary broker dealer and holding company, we have access to nearly $2 billion of liquidity from cash credit facilities that are committed and unsecured as well as secured funding sources.
I would also highlight that fish recently affirmed our credit rating and approved the outlook the positive based on our strong operating results and overall financial position.
On the next slide we go through expenses in the second quarter are pretax margin improved 650 basis points year on year to a record 24%.
The increase was the result of strong revenue growth lower compensation accruals and our continued expense discipline.
Our comped of revenue ratio of 59.5% was down 50 basis points from the prior year.
The ratio came in at the midpoint of our previous full year guidance range.
For the first 6 months of this year or comp ratio was 62% and given our updated guidance. It is safe to assume that we expect the comp ratio on the second half of the year to be below the first half.
Noncomp operating expenses, excluding the credit loss provision and expenses related to investment banking transactions total approximately $185 million. The represented approximately 16% of net revenue.
This is also blow our prior guidance, primarily due to stronger than expected revenue.
We expect the travel on entertainment related expenses will pick up on the second half of the year, but will likely of a larger impact on the fourth quarter than the third.
The effect of tax rate during the quarter came in at 25%, which was at the lower end of the range and in line with the commentary on last quarter's call.
Absent any other discrete items would expect to see an effective right to be between 24 of 26% in the second half of the year.
In terms of our share count our average fully diluted share cat was up 1%, primarily as a result of normal stock based compensation offset by share repurchases.
<unk> any assumption for additional share repurchases and assuming of stable stock price, we would expect the third quarter fully diluted share count the total 118.5 million shares the.
With that I'll turn the call back over the rock.
Thanks, Jim as you can see from our record first half results in the significant increase in our guidance 2021 is shaping up to be a far better year and we had originally forecast given.
Given our performance today on our outlook for the second half of the year, we should again generate significant levels of excess capital. In addition of the excess capital capital we generate from operations as Jim noted, we raise an additional $300 million in preferred shares during July after redeeming our theory they preferred we <unk>.
Added an incremental $150 million capital.
I mentioned this tell us straight just how well possession, we are to take advantage of opportunities that come our way I think it's pretty clear from our results on my comments about the benefits of our increased scale that reinvestment into our business and of my preferred use of capital.
As our updated guidance on illustrates we believe that we can grow our balance sheet by an additional $2 billion on the second half of the year.
Many bulb bracket firms the smaller regional banks have had muted loan growth rates given their sheer size or geographic limitations. By contrast, our loan portfolio is relatively small compared to the national footprint of our wealth management and institutional businesses security based on mortgage loans have grown primarily.
The retail demand and new advise of recruiting and in recent years, we have expanded our capabilities of new commercial lending business of the.
The combination of these girls channels has enabled us to generate and the average annual loan growth rate of 30% in the last 7 years, while maintaining of strong credit profile.
In terms of growth and our other business lines, we continue to focus on both hiring and acquisition while.
While we haven't done an acquisition on 18 months, we continue to believe that that's an attractive use of capital on the key element to our growth strategy.
That said will always focus on deploying capital based on where we can generate the best the best risk adjusted returns and will continue to deploy capital of the dividends in share repurchases. However, as of growth company I believe that Stifel and our shareholders have and will continue to see the greatest upside.
From growth in our franchise.
And with that operator of self on the line for questions.
If you would like to ask an audio question you may do so by pressing star and the number 1 on your telephone keypad again that of star wine will cost for just a moment.
The first question will come from the line of Stephen Qbank with Wolf Research.
Hi, Good morning, Ron on good morning, Jim Good.
The morning too good morning.
So I wanted to start off with the question on capital you know have a very high class problem, you know you're running with far too much access at the moment and especially after the preferred issuance of you cited it just feels like you're struggling to make a dent in those ratios given the current pace of capital return really strong earnings and I was hoping you could speak Ryan just.
To your appetite to accelerate buybacks to more than offset some of that continued capital build and whether there's any appetite to deploy some of the 6 billion of third party cash given very type of demand for deposits from third party banks at the moment.
Of I said.
We're always going to look to deploy our capital of on the best where we see the best returns of our shareholders.
Dividend share repurchases acquisitions, our growth on our balance sheet and all horrible are are on the table as we as we continue.
To grow I see a lot of opportunity to grow our franchise I have found the.
That that is the.
The highest return to our shareholders and will continue to do that more mindful of our of our capital Bill of course, and don't intend to just set hideaway by of led capital accumulate we will we will have to assets.
Proprium manner and the.
And again.
Yes, and the shareholder myself.
The the best.
Returns to our shareholders.
Maybe just add to that in regards to the $6 billion additional sweet balances and we were essentially 2 quarters of the year and doubled our balance sheet growth projections. So I think we have been able to deploy deposits in that manner and utilize some of that excess and then in terms of the buyback. We have also talked about.
Kinda offset dilution of to put some numbers to that for the full year that'd be about 2.5 million to 5 million shares.
Type of it is there is there any appetite to accelerate that 6 billion of.
Of of migration, if you will away from third party bangs just given the those actions would be very NII accretive, especially given some willingness to abuse deployed into credit sensitive securities where the yield pick up would be pretty substantial.
Look I think it's.
Thank you.
Growth in on any bank in in our bank 7 of Groff 30 per cent of year, I think we need to have balance girl. So.
12th of selection and try to.
Both through loans and investments increase the size of the balance sheet significantly of course, the code, but we believe in balance growth of it.
The <unk>.
Hubbard of layers of some of the market.
And Ah measured manner and again.
That we would grow our balance sheet at the beginning of the year by 2 billion, we're projecting 4 billion now and.
We see as I said on my prepared remarks.
That we see the ability to grow our loans.
Yeah. The real asked some of the company are our bank of under size relative to our footprint on the vessel. So we're going to continue to grow.
Not looking at just flipping a switch and taking them compression for the benefit of that I think there's perhaps can that that that we went up the more measured on.
Sure enough, Ron and maybe the switching gears to the institutional side you talked about the fact that you weren't getting enough respect for the share gains of your posting I mean, it certainly evident this quarter and the results on you mentioned the record backlog as well at the same time, we do have the executive order that was issued by by the end, which specifically.
Related greater scrutiny of financial services, M&A, where you do have heavier gearing and do you expect any direct impact on financial services, M&A or bank M&A, specifically in the coming months and quarters and what are you hearing from the bankers incorporates that are on the ground.
[noise] well you know we announced the deal of this morning, he saw that which also speaks to what.
We've been doing.
The the investors day, or where we advise them and that was a nice transaction I think.
Certainly the sentiment coming out of Washington is an increased.
Increase sort of antitrust sentiment of you well.
I believe that from what I'm hearing we haven't seen anything as it relates to.
The mid-size banks I think that the primarily would focus on the <unk> on the big banks, where where I would see it but.
Haven't seen anything yet that doesn't mean of all happen but.
I believe that for the help of of the industry.
Foundation of is going to continue to occur, especially where we are most day.
David and have the greatest market share as I sit here today, I don't see that being impacted.
Thanks, and then just 1 final 1 for me just on the independent platform I'm on the West side and your efforts. The scale of that you know I was hoping you could speak Ryan just of some of the early feedback you've gone from advisers on the offering how are you going to differentiate the value of prop vs peers and whether it makes strategic sense for.
The scale that Inorganically, just given the strength of your capital of position.
I think that we I am pleased with the with our initial feedback.
Starting.
From frankly, a desktop of Orange, we weren't recruiting in that area and we just Ah now.
Now that and then the last the fact of Le <unk>.
3 months.
But our initial feedback is that we have a very competitive.
Offering as I've said, when we did it we weren't starting the business from scratch dependence business for almost 3 decades, and we have all of the.
All of the.
Tools of the foundation to build the person I would say that we expect to show.
Increased recruiting as this channel picks up and my initial feedback is very positive on this not only the platform, but our competitive positioning.
That's great Ron Thanks, so much for taking my questions.
Yes. Thank you.
First of all come from the line of Devin Ryan JMP security.
Good morning Devin.
Good morning.
Maybe the hit.
The question Steven asked on this too shall business slightly differently. So.
Obviously heading in the 2021.
I think some people felt like the bar, we pretty high after of Great 2020, and the institutional side and so it might be tough.
The grow revenues in that business clearly of based on what you've done the first half of the outlook Uhm your revenue should be on quite a bit on the institutional side. So lots of maybe kind of try to strip through if we can.
How the business of scaling in terms of people, obviously, you're gaining market share and businesses and to just trying to understand how.
How how much of the momentum it feels like it's just the cycle benefiting vs. Stifel is actually expanding the footprint you over the past year and then you know expectations for that heading into the next year kind of where the bar maybe feels of the high and were you still feel like you know that there's really good growth of momentum whether.
Because of the the cycle or because of where you've added to the footprint.
I mean, you know it's.
It seems like the never ending question right and.
Let me, let me just get some some numbers to talk about what we felt.
And then again we're on.
All benefiting from increased market activity so.
By itself and all of the bar Paris.
Or your fear of the large bulk Pratt current of a mental market are independent of advisory firms of raw backpedaling from a favorable market environment.
Yeah, I feel that when I talk about not having the understanding.
That we need to do a better job of explaining how much investment than what we've done to our footprint. So for example, we've.
We have double of the business.
In terms of the revenue since 2015, what we've also doubled our managing directors. So we have 205 and 10 managing directors today, which of the double what it was we we we participate in.
Much broader swath of of the economy in terms of vertical.
And we do it across the.
A much greater array.
Product offerings, and we did even a few years ago.
So on the fund placement business.
We we are and financing.
Business on the corporate debt side.
And our M&A you can say so the question always the I hear the parts of sustainability the sustainable although not always of sustainable it's crawling and what I, sometimes take non exception, but.
Her on my brow on it's how the street and the analysts will look at our pair of some say the banking revenues will be up but of Stifel are not sustainable they might be down cause of ours too high and I think we've proven and will continue to probe that were of broke the business when that business is going to grow with the same <unk>.
Cyclical up and down the that our peers will experience, but for me, it's been higher higher and higher levels.
Yeah, I've been listening to the sustainability for 25 years, and we've got 25 consecutive years of a record of revenue so.
The business.
The sustainable because our platform is so much greater than it was even a few years ago.
And we'll just we'll just keep putting up the numbers and keep answering the sustainability of question every quarter.
[laughter], well, you'll probably keep getting it but I appreciate the.
Okay.
Yeah. The Guy just talk to you all keep underestimating it but okay [laughter].
So so maybe the switch gears too.
Acquisitions for Stifel, Obviously, 18 months without the deal is quite some time, but I also understand and appreciate the acquisition remains an important part of the growth strategy over the long term.
Maybe just thinking about the market right now is the fact that we haven't seen anything is that a function of just the the expectations in the market are as high as kind of broad valuations and so there's just not a lot of compelling things to do or.
Is it.
Just the areas of of where there was opportunity to the market just aren't as interesting or obviously.
You guys have about it so many capabilities that there's not maybe quite as much white space certain.
Sort of parts of the business of what that maybe just think about why there hasn't been anything and then just you know what what maybe the.
Backlog today of how active our conversations how much it is out there the Navy's interesting, but you will want to see if something happens.
Yeah, well well first of all I mean, we have we have.
Spent 18 months and.
For us at the.
A while we are.
We have been a firm that's grown bulk of organically and acquisition I would point that out that our growth on the last 18 months has been significant that you can say that's organic if you really think about it we haven't layered any acquisition event of that.
The.
It's hard to say that you're disciplined in the marketplace when the way you prove that.
By not doing deals and the.
So you don't know about what we haven't done because.
All of our number 1 criteria for doing an acquisition.
Yes.
Hey, it makes us more relevant but importantly, it's.
It's great and it adds to our.
Ah returns so with our return on equity and tangible equity.
The high bar and the you measure acquisitions again.
Building, the balance sheet or of frankly buying back stock and.
That has the level of discipline.
So we haven't had anything that has met on return objectives. In this time and you said, you're all set the couple of that with the fact that.
It's 1 thing to announce an acquisition, it's another thing to integrate and execute and bring everyone on board, which has been 1 of our real success of and so during the pandemic and working remotely and all of the technology challenges that come of that we rates are on bar on.
On the risk of execution when.
When we can't even for awhile from the fee people that the.
That would be that would raise our risk of doing deals because.
Actually that's been out getting and all of the people as a very important part of what we do so he put all of that together, it's been slow, but as I sit here today.
We're very well capitalized we see opportunities and if we can continue to grow as we have for 20 plus years.
We will do so.
Yeah, Okay, great Uhm and maybe just the last 1 here on the.
The the recruiting environment and wealth management, just want to make sure I have kind of the right messaging so.
Obviously it sounds like on your competition is very high right now very high tier.
T a packages.
How should we be thinking about kind of of the push pull between the.
You said, there's there's a good pipeline. So there's just still sounds like quite a bit to do them on the other side is quite expensive. So is the expectation that recruiting may slow of it or or that is prices.
Costco up more of that maybe you would pull back or or is it just more function of it is expensive, but it's still very economic to do and so just getting the additional contacts I'm trying to just make sure I understand.
On the bottom line of the messages Yeah, I think the lucky recruiting recruiting of somewhat cyclical I think you have to look of recruiting over us longer period than just quarter to quarter I I've always said that.
Just.
We are a strong recruiter, we've proven that over not just the.
Last few quarter, but the last few of decades and so.
We're we're going to adjust to the marketplace.
In the in the business always get the competitive what I see in this is somewhat instinct of when I talk to people. We were surprised of the depth of that we were able to Maine maintain recruiting going into the pandemic for people that were on the pipeline.
And and it was I was surprised of our ability to on board and even open offices during during that time, what on what I'm really the same. Besides the competition is that the fact that many people don't get to the office slowed the recruiting on the on the employee of channels and just just have we have.
The number of people in the pipeline, but getting through that in this environment has now extended.
That's really what we're saying, but as I look at it and talk to people and see what's coming I I and Barry.
Optimistic about our recruiting and then the other thing I as I said earlier when when you talk.
At least compared to peers.
Or recruiting in just 1 channel historically, which of the employee channel.
And now we are gonna be adding the independent channel and that that will show on a ramp and are just recruited numbers gross.
I think the recording business is fine I think it's always cyclical and.
We we adjust accordingly.
Generally profit on balance recruit last 1 markets are really crazy.
They they've been that way the same with the acquisition and and we recruit more.
When we think the returns are higher but.
But no change.
Yeah, Okay terrific. That's that's very clear thanks, Ron I will leave it there.
The next question will come from the line of credit Allenwood kind of <unk>.
Good morning day of mourning mourning guys me just a couple of quick follow ups on Devins question. I guess first you mentioned you raise it on <unk> on the risk of execution for deals because he couldn't see people has that been removed now that the economy's reopening you're able to kind of travel and get.
It out and see companies right now.
Yeah, I think so I mean, I think based on the last couple of days, we might be saying on the map again, but I think that yeah for sure. We we this economy Ben.
Opening up.
People are planning on having return to the office as are we we think that some corp, but we'll look we're on.
All ever diligent as to the.
The updates as it relates to the pandemic and the virus in the Delta all.
All things COVID-19 related but in general.
We believe that people are going back to the office and and that on balance will help our recruiting.
Got it.
And then just on the the advisor recruiting environment, you mentioned it got more competitive.
Is it broad based across kind of the larger firms of warehouses or just maybe 1 or 2 players that are kind of really pushing pushing the envelope here.
As of the boat broad based on the cusp of there's always you always have leaders in.
And the low who's doing what the never always the same but I would say in general.
Barry is very competitive it it does also track.
As you might expect attracts the perception or at least of.
Short term rates.
And with the rates near zero.
On.
There might be some models that are discounting that longer than we might be in so that just the result of different.
IRR type numbers, which might be.
Causing higher transition.
The gas again I can't speak for what other people are doing but.
Again.
I feel very good about where we are in our value proposition. The most important thing is not necessarily are we competing on the on the money front at the very <unk>.
Short term.
Saying, it's important most important thing of this do we have a competitive platform at the right culture and are we attracting because that's the most important and on that front.
I am very.
Pleased with the improvements we've made on our platform. The technology. This is a great place to come and people know that so I felt really good about that.
Got it and then just the the the increase of them asset growth outlook I Wonder if you could put by the granularity in terms of where you see the the the biggest opportunity to continue to be in and mortgages and set base lending his that'd be driven by your advisor slash client base or is it more balance between C&I right.
Now or the other opportunities to go on the grill balance is from here.
Yeah, Let me just take the yeah.
If you look back over the last 2 or 3 quarters of the vast majority of the gross you've seen has been in fund banking mortgage lending securities based lending I think those all provide an attractive risk adjusted returned to day in terms of the balance of credit risk and yield and I think going for those are going to be your main areas of gross.
Understood.
Oh that was it for me guys appreciate the time yeah.
Yeah. Thank you.
The next question of all comes on the line.
Last time with Goldman Sachs.
Hey, Alex Hey, Hey, guys. Good morning. Thanks for the question just did not the maybe follow up on the independent adviser channel on how does your comments around pick up and Ta packages on the employee side, but as you of re enter the independent channel.
Are you seeing similar pressures there as well and then just curious to get your updated thoughts on sort of stifles relative value proposition vs. Some of the larger independent players on like a ratio matter of price L. P. All of that have been doing that for awhile.
Yeah well.
Well I must say in some cases, if you're asking about the cost of the recruiting.
The independent side, I, I would say that I.
I have.
I would say, that's even gotten the b M almost more competitive employee side, it's all everything's relative to expect the cash flows on so that is a competitive.
Also channel for sure.
Yes, we believe that our model of all books to compete we can we can do that and get adequate returns I would say that the independent model is more dependent upon rates than the than the employee channel in terms of achieving.
Turns so on the right environment doesn't necessarily.
Support some of of things, but the at least on IFC going on but.
So yeah. We can we can we have to get our message out on our platform out as it relates to the platform, which I think of the most relevant.
Are more relevant and you're paying a question.
We we have the flu brought on our independent channel.
In many ways.
I'll stay branch on a couple of branches within our employee channels. So what that means is that all of the.
Gration the ability to transact to provide support is in place and I think that the people come to see our platform have been very surprised as to.
Our capabilities to provide.
You know the foundation for independent of advisors.
Great and then just another 1 around M&A I think in the past.
Ron you're talking about adding maybe some of the asset management capabilities as well, particularly you're out of private markets is that still of priority. As you guys. Obviously on a significant amount of excess capital to deploy or as we think about the opportunities sad for them in a 4 for Stifel and of largely be centered around kind of the the core channels, whether it's the world.
Or the independent or the sorry, the institutional channel.
Well I think that.
I've said and I'll continue to say that on the asset management side.
The day, the asset management in terms of the alternative space vs say.
Index of space broadly speaking.
That's where we would be with half of interest.
I'm not sure of that and acquisitions out of our priority.
Eric It's always.
Is it just the right situation come along that that we believe that is on that.
That will be anti-war relevance in the marketplace and and our earnings.
So we don't have anything prioritize so I think the firm has has developed to the point, where we we have a pretty broad based offering.
That's where a lot of our acquisition of the last 5 years system of build out our institutional offering.
But I think that we will we see opportunity and.
We will will add 2 will add to our.
Product set appropriately.
It is it's about being relevant and of creative.
Great. Thanks very much.
The thought we are selling no part of the audio questions on at this time on their home of conference both of US are closing remarks.
Well I would like to thank our shareholders and and our analysts community for participating on.
The call some very good questions.
And.
I will end by saying of I did on my call that.
The investments that we've made over the number of years is certainly paying dividends on the marketplace.
I am optimistic about.
Not only the rest of this year, but frankly in the 2022 based on what I'm, saying today on look forward to reporting to our shareholders. After our third quarter, which ends on September of slipped that everyone haven't great day and stay well. Thank you.
Yeah. That's the concludes today's conference call. We thank you for your participation ask that you. Please disconnect you right.
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